CHAPTER 1“INTRODUCTION” Background of Study Page 1 Every organization, working capital plays a vital role, as the company needs capital for its expenditure. Many companies fail due to poor working capital management. Companies often fail every year due to poor working capital management practices. Entrepreneurs often don’t account for short term confusions to cash flow and are forced to shutdown their operations. In easy term, working capital is a surplus of current assets over the current liabilities. Quality working capital management disclose higher returns of current assets than the current liabilities to maintain a stable liquidity position of a company. Otherwise, working capital is a need of funds to meet the day to day working expenses. So a systematic way of managing of working capital is highly required to ensure a proper 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 Odisha. Seeing the quality opportunity to study financial system and practices of OPTCL, it is relatively important to take up summer internship 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 mentioned to as working capital management. These involve managing the relationship between a organization’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 ample money flow to satisfy both maturing short-term debt and upcoming operational expenses. Working capital management assign to maintain the level of working capital to optimum level, because if a concern has inadequate opportunities and if the working capital is more than required then the concern will lose money in the form of interest on the blocked funds. Therefore working capital management plays a very important role in the profitability of a company. And also due to heavy competitions among different organization’s it is now compulsory to look after working capital. Relevance of Study Page 2 OPTCL’s total assets are covered by current assets. Current assets form around 30% -40% of the total assets. This could be less profitable on the assumption that current assets generates lesser returns as compared to fixed assets. In this competitive world it become 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. To manage all these inventories and determine the investments in each inventories, the system call for a proper management of current assets which is really a tough job as the amount of inventories required are large in numbers. Here comes the need of working capital management or managing the investment s in current assets. Thus companies like OPTCL it is not easy at all to implement a good working capital management as it demands on individual attention on its different components. The study of working capital management is very helpful for the organization 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 utilize 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 in future. Others researcher can use this project as secondary data. Company Profile ODISHA POWER TRANSMISSION CORPORATION LIMITED,(OPTCL) Page 3 Registered office: Janpath, Bhubaneswar-751022, Phone No: 06742541320, 2542320 ODISHA 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 Odisha to undertake the business of transmission and wheeling of electricity in the state. It started its operations 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 Government and discharges the State Load Dispatch Function. The registered office of OPTCL is situated at Bhubaneswar, the capital of the state of Odisha. Its projects and field units are spread all over Odisha. OPTCL became fully functional on 9th June 2005 consequent upon issue of Odisha Electricity Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the provision of Electricity Act, 2003 and the Odisha Reform 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 Odisha Electricity Regulatory Commission. The company is also discharging the functions of State Load Despatch Centre. The company owns Extra High Voltage Transmission system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132 kV levels and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs of the company are managed by the Managing Director assisted by whole-time Functional Directors as per the advice of the Board of Directors constituted. They are in turn assisted by a team of dedicated and experienced professionals in the various fields. Vision and Mission of OPTCL Page 4 VISION OPTCL is one of the best transmission utility in the country in terms of uninterrupted power supply, lowering the loss, contributing to states industrial growth. Developing the transmission system in the backdrop of formation of strong National Power Grid as a flagship, endeavour to steer the development of power system on planned path leading to cost effective fulfillment of the objective of ‘Electricity to all’ at affordable price. MISSION Transmission system is planned and operated so as to ensure that the transmission system is built, operated and maintained to provide efficient, economical and coordinated system of Transmission and meet the overall performance Standards. 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. To give training to 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. Objective of OPTCL To finally conduct transmission lines and sub-station in the state for expulsion of power from the state setup stations feed power to state distribution companies, circle of power to other states, manage the Page 5 Safeguard development of efferent and cost-effective system of intra state and interstate transmission lines for steady flow of electricity from generating stations to the load centre. Page 6 .existing lines and sub-stations for power transmission and to launch power system improvement by renovation. transmission and distribution and to establish an independent and transparent regulatory commission in order to promote efficient and accountability in the Power Sector. Power sector reform in state The Power Sector Reforms in the state of Odisha was started during November 1993 in an organized manner. The main objective of the reform was to unbundle generation. flood etc. Clearing all functions of outlining and analysis relating to Intra State. advancement and modernization of the transmission network. Modernize power at the earliest possible time through deployment of emergency restoration system in the event of any Natural Disasters like super cyclone. Licensees or other person notified by State Government in this behalf. Arrange unbiased open access to its transmission system for use by any licensee or generating company or any consumer as and when such open access is provided by the state commission on payment of transmission charges/surcharge as may be specified by the state commission. Administer and control over the intra-state transmission system. Generating companies. Inter State transmission with Central Transmission Utility. Authority. Regional Power Board. efferent operation and maintenance of transmission lines and sub-stations and move State Load Despatch Center to ensure optimum scheduling and dispatch of electricity and to ensure integrated operation of power systems in the state. State Government. OPTCL being a State Transmission Utility Public Authority has set the following objectives. 4. Proceedings and Personnel) Scheme Rules 1996. liabilities. Assets. As per the scheme. Simultaneously the hydro generation activities of OSEB along with related assets. 1956 as separated corporate entities. Proceedings and personnel of GRIDCO to distribution companies) Rules 1998” wherein the electricity distribution and retail supply activities along with the related assets. distribution activities and of the OSEB along with the related assets. In April 1995 to own and operate the transmission and distribution system in the state. In exercise of power under section 23 and 24 of the Odisha Electricity Reform Act. liabilities. 2003. 1956. trading in electricity has been recognized as a distinct licensed activity. 1995. Southern Electricity Supply Company of Odisha Limited (SOUTHCO) and Western Electricity Supply Company Odisha Limited (WESCO) were incorporated under the companies act. Under the provision of the said Act. GRIDCO was also declared as the state transmission utility and was discharged the functions of State Load Despatch Centre (SLDC). During November 1998 the state government issued the “ Odisha Electricity Reform(Transfer of Assets. personnel and proceedings were vested on GRIDCO. in the first phase. four distribution companies namely Central Electricity Supply Company of Odisha Limited (CESCO). the four distribution companies were privatized during 1999. The state government enacted the Odisha Electricity Reform Act. which can only be undertaken by a licensee to be granted by the appropriate commission. personnel proceedings were vested in OHPC. two corporate entities namely Grid Corporation of Odisha Limited (GRIDCO) and Odisha Hydro Power Corporation Limited (OHPC) were established in April 1995. After separation of distribution business. GRIDCO being a State Transmission Utility was not permitted to engage itself in the trading in electricity and was required to segregate its activities in a manner within the period allowed under the Act that. Page 7 . STU/SLDC functions of GRIDCO. Similarly OHPC was incorporated to own and operate all the hydro generating stations in the state. North Eastern Electricity Supply Company of Odisha Limited (NESCO). personnel and proceedings were transferred from GRIDCO to the four Distribution Companies. In order to privatize the distribution functions of electricity in the State. 1995 which came into force with effect from 1. The act specifically prohibits the STU and transmission company in the state from engaging in the business of trading.In order to implement the reform. liabilities. GRIDCO left with electricity transmission and bulk supply/trading activities. the State Government incorporated Odisha Power Transmission Corporation Limited(OPTCL) to take over the transmission. the transmission. Liabilities. Through a process of international competitive bidding (ICB). the entity which will undertake transmission STU and SLDC function will not undertake the activities of trading and bulk supply of electricity. The Government of India enacted the Electricity Act.1996. Liabilities. the State Government notified the Odisha Electricity Reform (Transfer of Undertakings. GRIDCO was incorporated under the Companies Act. 2003 which came into effect from 10th June. Keeping in view the statutory requirement of the Electricity Act for separation of trading and transmission functions into two separate entities. 8. 1995 created Odisha Electricity Regulatory Commission.1998. FY05. GRIDCO is also discharging the functions of SLDC.6.8.131. 1999 7) CESCO remained under the management of an administrator (CEO) appointed by OHRC with of effect of 27. 9) OPTCL became functional on 1. FY02.2001. read with section 23 and 24 of the Odisha Electricity Reform Act. 2003. FY00. FY03.2005. FY99.2005. 1996 2) OER Act. 1999. SOUTHCO and NESCO) from April 1. GRIDCO continue to carry on its bulk supply and trading functions. The Scheme was made effective from 1.1996 3) Unbundling of Transmission and Distribution via Second Transfer Scheme effective from November 26. STU and SLDC functions of GRIDCO. 4) 9 tariff orders after public hearing have been passed by OERC (FY98. Reform Achievements 1) First Transfer between OHPC and GRIDCO effected on 1st April. 6) Privatization of Distribution completed with AES taking over the fourth distribution company.2004 to carry on the business of transmission.2005.133 and 134 of the Electricity Act. 2005. a Regulatory body which became functional on 1. 8) A new public limited company under the name “Odisha Power Transmission Corporation Limited” was incorporated on 29. CESCO from September 1. the State Government issued the notification “Odisha Electricity Reform(Transfer of Transmission and Related Activities) Schemes 2005” on 9. FY04. By virtue of the transfer scheme. OPTCL now undertaking the functions of transmission of electricity in the state of Odisha and has been declared as the State Transmission Utility. FY06) 5) BSES took over management and operational control of 3 Distribution Companies (WESCO. Page 8 .04. FY01.4.In exercise of the power conferred under section 39.03. 1995. Page 9 . following ratios can be calculated. As future is closely related to the immediately past. ratio calculated on the basis historical financial data may be of good assistance to predict the future.Formulas of Ratio Analysis and Definations RATIO Ratio analysis is the powerful tool of financial statement analysis. solvency. activity. either individually or in relation to other firms in same industry. Similarly. E.g. the ratio analysis may be able to locate the point out the various arise need the management attention in order to improve the situation.g. The short-term obligation are met by realizing amount from current. the level of inventory and debtors can be easily ascertained for any given amount of sales. On the basis of inventory turnover ratio or debtor’s turnover ratio in the past. These should be convertible into cash for paying obligation of short-term nature. The current asset either be liquid or near liquidity. LIQUIDITY RATIO Liquidity refers to ability of a concern to meet its current obligation as and when these become due. profitability and overall performance. E. The absolute figures reported in the financial statement do not provide meaningful understandings of the performance and financial data and to make qualitative judgement of the firm’s financial performance. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. it enables the interested person to know the financial and operational characteristics of an organization and take suitable decisions. ROLE OF RATIO ANALYSIS Ratio analysis helps to appraise the firms in the term of their profitability and efficiency of performance. As the ratio analysis is concerned with all the aspect of the firm’s financial analysis liquidity. To measure the liquidity of a firm. Ratio analysis is one of the best possible techniques available to management to impart the basic function like planning and control. A ratio is define as “the indicated quotient of two mathematical expression” and as “the relationship between two or more things”. floating or circulating asset. The efficiency with which assets are managed directly affects the volume of sale. These ratios are also called turnover ratios. short term marketable securities are taken into consideration to measure the ability of the firm in meeting short term financial obligation. such marketable securities. 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. It calculates by absolute assets dividing by current liabilities. short term bank loan income tax liabilities and long term debt maturing in the current year. Inventory normally required some time for realizing into cash. bills payable accrued expenses. Their value also has tendency to fluctuate.A) CURRENT RATIO: Current assets include cash and those assets which can be converted into cash within a year. it cannot be converted into cash immediately on time. As asset is liquid if it can be converting into cash immediately or reasonably soon without a loss of value. QUICK RATIO=TOTAL LIQUID ASSET/TOTAL CURRENT LIABILITIES C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are considered as more liquid then inventories. Cash is the most liquid asset other assets which is relatively liquid and include in quick assets are debtors and bills receivable and marketable securities. Therefore while calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash in bank. Current liabilities include creditors. CURRENT RATIO= CURRENT ASSET/CURRENT LIABILITIES B) QUICK RATIO OR ACID TEST: Quick ratio establish the relationship between quick or liquid assets and liabilities. Inventories are considered as less liquid. Current ratio indicates the availability of current assets in rupees for every rupee of current liability. debtors and inventories. All obligations within a year are include in current liabilities. Page 10 . Activity ratios measure the efficiency and effectiveness which the firm manages its resources or assets. The quick ratio is found out by dividing quick assets by current liabilities. It may be net working capital turnover by dividing sales by net working capital. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management to maintain the adequate level of working capital. The ratio measures the efficiency with which the working capital is being used by a firm. It indicates how quickly receivables are converted into sales.A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship between credit sales and receivable of a firm. a relative amount of working capital is needed. WORKING CAPITAL TURNOVER RATIO=COST OF SALES/NET WORKING CAPITAL CURRENT ASSET TURNOVER RATIO: CURRENT ASSET TURNOVER RATIO=SALES/CURRENT ASSET Statistical tools used of data analysis The various statistical tools used for the data analysis is as follows: Page 11 . DEBTORS TURNOVER RATIO=SALES/AVERAGE ACCOUNT RECEIVABLES AVERAGE A/C RECEIVABLES=OPENING TRADE DEBTORS+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) Tables Analytical tool used of data analysis The analytical tools used for data analysis is as follows: a) Ratio analysis b) Schedule of change in working capital c) Cash flow statement CHAPTER 2 “REVIEW OF THE LITERATURE” Page 12 . Less importance has been given by the firm regarding working capital management. Appuhami. stated that working capital. studied impact on firm’s capital expenditure on their working capital management. As bank demanding more from prospective borrowers. Ranjita B (2008). Related technique and new concepts are been implemented in industrial practices. accounts receivable Page 13 . Pike R. examined that in last 40 years major theoretical development have occurred in the area financial decision making and long-term investment. has a significant relationship with working capital management.L. experience shows that inadequate planning and control of working capital is one of the major causes of failure of business. marketable securities. The function of the firm is to make sure they have enough assets to continue its business. basically on working capital management. which was recognized as practical variable.Pass C. In contrast less attention has been given in respect to short-term finances. simply refers to the firm’s total current assets (the short-term ones). The study used Schulman and Cox’s (1985) Net Liquidity Balance and Working Capital Requirement as a proxy for working capital measurement and developed multiple regression models. Working capital management is all about managing the current and short-term assets and short-term liabilities. sometimes called gross working capital. great importance is given to those accountable for so-called working capital management. The study also found that the firm’s operating cash flow. cash..H (1984). The empirical research found that firm’s capital expenditure has a significant impact on working capital management. but effective working capital management plays a crucial role in enhancing the profitability and growth of the firm. However. The author used the data collected from listed companies in the Thailand Stock Exchange. his studies say that “Cash is King” indeed money managers who share the responsibility of running this country’s businesses. Hardcastle J (2009). Herzfeld B (1990). salaries. A good way to judge a company’s cash flow prospects is to look at its working capital management (WCM). i. Components of short-term assets include inventories. If this lifeline deteriorates. that customers pay on time and that enough cash is on hand to make payments when they are due. he found out the impact of working capital management on the operating performance and growth of new public companies. Customers must be allowed a credit period that is standard in the business. Nancy. so does the company’s ability to fund operations. loans and advances. Working capital management refers to the management of current or short-term assets and short-term liabilities. If the level of sales is stable and towards growth the level of cash. The study also sheds light on the relationship of working capital with debt level. Yilei (2008). By making sure that production lines do not stop due to lack of raw materials. Analyzing a company’s working capital can provide excellent insight into how well a company handles its cash. Understanding a company’s cash flow health is essential to making investment decisions. lower amounts) over levels of cash and securities. Short-term liabilities include creditors. debtors. cyclical changes and policies of the firm. studied the working capital in a firm generally arises out of four basic factors like sales volume. receivables and liquid cash.and inventory. Raw materials and operating supplies must be bought and stored to ensure uninterrupted production. Thachappilly G (2009) “Working capital management manages flow of funds”. working capital management deals with day-to-day operations. seasonal. Beneda. receivables and stock will also be on the high. describes that cash is the lifeline of a company. technological changes. McClure B (2007). Dubey R (2008). If the level of sales is stable and towards growth the level of cash. The strengths 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. Using a sample of initial public offerings (IPO’s). Only at the end of this cycle does cash flow in again. fixed assets and accounts. firm risk and industry. inventories and liquid cash. investments and cash and bank balances. and whether it is likely to have any on hand to fund growth and contribute to shareholder value. (2009) describes that working capital is the cash needed to carry on operations during the cash conversion cycle. Grass D (2006).e. The firm requires current assets which can be converted readily into cash say within a year such as receivables. no firm can be efficient and profitable. Wages. reinvest and meet capital requirements and payments.e. Zhang. Obviously without good working capital management. Long-term financial analysis primarily concerns strategic planning. Cash is king when fund raising is harder than ever. Letting it slip away is an oversight that investors should not forgive. The study futher finds that maintaining control (i. the study finds a significant positive association between higher levels of accounts receivable and operating performance. utility charges and other incidentals must be paid for converting the materials into finished products. Page 14 . the days from paying for raw materials to collecting cash from customers. stated that “Cash is the lifeblood of business” is an often repeated maximum amongst financial managers. as measured by current ratios and long cash conversion cycles. studied distinct levels of WCM measures for different industries. argued that attempts to improve working capital by delaying payment to creditors is counter-productive to individuals and to the economy as a whole. The firm size variable was also found to have significant effect on profitability at the industry level. Our results should be interpreted cautiously. The major emphasis is. since shortterm liabilities arise in the context of short-term assets. the survey suffers from survivorship bias. as measured by current ratio and cash gap(cash conversion ratio) on a sample of 929 joint stock companies in Saudi Arabia. Kruegar (2005). Page 15 . Using correlation and regression analysis. he found that the cash conversion cycle or the cash is of more importance as a measure of liquidity than current ratio that affects profitability. Refuse (1996). borrowing and provisions. Our study takes places over a short time frame during a generally improving market. however. while slowing turnover may have been a signal of trouble ahead. on short-term. Urges those organization seeking concentrated working capital reduction strategies to focus on stock management strategies based on “lean supply-chain” techniques.only the top firms within each industry are ranked each year and the composition of those firms within the industry can change annually. it is examined the relationship between profitability and liquidity.trade advances. Eljelly (2002). Maynard E. It is important that companies minimize risk by prudent working capital management. Many factors help to explain this discovery. Proposes that stock reduction generates system-wide financial improvement and other important benefits. At the industry level. Eljelly[9] found significant negative relationship between the firm’s profitability and its liquidity level. Thomas M. The improving economy during the period of the study may have resulted in improved turnover in some industries. however. which tend to be stable over time. Claims that altering debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit. In addition. CHAPTER 3 “RESEARCH METHODS” Page 16 . It helps a researcher to guide during the course of research work.1 Research Objectives To study the various components of working capital. So the topic is to study working capital management of OPTCL.2 Research Methodology Research methodology is a systematic approach in management research to achieve pre-defined objectives. Generally problem explains that. Page 17 .1 Research Problem Working capital management in current assets is the focus of study. Working capital management aims at managing capital assets at optimum level. Rules and techniques stated in research methodology save time and labor of the researcher as researcher know how to proceed to conduct the study as per the objective. the level at which there will be smooth production and also it will involve investment of nominal working capital in capital assets. Now in competitive era where each organization competes with each other to increase their production and sales. it will consume a lot of working capital. but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. To analyze the working capital trend. Working capital is the capital invested by the organization in current assets. 3. experience shows that inadequate planning and control of working capital is one of the more common causes of business failure. Indeed. adequate attention has not been paid to the area of short-term finance.3. Holding of sufficient current assets will ensure smooth and uninterrupted production but at the same time. in particular that of working capital management.2. holding of sufficient current assets have become mandatory as current assets include inventories and raw materials which are required for smooth production runs. 3. 3. The data collection was aimed to study of working capital management of the company. Due to time restraints it was not possible to study in depth in get knowledge what practices are followed at OPTCL. Page 18 . 3.3 Data Collection The project is based on secondary data collected from annual report of the organization. Project based on Annual report of OPTCL.2 Research Design The 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 study is restricted to only Five years data of OPTCL.To appraise the utilization of current asset and current liabilities and find out short-comings if any.2006-07 Annual report of OPTCL-20007-08 Annual report of OPTCL-2008-09 Annual report of OPTCL-2009-10 Annual report of OPTCL-2010-11 Scope and Rationale of the study The topic working capital management is itself a very vast topic yet very important also.2. Many and facts and data are such that they are not to be disclosed because of the confidential nature of the same.2. Since the financial matters are sensitive in nature the same could not acquired easily. To suggest measures for effective management of working capital. The research design followed by the study the working capital management in ODISHA POWER TRANSMISSION CORPORATION LIMITED (OPTCL) is descriptive and analytical research design. CHAPTER 4 “FINDINGS AND ANALYSIS/RESULTS’ Page 19 . 81.76.87. In 2006-07 it increased to Rs80.67.96.14.1 2006-07 2007-08 2008-2009 2009-2010 2010-2011 Cash 64.812 .08. It is decreased to Rs49. The third section explains about the working capital trend.35.81.019.19.97.24.85.05.97. Table 1.698 and in 2008-09 in reached 1. And then it suddenly decreases to Rs72.262 Sundry Creditors Provision 61. The inventories were Rs79.496 66.02.74 4 4.51.781. with the percentage growth of 2.52. In 2007-08 it Page 20 .42.79.980 68.750 .55.71.229 Debtors 79.31.08.597 72.750 72.81.24.10%.70.82.83.201 75.40.456 85.129 again decreases to Rs57.05.03.55.56. In year 2006-07 it was increased Rs1.70.45.47 5 5. The second section explains about the liquidity trend of the organization.05.262.700.812 49.81.982 in the year 2007-08 a total increases in Rs25.31.62.05.79. c) As per the above findings inventories were increased. And in 2007-08 it again increased in Rs1.69 8 96. The fourth section explains the usages of current assets and current liabilities.42.94. The first sections explain about the components of working capital.90.05.33. with an increase of Rs1.85.58.95.06.700 Inventories 1.69.7%.183 in the year 2007-08.19.17.68.201 and it increased to Rs1.70.35.96.857 83.26.56.98 2 76.76.268 1.60.The result and finding is in five different sections.05.81. variables of working capital. The last section explains the measure to effective management of working capital in the organization.30. In year 2006-07 it increased to Rs90.68.951 Components of working capital a) Cash in bank in the year 2006-07 was Rs64. b) Debtors increases which was not good sign for the organization.119 in the year 2008-09.64.47 3 80.65.56.43.690 1.65. The first section explains about the various components of working capital and variables of working capital.00572.278 1.473.22.31.183 90.99.50.278 with the increase in 7.71.69.67.10.56.In 2007-08 it increased to Rs76.19.06.82.201 in 200607. In 2006-07 debtors were Rs79.96.65.129 57.87.51.819 1.460 1.50.08.60 3 5.81.55. 22.55% 56.51.980 with a increase of 8.65.819.21 0.40% 27.55:1 0.67.11 0.19 0.62:1 0.02.26.24:1 0. e) Provisions also increased throughout the years.23 0. financial debt/total assets) CR(Current Ratio) 0.496.10 0.98%.25 0.456 and Rs85.42.46:1 0.33:1 0.603.56.28:1 0.475.In 2007-08 it again increased to Rs5.30. In 2008-09 there was not much difference in 2006-07 and 2008-09.40.03.24 0.78% 34.69.43:1 0.82% 0. In 2006-07 it was Rs83.16 0. In the year 2006-07 it increased to Rs68.34 0.again increased to 96.58:1 0.23 QAR(Quick assets ratio) CA/TA(Current Assets to Total Assets) CL/TA(Current Liabilities to Total assets) SK/CA(Stocks to Current assets) TD/CA(Trade Debtors to Current Assets) Page 21 .45.55. Then it increased by Rs5.In 2006-07 it again increased to Rs4.48.13 0.95.22 0. Variable of working capital management Variables 2006-07 2007-08 2008-09 2009-10 2010-11 ROTA(Return on total assets) OPM(Operating Profit margin) GEAR(Gearing Ratio i.08.90.460 with a increase in 29%.86:1 0.484 which amounted to Rs66.597 with a percentage increase of 12.13 0.15 0.99% in 2007-08.25 0.857 in the year 2008-09.e.26 0.28 0. Then it increased to 1.64:1 0.69.951 in 2008-09.65% 35.744 with a percentage increase of 57% in 2007-08.21 0.68:1 0.12 0. d) Sundry creditors also increased a lot.45.52. It is futher increased to 1.67.94:1 0.81.17 0.16 0.56.14. In 2006-07 it was Rs61.20 0.13 61. In 2007-08 it again increase to Rs72.13 0.27:1 0.34:1 1.70.16 0.51.17.22:1 0. 19 and 0.34:1 in 2008-09.58:1.24:1. 0.20 in the year 2006-07.2009-10 and 2010-11 it became 0. e) Quick asset ratio(QAR) in 2006-07 was 0.2008-09.24. 0. 1.10 1.68:1 in 2010-11.29 1.0.29 in 2007-08. b) Operating profit margin(OPM) was 61.21 and in 2010-11 it was 0.21. in 2007-08 it came 0. Page 22 . 0.16 in respective years. in 2009-10 it was 0.46:1 and in 2008-09.10 in 2006-07.61 The findings of various variables of working capital management a) Return on total asset(ROTA) came 0. 0. i) Trade debtors in 2006-07 was 0.22 in 2006-07.23. 0. in 2007-08 it was 0.27.13.62:1 in 2009-10 and 0. in 2006-07 it was 1. 0. f) Current asset to total asset ratio came 0.0. Anything between 65% to 85% is known as a good operating margin.11 in 2006-07.61 in 2010-11.200708.2009 -10 and 2008-09 respectively.2009-10 and 2010-11 g) Current liability to total asset ratio came 0.10 in 2007-08 and 0.13.25.28 respectively.78%.34.0. 2009-10 and 2010-11 it came 0.16 in 2007-08. 0.15 in 2006-07.40% .60 0.08 in 2008-09. and in 2008-09. 1.in 2007-08 it became 0. c) Gearing ratio was 0.33:1 in 2007-08 and 0. 0.16 and 0.13 in 2008-09.12.CA_TURN (Current Assets Turnover is sales/current assets) 1.25.55:1.28:1 and it reduced to 0.82% in 2007-08.94:1 in 2007-08 and then it again reduced to 0.17.60 in 2009-10 and 0.26 and 0. 34.55% in 2006-07 then it reduced to 56.0. in 2008-09 it was 0.13. 0. and for OPTCL it was a sign of alarm. 0. j) Current asset turnover is 1.2006-07.08 0. h) Stock to current asset is 0.22:1 and 0.65% and 35.43:1in the year 2006-07.64:1 in 2006-07 and in 2007-08 it is 0.23. d) Current ratio(CR) generally reduced for the organization.27:1.86:1 and 0. Components of Current ratio.19 0.13 0.25:1 0.08:1 0.13 0.23 0.25 0.21 0.24:1 Absolute Liquid Ratio Stocks to Current Assets Trade Debtors to Current Assets Current Assets to Total Assets Current Liabilities to Total Assets 0.24 0.09:1 0.11 0.23 0. Quick Ratio and Absolute Liquid Ratios Current Ratio 2006-07 1.12 0.68:1 Quick Ratio 0.13 0.28:1 2007-08 0.20 0.62:1 2010-2011 0.34 0.86:1 2009-10 0.26 0.58:1 0.25 0.23 0.21 0.12:1 0.16 0.27:1 0.28 77 days CCC(Cash Conversion Cycle) 70 days 43 days 115 days 118 days 125 days 85 days 57 days 126 days 128 days 63 days 61 days 37 days 86 days 89 days Inventory Days Debtors Turnover Days Creditors Turnover Days Page 23 .15:1 0.17 0.94:1 2008-09 0.22:1 0.46:1 0. Cash conversion for debtors came 125 days in 2006-07. h) Cash conversion ratio for inventory came 77days.21 and 0.17.27:1. c) In the year 2006-07 the absolute liquid ratio was found to be 0.a) In 2006-07 the current ratio was 1.008:1 and for the financial year of 2010-11 was 0. 70days.19 and 0.94:1 and it was decreased from the total current assets from previous year and an increased in current liability this year. But in 2009-10 it increased to 126 days then in 2010-11 it increased to 128 days. f) Current asset to total asset ratio come 0. 2009-10 and 2010-11.13. 2007-08. Cash conversion ratio came 63 days.25:1. The absolute liquid ratio of the organization for the year 2008-09 was found 0.09:1.34. 0.62:1 and in 2010-11 the current ratio was 0. In 2008-09.24:1 in 2007-08.28. 0.23 in the respective years.15:1. it was found that the current ratio of OPTCL was 0. 0.21 and 0. in 2009-10 it came 0.20 in the respective years.13. In 2007-08. 0.22:1 and 0. b) Quick ratio in 2006-07 it was 0. it reduced to 85 and 57 days in 2007-08. 0. 0.13. 2008-09.24.16 in the year 2006-07.46:1.86:1.25. In the year 2007-08 the absolute liquid ratio of OPTCL was found to be 0.11 in 2006-07 and in 2007-08 it came 0.23. 0. g) Current liabilities to total asset came 0.58:1 and 0. in 2008-09 it came 0. In 2009-10 the current ratio was 0.26 and in 2010-11 in came 0. 0.12:1 and in the year 2009-10 was 0.25.68:1. 0. d) Stock to current assets is 0.28:1 which is below the standard of 2:1. 0. 61 days. e) Trade debtors to current asset ratio come 0.12. it was found that the current ratio of OPTCL is 0. 37 days and 86 days respectively. 200809. 2008-09 respectively. 2009-10 and 2010-11. 43days and 115days. Page 24 . It is due to a decrease of total current assets from the previous year to current year.30.86.26.28:1 2007-08 3.63.38.303 3.85.75.12.94:1.19. 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.139 8.42.274 0.28:1 which is below the standard of 2:1.50.516 1.10.29.88.62:1 2010-11 4.34.36.81.07. The cash and bank balance is found to decrease this year in comparison to that of previous year where as the current liabilities and provisions both have increased this year. B) In the year 2007-08.21.21.50.93.508 0.649 0.867 0. Page 25 .34.THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF THE ORGANIZATION LIQUIDTY RATIO Current Ratio-(Current Assets/Current Liability) YEARS CURRENT ASSETS (IN RUPEES) CURRENT LIABILITY (IN RUPEES) RATIO 2006-07 3.13.53:1 A) 2006-07 it was found that the current ratio was 1.429 2. it was found that the current ratio of OPTCL was 0.64.35.86:1 2009-10 5.96.319 7.80.94:1 2008-09 6. Still it is manageable and also the condition was under the control.43.61.378 8. The firm was not able to meet its short term obligation in time. super annuity benefits and payment of past loan etc are the major factor for increasing of current liabilities. It is a not good indication according to the rule of thumb because the firm has more current assets than current liabilities. company should make clear cut strategic planning to sell electricity to major industries at industrial rate to achieve higher revenue. The firm may be able to meet its short term obligations in time. E) As increase in administrative overhead expenses. it was found that the current ratio of OPTCL was 0.86:1.53:1. It was not a good indication according to rule of thumb because the firm has more current assets than current liabilities. D) 2009-10 and 2010-11. 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. Page 26 .62:1 and 0. it was found that the current ratio of OPTCL was 0.C) In the year 2008-09. 223 7.36.64.21.168. B) In the year 2007-08 it was found that the Quick Ratio of OPTCL was 0.17.86.34.54.481.22:1 which is below standard.25:1 A) The quick ratio or the Acid Test Ratio of OPTCL for the financial year 2006-07 was found to be 0.33.96. E) In the year 2010-11 the situation is also no good.819 8.96. The quick ratio is 0.64.27:1.35.78..Quick Ratio (Liquid Assets/Current Ratio) Years Liquid Assets Current liability Ratio 2006-07 1.37.80.46:1 which was below the normal standard. Management should have an eye on to that.25:1.27. which is below standard of 1:1.423. D) In the year 2009-10 it is found that the Quick ratio was 0.73. C) In the year 2008-09 it is found that the QUICK ratio of OPTCL is 0.508 0.138.61.867 0. So it was manageable situation.88.21.274 0.58:1. Page 27 .29.58:1 2007-08 1.50.12.46:1 2008-09 1.013 2.165 3. It is due to a little bit increase in current liabilities.27:1 2009-10 1.516 0. which is just normal standard.649 0.827 8. Still it was also in a manageable position and by giving a small effort the normal standard of 1:1 can be achieved.44. It was due to a little bit increase in current liabilities in comparison to that of previous year.22:1 2010-11 2. 06:1 By going through the table of Absolute liquid Ratio.34. the absolute liquid ratio found to be 0.76. A) In the year 2006-07 the Absolute Liquid Ratio was found to be 0.19.15:1 which was below from the previous year.80.94.08:1 and 0.812 2.96.516 0.15:1 2008-09 90.88.19.12:1 2009-10 72.508 0.750 8.82. balance sheet of OPTCL the following results can be drawn.12.34.06:1 respectively.Absolute Liquid Ratio (Absolute Liquid Asset/Current Liability) YEAR Absolute Liquid Ratio Current Liabilities Ratio 2006-07 64.81.183 3.50.25:1 2007-08 49.29.86. Through it is below the normal standard still it is manageable condition. This is due to less cash and bank balances of the organization to the current liabilities.750 7.12:1 which is below the normal standard.274 0.08.71. This is due less cash and bank balances of the organization in comparison to the current liabilities.70.33. C) The Absolute Liquid Ratio of the firm for the financial year 2008-09 is found to be 0.867 0.35.64.08:1 2010-11 57. D) In the year 2009-10 and 2010-11.81.649 0. Page 28 . B) In the year 2007-08 the Absolute Liquid Ratio of OPTCL was found to be 0.21.32.25:1.36.119 8. It is due to a decrease in cash and bank balances and also a slightly in current liabilities. 03.214 15.01.74.10.03.09.20.901 1.423 - -1.39.312 28.16.33.65.50.310 -6.64.74.383 47.12.63.09.59.877 -37.319 176372705 1.60.26.65.26.328 -2.644 2007-2008 Amount in (Rs) -18.27.383 11.43.31.016 -26.008 -5.423 30.990 - 30.481 27.53.898 -4.98.893 1.59.CASH FLOW STATEMENT 2009-2010 Amount in (Rs) 12.818 42.56.305 11.46.318 1.90.17.22.98.292 - - - 1.09.20.08.88.23.13.66.83.09.915 -21.99.652 11.278 - - -23.325 -2.04.317 Profit/Loss before tax & extraordinary items Adjustment for Appropriation to reserves and surpluses Interest and finance charges Depreciation Preliminary expenses W/O Excess provision written back Interest income Provision for wealth tax Provision/write off against theft materials Provision for obsolete stock-store etc Bad and doubtful debt Provision for fringe benefit tax OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A) WORKING CAPITAL CHANGE Stores and Spares 50.62.603 29.785 -4.59.58.383 13.92.70.02.30.05.36.311 -16.04.68.43.89.87.38.589 -59.54.00.256 1.73.002 Page 29 .18.96.87.17.22.20.35.059 Other Current assets 27.581 -1.43.5513.879 1.28.664 Sundry Debtors 1.37.044 6.846 46.44.25.44.985 2008-2009 Amount in (Rs) -71.883 2006-2007 Amount in (Rs) -3.90.775 1.24.37.510 -47.04.12.15.198 97.617 1.70.592 1.71.078 2.574 -209 4.81.77.801 8.484 54.423 30.63.318 46.348 4.96.79.90.47.73.22.96.033 -4.26.54.29.994 64.46.05.11.525 92. 973 14.06.37.93.94.656 47.11.167 Current liabilities 69.55.694 4.28.037 42.59.529 4.30.52.641 -91.39.16.928 42.66.39.374 3.03.296 82.45.621 41.86.36.683 -1.631 -88.02.848 32.57.72.61.383 -2.08.89.95.432 -1.73.58.41.82.73.310 6.71.446 -1.03.13.52.52.76.78.95.53.08.31.008 5.397 4.91.90.85.134 2.898 CASH FLOW FROM INVESTING ACTIVITIES: Capital Expenditure(CAPEX) Interest received revenue CASH GERNRATED FROM INVESTING ACTIVITIES (C) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from secured loan Proceed from unsecured loan Interest Paid Proceed from Share Capital CASH FLOW FROM FINANCING ACTIVITIES (D) NET CASH GENERATED FROM ALL ACTIVITIES (A+B+C+D) - Page 30 .716 1.09.35.57.00.87.51.000 - 82.16.18.35.48.328 2.28.010 -17.82.156 3.65.05.34.99.01.48.401 Provisions 2.70.44.165 -6.86.67.37.97.72.73.20.07.52.47.Loan and advances 6.60.61.80.656 -93.382 3.26.13.263 1.00.20.207 1.04.96.474 -1.000 23.380 -1.95.567 -15.424 -98.662 4.311 1.03.01.948 -36.41.77.55.89.087 -2.88.02.57.70.47.91.393 2.60.195 -3.331 -84.563 -2.76.57.90.44.07.752 -83.78.05.00.27.137 -88.19.252 71.03.40.68.19.95.12.27.07.48.383 1.618 24.60.78.33.24.07.24.57.38.01.000 5.628 NET CAPITAL CHANGES (B) CASH GENERATED FROM THE OPERATIONS (A)+ (B) 1.10.68.87.34. 2007-08 and 2006-07 respectively B) Hence. it was Rs3.70.383 and Rs-2.73.973 in 2008-2009. Rs-84.750 49.07.77.48.61.446.08.71.06.76.38.81.81.95.52.08.07.70. Rs-1. Page 31 . 2007-2008 and 2006-2007.57.35.183 64.07.58.86.129 90. D) That the net cash flow from its operating.529 .51.656 C) The net cash flow of Rs82.567 and in 2007-2008 it became Rs-15. Rs-88.19.331.18.44.78.73.71.16.82.78.374 and in 2006-2007 it was Rs3.06.19.01.26.28.812 57.60.65. Rs4.87.13.57.119 72. It became positive in the year 2008-2009 which was Rs41.156 cash flow from its operating activities for the year 2009-2010 and 2008-2009 where as in 2007-2008.94.311 in the year 2009-10.129 90.628 in the year 2006-2007. investing and financing activities for the year 2009-2010 is a negative of Rs-17.72.24.27. there is a generation of Rs1.70.97.33.095 from financing activities in 2009-2010 where it was Rs3.99.04. 2008-09.30.184 A) Cash generated from investing activities Rs 1.424 and Rs-98.631.621.750 49.Cash and cash equivalent at the beginning of the year Cash equivalent at the end of the period 72. 48.13 .25.30.90.81. 378 12.13.758 1.69.85.57 2 3.54.05.51.79.91.56.05.456 6.35.12.19.6 98 72.18 3 65.30.85 7 15.63. 189 6.33.59 7 14.06.49 7 68.51.56.89.82.987 12.26 2 1.75.253 28.07.129 74.55.790 68.87.201 Cash and bank balance Other Current assets 64.65.75 0 66.49.SIZE OF WORKING CAPITAL CURRENT ASSETS (CA) Stores and Spares 2006-07 (rupees) 75.21.96.092 1.705 62.299 47.94.33.76.08.7 00 57.26.53.27 8 1.47.45 4 .9 51 1.22.81.185 51.82.94.67.429 Less: CURRENT LIABILITIES (CL) Sundry Creditor 61.94.80.690 Sundry Debtors 79.113 1.71.56.3 33 5.05.66.38.14.10.534 44. 473 90.303 80.63.319 96.350 Page 32 1.41.70.739 Total 3.82.93.33.03.812 Loan and advances 38.460 1.55.33.54.40.784 37.51.31.06 9 40.05.24.73.51.26.76.789 2.58.51.19.26.416 2.81.62 9 2.39.86.97.496 Deposits and retention from supplies/contractors Interest accrued but Not due on loans Liabilities for wealth tax Electricity duty payable Liabilities for fringe benefit tax 2007-08 (rupees) 2008-09 (rupees) 2009-10 (rupees) 2010-11 (rupees) 76.29.52.50. 982 49.27.781 48.19 .30 0 4.50.055 79.14.705 68.69.68.06.075 85.64.387 23.705 68. 139 66.95.61.10.91.86.25.149 1.26 9 72.87.98 0 13.63.27.903 49.85.269 1.11 9 75.42.50.30 4 14.71.51.240 47.43. It can be increasing or decreasing.69. also called secular or long term need is the basic tendency of population.12.62 -443.819 Total Current Liabilities Working Capital (CA-CL) 2.49. working capital was Rs70. 867 3.6 14 2. 697 83. 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.88. Such analysis enables as to study the upward and downward trend is current assets and current liabilities and its effect on the working capital position. 896 1.51.42.70.46.913 because current asset was more than current liabilities.88 . 728 In 2006-07.76.13.53.75.43.42.79.330 2009-10 -3.64.81. 599 5.64.649 98.31 -563.75.71.913 2007-08 -25.29.508 25.21.47.62.50.99.80.67.Other Liabilities 87.60. 274 3. 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.330 due to excessive of provisions.13.86 -139.896 2010-11 -3.65. WORKING CAPITAL TREND ANALYSIS In working capital analysis the direction at change over a period of time is of crucial importance.2 05 1.98.70.76.68 .67.63 Page 33 .13.4 75 8.43.86 .02.36.2 68 8. WORKING CAPITAL SIZE TREND YEARS Net Working Capital 2006-07 70.96.62.79.70. In 2008-2009 it became Rs-98.13.71. 799 5.764 1. In 2007-2008 it became negative due to the fact that current liabilities exceeds than current assets. 016 2.91 3 1.51.30.81.27.45.3521.35.64.71.77.56. 744 3.98.13.88.61.70.326 Current liabilities Provisions 1.9 96 2. 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.13.35. “The term trend is very commonly used in day to day conversion trend.44.71.05. 768 2.205 2008-09 -98.34.49. sales.65. In that year current liabilities exceeds current assets.3 20 1.” Emphasizing the importance of working capital trends.96.08.67.22.99.67.86 . 516 70.046 4.35. working capital again became negative.35. income.42.17. In 2010-2011 working capital again became negative. In 2009-2010. 603 7.728 Working Capital 100 -35.75. Working capital is one of the important fields of management.34. 13 -25.02times A) In the year 2006-2007.07.71.43.97.98.03.27.896 -3.03 times -15. C) In the year 2008-2009.34. it was -6.94.95.7 which indicates there was a decrease in net current assets due to increase in current liabilities.728 Ratio 5.19.16.02.742 Net working capital 7. working capital indices was very high due to current assets exceeded current liabilities.99.05.39. there was an increase in working capital turnover ratio to 5. In 2007-08 indices was also high because current asset were more than current liabilities.75. working capital turnover was -0.05. in the year 2007-2008.67. B) However.88times -0.7times -6.88 which was better than previous year.568 4.13.75.205 -98.14.78.401 3.01. D) But in 2009-2010.798 6.58. In 2008-09 the company was able to manage their working capital efficiently.330 -3.427 3.35. working capital turnover was -1.Indices It is observed that in 2006-07. it was -15.92.49.88. WORKING CAPITAL TURNOVER RATIO (SALES/NET WORKING CAPITAL) YEAR 2006 2007 2008 2009 2010 Cost of sales 3.42. E) In 2010-2011. which indicates there was decrease in net current assets due to increase in current liabilities. Page 34 .97times -1. But in 2009-10 and 2010-11 it became negative.55. 50.08.50.81.51 3.50 Current liabilities Page 35 .925 Total 2.73.45.35.21.33.68.61.51.65.65.53.64.690 76.94.46.80.12.317 - Loan and advances 38.42.98 2 25.781 - Cash and bank balance 64.96.36.67.2008) (2006-2007) (2007-2008) (Rs) (Rs) (2006- Increase in working capital Decrease in working capital (Rs) (Rs) Current assets Stores and spares 75.26.812 49.79.22.629 Other current assets 62.STATEMENT SHOWING CHANGE IN WORKING CAPITAL in the year 2007 and 2007.10.05.83.183 - 15.08.39.71.69 7 2.68.05.572 - Sundry Debtors 79.44.76 4 - 37.80.67.95.24.167 Total 3.201 1.739 14.76.81.74 4 - 47.42 9 3.80.58.30.304 2.60.82.51.06.572 - 24.10.987 65.25.00.19.17.86.30 3 Current liabilities 1.067 Provisions 83.819 1.71.81.96.262 1. 67.05.61.05. Similarly the figure for loans and advances is also decreased to Rs 14.70.12.13.35.86. it is observed that.913 -25. D) The other current assets like prepaid expenses and sundry receivables have also increased from the previous year figure. loan and advances etc.33.788 A) The total current asset of the year 2007-08 is decreased to Rs 3. there is a sign of decrease in working capital. C) The cash and bank balances of the organization have a decrease of Rs 15.21.35.429. F) That.94.35.118 -25. E) The total current liabilities of the year 2007-08 was increased to Rs 3.95. the increase for current liabilities is due to increase in the figure of sundry creditors.205 96.05.739.39. the ratio of increased of working capital is drastically reduced than the previous year’s and the decrease sign of working capital is Rs 96.508 from a previous year’s figure of Rs 2.118 (2007-08).81.26.516.118 -25. I) As per the analysis. due to a decrease in the figure of cash. G) Due to increase in the value of stores and spares.51.36.572 from the previous year figure of Rs 38. there is a clear sign of decrease in the working capital.788 1. liabilities for wealth tax.50.25.205 1.06.36.80. However.10.50. sundry debtors and other current assets.51.81.629 from previous year figure.19. which Page 36 .303 from previous year’s figure of Rs 3. there is a sign of increase in working capital.67.25. liabilities for fringe benefits tax and other liabilities from the previous year’s figure.96.205 (CA-CL) Net decrease in working capital -96.35.67.Working capital 6 8 70. H) Due to increase in current liabilities and provisions for pension and gratuity and retrospective revision of pay. bank balances.81. B) The total value of stores and spares is increased from the previous year figure and the value of sundry debtors is also increased from the previous year figure.73. deposits and retention from supplier/contractors. 64.19.460 1.05. As a result of which.56.274 - 4.21.56.856 6.36.182 5.319 5.86.25.225 17.47.603 7.63.50.43.278 1.48.86.51.750 96. 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.90.34.96.475 8. K) That.129 - 2.67.13.64.799 5.93.56.31.87.629 74.85.64.94.05.60.58.69.29.51.30.97.15.69.698 72.07.has impacted the steady increased of current working capital and negative affected the profitability of the organization.05.02.79.88.75.758 7.38.19.10. there is a net decrease (negative figure) in working capital this financial year (2007-08).86.189 1.473 90. STATEMENT SHOWING CHANGES IN WORKING CAPITAL 2009 and 2009-2010) Current asset Stores and spares Sundry debtors Cash and bank balances Other current assets Loan and advances Total Current liabilities Current liabilities Provision Total (2008- (2009-2010) (Rs) (2008-2009) (Rs) Increase in working capital (Rs) Decrease in working capital (Rs) 80.71.621 66.37.13.046 4.26.86.129 16.99.06.378 2.753 87.28.79.34.872 Page 37 . J) It is found that the current asset’s figure is decrease from the previous year’s figure and the current liabilities figure is increased from the previous year.333 - 1.649 2.70.70.81. 649. which has impacted the steady increase of current working capital and negatively affected the profitability of the organization J) It is found that the current asset’s figure is decreased from the previous year figure and the current liabilities figure is increased from the previous year.102 A) The total current asset of the year 2008-09 decreased to Rs 5.88.13. the ratio of increase of working capital is drastically reduced than previous year and the decrease sign of working capital is Rs -2.621 from the previous year’s figure.566 (2009-10).93. it was observed that. G) Due to increase in the value of stores and spares. D) The other current asset like prepaid expenses and sundry receivables had also increased from the previous year figure of Rs 7.13.619 B) The total value of stores and spare is increased from the previous year’s figure and the value of sundry debtors is also increased from the previous year figure.88.61.88.13.71. C) The cash and bank balances of the organization have a decrease of Rs 17.07.42.26. sundry debtors and other current assets. F) The increase for current liabilities is due to increase in the figure of sundry creditors.42.28.14.99. there is a clear sign of decrease in the working capital.13. bank balances.63.102 2.566 -3.87.566 -3.896 2. there is a sign of decrease in working capital I) As per the analysis.75. liabilities for fringe benefit tax and other liabilities from the previous year figure. liabilities for wealth tax. loan and advances etc.333 from the previous year figure of Rs 2.Working Capital(Current asset-current liabilities) -98. deposits and retention from supplier/contractors.88.71.86.75.71.13.378 from a previous year figure of Rs 6.34.13.38.13.29.61.42.896 -3. As a result of which there is a net decrease (negative figure) in working capital this financial year (2001-12) Page 38 . Similarly the figure for loans and advances is also decreased to Rs 1.28.14.189. due to a decrease in the figure of cash.71.58. there is sign of increase in working capital. However.30.38.25.330 Net decrease in working capital -2.13. H) Due to increase in current liabilities and provision for pension and gratuity of pay.86.14.896 2. 758 75.85.98 2 49.42.90.69 8 72.80. Current assets convert in the cash in the period of one year.97.278 96.750 1.76.51.812 1.70.24.183 1.304 66. Fixed assets are in the nature of long term or life time for the organization.08.82.81.10.50.94.48.25.55.56.05.987 65.31.35.262 80.629 74.06.K) 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.68.33.13.201 64. CURRENT ASSETS SIZE Current Assets Stores and Spares Sundry debtors Cash and bank balances Other 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 75.19.05.33.81.690 76.129 1.96.05.56.65.69.94.71. CURRENT ASSETS Total assets are basically classified in two parts as fixed assets and current assets.81.69.79.53.64.19.460 79.87.70 0 57.47 3 90. It means that current assets are liquid assets or assets which can convert in to cash within a year.14.119 62.069 Page 39 .95 1 1. 75.63.26.427 3.93.10 which became 1.61 2.94.568 4.07.15 1.29 1.378 4438538139 RATIO 1.61.11 From the above table the current assets indices show growth in the year 2006-07.25.429 3.300 4.91 In the year 2006-07.789 6.13.10. But in the year 2009-10 and 2010-11.85.19.37 8 157.319 5.99 40.08 0.94.21.38. the current asset turnover was 0.30 3 99.14.86.75.60 0.86. Page 40 .current assets Loan and advances Total of CA CA Indices 38.30.78.75.26.10 1.26.07.06.42 9 100 3.87.13 9 138.739 14.27. the current asset turnover was 1.91 respectively due to sale was less than the current assets.21.05.43.63.66.743 CURRENT ASSETS 3.572 3.99.60 and 0.58.58.39.33 3 5.08 in the year 2007-08 and 2008-09 respectively.30.50.05.33.34.31 9 196.95.303 6.61.55.10. In 2007-08 it decline marginally and in 2008-09 it again increase and in 2009-10 it decline and it further decline in 2010-11 CURRENT ASSET TURNOVER RATIO-(sales/current assets) Year 2006 2007 2008 2009 2010 SALES 3.29 and 1.19.19.92.18 9 6.93.13.401 3.50.47.16. 51.456 85.51.416 Electricity duty sundry payable Liabilities for fringe benefits tax 2.51.27. Current Assets (CA) Stores and spares Sundry debtors Cash and bank balances Other current assets Loan and advances Total of CA 2006 2007 2008 2009 23.61 45.03.52.29.37 24.55.980 68.22.705 68.497 14.240 47.82.597 72.91.534 44.91.73.67 12.73 14.89.54.95.71.82 20.63.54.387 23.51.49 31.14.38 19.903 49.11 4.789 2.05.185 51.16 100 100 100 100 CURRENT LIABILITIES 2006(rupees) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees) Creditors 61.705 Page 41 .33.76.COMPONENTS OF CURRENT ASSETS (No.58 14.055 79.299 47.08 20.27.67.63.51.40.253 28. in %) Analysis of current assets components enable one to examine in which components the working capital fund has locked.496 66.149 1.113 1.54 21.705 68.31 19.56.269 12.784 37.857 Deposits and retention from suppliers/contractors Interest accrued but not due on loans Liabilities for wealth tax 12. the profitability will be decreased because cash is non earning assets.41.350 13.075 15.82.49.26.16 24.454 6.89 15.12.80 12.82 16.50. 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.240 1.01 10.790 68.781 48.269 1.69 33.30.78 14. 80.Other liabilities 87.64.34.30.05.29.728 1.45.81.68.96 2.86.62.02.89 2.68.22.046 4.51.By going through per calculation table and diagrams of Debtor Turn Over Ratio.99.35.79.96.53.35.27.34.5 1.81.798 6.61.76.768 1.14.17.508 133.77.95.764 1.96.70.27.700 2.410 92.34.13.58.274 327.44.53.44 2.75.78.45.38.55.61 Average collection period (365/DTR)days 125 85 57 126 132 Debtors Turn Over Ratio.996 Total Provision Total Current liabilities indices 1.599 5.08.326 1.568 1.21.71.46.56.614 1. profit and loss accounts and balance sheet of OPTCL the following results can be drawn.99.401 3.69.603 7.67.35.091.799 5.55.16.47.42.21.64.94.64.32 6. Page 42 .05.64.12.85 DEBTORS TURNOVER RATIO-(net sales/average debtors) Year Net Sales Average Debtors Ratio 2006 2007 2008 2009 2010 3.92.05.21.649 290.88.268 8.016 1.86.65.05.99.867 335.427 3.744 3.62.79.81 2.50 2.53.36.51.37.19.76.475 8.743 1.819 2.35.65.92 4.60.88.516 100 2.05.67.87.568 4.50.697 83. Cash generated at one location can well be utilized at another. However. the value of debtor turnover is higher than the previous year due to decrease in average debtors. E) In the year 2010-11 the debtor turnover is 2. there is higher value of debtor turn over.61 times and the average collection period is found to be 132 days. market cycles. the better the quality of debtors. This year. This year. So the effect of unforeseen demands of working capital should be factored by company. While market leaders can manage uncertainty better. for collection of revenue on behalf of OPTCL and the same has been made through banks. B) Addressing the issue of working capital on a corporate-wide basis has certain advantages.32 times and the average collection period is 85 days. This should take into account the impact of foreseen events. The shorter the average collection period. WESCO etc. D) In the year 2009-10 the debtor turnover is 2.44 times and the average collection period is 57 days. This year. substantial delay in getting payment. So this is a good indication for the organization. Page 43 . This is a good indication B) In the year 2007-08 the debtor turn over ratio is 4. the present average period of collection is decreased due to involvement of NESCO. CESCO. This was one of its reasons for the variation of its revised working capital projection from the earlier projection. since a short collection period implies the prompt payments by debtors. there is a higher value of debtor turn over and a shorter average collection period in comparison to that of previous year.92 times and the average collection period is found to be 125 days. F) OPTCL used to collect pending dues directly from consumers for which. A) It pays to have contingency plans to tide over unexpected events. These must be based on objective and realistic view of the role of working capital. This year. Section five generally defines measures to improve working capital management at OPTCL The essence of effective working capital management is proper cash flow forecasting. SOUTHCO. C) In the year 2008-09 the debtor turn over ratio is 6. even other companies must have risk management procedures. 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 year’s figure.A) In the year 2006-07 the debtor turnover ratio was 2.89 times and the average collection period is found to be 126 days. loss of a prime customer and action by competitors. They could be then held accountable for delivering.C) An innovative approach. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. B) The standard current ratio is 2:1 and for OPTCL it is not satisfactory. The reason is that the company’s current liabilities exceeds current assets from 2006-07 to 2010-11. The reason behind such result is that the current liabilities exceed current assets. This will yield greater efficiencies and improve customer satisfaction. FINDING OF THE STUDY A) Working capital of four year i. other current liabilities also increased like deposits and retention from supplies. Efforts should constantly be made to improve the working capital position.e. liability for wealth tax. It is an alarm sign for the company. 2008-09. electricity duty payable. Page 44 . There is an increase in current liabilities like sundry creditors. 2008-09. The current liabilities exceed the liquid assets. The company created more provisions throughout this 3year. Beside these sundry creditors. Sundry creditors increased at a speed in these 4 years. F) Efforts should be made to reduce the current liabilities and to increase the current asset. interest accrued but not due on loans. The reason behind OPTCL did not achieve the rule of thumb. encouraged to be enterprising and to act as change agents. G) Placing the responsibility for collecting the debt upon the centre that made the sale. 2009-10. combining operational and financial skills and an all encompassing view of the company’s operations will help in identifying and implementing strategies that generate short-term cash. E) Cash should be managed properly. This aspect must form part of the strategic and operational thinking. The standard current ratio for 2008-2009 was satisfactory but in the year 2007-08. liability for wealth tax and liabilities for fringe benefit tax than of liquid assets. It is not a good sign for the company. The reason behind the increase in current liabilities and provision. C) The standard quick ratio is 1:1 and for OPTCL it is not satisfactory. (2007-08. 2010-11) is negative figure. 2009-10 and 2010-11 situation became worst. D) Working capital management is an important yardstick to measure a company operational and financial efficiency. E) Debtors of the company were high. J) Current asset ratio decrease throughout the year. Sundry debtors increased from 2009 -10 to 2008-09 but it declined in 2009-10 but again it is increased in 2010-11. interest accrued but not due on loans.D) Absolute liquid test ratio is below 1:2. Page 45 .60 in 2009-10. It was 5.03 times in 2006-07 then is sloped downward and it was -15.10 in 2006-07 then it increased to 1. 2009-10 and 2010-11. 2009-10 and 2010-11 respectively. -0.88. electricity duty payable. liabilities for fringe benefit tax and provision. G) The current liabilities trend increasing at a speed which is worried thing for company.08 in 2008-09 and 0. K) Working capital turnover ratio was positive in 2006-07. The current assets like stores and spare increased in 2007-08 to 2008-09 but in 2009-10 it declined and then it is increased in 201011. liabilities for wealth tax. so more funds were blocked in debtors. it became negative in 2007-08.7. -1. but in 2011 it decline.29 then a fall down occurred as it was 1. But there is a rapid increase in case of current liabilities like sundry creditors. liabilities for fringe benefit tax increased from 2007-08 to 2010-11. 2008-09. The reason is that liquid assets fall very short than current liabilities. It was 1. 2008-09. deposits and retention from supplier. But in 2012 debtor’s turnover ratio decreases and collection period increases. 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.02 in 2007-08. they were increasing year to year. -6. F) The current assets trend increased from 2007-08. The current liabilities again exceed the absolute liquid assets. In 2009-10 it was 126 days. which are worries for OPTCL. Current liabilities like sundry creditors. But in 200910 it again increased to 125 days. H) Debtor’s turnover ratio improved from 2009 to 2011 and so the number of collection period decreases. Then it is reduced to 85 and 57 days in 2007-08 and 2008-09 respectively. deposits and retention from suppliers.97. There is not significant increase in absolute current assets like cash and bank balances from 2007-08 to 2010-11. CHAPTER 5 “CONCLUSIONS AND RECOMMENDATIOND” Conclusion Page 46 . Page 47 . in comparison to current assets position. funds and debts. it was also satisfactory. the company may attain a sound financial position in future and able to manage its working capital efficiently. But. C) During the year 2006-07. it is an alarming sign for the smooth working capital management. 2009-10 and 2010-11) in negative and the current liabilities are increasing. 2008-09. G) They are unable to manage their cash. 2007-08. 2009-10 and 2010-11 the situation of liquidity position was alarming due to increase to total current liabilities and decrease in total current assets which led to the decrease in the net working capital of the company. 2008-09. Hence. D) The average collection period of the company during the year 2006-07 is 125 days. F) Through the net working capital of the company is decreased. A) The company has gross profit for the past four years (2007-08. E) There is also satisfactory net cash flow from the operating. The liquidity position was in a good condition and in 2006-07. B) OPTCL didn’t manage the liquidity position of the company.On the basis of analysis on working capital management in OPTCL. By adapting better management practices. the following conclusion arrived. investing and financing activities of the organization. 2008-09. it is reduced to 85 days in 2007-08 and again it reduced to 57 days in 2008-09. in the year 2007-08. but the average collection period again increases to 126 days in 2009-10 and 132 days in 2010-11. still the company is in a better manageable position and the company’s present status of maintaining current assets and current liabilities and satisfactory. 2009-2010 and 2010-11 the company’s liquid assets were not satisfactory. Further. Govt. 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 4 years of data. Although the objective taken in research study is diverse. By taking the above remedial measures. There is further scope for studying these things. Further research can be also carried out the study of working capital management. Page 48 . Implications for future research This study is the foundation stone for carrying out further research in the field of working capital management. and other agencies etc. One of the major drawbacks of the study is the lack of time. current assets position will be improved through collection of revenue from power transmission as well as recovery of past dues from consumers. the management should focus on shortening its average collection period by changing its credit terms and conditions. For improvement of organization’s profitability.Recommendations OPTCL is the soul of Odisha’s power transmission and is playing a pivotal role in making surplus power consumption state through efficiently administering the system of transmission. This one of such preliminary research work and further review of this research work can open up many dimensions for researchers. 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. the organization can be an EVA+ company with due emphasis on proper way of managing the working capital. yet a trend can be observed from the findings for future research work. 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. 3. Ninth edition.optcl.n “Financial Management”.graw hill publishing company Ltd. New Delhi. Tata Mc.moneycontrol. Wishva Prakashan.R.. Maheswari Dr s. New Delhi 5.com www. sashi. Ltd.wikipedia.M. Prasanna Chandra. “Financial Management”. Fourth edition 1999. “Financial Management”. Vikas Publishing House Pvt. Working Capital Management Manages Flow of Funds (2009) “Working Capital Management-an effective tool for organizational success”(2008) Bibliography www.References Textbooks 1. New Delhi. “Research Methodology”. Kothari C.investopedia. Kalyani publisher. Gupta. New Delhi. 2. “Financial Management”. 8th edition 1999.. 4th edition. Working Capital Management.com www. Pandey I. 2006 sultan chand & sons.com Page 49 . 2007. 2001 Articles An overview of working capital management and corporate financing.com www. 4. Annexures Page 50 .