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INTRODUCTION
BACKGROUND OF STUDY:
Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies fail each
year due to poor working capital management practices. Entrepreneurs often don't
account for short term disruptions to cash flow and are forced to close their operations.
In simple term, working capital is an excess of current assets over the current liabilities.
Good working capital management reveals higher returns of current assets than the
current liabilities to maintain a steady liquidity position of a company. Otherwise,
working capital is a requirement of funds to meet the day to day working expenses. So a
proper way of management of working capital is highly essential to ensure a dynamic
stability of the financial position of an organization.
OPTCL is one of the largest power transmission organizations in the country, which
plays the role of transmission of electricity in the entire state of Orissa. Seeing the good
opportunity to study financial systems and practices of OPTCL, it is relatively important
take up internship assignment on WORKING CAPITAL MANAGEMENT IN
OPTCL. During the project work, it is being analyzed the working capital position of
this organization. Decisions relating to working capital and short term financing are
referred to as working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of Working
capital management is to ensure that the firm is able to continue its operations and that it
has sufficient money flow to satisfy both maturing short-term debt and upcoming
operational expenses.
Working capital management deals with maintaining the levels of working capital to
optimum, because if a concern has inadequate opportunities and if the working capital is
more than required then the concern will lose money in the form of interest on the
blocked funds. Therefore working capital management plays a very important role in
the profitability of a company. And also due to heavy competitions among different
organizations it is now compulsory to look after working capital
[1]
RELEVANCE OF STUDY
At OPTCL a substantial part of the total assets are covered by current assets. Current
assets form around 30%- 40% of the total assets. However this could be less profitable
on the assumption that current assets generate lesser returns as compared to fixed assets.
But in todays competition it becomes mandatory to keep large current assets in form of
inventories so as to ensure smooth production an excellent management of these
inventories has to be maintained to strike a balance between all the inventories required
for the production.
So, in order to manage all these inventories and determine the investments in each
inventories, the system call for an excellent management of current assets which is
really a tough job as the amount of inventories required are large in number.
Here comes the need of working capital management or managing the investments in
current assets. Thus in big companies like OPTCL it is not easy at all to implement a
good working capital management as it demands individual attention on its different
components.
The study of working capital management is very helpful for the organisation to know
its liquidity position. The study is relevant to the organization to know the day to day
expenditure. This study is relevant to give an idea to utilise the current assets.
This study is also relevant to the student as they can use it as a reference. This report
will help in conducting further research. Other researcher can use this project as
secondary data
PROBLEM STATEMENT:
Working capital management or simply the management of capital invested in current
assets is the focus of study. So topic is to study working capital management of OPTCL.
Working capital is the fund invested by a firm in current assets. Now in a cut throat
competitive era where each firm competes with each other to increase their production
and sales, holding of sufficient current assets have become mandatory as current assets
include inventories and raw materials which are required for smooth production runs.
Holding of sufficient current assets will ensure smooth and un interrupted production
[2]
but at the same time, it will consume a lot of working capital. Here creeps the
importance and need of efficient working capital management. Working capital
management aims at managing capital assets at optimum level, the level at which it will
aid smooth running of production and also it will involve investment of nominal
working capital in capital assets.
The problem generally explains that, less attention has been paid to the area of shortterm 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 shortcomings if any.
5) To suggest measure for effective management of working capital.
[3]
CHAPTERISATION:
Following are the chapterisation of the study:
Chapter-1 represents the background of the study, relevance of the study, problem
statements, hypothesis, objectives as well as limitations of the study.
Chapter-2 represents company profile of OPTCL.
Chapter-3 represents review of literature.
Chapter-4 represents research methodology of the study including sources of data
collection, formulas and statistical tools used for data analysis.
Chapter -5 represents results and findings.
Chapter -6 represents conclusion and suggestion.
Chapter -7 represents implication for future research.
[4]
CHAPTER-2
COMPANY PROFILE
ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)
Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /
2542320
ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the
largest Transmission Utility in the country was incorporated in March 2004 under the
Companies Act, 1956 as a company wholly owned by the Government of Orissa to
undertake the business of transmission and wheeling of electricity in the State.
Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a
deemed Transmission Licensee under Section 14 of Electricity Act, 2003)
Notified as the State Transmission Utility (STU) by the State Govt. and discharges
the State Load Dispatch functions.
The registered office of the Company is situated at Bhubaneswar, the capital of the State
of Orissa. Its projects and field units are spread all over the State. OPTCL became fully
operational with effect from 9th June 2005 consequent upon issue of Orissa Electricity
Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the
provisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the State
Government for transfer and vesting of transmission related activities of GRIDCO with
OPTCL. The Company has been designated as the State Transmission Utility in terms of
Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intra state
transmission and wheeling of electricity under a license issued by the Orissa Electricity
Regulatory Commission. The Company is also discharging the functions of State Load
Despatch Centre. The Company owns Extra High Voltage Transmission system and
operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132 kV levels
and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs
of the Company are managed by the Managing Director assisted by whole-time
Functional Directors as per the advice of the Board of Directors constituted. They are in
turn assisted by a team of dedicated and experienced professionals in the various fields.
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(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, upgradation and modernization of the transmission network.
OPTCL being a State Transmission Utility Public Authority has set the following
objectives.
[6]
[7]
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
[8]
State Transmission Utility and was discharging the functions of State Load Despatch
Centre (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,
[9]
essence, the purpose of that function is to make certain that the company has enough
assets to operate its business. Here are things you should know about working capital
management.
Samiloglu F.and Demirgunes K3 (2008), studied that the effect of working capital
management on firm profitability. In accordance with this aim, to consider statistically
significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed
3 Samiloglu F. and Demirgunes K., The Effect of Working Capital Management on Firm
Profitability: Evidence from Turkey (2008)
[11]
[13]
Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital management
on the operating performance and growth of new public companies. The study also
sheds light on the relationship of working capital with debt level, firm risk, and industry.
Using a sample of initial public offerings (IPO's), the study finds a significant positive
association between higher levels of accounts receivable and operating performance.
The study further finds that maintaining control (i.e. lower amounts) over levels of cash
and securities, inventory, fixed assets, and accounts.
Dubey R8 (2008)., studied The working capital in a firm generally arises out of four
basic factors like sales volume, technological changes, seasonal , cyclical changes and
policies of the firm. The strength of the firm is dependent on the working capital as
discussed earlier but this working capital is itself dependent on the level of sales volume
of the firm. The firm requires current assets to support and maintain operational or
functional activities. By current assets we mean the assets which can be converted
readily into cash say within a year such as receivables, inventories and liquid cash. If
the level of sales is stable and towards growth the level of cash, receivables and stock
will also be on the high.
McClure B9 (2007)., Working Capital Works describes that Cash is the lifeline of a
company. If this lifeline deteriorates, so does the company's ability to fund operations,
reinvest and meet capital requirements and payments. Understanding a company's cash
flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM).
Cash is king, especially at a time when fund raising is harder than ever. Letting it slip
away is an oversight that investors should not forgive. Analyzing a company's working
capital can provide excellent insight into how well a company handles its cash, and
7 Beneda, Nancy; Zhang, Yilei, Working Capital Management, Growth and Performance of New
Public Companies, Credit & Financial Management Review, (2008)
whether it is likely to have any on hand to fund growth and contribute to shareholder
value.
Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maxim
amongst financial managers. Working capital management refers to the management of
current or short-term assets and short-term liabilities. Components of short-term assets
include inventories, loans and advances, debtors, investments and cash and bank
balances. Short-term liabilities include creditors, trade advances, borrowings and
provisions. The major emphasis is, however, on short-term assets, since short-term
liabilities arise in the context of short-term assets. It is important that companies
minimize risk by prudent working capital management.
Thomas M. Krueger12 (2005), studied distinct levels of WCM measures for different
industries, which tend to be stable over time. Many factors help to explain this
discovery. The improving economy during the period of the study may have resulted in
improved turnover in some industries, while slowing turnover may have been a signal
of troubles ahead. Our results should be interpreted cautiously. Our study takes places
10 Gass D, How To Improve Working Capital Management (2006)
11 Maynard E. Rafuse, Working capital management: an urgent need to refocus
Management Decision, (1996)
12 Thomas M. Krueger, An Analysis of Working Capital Management Results Across
Industries American Journal of Business, (2005)
[15]
over a short time frame during a generally improving market. In addition, the survey
suffers from survivorship bias only the top firms within each industry are ranked each
year and the composition of those firms within the industry can change annually.
medium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. They
tested the effects of working capital management on SME profitability using the panel
data methodology. The results, which are robust to the presence of endogeneity,
demonstrated that managers could create value by reducing their inventories and the
number of days for which their accounts are outstanding. Moreover, shortening the cash
conversion cycle also improves the firm's profitability.
Falope and Ajilore17 (2003), used a sample of 50 Nigerian quoted non-financial firms
for the period 1996 -2005. Their study utilized panel data econometrics in a pooled
regression, where time-series and cross-sectional observations were combined and
estimated. They found a significant negative relationship between net operating
profitability and the average collection period, inventory turnover in days, average
payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on
the Nigerian Stock Exchange. Furthermore, they found no significant variations in the
effects of working capital management between large and small firms.
Kouma Guy18, (2001) in a study on, Working capital management in healthcare,
Working capital is the required to finance the day to day operations of an organization.
Working capital may be require to bridge the gap between buying of stocked items to
eventual payment for goods sold on account. Working capital also has to fund the gap
16 Garcia-Teruel and Martinez-Solano; working capital management of SMEs year 1996.
[17]
when products are on hand but being held in stock. Products in stock are at full cost,
effectively they are company cash resources which are out of circulation therefore
additional working capital is required to meet this gap which can only be reclaimed
when the stocks are sold (and only if these stocks are not replaced) and payment for
them is received. Working capital requirements have to do with profitability and much
more to do with cash flow.
Mehmet SEN, Eda ORUC (2005)19 in the study Relationship between the efficiency
of working capital management and company size, As it is known, one of the
reasons which cause change in working capital from one period to another is the change
in management efficiency. The change in management efficiency will affect the change
in working capital in a way as increaser or reducer from on period to another. In this
study, the effect of change in management efficiency in working capital management in
to the change in working capital is compared by company size and sectors. The data of
this study covers sixty periods as the total of quarterly financial statement of 55
manufacturing companies which were in operation in Istanbul Stock exchange (ISE)
between the years 1993 and 2007. In every period we studied, for inventories short term
commercial receivables and short term commercial liabilities, and calculated the effect
of change in management efficiency on to the effect of working capital change. In all
sectors considered, in the change in working capital, and observed the effect of reducing
of efficiency in inventory management. It is also observed that efficiency change in the
management of the short term commercial receivables and the short term commercial
liabilities by the company sizes and sectors make a positive effect in to the change in
working capital
Brealey, R., (1997)20 in a study on, Working Capital management concepts work
sheet university of phoenix. Concept application of concept in the Simulation
19 Mehmet SEN, Eda ORUC (2005) Relationship between the efficiency of working capital
management and company size, www.@akdesniz.edu.tr Volume 2; Pages No 32-42
reference to concept in reading cash conversion cycle cash conversions is the process of
managing a companys cash inflows and outflows. In the simulation, the finance
manager was responsible for balancing sales with collections or accounts receivables
(cash inflows) and purchases with payments or accounts payables (cash outflows). This
delicate balance maintains the companys balance sheet keeping the cash and loans in a
situation of financial stability and keeping the money from being tied up. Principles of
corporate finance. Working capital management. New York: McGraw-Hill.
[19]
CHAPTER-4
RESEARCH METHODOLOGY
Research methodology is a systematic approach in management research to achieve
pre-defined objectives. It helps a researcher to guide during the course of research work.
Rules and techniques stated in research methodology save time and labour of the
researcher as researcher know how to proceed to conduct the study as per the objective.
SELECTION OF TOPIC: The selection of topic is a crucial factor in any research
study. There should be newness and it should give maximum scope to explore the ideas
from different angles.
In present day due to increase in competition, working capital is becoming necessary for
the organisation. It is that part of capital which is necessary to undertake day to day
expenditure of the business organization. Whatever may be the organization, working
capital plays an important role, as the company needs capital for its day to day
expenditure. Thousands of companies fail each year due to poor working capital
management practices. Entrepreneurs often don't account for short term disruptions to
cash flow and are forced to close their operations. Working capital is the fund invested
by a firm in current assets. Now in a cut throat competitive era where each firm
competes with each other to increase their production and sales, holding of sufficient
current assets have become mandatory as current assets include inventories and raw
materials which are required for smooth production runs. Holding of sufficient current
assets will ensure smooth and un interrupted production but at the same time, it will
consume a lot of working capital. Here creeps the importance and need of efficient
working capital management. After due to consultation with the external guide /internal
guide, the topic was finalized and titled as-A STUDY ON WORKING CAPITAL
MANAGEMENT IN OPTCL, BBSR
SELECTION OF LOCATION FOR THE STUDY: The location for study was
selected as the corporate office of OPTCL, Bhubaneswar.
RESEARCH DESIGN: A Research design is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure The research design followed to study the
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[21]
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
[22]
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
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
[23]
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
CHAPTER-5
RESULTS AND FINDINGS
[24]
The result and discussion of the study is presented in five different sections. The first
sections explain about the various components of working capital, variable of working
capital. The second section explains about the liquidity trend of the organization. The
third section explains about the working capital trend .The fourth section explains the
utilization of current assets and current liabilities. The fifth section explains the measure
to effective management of working capital.
The first section explains about the various components of working capital and variables
of working capital. The components of working capital are presented in Table 5.1.
(TABLE 5.1: COMPONENTS OF WORKING CAPITAL)
Table 1.1
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
In 2008-2009 it increased to Rs
YEARS
2006-2007
2007-2008
2008-2009
2009-2010
0.15
0.16
0.22
0.10
61.55%
56.40%
27.78%
34.65%
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
0.58:1
0.46:1
0.27:1
0.22
0.13
0.12
0.21
0.16
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
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
ROTA (Return on
Total Assets)
The various variables of working capital is presented in table 5.2. An analysis of data
presented in the table reveals the following findings;
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A) 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.
B) 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.
C) 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.
D) 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 20082009 and 2009-2010 respectively.
E) 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.
F) Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 20062007, 2007-2008, 2008-2009, and 2009-2010.
G) 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.
H) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.
I) 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.
J) 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 5.3: Components of Current ratio, quick ratio and Absolute Liquid Ratios
2006-2007
2007-2008
2008-2009
2009-2010
Current ratio
Quick ratio
1.28:1
0.94:1
0.86:1
0.62:1
0.58:1
0.46:1
0.27:1
0.22
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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
77 days
70 days
43 days
115days
Debtor
turnover days
125days
85days
57days
126days
Creditors
turnover days
63 days
61days
37 days
86days
Table-5.3 revels the components of current ratio, quick ratio and absolute quick
ratio. From the table following things can be derived:
a) In 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.
b) Quick ratio in 2006-2007 it was 0.58:1 and 0.46:1, 0.27:1 and 0.22:1 in 2007-2008, 20082009, and 2009-2010 respectively.
c) 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
[28]
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.
d) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.
e) Trade debtor to current asset ratio come 0.25, 0.34, 0.17 and 0.21 respectively.
f) 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.
h) 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.
[29]
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
CURRENT RATIO
1.4
1.2
1.28
0.94
0.8
RATIO
0.86
0.62
0.6
0.4
0.2
0
2006-2007
2007-2008
2008-2009
2009-2010
From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL,
various results can be made.
[30]
A) 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.
B) 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.
C) 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.
D) 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.
E) 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.
F) Situation can be controlled. So more emphasis can be given on these areas to reduce
current liabilities and to increase current assets so that the actual standard of 2:1 can be
achieved.
In addition to, company should make clear cut strategic planning to sell electricity to
major industries at industrial rate to achieve higher revenue
TABLE5.5Quick Ratio- (Liquid Asset/ Current Liability)
YEAR
2006-2007
LIQUID ASSET
1,44,64,73,013
CURRENT LIABILITY
2,50,80,12,516
RATIO
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
[31]
QUICK RATIO
0.7
0.6
0.58
0.5
R
A
T
I
O
0.46
0.4
0.3
0.27
0.22
0.2
0.1
0
2006-2007
2007-2008
2008-2009
2009-2010
YEARS
[32]
TABLE 5.6
ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT
LIABILITY):
YEAR
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
0.15
0.15
0.12
0.1
0.08
0.05
0
2006-2007
2007-2008
2008-2009
2009-2010
year
By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet of
OPTCL the following results can be drawn.
A) 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.
[33]
B) 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.
C) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be
0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash and
bank balances of the organization in comparison to the Current Liabilities.
D) 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 5.7)
CASH FLOW STATEMENTS
(2009-2010)
(2008-2009)
(2007-2008)
amount in (Rs)
-71,37,17,644
amount in (Rs)
-18,30,29,883
amount in (Rs)
-3,64,99,383
1,18,36,39,044
54,16,01,198
1,08,22,03,592
30,26,423
-1,04,00,87,510
-4,55,13,310
27,846
15,22,603
6,33,87,383
97,24,54,617
1,09,74,37,879
30,26,423
-47,574
-6,90,09,008
46,318
29,50,312
4,47,68,652
--------------------
11,63,525
-23,96,915
11,15,56,818
1,10,65,54,318
1,09,90,58,990
30,26,423
-209
-5,03,60,383
46,305
28,65,292
1,11,96,801
92,89,278
-21,13,256
1,05,74,70,893
1,88,59,83,078
2,25,46,20,994
-16,20,59,785
-4,53,02,877
-59,43,581
1,20,34,71,087
4,93,59,037
1,91,87,52,382
2,95,82,76,263
-4,46,04,328
-37,81,016
-1,43,98,325
-2,72,53,85,618
42,88,03,928
3,52,31,00,656
1,16,37,35,296
-2,98,62,664
-26,35,73,059
-2,44,71,317
24,60,67,167
42,01,27,401
47,36,52,134
82,19,39,662
4,01,57,47,156
3,04,97,18,374
3,07,65,60,656
-93,41,57,641
4,55,13,310
-88,86,44,331
-91,68,37,432
6,90,09,008
-84,78,28,424
-1,03,91,08,694
5,03,60,383
-98,87,48,311
-1,06,41,24,474
32,39,10,165
-2,61,68,02,137
5,00,00,000
-3,30,70,16,446
-1,05,96,33,683
-6,95,82,948
-88,70,89,752
23,05,55,000
-1,78,57,51,383
-1,02,66,95,328
-36,86,01,393
-83,19,11,252
-----------------2,24,52,07,973
-17,99,13,621
41,61,38,567
-15,73,95,628
90,70,19,750
49,08,81,183
64,82,76,812
72,71,06,129
90,70,19,750
49,08,81,184
[35]
Table-5.8
Size of Working Capital:
(Amount. In Rs.)
CURRENT ASSETS(CA)
2007(rupees)
2008(rupees)
2009(rupees
)
2010(rupees)
751064690
76,68,65,26
2
80,85,19,2
78
96,90,56,46
0
Sundry debtors
798196201
1,05,24,79,
982
1,05,50,97,
473
1,05,56,31,6
98
648276812
49,08,81,18
3
90,70,19,7
50
72,71,06,12
9
628081987
65,25,53,30
4
66,69,51,6
29
74,48,94,75
8
389406739
14,33,39,57
2
2,86,87,25,
189
1,58,26,86,3
33
Total
3,21,50,26,
429
3,10,61,19
,303
6,30,63,1
3,319
5,07,93,75,
378
Less: CURRENT
LIABILITIES(CL)
2007(rupees)
2008(rupees)
2009(rupees
)
2010(rupees)
Sundry creditors
61,03,22,49
6
66,51,67,98
0
68,95,26,5
97
72,40,51,45
6
12,50,63,35
0
13,71,54,49
7
14,91,29,2
69
12,89,91,07
5
6,27,33,789
2,05,82,149
1,30,49,18
5
51,73,055
37,299
47,240
47,253
28,781
2,12,903
49,092
1,82,269
1,56,113
23,41,534
44,54,790
68,51,705
68,51,705
Other liabilities
87,64,35,32
6
1,22,77,13,
016
1,61,76,99,
768
1,65,27,44,6
14
Total
1,67,71,46,6
97
2,05,51,68,
764
2,47,64,86,
046
2,51,79,96,7
99
Provisions
83,08,65,81
9
1,30,45,17,
744
4,81,70,02,
603
5,69,56,67,4
75
Total
2,50,80,12,
516
3,35,96,86
,508
7,29,34,8
8,649
8,21,36,64,
274
70,70,13,9
13
25,35,67,2
05
98,71,75,
330
3,13,42,88,
896
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 due
to 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-5.9
(Amount. In Rs.)
2006-2007
2007-2008
2008-09
2009-10
70,70,13,91
25,35,67,20
-98,71,75,330
-3,13,42,88,89
100
35.86
W.C. Indices
[37]
-139.62
-443.31
Axis Title
0
2006-2007
-100
2007-2008
2008-2009
2009-2010
-200
-300
-400
-500
From the table 5.9 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 20082009 and 2009-2010 current liabilities exceeded current assets.
TABLE-5.10
WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING
CAPITAL)
Working capital turnover ratio
YEAR
Cost of Sales
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
[38]
2007-2008
-0.97
2009-2010
2008-2009
-5
-6.88
-10
-15
-15.7
-20
YEARS
(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
648276812
490881183
157395629
628081987
652553304
24471317
[39]
389406739
143339572
246067167
Total
3215026429
3106119303
Current liabilities
1677146697
2055168764
378022067
Provisions
830865819
1304517744
473651925
Total
2508012516
3359686508
Working capital
(currentassetscurrent liabilities)
707013913
-253567205
Net decrease in
working capital
-960581118
Current liabilities
-253567205
960581118
-253567205
1255136788
1255136788
[40]
G) Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.
H) Due to increase in current liabilities and provisions for pension and gratuity and
retrospective revision of pay, there is a sign of decrease in working capital.
I)As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous years 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.
J) It is found that the current assets figure is decreased from the previous years 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 (20072008).
K) That, some more emphasis can be given on current assets to increase its figure and to
decrease current liabilities figure as a result of which the figure for working capital can
be increased.
TABLE-5.12
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2009 TO 2010)
(2008-2009)
(Rs)
(2009-2010)
(Rs)
Increase in
working
capital
(Rs)
Decrease in
working
capital
(Rs)
Current assets
Stores and spares
808,519,278
96,90,56,460
160537182
1,055,097,473
1,05,56,31,698
534225
907,019,750
72,71,06,129
Other current
assets
66,69,51,629
74,48,94,758
77943129
2,86,87,25,189
1,58,26,86,333
1,28,60,38,85
Sundry debtors
Loans &
[41]
179913621
advances
Total
6
6,30,63,13,319
5,07,93,75,378
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
Working capital
(current assetscurrent liabilities)
-98,71,75,330
-3,13,42,88,896
Net decrease in
working capital
-2147113566
Current liabilities
-3,13,42,88,896
2147113566
-3,13,42,88,896
2386128102
2386128102
By going through the table5.12 showing changes in working capital the following
results can be made:
a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378
From a previous years figure of Rs. 6,30,63,13,319 .
b) The total value of stores and spare is increased from the previous years figure and
the value of sundry debtors is also increased from the previous years figure.
c) The cash and bank balances of the organization have a decrease of
Rs.17,99,13,621from the previous years figure. Similarly the figure for loans and
advances is also decreased to Rs.1,58,26,86,333 from the previous years figure of Rs.
2,86,87,25,189.
d) The other current assets like prepaid expenses and sundry receivables have also
increased from the previous years figure.
e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274
From a previous years figure of Rs. 7,29,34,88,649.
f)That, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous years figure.
[42]
g)Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.
h)Due to increase in current liabilities and provisions for pension and gratuity of pay,
there is a sign of decrease in working capital.
i)As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous years and the decrease sign of working capital is
Rs. -2147113566 (2009-2010), which has impacted the steady increase of current
working capital & negatively affected the profitability of the organization.
j)It is found that the current assets figure is decreased from the previous years 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 (20092010).
k)That, some more emphasis can be given on current assets to increase its figure and to
decrease current liabilities figure as a result of which the figure for working capital can
be increased.
(Amnt. In Rs.)
Current assets(CA)
Stores and spares
2007(rupees)
2008(rupees)
2009(rupees)
2010(rupees)
751064690
76,68,65,262
80,85,19,278
96,90,56,460
[43]
Sundry debtors
798196201
1,05,24,79,98
2
1,05,50,97,47
3
1,05,56,31,69
8
648276812
49,08,81,183
90,70,19,750
72,71,06,129
628081987
65,25,53,304
66,69,51,629
74,48,94,758
389406739
14,33,39,572
2,86,87,25,18
9
1,58,26,86,33
3
Total of CA
3,21,50,26,42
9
3,10,61,19,30
3
6,30,63,13,31
9
5,07,93,75,37
8
CA indices
100
99.61
196.15
157.99
i
n
d
i
c
e
s
196.15
157.99
150
100 100
99.61
50
0
2006-2007
2007-2008
2008-2009
2009-2010
From the table-5.13 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-5.14
CURRENT ASSET TURNOVER RATIO- (sales/current Assets)
YEAR
SALES
CURRENT ASSETS
[44]
RATIO
2007
3,55,34,94,401
3,21,50,26,429
1.10
2008
3,99,75,58,798
3,10,61,19,303
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
1.29
1.1
1.08
0.8
RATIO
0.6
0.6
0.4
0.2
0
2006-2007
2007-2008
2008-2009
2009-2010
YEAR
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 5.15
(No. in %)
[45]
Current assets(CA)
2007
2008
2009
2010
23.37
24.69
12.82
19.08
Sundry debtors
24.82
33.89
16.73
20.78
20.16
15.80
14.38
14.31
19.54
21.01
10.58
14.67
12.11
4.61
45.49
31.16
100
100
100
100
Total of CA
50
45
p
e
r
c
e
n
t
a
g
e
40
35
stores and spares
30
sundry debtors
25
20
15
10
other current assets
5
0
2006-2007
2008-2009
2009-2010
year
2007(rupees)
2008(rupees)
2009(rupees)
2010(rupees)
61,03,22,496
66,51,67,980
68,95,26,597
72,40,51,456
from
12,50,63,350
13,71,54,497
14,91,29,269
12,89,91,075
6,27,33,789
2,05,82,149
1,30,49,185
51,73,055
37,299
47,240
47,253
28,781
2,12,903
49,092
1,82,269
1,56,113
23,41,534
44,54,790
68,51,705
68,51,705
87,64,35,326
1,22,77,13,016
1,61,76,99,768
1,65,27,44,614
1,67,71,46,697
2,05,51,68,764
2,47,64,86,046
2,51,79,96,799
83,08,65,819
1,30,45,17,744
4,81,70,02,603
5,69,56,67,475
2,50,80,12,516
3,35,96,86,508
7,29,34,88,649
8,21,36,64,274
100
133.96
290.81
327.50
Sundry creditors
Deposits and retention
suppliers/contractors
CURRENT LIABILITIES:[46]
TABLE 5.16
TABLE 5.17
CURRENT LIABILITIES SIZE
CURRENT LIABILITIES
indices
350
300
250
200
150
100 100
50
0
2006-2007
327.5
290.81
current liabilities
133.96
2007-2008
2008-2009
2009-2010
years
From the table 5.17 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
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
[47]
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
6.44
6
5
4.32
4
ratio
3 2.92
2.89
2
1
0
2006-2007
2007-2008
2008-2009
2009-2010
years
85
100
DAYS
126
125
57
80
60
40
20
0
2006-2007
2007-2008
2008-2009
2009-2010
YEARS
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.
[48]
A) 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.
B) In the year 2007-2008 the debtors turnover ratio is 4.32 times and the average
collection period is 85 days. This year, the value of debtors 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 years figure.
C) 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.
D) 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.
E) OPTCL used to collect pending dues directly from consumers for which, substantial
delay in getting payment was . However, the present average period of collection is
decreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. for
collection of revenue on behalf of OPTCL and the same has been made through banks.
The shorter the average collection period, the better the quality of debtors, since a short
collection period implies the prompt payments by debtors. So this is a good indication
for the organization.
Section five generally defines Measures to Improve Working Capital Management
at OPTCL: The essence of effective working capital management is proper cash flow
forecasting. This should take into account the impact of unforeseen events, market
cycles, loss of a prime customer and actions by competitors. So the effect of unforeseen
demands of working capital should be factored by company. This was one of its reasons
for the variation of its revised working capital projection from the earlier projection.
a) It pays to have contingency plans to tide over unexpected events. While marketleaders can manage uncertainty better, even other companies must have riskmanagement procedures. These must be based on objective and realistic view of the role
of working capital.
b) 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.
[49]
c) An innovative approach, combining operational and financial skills and an allencompassing view of the companys operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having
the right set of executives who are responsible for setting targets and performance
levels. They could be then held accountable for delivering, encouraged to be
enterprising and to act as change agents.
d) Working capital management is an important yardstick to measure a company
operational and financial efficiency. This aspect must form part of the strategic and
operational thinking. Efforts should constantly be made to improve the working capital
position. This will yield greater efficiencies and improve customer satisfaction.
e) Cash should be managed properly.
f) Effort should be made to reduce the current liabilities and to increase the current
asset.
g) 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
[50]
x2 =
x= 393
Y=247
41975
XY=26005
y2 =
16455
years
Average
collection
period (x)
sundry debtors
(in crore)
2006-2007
125
80
2007-2008
85
2008-2009
2009-2010
X2
y2
10000
15625
6400
105
8925
7225
11025
57
106
6042
3249
11236
126
106
13356
15876
11236
Xy
x2 =41975
x= 393
Y=394
XY=38323
[51]
y2 =39897
years
CURRENT
LIABILITIE
S
(in crore)
CURRENT
ASSETS
(in crore)
XY
20062007
251
322
20072008
336
20082009
2009-
X2
y2
80822
63001
103684
321
107856
112896
103041
729
631
459999
531441
398161
821
508
417068
674041
258064
[52]
2010
x=2137
Y=1782
XY=
1065745
x2 = 1381379
y2 = 862950
=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.
[53]
[54]
increase in case of current liabilities like sundry creditors, deposits and retention from
suppliers, liabilities for fringe benefit tax and provisions.
e) Debtors of the company were high; they were increasing year by year, so more funds
were blocked in debtor. As the company is selling electricity to the sundry debtors and
the cash is not immediately received so some amount of cash is blocked in that matter.
f) The current asset trend increased 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 20082009 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 20092010.
g) The current liabilities trend increasing at a speed which is worried thing for company.
Current liabilities like sundry creditors, deposits and retention from suppliers, interest
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.
h) Debtors turnover ratio improved from 2007 to 2009 and so number of collection
period decreases. But in 2010 debtors turnover ratio decreases and collection period
increases. In 2006-2007 it was 126 days. Then it is reduced to 85 and 57 days in 20072008 and 2008-2009 respectively. But in 2009-2010 it again increased to 125 days.
j) 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.
k) 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.
[55]
CHAPTER -6
CONCLUSION AND RECOMMENDATION
: CONCLUSION:
On the basis of data analysis on working capital management in OPTCL, the following
conclusions arrived.
a) The company has gross profit for the past four years (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.
b) The OPTCL didnt 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.
c) During the year 2006-07, 2007-08, 2008-2009 and 2009-2010 the companys liquid
assets were not satisfactory.
d) 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 20082009, but the average collection period again increases to 126 days in 2009-2010.
e) There is also satisfactory net cash flow from the operating, investing and financing
activities of the organization.
[56]
f)Though the net working capital of the company is decreased, still the company is in a
better manageable position and the companys present status of maintaining current
assets and current liabilities are satisfactory.
g) They are unable to manage their cash, funds and debts.
By adapting better management practices, the company may attain a sound financial
position in future and able to manage its working capital efficiently
RECOMMENDATION
OPTCL is the soul of Orissas power transmission and is playing a pivotal role in
making surplus power consumption state through efficiently administering the system of
transmission. For improvement of organizations profitability, much emphasis is needed
to improve the better working capital management by decreasing the current liabilities
through reducing of unplanned over head expenses. In such process, current assets
position will be improved through collection of revenue from power transmission as
well as recovery of past dues from consumers, Govt. and other agencies etc. The
company should give more attention on increasing its collection of revenue from
wheeling of power and should give more emphasis to curtail unplanned expenses to
decreases the loss. Further, the management should focus on shortening its average
collection period by changing its credit terms and conditions.
By taking the above remedial measures, the organization can be an EVA+ company
with due emphasis on proper way of managing the working capital.
.
[57]
CHAPTER -7
IMPLICATION FOR FUTURE RESEARCH:
This study is the foundation stone for carrying out further research in the field of
working capital management. Further research can be also be carried out the study of
working capital management. This one of such preliminary research work and further
review of this research work can open up many dimensions for researchers. Although
the objective taken in research study is diverse, yet a trend can be observed from the
findings for future research work.
One of the major drawbacks of the study is the lack of time. Working capital
management is a very vast topic and hence in a limited time it is impossible to know
every aspects of working capital management. And also it was study that depended on
4years of data. There is future scope for studying these things.
[58]
DISCLAIMER
The present study of working capital management in OPTCL is purely academic in
nature. The analysis of the data and interpretation of the matters in the project report are
purely academic purpose and nobody should take it as a fact finding conclusion for
lodging any claim or submission of above facts for their personal benefits for which the
undersigned will not be held responsible. The views suggestions, conclusions etc. are
the bonfied work of mine and nobody should claim or copy it for their benefit without
permission.
...
[59]
BIBLIOGRAPHY
TEXT BOOKS:
1. Maheswari Dr S.n Financial management, Ninth edition, 2006 sultan chand & sons,
New Delhi
2. Pandey I.M., Financial Management, Vikas Publishing House Pvt.Ltd. 8 th Edition
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, Wishva prakashan, New Delhi, 2001.
ARTICLES:
An overview of working capital management and corporate financing.
Working capital management.
Working Capital Management Manages Flow of Funds (Year 2009)
Working Capital Management-an Effective Tool for Organisational Success Year
(2008)
Website:
www. Optcl.co.in
www. Google.com
www. Investopedia.com
www.moneycontrol.com
www.wikipedia.com
[60]
: ANNEXTURE:
BALANCE SHEETS OF OPTCL
[61]
i)sources of funds
1.shareholders funds
Share capital
share reserves and surplus
2.loans funds
Secured loans
Unsecured loans
as on 31st
march2010
as on 31st
march 2009
as aon
31st
march
2008
as on 31st
march 2007
881,255,000
831,255,000
6,824,666,95
0
7,705,921,95
0
5,531,676,82
6
6,362,931,82
6
600,700,00
0
5,368,362,
657
5,969,062,
657
600,7000
00
5,143,178,9
90
5,743,878,9
90
2,970,843,09
9
7,338,214,99
1
4,034,967,5
73
9,081,629,6
34
5,094,601,2
56
9,058,314,7
52
6,121,296,5
84
9,128,121,4
39
83,334
83,3
34
3. others funds
Consumer security deposit
455,334
ii)application of funds
1.fixed assets
83,334
26,037,473,4
15
24,152,614,
571
22,725,369,
686
20,664,373,7
98
2.investments
12,519,750,1
38
13,517,723,2
77
5,760,703,81
7
270,550,000
11,437,546,
544
12,715,068,
027
6,711,033,0
19
270,550,00
0
10,340,108,
668
12,385,261,
018
7,221,440,4
74
270,550,00
0
9,241,049,6
78
11,423,324,1
20
8,243,327,6
67
270,550,0
00
969,056,460
766,865,26
2
1,052,479,9
82
490,881,18
3
652,553,30
4
143,339,57
2
751,064,6
90
798,196,2
01
648,276,8
12
628,081,9
87
389,406,7
39
Gross block
Less: accumulated
depreciation
Net block
Capital work-in-progress
1,055,631,69
8
727,106,129
744,894,758
1,582,686,33
3
808,519,27
8
1,055,097,4
73
907,019,75
0
738,951,17
7
2,786,157,4
19
2,517,996,79
9
5,695,667,47
5
2,476,486,0
46
4,817,002,6
03
2,055,168,7
64
1,304,517,7
44
1,677,146,69
7
830,865,819
997,743,55
3
253,567,20
5
707,013,913
Sundry debtors
Less:
Current liabilities and
provisions
Current liabilities
Provisions
[62]
3,134,288,89
6
ACCOUNTS
INCOME
Revenue from wheeling of Power
Other Income
Total
EXPENDITURE
Administrative, General & Other
31.03.2010
31.03.2009
31.03.2008
31.03.200
3,05,16,27,568
1,36,62,18,959
4,41,78,46,527
6,78,92,95,427
36,84,47,083
7,15,77,42,510
3,99,75,58,798
28,21,03,171
4,27,96,61,969
355349440
16861155
372210595
3,49,84,56,298
5,27,76,66,633
2,39,99,88,627
1,42,31,94,06
1,08,54,85,700
3,48,54,74,327
79,41,87,642
986,381,45
2,40,95,75,51
1,31,25,30,43
-1,16,23,12,53
-15,59,79,19
-57,61,29
Expenses
1,09,82,4
Depreciation
Total
Profit/ (Loss) before interest & finance
1,08,03,34,520
4,57,87,90,818
-16,09,44,291
charges
Interest & Finance Charges
Net prior period income/(expenditure)
Profit/(Loss) before Taxation &
-54,16,01,198
-1,11,72,155
-71,37,17,644
-97,24,54,617 -1,10,65,54,318
75,90,209
27,58,67,293
-18,30,29,884
-3,64,99,383
Contingency
Provision for taxation:Current year
Fringe Benefit Tax
Profit After Tax
Reserve Appropriation
Appropriation to Contingencies Reserve
Profit/(Loss) After Taxation &
0
0
-71,37,17,644
------------10,93,51,080
-82,30,68,724
0
0
-23,96,915
-18,54,26,799
-9,99,26,786
-28,53,53,585
0
-2113256
-38612639
------------11,36,26,849
-15,22,39,488
-234153
-810283
-----------8,24,85,48
-9,05,88,31
Contingency Reserve
Balance of P&L Account Brought
-77,76,78,451
-49,23,24,866
-34,00,85,378
-24,94,97,06
-1,60,07,47,175
-77,76,78,451
-49,23,24,866
-34,00,85,37
[63]
1,352
6,35,79,07,985
78,18,34,525