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  2. 2. I am sincerely expressing my gratitude to our Company guide Sri Samaredra Mohapatra & Project guide Asst.Prof.Sushmita Pradhan In Department of Master in Business Administration For his guidance, valuable suggestion and constant help without which the Completion of the present report was not possible. I am also grateful to the ASST. prof. SIDDHARTHA GHOSH Head of the Department of Master In Business Administration For kind permission to carry out this Seminar Report proving all kinds of information facilities. Bibekananda Das Mallik
  3. 3. This is to certify that Mr. Bibekananda das mallik of Department of MBA ASTHA SCHOOL OF MANAGEMENT doing Master of Business administration (MBA) has successfully completed his project work under the topic: working capital management from 18th, June to 31st July, 2013. REGARDS Sri SamarendraMohapatra AM (F), Banking
  4. 4. This is to certify that project Report entitled “working capital management in Odisha power Transmission Corporation limited” Carried out under the direction supervision of Asst.Prof.Sushmita Pradhan And is accepted as partial fulfillment for the requirement of 2nd semester M.B.A at Astha School OF Management, Bhubaneswar, Odisha. I am satisfied that He had worked sincerely and with proper care. Project Guide: H. O. D: Asst.Prof.Sushmita Pradhan ASST. prof. SIDDHARTHA GHOSH
  5. 5. I bibekananda das mallik, a student of Mba, 2nd semester of department of business administration, astha school of management, Bhubaneswar, odisha, session (2012-2013,) hereby declare that the project report entitled “WORKING CAPITAL MANAGEMENT at OPTCL, Bhubaneswar is the outcome of my own work and the same has not been submitted to any university/Institute for the award of any degree or any professional courses. All the data and analytic statement being stated in the project that had been submitted by me may be accepted as fully authentic genuine. Date: bibekananda das mallik.
  6. 6. CONTENT Chapter-1  Introduction Chapter-2  Research methodology  Purpose of the study  Scope of the study  Objective of the study  Need and importance of the study  Limitation of the Study. Chapter-3  Company profile  Vision and mission of OPTCL  Objectives of OPTCL  Functional Area  Organisation Structure Chapter-4  Theoretical Background Chapter-5 DATA COLLECTION  Instrumental Technique  Collection of data Chapter-6  Review of the literature
  7. 7. INTRODUCTION : 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 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 Odisha. Seeing the good opportunity to study financial systems and practices of OPTCL, it is relatively important take up internship assignment on „WORKING CAPITAL MANAGEMENT INOPTCL‟ . 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 asset 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 isomer 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.
  8. 8. RESEARCH METHODOLOGY Research methodology is a systematic approach in management research to achiever-defined objectives. It helps a researcher to guide during the course of research work. 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. 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 organization. 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 uninterrupted 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 CAPITALMANAGEMENT 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”.
  9. 9. PURPOSE OF THE STUDY  The purpose of doing this project is making thorough study of the process of working capital management followed by OPTCL.  To study the working capital policy followed by OPTCL  To study the factor influencing the purpose of working capital management at OPTCL and suggest some recommendation. SCOPE OF THE STUDY The company will be able to assess the process of working capital management. It is following and it will give a clear picture to the management about the technicalities of its adopted process of working capital management. OBJECTIVE OF THE STUDY  To study all the financial statement of OPTCL to identify operational performance of working capital management.  To identify the factor influencing the working capital management operation at OPTCL  To assess the working capital requirements  To find out alternative source.  To know the level of working capital needed for the smooth functioning of the organisation.  To find out opportunities available to OPTCL for the investments of surplus funds and to examine the various opportunities  To know the level of working capital needed for the smooth functioning of the organisation.
  10. 10. NEED AND IMPORTANCE OF THE STUDY  To identify the gap between current working capital and adequate working capital.  It helps to find out the amount needed for the regular payment of operating expenses (wages, salaries, repairs and maintenance).  It shows the solvency position of the organisation. LIMITATIONS OF THE STUDY This project does have certain limitations and they can be enumerated below:  Time constraint; - Due to shortage of time a more detailed and more exhaustive study could not be taken up.  Due to the lack of time, it is difficult to do an extensive study of working capital management.  There is no enough scope for gathering data. This is not a stock exchange listed company so its quite difficult to collect all the data .
  11. 11. PROFILE OF THE INDUSTRY  FORMATION OF GRIDCO The GRIDCO limited was incorporated on 20th April 1995 under the companies Act 1956 as a wholly owned Government of Orissa undertaking the company obtained the certificate of commencement of business on 6th July 1995. GRIDCO carried on the business of transmission and bulk supply of electricity and other related activities under an exclusive license issued by Orissa Electricity Regulatory Commission.  FORMATION OF GRIDCO The GRIDCO limited was incorporated on 20th April 1995 under the companies Act 1956 as a wholly owned Government of Orissa undertaking the company obtained the certificate of commencement of business on 6th July 1995. GRIDCO carried on the business of transmission and bulk supply of electricity and other related activities under an exclusive license issued by Orissa Electricity Regulatory Commission. RESTRUCTURING OF GRIDCO AND FORMATION OF OPTCL GRIDCO has three functioning:  The transmission and bulk supply activities in the State of Odisha.  Sale of energy outside the State of Odisha.  The State load dispatch functions. Keeping in view, the statutory requirement of the Electricity Act 2003 for separation of trading and transmission functions into two separate entities. The State government on 27.03.2004 incorporated Odisha power transmission corporation (OPTCL) as a wholly owned undertaking of the State Government to take over the transmission, STU and SLDC function of GRIDCO.
  12. 12. VISION OF OPTCL  To build up OPTCL as one of the best Transmission utility in the Country in terms of uninterrupted power supply, minimizing the loss, contributing to state's Industrial growth.  Development of a well co-ordinated transmission system in the backdrop of formation of strong National Power Grid as a flagship, endeavour to steer the development of Power System on Planned path leading to cost effective fulfilment of the objective of 'Electricity to All' at affordable price. MISSION OF OPTCL  Plan & operate the transmission system so as to ensure that transmission system built, operated and maintained to provide efficient, economical and co-ordinated 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 by the year 2009 for 100% availability of power to each family.  To maintain the system losses at par with that of National level.  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
  13. 13. OPTCL PROFILE  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 function.  Number of employees as on (10.05.2010) : 3145 Executives-759, Non-Executives - 2836  Number of posts vacant as on 01.05.2009: 1782 Executives-845, Non-Executives- 937  Number of Pensioners as on 01.05.2009: 6600  Number of Grid S/S including switching stations – 95  Length of EHT lines – 10,902.479 Ckt-Kms.  Number of Bays – 1597(30th Oct 2010) 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 Odisha to undertake the business of transmission and wheeling of electricity in the State. The registered office of the Company is situated at Bhubaneswar, the capital of the State of Odisha. 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 Odisha Electricity Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the provisions of Electricity Act, 2003 and the Odisha 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.
  15. 15. POWER SECTOR REFORM IN THE STATE - OPTCL. 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, 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 Odisha Limited (GRIDCO) and Odisha 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 Odisha 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 Odisha Electricity Reform Act, 1995, the State Govt. notified the Odisha 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 Odisha Limited (CESCO), North Eastern Electricity Supply Company of Odisha Limited (NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) & Western Electricity Supply Company of Odisha Limited (WESCO) were incorporated under the Companies Act, 1956 as separate corporate entities. During November 1998 the State Govt. issued the “Odisha Electricity Reform (Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules 1998” wherein the electricity distribution and retail supply activities along with the related assets, liabilities, personnel and proceedings were transferred from GRIDCO to the four Distribution Companies. Through a process of international Competitive Bidding (ICB), the four Distribution Companies were privatized during 1999. After separation of Distribution business, GRIDCO left with electricity Transmission and Bulk Supply/Trading activities. GRIDCO was also declared as the State Transmission Utility and was discharging the functions of State Load Dispatch Center (SLDC). The Government of India enacted the Electricity Act, 2003 which came into effect from 10th June 2003. Under the provisions of the said Act, trading in electricity has been recognized as a distinct licensed activity, which can only be undertaken by a licensee to be granted by the appropriate commission. The Act specifically prohibits the STU and Transmission Company in the State from engaging in the business of trading. GRIDCO being a State Transmission Utility was not permitted to engage itself in the trading in electricity and was required to segregate its
  17. 17. Installed Capacity (MW) & System Demand Hydro 1918.875 MW Thermal 880.000 MW Total 2798.875 MW GRIDCO's Share From Central Sector 690.460 MW Grand Total 3489.335 MW Hydro Thermal Mix Ratio 2.18 : 1 GRIDCO's Average Demand 1583 MW During OCT-03 Morning Peak 1858 MW At 09.00 Hr On 27.10.03 Evening Peak 2127 MW At 20.00Hr On 20.10.03 Peak System Demand 1850MW STATE SECTOR GENERATION SL. NAME OF POWER STATION INSTALLED CAPACITY ( MW) FIRM POWER (MW) 1. O.H.P.C. HIRAKUD POWER STATION (a)BURLA (b)CHIPLIMA 2x49.5 = 99 *2x24.0 = 48 3X37.5 = 112.5 3x24 = 72 331.5 134 BALIMELA POWER HOUSE 6x60 = 360 135 RENGALI POWER HOUSE 5x50 = 250 85.7 UPPER KOLAB POWER HOUSE 4x80 = 320 95 INDRAVATI POWER HOUSE 4x150 = 600 225 MACHHKUND POWER HOUSE ( Orissa Share 50%) 3x17 = 51 3x21.25 = 63.75 57..375 40 TOTAL HYDRO , (A) = 1918.875 2. N.T.P.C.(TAKEN OVER) TTPS STAGE-I** 4x60 = 240 151 TTPS STAGE - II 2x110 = 220 138 TOTAL TTPS = 460
  18. 18. NEW PROJECTS Expansion of OPGW network This project is intended to extend OPGW to all generating stations and Substations of 220kV and above in fi phase(1364kM) and balance 132kV Grid substations in second phase (2071kM). Ultimately the existing data points for SCADA integration shall be enhanced from existing 12 numbers to 34. This project is aimed to pro band connectivity for acquisition of data from new substations of OPTCL as well as upcoming IPP/CGP/CG estimated for stringing of 3545 kM of OPGW , covering the entire state, which will enable OPTCL to enter i business in future . Permissive Access Control System in OPTCL Tower The Project is aimed at installation & commissioning of Permissive Access Control System in OPTCL Towe floors to restrict the access of unauthorised persons to the building. SCADA integration of all Grid Substations The project is aimed to install RTU in the remaining sub stations which are excluded in the scope of ULDC p will cover 30 existing substations as well as 6 Nos of substations presently under construction through PGCI RTUs shall be integrated to the existing ULDC SCADA database. Besides this, integration for future 18 subs shall also be taken up successively. Reframing of Microwave Radio links As per the decision taken up by WPC, the allocation of spectrum operating in the frequency band from 2.3 to for microwave radio links in ULDC network, shall be withdrawn. This project is planned for reframing the e links by OPGW at the shortest transition time which is presently under progress PLCC aided line Protection Scheme This protection scheme uses an interfacing equipment (coupler) between Protection relay and communication tripping command originating from protection relay at one end gets transferred over PLCC and actuates prote at the opposite end of the line section at the shortest time, so that simultaneous tripping of circuit breakers at possible. So far, 14 Nos of line sections have been provided with protection couplers and presently in operati Further,action has been initiated for deployment of protection couplers in the balance 220kV line sections.
  19. 19. REGULATION AND TARIFF WING OPTCL raises customer-bills on a monthly basis as follows: Intra-state transmission charge bills are raised upon grid co towards transmission of energy for four discos (cues, Ensco, south co and Wasco) who are long-term open access customers. Bills on other long-term open access customers like Nalco and icicle are raised for wheeling of energy from their caps to their industries located at damanjodi and therubali respectively. Inter-state wheeling charge bills are raised upon scab, muse, and mesh, did and den for wheeling of central sector power to their territories through optical network. Inter-state wheeling charge bills are raised upon muse / scab for wheeling of power from harked power station (5 mw share of map.)
  20. 20. Meaning Of Working Capital Business organization require adequate capital to establish business and operate their activities. The total capital of a business can be classified as fixed capital and working capital. Fixed capital is required for the purchase of fixed assets like building, land, machinery, furniture etc. Fixed capital is invested for long period, therefore it is known as long-term capital.Similarly, the capital, which is needed for investing in current assets, is called working capital. The capital which is needed for the regular operation of business is called working capital. Working capital is also called circulating capital or revolving capital or short-term capital. Working capital is used for regular business activities like for the purchase of raw materials, for the payment of wages, payment of rent and of other expenses. Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc. Concept Of Working Capital Generally, there are two concepts of working capital i.e. gross concept and net concept. 1.Gross Concept Of Working Capital According to gross concept, working capital refers to all the current assets and represents the amount of funds invested in current assets. Thus, gross working capital is the capital invested in current assets. Current assets are those assets which can be converted into cash within the short-time period. Gross Working Capital = Total current assets In this way, gross working capital refers to the firm's investment in current assets. Gross working capital represents total of current assets which includes cash in hand, cash at bank, inventory, prepaid expenses, bills receivable etc. 2.Net Concept Of Working Capital According to the net concept, working capital is the excess of current assets over current liabilities. In other words, the difference between current assets and current liabilities is called net working capital.
  21. 21. CONCEPT Concept of working capital includes meaning of working capital and its nature. Working capital is the investment in current assets. Without this investment, we can not operate our fixed assets properly. For getting good profits from fixed assets, we need to buy some current assets or pay some expenses or invest our money in current assets. For example, we keep some of cash which is the one of major part of working capital. At any time, our machines may need repair. Repair is revenue expense but without cash, we can not repair our machines and without machines, our production may delay. Like this, we need inventory or to invest in debtors and other short term securities. On the basis of Concept, we can divide our working capital into two parts:
  22. 22. There are 5 types of working capital. They are as under: 1. Permanent working capital 2. Temporary working capital 3. Gross working capital 4. Net working capital 5. Negative working capital COMPONENTS OF WORKING CAPITAL Current assets i. Liquid assets (cash and bank deposits) ii. Inventory iii. receivables Debtors and Current liabilities i. Bank overdraft ii. Creditors and payable
  23. 23. CONSTITUENTS OF CURRENT ASSETS Cash in hand and bank balance. Bills receivables. Sundry Debtors (less provision for bad debt). Short – term loans and advances. Inventories of stock, as: (a) Raw materials (b) Work- in – progress (c) Stores and spares, (d) Finished goods Temporary Investment of Surplus Funds Prepaid Expenses Accrued Incomes CONSTITUENTS OF CURRENT LIABILITIES 1. Bills Payables 2. Sundry Creditor or Accounts Payable. 3. Accrued or Outstanding 4. Short – term loans, advances and deposit 5. Dividends Payable 6. Bank overdraft 7. Provision for taxation, if it does not amount to appropriation profits.
  24. 24. PRINCIPLES OF WORKING CAPITAL MANAGEMENT/POLICY The following are the general principles of a sound working capital management policy: 1. Principal of Risk variation. Risk here refers to the inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current assets with less dependence on short-term borrowings increases liquidity, reduces dependence short-term borrowings increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the other investment in current assets with greater dependence on short-term borrowings increases risk, reduces liquidity and increase profitability. In other words, there is a definite inverse relationship between the degree of risk and profitability. A conservative management prefers to minimize risk by maintaining a higher level of current assets or working capital while a liberal management assumes grater risk by reducing working capital. However, the goal of the management should be establish a suitable trade off between profitability and risk. The various working capital policies indicating the relationship between current assets and sales are depicted below: 2. Principal of cost capital. The various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher the risk lower is the cost and lower the risk higher cost. A sound working capital management should always try to achieve a proper balance between there two. 3. Principle of Equity position. This principal is concerned with planning the total investment in current assets. According to this principal, the amount of working capital invested in each component should be adequately justified a firm’s equity position. Every rupee invested in the assets should contribute to the net worth of the firm. The level of current assets may be measured with the help of two ratios: (i) Current assets as a percentage of total asses and (ii) Current asses as a
  25. 25. FUNCTION Working capital is needed for the following purposes: (1) replenishment of inventory (2) provision of operating expenses (3) support for credit sales (4) provision of a safety margin
  26. 26. IMPOTANTS Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as they fall due. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually means that the level of debtors will increase. A general increase in the firm’s scale of operations tends to imply a need for greater levels of cash.
  27. 27. Advantages of adequate working capital i) Helps in maintaining goodwill of the firm. ii) Helps in maintaining solvency of the firm. iii) Helps the firm in getting regular supply if raw material. iv) Helps the firm in getting regular return on investment. v) Helps the firm in getting payment. vi) Helps the firm to face the crisis. Vii) Helps the firm in getting loan easily from the banks. Viii) Helps the firm in getting cash discount. Disadvantages of inadequate working capital i) It leads to excessive debtors. ii) Spare funds are of no use and earn no profit. iii) Firm fails to maintain the relationship with the banks due to non requirement of funds. iv) Leads to unnecessary purchasing.
  28. 28. The various sources for the financing of working capital are as follows: Sources of Working Capital Permanent of Fixed Temporary or Variable 1. Shares 1. Commercial Banks 2. Debentures 2. Indigenous Bankers 3. Public Deposits 3. Trade Creditors 4. plugging back of profits 4. Installation Credit 5. Loans from Financial 5. Advances Institutions 6. AccountsReceivable 7. Accrued Expenses 8. Commercial Paper
  29. 29. FINANCIAL STATEMENT ANALYSIS: Comparative Analysis: It is a simple method of identifying periodic changes in the financial performance of the company. It helps in highlighting the significant points and facts about the company .Comparative financial statements will contain items at least for two period’s .Changes increases or decreases in income statement and balance sheet over periods can be shown in two ways – aggregate and proportional change. Ratio Analysis: Mere statistics / data presented in the different financial statements do not reveal the true picture of a financial position of a firm. Properly analyzed and interpreted financial statements can provide valuable insights into a firm’s performance. To extract the information from the financial statements, a number of tools are used to analyze such statements. The most popular tool is the ratio analysis. The analysis is used to provide indicators of performance in terms of critical success factors of a business. This assistance in decision –making reduces reliance on guesswork and intuition and establishes a basis for sound judgment. SIGNIFICANCE OF USING RATIOS: The significance of a ratio can only truly be appreciated when:  It is compared with other ratios in the same set of financial statements.  It is compared with the same ratio in previous financial statements (trend analysis).  It is compared with a standard of performance (industry average).Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.
  30. 30. TYPES OF RATIOS: Following are the main types of ratios are as follows 1. Solvency ratios 2. Activity ratios 3. Profitability SOLVENCY RATIO: It can be of two types such as Short term solvency ratio or liquidity ratio Long term solvency ratio SHORT TERM SOLVENCY RATIO OR LIQUIDITY RATIO : Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their short –term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation. Following ways are used to measure the liquidity of a firm; 1. CURRENT RATIO: The current ratio expresses the relationship between the firm’s current assets and its current liabilities. As a convention rule, a current ratio should be 2:1. It is based on the logic that even in the worst situation if the value of current assets becomes half, firm will be
  31. 31. able to meet its obligation. Current ratio represents a margin of safety for creditors. But it should be not followed blindly, because it tests the quantity not the quality. Current Ratio= Current assets Current liability 2. QUICK RATIO: It establishes the relationship between liquid assets and current liabilities. An asset is liquid if it is quickly converted into cash immediately without any loss of value. Generally 1:1 ratio is considered to be satisfactory for financial condition of the company. Quick Ratio = Current assets-Inventories-Prepaid Expenses Current Liability- Overdraft 3. ABSOLUTE LIQUID RATIO: There may be down regarding reliability receivables in time. So some authority are of opinion that absolute liquid ratio should be calculated for knowing short term solvency. The absolute liquid ratio, the relationship between Absolute liquid asset and current liabilities. Absolute liquid asset includes cash in hand, cash at bank and marketable securities. A ratio of 1:2 is considered as good ratio. Absolute liquid ratio = Absolute liquid asset Current liabilities
  32. 32. LONG TERM SOLVENCY RATIO: The ratios indicate the degree to which the activities of a firm are supported by creditor’s funds as opposed to owners. The relationship of owners equity to borrowed funds is an important indicator of financial strength . The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicate a surplus which shields creditors against possible losses from default in payment. The following ratios can be used to identify the financial strength and risk of the business.  EQUITY RATIO: The high equity ratio reflects a strong financial structure of the company. A relatively low equity ratio reflects a more speculative situation because of the effect of high leverage and the greater possibility of financial difficulty arising from excessive debt burden. Equity Ratio = Share holders Funds X 100% Total Assets  DEBT RATIO: This is the measure of financial strength that reflects the proportion of capital which has been funded by debt, including preference shares. This ratio is calculated as follows: Debt Ratio = Total Debt X 100% Total Assets
  33. 33.  DEBT TO EQUITY RATIO: This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. The debt to equity ratio is calculated as follows: Debt Equity Ratio = Total Debt X 100% Net Worth ACTIVITY RATIOS: If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Activity ratios are therefore used to assess how active various assets are in the business.  INVENTORY TURNOVER RATIO: It indicates the efficiency of the firm in producing and selling its product. This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. Inventory Turnover Ratio = cost of Goods sold Average inventory Average inventory’ refers to simple average of opening and closing inventory. The inventory turnover ratio tells the efficiency of inventory management. Higher the ratio, more the efficient of inventory management. INVENTORY HOLDING PERIOD: It is also known as inventory velocity. It is an average time taken for the clearing the stocks. This period is calculated by dividing the number of days in a year by inventory turnover ratio.
  34. 34. Inventory holding period = 360 days Inventory turnover ratio  DEBTOR TURNOVER RATIO: The debtor turnover ratio measures the movement of debtors in corporations. It also indicates the velocity / turnover of debt collection of a firm. The higher the value of debtor turnover the more efficient is the management of debtors/ sales on more liquid cash. Debtors turnover ratio = Net Credit Sales Average Debtors  DEBTOR COLLECTION PERIOD: Average collection period represents the number of days worth credit sales that is locked in debtors (accounts receivable). Average collection period and the accounts receivable (debtors) turnover are related as follows; Average Collection period = 360 days Debtors turnover ratio  TOTAL ASSETS TURNOVER RATIO: It helps in measuring how efficiently all types of assets are employed. It gives the information about, for each rupee which company has invested in assets what amount of sales it has generated from that. A high total assets turnover ratio is good for the company.
  35. 35. Total Assets turnover ratio = Net sales Average total assets  DEFERRAL PERIOD: It is the average time taken by the firm in paying its suppliers. Deferral period = Creditors X 360 days credit purchase  WORKING CAPITAL TURNOVER RATIO: This is the ratio of sales to net working capital. The higher the ratio is better for the company. It indicates the sales generated by the company out of 1 rupee invested in net current assets. Working Capital Turnover Ratio = Sales Net Working Capital PROFITABILITY RATIOS: Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity , asset management ( activity ) and debt management on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources. It evaluates the efficiency of a company in terms of profit. Profitability and operating / management efficiency of a firm is judged mainly by the following profitability ratios:
  36. 36. GROSS PROFIT MARGIN: Normally the gross profit has to rise proportionately with sales. It may be calculated by subtracting the cost of goods sold from net sales. Gross profit margin = Net sales - cost of goods sold X 100 Net sales It reflects the efficiency with which the company produces each unit of product. Higher the percentage the better it is for the company.  OPERATING PROFIT MARGIN: This is the ratio of operating profit to sales. Operating profit margin = Operating profit X 100 Net sales The term operating profit is the difference between gross profit t and administration and selling overheads. Non operating income and expenses are excluded. Interest expenditure is also excluded because interest is the reward for a particular form of financing and has nothing to do with operating activities. Higher the percentage the better it is for the company.  NET PROFIT MARGIN: The term net profit refers to the final profit of the company. It takes into account all incomes and all expenses including interest costs. It is also known as profit after tax. Higher the percentage the better it is for the company. Net profit margin = Net profit X 100 Net sales
  37. 37. RETURN ON TOTAL ASSETS OR RETURN ON INVESTMENT: Income is earned by using the assets of a business productively. The rate of return on total assets indicates the degree of efficiency with which management has used the assets o f the enterprise during an accounting period. This is an important ratio for all readers of financial statements. Return on investment = EBIT Total Assets
  38. 38. Particulars 2007-08 ( Audited) 2008-09 (Audited) 2009-10 (Audited) 2010-11 (Audited) 2011-12 (Audited) INCOMES Revenue from Wheeling of Power 399.75 678.92 305.16 405.19 570.54 - - - Miscllaneous Income 28.21 36.84 136.62 25.50 21.44 - - - Inter state Wheeling 4.67 0.64 27.21 5.29 5.00 Other Income 23.54 36.20 109.41 20.21 16.44 TOTAL 427.96 715.76 441.78 430.69 591.98 EXPENDITURE Administration, General & Other Expenses 239.99 527.75 349.84 272.13 399.82 Gross Employee Cost 210.65 500.26 302.70 219.55 286.59 Gross R & M Cost 16.52 16.91 26.14 28.31 45.70 Gross A & G Cost 17.91 18.24 26.69 33.81 83.04 Less: Capitalisation (5.09) (7.66) (5.69) (9.54) (15.51) Depreciation 108.54 109.82 108.03 122.34 125.68 Total Expenditure 348.53 637.57 457.87 394.47 525.50 Profit/(Loss) before interest & finance Charges 79.43 78.19 (16.09) 36.22 66.48 Interest & Finance Charges 110.65 97.25 54.16 42.44 57.83 Gross Interest Cost 101.21 90.69 49.19 36.42 58.61 Less: Capitalisation (0.58) (4.04) (5.18) (2.58) (8.22) Finance Charges 10.02 10.60 10.15 8.60 7.44 Net Prior Period Items (Net) 27.58 0.75 (1.11) (6.51) (18.99) Profit/(Loss) before Tax (3.64) (18.31) (71.36) (12.73) 27.64 Income Tax(MAT) 0 0 0 0 - Profit/(Loss) after Tax (3.86) (18.54) (71.36) (12.73) 27.64 Balance of P&L c/f to Balance Sheet (49.24) (77.77) (160.06) (184.67) (157.03) ODISHA POWER TRANSMISSION CORPORATION LTD Regd. Office: Janpath, Bhubaneswar-751022 Profit & Loss Account for the year ended 31st March
  39. 39. (Rs. In Crores) Particulars FY07-08 (Audited) FY08-09 (Audited) FY09-10 (Audited) FY10-11 (Audied) FY11-12 (Audited) FY12-13 (Estimated) Sources of Funds Shareholders Fund - - - - - - Share Capital 60.07 83.12 88.12 123.12 158.12 158.12 Reserves and surplus 536.84 553.17 568.13 585.16 603.16 622.19 Total Shareholders Fund 596.91 636.29 656.25 708.28 761.28 780.31 Loan Funds Total Loan Funds 1,415.29 1,311.66 1,240.23 1,200.97 1,431.83 1,515.38 Other Funds Consumer Security Deposit 0.01 0.01 0.01 0.01 0.01 0.01 Total 2,012.21 1,947.96 1,896.49 1,909.26 2,193.12 2,295.70 Application of Funds ASSETS FixedAsset Gross Block 2,272.54 2,415.26 2,654.06 2,700.29 2,800.00 3,200.00 Less: Accumulated Depreciation 1,034.01 1,143.75 1,267.93 1,425.02 1,550.02 1,827.97 Net Block 1,238.53 1,271.51 1,386.13 1,275.27 1,249.98 1,372.03 Capital Work in Progress 722.14 671.1 605.22 852.35 962.20 964.98 Total 1,960.67 1,942.60 1,991.35 2,127.62 2,212.18 2,337.01 Investments 27.06 27.06 27.06 39.91 45.61 52.09 Current Assets Stores & Spares 76.69 80.85 76.69 76.69 76.69 76.69 Sundry Debtors 105.25 105.51 89.04 88.44 89.05 88.77 Loans and Advances 14.33 286.87 37.98 20.14 22.55 53.64 Cash and Bank Balances 49.09 90.7 40.38 63.83 29.84 93.1 Other Current Assets 65.26 66.7 65.26 65.26 65.26 65.26 Total Current Assets 310.61 630.63 309.35 314.36 283.39 377.46 Less: Total Current Liabilities 335.97 730.4 518.84 678.99 468 608.8 Short TermBorrowings 0 0 0 0.00 0.00 0.00 Net Current Assets (25.36) (99.77) (209.49) (364.63) (184.61) (231.34) Miscellaneous Expenditure to the extent not written off or adjusted 0.61 0.31 0.01 0 0 0 Profit and Loss Account 49.23 77.76 87.56 106.36 119.94 137.94 Total 2,012.21 1,947.96 1,896.49 1,909.26 2,193.12 2,295.70 Regd. Office: Janpath, Bhubaneswar-751022 Balance Sheet as at 31st March
  40. 40. ANALISIS OF OPTCL ORGANISATION  NET WORKING CAPITAL = TOTAL CURRENT ASSET-TOTAL CURRENT LIABILITY PARTICULARS 07-08 Rs.Cr 08-09 Rs.Cr 09-10 Rs.Cr 10-11 Rs.Cr 11-12 Rs.Cr 12-13 Rs.Cr TOTAL CURRENT ASSET (A) 310.61 630.63 309.35 314.36 283.39 377.46 TOTAL CURRENT LIABILITY (B) 335.97 730.4 518.84 678.99 468 608.8 NET WORKING CAPITAL (A-B) -25.36 -99.77 -209.49 -364.63 --184.63 -231.34
  41. 41. REVIEW OF THE LITERATURE: In analysis of this organization, OPTCL is the only transmission utility in the state of odisha, there is no competition from any other transmission corporation limited. The strong transmission network is having 81 grid substations spread throughout the state, is a great asset of optcl. A strong team of technically skilled work force is another grid asset to the organization. There is enough scope for creating network for both inter as well as intra state in the absence of any competitors. Availability of technical persons within the state in a large number is an opportunity in the organization for fresh recruitment. Continuous operation and maintenance of grid substation and extra high voltage (EHV) transmission lines has become a challenge to the organization, unless properly maintained it will break down of the entire system. There is a great competition in the international market and also there is a chance of invention of other transmission company in the state. It helps to transport the power from one state to another state, which also generates revenue. Use of superior technology in power supply also helps to decrease in cost and increase in revenue. Lack of computerization system in the organization also decreases the efficiency and increase the cost.
  42. 42. BIBLIOGRAPHY: Financial Management – Sharma and Gupta ,I.M. Pandey Financial Management – S.N. Maheshwari Annual Report of OPTCL