Optcl (working capital management)

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Optcl (working capital management)

  1. 1. 1 Project Report ON WORKING CAPITAL MANAGEMENT IN ODISHA POWER TRANSMISSION CORPORATION LIMITED PROJECT REPORT SUBMITTED FOR PARTIAL FULLFILLMENT OF THE PGDM FROM RCM UNDER AICTE, BHUBANESWAR, ODISHA UNDER THE GUIDANCE OF INTERNAL GUIDE EXTERNAL GUIDE Mr. R. K. MISHRA Mr. M. R. DAS (Prof. of RCMA) F.M. (corporate finance), OPTCL SUBMITTED BY VIKASH KUMAR JHA PGDM BATCH (2013-2015) REG NO.:- 1301247062
  2. 2. 2 ACKNOWLEDGEMENT This project report bears the imprint of many people on it. I am very much thankful to of REGIONAL COLLEGE OF MANAGEMENT, BBSR for the successful completion of my SIP report I would like to thank my project supervisor and guide Mr R. K. MISHRA, the Faculty Member, RCM, Bhubaneswar, for his invaluable guidance and assistance in preparing the project report and also contributing a lot for accomplishment of this project. I am highly indebted to Mr. M. R. DAS, F.M. (corporate Finance), OPTCL, Bhubaneswar, my corporate guide, who guided me during the internship period and suggested many issues which has been taken care in my project work. I am also expressing my indebtedness to my parents and my friends who gave their full- fledged co-operation for the successful completion of project. VIKASH KUMAR JHA PGDM 2ND YEAR REGIONAL COLLEGE OF MANAGEMENT
  3. 3. 3 This is to certify that Mr. VIKASH KUMAR JHA of Department of PGDM REGIONAL COLLEGE OF MANAGEMENT doing POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM) has successfully completed his project work under the topic: working capital management. REGARDS MR. M. R. DAS FM(corporate finance)
  4. 4. 4 This is to certify that project Report entitled “working capital management in Odisha power Transmission Corporation limited”Carried out under the direction supervision of Asst.Prof.R. K. MISHRA , And is accepted as partial fulfillment for the requirement of 3rd Trimester PGDM at REGIONAL COLLEGE OF MANAGEMENT, Bhubaneswar, Odisha. I am satisfied that He had worked sincerely and with proper care. Project Guide:- Asst.prof.R.K.MISHRA
  5. 5. 5 DECLARATION I am Vikash Kumar Jha, a bonafide student of REGIONAL COLLEGE OF MANAGEMENT, BBSR, pursuing POST GRADUATE DIPLOMA IN MANAGEMENT, do hereby declare that the study entitled “A study on working capital management in OPTCL”, is my authentic work, I have completed my study under the guidance of Mr R.K.MISHARA, the Faculty Member, Regional College Of Management, Bhubaneswar and my company guide Mr. M.R.DAS, F.M. (corporate Finance), OPTCL, BBSR. All the data furnished in this project report are authentic and genuine and this report neither full nor in part has ever been submitted for award of any other degree to either this university or any other university. Vikash Kumar Jha PGDM 2nd year REGIONAL COLLEGE OF MANAGEMENT
  6. 6. 6 CHAPTERS CONTENTS PAGE NO. CHAPTER-1 INTRODUCTION 8-11 BACKGROUND OF THE STUDY 8 RELEVANCE OF THE STUDY 9 PROBLEM STATEMENT 9 HYPOTHESIS OF THE STUDY 10 OBJECTIVES OF THE STUDY 10 LIMITATIONS OF THE STUDY 11 CHAPTERISATION 11 CHAPTER-2 COMPANY PROFILE 12 CHAPTER-3 REVIEW OF LITERATURE 18 CHAPTER-4 RESEARCH METHODOLOGY 25-31 SELECTION OF TOPIC 25 RESEARCH DESIGN 25 SOURCES OF DATA COLLECTION 26 FORMULAS OF RATIO ANALYSIS & DEFINITION 26 STATISTICAL AND ANALYTICAL TOOLS USED FOR DATA ANALYSIS 31 CHAPTER-5 RESULTS & FINDINGS 31-54 CHAPER-6 CONCLUSIONS & RECOMMENDATION 55-56 CHAPTER-7 IMPLICATION FOR FUTURE RESEARCH 57 DISCLAIMER BIBLIOGRAPHY ANNEXURE
  7. 7. 7 ABSTRACT This project report entitled with “a study on working capital management in OPTCL” is overall on working capital management of ORISSA POWER TRANSMISSION CORPORATION LIMITED. The project on Working Capital Management has been a very good experience. Every company faces the problem of Working Capital Management in their day to day processes. An organization’s cost can be reduced and the profit can be increased only if it is able to manage its Working Capital efficiently. At the same time the company can provide customer satisfaction and hence can improve their overall productivity and profitability. Working capital is the fund invested by a firm in current assets. Now in a cut throat competitive era where each firm competes with each other to increase their production and sales, holding of sufficient current assets have become mandatory as current assets include inventories and raw materials which are required for smooth production runs. Holding of sufficient current assets will ensure smooth and uninterrupted production but at the same time, it will consume a lot of working capital. Here creeps the importance and need of efficient working capital management. This project is a sincere effort to study and analyze the Working Capital Management of OPTCL. The project was focused on making a financial overview of the company by conducting a Working Capital analysis of OPTCL, the years 2009 to 2013 and Ratios & various components of working capital & for the year 2009 to 2013. The project was of 45days duration. During the project data are collected from company records & annual reports. The data collected were then compiled, tabulated and analyzed. Investments in current assets represent a substantial portion of total investment. Investment in current assets & the level of current liabilities have to be geared quickly to change sales. By studying about the company s different areas it to know certain things like Acid test ratio is less than one. Standard current ratio is 2:1 or 1.5:1 and for OPTCL it is ratios not satisfactory. Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtors. Quick ratio is also not satisfactory for the company. Debtor’s turnover ratio improved from 2010 to 2012 and number of collection period decreases. But in 2013 debtor’s turnover ratio decreases and collection period increases. The study will give immense understanding about the components of working capital, liquidity trend, working capital trend, utilisation of current asset and short-comings if any and to measure the effective of working capital.
  8. 8. 8 CHAPTER-1 INTRODUCTION BACKGROUND OF STUDY: Whatever may be the organization, working capital plays an important role, as the company needs capital for its day to day expenditure. Thousands of companies fail each year due to poor working capital management practices. Entrepreneurs often don't account for short term disruptions to cash flow and are forced to close their operations. In simple term, working capital is an excess of current assets over the current liabilities. Good working capital management reveals higher returns of current assets than the current liabilities to maintain a steady liquidity position of a company. Otherwise, working capital is a requirement of funds to meet the day to day working expenses. So a proper way of management of working capital is highly essential to ensure a dynamic stability of the financial position of an organization. OPTCL is one of the largest power transmission organizations in the country, which plays the role of transmission of electricity in the entire state of Orissa. Seeing the good opportunity to study financial systems and practices of OPTCL, it is relatively important take up internship assignment on ‘WORKING CAPITAL MANAGEMENT IN OPTCL’. During the project work, it is being analyzed the working capital position of this organization. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient money flow to satisfy both maturing short-term debt and upcoming operational expenses. Working capital management deals with maintaining the levels of working capital to optimum, because if a concern has inadequate opportunities and if the working capital is more than required then the concern will lose money in the form of interest on the blocked funds. Therefore working capital management plays a very important role in
  9. 9. 9 the profitability of a company. And also due to heavy competitions among different organization’s it is now compulsory to look after working capital RELEVANCE OF STUDY At OPTCL a substantial part of the total assets are covered by current assets. Current assets form around 30%- 40% of the total assets. However this could be less profitable on the assumption that current assets generate lesser returns as compared to fixed assets. But in today’s competition it becomes mandatory to keep large current assets in form of inventories so as to ensure smooth production an excellent management of these inventories has to be maintained to strike a balance between all the inventories required for the production. So, in order to manage all these inventories and determine the investments in each inventories, the system call for an excellent management of current assets which is really a tough job as the amount of inventories required are large in number. Here comes the need of working capital management or managing the investments in current assets. Thus in big companies like OPTCL it is not easy at all to implement a good working capital management as it demands individual attention on its different components. The study of working capital management is very helpful for the organisation to know its liquidity position. The study is relevant to the organization to know the day to day expenditure. This study is relevant to give an idea to utilise the current assets. This study is also relevant to the student as they can use it as a reference. This report will help in conducting further research. Other researcher can use this project as secondary data PROBLEM STATEMENT: Working capital management or simply the management of capital invested in current assets is the focus of study. So topic is to study working capital management of OPTCL. Working capital is the fund invested by a firm in current assets. Now in a cut throat competitive era where each firm competes with each other to increase their production and sales, holding of sufficient current assets have become mandatory as current assets
  10. 10. 10 include inventories and raw materials which are required for smooth production runs. Holding of sufficient current assets will ensure smooth and uninterrupted production but at the same time, it will consume a lot of working capital. Here creeps the importance and need of efficient working capital management. Working capital management aims at managing capital assets at optimum level, the level at which it will aid smooth running of production and also it will involve investment of nominal working capital in capital assets. “The problem generally explains that, less attention has been paid to the area of short- term finance, in particular that of working capital management. Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that inadequate planning and control of working capital is one of the more common causes of business failure.” HYPOTHESIS OF THE STUDY: The following are the hypothesis of the study 1) The firm is facing difficulty in paying short-term debt. 2) The firm is not properly managing the sundry debtor. 3) The current liabilities are increasing than current assets year by year. OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives to be fulfilled. This study is not an exception to it. The following are a few straight forward goals which i have tried to fulfil in my project: 1) To study the various components of working capital. 2) To analyze the liquidity trend. 3) To analyze the working capital trend. 4) To appraise the utilization of current asset and current liabilities and find out short- comings if any. 5) To suggest measure for effective management of working capital.
  11. 11. 11 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 important also. Due to time restraints it was not possible to study in depth in get knowledge what practices are followed at OPTCL. 2) Many facts and data are such that they are not to be disclosed because of the confidential 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 Five Year data of OPTCL. CHAPTERISATION: Following are the chapterisation of the study: Chapter-1 Represents the background of the study, relevance of the study, problem statements, hypothesis, objectives as well as limitations of the study. Chapter-2 Represents company profile of OPTCL. Chapter-3 Represents review of literature. Chapter-4 Represents research methodology of the study including sources of data collection, formulas and statistical tools used for data analysis. Chapter -5 Represents results and findings. Chapter -6 Represents conclusion and suggestion. Chapter -7 Represents implication for future research.
  12. 12. 12 CHAPTER-2 COMPANY PROFILE ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL) Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 / 2542320 ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the largest Transmission Utility in the country was incorporated in March 2004 under the Companies Act, 1956 as a company wholly owned by the Government of Orissa to undertake the business of transmission and wheeling of electricity in the State.  Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a deemed Transmission Licensee under Section 14 of Electricity Act, 2003)  Notified as the State Transmission Utility (STU) by the State Govt. and discharges the State Load Dispatch functions.  Number of employees as on (01.10.2008): 3799 Executives-722, Non-Executives - 3077  Number of posts vacant as on 1/2007 – 1186 Executives-744, Non-Executives- 442  Number of pensioners as on 31.01.2007 – 6200  Number of Grid S/S including switching stations – 81  Length of EHT lines – 9550 Ckt-Kms.  Number of Bays – 1506 The registered office of the Company is situated at Bhubaneswar, the capital of the State of Orissa. Its projects and field units are spread all over the State. OPTCL became fully operational with effect from 9th June 2005 consequent upon issue of Orissa Electricity Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the provisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the State Government for transfer and vesting of transmission related activities of GRIDCO with OPTCL. The Company has been designated as the State Transmission Utility in terms of Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intra state transmission and wheeling of electricity under a license issued by the Orissa Electricity Regulatory Commission. The Company is also discharging the functions of State Load Despatch Centre. The Company owns Extra High Voltage Transmission
  13. 13. 13 system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132 kV levels and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs of the Company are managed by the Managing Director assisted by whole-time Functional Directors as per the advice of the Board of Directors constituted. They are in turn assisted by a team of dedicated and experienced professionals in the various fields. VISION AND MISSION OF OPTCL: VISION: 1)To build up OPTCL as one of the best transmission utility in the country in terms of uninterrupted power supply, minimizing the loss, contributing states’ industrial growth. 2)Development of a well coordinated transmission system in the backdrop of formation of strong National Power Grid as a flagship, endeavour to steer the development of Power System on Planned path leading to cost effective fulfilment of the objective of 'Electricity to All’ at affordable price. MISSION: Plan & operate the Transmission system so as to ensure that transmission system built, operated and maintained to provide efficient, economical and coordinated system of Transmission and meet the overall performance Standards. (i) To upgrade the transmission system network so as to handle power to the tune of 3000 MW for 100% availability of power to each family. (ii) To impart advanced techno managerial training to the practicing engineers and work force so as to professionalism them with progressive technology and capable commercial organization of the country so as to build up the most techno-commercially viable model of the country
  14. 14. 14 OBJECTIVES OF OPTCL: To effectively operate Transmission lines and Sub-Stations in the State for evacuation of power from the state generating stations feed power to state distribution companies, wheeling of Power to other states, maintenance of the existing lines and sub-stations for power transmission and to undertake power system improvement by renovation, up- gradation and modernization of the transmission network. OPTCL being a State Transmission Utility Public Authority has set the following objectives. Undertake transmission and wheeling of electricity through intra- State Transmission system 1) Discharge all functions of planning and coordination relating to Intra State, inter State transmission system with Central Transmission Utility, State Govt. Generating Companies, Regional Power Board, Authority, Licensees or other person notified by State Govt. in this behalf. 2) Ensure development of an efficient and economical system of intra state and inter State transmission lines for smooth flow of electricity from generating station s to the load centres. 3) Provide non-discriminatory open access to its transmission system for use by any licensee or generating company or any consumer as and when such open access is provided by the State Commission on payment of transmission charges/surcharge as may be specified by the State Commission. 4) Exercise supervision and control over the intra-state transmission system, efficient operation and maintenance of transmission lines and substations and operate State Load Despatch Centres to ensure optimum scheduling and despatch of electricity and to ensure integrated operation of power systems in the State. 5)Restore power at the earliest possible time through deployment of emergency Restoration system in the event of any Natural Disasters like super cyclone, flood etc.
  15. 15. 15 POWER SECTOR REFORM IN THE STATE: The Power Sector Reforms in the State of Orissa was started during November 1993 in an organized manner. The main objective of the reform was to unbundle generation, transmission and distribution and to establish an independent and transparent Regulatory Commission in order to promote efficient and accountability in the Power Sector. In order to implement the reform, in the first phase, two corporate entities namely Grid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro Power Corporation Limited (OHPC) were established in April 1995. GRIDCO was incorporated under the Companies Act, 1956 in April 1995 to own and operate the transmission and distribution systems in the State. Similarly OHPC was incorporated to own and operate all the hydro generating stations in the State. The State Government enacted the Orissa Electricity Reform Act, 1995 which came into force with effect from 1.4.1996. In exercise of power under Section 23 and 24 of the Orissa Electricity Reform Act, 1995,the State Govt. notified the Orissa Electricity Reform (Transfer of Undertakings, Assets, Liabilities, proceedings and Personnel ) Scheme Rules 1996. As per the scheme, the transmission ,distribution activities of the erstwhile OSEB along with the related assets, liabilities, personnel and proceedings were vested on GRIDCO . Simultaneously the hydro generation activities of OSEB along with related assets, liabilities, personnel and proceedings were vested on OHPC. In order to privatize the distribution functions of electricity in the State, four Distribution Companies namely Central Electricity Supply Company of Orissa Limited (CESCO), North Eastern Electricity Supply Company of Orissa Limited (NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) & Western Electricity Supply Company Orissa Limited (WESCO) were incorporated under the Companies Act, 1956 as separate corporate entities. During November 1998 the State Govt. issued the “Orissa Electricity Reform (Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules 1998” wherein the electricity distribution and retail supply activities along with the
  16. 16. 16 related assets, liabilities, personnel and proceedings were transferred from GRIDCO to the four Distribution Companies. Through a process of international Competitive Bidding (ICB), the four Distribution Companies were privatized during 1999. After separation of Distribution business, GRIDCO left with electricity Transmission and Bulk Supply/Trading activities. GRIDCO was also declared as the State Transmission Utility and was discharging the functions of State Load Despatch Centre (SLDC). The Government of India enacted the Electricity Act, 2003 which came into effect from 10th June 2003. Under the provisions of the said Act, trading in electricity has been recognised as a distinct licensed activity, which can only be undertaken by a licensee to be granted by the appropriate commission. The Act specifically prohibits the STU and Transmission Company in the State from engaging in the business of trading. GRIDCO being a State Transmission Utility was not permitted to engage itself in the trading in electricity and was required to segregate its activities in a manner within the transional period allowed under the Act that, the entity which will undertake transmission STU and SLDC function will not undertake the activities of Trading and Bulk Supply of Electricity. Keeping in view the statutory requirement of the Electricity Act for separation of trading and transmission functions into two separate entities, the State Govt incorporated Orissa Power Transmission Corporation Limited (OPTCL) to take over the transmission, STU/SLDC functions of GRIDCO. In exercise of the power conferred under Section 39,131, 133 & 134 of the Electricity Act, 2003, read with Section 23 & 24 of the Orissa Electricity Reform Act , 1995, the State Govt. issued the notification “Orissa Electricity Reform (Transfer of Transmission and Related Activities) Scheme 2005” on 9.6.2005. The Scheme was made effective from 1.4.2005. By virtue of the Transfer Scheme, 2005, OPTCL now undertaking the functions of transmission of electricity in the State of Orissa and has been declared as the State Transmission Utility. GRIDCO is also discharging the functions of SLDC.
  17. 17. 17 REFORM ACHIEVEMENT: Milestones of Orissa Power Sector Reform 1) First Transfer between OHPC and GRIDCO effected on 1st April, 1996 2)OER Act, 1995 created Orissa Electricity Regulatory Commission, a Regulatory Body which became functional on 1.8.1996 3) Unbundling of Transmission and Distribution via Second Transfer Scheme effective from November 26, 1998 4)9 Tariff Orders after public hearing have been passed by OERC (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, 1999 6) Privatization of Distribution completed with AES taking over the fourth distribution company, CESCO from September 1, 1999 7) CESCO remained under the management of an Administrator (CEO) appointed by OERC with effect from 27.8.2001 8)A new public limited company under the name “ Orissa Power Transmission Corporation Limited “ was incorporated on 29.03.2004 to carry on the business of Transmission, STU, and SLDC functions of GRIDCO 9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry on its Bulk Supply and Trading functions
  18. 18. 18 CHAPTER-3: REVIEW OF LITERATURE The purpose of this chapter is to present a review of literature relating to the working capital management. The following are the literature review by different authors and different research scholars. Pass C.L., Pike R.H1 (1984), studied that over the past 40 years major theoretical developments have occurred in the areas of longer-term investment and financial decision making. Many of these new concepts and the related techniques are now being employed successfully in industrial practice. By contrast, far less attention has been paid 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 little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that inadequate planning and control of working capital is one of the more common causes of business failure. Herzfeld B2 (1990), studied that “Cash is king”--so say the money managers who share the responsibility of running this country's businesses. And with banks demanding more from their prospective borrowers, greater emphasis has been placed on those accountable for so-called working capital management. Working capital management refers to the management of current or short-term assets and short-term liabilities. In essence, the purpose of that function is to make certain that the company has enough assets to operate its business. Here are things you should know about working capital management. Samiloglu F.and Demirgunes K3 (2008), studied that the effect of working capital management on firm profitability. In accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed
  19. 19. 19 Appuhami, Ranjith B4 (2008), studied impact of firms' capital expenditure on their working capital management. The author used the data collected from listed companies in the Thailand Stock Exchange. The study used Schulman and Cox's (1985) Net Liquidity Balance and Working Capital Requirement as a proxy for working capital measurement and developed multiple regression models. The empirical research found that 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 a control variable, has a significant relationship with working capital management. Hardcastle J5 (2009)., studied that Working capital, sometimes called gross working capital, simply refers to the firm's total current assets (the short-term ones), cash, marketable securities, accounts receivable, and inventory. While long-term financial analysis primarily concerns strategic planning, working capital management deals with day-to-day operations. By making sure that production lines do not stop due to lack of raw materials, that inventories do not build up because production continues unchanged when sales dip, that customers pay on time and that enough cash is on hand to make payments when they are due. Obviously without good working capital management, no firm can be efficient and profitable. Thachappilly G6 (2009)., “Working Capital Management Manages Flow of Funds”,(2009) describes that Working capital is the cash needed to carry on operations during the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash from customers. Raw materials and operating supplies must be bought and stored to ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must be paid for converting the materials into finished products. Customers must be allowed a credit period that is standard in the business. Only at the end of this cycle does cash flow in again
  20. 20. 20 Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital management on the operating performance and growth of new public companies. The study also sheds light on the relationship of working capital with debt level, firm risk, and industry. Using a sample of initial public offerings (IPO's), the study finds a significant positive association between higher levels of accounts receivable and operating performance. The study further finds that maintaining control (i.e. lower amounts) over levels of cash and securities, inventory, fixed assets, and accounts. Dubey R8 (2008)., studied The working capital in a firm generally arises out of four basic factors like sales volume, technological changes, seasonal , cyclical changes and policies of the firm. The strength of the firm is dependent on the working capital as discussed earlier but this working capital is itself dependent on the level of sales volume of the firm. The firm requires current assets to support and maintain operational or functional activities. By current assets we mean the assets which can be converted readily into cash say within a year such as receivables, inventories and liquid cash. If the level of sales is stable and towards growth the level of cash, receivables and stock will also be on the high. McClure B9 (2007)., “Working Capital Works” describes that Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). Cash is king, especially at a time when fund raising is harder than ever. Letting it slip away is an oversight that investors should not forgive. Analyzing a company's working capital can provide excellent insight into how well a company handles its cash, and whether it is likely to have any on hand to fund growth and contribute to shareholder value.
  21. 21. 21 Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maxim amongst financial managers. Working capital management refers to the management of current or short-term assets and short-term liabilities. Components of short-term assets include inventories, loans and advances, debtors, investments and cash and bank balances. Short-term liabilities include creditors, trade advances, borrowings and provisions. The major emphasis is, however, on short-term assets, since short-term liabilities arise in the context of short-term assets. It is important that companies minimize risk by prudent working capital management. Maynard E. Refuse11 (1996), Argued that attempts to improve working capital by delaying payment to creditors is counter-productive to individuals and to the economy as a whole. Claims that altering debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit. Proposes that stock reduction generates system-wide financial improvements and other important benefits. Urges those organizations seeking concentrated working capital reduction strategies to focus on stock management strategies based on “lean supply-chain” techniques. Thomas M. Krueger12 (2005), studied distinct levels of WCM measures for different industries, which tend to be stable over time. Many factors help to explain this discovery. The improving economy during the period of the study may have resulted in improved turnover in some industries, while slowing turnover may have been a signal of troubles ahead. Our results should be interpreted cautiously. Our study takes places over a short time frame during a generally improving market. In addition, the survey suffers from survivorship bias – only the top firms within each industry are ranked each year and the composition of those firms within the industry can change annually. Eljelly13 (2002) empirically examined the relationship between profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample
  22. 22. 22 of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis, Eljelly [9]found significant negative relationship between the firm's profitability and its liquidity level, as measured by current ratio. This relationship is more pronounced for firms 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 importance as a measure of liquidity than current ratio thataffects profitability. The firm size variable was also found to have significant effect on profitability at the industry level. Lazaridis and Tryfonidis 14(2004), conducted a cross sectional study by using a sample of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004 and found statistically significant relationship between profitability, measured through gross operating profit, and the cash conversion cycle and its components (accounts receivables, accounts payables, and inventory). Based on the results analysis of annual data by using correlation and regression tests, they suggest that managers can create profits for their companies by correctly handling the cash conversion cycle and by keeping each component of the conversion cycle (accounts receivables, accounts payables, and inventory) at an optimal level. Raheman and Nasr15 (2004), studied the effect of different variables of working capital management including average collection period, inventory turnover in days, average payment period, cash conversion cycle, and current ratio on the net operating profitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed on Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a strong negative relationship between variables of working capital management and profitability of the firm. They found that as the cash conversion cycle increases, it leads to decreasing profitability of the firm and managers can create positive value for the shareholders by reducing the cash conversion cycle to a possible minimum level. Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small to medium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. They tested the effects of working capital management on SME profitability using the panel
  23. 23. 23 data methodology. The results, which are robust to the presence of endogeneity, demonstrated that managers could create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firm's profitability. Falope and Ajilore17 (2003), used a sample of 50 Nigerian quoted non-financial firms for the period 1996 -2005. Their study utilized panel data econometrics in a pooled regression, where time-series and cross-sectional observations were combined and estimated. They found a significant negative relationship between net operating profitability and the average collection period, inventory turnover in days, average payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on the Nigerian Stock Exchange. Furthermore, they found no significant variations in the effects of working capital management between large and small firms. Kouma Guy18, (2001) in a study on, “Working capital management in healthcare”, Working capital is the required to finance the day to day operations of an organization. Working capital may be require to bridge the gap between buying of stocked items to eventual payment for goods sold on account. Working capital also has to fund the gap when products are on hand but being held in stock. Products in stock are at full cost, effectively they are company cash resources which are out of circulation therefore additional working capital is required to meet this gap which can only be reclaimed when the stocks are sold (and only if these stocks are not replaced) and payment for them is received. Working capital requirements have to do with profitability and much more to do with cash flow. Mehmet SEN, Eda ORUC (2005)19 in the study “Relationship between the efficiency of working capital management and company size”, As it is known, one of the reasons which cause change in working capital from one period to another is the change in management efficiency. The change in management efficiency will affect the change in working capital in a way as increaser or reducer from on period to another. In
  24. 24. 24 this study, the effect of change in management efficiency in working capital management in to the change in working capital is compared by company size and sectors. The data of this study covers sixty periods as the total of quarterly financial statement of 55 manufacturing companies which were in operation in Istanbul Stock exchange (ISE) between the years 1993 and 2007. In every period we studied, for inventories short term commercial receivables and short term commercial liabilities, and calculated the effect of change in management efficiency on to the effect of working capital change. In all sectors considered, in the change in working capital, and observed the effect of reducing of efficiency in inventory management. It is also observed that efficiency change in the management of the short term commercial receivables and the short term commercial liabilities by the company sizes and sectors make a positive effect in to the change in working capital Brealey, R., (1997)20 in a study on, “Working Capital management concepts work sheet university of phoenix”. Concept application of concept in the Simulation reference to concept in reading cash conversion cycle cash conversions is the process of managing a company’s cash inflows and outflows. In the simulation, the finance manager was responsible for balancing sales with collections or accounts receivables (cash inflows) and purchases with payments or accounts payables (cash outflows). This delicate balance maintains the company’s balance sheet keeping the cash and loans in a situation of financial stability and keeping the money from being tied up. Principles of corporate finance. Working capital management. New York: McGraw-Hill.
  25. 25. 25 CHAPTER-4 RESEARCH METHODOLOGY Research methodology is a systematic approach in management research to achieve pre-defined objectives. It helps a researcher to guide during the course of research work. Rules and techniques stated in research methodology save time and labour of the researcher as researcher know how to proceed to conduct the study as per the objective. SELECTION OF TOPIC: The selection of topic is a crucial factor in any research study. There should be newness and it should give maximum scope to explore the ideas from different angles. In present day due to increase in competition, working capital is becoming necessary for the organisation. It is that part of capital which is necessary to undertake day to day expenditure of the business organization. Whatever may be the organization, working capital plays an important role, as the company needs capital for its day to day expenditure. Thousands of companies fail each year due to poor working capital management practices. Entrepreneurs often don't account for short term disruptions to cash flow and are forced to close their operations. Working capital is the fund invested by a firm in current assets. Now in a cut throat competitive era where each firm competes with each other to increase their production and sales, holding of sufficient current assets have become mandatory as current assets include inventories and raw materials which are required for smooth production runs. Holding of sufficient current assets will ensure smooth and un interrupted production but at the same time, it will consume a lot of working capital. Here creeps the importance and need of efficient working capital management. After due to consultation with the external guide /internal guide, the topic was finalized and titled as-“A STUDY ON WORKING CAPITAL MANAGEMENT IN OPTCL, BBSR” SELECTION OF LOCATION FOR THE STUDY: The location for study was selected as the corporate office of OPTCL, Bhubaneswar. RESEARCH DESIGN: “A Research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure” The research design followed to study the
  26. 26. 26 working capital management in ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL) is Descriptive and Analytical Research Design. SOURCES OF DATA COLLECTION: 1. Secondary data collection Secondary data collection: The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, annual reports, books etc. This project is based secondary data collected through annual reports of the organization. The data collection was aimed at study of working capital management of the company. Project is based on 1. Annual report of OPTCL. 2009-2010 2. Annual report of OPTCL. 2010-2011 3. Annual report of OPTCL. 2011-2012 4. Annual report of OPTCL. 2012-2013 FORMULAS OF RATIO ANALYSIS & DEFINITION RATIO: 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 relationship between two or more things”. The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio helps to summaries large quantities of financial data and to make qualitative judgment of the firm’s financial performance.
  27. 27. 27 ROLE OF RATIO ANALYSIS Ratio analysis helps to appraise the firms in the term of there profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic functions like planning and control. As future is closely related to the immediately past, ratio calculated on the basis historical financial data may be of good assistance to predict the future. E.g. On the basis of inventory turnover ratio or debtor’s turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales. Similarly, the ratio analysis may be able to locate the point out the various 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 for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firm’s financial analysis liquidity, solvency, activity, profitability and overall performance, it enables the interested persons to know the financial and operational characteristics of an organization and take suitable decisions. LIQUDITY RATIO: Liquidity refers to ability of a concern to meet its current obligations as and when these become 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. These should be convertible into cash for paying obligation of short-term nature. To measure the liquidity of a firm, following ratios can be calculated: A) CURRENT RATIO: Current assets include cash and those assets which can be converted in to cash within a year, such marketable securities, debtors and inventories. All obligations within a year are include in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short term bank loan income tax liabilities and long term debt maturing in the current year. Current ratio indicates the availability of current assets in rupees for every rupee of current liability. CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES
  28. 28. 28 B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship between quick or liquid assets and liabilities. An asset is liquid if it can be converting in to cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset .other assets which are consider to be relatively liquid and include in quick assets are debtors and bills receivable and marketable securities. Inventories are considered as less liquid. Inventory normally required some time for realizing into cash. Their value also be tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities. QUICK RATIO = Quick assets/Quick liabilities C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are considered as more liquid then inventories, it cannot be converted in to cash immediately or in time. Therefore while calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash at bank, short term marketable securities are taken in to consideration to measure the ability of the company in meeting short term financial obligation. It calculates by absolute assets dividing by current liabilities. ABSOLUTE LIQUID RATIO= Absolute liquidasset/Quickliabilities SOLVENCY RATIO: Solvency ratios are of interest to long-term creditors and shareholders. These groups are interested in the long-term health and survival of business firms. In other words, solvency ratios have to prove that business firms can service their debt or pay the interest on their debt as well as pay the principal when the debt matures. A) DEBT EQUITY RATIO: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. DEBT EQUITY RATIO= Long Term Debts/ Shareholders Funds B) PROPRIETORY RATIO: Proprietary Ratio (also known as Equity Ratio or the Net Worth to Total Assets Ratio) is the proportion of shareholders' funds to total assets. A high ratio will indicate that the firm has sufficient amount of equity to support the functions of the business. PROPRIETORY RATIO= Shareholders Fund/ Total Assets INTEREST- COVERAGE RATIO INTEREST-COVERAGE RATIO=Earnings before Interest and Tax/ Interest Charges
  29. 29. 29 EFFICIENCY RATIO: Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sale. Activity ratios measure the efficiency and effectiveness with which a firm manages its resources or assets. These ratios are also called turnover ratios. A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship between credit sales and receivables of a firm. It indicates how quickly receivables are converted into sales. DEBTORS TURNOVER RATIO= SALES/AVERAGE ACCOUNTRECEIVABLES. AVERAGE A/C RECEIVABLES= OpeningTrade Debtor + ClosingTrade Debtor/2 AVERAGE COLLECTION PERIOD= (365/DTR) days Or RECEIVABLES * 365/ Sale B) WORKING CAPITAL TURNOVER RATIO:Itsignifiesthatforan amountof sales,a relative amountof workingcapital isneeded.If anyincrease insalescontemplatedworking capital shouldbe adequate andthusthisratiohelpsmanagementtomaintainthe adequate level of workingcapital.The ratiomeasuresthe efficiencywithwhichthe workingcapital is beingusedbya firm.It maythus compute networkingcapital turnoverbydividingsalesbynet workingcapital. WORKING CAPITALTURNOVER RATIO= Cost Of Sales/Net WorkingCapital C)INVENTORY TURNOVER RATIO:It indicates the efficiency of the firm in producing and selling its product. This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. Inventory Turnover Ratio = cost of Goods sold/ Average inventory Inventoryholdingperiod = 360days/ Inventoryturnoverratio CURRENT ASSET TURNOVER RATIO: CURRENT ASSET TURNOVER RATIO= Sales/ CurrentAsset
  30. 30. 30 PROFITABILITYRATIOS: Profitabilityisaresultofa largernumberof policiesanddecisions.Theprofitabilityratios show thecombined effects of liquidity, asset management( activity ) and debt management on operating results.Theoverall measureofsuccessofa businessisthe profitabilitywhich resultsfromthe effectiveuse ofits resources. It evaluatesthe efficiencyofa companyinterms of profit. Profitabilityandoperating/ management efficiencyofafirm is judged mainlybythe followingprofitabilityratios: A)GROSS PROFIT MARGIN: Normallythegrossprofithasto riseproportionately with sales.It may becalculatedbysubtractingthe cost ofgoodssoldfromnetsales. Gross profitmargin= Net sales - costof goods sold X100 Net sales It reflectsthe efficiencywithwhichthe companyproduceseachunitof product.Higherthe percentage the betteritisforthe company.  OPERATING PROFIT MARGIN:This is the ratio ofoperatingprofitto sales. Operating profit margin = Operating profit X 100 Net sales Theterm operatingprofitisthedifferencebetweengrossprofitt and administrationandsellingoverheads.Nonoperatingincomeandexpensesare excluded. Interest expenditureisalso excludedbecauseinterestistherewardfora particularformoffinancingandhasnothingto do with operatingactivities.Higher the percentagethe better it is forthe company.  NET PROFIT MARGIN: The term net profit refers to the final profit of the company. It takes into account all incomes and all expenses including interest costs. It is also knownas profitafter tax. Higher the percentage the better it is for the company. Net profit margin = Net profit X 100 Net sales RETURN ON TOTAL ASSETS OR RETURN ON INVESTMENT: Incomeis earned by usingthe assets ofa business productively.Therateof returnon total assets indicates thedegree of efficiency with which managementhas used theassets o f the enterpriseduringanaccountingperiod.This is animportantratioforallreaders of financialstatements. Return on investment = EBIT Total Assets
  31. 31. 31 There are also important ratio, which that helpwe can find out the positionofthe company likesCREDITORS TURNOVER RATIO, ASSATS TURNOVER RATIO ETC. WE ARE ALSO CALCULATE THE PROFITABILTY POSITION. STATISTICAL TOOLS USED FOR DATA ANAYLSIS: The various statistical tools used for data analysis is as follows: a) Tables: b) Bar-chart c) Graphs d) Correlation ANALYTICAL TOOLS USED: The analytical tools used for data analysis is as follows: a) Ratio analysis b) Schedule of change in working capital c) Cash flow statements d) Comparative analysis CHAPTER-5 RESULTS AND FINDINGS The result and discussion of the study is presented in five different sections. The first sections explain about the various components of working capital, variable of working capital. The second section explains about the liquidity trend of the organization. The
  32. 32. 32 third section explains about the working capital trend .The fourth section explains the utilization of current assets and current liabilities. The fifth section explains the measure to effective management of working capital. The first section explains about the various components of working capital and variables of working capital. The components of working capital are presented in Table 5.1. (TABLE 5.1: COMPONENTS OF WORKING CAPITAL) Rs in crore An insight into the table reveals that: a) Cash and bank balances in 2008-2009 were Rs 90.70. It is decreased to Rs 38.58 in 2011-2012. In 2012-2013 it increased to Rs 60.61. That means company try to maintains a cash balance . b) Debtors increases which was not a good sign. In 2008-2009 debtors were Rs 105.51 and it increased Rs 220.15 in 2012-2013. Total increase in Debtors is Rs 114.64. Company try to maintains or reduced debtors & collect money as much as possible, c) Inventories were increased at a good speed. The inventories were Rs 80.85 in 2008- 2009. In 2012-2013 it increased to Rs 140.95, ultimately increase in Rs 60.1, with the percentage growth 74.33%. Table 1.1 2008 - 2009 (Rs) 2009- 2010(Rs) 2010- 2011(Rs) 2011- 2012(RS) 2012- 2013(RS) Cash 90.70 72.71 57.94 38.58 60,61 Debtors 105.51 105.56 155.87 185.81 220.15 Inventories 80.85 96.90 114.43 130.41 140.95 Sundry Creditors 68.95 72.40 54.10 25.11 32.25 Provisions 481.70 569.57 236.81 153.47 176.71
  33. 33. 33 d) Sundry creditors also increased a lot. In 2008-2009 it was Rs 68.95. Then it increased by Rs 34.52 which ultimately amounted to Rs 72.40 with a increase of 5.00% in the year 2009-2010. After 2009-2010, it was continues decreases up to 2012-2013. e) Provisions increased 2008-2009 and 2009-2010 than after it was countinues decreases up to 2012-2013. VARIABLES YEARS 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 ROTA (Return on Total Assets) 0.03 (0.006) 0.009 0.032 0.032 OPM (operating profit margin) (2.73)% (23.38)% (2.37)% 4.84% 3.78% GEAR (Gearing Ratio i.e. financial debt / total assets) 0.49:1 0.39:1 0.55:1 0.56:1 0.54:1 CR (Current Ratio) 0.87:1 0.62:1 0.66:1 1.06:1 0.95:1 QR (Quick Ratio) 0.75:1 0.50:1 0.39:1 0.55:1 0.48:1 CA/TA (Current Assets to Total Assets) 0.23 0.19 0.11 0.10 0.10 CL/TA (Current Liabilities to Total Assets) 0.27 0.31 0.16 0.098 0.11 SK/CA (Stocks to Current Assets) 0.13 0.19 0.42 0.48 0.49 TD/CA (Trade Debtors to Current Assets) 0.17 0.21 0.18 0.29 0.22
  34. 34. 34 (Table 5.2: Variables of Working Capital Management) The various variables of working capital is presented in table 5.2. An analysis of data presented in the table reveals the following findings; A) Return on total asset came 0.03 in 2008-2009, (0.006) in 2009-2010 and 0.009 in 2010-2011 than after 0.032 in the year 2011-2012 and 2012-2013. B) Operating profit margin was (2.73)% in 2008-2009 then it decreased to (23.38)%, and (2.73)% in 2009-2010, and 2010-2011 respectively.than after profit is comeing in positive that is 4.84% and 3.78% in 2011-2012 and 2012-2013. Anything between 65% - 85% is known as a good operating margin. And for OPTCL is a sign of alarm. C) Gearing ratio was 0.49:1 in 2008-2009, in 2009-2010 it is 0.39:1 , in 2010-2011 0.55:1 , 0.56:1 in 2011-2012 and 0.54:1 in 2012-2013. D) Current ratio generally reduced for the organisation, in 2008-2009 it was 0.87:1 and it reduced to 0.62:1 in 2009-2010 and then it again to 0.66:1 in 2010-2011 but it increase to 1.06:1 in 2011-2012 than after it reduced to 0.95:1 in 2012-2013. E) Quick asset ratio in 2008-2009 as it was 0.75:1, in 2009-2010 it became 0.50:1 , in 2010-2011 it became 0.39:1., in 2011-2012 it became 0.55:1 , and in 2012-2013 it become 0.48:1. F) Current asset to total asset ratio came 0.23, 0.19 , 0.11, 0.10 ,and 0.10 in the year 2008-2009, 2009-2010 , 2010-2011 , 2011-2012 ,and 2012-2013. G) Current liability to total asset ratio came 0.27 in 2008-2009, in 2009-2010 it came 0.31, in 2010-2011 it came to 0.16:1, in 2011-2012 in came to 0.098 and 2012-2013 it came 0.11. CA_TURN (Current Assets Turnover is Sales/Current Assets) 1.08 0.60 1.95 2.1 1.9
  35. 35. 35 H) Stock to current asset is 0.13, 0.19 , 0.42 , 0.48 and 0.49 in 2008-2009, 2009-2010 , 2010-2011, 2011-2012 and 2012-2013 respective years. I) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 , in 2010-2011 is 0.18 in 2011-2012 is 0.29 and 2012-2013 is 0.22. J) Current asset turnover is 1.08 in 2008-2009, 0.60 in 2009-2010 . it become 1.95 in 2010-2011 , 2011-2012 is 2.1 and 1.9 came in 2012-2013. Table 5.3: Components of Current ratio, Quick ratio and Absolute Liquid Ratios 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Current ratio 0.87:1 0.62:1 0.66:1 1.06:1 0.95:1 Quick ratio 0.75:1 0.50:1 0.39:1 0.55:1 0.48:1 Absolute Liquid Ratio 0.012:1 0.08:1 0.14:1 0.15:1 0.2:1 SK/CA 0.13 0.19 0.42 0.48 0.49 TD/CA 0.17 0.21 0.18 0.29 0.22 CA/TA 0.23 0.19 0.11 0.10 0.10 CL/TA 0.27 0.31 0.16 0.098 0.11 Inventory Days 43 days 101days 70days 76days 88days Debtor Turnover Days 57days 122days 52days 41days 45days Creditors turnover days 48 days 74days 110days 53days 39days
  36. 36. 36 Table-5.3 revels the components of current ratio, quick ratio and absolute quick ratio. From the table following things can be derived: a) In 2008-2009, it is found that the current ratio of OPTCL is 0.87:1. . It is below the standard of 2:1 or 1.5:1 and it is due to a decrease in total current assets from previous year and an increase in current liability this year. It is a not good indication according to the rule of thumb. Because the firm has more current liabilities than current assets. The firm may not be able to meet its short term obligations in time. In 2009-2010, it is found that the current ratio of OPTCL was 0.62:1 it was not a good indication according to rule of thumb. In 2010-2011, it is found that the current ratio of OPTCL was 0.66:1 it was not a good indication according to rule of thumb and also 1.06:1 and 0.95:1 in 2011-2012 and 2012-2013, so company would try to maintains current ratio. b) Quick asset ratio in 2008-2009 as it was 0.75:1, in 2009-2010 it became 0.50:1 , in 2010-2011 it became 0.39:1., in 2011-2012 it became 0.55:1 , and in 2012-2013 it become 0.48:1. c) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be 0.012:1 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. In the year 2009-2010, the absolute liquid ratio found to be 0.08:1. In the year 2010-2011, the absolute liquid ratio found to be 0.14:1 , 0.15:1 and 0.2:1 in the year 2011-2012 and 2012-2013. d) Stock to current asset is 0.13, 0.19 , 0.42 , 0.48 and 0.49 in 2008-2009, 2009-2010 , 2010-2011, 2011-2012 and 2012-2013 respective years. e) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 , in 2010-2011 is 0.18 in 2011-2012 is 0.29 and 2012-2013 is 0.22. f) Current asset to total asset ratio came 0.23, 0.19 , 0.11, 0.10 ,and 0.10 in the year 2008-2009, 2009-2010 , 2010-2011 , 2011-2012 ,and 2012-2013. g) Current liability to total asset ratio came 0.27 in 2008-2009, in 2009-2010 it came 0.31, in 2010-2011 it came to 0.16:1, in 2011-2012 in came to 0.098 and 2012-2013 it came 0.11.
  37. 37. 37 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 (IN RUPEES) CURRENT LIABILITY (IN RUPEES) RATIO 2008-2009 62.95 72.93 0.87:1 2009-2010 50.79 82.14 0.62:1 2010-2011 275.28 414.24 0.66:1 2011-2012 271.93 256.61 1.06:1 2012-2013 288.93 305.1 0.95:1 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 current ratio 0.86 0.62 0.66 1.06 0.95 0.86 0.62 0.66 1.06 0.95 0 0.2 0.4 0.6 0.8 1 1.2 RATIO CURRENTRATIO
  38. 38. 38 From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL, various results can be made. A) In 2008-2009, it was found that the current ratio of OPTCL was 0.86:1. . It is a not good indication according to the rule of thumb. Because the firm has more current assets than current liabilities. The firm may be able to meet its short term obligations in time. B) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not a good indication according to rule of thumb. Because the firm has more current assets than current liabilities. The firm was not able to meet its short term obligation in time. C) In 20010-2011, it was found that the current ratio of OPTCL was 0.66:1and also 1.06:1 and 0.95:1 in 2011-2012 and 2012-2013. It was not a good indication according to rule of thumb. Because the firm has more current assets than current liabilities. The firm was not able to meet its short term obligation in time. D) Because of increase in administrative overhead expenses, super annuity benefits and payment of past loan etc. are the major factor for increasing of current liabilities. E) Situation can be controlled. So more emphasis can be given on these areas to reduce current liabilities and to increase current assets so that the actual standard of 2:1 can be achieved. In addition to, company should make clear cut strategic planning to sell electricity to major industries at industrial rate to achieve higher revenue
  39. 39. 39 TABLE5.5Quick Ratio- (Liquid Asset/ Liquid Liability) YEAR LIQUID ASSET CURRENT LIABILITY RATIO 2008-2009 548.45 729.35 0.75:1 2009-2010 410.90 821.37 0.50:1 2010-2011 160.55 414.24 0.39:1 2011-2012 141.19 256.61 055:1 2012-2013 147.69 305.10 0.48:1 FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED: A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2008-2009 Is found that the QUICK ratio of OPTCL IS 0.75:1, which is just normal standard. It is due to a little bit increase in current liabilities. B) In the year 2009-2010 it is found that the Quick ratio was 0.50:1.Which is below standard of 1:1? Management should have an eye on to that. C) In the year 2009-2010 it is found that the Quick ratio was 0.39:1, in 2011-2012 and 2012-2013 is 0.55:1 and 0.48:1 , .Which is below standard of 1:1. 0.75 0.5 0.39 0.55 0.48 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 R A T I O YEARS QUICK RATIO
  40. 40. 40 ABLE 5.6 ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/ Liquid LIABILITY): YEAR Absolute Liquid Asset Liquid Liability Ratio 2008-2009 90.70 729.35 0.12:1 2009-2010 72.71 821.37 0.08:1 2010-2011 57.94 414.24 0.12:1 2011-2012 38.58 256.61 0.14:1 2012-2013 60.61 305.10 0.20:1 0 0.05 0.1 0.15 0.2 0.25 0.3 2009-2010 2010-2011 2011-2012 2012-2013 Chart Title 0.12 Series 1
  41. 41. 41 By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet of OPTCL the following results can be drawn. A) 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. B) 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. C) The Absolute Liquid Ratio of the firm for the financial year 2010-2011 is found to be 0.12:1 , 0.14:1 & 0.20:1 in the financial year 2011-2012 and 2012-2013 which is below from the previous year of the normal standard of 1:2. This is due to less cash and bank balances of the organization in comparison to the Current Liabilities. -----------------------------------------------
  42. 42. 42 (Table 5.7) CASH FLOW STATEMENTS (2012-2013) (2011-2012) (2010-2011) (2009-2010) (2008-2009) amount in (Rs)crore amount in (Rs)crore amount in (Rs) amount in (Rs) amount in (Rs) profit/loss before tax & extraordinary items 20.78 27.78 12,73,12,985 -71,37,17,644 -18,30,29,883 adjustment for: appropriation to reserves and surpluses 2.11 1.57 13,09,96,775 1,18,36,39,044 6,33,87,383 interest and finance charges 42,43,77,484 54,16,01,198 97,24,54,617 Depreciation 143.75 99.97 1,23,90,63,901 1,08,22,03,592 1,09,74,37,879 preliminary expenses W/O -------------- 30,26,423 30,26,423 excess provision written back -------------- -1,04,00,87,510 -47,574 interest income -4,28,44,898 -4,55,13,310 -6,90,09,008 provisions for wealth tax 47,481 27,846 46,318 provision/write off against theft materials -15.26 11,59,214 15,22,603 29,50,312 provisions for obsolete stock-store etc 62.72 --------------- -------------- ------------- bad and doubtful debt 8,12,05,348 4,47,68,652 11,63,525 provisions for fringe benefit tax -------------- ------------------- - -23,96,915 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A) 151.38 191.90 17,06,692,319 1,05,74,70,893 1,88,59,83,078 WORKING CAPITAL CHANGE stores and spares -10.54 -15.98 -17,63,72,705 -16,20,59,785 -4,46,04,328 sundry debtors 14.34 -27.68 -50,31,04,002 -4,53,02,877 -37,81,016 other current assets 1.27 -1.46 -64,38,311 -59,43,581 -1,43,98,325 loan and advances -0.04 -11.81 1,17,79,20,033 1,20,34,71,087 - 2,72,53,85,618 current liabilities 37.76 69.26 27,27,22,589 4,93,59,037 42,88,03,928 Provisions 23.31 -83.33 -6,57,07,207 1,91,87,52,382 3,52,31,00,656 NET WORKING CAPITAL CHANGES (B) 53.52 -139.87 69,90,20,397 2,95,82,76,263 1,16,37,35,296 CASH GENERATED FROM 217.48 120.88 2,40,57,12,716 4,01,57,47,156 3,04,97,18,374
  43. 43. 43 Table 5.7 defines the following: THEOPERATION (A)+(B) CASH FLOW FROM INVESTING ACTIVITIES: capital expenditure (CAPEX) -191.75 -176.61 - 1,77,35,72,529 -93,41,57,641 -91,68,37,432 Interest received revenue 4,28,44,898 4,55,13,310 6,90,09,008 Purchase of investment -10.01 11.34 CASH GENERATED FROM INVESTING ACTIVITIES ( C ) -201.76 -165.27 - 1,73,07,27,631 -88,86,44,331 -84,78,28,424 CASH FLOW FROM FINANCING ACTIVITIES: proceeds from secured loan -37.24 -2.97 - 1,08,80,34,380 -1,06,41,24,474 - 1,05,96,33,683 proceeds from unsecured loan -12.03 -17.27 2,03,48,78,848 32,39,10,165 -6,95,82,948 interest paid 5.58 2.27 - 2,48,89,47,563 -2,61,68,02,137 -88,70,89,752 proceed from share capital 50 43 71,94,45,000 5,00,00,000 23,05,55,000 CASH FLOW FROM FINANCING ACTIVITIES (D) 6.31 -25.03 -82,26,58,095 -3,30,70,16,446 - 1,78,57,51,383 NET CASH GENERATED FROM ALL ACIVITIES (A+B+C+D) 22.03 -19.36 -14,76,73,010 -17,99,13,621 41,61,38,567 Cash and cash equivalent at the beginning of the year 38.58 57.94 72,71,06,129 90,70,19,750 49,08,81,183 cash equivalent at the end of the period 60.61 38.58 57,94,33,119 72,71,06,129 90,70,19,750
  44. 44. 44 a) Cash generated from investing activities, Rs-1,730,727,631 , Rs-88,86,44,331 ,Rs- 84,78,28,424 , Rs-165.27 croreand Rs-201.76crore in the year 2010-2011, 2009-2010 , 2008-2009 , 2011-2012 and 2012-2013 respectively. d)That, the net cash flow from its operating, investing and financing activities for the year 2010-2011 and 2009-2010 is in negative figure of Rs-147,673,010 and Rs.- 17,99,13,621 respectively. And it became positive in the year 2008-2009, which was Rs 41, 61, 38,567. The Third Section Explains About The Working Capital Trend Table-5.8 Size of Working Capital: CURRENT ASSETS(CA) 2009(rupees) 2010(rupees) Stores and spares 80,85,19,278 96,90,56,460 Sundry debtors 1,05,50,97,473 1,05,56,31,698 Cash and bank balances 90,70,19,750 72,71,06,129 Other current assets 738,951,177 74,48,94,758 Loan and advances 2,78,61,57,489 1,58,26,86,333 Total 6,295,745,096 5,07,93,75,378 Less: CURRENT LIABILITIES(CL) 2009(rupees) 2010(rupees) Sundry creditors 68,95,26,597 72,40,51,456 Deposits and retention from suppliers/contractors 14,91,29,269 12,89,91,075 Interest accrued but not due on loans 1,30,49,185 51,73,055 Liabilities for wealth tax 47,253 28,781 Electricity duty payable 1,82,269 1,56,113 Liabilities for fringe benefit tax 68,51,705 68,51,705 Other liabilities 1,61,76,99,768 1,65,27,44,614 Total 2,47,64,86,046 2,51,79,96,799 Provisions 4,81,70,02,603 5,69,56,67,475 Total 7,29,34,88,649 8,21,36,64,274 working capital( CA-CL) -997743553 -3,13,42,88,896 From the table -5.8 following things are derived: (Amount. In Rs.)
  45. 45. 45 In 2008-2009 working capital is Rs -987175330 due to excessive of provisions. In 2009-2010 working capital is Rs -3134288896. It became negative because current liabilities exceed current assets in these years. CURRENT ASSETS(CA) 2011 2012 2013 Current investments 11.34 Inventories 114.43 130.41 140.96 rade receivables 50.35 78.05 63.70 Cash and cash equivalents 57.94 38.58 60.61 Short -term Loan and advances 39.49 21.70 21.75 Other current assets 1.73 3.19 1.92 Total 275.28 271.93 288.93 Less: CURRENT LIABILITIES(CL) Trade payable 54.10 25.11 32.25 Other current liabilities 123.33 78.10 96.14 Short- term provision 236.81 153.40 176.71 Total 414.24 256.61 305.10 working capital( CA-CL) -138.96 15.32 -16.17 From the table -5.8 following things are derived: WORKING CAPITAL TREND ANALYSIS: In working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the important fields of management. It is therefore very essential for an analyst to make a study about the trend and direction of working capital over a period of time. Such analysis enables as to study the upward and downward trend in current assets and current liabilities and its effect on the working capital position. “The term trend is very commonly used in day-today conversion trend, also called secular or long term need is the basic tendency of population, sales, income, current assets, and current liabilities to grow or decline over a period of time” “The trend is defined as smooth irreversible movement in the series. It can be increasing or decreasing.” Emphasizing the importance of working capital trends, “analysis of working capital trends provide as base to judge whether the practice and privilege policy of the management with regard
  46. 46. 46 to working capital is good enough or an important is to be made in managing the working capital funds. TABLE-5.9 Working Capital Size trend Years 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Net W.C (A-B) -98.71 -313.43 -138.96 15.32 -16.17 W.C. Indices -100 -317.50 -140.78 115.52 -16.38 From the table 5.9 followings things are derived: It is observed that working capital index in 2008-2009, 2009-2010 and 2010-2011 it became negative but in 2011-2013 it become positive than after next year come negetive. Here in the year 2008-2009 and 2009-2010,2010-2011 and 2012-2013 current liabilities exceeded current assets. The company was unable to manage their working capital efficiently. (Amount. In Rs.)
  47. 47. 47 TABLE-5.10 WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING CAPITAL) Working capital turnover ratio YEAR Cost of Sales Net working capital Ratio 2009 678.93 -98.71 -6.88 times 2010 321.22 -313.42 -1.02 times 2011 555.6 -138.96 -4.00 times 2012 586.52 15.32 38.28times 2013 560.27 -16.17 -34.65times From the table 5.10 following things derived: A) In the year 2008-2009, it was -6.88, there was decrease in net current assets due to increase in current liabilities.
  48. 48. 48 B) But in 2009-2010, working capital turnover was -1.02, which indicates there was decrease in net current assets due to increase in current liabilities, which is better than the previous year. C) But in 2010-2011, working capital turnover was -4.00. That means company again current assets lower than current liabilities. D) In 2011-2012, working capital turnover come positive i.e. 38.28. that means company in better position in that year. E) But in 2012-2013, working capital turnover was -34.64. TABLE 5.11 STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2010 and 2011) (2009-2010) (Rs) (2010-2011) (Rs) Increase in working capital (Rs) Decrease in working capital (Rs) Current Assets: Stores and spares 96,90,56,460 1,14,42,69,951 17,52,13,491 - Sundry debtors 1,05,56,31,698 1,55,87,35,700 50,31,04,002 - Cash & bank balances 72,71,06,129 57,94,33,119 - 14,76,73,010 Other current assets 74,48,94,758 75,13,33,069 64,38,311 - Loans & advances 1,58,26,86,333 40,47,66,300 - 1,17,79,20,033 Total 5,07,93,75,378 4,43,85,38,139 Current Liabilities Current liabilities 2,51,79,96,799 2,79,35,21,599 - 27,55,24,800 Provisions 5,69,56,67,475 5,62,99,60,268 6,57,07,207 - Total 8,21,36,64,274 8423481867
  49. 49. 49 Working capital (current assets- current liabilities) -3,13,42,88,896 -3,98,49,43,728 -85,06,54,832 - Net decrease in working capital -85,06,54,832 -3,13,42,88,896 -3,98,49,43,728 1,60,11,17,843 1,60,11,17,843 From the table 5.11 following things are derived: By going through the statement showing changes in working capital the following results can be made. A) That the total current asset of the year 20010-2011 is decreased to Rs. 438538139 from a previous year’s figure of Rs. 5079375378. B) The total value of stores and spare is increased from the previous year’s figure and the value of sundry debtors is also increased from the previous year’s figure. C) The cash and bank balances of the organization have a decrease of Rs. 147673010 from the previous year’s figure. Similarly the figure for loans and advances is also decreased to Rs. 404766300 from the previous year’s figure of Rs.1582686333. D) The other current assets like prepaid expenses and sundry receivables have also increased from the previous year’s figure. E) The total current liabilities of the year 2007-2008 are increased to Rs. 8423481867 from a previous year’s figure of Rs. 8,21,36,64,274. F)That, the increase for current liabilities is due to increase in the figure of sundry creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax, liabilities for fringe benefit tax and other liabilities from the previous year’s figure. G) Due to increase in the value of stores and spares, sundry debtors, and other current assets, there is a sign of increase in working capital. However, due to a decrease in the figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in the working capital.
  50. 50. 50 H) Due to increase in current liabilities and provisions for pension and gratuity and retrospective revision of pay, there is a sign of decrease in working capital. I)As per the analysis, it is observed that, the ratio of increase of working capital is drastically reduced than the previous year’s and the decrease sign of working capital is Rs. -85,06,54,832 (2010-2011), which has impacted the steady increase of current working capital & negatively affected the profitability of the organization. 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 (2010- 2011). K) That, some more emphasis can be given on current assets to increase its figure and to decrease current liabilities’ figure as a result of which the figure for working capital can be increased. SECTION FIVE Generally Defines Measures To Improve Working Capital Management at OPTCL The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer and actions by competitors. So the effect of unforeseen demands of working capital should be factored by company. This was one of its reasons for the variation of its revised working capital projection from the earlier projection. a) Addressing the issue of working capital on a corporate-wide basis has certain advantages. Cash generated at one location can well be utilized at another. b) An innovative approach, combining operational and financial skills and an all- encompassing view of the company’s operations will help in identifying and implementing strategies that generate short-term cash. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They could be then held accountable for delivering, encouraged to be enterprising and to act as change agents. c) It pays to have contingency plans to tide over unexpected events. While market- leaders can manage uncertainty better, even other companies must have risk-
  51. 51. 51 management procedures. These must be based on objective and realistic view of the role of working capital. d) Working capital management is an important yardstick to measure a company operational and financial efficiency. This aspect must form part of the strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiencies and improve customer satisfaction. e) Placing the responsibility for collecting the debt upon the centre that made the sale. f) Cash should be managed properly. g) Effort should be made to reduce the current liabilities and to increase the current asset.
  52. 52. 52 HYPOTHESIS TESTING: Generally hypothesis means a mere assumption or some supposition to be proved or disproved. Hypothesis is usually considered as the principle instrument in research. Its main function is to suggest new experiments and observations. Hypothesis: 1- The firm is facing difficulty in paying short-term debt. The following table contains the details about the average collection period from debtors and average payment period to creditors from the period 2008-2009 to 2012- 2013. X MEAN=317/5 Y MEAN= 324/5 =63.4 =64.8 KARL PEARSONS’S COFFICIENT OF CORRELETION: r = ∑MN ∑M2. ∑N2 By putting the values in the formula the “r” came = 0.23 Years Average collection period (x) Average payment period(y) M=X- XM N=Y- YM MN M2 N2 2008- 2009 57 48 -6.4 -16.8 107.52 40.96 282.24 2009- 2010 122 74 58.6 9.2 539.12 3343.96 84.64 2010- 2011 52 110 -11.4 45.2 -515.28 129.96 2043.04 2011- 2012 41 53 -22.4 -11.8 264.32 501.76 139.24 2012- 2013 45 39 -18.4 -25.8 474.72 338.56 665.64 ∑x= 317 ∑ Y=324 ∑MN=870.4 ∑M2=4355.2 ∑N2=3214.8
  53. 53. 53 From the calculation value of “r” come = 0.23 which is a positive one. As the correlation came a positive one which ensures that the firm is facing difficulty in paying short-term debt. It is the case where current liabilities are increased throughout the financial years from, 2008-2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013. FINDINGS OF THE STUDY Following are the findings of the study: A) Working capital of Five years i.e., (2008-2009, 2009-2010,2010-2011, and 2012- 2013) is in negative figure. in 2011-2012 it comes positive The reason is that the company’s current liabilities exceeds current assets from 2008-2009 to 2012-2013. The company created more provisions throughout these 5 years. Sundry creditors increased at a speed in these 3 years. It is an alarm sign for the company. Besides these sundry creditors, other current liabilities also increased like deposits and retention from supplies, liability for wealth tax, electricity duty payable. B) The standard current ratio is 2:1 or 1.5:1. And for OPTCL it is not satisfactory. The reason behind such result is that the current liabilities exceed current assets. The standard current ratio in the year 2008-2009, 2009-2010, 2010-2011, 2011-2012, and 2012-2013 situations is worst. The reason behind is the increase in current liabilities and provisions. It is not a good sign for the company. C) The standard quick ratio is 1:1. And for OPTCL it is not satisfactory. The reason behind OPTCL did not achieve the rule of thumb. The current liabilities exceed the liquid assets. There is an increase in current liabilities like sundry creditor, interest accrued but not due on loans, liability for wealth tax and liabilities for fringe benefit tax than of liquid assets. D) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason is that liquid assets fall very short than current liabilities. The current liabilities again exceed the absolute liquid assets. There is not significant increase in absolute current assets like cash and bank balances from 2008-2009 to 2012-2013. But there is a rapid
  54. 54. 54 increase in current liabilities like sundry creditors, deposits and retention from suppliers, liabilities for fringe benefit tax and provisions. E) Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtor. As the company is selling electricity to the sundry debtors and the cash is not immediately received so some amount of cash is blocked in that matter. F) The current asset trend increased in 2009, but in 2010 it declines and 2011 it again increases. The current assets like stores and spare declined in 2008-2009 it and then it is increased in 2009-2010 and again declined in 2010-2011. Sundry debtors declined in 2008-2009 but again it is increased in 2009-2010 and in 2010-2011 it again declined. G) The current liabilities trend increasing at a speed which is worried thing for company. Current liabilities like sundry creditors, deposits and retention from suppliers, interest accrued but not due on loans, liabilities for wealth tax, electricity duty payable, liabilities for fringe benefit tax increased from 2008-2009 to 2012-2013. H) Debtor’s turnover ratio improved in 2012 and so number of collection period decreases. But in 2011 & 2013 debtor’s turnover ratio was decreases and collection period increases. In 2008-2009 it was 57 days. Then it is increased to 122 days in 2009- 2010. in 2010-2011 it again decreased to 52 days than next year 2011-2012 it again decreased to 41 days. Then it is increased to 45 days in 2012-2013. J) Current asset ratio decrease throughout the year. It was 0.23 in 2008-2009, 0.19 in 2009-2010 ,0.11 in 2010-2011, in 2011-2012 it comes 0.10than 2012-2013 it comes 0.10. K) ) In the year 2008-2009, it was -6.88, there was decrease in net current assets due to increase in current liabilities. But in 2009-2010, working capital turnover was -1.02, which indicates there was decrease in net current assets due to increase in current liabilities, which is better than the previous year. But in 2010-2011, working capital turnover was -4.00. That means company again current assets lower than current liabilities. In 2011-2012, working capital turnover come positive i.e. 38.28. that means company in better position in that year. But in 2012-2013, working capital turnover was -34.64.
  55. 55. 55 CHAPTER -6 CONCLUSION AND RECOMMENDATION :CONCLUSION: On the basis of data analysis on working capital management in OPTCL, the following conclusions arrived. A) The company has gross profit or profit after tax for the past five years (2008-2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013) in negatives or very less amount and the current liabilities are increasing, in comparison to current assets position. Hence, it is an alarming sign for the smooth working capital management. B) The OPTCL didn’t manage the liquidity position of the company. But, in the year 2007-08, 2008-2009, 2009-2010 and 2010-2011 the situation of liquidity position was alarming due to increase in total current liabilities and decrease in total current assets which led to the decrease in the net working capital of the company. C) During the year 2008-2009, 2009-2010, 2010-2011, 2011-2012 & 2012-2013 the company’s liquid assets were not satisfactory. D) Debtor’s turnover ratio improved in 2012 and so number of collection period decreases. But in 2011 & 2013 debtor’s turnover ratio was decreases and collection period increases. In 2008-2009 it was 57 days. Then it is increased to 122 days in 2009- 2010. in 2010-2011 it again decreased to 52 days than next year 2011-2012 it again decreased to 41 days. Then it is increased to 45 days in 2012-2013. E) There is also satisfactory net cash flow from the operating, investing and financing activities of the organization. F)Though the net working capital of the company is decreased, still the company is in a better manageable position and the company’s present status of maintaining current assets and current liabilities are satisfactory. G) They are unable to manage their cash, funds and debts. By adapting better management practices, the company may attain a sound financial position in future and able to manage its working capital efficiently
  56. 56. 56 RECOMMENDATION OPTCL is the soul of Orissa’s power transmission and is playing a pivotal role in making surplus power consumption state through efficiently administering the system of transmission. For improvement of organization’s profitability, much emphasis is needed to improve the better working capital management by decreasing the current liabilities through reducing of unplanned over head expenses. In such process, current assets position will be improved through collection of revenue from power transmission as well as recovery of past dues from consumers, Govt. and other agencies etc. The company should give more attention on increasing its collection of revenue from wheeling of power and should give more emphasis to curtail unplanned expenses to decreases the loss. Further, the management should focus on shortening its average collection period by changing its credit terms and conditions. By taking the above remedial measures, the organization can be an EVA+ company with due emphasis on proper way of managing the working capital. .
  57. 57. 57 CHAPTER -7 IMPLICATION FOR FUTURE RESEARCH: This study is the foundation stone for carrying out further research in the field of working capital management. Further research can be also be carried out the study of working capital management. This one of such preliminary research work and further review of this research work can open up many dimensions for researchers. Although the objective taken in research study is diverse, yet a trend can be observed from the findings for future research work. One of the major drawbacks of the study is the lack of time. Working capital management is a very vast topic and hence in a limited time it is impossible to know every aspects of working capital management. And also it was study that depended on 5years of data. There is future scope for studying these things.
  58. 58. 58 DISCLAIMER The present study of working capital management in OPTCL is purely academic in nature. The analysis of the data and interpretation of the matters in the project report are purely academic purpose and nobody should take it as a fact finding conclusion for lodging any claim or submission of above facts for their personal benefits for which the undersigned will not be held responsible. The views suggestions, conclusions etc. are the bonfied work of mine and nobody should claim or copy it for their benefit without permission. *******************
  59. 59. 59 BIBLIOGRAPHY TEXT BOOKS: 1. Maheswari Dr S.n “Financial management”, Ninth edition, 2006 sultan chand & sons, New Delhi 2. Pandey I.M., “Financial Management”, Vikas Publishing House Pvt.Ltd. 8th Edition 1999. 3. Prasanna Chandra, “Financial management”, Fourth edition 1999, Tata Mc.graw hill publishing company ltd, New Delhi. 4. Gupta, sashi., “financial management”, 4th edition,2007, kalyani publisher, new delhi 5. Kothari C.R. “Research Methodology”, Wishva prakashan, New Delhi, 2001. ARTICLES: An overview of working capital management and corporate financing. Working capital management. Working Capital Management Manages Flow of Funds” (Year 2009) “Working Capital Management-an Effective Tool for Organisational Success” Year (2008) Website: www. Optcl.co.in www. Google.com www. Investopedia.com www.moneycontrol.com www.wikipedia.com

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