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Working capital management (rafi) (1)

  1. 1. INDUSTRY PROFILEPOWER SECTOR REFORMS IN INDIAIntroduction: The power sector has transited to an era or controlled competition giving ameaningful role for the private sector and the market to play in the nation’sinfrastructure building. Reform in the power sector was officially kicked off inSeptember 1991 with the passing of the electricity laws (amendment) act, allowingthe private sector in power generation. This was followed by the center’s resolution inOctober 1991 that opened up electricity generation, supply and distribution to theprivate sector. These came soon after the assumption of office by the Narasimha RaoGovernment.REFORMS IN THE STATE ELECTRICITY BOARD The reforms process turned active only in late 1996 with the adoption of the“common minimum nation action plan for power” at the Chief Minister’s conference.The action plan, which laid the foundation for reforms, is the state electricity boards[SEB’s] have the following salient features. • Formulation of national energy policy. • Setting up of the central and state electricity regulatory commissions. • Rationalization of retail tariffs. • Private sector participation in private distribution. • Streaming the role of central agencies concerned with project approvals. • Autonomy and improvement in the management and physical parameters of SEB’s. It took another 18 months before the reforms process got into implementationmode with the promulgation of the electricity regulatory commissions ordinance bythe precedence of India April 25, 1998. This ordinance primarily gave legal shape tothe two cardinal features of the common minimum action plan establishment ofregulatory commission and rationalization of retail tariff. This provision invitedconsiderable flak from the prefer power lobby and was unceremoniously shelved 1
  2. 2. when the ordinance was passed in to, an I act of parliament of July 2, 1998, reducingSERCs to toothless tigers as far as rationalization of retail tariff was concerned.However, the clause requiring the State Government to compensate the personaffected by the grant of subsidy in the manner state commission may direct wasretained, there by giving some vestige of authority to the regulators. Andhra Pradesh Power Generation Corporation Limited is one of the pivotalorganizations of Andhra Pradesh, engaged in the business of Power generation. Apartfrom operation & Maintenance of the power plants it has undertaken the execution ofthe ongoing & new power projects scheduled under capacity addition programmedand is taking up renovation & modernization works of the old power stations. When APSEB came into existence in 1959, APSEB started functioning withthe objectives of maintaining the power sector efficiently and economicallysimultaneously ensuring demand meets the supply. During the last decade inadequate capacity addition and low system frequencyoperation of less than 48.5 Hz for more than half a decade considerably reduced thepower supply reliability. The consumer have grown up from two and half lakhs to over one crore, theenergy handled per annum from 686 MV to over 40,000 MV. The annual revenue hasincreased from mere Rs.65 crore to Rs.48000 crore. In the after reforms process istaken up in a big way and APGENCO could complete 2X250MU KTPS V – stageand Srisailam left bank Power House. International agencies have are now interestedin taking part in VTPS stage – IV.HISTROY OF APGENCO APGENCO came into existence on 28.12.1998 and commenced operationsfrom 01.02.1999. This was a sequel to Government’s reforms in Power Sector tounbundle the activities relating to Generation, Transmission and Distribution ofPower. All the Generating Stations owned by erstwhile APSEB were transferred tothe control of APGENCO. The installed capacity of APGENCO as on 31.03.2007 is 6760.9 MWcomprising 3172.50 MW Thermal, 3586.4 MW Hydro and 2 MW Wing powerstations, and contributes about half the total Energy Requirement of Andhra Pradesh.APGENCO is third largest power generating utility in the Country next NTPC and 2
  3. 3. Maharashtra. Its installed Hydro capacity of 3586.4 MW is the highest among theCountry. APGENCO has an equity base of Rs.2107 crore with 10804 dedicatedemployees as on 31.12.2006. The company has an asset base of approximately Rs.12000 crores.Power Sector Status in India: • Generation during 2007-08 (April). • Daily reservoir levels. • Daily generation report. • Generation during 2006-07 (April – March).OUR POWER PLANTS Our Power Plants meet half the total Energy Requirement of Andhra Pradesh. As on 31-03-2005 APGENCO Owns, Operates and Maintains Five Thermal Plants with an installed capacityof 3882.50 MW, 18 Hydel Plants (including 4 Mini Hydel Plants) with an installed capacity of3703.4MW, among them, Tungabadhra HES is joint project (80:20) with Govt. of Karnataka andMachkund Power Utility (70:30) with Orissa Government, and 2 MW Ramagiri Wind Power Plant. APGENCO has also under taken Operation and Maintenance of Gas PowerPlant at Vijjeswaram owned by APGPCL. 1) Thermal Plants. 2) Hydel Plants. 3) Wind Plants 3
  4. 4. ORGANISATION STRUCTURE Sri.A.K.Goyal I.A.S Sri.A.K.Goyal I.A.S Chairman Chairman Sri Ajay Jain I.A.S Sri Ajay Jain I.A.S Managing Director Managing Director Sri C. Radhakrishna Sri C. Radhakrishna Sri.G.Adishe Sri.G.Adishe Sri.U.G.Krishna Sri.U.G.Krishna Sri. C. Radha Sri. C. Radha Sri.D.Prabhakar Sri.D.Prabhakar G.Vaman G.Vaman Adl.Charge -- Director Adl.Charge Director shu shu Murthy Murthy Krishna Krishna Rao Rao Rao Rao (Thermal) (Thermal) Director Director Director (Technical) Director (Technical) Director Director Director Director Director Director (Hydel) (Hydel) (Projects) (Projects) (Finance) (Finance) (HR) (HR) Sri A. Rama Rao Sri A. Rama Rao Sri A.Sunder Kumar Das,IPS Sri A.Sunder Kumar Das,IPS E.D (Information Systems) E.D (Information Systems) Chief of Vigilance & Security Chief of Vigilance & Security FA & CCA (Accounts) FA & CCA (Accounts) FA & CCA (Resources) FA & CCA (Resources) C.E (Civil // Hydro) C.E (Civil Hydro) Dy.CCA (Audit) Dy.CCA (Audit) Chief Engineer Chief Engineer C.E (Civil // Environment) C.E (Civil Environment) (Commercial) (Commercial) G.M (Training) G.M (Training) C.E (Projects) C.E (Projects) S.E (O & M // NSHES) S.E (O & M NSHES) C.E (O & M // Srisailam) C.E (O & M Srisailam) C.E (O & M // Sileru C.E (O & M Sileru Complex) Complex) C.E C.E C.E (Generation) C.E (Generation) Training Inst (VTPS) Training Inst (VTPS) C.E (TPC) C.E (O & M // RTPP) C.E (O & M RTPP) C.E (TPC) C.E (O & M // KTPS) C.E (O & M KTPS) C.E (R & M // KTPS) C.E (R & M KTPS) C.E (O & M // KTPS-V) C.E (O & M KTPS-V) S.E (O & M // RTS-B) S.E (O & M RTS-B) 4
  5. 5. COMPANY PROFILE HISTORICAL BACKGROUND OF RTPP, KADAPA (Dist), A.PA BEGINNING Almost a century after the invention of electricity it was introduced in Indiafor commercial use in a humble way. Fr the first time in the year 1889 a minihydroelectric power house with a capacity of 15KW was constructed on a smallrivulet in Darjeeling district and electric power was supplied n its vicinity. Within,two decades, in 1909 a 10KW diesel set was installed in Hyderabad for supply ofelectricity to the king’s palaces. This was the first step in the development of electricpower in Andhra Pradesh (HYDERABAD).GENERAL Rayalaseema Thermal Power Project is one of the major Powers generatingfacilities in Andhra Pradesh to meet the growing demand for power in the Southernpart of the state. The Project envisaged the installation of 2X210 MW of ThermalGeneration units under Stage – 1.LOCATION The Project Is located at a distance of 8 KM from Muddanur Railway stationof South Central Railway on the Chennai – Mumbai Railway line. The site selected isat an adequate distance from populous Town and land belonged to the governmentand was not in use. It is quiet near to the existing Railway line and Transmission linesof AP TRANSCO. The water requirement for the Project from Mylavaram Reservoir, which is at20 KM from the Project through two dedicated pipelines.COAL LINKAGE The main Coal Linkage to RTPP is M/s SCCL and is transported throughrail. Occasionally RTPP gets the coal requirements from M/s MCL, Orissa and this istransported through ‘Rail-Sea-Rail’ Method.OBJECTIVE OF THE PROJECT The Rayalaseema region is in the Southern part of the state and most of thegeneration facilities are in the Northern part of the state, except for two major Hydelstations in the Central part of the state. The Rayalaseema region thus used to getpower through long EHT line and frequently it is used to face the low voltage 5
  6. 6. problem particularly during the summer when the Hydel stations generations goesdown. The region is a drought prone area and has to depend on Industrial growth forits economic development power bring basic need, RTPP has ensured the proper andquality supply the objective also improved the base load Thermal generating capacityof the AP Grid.PROJECT COST The original cost of the Project as approved by the PlanningCommissioner is Rs. 503.71 crores and the revised cost of the Project based on actualexpenditure is Rs. 860.30 crores and the increase over general cost is 70%.About APGENCO LANDMARKS $ Achievements • Unit 3 (210 MW) of Vijayawada Thermal Power Station has established a National Record of continuous service for 441 days from 14.12.2004 to 28.02.2006 • APGENCO is the third Largest Power utility in the country in terms of Installed Capacity - 7587.9 MW • Our Hydro Installed Capacity 3703.4 MW is highest in the country. • Thermal plants are consistently winning the Gold and silver medals for Meritorious Productivity Award • Availability of thermal plants has been (over a decade) well above the national average • Recently Srisailam Left Bank Power House, a unique complete under ground powerhouse is successfully commissioned and being operated. This is the first such one in southern region. • Thermal generation during 2004-05 - 23360 MU - is highest ever achieved by APGENCO • AMRP LIFT IRRIGATION Scheme is taken up and completed well below the stipulated time & budget .In that, the pumping station commissioned (18 MW) is first such one in India where water is lifted to an height of 100Mts. • Srisailam complex is the largest hydro power station with installed capacity 1670 MW in the country. • Nagarjuna Sagar Left canal Power House is the first hydro 6
  7. 7. station in the country to use SCDCA for operation of the units from control room besides enhancing the Excitation and Governor systems with microprocessor controls. • Pochampad Hydro electric Scheme is the first hydro power station to use microprocessor controls in the powerhouse • Thermal generation during 2004-05 - 23360 MU - is highest ever achieved by APGENCOAPGENCO – RTPP ITS VISION, MISSION AND CORE VALUES OUR VISION: ♥ To be the best power utility in the country and one of the best in the world. OUR MISSION:  To generate adequate and reliable power most economically, efficiently and eco-friendly.  To spearhead accelerated power development by planning and implementing new power projects.  To implement Renovation and Modernization of all existing units and enhance their performance. CORE VALUES:  To proactively manage change to the liberalized environment and global trends.  To build leadership through professional excellence and quality.  To build a team based organization by sharing knowledge and empowering employees.  To treat everyone with personal attention, openness, honesty and respect they deserve.  To break down all departmental barriers for working together. 7
  8. 8.  To have concern for ecology and environment. CORPORATE OBJECTIVES: 1. To operate and maintain Power Stations availability ensuring minimum cost of generation. 2. To add generating capacity with in prescribed time and cost. 3. To maintain the financial soundness of the Company by managing financial operations. 4. In accordance with good commercial utility practices. 5. To adopt appropriate Human Resources development policy leading to creation of team of motivated and competent power professional.Quotations Regarding Power  “Save Energy Today Avoid Crisis Tomorrow”.  “A Thing Which Burns Never Returns”.  “Save One Unit A Day Keep Power WT A Way”.  “When it is Bright Switch of the Light”.ESSENTIAL INPUTS TO PROJECTSLAND: An extent of 2621.587 acres of government land has been acquired for themain plant, colony, and ash pond and marshalling yard areas. In addition to that 52.59acres of patta land was also acquired.WATER SUPPLY: The water required for running of the power station is being drawn from theMylavaram reservoir through a 21Mm long steel pipeline. The water flows fromMyalavaram to RTPP through gravity. Government of A.P irrigation department hasallocated 20 cusecs of water per day and 1.3 TMC per year from the reservoir for theproject.COAL SUPPLY: The power station requires about 2.5 million tones of coal every year, which isbeing supplied from SINGARENI COLLIRIES under long-term coal linkagearrangements. The coal is being transported to powerhouse site by rail over a distanceof about 800Km by one of the routes, Vijayawada-Guntur-Reniguntla. An approach 8
  9. 9. railway line is formed from Muddanur Railway Station to the project site as a part ofthe project.EVACUATION OF POWER: The power generated at the project is evacuated through six number 220KVtransmission lines to Yerraguntla, Kadapa, and Anantapur.STATE OF CLEARENCE: All the clearances required for the construction of the project like “NOOBJECTION” from Airports Authority, “NO OBJECTION” from state Pollutioncontrol Board and clearance of India wide letter dated 09-03-1998 accordedinvestment approval for the project at an estimated cost of Rs.503.71 crores for thepower station based on 1987 prices.ELECTRICITY PROGRESS IN A.P (1911-1922) The electricity department was established in 1911 under the GovernmentMint. Later Hussain Sugar Bund was electrified on Saturday 25th October, 1913 A.Dand street electrification work was started within and outside the Municipal limits ofHyderabad and electricity was provided on the residency roads. In Hederabad 10substations were erected for the distribution of power in the city. The tariff was 6annas (Osmania sikka) per unit with a minimum of Rs.5/- O.S. per month.Programmes of expansion to cover other town if the Nizams State was take up. Underthis programme steps were taken to generate electric power at Aurangabad, Raichur,Warangal and Gulbarga etc. The Government of India Framed Electricity rules in 1910 so as to ensure fairdistribution and supply of power as well as take all necessary precaution for the use ofpower by the consumers and concerned departments.POWER DEVELOPMENT IN A.P AN OPPORTUNITY KNOWKING We are standing at the entrance of 21st century and opportunity is knocking atits door. The end of the century offers us the opportunity to assure India’s and inparticular out state’s electricity needs for decades to come. Electricity demand in A.P is estimated to grow at an annual compound growthrate of around 10% as against the National growth rage of 6.8%. The installed 9
  10. 10. capacity of A.P state Electricity Board has grown from 213 MW in 1960-61 to 6124MW at present (Excluding central share). The available capacity in A.P is 6135.5 MW, which includes 897 MW fromcentral generating stations. As the capacity addition could not keep pace with thegrowth in demand, a shortage of 2000MW in the installed capacity exists now. Thegrowth in demand has been mainly due to extensive Rural Electrification Programmeand energisation of agricultural pump sets at one – lakhs pump sets per year since1985-86 besides increase in domestic loads. A.P.S.E.B has long been a trendsetter in breaking new paths and adopting theSTATE-OF-THEATRE technology in its power plants. The technology adopted in thepower station has been continuously upgraded both in the Hydro and Thermal stationand also in transmission distribution and general management to enhance theproductivity and improve the operations.RAYALASEEMA THERMAL POWER PROJECT STAGE – I Rayalaseema comprises of four districts Kadapa, Kurnool, Anantapur andChittoor which are considered to be in backward region and the area lags behind in allrespects such as Agriculture, Industry and education prior to the Industrialdevelopment, Agriculture is purely dependent on rainfall. People used to live onAgriculture sector owing to the advancement of Science and Technology some ofbarites and Mine Industries were started subsequently and more industries wereestablished in this region. Added to this, the region is considered to be hottest regionand temperature often goes up to 50 degrees centigrade in summer. Therefore theneed for Electricity to meet the necessity of the inhabitants and the Industrial belt ofthis region was felt, as the supply that was generated by the Agencies was foundinsufficient. Hence the Government established Rayalaseema Thermal Power Projectin 1994. Rayalaseema Thermal Power Project is one of the major power generationfacilities began developed in Andhra Pradesh to meet the growing demand for power.The project envisages the installation of 210 MW power generation units under Stages- I. The first 210 MW under commissioned on 31-3-1994 and second unit on 25-2-1995. Rayalaseema region is in the Southern part of the state and most of generatingfacilities are in the Northern part of the state except two major Hydel stations in theCentral part. The Rayalaseema region therefore gets in power, therefore gets power 10
  11. 11. during summer when the Hydo stations generations goes down. Priority is thereforegiven for Industrial development and power being the basic infrastructure; it isnecessary to ensure proper power supplies. In this context the RTPP is taken up notonly to improve the base load capacity of the Grid but also to ensure proper voltageprofile in the area under all conditions.RAYALASEEMA THERMAL POWER PROJECT STAGE – IISalient Features:Installed Capacity 420 MW (2 X 210 MW)Estimated Cost Rs. 1640 CrLocation V V Reddy Nagar-516 312, Kadapa (Dt)Coal Source Singareni Coal Collieries LimitedWater Source Mailavaram DamUnits Commissioning Unit-III : January, 2007Schedule Unit-IV : July, 2007Financial Assistance Power Finance Corporation, Rural Electrification Corporation, Central Bank & Indian Overseas Bank.STATUS AS ON 04.06.2007 ♣ All Statutory Clearances/Approvals obtained. ♣ Total Project cost including IDC is about Rs. 1640 Crores (Rs. 3.90 Cr per MW). ♣ Contract of Main Plant and balance of plant except coal & ash plants and civil works was awarded to BHEL on 27.12.2003 at Rs. 1125 Cr. ♣ Contract for major civil works like Foundations, Structures, Cooling Towers, Chimney, 11
  12. 12. ♣ C.W. Pump House and Railway siding were also awarded and civil works are under brisk progress. ♣ Financial Closure achieved through PFC, REC, Central Bank and Indian Overseas BankSALIENT FEATURES OF THE PROJECT Single tower type boilers on concrete pylons with a capacity of 690 T/HR at apressure of 155Kg/cm2 and at 540oc for each unit are installed.MILLING PLANT: Three horizontal tube mills each having capacity of 105 T/HR are provided foreach of the boilers.ELECTROSTATIC PRECIPITATORS: In order to achieve total pollution control 6 field electrostatic precipitatorshaving capacity of 13, 82,000 M/s and 99.89% efficiency are installed.CHIMNEY: A 220mts tall chimney with two flues conforming to the latest requirement of“Emission Regulators” is installed.TURBO GENERATORS: German designed steam turbines with lowest heat rate with 3 cylindersreaction type were commissioned. Microprocessors based automatic Turbine runs upsystems are installed.PERFORMANCE SINCE INSPECTION ACHIEVED AWARDS YEAR PLANT LOAD WON RANK FACTOR (%)1995-1996 70.9 --- ---1996-1997 66.2 --- ---1997-1998 81.1 Silver Medal1998-1999 91.5 Gold Medal First in Country1999-2000 94.9 Gold Medal Second in Country2001-2002 92.4 Gold Medal Second in Country2002-2003 94.8 Gold Medal First in Country 12
  13. 13. 2003-2004 92.2 Second in APGENCO 2004-2005 91.16 Bronze Medal Third in Country 2005-2006 64.44 --- --- 2006-2007 89.52 --- --- 2007-08 85.62 --- --- 2008-09 91.99 Energy conservation --- 2009-2010 84.44 --- Fourth in Country WORKING CAPITAL If a firm wants to increase its profitability, it must also increase its risk. If it is to decrease risk, it must decrease its profitability. The trade off between these variables is that regardless of how the firm increases its profitability through the manipulation of working capital. The consequence is a corresponding increase in risk as measured by the level of working capital. Working capital in simple terms is the amount of funds which business concerns have to finance its day-to-day operations. It can also be regarded as that proportion of company’s total capital which is employed in short-term operations.Concepts of working capital:Working capital can be defined through its two concepts, namely:(a) Gross working capital (b) Net working capital.Gross working capital: Gross working capital refers to the firm’s investment in current assets. Currentassets are the assets which can be converted into cash within an accounting year and 13
  14. 14. include cash, short term securities, debtors, (accounts receivable or book debts) billsreceivable and stock (inventory).Net working capital: Net working capital refers to the difference between current assets and currentliabilities are those claims of outsiders which are expected to mature for payment within anaccounting year and include creditors (accounts payable), bills payable, and outstandingexpenses. Net working capital can be positive or negative. A positive net working capitalwill arise when current assets exceed current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. Importance of Working Capital: Investment is fixed assets only is not sufficient to run the business. Therefore working capital or investment in current assets is a must for the purchase of raw materials and for meeting the day-to-day expenditure on salaries, wages, rents etc. The main advantages of adequate working capital are as follows:  If proper cash balance is maintained a Company can avail the advantage of cash discounts by paying cash for the purchase of raw materials in the discount period, which results in reducing the cost of production.  Adequate working capital creates a sense of security, confidence and loyalty not only through out the business itself but also its customers, creditors and business associates.  A firm can raise funds from the market, purchase of goods on credit and borrow short-term funds from banks etc. If investors and borrowers are confident that they will get their due interest and payment of principle in time.  Certain contingencies like financial crises due to heavy losses; business oscillation etc. can be easily overcome, if the company maintains adequate working capital.  A continuous supply of raw material, research programs, innovation and technical developments and expansion programs can successfully be carried out if working capital is maintained in the business. It will increase the production efficiency, which in turn increase the efficiency and morale of the employees, lower the cost and create image in the community. 14
  15. 15. Determinants of Working Capital: A large number of factors, each having a different importance, influenceworking capital needs of firms. Also, the importance of factors changes for a firmover time. Therefore, an analysis of relevant factors should be made in order todetermine total investment in working capital. The following are the factors whichgenerally influence the working capital requirements of the firm. • Nature of the Business • Sales and Demand Conditions • Technology and Manufacturing Policy • Credit Policy • Availability of Credit • Operating Efficiency • Price Level ChangesOperating cycle Operating cycle is the time duration required to convert sales, after theconversion of resources into inventories, into cash. The operating cycle of amanufacturing company involves three phases.  Acquisition of resources such as raw material, labour, power and fuel etc.  Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods  Sale of the product either for cash or on credit. Credit sales create account receivable for collection. The firm is required to invest in current assets for smooth, uninterruptedfunctioning. It needs to maintain liquidity to purchase raw materials and pay expensessuch as wages, salaries and other manufacturing, administrating and selling expensesas there is hardly a matching between cash inflows and outflows. Stocks of raw material and work-in-process are kept to ensure smoothproduction and to guard against non-availability of raw material and other 15
  16. 16. components. The firm holds stock of finished goods to meet the demands ofcustomers on continuous basis and sudden demand from some customers. Debtors arecrated because goods are sold on credit for marketing and competitive reasons.The operating cycle can be measured as follows:  RMCP – Raw material Conversion Period  WIPCP – Work-in-progress Conversion Period  FGP – Finished Goods Conversion Period  SDCP= Sundry Debtors Conversion Period  SCCP= Sundry Creditors Conversion Period Operating Cycle=RMCP+WIPCP+FGCP+SDCP-SCPP Purchases Payment Credit Sale Collection RMCP+WIPCP+FGCP Inventory Conversion Period Receivable Conversion Period Payables Net Operating Cycle Gross Operation Cycle 16
  17. 17. Permanent and Variable Working Capital: The minimum level of current assets which is continuously required by thefirm to carry on its business operations is referred to as permanent or fixed workingcapital. Depending upon the changes in production and sales, the need for workingcapital over and above permanent working capital will fluctuate. The extra working capital needed to support the changing production and salesactivities is called fluctuating, or variable working capital. Both are necessary tofacilitate production and sale through operating cycle, but temporary working capitalis created by the firm to meet liquidity requirements that will last only temporarily.Amount ofWorkingCapital Temporary Fixed TimeAmount ofWorking 17
  18. 18. Capital Temporary Fixed Time From the above two graphs it is shown that permanent working capital isstable over time, while temporary working capital is fluctuating. The permanentworking capital is increasing over a period if the firm’s requirement for workingcapital is increasing.Operating cycle:Operating cycle=RMCP+WIPCP+FGCP+SDCP-SCPPRMCP=Raw Material Conversion PeriodWIPCP=Work-in-progress Conversion PeriodFGCP=Finished Goods Conversion PeriodSDCP=Sundry Debtors Conversion PeriodSCCP=Sundry Creditors Conversion Period Working capital cycle/operating cycle Raw Material Working progressCash FinishedGoods Accounts receivables Sales Debtors Management Receivables occupy the second place among the various components ofworking capital in any manufacturing concern. Effective management of the 18
  19. 19. receivable investments is a required characteristic of successful and growingenterprise. The main purpose of maintaining receivables is to push up the sales and alsoprofit by giving credit to the customers who find it difficult to purchase on cash. Thisprocess involves so much risk, which is called credit risk. While giving credit to anycustomer, credit manager has to consider the five Cs of credit: Character, Capacity,Capital, Collateral and Conditions, otherwise loss of bad debts will increase. Thereceivable improve the liquidity position of an enterprise as it is a near cash item, andthe receivables should be at the satisfactory level. The receivable in the strict accounting sense, arise out delivery of goods orrendering of services on credit. According to this, receivables mean only a tradedebtor. But in the present context, the term receivable has been in its broader sense,i.e., to include trade debts, loans and advances in this preview. The sale of the products against cash would be an ideal situation to eliminate astage in the working capital cycle thus achieving the objective of drastic reduction inits length and the requirement of Working Capital. The existence of numerouscompetitors in the era of globalization and liberalized economy, such sales on cashcould only be next to impossibility if growth of the organization is any aspiration. Inthe present complex market scenario one leads the other, in offering more value formoney to their customers and extending credit has been one such major step. Thisencounters the organization with substantial blockage of Working capital.Indiscriminant extension of credits in the name of growth could erase the entireprofitability and as stated above non-extending of credit would keep the organizationout of business. A great deal of planning and efficiency is warranted to keep thereceivables at optimum level. A little elaboration is needed in this level. There are twomeasures in this regard. a. Collection period:The collection period would be in terms of number of days average credit sale. Such acalculation area wise, marketing personnel wise at frequent intervals would provideinformation’s for selective credit control. An application of incentive for fastercollection in certain selective areas also would render possible, the collection faster. b. Aging of book debts: 19
  20. 20. The collection efforts could be intensified on greater analysis of receivablesfrom the point of view of the number of days it is outstanding. Higher the number ofdays the debt is outstanding, the probability of it becoming doubtful of recovery ishigher. Earlier detection of such outstanding from customers would facilitate takinghard decisions of stoppage of further sales, in order to minimize bad debts. Collectionof book debts just as per credit policy would enable the organization to achieveplanned profitability.It would be an art and efficiency of marketing personnel in anorganization, which enables overall monitoring of receivables effective and to keep atan optimum level.Cash Management: One of the main tasks of financial management is to hold and maintain anadequate but not excessive cash balance. Cash is just another commodity required inthe process of production. A company should work hard to keep its inventory of cashdown to the minimum as it does to hold down the lock up in merchandise, inventoryand receivables. Cash is also the major and much awaited output or result of thecompany’s operations and there is the need for the effective plan to deploy the liquidresource to utmost productive use. Cash is also the idlest of all current assets. Theobjective of any firm cash management is therefore to improve the cash turnover byreducing the operating cycle period. Therefore its efficient management is crucial tothe solvency of the business.Cash is the starting point and the ending point of theWorking Capital cycle. The management necessarily means, ways and means ofmaintaining as low level in each stage possible, without hampering the laid downobjectives of the organization of growth and profitability. While explaining these, theefforts were only to reduce the conversion period at each stage and to reach to thecash stage as early as possible, process Management, and Receivables Managementetc. Cash Management as such, of course, depends on the nature of theOrganization, market conditions for the products dealt with by the organizationpolicies pursued, other external factors affecting etc.The Management of cash mainly should serve the following objectives:  The cost of capital being a major component in the determinants of profitability, the optimum level of its maintenance is so essential that any shortage even temporarily would disrupt the whole activity of the 20
  21. 21. Organization. It would fail to meet its commitments to employees statutory authorities etc. the suppliers would loose confidence in the Organization and there could be lack of competitiveness in supplying the materials.  Ultimately leading to substantial higher in-out costs. On the other hand of indiscriminate holding of cash, higher than necessary, would result in the loss of interest apart from stagnation in growth and profitability. It would be the endeavor of the Organization to rotate cash as fast as possibility maintaining cash in its form at the minimum.  The inflow and the outflow of cash could be nearly matched in order to enable the company meeting of all its commitments on time at minimum cost.  The cash should available even at the time of an unexpected deviation in the plan of production and sales.Efficient Debt Collection System: While dealing with monitoring receivables it have touched upon the need forreducing book debts and also control of book debts through Aging analysis. Inaddition, the system could build in the following for accelerating debt collection evenwithin the overall credit policy of the Organization.  Extending cash discounts for early payments by the customers. As long as margin on the products sold is higher than the cost of borrowed capital, faster collection by this system resulting in quicker rotation of cash could result in higher profitability.  Collection through demand drafts in the place of cheques, particularly that from outstations.Temporary Investment in Marketable Securities: There cannot be a perfect match between inflow and outflow of cash. In viewof necessity to provide for contingencies, temporary surplus cash situation mightexist. 21
  22. 22. It would be desirable to invest such funds in readily marketable securitieslike treasury bills, certificates of deposits etc., so as to earn an income even in theshort run and convert those securities just when the cash is required.SCOPE OF THE STUDY: The basis scope of the study is to understand & determine workingCapital management adopted by the department. The study also includes anobservation of different year’s working capital of APGENCO & its financial position.NEED FOR THE STUDY: Working capital is referred to be the lifeblood and nerve center of a business theneed for working capital is to run day to day activities can’t be over emphasized.Firms aim at maximizing the wealth and should earn sufficient return from itsoperations. The working capital is having the great influence on the development andprogress of any organization. The efficient management of working capital is asessential to maintain the smooth functioning of day to day operations .Hence there is aneed to study the importance of working capital management in “RAYALASEMATHARMAL POWER PROJECTSIGNIFICANCE OF THE STUDY: The working capital reflects the financial position and operation strengths andweakness of the concern. These statements are useful to management investors,creditors, bankers, Government and public at large. It served as a basis to decide thewise dividend declaration by company.OBJECTIVES OF THE STUDY: • To know the efficiency of the company in investing the funds in the current assets to perform the day –to- day operations smoothly. • To study the changes in Net working capital position.. • To evaluate the working capital position and its management in the company through computing and analyzing the financial ratios.LIMITATIONS OF THE STUDY:  Time is one of the limiting factor of the study the duration of training was two months which was too short period to study the whole organization. 22
  23. 23.  Second limiting factor is the busy schedule of the executives. As a result of this it is very difficult to get minute information about the organization.  Some aspects of financial information were not available because of the confidentiality of APGENCO.METHODOLOGY OF THE STUDY: The data that was obtained for the study can be classified into the following types.  PRIMARY DATA  SECONDARY DATA Primary data comprises of information obtained during discussions with the officersand staff in the finance department. Secondary data comprises of information obtained from ratio analysis and ratioanalysis estimates of other financial statements files and some other important documentsmaintained by the organization are also the helpful. The administration report published byAPGENCO is another source of data.RESEARCH METHODOLOGY • Research Design : Analytical • Analytical Tools : Ratio analysis, statement Showing Changes in working capital. • Data Sources : The secondary data has been Collected from Company records, Annual reports. • Period of the Study : 5 years i.e. from 2006 to 2010. For analyzing data simple mathematical ratios, percentages etc., have been used. The ratios relating to working capital have been selected and computed for the study are as follows: RESEARCH TOOLS • Current Ratio • Quick Ratio • Net Working Capital Ratio 23
  24. 24. • Debtors Turn Over Ratio • Inventory Stock Turnover Ratio • Gross Profit Ratio • Net Profit Ratio • Working Capital Turnover Ratio • Average collection period • Working Capital Ratio LIQUID RATIOS 1. Current ratio: The current ratio compares the total current asset with the total currentliabilities. A relative high ratio is an indication that the company is having highliquidity position and has the ability to pay its current obligation in time as and whenthey became due.The current assets include cash, stock, work in progress, marketablesecurities and accounts receivable. On other hand current liabilities includes accountpayable, sundry creditors, accrued income taxes, proposed dividends and borrowingsfrom financial institutions. Current assets Current ratio = Current liabilities Current ratio Table: V.1.1 (Rs. In Lakhs) Year Current assets Current liabilities Current Ratio 2006 272451.78 115710.51 2.35 2007 260668.92 150181.58 1.73 24
  25. 25. 2008 289357.15 202529.67 1.42 2009 347341.01 274725.41 1.23 2010 413088.46 302356.99 1.36 2011 409947.10 404399.46 1.01 CURRENT RATIO 2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 2010 2011INTERPRETATION: Generally 2:1 is considered ideal for the concern ratio. Current assets shouldbe two times the current liabilities. But this was not ideal for port trust because A.PGENCO is a service oriented organization. From the above table and Chart, it can beknown that the current ratio is constantly decreasing from 2006-09. The current ratioincreased in the year 2010 and then decreased in 2011.2 QUICK RATIOS: The quick ratio is calculated by deducting inventories from currentassets and dividing the remainder by current liabilities. Inventories are typically theleast liquid of a firm’s current assets and assets on which losses are most likely tooccur in the event of liquidation. Therefore, this measure of the firm’s ability topayoff short-term obligations without relying on the scale of inventories is important.The term quick assets refer to current assets, which can be converted into cashimmediately or at a short notice without diminution in value. Included in this categoryof current assets are Current Assets - Inventories Quick Ratio = Current Liabilities Quick ratio Table: V.1.2 (Rs. In Lakhs.) Year Quick Assets Current Liabilities Quick Ratio 2006 241139.56 115710.51 2.101 25
  26. 26. 2007 233892.88 150181.58 1.56 2008 249039.63 202529.67 1.236 2009 304246.66 274725.41 1.07 2010 355371.21 302356.99 1.17 2011 353628.27 404399.46 0.87 QUICK RATIO 2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 2010 2011INTERPRETATION: The exclusion of inventory is based on the reasoning that it is not Eastlandreadily convertible into cash. Prepaid expenses by their very nature are not availableto pay off current debts. From the above table and Chart, it can be known that thecurrent ratio is increased in the year 2010 compared to year 2009 and then decreasedin 2011..3. ABSOLUTE LIQUID RATIO: The absolute liquid ratio explains about the firm’s liquidity positionnow. A relative high ratio is an indication that the company is having high liquidityposition and has the ability to pay its current obligation in time as and when theybecame due. Cash+ Marketable securities Absolute liquid ratio = Current liabilities.Absolute liquid ratio Table: V.1.3 (Rs. In Lakhs] Year Current assets Current liabilities Current Ratio 2006 7072.47 115710.51 0.06 2007 3708.39 150181.58 0.02 26
  27. 27. 2008 3982.41 202529.67 0.01 2009 6974.45 274725.41 0.02 2010 11932.49 302356.99 0.039 2011 15248.69 404399.46 0.037 CHART: V.1.1.A ABSOLUTE LIQUID RATIO 0.06 0.05 0.04 0.03 0.02 0.01 0 2006 2007 2008 2009 2010 2011INTERPRETATION: From the above table and Chart, it can be known that from 2006 Absoluteliquid ratio started falling up to 2008 due to increase in current liabilities.In 2009 theratio increased as in increase in cash and bank balances is more than the increase inthe current liabilities. The Absolute liquid ratio in the year 2011 is 0.037 which isdecreased compared to the last year.4 NET WORKING CAPITAL RATIOS: The difference between current assets and current liabilities is callednetworking capital. The net working capital ratio is calculated by dividing networking capital with net assets or capital employed. Current asserts include cash andbank balances, investment, raw materials, advance payments, consumable stores andspares, finished goods, stock in process semi finished goods, Working Capital Net Working Capital Ratio = Net salesNet working Capital ratio Table: 4.1.4 (Rs .in lakhs) 27
  28. 28. years Working sales Net working capital capital Ratio 2006 157726.36 388868.06 0.405 2007 117872.81 419999.51 0.280 2008 89046.17 461370.22 0.193 2009 75282.09 622998.96 0.120 2010 124148.16 643421.85 0.192 2011 NET WORKING CAPITAL RATIO 0.5 0.4 0.3 0.2 0.1 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: The ratio is used as a measure of firm’s liquidity. The ratio measures the firm’spotential reservoir of funds. From the above table and Chart, it can be known that thecurrent ratio is decreased from the year 2005-06 to 2008-09. But there after thecurrent ratio is increased up to the year 2009-10.2. ACTIVITY RATIO1. DEBTORS TURN OVER RATIO: The major activity ratio receivables of debtor’s turnover ratio. Allied andclosely related to this is the average collection period. The debtor’s turnover ratio istest of the liquidity of the debtors of a firm. The liquidity of a firm’s receivable can beexamined in two types of debtor’s turnover ratio. Debtors/receivables turnover ratio.Average collection period. Sales = operating income. Sales Debtors turn over ratio = Avg debtor 28
  29. 29. Average debtors = opening debtors + closing debtors 2Debtors turn over ratio ( lakhs) DEBTORS TURN OVER RATIO 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: Years Sales/operating Avg debtors Debtors turn over income Ratio 2005-06 388868.06 200553.01 1.938 2006-07 419999.51 181800.14 2.310 2007-08 461730.22 157286.83 2.935 2008-09 622998.96 159372.48 3.909 2009-10 643421.85 213843.71 3.008 The debtor’s turnover shows the relationship between sales and debtors offirm. Debtor’s turnover indicated the number of times on the average the debtor’sturnover each year. From the above table and Chart, it can be known that the currentratio is 3.009 in the year 2009-10. The current ratio is 3.008 in the year 2008-09. Theratio was decreased compared with last year.2. AVERAGE COLLECTION PERIOD: The second type of ratio of measuring the liquidity of a firm’s debtors is theaverage collection period. This ratio is fact interrelated with the dependent upon, thereceivables turnover ratio. No. of days in a yearAvg. Collection period = Avg. Debtors ratioAvg. Collection period Table: V.2.2 (Rs. In Lakhs.) Years No. of days in a Avg. debtors Avg. Collection year ratio period 29
  30. 30. 2005-06 365 1.938 188 2006-07 365 2.310 158 2007-08 366 2.935 125 2008-09 365 3.909 93 2009-10 365 3.008 121 CHART: V.2.2.A AVG COLLECTION PERIOD 200 150 100 50 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: The shorter the average collection period, the better the quality debtors, as ashort collection period implies the prompt payment by debtors. From the above tableand Chart, it can be known that the current ratio is 188 highest days in the year 2005-06. The average collection period ratio is 93 days in the year 2008-09.The averagecollection period ratio is 121 days in 2009-10. The ratio was increased compared withlast year.3. INVENTORY STOCK TURNOVER RATIO: It indicates the number of times the average stock has turned over during period.It indicates the efficiency of the firm’s inventory management. The cost of goods is anexpenditure including operating, administration, project establishment, interest onloans, and depreciation on fixed assets, provision, for bad debts. The averageinventory used in the determination, in the average of opening and closinginventories. It is calculated by dividing the cost of goods sold by average inventory. Cost of goods soldInventory stock turnover ratio = Average Inventory 30
  31. 31. Inventory Stock Turnover Ratio Table: V.2.3 (Rs. in Lakhs) Year Average Inventory Cost of goods sold Inventory turnover2005-06 25858.585 205641.06 Ratio 7.952 Times2006-07 27562.465 220216.54 7.989 Times2007-08 32813.97 249104.81 7.591 Times2008-09 41241.42 373091.07 9.046 Times2009-10 50405.8 372079.99 7.381 Times INVENTORY STOCK TURN OVER RATIO 10 8 6 4 2 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: Generally a high inventory turnovers indicative of good inventorymanagement and a low inventory turnover suggests an inefficient inventorymanagement. Therefore a balance should be maintained between too high and too lowinventory turnovers. From the above table and Chart, it can be known that theInventory stock turnover ratio is 9.046 in the year 2008-09. The average collectionperiod ratio is 7.381 in the year 2009-10. The ratio was decreased compared with lastyear. PROFIT ABILITY RATIOS:1. GROSS PROFIT RATIO: Gross profit is sales minus cost of sales. The cost of production means cost ofraw materials consumed, direct labour, power, and fuel, repairs and maintenance,other manufacturing etc. Gross profit is the contribution available to meet otherexpenses such as selling, general, and administrative and interest expenses. (Sales – Cost of Goods sold)*100 Gross Profit Ratio = Sales 31
  32. 32. Sales = Operating Income; cost of goods sold = Operating expenditureGross Profit ratio Table: V.4.1 (Rs. In Lakhs.) Years Gross Profit Sales Gross profit Ratio 2005-06 183227 388868.06 47.10 2006-07 199782.97 419999.51 47.50 2007-08 212625.41 461730.22 46.00 2008-09 249907.89 622998.96 40.11 2009-10 271341.86 643421.85 42.17 GROSS PROFIT RATIO 48 46 44 42 40 38 36 20005-06 20006-07 2007-08 2008-09 2009-10INTERPRETATION:. The gross profit ratio is generally low, if the value added in the production islow. From the above table and Chart, it can be known that the gross profit Ratio is40.11.0 in the year 2008-09. The gross profit Ratio is 42.17 in the year 2009-10. Theratio was Increased compared with last year.2. NET PROFIT RATIOS: This ratio indicated the earnings out of every 100 rupees of sales and the unitmake a direct measure of the annual profit. Here, the net profit is taken as net profitafter tax. (Profit after Tax)*100 Net Profit Ratio = SalesNet Profit ratio table: V.4.2 (Rs. In Lakhs.) Years Profit after Tax Sales Net profit Ratio 2005-06 6303.94 388868.06 1.621 2006-07 15100.62 419999.51 3.595 32
  33. 33. 2007-08 19763.59 461730.22 4.280 2008-09 24645.87 622998.96 3.956 2009-10 28866.02 643421.85 4.486 CHART : V.4.2.A NET PROFIT RATIO 5 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: From the above table and Chart, it can be known that the Net profit Ratio is3.956 in the year 2008-09. The Net profit Ratio is 4.486 in the year 2009-10. The ratiowas increased compared with last year.3.WORKING CAPITAL TURNS OVER RATIO: The difference between current assets and current liabilities is called networking capital. The net working capital ratio is calculated by dividing net workingcapital with net assets or capital employed. Current assets include cash and bankbalances, investment, raw materials, advance payments, consumable stores andspares, finished goods, stock in process/ semi finished goods Sales /operating incomeWorking Capital Turns Over Ratio = Net Current AssetsWorking Capital Turn Over Ratio (Rs in Lakhs) years Sales Net Current assets Working capital turn over ratio 33
  34. 34. 2005-06 388868.06 157726.36 2.465 2006-07 419999.51 117872.81 3.563 2007-08 461730.22 89046.17 5.185 2008-09 622998.96 72615.60 8.579 2009-10 643421.85 110731.47 5.810 WORKING CAPITAL TURN OVER RATIO 10 8 6 4 2 0 2005-06 2006-07 2007-08 2008-09 2009-10INTERPRETATION: The ratio is used as a measure of firm’s liquidity. The ratio measures the firm’spotential reservoir of funds. From the above table and Chart, it can be known that theWorking capital turn over ratio is 8.579 in the year 2008-09. The Working capital turnover ratio is 5.810 in the year 2009-10. The ratio was decreased compared with lastyear. SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31ST MARCH 2006 (Rs. In lakhs) Particulars Amount Amount Changes in Changes in 2005 2006 working working capital capital decrease Increase Current assets: Inventories 22831.69 28885.48 6053.79 -- Sundry debtors 203161.62 197944.41 -- 5217.21 Sundry receivables 10242.06 29846.01 19603.95 -- Cash and bank balance 1681.45 7072.47 5391.02 -- Loans and advances 9722.43 8703.41 -- 1019.02 Total Current Assets(A) 247639.25 272451.78 Current liabilities: 34
  35. 35. Sundry creditors 49046.67 39994.47 9052.20 -- Deposits and retentions 17691.49 19860.08 -- 2168.59 Provision for taxation 650.56 1311.16 -- 660.60 Interest accrued but not 8289.46 8724.02 -- 434.56 due Other current liabilities 43097.76 45820.78 -- 2722.82 Total Current Liabilities(B) 118776.14 115710.51 Working capital (A-B) 128863.11 156741.27 27878.16 Net increase in W.C 27878.16 Total net W.C 156741.27 156741.27 40100.96 40100.96INTERPRETATION: Current Assets like Inventories, Cash& Bank balance, Other Current asset hasincreased in 2006 than in 2005. Current Liabilities has decreased in 2006 than in2005. So, it is the Asset to the Company. The overall Performance of the company isprogressive than in 2003. The working capital of 2006 has also increased to the extentof Rs.27878.16 than in 2006. SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31ST MARCH 2007 (Rs. In lakhs) Particulars Amount Amount Changes Changes 2006 2007 in in working working capital capital decrease Increase Current assets: Inventories 28885.48 26239.45 2646.03 Sundry debtors 197944.41 165665.88 32278.53 Sundry receivables 29846.01 49400.06 19554.05 Cash and bank balance 7072.47 3708.39 3364.08 Loans and advances 8703.41 15655.14 6951.73 35
  36. 36. Total Current 272451.78 260668.92 Assets(A) Current liabilities: Sundry creditors 39994.47 62687.38 22692.91 Deposits and retentions 19860.08 25563.52 5703.44 Provision for taxation 1311.16 7385.47 6074.31 Interest accrued but not 8724.02 9853.22 1129.20 due Other current liabilities 45820.78 44691.99 1128.79 Total Current Liabilities(B) 115710.51 150181.58 Working capital (A-B) 156741.27 110487.34 46253.93 Net decrease in W.C 46253.93 Total net W.C 156741.27 156741.27 73888.50 73888.50INTERPRETATION: Current Assets like Inventories, Debtors, Cash& Bank balance has increased in2007 than in 2006. Current Liabilities has decreased in 2007 than in 2006.So, it is theAsset to the Company. The overall Performance of the company is progressive thanin 2006. The working capital of 2007 has also Decreased to the extent of Rs.46,253.96than in 2006. SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31ST MARCH 2008 (Rs. In lakhs) Particulars Amount Amount Changes in Changes in 2007 2008 working working capital capital decrease Increase Current assets: Inventories 26239.45 39388.49 13149.04 Sundry debtors 165665.88 148917.78 16748.10 Sundry receivables 49400.06 93617.55 44217.49 Cash and bank balance 3708.39 3982.41 274.02 Loans and advances 15655.14 3450.92 12204.22 Total Current 260668.92 289357.15 Assets(A) Current liabilities: 36
  37. 37. Sundry creditors 62687.38 61718.05 969.33 Deposits and retentions 25563.52 44903.20 19339.68 Provision for taxation 7385.47 13381.69 5996.22 Interest accrued but not 9853.22 7107.69 2745.53 due Other current liabilities 44691.99 75419.04 30727.05 Total Current Liabilities(B) 150181.58 202529.67 Working capital (A-B) 110487.34 86827.46 23659.86 Net decrease in W.C 23659.86 Total net W.C 110487.34 110487.34 85015.27 85015.27INTERPRETATION: Current Assets like Inventories, Debtors, Cash& Bank balance has increased in2008 than in 2007. Current Liabilities has decreased in 2008 than in 2007.So, it is theAsset to the Company. The overall Performance of the company is progressive than in2007. The working capital of 2008 has also decreased to the extent of Rs 23,659.86than in 2007. SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31ST MARCH 2009 (Rs. In lakhs) Particulars Amount Amount Changes in Changes in 2008 2009 working working capital capital decrease Increase Current assets: Inventories 39388.49 43094.35 3705.86 Sundry debtors 148917.78 169827.19 20909.41 Sundry receivables 93617.55 123851.19 30233.95 Cash and bank 3982.41 6974.45 2992.04 balance Loans and advances 3450.92 3593.52 142.58 Total Current 289357.15 347341.01 Assets(A) 37
  38. 38. Current liabilities: Sundry creditors 61718.05 96573.95 34855.9 Deposits and 44903.20 64820.37 19917.17 retentions Provision for 13381.69 12666.49 715.2 taxation Interest accrued but 7107.69 8399.07 1291.38 not due Other current 75419.04 92265.53 16846.49 liabilities Total Current 274725.41 Liabilities(B) 202529.67 Working capital (A- 86827.46 72615.60 14211.86 B) Net increase in W.C 14211.86 Total net W.C 86827.46 86827.46 72910.9 72910.9INTERPRETATION: Current Assets like Inventories, Debtors, Cash& Bank balance has increased in2010 than in 2009. Current Liabilities has decreased in 2010 than in 2009.So, it is theAsset to the Company. The overall Performance of the company is progressive than in2009. The working capital of 2010 has also decreased to the extent of Rs 14211.86than in 2009. SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31ST MARCH 2010 (Rs. In lakhs) Amount Amount Changes in Changes in Particulars 2009 2010 working working capital capital Increase Decrease Current assets: Inventories 43094.35 57717.25 14622.9 Sundry debtors 169827.19 257860.24 88033.05 Sundry receivables 123851.5 82677.91 41173.59 Cash and bank 6974.45 11932.49 4958.04 balance Loans and advances 3593.52 2900.57 692.95 38
  39. 39. Total Current 347341.01 413088.46 Assets(A) Current liabilities: Sundry creditors 96573.95 84198.85 12375.1 Deposits and 64820.37 80815.43 15995.06 retentions Provision for taxation 12666.49 13416.69 750.2 Interest accrued but 8399.07 10056.04 1656.97 not due Other current 92265.53 113869.98 21604.45 liabilities Total Current 274725.41 302356.99 Liabilities(B) Working capital (A- 72615.60 110731.47 38115.87 B) Net decrease in 38115.87 working capital Total net W.C 110731.47 110731.47 119989.09 119989.09INTERPRETATION: Current Assets like Inventories, Cash& Bank balance, Loans and Advances hasIncreased in 2009 than 2010. Current Liabilities has Decreased in 2010 than in 2009.So, it is the Asset to the Company. Debtors have increased in20010 than in 2009.Theoverall Performance of the company is progressive in 2010. The working capital of2010 has also decreased to the extent of Rs.38115.87 than in 2009. FINDINGS  Net working capital ratio has decreased from 0.405 to 0.120 from the year 2006 to 2009 respectively and later in 2009 and 2010 the ratio has increased to 0.120 and 0.192. All the years of Net Working Capital show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 0.405 0.280 0.193 0.120 0.192 39
  40. 40.  Current ratio has increased from 2.37 to 1.28 .From 2006 to 2007, 2008 and 2009 the current ratio has been decreased. The ideal ratio of current ratio 2 :1 All the years of Current ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 2.37 1.82 1.44 1.28 1.43 The quick ratio has decreased from 2.10 to 1.12, from 2006 to 2009. From 2009 and 2010 the quick ratio has been increased. All the years of Quick ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 2.10 1.64 1.24 1.12 1.23 The debtor’s turnover ratio has increased from 2006 to 2009. It increased. All the years of debtor s turnover ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 1.91 2.31 2.94 3.91 3.01 Inventory stock turnover ratio has increased from 7.95 to 9.05 in the year 2006 to 2009. next year 2009 to 2010 it is decreased. All the years of inventory stock turnover ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 7.95 7.99 7.59 9.05 7.38 Average collection period from 2006 to 2009, decreased. All the years of Average collection period show in the following table. YEARS 200 200 200 200 2010 RATIO 188 158 125 93 121 6 7 8 9 The Net profit Ratio is 3.959 in the year 2009. The nest year 4.486 in the year 2010. All the years of Nest profit ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 1.621 3.595 4.280 3.959 4.486 The gross profit ratio has decreased from 2006 to 2009. All the years of gross profit ratio show in the following table. 40
  41. 41. YEARS 2006 2007 2008 2009 2010 RATIO 47.1 47.5 46.0 40.1 42.2 0 0 0 0  Working capital turnover ratio has increased from 2.465 to 8.579 from the year 2006 to 2009, the working capital turnover ratio has been decreased2009 to 2010. All the years of Working capital turnover ratio show in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 2.465 3.563 5.185 8.579 5.810 There is a fluctuation in cash ratio of RTPP from 2006 to 2010 continuously. All the years of cash ratio shown in the following table. YEARS 2006 2007 2008 2009 2010 RATIO 0.0559 0.0059 0.0025 0.0021 0.0019 SUGGESTIONS it is suggested to the company to maintain stable working capital. Because the profitability of the organization is on sound working capital. It is suggested to company to proper utilization of funds in current assets. It is suggested to company to maintain required in hand and bank. Otherwise it difficult to meet short term obligations. CONCLUSION 41
  42. 42. The working capital management system followed by *RTPP* shows “adequate working capital” in last three financial years, the study also under takes to establish a cause and effect, relationship between variables to aid the management in making effective forecasts, various crucial areas that need attention were identified and practical suggestions were given to improve performance. BIBLIOGRAPHY• I.M.PANDAY, Financial management,7th edition, Vikas publishing house Pvt ltd, New Delhi.1995.• S. N.MAHESWARY, Financial management, 4th edition, sultan chand & sons, New Delhi,1997.• PRASANNA CHANDRA, Financial management, 3rd edition, Tata mc. GrawHill publishing, New Delhi.1984. 42
  43. 43. • M.Y.KHAN & P.K.JAIN, Financial management, 2nd edition, Tata mc. GrawHill publishing, New Delhi. • WEBSITE: www. Apgenco. gov. in. • MAGZINES: Charted financial analysis: ICFAI. ANDHRA PRADESH POWER GENERATION CORPORATION LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2006 ( Rupees in lakhs) PARTICULARS Schedule Current Year Previous YearINCOMERevenue 16 388868.06 417255.56Other Income 17 12076.07 400944.13 12046.38 429301.94EXPENDITURECost of Generation and Purchase of Power 18 205641.06 215658.24 43
  44. 44. Operation ,Maintenance, Adm, and General Expenses 19 38335.65 48844.80 Sub-total 243976.71 264503.04 Interest and FinanceCharges 20 72194.07 316170.78 81947.83 346450.87 Depreciation 71414.34 74291.78 TOTAL 387585.12 420742.65 Profit before prior perioditems 13359.01 8559.29 Prior Period Items 21 (74.98) (380.20) Extar Ordinary Items 37.83 Profit before tax 13396.16 8939.49 Current tax 1237.85 700.97 Deferred Tax 5659.55 3074.72 Fringe Benefit Tax 72.39 Tax for previous years 122.43 Net Profit after Tax 6303.94 5163.80 (20385.71 Add: Brought forward loss ) (25549.51) Balance Carried to (14081.77 Balance Sheet ) (20385.71) Earnings per Share (Basic & Diluted) 2.99 2.45 (Face value of Rs.100 per Share) ANDHRA PRADESH POWER GENERATION CORPORATION LIMITED BALANCE SHEET AS AT 31st March 2006 ( Rupees in lakhs) As at 31-3-2006 As at 31-3-2005 Particulars Schedule Current Year Previous Year I. SOURCES OF FUNDS Shareholders funds Share Capital 1 210680.01 210680.01 Reserves and Surplus 2 0.00 210680.01 0.00 210680.01 Loan Funds Secured Loans 3 240454.95 203552.90 Unsecured Loans 4 321062.57 343062.93 44
  45. 45. 1010201.3 Employee Related funds 5 448683.79 1 448670.85 995286.68 1220881.3 Total 2 1205966.69 II. APPLICATION OF FUNDS Fixed Assets 6 1407623.3 1403970.7 Gross Block 8 8 Less: Depreciation 587979.89 516851.96 819643.49 887118.82 Capital work in progress 7 149300.13 968943.62 63108.33 950227.15 Investments 8 76634.41 96231.91 Current Assets, Loans & Advances Inventories 9 28885.48 22831.69 Sundry Debtors 10 197944.41 203161.62 Cash and Bank balances 11 7072.47 1681.45 Other Current Assets 12 29846.01 10242.06 Loans and Advances 13 8703.41 9722.43 272451.78 247639.25 Less: Current Liabilities and Provisions 14 115710.51 118776.14 Net Current Assets 156741.27 128863.11 Deferred Tax Asset 163186.36 188963.86 Less: Deffered Tax Liability 158944.17 4242.19 179062.13 9901.73 Miscellaneous Expenditure 15 to the extent not written off OrAdjusted 238.06 357.08 Profit and loss account 14081.77 20385.71 1220881.3 Total 2 1205966.69 45
  46. 46. ANDHRA PRADESH POWER GENERATION CORPORATION LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007 (Rupees in lakhs) PARTICULARS Schedule Current Year Previous YearINCOMERevenue 16 419999.51 388868.06Other Income 17 12475.91 432475.42 12076.07 400944.13EXPENDITURECost of Generation and Purchase ofPower 18 220216.54 205641.06Operation, Maintenance, Adm, andGeneral Expenses 19 54548.07 38335.65Sub-total 274764.61 243976.71Interest and Finance Charges 20 58071.49 72194.07Depreciation 70838.52 403674.62 71414.34 387585.12Profit before prior period items 28800.80 13359.01Prior Period Items 21 114.44 (74.98)Extar Ordinary Items 0.00 37.83Profit before tax 28686.36 13396.16Current tax 3291.78 1237.85Deferred Tax 10214.91 5659.55Fringe Benefit Tax 74.07 72.39Tax for previous years 4.98 122.43Net Profit 15100.62 6303.94 (14081.77Add: Brought forward Profit (loss) ) (20385.71)Balance Carried to Balance Sheet 1018.85 (14081.77) Earnings per Share (Basic & Diluted) 7.17 2.99(Face value of Rs.100 per Share) ANDHRA PRADESH POWER GENERATION CORPORATION LIMITED 46
  47. 47. BALANCE SHEET AS AT 31st March 2007 (Rupees in lakhs) As at 31-3-2007 As at 31-3-2006 Particulars Schedule Current Year Previous Year I. SOURCES OFFUNDS Shareholders funds Share Capital 1 210680.01 210680.01 Reserves and Surplus 2 1018.85 211698.86 0.00 210680.01 Loan Funds Secured Loans 3 294957.82 240454.95 Unsecured Loans 4 304790.92 321062.57 1030178.3 Employee Related funds 5 430429.63 7 448683.79 1010201.31 Deffered Tax Liability 151369.62 Less: Deffered Tax Asset 145396.90 5972.72 1247849.9 Total 5 1220881.32 II. APPLICATIONOF FUNDS Fixed Assets 6 1416821.0 1407623.3 Gross Block 9 8 Less: Depreciation 656555.42 587979.89 760265.67 819643.49 1077841.0 Capital work in progress 7 317575.41 8 149300.13 968943.62 Investments 8 59402.50 76634.41 Current Assets, Loans &Advances Inventories 9 26239.45 28885.48 Sundry Debtors 10 165665.88 197944.41 Cash and Bank balances 11 3708.39 7072.47 Other Current Assets 12 49400.06 29846.01 Loans and Advances 13 15655.14 8703.41 260668.92 272451.78 Less: Current Liabilitiesand Provisions 14 150181.58 115710.51 Net Current Assets 110487.34 156741.27 Deferred Tax Asset 163186.36 Less: Deffered TaxLiability 158944.17 4242.19 MiscellaneousExpenditure 15 to the extent not writtenoff or Adjusted 119.03 238.06 Profit and loss account 14081.77 47
  48. 48. 1247849.9Total 5 1220881.32 48