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CHAPTER-1                                    INTRODUCTIONBACKGROUND OF STUDY:Whatever may be the organization, working cap...
RELEVANCE OF STUDYAt OPTCL a substantial part of the total assets are covered by current assets. Currentassets form around...
but at the same time, it will consume a lot of working capital. Here creeps theimportance and need of efficient working ca...
LIMITATIONS OF THE STUDY:-Following are the limitations of the study:1) The topic working capital management is itself a v...
CHAPTER-2                              COMPANY PROFILEORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)Registered Office: ...
VISION AND MISSION OF OPTCL:VISION:1)To build up OPTCL as one of the best transmission utility in the country in terms ofu...
OPTCL being a State Transmission Utility Public Authority has set the followingobjectives.Undertake transmission and wheel...
Grid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro PowerCorporation Limited (OHPC) were established in April 199...
from 10th June 2003. Under the provisions of the said Act, trading in electricity hasbeen recognised as a distinct license...
(FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06) 5) BSES took over management and operational control of 3 Distribut...
CHAPTER-3: REVIEW OF LITERATUREThe purpose of this chapter is to present a review of literature relating to the workingcap...
Appuhami, Ranjith B4 (2008), studied impact of firms capital expenditure on theirworking capital management. The author us...
Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital managementon the operating performance and growth o...
Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maximamongst financial managers. Workin...
Eljelly13 (2002) empirically examined the relationship between profitability andliquidity, as measured by current ratio an...
Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small tomedium-sized enterprises (SMEs) from Spain co...
Mehmet SEN, Eda ORUC (2005)19 in the study “Relationship between theefficiency of working capital management and company s...
CHAPTER-4                           RESEARCH METHODOLOGYResearch methodology is a systematic approach in management resear...
working capital management in ORISSA POWER TRANSMISSION CORPORATIONLIMITED (OPTCL) is Descriptive and Analytical Research ...
ROLE OF RATIO ANALYSISRatio analysis helps to appraise the firms in the term of there profitability and efficiencyof perfo...
B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship betweenquick or liquid assets and liabilities. An ass...
B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount ofsales, a relative amount of working capital is needed...
CHAPTER-5                               RESULTS AND FINDINGSThe result and discussion of the study is presented in five di...
c) Inventories were increased at a good speed. The inventories were Rs 79,81,96,201 in2006-2007. In 2007-2008 it increased...
CL/TA (Current                  0.11              0.13        0.24             0.26Liabilities to TotalAssets)SK/CA (Stock...
G) Current liability to total asset ratio came 0.11 in 2006-2007, in 2007-2008 it came0.13, and in 2008-2009 and 2009-2010...
Table-5.3 revels the components of current ratio, quick ratio and absolute quickratio. From the table following things can...
h) Cash conversion ratio for inventory came 77days, 70 days, 43 days and 115 days.Cash conversion for debtor comes 125 day...
THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF                    THE ORGANIZATION.                             ...
A) 2006-2007 it was found that the current ratio was 1.28:1 which is below the standardof 2:1. It is due to a decrease of ...
QUICK RATIO       0.7       0.6                          0.58       0.5   R                                           0.46...
TABLE 5.6    ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT                         LIABILITY):   YEAR          Abs...
A) In the year 2006-2007 the Absolute Liquid Ratio was found to be 0.25:1. Though it       is below the normal standard st...
Provisions                             1,91,87,52,382    3,52,31,00,656          47,36,52,134NET WORKING CAPITAL CHANGES  ...
d)That, the net cash flow from its operating, investing and financing activities for the   year 2009-2010 is a negative fi...
to excessive of provisions. In that year current liabilities exceeds current assets. In2009-2010, working capital again be...
From the table 5.9 followings things are derived: It is observed that in 2006-2007,working capital indices was very high d...
From the table 5.10 following things derived:   A) In the year 2006-2007, there was an increased in working capital turnov...
From the table 5.11 following things are derived:By going through the statement showing changes in working capital the fol...
J) It is found that the current asset‟s figure is decreased from the previous year‟s figure& the current liabilities figur...
By going through the table5.12 showing changes in working capital the followingresults can be made:a) That, the total curr...
j)It is found that the current asset‟s figure is decreased from the previous year‟s figure &the current liabilities figure...
CURRENT ASSET INDICES               250               200                                                     196.15 i n  ...
CURRENT ASSET TURNOVER RATIO           1.4                                           1.29           1.2                   ...
p        e        r                                                                                        stores and spar...
TABLE 5.17                                    CURRENT LIABILITIES SIZE                                     CURRENT LIABILI...
DEBTOR TURN OVER RATIO         7                                                              6.44         6         5    ...
B) In the year 2007-2008 the debtor‟s turnover ratio is 4.32 times and the averagecollection period is 85 days. This year,...
levels. They could be then held accountable for delivering, encouraged to beenterprising and to act as change agents.d) Wo...
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
PROJECT ON WORKING CAPITAL MANAGEMENT
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PROJECT ON WORKING CAPITAL MANAGEMENT

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A STUDY OF WORKING CAPITAL MANAGEMENT IN OPTCL(ORISSA POWER TRANSMISSION CORPORATION LIMITED)

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  1. 1. CHAPTER-1 INTRODUCTIONBACKGROUND OF STUDY:Whatever may be the organization, working capital plays an important role, as thecompany needs capital for its day to day expenditure. Thousands of companies fail eachyear due to poor working capital management practices. Entrepreneurs often dontaccount 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 thecurrent 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 aproper way of management of working capital is highly essential to ensure a dynamicstability of the financial position of an organization.OPTCL is one of the largest power transmission organizations in the country, whichplays the role of transmission of electricity in the entire state of Orissa. Seeing the goodopportunity to study financial systems and practices of OPTCL, it is relatively importanttake up internship assignment on „WORKING CAPITAL MANAGEMENT INOPTCL‟. During the project work, it is being analyzed the working capital position ofthis organization. Decisions relating to working capital and short term financing arereferred to as working capital management. These involve managing the relationshipbetween a firms short-term assets and its short-term liabilities. The goal of Workingcapital management is to ensure that the firm is able to continue its operations and thatit has sufficient money flow to satisfy both maturing short-term debt and upcomingoperational expenses.Working capital management deals with maintaining the levels of working capital tooptimum, because if a concern has inadequate opportunities and if the working capital ismore than required then the concern will lose money in the form of interest on theblocked funds. Therefore working capital management plays a very important role inthe profitability of a company. And also due to heavy competitions among differentorganization‟s it is now compulsory to look after working capital [1]
  2. 2. RELEVANCE OF STUDYAt OPTCL a substantial part of the total assets are covered by current assets. Currentassets form around 30%- 40% of the total assets. However this could be less profitableon the assumption that current assets generate lesser returns as compared to fixed assets.But in today‟s competition it becomes mandatory to keep large current assets in form ofinventories so as to ensure smooth production an excellent management of theseinventories has to be maintained to strike a balance between all the inventories requiredfor the production.So, in order to manage all these inventories and determine the investments in eachinventories, the system call for an excellent management of current assets which isreally a tough job as the amount of inventories required are large in number.Here comes the need of working capital management or managing the investments incurrent assets. Thus in big companies like OPTCL it is not easy at all to implement agood working capital management as it demands individual attention on its differentcomponents.The study of working capital management is very helpful for the organisation to knowits liquidity position. The study is relevant to the organization to know the day to dayexpenditure. This study is relevant to give an idea to utilise the current assets.This study is also relevant to the student as they can use it as a reference. This reportwill help in conducting further research. Other researcher can use this project assecondary dataPROBLEM STATEMENT:Working capital management or simply the management of capital invested in currentassets is the focus of study. So topic is to study working capital management of OPTCL.Working capital is the fund invested by a firm in current assets. Now in a cut throatcompetitive era where each firm competes with each other to increase their productionand sales, holding of sufficient current assets have become mandatory as current assetsinclude inventories and raw materials which are required for smooth production runs.Holding of sufficient current assets will ensure smooth and un interrupted production [2]
  3. 3. but at the same time, it will consume a lot of working capital. Here creeps theimportance and need of efficient working capital management. Working capitalmanagement aims at managing capital assets at optimum level, the level at which it willaid smooth running of production and also it will involve investment of nominalworking capital in capital assets.“The problem generally explains that, less attention has been paid to the area of short-term finance, in particular that of working capital management. Such neglect might beacceptable were working capital considerations of relatively little importance to thefirm, but effective working capital management has a crucial role to play in enhancingthe profitability and growth of the firm. Indeed, experience shows that inadequateplanning and control of working capital is one of the more common causes of businessfailure.”HYPOTHESIS OF THE STUDY:The following are the hypothesis of the study1) The firm is facing difficulty in paying short-term debt.2) The firm is not properly managing the sundry debtor.3) The current liabilities are increasing than current assets year by year.OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives tobe fulfilled. This study is not an exception to it. The following are a few straightforward goals which i have tried to fulfil in my project:1) To study the various components of working capital.2) To analyze the liquidity trend.3) To analyze the working capital trend.4) To appraise the utilization of current asset and current liabilities and find out short-comings if any.5) To suggest measure for effective management of working capital. [3]
  4. 4. LIMITATIONS OF THE STUDY:-Following are the limitations of the study:1) The topic working capital management is itself a very vast topic yet very importantalso. Due to time restraints it was not possible to study in depth in get knowledge whatpractices are followed at OPTCL.2) Many facts and data are such that they are not to be disclosed because of theconfidential nature of the same.3) Since the financial matters are sensitive in nature the same could not acquired easily.4) The study is restricted to only the Four Year data of OPTCL.CHAPTERISATION:Following are the chapterisation of the study:Chapter-1 represents the background of the study, relevance of the study, problemstatements, hypothesis, objectives as well as limitations of the study.Chapter-2 represents company profile of OPTCL.Chapter-3 represents review of literature.Chapter-4 represents research methodology of the study including sources of datacollection, formulas and statistical tools used for data analysis.Chapter -5 represents results and findings.Chapter -6 represents conclusion and suggestion.Chapter -7 represents implication for future research. [4]
  5. 5. CHAPTER-2 COMPANY PROFILEORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /2542320ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of thelargest Transmission Utility in the country was incorporated in March 2004 under theCompanies Act, 1956 as a company wholly owned by the Government of Orissa toundertake the business of transmission and wheeling of electricity in the State. Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a deemed Transmission Licensee under Section 14 of Electricity Act, 2003) Notified as the State Transmission Utility (STU) by the State Govt. and discharges the State Load Dispatch functions.The registered office of the Company is situated at Bhubaneswar, the capital of the Stateof Orissa. Its projects and field units are spread all over the State. OPTCL became fullyoperational with effect from 9th June 2005 consequent upon issue of Orissa ElectricityReform (Transfer of Transmission and Related Activities) Scheme, 2005 under theprovisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the StateGovernment for transfer and vesting of transmission related activities of GRIDCO withOPTCL. The Company has been designated as the State Transmission Utility in termsof Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intrastate transmission and wheeling of electricity under a license issued by the OrissaElectricity Regulatory Commission. The Company is also discharging the functions ofState Load Despatch Centre. The Company owns Extra High Voltage Transmissionsystem 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. Theday-to-day affairs of the Company are managed by the Managing Director assisted bywhole-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 thevarious fields. [5]
  6. 6. VISION AND MISSION OF OPTCL:VISION:1)To build up OPTCL as one of the best transmission utility in the country in terms ofuninterrupted power supply, minimizing the loss, contributing states‟ industrial growth.2)Development of a well coordinated transmission system in the backdrop of formationof strong National Power Grid as a flagship, endeavour to steer the development ofPower System on Planned path leading to cost effective fulfilment of the objective ofElectricity to All‟ at affordable price.MISSION:Plan & operate the Transmission system so as to ensure that transmission system built,operated and maintained to provide efficient, economical and coordinated system ofTransmission and meet the overall performance Standards.(i) To upgrade the transmission system network so as to handle power to the tune of3000 MW for 100% availability of power to each family.(ii) To impart advanced techno managerial training to the practicing engineers and workforce so as to professionalism them with progressive technology and capablecommercial organization of the country so as to build up the most techno-commerciallyviable model of the countryOBJECTIVES OF OPTCL:To effectively operate Transmission lines and Sub-Stations in the State for evacuationof power from the state generating stations feed power to state distribution companies,wheeling of Power to other states, maintenance of the existing lines and sub-stations forpower transmission and to undertake power system improvement by renovation, up-gradation and modernization of the transmission network. [6]
  7. 7. OPTCL being a State Transmission Utility Public Authority has set the followingobjectives.Undertake transmission and wheeling of electricity through intra- State Transmissionsystem1) Discharge all functions of planning and coordination relating to Intra State, interState transmission system with Central Transmission Utility, State Govt. GeneratingCompanies, Regional Power Board, Authority, Licensees or other person notified byState Govt. in this behalf.2) Ensure development of an efficient and economical system of intra state and interState transmission lines for smooth flow of electricity from generating station s to theload centres.3) Provide non-discriminatory open access to its transmission system for use by anylicensee or generating company or any consumer as and when such open access isprovided by the State Commission on payment of transmission charges/surcharge asmay be specified by the State Commission.4) Exercise supervision and control over the intra-state transmission system, efficientoperation and maintenance of transmission lines and substations and operate State LoadDespatch Centres to ensure optimum scheduling and despatch of electricity and toensure integrated operation of power systems in the State.5)Restore power at the earliest possible time through deployment of emergencyRestoration system in the event of any Natural Disasters like super cyclone, flood etc.POWER SECTOR REFORM IN THE STATE:The Power Sector Reforms in the State of Orissa was started during November 1993in an organized manner. The main objective of the reform was to unbundlegeneration, transmission and distribution and to establish an independent andtransparent Regulatory Commission in order to promote efficient and accountabilityin the Power Sector.In order to implement the reform, in the first phase, two corporate entities namely [7]
  8. 8. Grid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro PowerCorporation Limited (OHPC) were established in April 1995. GRIDCO wasincorporated under the Companies Act, 1956 in April 1995 to own and operate thetransmission and distribution systems in the State. Similarly OHPC wasincorporated to own and operate all the hydro generating stations in the State.The State Government enacted the Orissa Electricity Reform Act, 1995 which cameinto force with effect from 1.4.1996. In exercise of power under Section 23 and 24of the Orissa Electricity Reform Act, 1995,the State Govt. notified the OrissaElectricity Reform (Transfer of Undertakings, Assets, Liabilities, proceedings andPersonnel ) Scheme Rules 1996. As per the scheme, the transmission ,distributionactivities of the erstwhile OSEB along with the related assets, liabilities, personneland proceedings were vested on GRIDCO . Simultaneously the hydro generationactivities of OSEB along with related assets, liabilities, personnel and proceedingswere vested on OHPC.In order to privatize the distribution functions of electricity in the State, fourDistribution Companies namely Central Electricity Supply Company of OrissaLimited (CESCO), North Eastern Electricity Supply Company of Orissa Limited(NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) &Western Electricity Supply Company Orissa Limited (WESCO) were incorporatedunder the Companies Act, 1956 as separate corporate entities. During November1998 the State Govt. issued the “Orissa Electricity Reform (Transfer of Assets,Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules1998” wherein the electricity distribution and retail supply activities along with therelated assets, liabilities, personnel and proceedings were transferred from GRIDCOto the four Distribution Companies. Through a process of international CompetitiveBidding (ICB), the four Distribution Companies were privatized during 1999.After separation of Distribution business, GRIDCO left with electricityTransmission and Bulk Supply/Trading activities. GRIDCO was also declared as theState Transmission Utility and was discharging the functions of State Load DespatchCentre (SLDC).The Government of India enacted the Electricity Act, 2003 which came into effect [8]
  9. 9. from 10th June 2003. Under the provisions of the said Act, trading in electricity hasbeen recognised as a distinct licensed activity, which can only be undertaken by alicensee to be granted by the appropriate commission. The Act specifically prohibitsthe STU and Transmission Company in the State from engaging in the business oftrading. GRIDCO being a State Transmission Utility was not permitted to engageitself in the trading in electricity and was required to segregate its activities in amanner within the transional period allowed under the Act that, the entity which willundertake transmission STU and SLDC function will not undertake the activities ofTrading and Bulk Supply of Electricity. Keeping in view the statutory requirement of the Electricity Act for separation oftrading and transmission functions into two separate entities, the State Govtincorporated Orissa Power Transmission Corporation Limited (OPTCL) to take overthe transmission, STU/SLDC functions of GRIDCO. In exercise of the power conferred under Section 39,131, 133 & 134 of theElectricity Act, 2003, read with Section 23 & 24 of the Orissa Electricity ReformAct , 1995, the State Govt. issued the notification “Orissa Electricity Reform(Transfer of Transmission and Related Activities) Scheme 2005” on 9.6.2005. TheScheme was made effective from 1.4.2005.By virtue of the Transfer Scheme, 2005, OPTCL now undertaking the functions oftransmission of electricity in the State of Orissa and has been declared as the StateTransmission Utility. GRIDCO is also discharging the functions of SLDC.REFORM ACHIEVEMENT:Milestones of Orissa Power Sector Reform1) First Transfer between OHPC and GRIDCO effected on 1st April, 19962)OER Act, 1995 created Orissa Electricity Regulatory Commission,a Regulatory Body which became functional on 1.8.19963) Unbundling of Transmission and Distribution via Second Transfer Schemeeffective from November 26, 1998 4)9 Tariff Orders after public hearing have been passed by OERC [9]
  10. 10. (FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06) 5) BSES took over management and operational control of 3 Distribution Companies(WESCO, SOUTHCO and NESCO) from April 1, 19996) Privatization of Distribution completed with AES taking over thefourth distribution company, CESCO from September 1, 19997) CESCO remained under the management of an Administrator (CEO)appointed by OERC with effect from 27.8.20018)A new public limited company under the name “ Orissa Power TransmissionCorporation Limited “ was incorporated on 29.03.2004 to carry on thebusiness of Transmission, STU, and SLDC functions of GRIDCO 9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry onits Bulk Supply and Trading functions [10]
  11. 11. CHAPTER-3: REVIEW OF LITERATUREThe purpose of this chapter is to present a review of literature relating to the workingcapital management. The following are the literature review by different authors anddifferent research scholars.Pass C.L., Pike R.H1 (1984), studied that over the past 40 years major theoreticaldevelopments have occurred in the areas of longer-term investment and financialdecision making. Many of these new concepts and the related techniques are now beingemployed successfully in industrial practice. By contrast, far less attention has beenpaid to the area of short-term finance, in particular that of working capital management.Such neglect might be acceptable were working capital considerations of relatively littleimportance to the firm, but effective working capital management has a crucial role toplay in enhancing the profitability and growth of the firm. Indeed, experience showsthat inadequate planning and control of working capital is one of the more commoncauses of business failure.Herzfeld B2 (1990), studied that “Cash is king”--so say the money managers who sharethe responsibility of running this countrys businesses. And with banks demanding morefrom their prospective borrowers, greater emphasis has been placed on thoseaccountable for so-called working capital management. Working capital managementrefers to the management of current or short-term assets and short-term liabilities. Inessence, the purpose of that function is to make certain that the company has enoughassets to operate its business. Here are things you should know about working capitalmanagement.Samiloglu F.and Demirgunes K3 (2008), studied that the effect of working capitalmanagement on firm profitability. In accordance with this aim, to consider statisticallysignificant relationships between firm profitability and the components of cashconversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed1 Pass C.L., Pike R.H: “An overview of working capital management and corporate financing” (1984).2 Herzfeld B; “How to Understand Working Capital Management” (1990).3 Samiloglu F. and Demirgunes K., “The Effect of Working Capital Management on FirmProfitability: Evidence from Turkey” (2008) [11]
  12. 12. Appuhami, Ranjith B4 (2008), studied impact of firms capital expenditure on theirworking capital management. The author used the data collected from listed companiesin the Thailand Stock Exchange. The study used Schulman and Coxs (1985) NetLiquidity Balance and Working Capital Requirement as a proxy for working capitalmeasurement and developed multiple regression models. The empirical research foundthat firms capital expenditure has a significant impact on working capital management.The study also found that the firms operating cash flow, which was recognized as acontrol variable, has a significant relationship with working capital management.Hardcastle J5 (2009)., studied that Working capital, sometimes called gross workingcapital, simply refers to the firms total current assets (the short-term ones), cash,marketable securities, accounts receivable, and inventory. While long-term financialanalysis primarily concerns strategic planning, working capital management deals withday-to-day operations. By making sure that production lines do not stop due to lack ofraw materials, that inventories do not build up because production continues unchangedwhen sales dip, that customers pay on time and that enough cash is on hand to makepayments when they are due. Obviously without good working capital management, nofirm can be efficient and profitable.Thachappilly G6 (2009)., “Working Capital Management Manages Flow ofFunds”,(2009) describes that Working capital is the cash needed to carry on operationsduring the cash conversion cycle, i.e. the days from paying for raw materials tocollecting cash from customers. Raw materials and operating supplies must be boughtand stored to ensure uninterrupted production. Wages, salaries, utility charges and otherincidentals must be paid for converting the materials into finished products. Customersmust be allowed a credit period that is standard in the business. Only at the end of thiscycle does cash flow in again4 Appuhami, Ranjith B A; “The Impact of Firms Capital Expenditure on Working CapitalManagement: An Empirical Study across Industries in Thailand”, (2008)5 Hardcastle; “Working Capital Management”,(2009).6 Thachappilly G. Working Capital Management Manages Flow of Funds”,(2009) [12]
  13. 13. Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital managementon the operating performance and growth of new public companies. The study alsosheds light on the relationship of working capital with debt level, firm risk, andindustry. Using a sample of initial public offerings (IPOs), the study finds a significantpositive association between higher levels of accounts receivable and operatingperformance. The study further finds that maintaining control (i.e. lower amounts) overlevels of cash and securities, inventory, fixed assets, and accounts.Dubey R8 (2008)., studied The working capital in a firm generally arises out of fourbasic factors like sales volume, technological changes, seasonal , cyclical changes andpolicies of the firm. The strength of the firm is dependent on the working capital asdiscussed earlier but this working capital is itself dependent on the level of sales volumeof the firm. The firm requires current assets to support and maintain operational orfunctional activities. By current assets we mean the assets which can be convertedreadily into cash say within a year such as receivables, inventories and liquid cash. Ifthe level of sales is stable and towards growth the level of cash, receivables and stockwill also be on the high.McClure B9 (2007)., “Working Capital Works” describes that Cash is the lifeline of acompany. If this lifeline deteriorates, so does the companys ability to fund operations,reinvest and meet capital requirements and payments. Understanding a companys cashflow health is essential to making investment decisions. A good way to judge acompanys cash flow prospects is to look at its working capital management (WCM).Cash is king, especially at a time when fund raising is harder than ever. Letting it slipaway is an oversight that investors should not forgive. Analyzing a companys workingcapital can provide excellent insight into how well a company handles its cash, andwhether it is likely to have any on hand to fund growth and contribute to shareholdervalue.7 Beneda, Nancy; Zhang, Yilei, “Working Capital Management, Growth and Performance of NewPublicCompanies”, Credit & Financial Management Review, (2008)8 Dubey R, “Working Capital Management-an Effective Tool for Organisational Success” (2008)9 McClure B, Working Capital Works” (2007) [13]
  14. 14. Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maximamongst financial managers. Working capital management refers to the management ofcurrent or short-term assets and short-term liabilities. Components of short-term assetsinclude inventories, loans and advances, debtors, investments and cash and bankbalances. Short-term liabilities include creditors, trade advances, borrowings andprovisions. The major emphasis is, however, on short-term assets, since short-termliabilities arise in the context of short-term assets. It is important that companiesminimize risk by prudent working capital management.Maynard E. Refuse11 (1996), Argued that attempts to improve working capital bydelaying payment to creditors is counter-productive to individuals and to the economyas a whole. Claims that altering debtor and creditor levels for individual tiers within avalue system will rarely produce any net benefit. Proposes that stock reductiongenerates system-wide financial improvements and other important benefits. Urgesthose organizations seeking concentrated working capital reduction strategies to focuson stock management strategies based on “lean supply-chain” techniques.Thomas M. Krueger12 (2005), studied distinct levels of WCM measures for differentindustries, which tend to be stable over time. Many factors help to explain thisdiscovery. The improving economy during the period of the study may have resulted inimproved turnover in some industries, while slowing turnover may have been a signalof troubles ahead. Our results should be interpreted cautiously. Our study takes placesover a short time frame during a generally improving market. In addition, the surveysuffers from survivorship bias – only the top firms within each industry are ranked eachyear and the composition of those firms within the industry can change annually.10 Gass D, “How To Improve Working Capital Management” (2006)11 Maynard E. Rafuse, “ Working capital management: an urgent need to refocus” ManagementDecision, (1996)12 Thomas M. Krueger, “An Analysis of Working Capital Management Results Across Industries”American Journal of Business, (2005) [14]
  15. 15. Eljelly13 (2002) empirically examined the relationship between profitability andliquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sampleof 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis,Eljelly [9]found significant negative relationship between the firms profitability and itsliquidity level, as measured by current ratio. This relationship is more pronounced forfirms with high current ratios and long cash conversion cycles. At the industry level,however,he found that the cash conversion cycle or the cash gap is of more importanceas a measure of liquidity than current ratio thataffects profitability. The firm sizevariable was also found to have significant effect on profitability at the industry level. 14Lazaridis and Tryfonidis (2004), conducted a cross sectional study by using asample of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004and found statistically significant relationship between profitability, measured throughgross operating profit, and the cash conversion cycle and its components (accountsreceivables, accounts payables, and inventory). Based on the results analysis of annualdata by using correlation and regression tests, they suggest that managers can createprofits for their companies by correctly handling the cash conversion cycle and bykeeping each component of the conversion cycle (accounts receivables, accountspayables, and inventory) at an optimal level.Raheman and Nasr15 (2004), studied the effect of different variables of workingcapital management including average collection period, inventory turnover in days,average payment period, cash conversion cycle, and current ratio on the net operatingprofitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed onKarachi Stock Exchange for a period of six years from 1999 - 2004 and found a strongnegative relationship between variables of working capital management andprofitability of the firm. They found that as the cash conversion cycle increases, it leadsto decreasing profitability of the firm and managers can create positive value for theshareholders by reducing the cash conversion cycle to a possible minimum level.13 Eljelly; “ cash conversion cycle” year (2002.)14 Lazaridis and Tryfonidis, “ cash conversion cycle” year (2004)15 Raheman and Nasr;” variables of working capital management” year ( 2004). [15]
  16. 16. Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small tomedium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. Theytested the effects of working capital management on SME profitability using the paneldata methodology. The results, which are robust to the presence of endogeneity,demonstrated that managers could create value by reducing their inventories and thenumber of days for which their accounts are outstanding. Moreover, shortening the cashconversion cycle also improves the firms profitability.Falope and Ajilore17 (2003), used a sample of 50 Nigerian quoted non-financial firmsfor the period 1996 -2005. Their study utilized panel data econometrics in a pooledregression, where time-series and cross-sectional observations were combined andestimated. They found a significant negative relationship between net operatingprofitability and the average collection period, inventory turnover in days, averagepayment period and cash conversion cycle for a sample of fifty Nigerian firms listed onthe Nigerian Stock Exchange. Furthermore, they found no significant variations in theeffects of working capital management between large and small firms.Kouma Guy18, (2001) in a study on, “Working capital management in healthcare”,Working capital is the required to finance the day to day operations of an organization.Working capital may be require to bridge the gap between buying of stocked items toeventual payment for goods sold on account. Working capital also has to fund the gapwhen products are on hand but being held in stock. Products in stock are at full cost,effectively they are company cash resources which are out of circulation thereforeadditional working capital is required to meet this gap which can only be reclaimedwhen the stocks are sold (and only if these stocks are not replaced) and payment forthem is received. Working capital requirements have to do with profitability and muchmore to do with cash flow.16 Garcia-Teruel and Martinez-Solano; ”working capital management of SMEs” year 1996.17 Falope and Ajilore: “utilisation of resources” year 200318 ) Kouma Guy, (2001)“Working capital management in healthcare” www.@akdesniz.edu.tr Volume5; page No 76-89 [16]
  17. 17. Mehmet SEN, Eda ORUC (2005)19 in the study “Relationship between theefficiency of working capital management and company size”, As it is known, oneof the reasons which cause change in working capital from one period to another is thechange in management efficiency. The change in management efficiency will affect thechange in working capital in a way as increaser or reducer from on period to another. Inthis study, the effect of change in management efficiency in working capitalmanagement in to the change in working capital is compared by company size andsectors. The data of this study covers sixty periods as the total of quarterly financialstatement of 55 manufacturing companies which were in operation in Istanbul Stockexchange (ISE) between the years 1993 and 2007. In every period we studied, forinventories short term commercial receivables and short term commercial liabilities, andcalculated the effect of change in management efficiency on to the effect of workingcapital change. In all sectors considered, in the change in working capital, and observedthe effect of reducing of efficiency in inventory management. It is also observed thatefficiency change in the management of the short term commercial receivables and theshort term commercial liabilities by the company sizes and sectors make a positiveeffect in to the change in working capitalBrealey, R., (1997)20 in a study on, “Working Capital management concepts worksheet university of phoenix”. Concept application of concept in the Simulationreference to concept in reading cash conversion cycle cash conversions is the process ofmanaging a company‟s cash inflows and outflows. In the simulation, the financemanager was responsible for balancing sales with collections or accounts receivables(cash inflows) and purchases with payments or accounts payables (cash outflows). Thisdelicate balance maintains the company‟s balance sheet keeping the cash and loans in asituation of financial stability and keeping the money from being tied up. Principles ofcorporate finance. Working capital management. New York: McGraw-Hill.19 Mehmet SEN, Eda ORUC (2005) “Relationship between the efficiency of working capitalmanagement and company size”, www.@akdesniz.edu.tr Volume 2; Pages No 32-4220 Brealey, R., (1997) “Working capital management Working Capital management concepts worksheet university of phoenix”. Volume 1; Pages No 123-128 [17]
  18. 18. CHAPTER-4 RESEARCH METHODOLOGYResearch methodology is a systematic approach in management research to achievepre-defined objectives. It helps a researcher to guide during the course of research work.Rules and techniques stated in research methodology save time and labour of theresearcher 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 researchstudy. There should be newness and it should give maximum scope to explore the ideasfrom different angles.In present day due to increase in competition, working capital is becoming necessary forthe organisation. It is that part of capital which is necessary to undertake day to dayexpenditure of the business organization. Whatever may be the organization, workingcapital plays an important role, as the company needs capital for its day to dayexpenditure. Thousands of companies fail each year due to poor working capitalmanagement practices. Entrepreneurs often dont account for short term disruptions tocash flow and are forced to close their operations. Working capital is the fund investedby a firm in current assets. Now in a cut throat competitive era where each firmcompetes with each other to increase their production and sales, holding of sufficientcurrent assets have become mandatory as current assets include inventories and rawmaterials which are required for smooth production runs. Holding of sufficient currentassets will ensure smooth and un interrupted production but at the same time, it willconsume a lot of working capital. Here creeps the importance and need of efficientworking capital management. After due to consultation with the external guide /internalguide, 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 wasselected as the corporate office of OPTCL, Bhubaneswar.RESEARCH DESIGN: “A Research design is the arrangement of conditions forcollection and analysis of data in a manner that aims to combine relevance to theresearch purpose with economy in procedure” The research design followed to study the [18]
  19. 19. working capital management in ORISSA POWER TRANSMISSION CORPORATIONLIMITED (OPTCL) is Descriptive and Analytical Research Design.SOURCES OF DATA COLLECTION:1. Secondary data collectionSecondary data collection:The secondary data are those which have already collected and stored. Secondary dataeasily get those secondary data from records, journals, annual reports of the companyetc. It will save the time, money and efforts to collect the data. Secondary data alsomade available through trade magazines, annual reports, books etc.This project is based secondary data collected through annual reports of theorganization. The data collection was aimed at study of working capital management ofthe company.Project is based on1. Annual report of OPTCL. 2006-20072. Annual report of OPTCL 2007-20083. Annual report of OPTCL. 2008-20094. Annual report of OPTCL. 2009-2010 FORMULAS OF RATIO ANALYSIS & DEFINITIONRATIO:Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as“the indicated quotient of two mathematical expressions” and as “the relationshipbetween two or more things”. The absolute figures reported in the financial statement donot provide meaningful understanding of the performance and financial position of thefirm. Ratio helps to summaries large quantities of financial data and to make qualitativejudgment of the firm‟s financial performance. [19]
  20. 20. ROLE OF RATIO ANALYSISRatio analysis helps to appraise the firms in the term of there profitability and efficiencyof performance, either individually or in relation to other firms in same industry. Ratioanalysis is one of the best possible techniques available to management to impart thebasic functions like planning and control. As future is closely related to the immediatelypast, ratio calculated on the basis historical financial data may be of good assistance topredict the future. E.g. On the basis of inventory turnover ratio or debtor‟s turnover ratioin the past, the level of inventory and debtors can be easily ascertained for any givenamount of sales. Similarly, the ratio analysis may be able to locate the point out thevarious arias which need the management attention in order to improve the situation.E.g. Current ratio which shows a constant decline trend may be indicate the need forfurther introduction of long term finance in order to increase the liquidity position. Asthe ratio analysis is concerned with all the aspect of the firm‟s financial analysisliquidity, solvency, activity, profitability and overall performance, it enables theinterested persons to know the financial and operational characteristics of anorganization and take suitable decisions.LIQUDITY RATIO:Liquidity refers to ability of a concern to meet its current obligations as and when thesebecome due. The short-term obligations are met by realising amounts from current,floating or circulating asset. The current asset either be liquid or near liquidity. Theseshould be convertible into cash for paying obligation of short-term nature. To measurethe liquidity of a firm, following ratios can be calculated:A) CURRENT RATIO: Current assets include cash and those assets which can beconverted in to cash within a year, such marketable securities, debtors and inventories.All obligations within a year are include in current liabilities. Current liabilities includecreditors, bills payable accrued expenses, short term bank loan income tax liabilities andlong term debt maturing in the current year. Current ratio indicates the availability ofcurrent assets in rupees for every rupee of current liability. CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES [20]
  21. 21. B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship betweenquick or liquid assets and liabilities. An asset is liquid if it can be converting in to cashimmediately or reasonably soon without a loss of value. Cash is the most liquid asset.other assets which are consider to be relatively liquid and include in quick assets aredebtors and bills receivable and marketable securities. Inventories are considered as lessliquid. Inventory normally required some time for realizing into cash. Their value alsobe tendency to fluctuate. The quick ratio is found out by dividing quick assets bycurrent liabilities. QUICK RATIO = total liquid asset/ total current liabilitiesC) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables areconsidered as more liquid then inventories, it cannot be converted in to cashimmediately or in time. Therefore while calculation of absolute liquid ratio only theabsolute liquid assets as like cash in hand cash at bank, short term marketable securitiesare taken in to consideration to measure the ability of the company in meeting shortterm financial obligation. It calculates by absolute assets dividing by current liabilities.ABSOLUTE LIQUID RATIO=absolute liquid asset/ total current liabilitiesEFFICIENCY RATIO: Funds are invested in various assets in business to make salesand earn profits. The efficiency with which assets are managed directly affects thevolume of sale. Activity ratios measure the efficiency and effectiveness with which afirm manages its resources or assets. These ratios are also called turnover ratios.A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationshipbetween credit sales and receivables of a firm. It indicates how quickly receivables areconverted into sales.DEBTORS TURNOVER RATIO= SALES/ AVERAGE ACCOUNT RECEIVABLES.AVERAGE A/C RECEIVABLES= opening trade debtor+ Closing trade debtor/2AVERAGE COLLECTION PERIOD= (365/DTR) daysOr RECEIVABLES * 365/ sale [21]
  22. 22. B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount ofsales, a relative amount of working capital is needed. If any increase in salescontemplated working capital should be adequate and thus this ratio helps managementto maintain the adequate level of working capital. The ratio measures the efficiency withwhich the working capital is being used by a firm. It may thus compute net workingcapital turnover by dividing sales by net working capital.WORKING CAPITALTURNOVER RATIO=cost of sales/ net working capitalCURRENT ASSET TURNOVER RATIO:CURRENT ASSET TURNOVER RATIO= sales / current assetSTATISTICAL TOOLS USED FOR DATA ANAYLSIS:The various statistical tools used for data analysis is as follows:a) Tables:b) Bar-chartc) Graphsd) CorrelationANALYTICAL TOOLS USED:The analytical tools used for data analysis is as follows:a) Ratio analysisb) Schedule of change in working capitalc) Cash flow statements [22]
  23. 23. CHAPTER-5 RESULTS AND FINDINGSThe result and discussion of the study is presented in five different sections. The firstsections explain about the various components of working capital, variable of workingcapital. The second section explains about the liquidity trend of the organization. Thethird section explains about the working capital trend .The fourth section explains theutilization of current assets and current liabilities. The fifth section explains the measureto effective management of working capital.The first section explains about the various components of working capital andvariables of working capital. The components of working capital are presented in Table5.1. (TABLE 5.1: COMPONENTS OF WORKING CAPITAL) Table 1.1 2006- 2007-2008(Rs) 2008-2009(Rs) 2009-2010(Rs) 2007(rs) Cash 648,276,812 490,881,183 907,019,750 727,106,129 Debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698 Inventories 751064690 76,68,65,262 80,85,19,278 96,90,56,460 sundry 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456 Creditors Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475An insight into the table reveals that:a) Cash and bank balances in 2006-2007 were Rs 648276812. It is decreased to Rs490,881183. With a-24.27% growth. In 2008-2009 it increased to Rs 907,019,750. Andthen it suddenly decreased to Rs 727,106,129.b) Debtors increases which was not a good sign. In 2006-2007 debtors were Rs79,81,96,201 and it increased Rs 105,24,79,982 a total increase in Rs 254283781. In2008-2009 it was Rs 1,05,50,97,473. And in 2009-2010 it again increased to Rs1,05,56,31,698. [23]
  24. 24. c) Inventories were increased at a good speed. The inventories were Rs 79,81,96,201 in2006-2007. In 2007-2008 it increased to Rs 76,68,65,262, ultimately increase in Rs15800572, with the percentage growth 2.10%. In 2008-2009 it increased to Rs80,85,19,278 with the increase in 7.7% . in 2009-2010 it again increased to96,90,56,460 with a increase in 29%.d) Sundry creditors also increased a lot. In 2006-2007 it was Rs 61, 03, 22,496. Then itincreased by Rs 5,4 8,45,484 which ultimately amounted to Rs 66,51,67,980 with aincrease of 8.99%. in the year 2007-2008. In 2008-2009 it increased to Rs 68,95,26,597with a percentage increase of 12.98%. in 2009-2010 it again increase to Rs72,40,51,456.e) Provisions also increased throughout this 4years. In 2006-2007 it wasRs83,08,65,819. Then it increased to Rs 1,30,45,17,744 with a percentage increase of57%. In 2008-2009 it again increased to Rs4,81,70,02,603 with a percentage increase in479%. In 2009-2010 it again increased to Rs 5,69,56,67,475. (Table 5.2: Variables of Working Capital Management)VARIABLES YEARS 2006-2007 2007-2008 2008-2009 2009-2010ROTA (Return on 0.15 0.16 0.22 0.10Total Assets)OPM (operating profit 61.55% 56.40% 27.78% 34.65%margin)GEAR (Gearing Ratio 0.64:1 0.55:1 0.43:1 0.33:1i.e. financial debt / totalassets)CR (Current Ratio) 1.28:1 0.94:1 0.86:1 0.62:1QAR (Quick Assets 0.58:1 0.46:1 0.27:1 0.22Ratio)CA/TA (Current Assets 0.13 0.12 0.21 0.16to Total Assets) [24]
  25. 25. CL/TA (Current 0.11 0.13 0.24 0.26Liabilities to TotalAssets)SK/CA (Stocks to 0.23 0.25 0.13 0.19Current Assets)TD/CA (Trade Debtors 0.25 0.34 0.17 0.21to Current Assets)CA_TURN (Current 1.10 1.29 1.08 0.60Assets Turnover isSales/Current Assets)The various variables of working capital is presented in table 5.2. An analysis of datapresented in the table reveals the following findings;A) Return on total asset came 0.15 in 2006-2007, 0.16 in 2007-2008, 0.22 in 2008-2009and 0.10 in 2009-2010.B) Operating profit margin was 61.55% in 2006-2007 then it reduced to 56.40%,27.78%, and 34.65% in 2007-2008, 2008-2009, and 2009-2010 respectively. Anythingbetween 65% to 85% is known as a good operating margin. And for OPTCL is a sign ofalarm.C) Gearing ratio came 0.64:1 in 2006-2007 and in 2007-2008 it is 0.55:1 and 0.43:1 and0.33:1 in 2008-2009 and 2009-2010.D) Current ratio generally reduced for the organisation, in 2006-2007 it was 1:28 and itreduced to 0.94:1 in 2007-2008 and then it again reduced to to0.86:1 and 0.62 in 2008-2009 and 2009-2010 respectively.E) Quick asset ratio in 2006-2007 as it was 0.58:1, in 2007-2008 it became 0.46:1 andin 2008-2009 and in 2009-2010 it became 0.27:1 and 0.22:1.F) Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-2007, 2007-2008, 2008-2009, and 2009-2010. [25]
  26. 26. G) Current liability to total asset ratio came 0.11 in 2006-2007, in 2007-2008 it came0.13, and in 2008-2009 and 2009-2010 it came 0.24:1 and 0.26:1 respectively.H) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.I) Trade debtors in 2006-2007 is 0.25, in 2007-2008 is 0.34, in 2008-2009 is 0.17 and in2009-2010 is 0.21.J) Current asset turnover is 1.10 in 2006-2007, 1.29 in 2007-2008, 1.08 in 2008-2009and become 0.60 in 2009-2010Table 5.3: Components of Current ratio, quick ratio and Absolute Liquid Ratios 2006-2007 2007-2008 2008-2009 2009-2010 Current ratio 1.28:1 0.94:1 0.86:1 0.62:1 Quick ratio 0.58:1 0.46:1 0.27:1 0.22Absolute liquid 0.25:1 0.15:1 0.12:1 0.08:1 ratio SK/CA 0.23 0.25 0.13 0.19 TD/CA 0.25 0.34 0.17 0.21 CA/TA 0.13 0.12 0.21 0.16 CL/TA 0.11 0.13 0.24 0.26 CCC( cash conversion cycle)Inventory days 77 days 70 days 43 days 115daysDebtor turnover 125days 85days 57days 126days days Creditors 63 days 61days 37 days 86days turnover days [26]
  27. 27. Table-5.3 revels the components of current ratio, quick ratio and absolute quickratio. From the table following things can be derived:a) In 2006-2007 it is found that the current ratio is 1.28:1 which is just below thestandard of 2:1. In 2007-2008, it is found that the current ratio of OPTCL is 10.94:1. Itis below the standard of 2:1 and it is due to a decrease in total current assets fromprevious year and an increase in current liability this year. The cash and bank balance isfound to be decreased this year in comparison to that of previous year where as thecurrent liabilities and provisions both have increased this year. In 2008-2009, it is foundthat the current ratio of OPTCL is 0.86:1. . It is a not good indication according to therule of thumb. Because the firm has more current liabilities than current assets. The firmmay not be able to meet its short term obligations in time. In 2009-2010, it is found thatthe current ratio of OPTCL was 0.62:1 it was not a good indication according to rule ofthumb.b) Quick ratio in 2006-2007 it was 0.58:1 and 0.46:1, 0.27:1 and 0.22:1 in 2007-2008, 2008-2009, and 2009-2010 respectively.c) In the year 2006-2007 the Absolute Liquid Ratio is found to be 0.25:1. In the year2007-2008 the Absolute Liquid Ratio of OPTCL is found to be 0.15:1. The AbsoluteLiquid Ratio of the firm for the financial year 2008-2009 is found to be 0.12:1 which isbelow the normal standard of 1:2 or 0.5:1. This is due to less cash and bank balances ofthe organization in comparison to the Current Liabilities. In the year 2009-2010, theabsolute liquid ratio found to be 0.08:1.d) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.e) Trade debtor to current asset ratio come 0.25, 0.34, 0.17 and 0.21 respectively.f) Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-2007,2007-2008, 2008-2009, and 2009-2010.Current liabilities to total asset came 0.11 in 2006-2007 and in 2007-2008 it came 0.13 ,in 2008-2009 it came 0.24:1 and in 2009-2010 it came 0.26:1. [27]
  28. 28. h) Cash conversion ratio for inventory came 77days, 70 days, 43 days and 115 days.Cash conversion for debtor comes 125 days in 2006-2007, and it reduced to 85 and 57days in 2007-2008, 2008-2009 respectively. But in 2009-2010 it increases to 126 days.Cash conversion ratio came 63days, 61days, 37days and 86days respectively. [28]
  29. 29. THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF THE ORGANIZATION. LIQUIDITY RATIO CURRENT RATIO Table5.4 CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY) YEAR CURRENT ASSET CURRENT LIABILITY RATIO (IN RUPEES) (IN RUPEES)2006-2007 3,21,50,26,429 2,50,80,12,516 1.28:12007-2008 3,10,61,19,303 3,35,96,86,508 0.94:12008-2009 6,30,63,13,319 7,29,34,88,649 0.86:12009-2010 5,07,93,75,378 8,21,36,64,274 0.62:1 CURRENT RATIO 1.4 1.28 1.2 1 0.94 0.86 0.8 RATIO 0.6 0.62 0.4 0.2 0 2006-2007 2007-2008 2008-2009 2009-2010 current ratio 1.28 0.94 0.86 0.62From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL,various results can be made. [29]
  30. 30. A) 2006-2007 it was found that the current ratio was 1.28:1 which is below the standardof 2:1. It is due to a decrease of total current assets from the previous year to currentyear. Still it is manageable and also the condition was under the control.B) In 2007-2008, it was found that the current ratio of OPTCL was 0.94:1. It was belowthe standard of 2:1 and it is decrease in total current assets from previous year and anincrease in current liability this year. The cash and bank balance is found to bedecreased this year in comparison to that of previous year where as the current liabilitiesand provisions both have increased this year.C) In 2008-2009, it was found that the current ratio of OPTCL was 0.86:1. . It is a notgood indication according to the rule of thumb. Because the firm has more currentassets than current liabilities. The firm may be able to meet its short term obligations intime.D) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not agood indication according to rule of thumb. Because the firm has more current assetsthan current liabilities. The firm was not able to meet its short term obligation in time.E) Because of increase in administrative overhead expenses, super annuity benefits andpayment of past loan etc. are the major factor for increasing of current liabilities.F) Situation can be controlled. So more emphasis can be given on these areas to reducecurrent liabilities and to increase current assets so that the actual standard of 2:1 can beachieved.In addition to, company should make clear cut strategic planning to sell electricity tomajor industries at industrial rate to achieve higher revenue TABLE5.5Quick Ratio- (Liquid Asset/ Current Liability)YEAR LIQUID ASSET CURRENT LIABILITY RATIO 2006-2007 1,44,64,73,013 2,50,80,12,516 0.58:1 2007-2008 1,54,33,61,165 3,35,96,86,508 0.46:1 2008-2009 1,96,21,17,223 7,29,34,88,649 0.27:1 2009-2010 1,78,27,37,827 8,21,36,64,274 0.22:1 [30]
  31. 31. QUICK RATIO 0.7 0.6 0.58 0.5 R 0.46 A 0.4 T I 0.3 0.27 O 0.2 0.22 0.1 0 2006-2007 2007-2008 2008-2009 2009-2010 YEARSFROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2006-2007was found to be 0.58:1 and the normal standard for is 1:1. So it is a manageablesituation.B) In the year 2007-2008 it was found that the Quick Ratio of OPTCL was 0.46:1 whichwas below the normal standard. It was due to a little bit increase in current liabilities incomparison to that of previous year. Still it was also in a manageable position and bygiving a small effort the normal standard of 1:1 can be achieved.C) In the year 2008-2009 it Is found that the QUICK ratio of OPTCL IS 0.27:1, whichis just normal standard. It is due to a little bit increase in current liabilities.D) In the year 2009-2010 it is found that the Quick ratio was 0.22:1. Which is belowstandard of 1:1? Management should have an eye on to that. [31]
  32. 32. TABLE 5.6 ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT LIABILITY): YEAR Absolute Liquid Asset Current Liability Ratio 2006-2007 64,82,76,812 2,50,80,12,516 0.25:1 2007-2008 49,08,81,183 3,35,96,86,508 0.15:1 2008-2009 90,70,19,750 7,29,34,88,649 0.12:1 2009-2010 72,71,06,129 8,21,36,64,274 0.08:1 ABSOLUTE LIQUID RATIO 0.25 0.25 r 0.2 a 0.15 0.15 t 0.12 i 0.1 o 0.08 0.05 0 2006-2007 2007-2008 2008-2009 2009-2010 yearBy going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet ofOPTCL the following results can be drawn. [32]
  33. 33. A) In the year 2006-2007 the Absolute Liquid Ratio was found to be 0.25:1. Though it is below the normal standard still it is in a manageable condition. B) In the year 2007-2008 the Absolute Liquid Ratio of OPTCL was found to be 0.15:1 which is below from the previous year. It is due to a decrease in cash and bank balances and also a slightly increase in Current Liabilities. C) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be 0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash and bank balances of the organization in comparison to the Current Liabilities. D) In the year 2009-2010, the absolute liquid ratio found to be 0.08:1. This is due to less cash and bank balances of the organization in comparison to the Current liabilities. (Table 5.7) CASH FLOW STATEMENTS (2009-2010) (2008-2009) (2007-2008) amount in (Rs) amount in (Rs) amount in (Rs)profit/loss before tax & extraordinary items -71,37,17,644 -18,30,29,883 -3,64,99,383 adjustment for: appropriation to reserves and surpluses 1,18,36,39,044 6,33,87,383 11,15,56,818 interest and finance charges 54,16,01,198 97,24,54,617 1,10,65,54,318 Depreciation 1,08,22,03,592 1,09,74,37,879 1,09,90,58,990 preliminary expenses W/O 30,26,423 30,26,423 30,26,423 excess provision written back -1,04,00,87,510 -47,574 -209 interest income -4,55,13,310 -6,90,09,008 -5,03,60,383 provisions for wealth tax 27,846 46,318 46,305 provision/write off against theft materials 15,22,603 29,50,312 28,65,292 provisions for obsolete stock-store etc 1,11,96,801 bad and doubtful debt 4,47,68,652 11,63,525 92,89,278 provisions for fringe benefit tax -------------------- -23,96,915 -21,13,256 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A) 1,05,74,70,893 1,88,59,83,078 2,25,46,20,994 WORKING CAPITAL CHANGE stores and spares -16,20,59,785 -4,46,04,328 -2,98,62,664 sundry debtors -4,53,02,877 -37,81,016 -26,35,73,059 other current assets -59,43,581 -1,43,98,325 -2,44,71,317 loan and advances 1,20,34,71,087 -2,72,53,85,618 24,60,67,167 current liabilities 4,93,59,037 42,88,03,928 42,01,27,401 [33]
  34. 34. Provisions 1,91,87,52,382 3,52,31,00,656 47,36,52,134NET WORKING CAPITAL CHANGES 2,95,82,76,263 1,16,37,35,296 82,19,39,662 (B) CASH GENERATED FROM THE 4,01,57,47,156 3,04,97,18,374 3,07,65,60,656 OPERATION (A)+(B) CASH FLOW FROM INVESTING ACTIVITIES: capital expenditure (CAPEX) -93,41,57,641 -91,68,37,432 -1,03,91,08,694 Interest received revenue 4,55,13,310 6,90,09,008 5,03,60,383 CASH GENERATED FROM -88,86,44,331 -84,78,28,424 -98,87,48,311 INVESTING ACTIVITIES ( C ) CASH FLOW FROM FINANCING ACTIVITIES: proceeds from secured loan -1,06,41,24,474 -1,05,96,33,683 -1,02,66,95,328 proceeds from unsecured loan 32,39,10,165 -6,95,82,948 -36,86,01,393 interest paid -2,61,68,02,137 -88,70,89,752 -83,19,11,252 proceed from share capital 5,00,00,000 23,05,55,000 ----------------- CASH FLOW FROM FINANCING -3,30,70,16,446 -1,78,57,51,383 -2,24,52,07,973 ACTIVITIES (D)NET CASH GENERATED FROM ALL -17,99,13,621 41,61,38,567 -15,73,95,628 ACIVITIES (A+B+C+D)Cash and cash equivalent at the beginning 90,70,19,750 49,08,81,183 64,82,76,812 of the year cash equivalent at the end of the period 72,71,06,129 90,70,19,750 49,08,81,184 Table 5.7 defines the following: a) Cash generated from investing activities, Rs-88,86,44,331 , Rs-84,78,28,424 and Rs-98, 87, 48,311 in the year 2009-2010, 2008-2009 and 2007-2008 respectively. b)Hence, there is a generation of Rs.4,01,57,47,156 cash flow from its operating activities for the year 2009-2010, where as in 2008-2009, it was Rs.3,04,97,18,374. And in 2007-2008 it was 3,07,65,60,656. c) The net cash flow of Rs-3,307,016,446 from financing activities in 2009-10. where it was -1,78,57,51,383 and -2,24,52,07,973 in 2008-2009 and 2008-2007 respectively. [34]
  35. 35. d)That, the net cash flow from its operating, investing and financing activities for the year 2009-2010 is a negative figure of Rs.-17,99,13,621. It became positive in the year 2008-2009, which was Rs 41, 61, 38,567. And in 2007-2008 it becameRs-1573, 95,628. The third section explains about the working capital trend Table-5.8 (Amount. In Rs.) Size of Working Capital: CURRENT ASSETS(CA) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees) Stores and spares 751064690 76,68,65,262 80,85,19,278 96,90,56,460 Sundry debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698 Cash and bank balances 648276812 49,08,81,183 90,70,19,750 72,71,06,129 Other current assets 628081987 65,25,53,304 66,69,51,629 74,48,94,758 Loan and advances 389406739 14,33,39,572 2,86,87,25,189 1,58,26,86,333 Total 3,21,50,26,429 3,10,61,19,303 6,30,63,13,319 5,07,93,75,378 Less: CURRENT 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees) LIABILITIES(CL) Sundry creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456 Deposits and retention from 12,50,63,350 13,71,54,497 14,91,29,269 12,89,91,075 suppliers/contractorsInterest accrued but not due on 6,27,33,789 2,05,82,149 1,30,49,185 51,73,055 loans Liabilities for wealth tax 37,299 47,240 47,253 28,781 Electricity duty payable 2,12,903 49,092 1,82,269 1,56,113 Liabilities for fringe benefit 23,41,534 44,54,790 68,51,705 68,51,705 tax Other liabilities 87,64,35,326 1,22,77,13,016 1,61,76,99,768 1,65,27,44,614 Total 1,67,71,46,697 2,05,51,68,764 2,47,64,86,046 2,51,79,96,799 Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475 Total 2,50,80,12,516 3,35,96,86,508 7,29,34,88,649 8,21,36,64,274 working capital( CA-CL) 70,70,13,913 -25,35,67,205 -98,71,75,330 -3,13,42,88,896 From the table -5.8 following things are derived: In 2006-2007, working capital was Rs70,70,13,913 because current asset was more than current liabilities. In 2007-2008 working was became negative due to the fact that current liabilities exceeds current assets. In 2008-2009 it became Rs -98,71,75,330 due [35]
  36. 36. to excessive of provisions. In that year current liabilities exceeds current assets. In2009-2010, working capital again became negative.WORKING CAPITAL TREND ANALYSIS: In working capital analysis thedirection at changes over a period of time is of crucial importance. Working capital isone of the important fields of management. It is therefore very essential for an analyst tomake a study about the trend and direction of working capital over a period of time.Such analysis enables as to study the upward and downward trend in current assets andcurrent liabilities and its effect on the working capital position. “The term trend is verycommonly used in day-today conversion trend, also called secular or long term need isthe basic tendency of population, sales, income, current assets, and current liabilities togrow or decline over a period of time” “The trend is defined as smooth irreversiblemovement in the series. It can be increasing or decreasing.” Emphasizing theimportance of working capital trends, “analysis of working capital trends provide asbase to judge whether the practice and privilege policy of the management with regardto working capital is good enough or an important is to be made in managing theworking capital funds. TABLE-5.9 (Amount. In Rs.) Working Capital Size trend Years 2006-2007 2007-2008 2008-09 2009-10 Net W.C (A-B) 70,70,13,913 25,35,67,205 -98,71,75,330 -3,13,42,88,896 W.C. Indices 100 35.86 -139.62 -443.31 [36]
  37. 37. From the table 5.9 followings things are derived: It is observed that in 2006-2007,working capital indices was very high due to current assets exceeded current liabilities.In 2007-2008indices was also high because current asset were more than currentliabilities. In 2007-2008 the company was able to manage their working capitalefficiently. But in 2008-2009 and 2009-2010 it became negative. Here in the year 2008-2009 and 2009-2010 current liabilities exceeded current assets. TABLE-5.10 WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING CAPITAL) Working capital turnover ratio YEAR Cost of Sales Net working capital Ratio 2007 3553494401 707013913 5.03times 2008 3997558798 -25,35,67,205 -15.7times 2009 6789295427 -98,71,75,330 -6.88times 2010 3051627568 -3,13,42,88,896 -0.97 times WORKING CAPITAL TURNOVER RATIO 10 5 5.03 0 -0.97 2006-2007 2007-2008 2008-2009 2009-2010 ratio -5 -6.88 -10 -15 -15.7 -20 YEARS [37]
  38. 38. From the table 5.10 following things derived: A) In the year 2006-2007, there was an increased in working capital turnover ratio to 5.03. B) However, in the year 2007-2008, it was -15.7 which indicates there was a decrease in net current assets due to increase in current liabilities. C) In the year 2008-2009, it was -6.88 which is better than the previous year. D) But in 2009-2010, working capital turnover was -0.97, which indicates there was decrease in net current assets due to increase in current liabilities. TABLE 5.11 STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2007 and 2008) (2006-2007) (20072008) Increase in Decrease in (Rs) (Rs) working working capital capital (Rs) (Rs) Current assets Stores and spares 751064690 766865262 15800572 - Sundry debtors 798196201 1052479982 254283781 - Cash & bank 648276812 490881183 - 157395629 balancesOther current assets 628081987 652553304 24471317 - Loans & advances 389406739 143339572 - 246067167 Total 3215026429 3106119303 Current liabilities Current liabilities 1677146697 2055168764 - 378022067 Provisions 830865819 1304517744 - 473651925 Total 2508012516 3359686508 Working capital 707013913 -253567205 (currentassets- current liabilities) Net decrease in -960581118 960581118 working capital -253567205 -253567205 1255136788 1255136788 [38]
  39. 39. From the table 5.11 following things are derived:By going through the statement showing changes in working capital the followingresults can be made.A) that, the total current asset of the year 2007-2008 is decreased to Rs. 3,10,61,19,303from a previous year‟s figure of Rs. 3215026429.B) The total value of stores and spare is increased from the previous year‟s figure andthe value of sundry debtors is also increased from the previous year‟s figure.C) The cash and bank balances of the organization have a decrease of Rs. 157395629from the previous year‟s figure. Similarly the figure for loans and advances is alsodecreased to Rs. 143339572 from the previous year‟s figure of Rs. 389406739.D) The other current assets like prepaid expenses and sundry receivables have alsoincreased from the previous year‟s figure.E) The total current liabilities of the year 2007-2008 are increased to Rs.3359686508from a previous year‟s figure of Rs.2508012516.F)That, the increase for current liabilities is due to increase in the figure of sundrycreditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.G) Due to increase in the value of stores and spares, sundry debtors, and other currentassets, there is a sign of increase in working capital. However, due to a decrease in thefigure of cash, bank balances, loan and advances etc, there is a clear sign of decrease inthe working capital.H) Due to increase in current liabilities and provisions for pension and gratuity andretrospective revision of pay, there is a sign of decrease in working capital.I)As per the analysis, it is observed that, the ratio of increase of working capital isdrastically reduced than the previous year‟s and the decrease sign of working capital isRs.960581118(2007-2008), which has impacted the steady increase of current workingcapital & negatively affected the profitability of the organization. [39]
  40. 40. J) It is found that the current asset‟s figure is decreased from the previous year‟s figure& the current liabilities figure is increased from the previous year. As a result of which,there is a net decrease (negative figure) in working capital this financial year (2007-2008).K) That, some more emphasis can be given on current assets to increase its figure and todecrease current liabilities‟ figure as a result of which the figure for working capital canbe increased. TABLE-5.12 STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2009 TO 2010) (2008-2009) (2009-2010) Increase in Decrease in (Rs) (Rs) working working capital capital (Rs) (Rs) Current assetsStores and spares 808,519,278 96,90,56,460 160537182 - Sundry debtors 1,055,097,473 1,05,56,31,698 534225 - Cash & bank 907,019,750 72,71,06,129 179913621 balances Other current 66,69,51,629 74,48,94,758 77943129 - assetsLoans & advances 2,86,87,25,189 1,58,26,86,333 - 1,28,60,38,856 Total 6,30,63,13,319 5,07,93,75,378Current liabilitiesCurrent liabilities 2,47,64,86,046 2,51,79,96,799 - 4,15,10,753 Provisions 4,81,70,02,603 5,69,56,67,475 - 87,86,64,872 Total 7,29,34,88,649 8,21,36,64,274 Working capital -98,71,75,330 -3,13,42,88,896 (current assets-current liabilities) 2147113566 Net decrease in -2147113566 working capital -3,13,42,88,896 -3,13,42,88,896 2386128102 2386128102 [40]
  41. 41. By going through the table5.12 showing changes in working capital the followingresults can be made:a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378 From a previous year‟s figure of Rs. 6,30,63,13,319 .b) The total value of stores and spare is increased from the previous year‟s figure andthe value of sundry debtors is also increased from the previous year‟s figure.c) The cash and bank balances of the organization have a decrease ofRs.17,99,13,621from the previous year‟s figure. Similarly the figure for loans andadvances is also decreased to Rs.1,58,26,86,333 from the previous year‟s figure of Rs.2,86,87,25,189.d) The other current assets like prepaid expenses and sundry receivables have alsoincreased from the previous year‟s figure.e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274 From a previous year’s figure of Rs. 7,29,34,88,649.f)That, the increase for current liabilities is due to increase in the figure of sundrycreditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.g)Due to increase in the value of stores and spares, sundry debtors, and other currentassets, there is a sign of increase in working capital. However, due to a decrease in thefigure of cash, bank balances, loan and advances etc, there is a clear sign of decrease inthe working capital.h)Due to increase in current liabilities and provisions for pension and gratuity of pay,there is a sign of decrease in working capital.i)As per the analysis, it is observed that, the ratio of increase of working capital isdrastically reduced than the previous year‟s and the decrease sign of working capital isRs. -2147113566 (2009-2010), which has impacted the steady increase of currentworking capital & negatively affected the profitability of the organization. [41]
  42. 42. j)It is found that the current asset‟s figure is decreased from the previous year‟s figure &the current liabilities figure is increased from the previous year. As a result of which,there is a net decrease (negative figure) in working capital this financial year (2009-2010).k)That, some more emphasis can be given on current assets to increase its figure and todecrease current liabilities‟ figure as a result of which the figure for working capital canbe increased. SECTION-4 EXPLAINS ABOUT CURRENT ASSETS AND CURRENT LIABILITIES CURRENT ASSETSTotal assets are basically classified in two parts as fixed assets and current assets. Fixedassets are in the nature of long term or life time for the organization. Current assetsconvert in the cash in the period of one year. It means that current assets are liquidassets or assets which can convert in to cash within a year. TABLE 5.13 (Amnt. In Rs.) CURRENT ASSETS SIZECurrent assets(CA) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees) Stores and spares 751064690 76,68,65,262 80,85,19,278 96,90,56,460 Sundry debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698 Cash and bank 648276812 49,08,81,183 90,70,19,750 72,71,06,129 balancesOther current assets 628081987 65,25,53,304 66,69,51,629 74,48,94,758Loan and advances 389406739 14,33,39,572 2,86,87,25,189 1,58,26,86,333 Total of CA 3,21,50,26,429 3,10,61,19,303 6,30,63,13,319 5,07,93,75,378 CA indices 100 99.61 196.15 157.99 [42]
  43. 43. CURRENT ASSET INDICES 250 200 196.15 i n 150 157.99 d i c 100 100 99.61 e s 50 0 2006-2007 2007-2008 2008-2009 2009-2010 current asset 100 99.61 196.15 157.99From the table-5.13 followings things are derived: The current asset indices showgrowth in the year 2006-2007. In 2007-2008 it declines marginally and in 2008-2009 itagain increase and in 2009-2010 it declines. TABLE-5.14 CURRENT ASSET TURNOVER RATIO- (sales/current Assets) YEAR SALES CURRENT ASSETS RATIO 2007 3,55,34,94,401 3,21,50,26,429 1.10 2008 3,99,75,58,798 3,10,61,19,303 1.29 2009 6,78,92,95,427 6,30,63,13,319 1.08 2010 3,05,16,27,568 5,07,93,75,378 0.60 [43]
  44. 44. CURRENT ASSET TURNOVER RATIO 1.4 1.29 1.2 1.1 1.08 1 0.8 RATIO 0.6 0.6 0.4 0.2 0 2006-2007 2007-2008 2008-2009 2009-2010 YEARFrom the table 5.14 following things are derived: In the year 2006-2007, the currentasset turnover was 1.10 which became 1.29, 1.08, and 0.60 in the year 2007-2008,2008-2009 respectively. But in the year 2009-2010, the current asset turnover was 0.60due to sale was less than the current assets. COMPONENTS OF CURRENT ASSETSAnalysis of current assets components enable one to examine in which components theworking capital fund has locked. A large tie up of funds in inventories affects theprofitability of the business or the major portion of current assets is made up cash alone,the profitability will be decreased because cash is non earning assets. TABLE 5.15 (No. in %) Current assets(CA) 2007 2008 2009 2010 Stores and spares 23.37 24.69 12.82 19.08 Sundry debtors 24.82 33.89 16.73 20.78Cash and bank balances 20.16 15.80 14.38 14.31 Other current assets 19.54 21.01 10.58 14.67 Loan and advances 12.11 4.61 45.49 31.16 Total of CA 100 100 100 100 [44]
  45. 45. p e r stores and spares c e sundry debtors n cash and bank t a other current assets g loans and advances e 2006-2007 2007-2008 2008-2009 2009-2010 year CURRENT LIABILITIES:- TABLE 5.16 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)Sundry creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456Deposits and retention from 12,50,63,350 13,71,54,497 14,91,29,269 12,89,91,075suppliers/contractorsInterest accrued but not due on 6,27,33,789 2,05,82,149 1,30,49,185 51,73,055loansLiabilities for wealth tax 37,299 47,240 47,253 28,781Electricity duty payable 2,12,903 49,092 1,82,269 1,56,113Liabilities for fringe benefit tax 23,41,534 44,54,790 68,51,705 68,51,705Other liabilities 87,64,35,326 1,22,77,13,016 1,61,76,99,768 1,65,27,44,614Total 1,67,71,46,697 2,05,51,68,764 2,47,64,86,046 2,51,79,96,799Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475Total 2,50,80,12,516 3,35,96,86,508 7,29,34,88,649 8,21,36,64,274Current liabilities indices 100 133.96 290.81 327.50 [45]
  46. 46. TABLE 5.17 CURRENT LIABILITIES SIZE CURRENT LIABILITIES 350 current liabilities 327.5 300 290.81 250 indices 200 150 133.96 100 100 50 0 2006-2007 2007-2008 2008-2009 2009-2010 yearsFrom the table 5.17 following things are derived: The current liabilities graph showsa rapid growth. In 2006-2007 ,the current asset indices is 100 and thereafter it increasesto 133.96, 290.81, 327.5 in 2007-2008, 2008-2009, 2009-2010 respectively. Thecurrent liabilities increased at a speed. (TABLE 5.18) DEBTOR TURN OVER RATIO- (NET SALES/AVERAGE DEBTORS) YEAR Net Sales Average Debtors Ratio Average Collection Period (365/DTR)days 2007 3,55,34,94,401 1216845410 2.92 125 2008 3,99,75,58,798 925338091.5 4.32 85 2009 6,78,92,95,427 1,05,37,88,728 6.44 57 2010 3,05,16,27,568 1,05,53,64,586 2.89 126 [46]
  47. 47. DEBTOR TURN OVER RATIO 7 6.44 6 5 4.32 4 ratio 3 2.92 2.89 2 1 0 2006-2007 2007-2008 2008-2009 2009-2010 years AVERAGE COLLECTION PERIOD 125 126 140 120 85 100 DAYS 80 57 60 40 20 0 2006-2007 2007-2008 2008-2009 2009-2010 YEARSDebtor Turn Over Ratio- By going through our calculation table and diagrams ofDebtor Turn over Ratio, profit and loss accounts and balance sheets of OPTCL thefollowing results can be drawn.A) In the year 2006-2007 the debtor turnover ratio is 2.92 times and the averagecollection period is found to be 125 days. This year, there is a higher value of debtorturn over and a shorter average collection period in comparison to that of previous year.This is a good indication. [47]
  48. 48. B) In the year 2007-2008 the debtor‟s turnover ratio is 4.32 times and the averagecollection period is 85 days. This year, the value of debtor‟s turnover is higher than theprevious year due to decrease in average debtors and an increase in net sales. And theaverage collection period is also shorter than the previous year‟s figure.C) In the year 2008-2009 the debtor turnover ratio is 6.44 times and the averagecollection period is 57 days. This year, the value of debtor turnover is higher than theprevious year due to decrease in average debtor.D) In the year 2009-2010 the debtor turnover is 2.89 times and the average collectionperiod is found to be 126 days. This year, there is higher value of debtor turn over.E) OPTCL used to collect pending dues directly from consumers for which, substantialdelay in getting payment was . However, the present average period of collection isdecreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. forcollection of revenue on behalf of OPTCL and the same has been made through banks.The shorter the average collection period, the better the quality of debtors, since a shortcollection period implies the prompt payments by debtors. So this is a good indicationfor the organization.Section five generally defines Measures to Improve Working Capital Managementat OPTCL: The essence of effective working capital management is proper cash flowforecasting. This should take into account the impact of unforeseen events, marketcycles, loss of a prime customer and actions by competitors. So the effect of unforeseendemands of working capital should be factored by company. This was one of its reasonsfor the variation of its revised working capital projection from the earlier projection.a) It pays to have contingency plans to tide over unexpected events. While market-leaders can manage uncertainty better, even other companies must have risk-management procedures. These must be based on objective and realistic view of the roleof working capital.b) Addressing the issue of working capital on a corporate-wide basis has certainadvantages. Cash generated at one location can well be utilized at another.c) An innovative approach, combining operational and financial skills and an all-encompassing view of the company‟s operations will help in identifying andimplementing strategies that generate short-term cash. This can be achieved by havingthe right set of executives who are responsible for setting targets and performance [48]
  49. 49. levels. They could be then held accountable for delivering, encouraged to beenterprising and to act as change agents.d) Working capital management is an important yardstick to measure a companyoperational and financial efficiency. This aspect must form part of the strategic andoperational thinking. Efforts should constantly be made to improve the working capitalposition. This will yield greater efficiencies and improve customer satisfaction.e) Cash should be managed properly.f) Effort should be made to reduce the current liabilities and to increase the currentasset.g) Placing the responsibility for collecting the debt upon the centre that made the sale HYPOTHESIS TESTING:generally hypothesis means a mere assumption or some supposition to be proved ordisproved. Hypothesis is usually considered as the principle instrument in research. Itsmain function is to suggest new experiments and observations.Hypothesis: 1- The firm is facing difficulty in paying short-term debt.The following table contains the details about the average collection period fromdebtors andaverage payment period to creditors from the period 2006-2007 to 2009-2010. Years Average Average collection payment XY X2 y2 period (x) period(y)2006-2007 125 63 7875 15625 39692007-2008 85 61 5185 7225 37212008-2009 57 37 2109 3249 13692009-2010 126 86 10836 15876 7396 ∑ x2 = ∑ y2 = 41975 ∑x= 393 ∑ Y=247 XY=26005 16455 [49]

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