Arpan Project Report on Working Capital Management
1Project ReportONWORKING CAPITAL MANAGEMENTINORISSA POWER TRANSMISSION CORPORATION LIMITEDINTERNAL GUIDE EXTERNAL GUIDEMr. Dipti Ranjan Sadhangi Mr. Bibhuti Bhusana Nayak(Prof. of AMITY) A.G.M. (corporate finance),OPTCLSUBMITTED BYArpan GhoshPGPM+MBABATCH (2011-2013)(3rdsemester)Roll no.-A30401911004
2AMITY GLOBAL BUSINESS SCHOOLACKNOWLEDGEMENTThis project report bears the imprint of many people on it.I am very much thankful to of Amity Global Business School, BBSR for the successfulcompletion of my SIP reportI would like to thank my project supervisor and guide Mr Dipti Ranjan Sadhangi, theFaculty Member, AMITY Global Business School, Bhubaneswar, for his invaluableguidance and assistance in preparing the project report and also contributing a lot foraccomplishment of this project.I am highly indebted to Mr. Bibhuti Bhusana Nayak, A.G.M. (corporate Finance),OPTCL, Bhubaneswar, my corporate guide, who guided me during the internshipperiod 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.Arpan GhoshMBA 2ndyearAMITY BUSINESS SCHOOL
3DECLARATIONI am Arpan Ghosh, a bonafide student of AMITY Business School, BBSR, pursuingMaster of Business Administration, do hereby declare that the study entitled “A studyon working capital management in OPTCL”, is my authentic work, I have completedmy study under the guidance of Mr Dipti Ranjan Sadhangi, the Faculty Member,Amity Global Business school, Bhubaneswar and my company guide Mr. BibhutiBhusan Nayak, A.G.M. (corporate Finance), OPTCL, BBSR. All the data furnishedin this project report are authentic and genuine and this report neither full nor in part hasever been submitted for award of any other degree to either this university or any otheruniversity.Arpan GhoshMBA 2ndyearAMITY BUSINESS SCHOOL
4CHAPTERS CONTENTS PAGENO.CHAPTER-1 INTRODUCTIONBACKGROUND OF THE STUDY 1RELEVANCE OF THE STUDY 2PROBLEM STATEMENT 2HYPOTHESIS OF THE STUDY 3OBJECTIVES OF THE STUDY 3LIMITATIONS OF THE STUDY 4CHAPTERISATION 4CHAPTER-2 COMPANY PROFILE 5CHAPTER-3 REVIEW OF LITERATURE 11CHAPTER-4 RESEARCH METHODOLOGYSELECTION OF TOPIC 18RESEARCH DESIGN 18SOURCES OF DATA COLLECTION 19FORMULAS OF RATIO ANALYSIS &DEFINITION19STATISTICAL AND ANALYTICAL TOOLSUSED FOR DATA ANALYSIS22CHAPTER-5 RESULTS & FINDINGS 23-54CHAPER-6 CONCLUSIONS & RECOMMENDATION 55-56CHAPTER-7 IMPLICATION FOR FUTURERESEARCH57DISCLAIMERBIBLIOGRAPHYANNEXURE
5ABSTRACTThis project report entitled with “a study on working capital management inOPTCL” is overall on working capital management of ORISSA POWERTRANSMISSION CORPORATION LIMITED. The project on Working CapitalManagement has been a very good experience. Every company faces the problem ofWorking Capital Management in their day to day processes. An organization‟s cost canbe reduced and the profit can be increased only if it is able to manage its WorkingCapital efficiently. At the same time the company can provide customer satisfaction andhence can improve their overall productivity and profitability. Working capital is thefund invested by a firm in current assets. Now in a cut throat competitive era whereeach firm competes with each other to increase their production and sales, holding ofsufficient current assets have become mandatory as current assets include inventoriesand raw materials which are required for smooth production runs. Holding of sufficientcurrent assets will ensure smooth and uninterrupted production but at the same time, itwill consume a lot of working capital. Here creeps the importance and need of efficientworking capital management. This project is a sincere effort to study and analyze theWorking Capital Management of OPTCL. The project was focused on making afinancial overview of the company by conducting a Working Capital analysis ofOPTCL, the years 2007 to 2010 and Ratios & various components of working capital &for the year 2007 to 2010. The project was of 45days duration. During the project dataare collected from company records & annual reports. The data collected were thencompiled, tabulated and analyzed. Investments in current assets represent a substantialportion of total investment. Investment in current assets & the level of current liabilitieshave to be geared quickly to change sales. By studying about the company s differentareas it to know certain things like Acid test ratio is less than one. Standard current ratiois 2:1 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 ratiois satisfactory for the company. Debtor‟s turnover ratio improved from 2007 to 2009 sonumber of collection period decreases. But in 2010 debtor‟s turnover ratio decreasesand collection period increases. The study will give immense understanding about thecomponents of working capital, liquidity trend, working capital trend, utilisation ofcurrent asset and short-comings if any and to measure the effective of working capital.
6CHAPTER-1INTRODUCTIONBACKGROUND OF STUDY:Whatever may be the organization, working capital plays an important role, as thecompany needs capital for its day to day expenditure. Thousands of companies fail eachyear due to poor working capital management practices. Entrepreneurs often dontaccount for short term disruptions to cash flow and are forced to close their operations.In simple term, working capital is an excess of current assets over the current liabilities.Good working capital management reveals higher returns of current assets than thecurrent liabilities to maintain a steady liquidity position of a company. Otherwise,working capital is a requirement of funds to meet the day to day working expenses. So aproper way of management of working capital is highly essential to ensure a dynamicstability of the financial position of an organization.OPTCL is one of the largest power transmission organizations in the country, whichplays the role of transmission of electricity in the entire state of Orissa. Seeing the goodopportunity to study financial systems and practices of OPTCL, it is relatively importanttake up internship assignment on „WORKING CAPITAL MANAGEMENT INOPTCL‟. During the project work, it is being analyzed the working capital position ofthis organization. Decisions relating to working capital and short term financing arereferred to as working capital management. These involve managing the relationshipbetween a firms short-term assets and its short-term liabilities. The goal of Workingcapital management is to ensure that the firm is able to continue its operations and thatit has sufficient money flow to satisfy both maturing short-term debt and upcomingoperational expenses.Working capital management deals with maintaining the levels of working capital tooptimum, because if a concern has inadequate opportunities and if the working capital ismore than required then the concern will lose money in the form of interest on theblocked funds. Therefore working capital management plays a very important role inthe profitability of a company. And also due to heavy competitions among differentorganization‟s it is now compulsory to look after working capital
7RELEVANCE OF STUDYAt OPTCL a substantial part of the total assets are covered by current assets. Currentassets form around 30%- 40% of the total assets. However this could be less profitableon the assumption that current assets generate lesser returns as compared to fixed assets.But in today‟s competition it becomes mandatory to keep large current assets in form ofinventories so as to ensure smooth production an excellent management of theseinventories has to be maintained to strike a balance between all the inventories requiredfor the production.So, in order to manage all these inventories and determine the investments in eachinventories, the system call for an excellent management of current assets which isreally a tough job as the amount of inventories required are large in number.Here comes the need of working capital management or managing the investments incurrent assets. Thus in big companies like OPTCL it is not easy at all to implement agood working capital management as it demands individual attention on its differentcomponents.The study of working capital management is very helpful for the organisation to knowits liquidity position. The study is relevant to the organization to know the day to dayexpenditure. This study is relevant to give an idea to utilise the current assets.This study is also relevant to the student as they can use it as a reference. This reportwill help in conducting further research. Other researcher can use this project assecondary dataPROBLEM STATEMENT:Working capital management or simply the management of capital invested in currentassets is the focus of study. So topic is to study working capital management of OPTCL.Working capital is the fund invested by a firm in current assets. Now in a cut throatcompetitive era where each firm competes with each other to increase their productionand sales, holding of sufficient current assets have become mandatory as current assetsinclude inventories and raw materials which are required for smooth production runs.Holding of sufficient current assets will ensure smooth and un interrupted production
8but at the same time, it will consume a lot of working capital. Here creeps theimportance and need of efficient working capital management. Working capitalmanagement aims at managing capital assets at optimum level, the level at which it willaid smooth running of production and also it will involve investment of nominalworking capital in capital assets.“The problem generally explains that, less attention has been paid to the area of short-term finance, in particular that of working capital management. Such neglect might beacceptable were working capital considerations of relatively little importance to thefirm, but effective working capital management has a crucial role to play in enhancingthe profitability and growth of the firm. Indeed, experience shows that inadequateplanning and control of working capital is one of the more common causes of businessfailure.”HYPOTHESIS OF THE STUDY:The following are the hypothesis of the study1) The firm is facing difficulty in paying short-term debt.2) The firm is not properly managing the sundry debtor.3) The current liabilities are increasing than current assets year by year.OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives tobe fulfilled. This study is not an exception to it. The following are a few straightforward goals which i have tried to fulfil in my project:1) To study the various components of working capital.2) To analyze the liquidity trend.3) To analyze the working capital trend.4) To appraise the utilization of current asset and current liabilities and find out short-comings if any.5) To suggest measure for effective management of working capital.
9LIMITATIONS OF THE STUDY:-Following are the limitations of the study:1) The topic working capital management is itself a very vast topic yet very importantalso. Due to time restraints it was not possible to study in depth in get knowledge whatpractices are followed at OPTCL.2) Many facts and data are such that they are not to be disclosed because of theconfidential nature of the same.3) Since the financial matters are sensitive in nature the same could not acquired easily.4) The study is restricted to only the Four Year data of OPTCL.CHAPTERISATION:Following are the chapterisation of the study:Chapter-1 Represents the background of the study, relevance of the study, problemstatements, hypothesis, objectives as well as limitations of the study.Chapter-2 Represents company profile of OPTCL.Chapter-3 Represents review of literature.Chapter-4 Represents research methodology of the study including sources of datacollection, formulas and statistical tools used for data analysis.Chapter -5 Represents results and findings.Chapter -6 Represents conclusion and suggestion.Chapter -7 Represents implication for future research.
10CHAPTER-2COMPANY PROFILEORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /2542320ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of thelargest Transmission Utility in the country was incorporated in March 2004 under theCompanies Act, 1956 as a company wholly owned by the Government of Orissa toundertake the business of transmission and wheeling of electricity in the State. Started commercial operation from 01.04.2005 only as a Transmission Licensee. (adeemed Transmission Licensee under Section 14 of Electricity Act, 2003) Notified as the State Transmission Utility (STU) by the State Govt. and dischargesthe State Load Dispatch functions. Number of employees as on (01.10.2008): 3799Executives-722, Non-Executives - 3077 Number of posts vacant as on 1/2007 – 1186Executives-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 – 1506The registered office of the Company is situated at Bhubaneswar, the capital of the Stateof Orissa. Its projects and field units are spread all over the State. OPTCL became fullyoperational with effect from 9th June 2005 consequent upon issue of Orissa ElectricityReform (Transfer of Transmission and Related Activities) Scheme, 2005 under theprovisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the StateGovernment for transfer and vesting of transmission related activities of GRIDCO withOPTCL. The Company has been designated as the State Transmission Utility in termsof Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intrastate transmission and wheeling of electricity under a license issued by the OrissaElectricity Regulatory Commission. The Company is also discharging the functions ofState Load Despatch Centre. The Company owns Extra High Voltage Transmissionsystem and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV,
11132 kV levels and 81 nos. of substations with transformation capacity of MVA. Theday-to-day affairs of the Company are managed by the Managing Director assisted bywhole-time Functional Directors as per the advice of the Board of Directors constituted.They are in turn assisted by a team of dedicated and experienced professionals in thevarious fields.VISION AND MISSION OF OPTCL:VISION:1)To build up OPTCL as one of the best transmission utility in the country in terms ofuninterrupted power supply, minimizing the loss, contributing states‟ industrial growth.2)Development of a well coordinated transmission system in the backdrop of formationof strong National Power Grid as a flagship, endeavour to steer the development ofPower System on Planned path leading to cost effective fulfilment of the objective ofElectricity to All‟ at affordable price.MISSION:Plan & operate the Transmission system so as to ensure that transmission system built,operated and maintained to provide efficient, economical and coordinated system ofTransmission and meet the overall performance Standards.(i) To upgrade the transmission system network so as to handle power to the tune of3000 MW for 100% availability of power to each family.(ii) To impart advanced techno managerial training to the practicing engineers and workforce so as to professionalism them with progressive technology and capablecommercial organization of the country so as to build up the most techno-commerciallyviable model of the country
12OBJECTIVES OF OPTCL:To effectively operate Transmission lines and Sub-Stations in the State for evacuationof power from the state generating stations feed power to state distribution companies,wheeling of Power to other states, maintenance of the existing lines and sub-stations forpower transmission and to undertake power system improvement by renovation, up-gradation and modernization of the transmission network.OPTCL being a State Transmission Utility Public Authority has set the followingobjectives.Undertake transmission and wheeling of electricity through intra- State Transmissionsystem1) Discharge all functions of planning and coordination relating to Intra State, interState transmission system with Central Transmission Utility, State Govt. GeneratingCompanies, Regional Power Board, Authority, Licensees or other person notified byState Govt. in this behalf.2) Ensure development of an efficient and economical system of intra state and interState transmission lines for smooth flow of electricity from generating station s to theload centres.3) Provide non-discriminatory open access to its transmission system for use by anylicensee or generating company or any consumer as and when such open access isprovided by the State Commission on payment of transmission charges/surcharge asmay be specified by the State Commission.4) Exercise supervision and control over the intra-state transmission system, efficientoperation and maintenance of transmission lines and substations and operate State LoadDespatch Centres to ensure optimum scheduling and despatch of electricity and toensure integrated operation of power systems in the State.5)Restore power at the earliest possible time through deployment of emergencyRestoration system in the event of any Natural Disasters like super cyclone, flood etc.
13POWER SECTOR REFORM IN THE STATE:The Power Sector Reforms in the State of Orissa was started during November 1993in an organized manner. The main objective of the reform was to unbundlegeneration, transmission and distribution and to establish an independent andtransparent Regulatory Commission in order to promote efficient and accountabilityin the Power Sector.In order to implement the reform, in the first phase, two corporate entities namelyGrid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro PowerCorporation Limited (OHPC) were established in April 1995. GRIDCO wasincorporated under the Companies Act, 1956 in April 1995 to own and operate thetransmission and distribution systems in the State. Similarly OHPC wasincorporated to own and operate all the hydro generating stations in the State.The State Government enacted the Orissa Electricity Reform Act, 1995 which cameinto force with effect from 1.4.1996. In exercise of power under Section 23 and 24of the Orissa Electricity Reform Act, 1995,the State Govt. notified the OrissaElectricity Reform (Transfer of Undertakings, Assets, Liabilities, proceedings andPersonnel ) Scheme Rules 1996. As per the scheme, the transmission ,distributionactivities of the erstwhile OSEB along with the related assets, liabilities, personneland proceedings were vested on GRIDCO . Simultaneously the hydro generationactivities of OSEB along with related assets, liabilities, personnel and proceedingswere vested on OHPC.In order to privatize the distribution functions of electricity in the State, fourDistribution Companies namely Central Electricity Supply Company of OrissaLimited (CESCO), North Eastern Electricity Supply Company of Orissa Limited(NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) &Western Electricity Supply Company Orissa Limited (WESCO) were incorporatedunder the Companies Act, 1956 as separate corporate entities. During November1998 the State Govt. issued the “Orissa Electricity Reform (Transfer of Assets,Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules1998” wherein the electricity distribution and retail supply activities along with the
14related assets, liabilities, personnel and proceedings were transferred from GRIDCOto the four Distribution Companies. Through a process of international CompetitiveBidding (ICB), the four Distribution Companies were privatized during 1999.After separation of Distribution business, GRIDCO left with electricityTransmission and Bulk Supply/Trading activities. GRIDCO was also declared as theState Transmission Utility and was discharging the functions of State Load DespatchCentre (SLDC).The Government of India enacted the Electricity Act, 2003 which came into effectfrom 10th June 2003. Under the provisions of the said Act, trading in electricity hasbeen recognised as a distinct licensed activity, which can only be undertaken by alicensee to be granted by the appropriate commission. The Act specifically prohibitsthe STU and Transmission Company in the State from engaging in the business oftrading. GRIDCO being a State Transmission Utility was not permitted to engageitself in the trading in electricity and was required to segregate its activities in amanner within the transional period allowed under the Act that, the entity which willundertake transmission STU and SLDC function will not undertake the activities ofTrading and Bulk Supply of Electricity.Keeping in view the statutory requirement of the Electricity Act for separation oftrading and transmission functions into two separate entities, the State Govtincorporated Orissa Power Transmission Corporation Limited (OPTCL) to take overthe transmission, STU/SLDC functions of GRIDCO.In exercise of the power conferred under Section 39,131, 133 & 134 of theElectricity Act, 2003, read with Section 23 & 24 of the Orissa Electricity ReformAct , 1995, the State Govt. issued the notification “Orissa Electricity Reform(Transfer of Transmission and Related Activities) Scheme 2005” on 9.6.2005. TheScheme was made effective from 1.4.2005.By virtue of the Transfer Scheme, 2005, OPTCL now undertaking the functions oftransmission of electricity in the State of Orissa and has been declared as the StateTransmission Utility. GRIDCO is also discharging the functions of SLDC.
15REFORM ACHIEVEMENT:Milestones of Orissa Power Sector Reform1) First Transfer between OHPC and GRIDCO effected on 1st April, 19962)OER Act, 1995 created Orissa Electricity Regulatory Commission,a Regulatory Body which became functional on 1.8.19963) Unbundling of Transmission and Distribution via Second Transfer Schemeeffective from November 26, 19984)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, 19996) Privatization of Distribution completed with AES taking over thefourth distribution company, CESCO from September 1, 19997) CESCO remained under the management of an Administrator (CEO)appointed by OERC with effect from 27.8.20018)A new public limited company under the name “ Orissa Power TransmissionCorporation Limited “ was incorporated on 29.03.2004 to carry on thebusiness of Transmission, STU, and SLDC functions of GRIDCO9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry onits Bulk Supply and Trading functions
16CHAPTER-3: REVIEW OF LITERATUREThe purpose of this chapter is to present a review of literature relating to the workingcapital management. The following are the literature review by different authors anddifferent research scholars.Pass C.L., Pike R.H1(1984), studied that over the past 40 years major theoreticaldevelopments have occurred in the areas of longer-term investment and financialdecision making. Many of these new concepts and the related techniques are now beingemployed successfully in industrial practice. By contrast, far less attention has beenpaid to the area of short-term finance, in particular that of working capital management.Such neglect might be acceptable were working capital considerations of relatively littleimportance to the firm, but effective working capital management has a crucial role toplay in enhancing the profitability and growth of the firm. Indeed, experience showsthat inadequate planning and control of working capital is one of the more commoncauses of business failure.Herzfeld B2(1990), studied that “Cash is king”--so say the money managers who sharethe responsibility of running this countrys businesses. And with banks demanding morefrom their prospective borrowers, greater emphasis has been placed on thoseaccountable for so-called working capital management. Working capital managementrefers to the management of current or short-term assets and short-term liabilities. Inessence, the purpose of that function is to make certain that the company has enoughassets to operate its business. Here are things you should know about working capitalmanagement.Samiloglu F.and Demirgunes K3(2008), studied that the effect of working capitalmanagement on firm profitability. In accordance with this aim, to consider statisticallysignificant relationships between firm profitability and the components of cashconversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed
17Appuhami, Ranjith B4(2008), studied impact of firms capital expenditure on theirworking capital management. The author used the data collected from listed companiesin the Thailand Stock Exchange. The study used Schulman and Coxs (1985) NetLiquidity Balance and Working Capital Requirement as a proxy for working capitalmeasurement and developed multiple regression models. The empirical research foundthat firms capital expenditure has a significant impact on working capital management.The study also found that the firms operating cash flow, which was recognized as acontrol variable, has a significant relationship with working capital management.Hardcastle J5(2009)., studied that Working capital, sometimes called gross workingcapital, simply refers to the firms total current assets (the short-term ones), cash,marketable securities, accounts receivable, and inventory. While long-term financialanalysis primarily concerns strategic planning, working capital management deals withday-to-day operations. By making sure that production lines do not stop due to lack ofraw materials, that inventories do not build up because production continues unchangedwhen sales dip, that customers pay on time and that enough cash is on hand to makepayments when they are due. Obviously without good working capital management, nofirm can be efficient and profitable.Thachappilly G6(2009)., “Working Capital Management Manages Flow ofFunds”,(2009) describes that Working capital is the cash needed to carry on operationsduring the cash conversion cycle, i.e. the days from paying for raw materials tocollecting cash from customers. Raw materials and operating supplies must be boughtand stored to ensure uninterrupted production. Wages, salaries, utility charges and otherincidentals must be paid for converting the materials into finished products. Customersmust be allowed a credit period that is standard in the business. Only at the end of thiscycle does cash flow in again
18Beneda, Nancy; Zhang, Yilei7(2008), studied impact of working capital managementon the operating performance and growth of new public companies. The study alsosheds light on the relationship of working capital with debt level, firm risk, andindustry. Using a sample of initial public offerings (IPOs), the study finds a significantpositive association between higher levels of accounts receivable and operatingperformance. The study further finds that maintaining control (i.e. lower amounts) overlevels of cash and securities, inventory, fixed assets, and accounts.Dubey R8(2008)., studied The working capital in a firm generally arises out of fourbasic factors like sales volume, technological changes, seasonal , cyclical changes andpolicies of the firm. The strength of the firm is dependent on the working capital asdiscussed earlier but this working capital is itself dependent on the level of sales volumeof the firm. The firm requires current assets to support and maintain operational orfunctional activities. By current assets we mean the assets which can be convertedreadily into cash say within a year such as receivables, inventories and liquid cash. Ifthe level of sales is stable and towards growth the level of cash, receivables and stockwill also be on the high.McClure B9(2007)., “Working Capital Works” describes that Cash is the lifeline of acompany. If this lifeline deteriorates, so does the companys ability to fund operations,reinvest and meet capital requirements and payments. Understanding a companys cashflow health is essential to making investment decisions. A good way to judge acompanys cash flow prospects is to look at its working capital management (WCM).Cash is king, especially at a time when fund raising is harder than ever. Letting it slipaway is an oversight that investors should not forgive. Analyzing a companys workingcapital can provide excellent insight into how well a company handles its cash, andwhether it is likely to have any on hand to fund growth and contribute to shareholdervalue.
19Gass D10(2006)., studied "Cash is the lifeblood of business" is an often repeated maximamongst financial managers. Working capital management refers to the management ofcurrent or short-term assets and short-term liabilities. Components of short-term assetsinclude inventories, loans and advances, debtors, investments and cash and bankbalances. Short-term liabilities include creditors, trade advances, borrowings andprovisions. The major emphasis is, however, on short-term assets, since short-termliabilities arise in the context of short-term assets. It is important that companiesminimize risk by prudent working capital management.Maynard E. Refuse11(1996), Argued that attempts to improve working capital bydelaying payment to creditors is counter-productive to individuals and to the economyas a whole. Claims that altering debtor and creditor levels for individual tiers within avalue system will rarely produce any net benefit. Proposes that stock reductiongenerates system-wide financial improvements and other important benefits. Urgesthose organizations seeking concentrated working capital reduction strategies to focuson stock management strategies based on “lean supply-chain” techniques.Thomas M. Krueger12(2005), studied distinct levels of WCM measures for differentindustries, which tend to be stable over time. Many factors help to explain thisdiscovery. The improving economy during the period of the study may have resulted inimproved turnover in some industries, while slowing turnover may have been a signalof troubles ahead. Our results should be interpreted cautiously. Our study takes placesover a short time frame during a generally improving market. In addition, the surveysuffers from survivorship bias – only the top firms within each industry are ranked eachyear and the composition of those firms within the industry can change annually.Eljelly13(2002) empirically examined the relationship between profitability andliquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample
20of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis,Eljelly found significant negative relationship between the firms profitability and itsliquidity level, as measured by current ratio. This relationship is more pronounced forfirms with high current ratios and long cash conversion cycles. At the industry level,however,he found that the cash conversion cycle or the cash gap is of more importanceas a measure of liquidity than current ratio thataffects profitability. The firm sizevariable was also found to have significant effect on profitability at the industry level.Lazaridis and Tryfonidis 14(2004), conducted a cross sectional study by using asample of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004and found statistically significant relationship between profitability, measured throughgross operating profit, and the cash conversion cycle and its components (accountsreceivables, accounts payables, and inventory). Based on the results analysis of annualdata by using correlation and regression tests, they suggest that managers can createprofits for their companies by correctly handling the cash conversion cycle and bykeeping each component of the conversion cycle (accounts receivables, accountspayables, and inventory) at an optimal level.Raheman and Nasr15(2004), studied the effect of different variables of workingcapital management including average collection period, inventory turnover in days,average payment period, cash conversion cycle, and current ratio on the net operatingprofitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed onKarachi Stock Exchange for a period of six years from 1999 - 2004 and found a strongnegative relationship between variables of working capital management andprofitability of the firm. They found that as the cash conversion cycle increases, it leadsto decreasing profitability of the firm and managers can create positive value for theshareholders by reducing the cash conversion cycle to a possible minimum level.Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small tomedium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. Theytested the effects of working capital management on SME profitability using the panel
21data methodology. The results, which are robust to the presence of endogeneity,demonstrated that managers could create value by reducing their inventories and thenumber of days for which their accounts are outstanding. Moreover, shortening the cashconversion cycle also improves the firms profitability.Falope and Ajilore17(2003), used a sample of 50 Nigerian quoted non-financial firmsfor the period 1996 -2005. Their study utilized panel data econometrics in a pooledregression, where time-series and cross-sectional observations were combined andestimated. They found a significant negative relationship between net operatingprofitability and the average collection period, inventory turnover in days, averagepayment period and cash conversion cycle for a sample of fifty Nigerian firms listed onthe Nigerian Stock Exchange. Furthermore, they found no significant variations in theeffects of working capital management between large and small firms.Kouma Guy18, (2001) in a study on, “Working capital management in healthcare”,Working capital is the required to finance the day to day operations of an organization.Working capital may be require to bridge the gap between buying of stocked items toeventual payment for goods sold on account. Working capital also has to fund the gapwhen products are on hand but being held in stock. Products in stock are at full cost,effectively they are company cash resources which are out of circulation thereforeadditional working capital is required to meet this gap which can only be reclaimedwhen the stocks are sold (and only if these stocks are not replaced) and payment forthem is received. Working capital requirements have to do with profitability and muchmore to do with cash flow.Mehmet SEN, Eda ORUC (2005)19in the study “Relationship between theefficiency of working capital management and company size”, As it is known, oneof the reasons which cause change in working capital from one period to another is thechange in management efficiency. The change in management efficiency will affect thechange in working capital in a way as increaser or reducer from on period to another. In
22this study, the effect of change in management efficiency in working capitalmanagement in to the change in working capital is compared by company size andsectors. The data of this study covers sixty periods as the total of quarterly financialstatement of 55 manufacturing companies which were in operation in Istanbul Stockexchange (ISE) between the years 1993 and 2007. In every period we studied, forinventories short term commercial receivables and short term commercial liabilities, andcalculated the effect of change in management efficiency on to the effect of workingcapital change. In all sectors considered, in the change in working capital, and observedthe effect of reducing of efficiency in inventory management. It is also observed thatefficiency change in the management of the short term commercial receivables and theshort term commercial liabilities by the company sizes and sectors make a positiveeffect in to the change in working capitalBrealey, R., (1997)20in a study on, “Working Capital management concepts worksheet university of phoenix”. Concept application of concept in the Simulationreference to concept in reading cash conversion cycle cash conversions is the process ofmanaging a company‟s cash inflows and outflows. In the simulation, the financemanager was responsible for balancing sales with collections or accounts receivables(cash inflows) and purchases with payments or accounts payables (cash outflows). Thisdelicate balance maintains the company‟s balance sheet keeping the cash and loans in asituation of financial stability and keeping the money from being tied up. Principles ofcorporate finance. Working capital management. New York: McGraw-Hill.
23CHAPTER-4RESEARCH METHODOLOGYResearch methodology is a systematic approach in management research to achievepre-defined objectives. It helps a researcher to guide during the course of research work.Rules and techniques stated in research methodology save time and labour of theresearcher as researcher know how to proceed to conduct the study as per the objective.SELECTION OF TOPIC: The selection of topic is a crucial factor in any researchstudy. There should be newness and it should give maximum scope to explore the ideasfrom different angles.In present day due to increase in competition, working capital is becoming necessary forthe organisation. It is that part of capital which is necessary to undertake day to dayexpenditure of the business organization. Whatever may be the organization, workingcapital plays an important role, as the company needs capital for its day to dayexpenditure. Thousands of companies fail each year due to poor working capitalmanagement practices. Entrepreneurs often dont account for short term disruptions tocash flow and are forced to close their operations. Working capital is the fund investedby a firm in current assets. Now in a cut throat competitive era where each firmcompetes with each other to increase their production and sales, holding of sufficientcurrent assets have become mandatory as current assets include inventories and rawmaterials which are required for smooth production runs. Holding of sufficient currentassets will ensure smooth and un interrupted production but at the same time, it willconsume a lot of working capital. Here creeps the importance and need of efficientworking capital management. After due to consultation with the external guide /internalguide, the topic was finalized and titled as-“A STUDY ON WORKING CAPITALMANAGEMENT IN OPTCL, BBSR”SELECTION OF LOCATION FOR THE STUDY: The location for study wasselected as the corporate office of OPTCL, Bhubaneswar.RESEARCH DESIGN: “A Research design is the arrangement of conditions forcollection and analysis of data in a manner that aims to combine relevance to theresearch purpose with economy in procedure” The research design followed to study the
24working capital management in ORISSA POWER TRANSMISSION CORPORATIONLIMITED (OPTCL) is Descriptive and Analytical Research Design.SOURCES OF DATA COLLECTION:1. Secondary data collectionSecondary data collection:The secondary data are those which have already collected and stored. Secondary dataeasily get those secondary data from records, journals, annual reports of the companyetc. It will save the time, money and efforts to collect the data. Secondary data alsomade available through trade magazines, annual reports, books etc.This project is based secondary data collected through annual reports of theorganization. The data collection was aimed at study of working capital management ofthe company.Project is based on1. Annual report of OPTCL. 2008-20092. Annual report of OPTCL. 2009-200103. Annual report of OPTCL. 20010-2011FORMULAS OF RATIO ANALYSIS & DEFINITIONRATIO:Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as“the indicated quotient of two mathematical expressions” and as “the relationshipbetween two or more things”. The absolute figures reported in the financial statement donot provide meaningful understanding of the performance and financial position of thefirm. Ratio helps to summaries large quantities of financial data and to make qualitativejudgment of the firm‟s financial performance.
25ROLE OF RATIO ANALYSISRatio analysis helps to appraise the firms in the term of there profitability and efficiencyof performance, either individually or in relation to other firms in same industry. Ratioanalysis is one of the best possible techniques available to management to impart thebasic functions like planning and control. As future is closely related to the immediatelypast, ratio calculated on the basis historical financial data may be of good assistance topredict the future. E.g. On the basis of inventory turnover ratio or debtor‟s turnover ratioin the past, the level of inventory and debtors can be easily ascertained for any givenamount of sales. Similarly, the ratio analysis may be able to locate the point out thevarious arias which need the management attention in order to improve the situation.E.g. Current ratio which shows a constant decline trend may be indicate the need forfurther introduction of long term finance in order to increase the liquidity position. Asthe ratio analysis is concerned with all the aspect of the firm‟s financial analysisliquidity, solvency, activity, profitability and overall performance, it enables theinterested persons to know the financial and operational characteristics of anorganization and take suitable decisions.LIQUDITY RATIO:Liquidity refers to ability of a concern to meet its current obligations as and when thesebecome due. The short-term obligations are met by realising amounts from current,floating or circulating asset. The current asset either be liquid or near liquidity. Theseshould be convertible into cash for paying obligation of short-term nature. To measurethe liquidity of a firm, following ratios can be calculated:A) CURRENT RATIO: Current assets include cash and those assets which can beconverted in to cash within a year, such marketable securities, debtors and inventories.All obligations within a year are include in current liabilities. Current liabilities includecreditors, bills payable accrued expenses, short term bank loan income tax liabilities andlong term debt maturing in the current year. Current ratio indicates the availability ofcurrent assets in rupees for every rupee of current liability.CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES
26B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship betweenquick or liquid assets and liabilities. An asset is liquid if it can be converting in to cashimmediately or reasonably soon without a loss of value. Cash is the most liquid asset.other assets which are consider to be relatively liquid and include in quick assets aredebtors and bills receivable and marketable securities. Inventories are considered as lessliquid. Inventory normally required some time for realizing into cash. Their value alsobe tendency to fluctuate. The quick ratio is found out by dividing quick assets bycurrent liabilities.QUICK RATIO = Total liquid asset/Total current liabilitiesC) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables areconsidered as more liquid then inventories, it cannot be converted in to cashimmediately or in time. Therefore while calculation of absolute liquid ratio only theabsolute liquid assets as like cash in hand cash at bank, short term marketable securitiesare taken in to consideration to measure the ability of the company in meeting shortterm financial obligation. It calculates by absolute assets dividing by current liabilities.ABSOLUTE LIQUID RATIO=absolute liquid asset/total current liabilitiesEFFICIENCY RATIO: Funds are invested in various assets in business to make salesand earn profits. The efficiency with which assets are managed directly affects thevolume of sale. Activity ratios measure the efficiency and effectiveness with which afirm manages its resources or assets. These ratios are also called turnover ratios.A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationshipbetween credit sales and receivables of a firm. It indicates how quickly receivables areconverted into sales.DEBTORS TURNOVER RATIO= SALES/AVERAGE ACCOUNT RECEIVABLES.AVERAGE A/C RECEIVABLES= Opening Trade Debtor + Closing Trade Debtor/2AVERAGE COLLECTION PERIOD= (365/DTR) daysOr RECEIVABLES * 365/ Sale
27B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount ofsales, a relative amount of working capital is needed. If any increase in salescontemplated working capital should be adequate and thus this ratio helps managementto maintain the adequate level of working capital. The ratio measures the efficiency withwhich the working capital is being used by a firm. It may thus compute net workingcapital turnover by dividing sales by net working capital.WORKING CAPITALTURNOVER RATIO= Cost Of Sales/ Net Working CapitalCURRENT ASSET TURNOVER RATIO:CURRENT ASSET TURNOVER RATIO= Sales / Current AssetSTATISTICAL TOOLS USED FOR DATA ANAYLSIS:The various statistical tools used for data analysis is as follows:a) Tables:b) Bar-chartc) Graphsd) CorrelationANALYTICAL TOOLS USED:The analytical tools used for data analysis is as follows:a) Ratio analysisb) Schedule of change in working capitalc) Cash flow statements
28CHAPTER-5RESULTS AND FINDINGSThe result and discussion of the study is presented in five different sections. The firstsections explain about the various components of working capital, variable of workingcapital. The second section explains about the liquidity trend of the organization. Thethird section explains about the working capital trend .The fourth section explains theutilization of current assets and current liabilities. The fifth section explains the measureto effective management of working capital.The first section explains about the various components of working capital andvariables of working capital. The components of working capital are presented in Table5.1.(TABLE 5.1: COMPONENTS OF WORKING CAPITAL)Table 1.1 2008-2009(Rs) 2009-2010(Rs) 2010-2011(Rs)Cash 907,019,750 727,106,129 579,433,119Debtors 1,055,097,473 1,055,631,698 1,558,735,700Inventories 808,519,278 969,056,460 1,144,269,951Sundry Creditors 689,526,597 724,051,456 855,552,857Provisions 4,817,002,603 5,695,667,475 5,629,960,268An insight into the table reveals that:a) Cash and bank balances in 2008-2009 were Rs 907019750. It is decreased to Rs727106129 in 2009-2010, with a -19.23% growth. In 2010-2011 it suddenly againdecreased to Rs 579433119.b) Debtors increases which was not a good sign. In 2008-2009 debtors were Rs1,055,097,473 and it increased Rs 1,055,631,698 in 2009-2010. In 2010-2011 it wasagain increased to Rs 1,558,735,700. Total increase in Debtors is Rs 503,638,227.
29c) Inventories were increased at a good speed. The inventories were Rs 808519278 in2008-2009. In 2009-2010 it increased to Rs 969056460, ultimately increase in Rs160537182, with the percentage growth 19.85%. In 2010-2011 it again increased to Rs175213491 with the increase in 18.08%.d) Sundry creditors also increased a lot. In 2008-2009 it was Rs 689526597. Then itincreased by Rs 34524859 which ultimately amounted to Rs 724051456 with a increaseof 5.00% in the year 2009-2010. In 2010-2011 it increased to Rs 131501401 with apercentage increase of 18.16%.e) Provisions also increased throughout this 3years. In 2008-2009 it was Rs4817002603. Then it increased to Rs 5695667475 with a percentage increase of18.24%. In 2010-2011 it again increased to Rs 5629960268 with a percentage increasein 1.15%.(Table 5.2: Variables of Working Capital Management)VARIABLESYEARS2008-2009 2009-2010 2010-2011ROTA (Return on TotalAssets)0.22 0.10 0.18OPM (operating profitmargin)27.78% 34.65%38.58%GEAR (Gearing Ratio i.e.financial debt / totalassets)0.43:1 0.33:10.38:1CR (Current Ratio) 0.86:1 0.62:1 0.89:1QAR (Quick Assets Ratio) 0.27:1 0.22:1 0.25:1CA/TA (Current Assets toTotal Assets)0.21 0.160.18
30CL/TA (CurrentLiabilities to Total Assets)0.24 0.26 0.32SK/CA (Stocks to CurrentAssets)0.13 0.19 0.26TD/CA (Trade Debtors toCurrent Assets)0.17 0.21 0.35CA_TURN (CurrentAssets Turnover isSales/Current Assets)1.08 0.60 0.91The various variables of working capital is presented in table 5.2. An analysis of datapresented in the table reveals the following findings;A) Return on total asset came 0.22 in 2008-2009, 0.10 in 2009-2010 and 0.18 2010-2011.B) Operating profit margin was 27.78% in 2008-2009 then it increased to, 34.65%, and38.58% in 2009-2010, and 2010-2011 respectively. Anything between 65% - 85% isknown as a good operating margin. And for OPTCL is a sign of alarm.C) Gearing ratio was 0.43:1 in 2008-2009, in 2009-2010 it is 0.33:1 and in 2010-20110.38:1D) Current ratio generally reduced for the organisation, in 2008-2009 it was 0.86:1 andit reduced to 0.62:1 in 2009-2010 and then it again reduced to 0.89:1 in 2010-2011.E) Quick asset ratio in 2008-2009 as it was 0.27:1, in 2009-2010 it became 0.22:1 andin 2010-2011 it became 0.89:1.F) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,2009-2010 and 2010-2011.G) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came0.26, and in 2010-2011 it came to 0.32:1.
31H) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-2011 respective years.I) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.J) Current asset turnover is 1.08 in 2008-2009, 0.60 in 2009-2010 and it become 0.91 in2010-2011.Table 5.3: Components of Current ratio, Quick ratio and Absolute Liquid Ratios2008-2009 2009-2010 2010-2011Current ratio0.86:1 0.62:10.89:1Quick ratio 0.27:1 0.22 0.25:1Absolute LiquidRatio 0.12:1 0.08:1 0.07:1SK/CA 0.13 0.190.26TD/CA 0.17 0.21 0.35CA/TA 0.21 0.16 0.18CL/TA 0.24 0.26 0.32Inventory Days 43 days 115days 122daysDebtor TurnoverDays57days 126days 119daysCreditors turnoverdays37 days 86days 98days
32Table-5.3 revels the components of current ratio, quick ratio and absolute quickratio. From the table following things can be derived:a) In 2008-2009, it is found that the current ratio of OPTCL is 0.86:1. . It is below thestandard of 2:1 and it is due to a decrease in total current assets from previous year andan increase in current liability this year. It is a not good indication according to the ruleof thumb. Because the firm has more current liabilities than current assets. The firmmay not be able to meet its short term obligations in time. In 2009-2010, it is found thatthe current ratio of OPTCL was 0.62:1 it was not a good indication according to rule ofthumb. In 2010-2011, it is found that the current ratio of OPTCL was 0.89:1 it was not agood indication according to rule of thumb.b) Quick ratio in 2008-2009 it was 0.27:1 in 2009-2010 it was 0.22:1 and in 2010-2011 it was0.25:1.c) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash andbank balances of the organization in comparison to the Current Liabilities. In the year2009-2010, the absolute liquid ratio found to be 0.08:1. In the year 2010-2011, theabsolute liquid ratio found to be 0.07:1.d) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-2011respective years.e) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.f) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,2009-2010 and 2010-2011.g) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came0.26, and in 2010-2011 it came to 0.32:1.h) Cash conversion ratio for inventory came 43 days, 115 days and 122 days. Cashconversion for debtor comes 57 days in 2008-2009, and it increased to 126 days in2009-2010. But in 2010-2012 it decreased to 119 days. Cash conversion ratio came to37days, 86days and 98days respectively.
33THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OFTHE ORGANIZATION.LIQUIDITY RATIOCURRENT RATIOTable5.4CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY)YEAR CURRENT ASSET(IN RUPEES)CURRENT LIABILITY(IN RUPEES)RATIO2008-2009 6,30,63,13,319 7,29,34,88,649 0.86:12009-2010 5,07,93,75,378 8,21,36,64,274 0.62:12010-2011 4,43,85,38,139 8,42,34,81,867 0.89:12008-2009 2009-2010 2010-2011current ratio 0.86 0.62 0.890.860.620.8900.10.20.30.22.214.171.124.80.91RATIOCURRENT RATIO
34From 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 notgood indication according to the rule of thumb. Because the firm has more currentassets than current liabilities. The firm may be able to meet its short term obligations intime.B) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not agood indication according to rule of thumb. Because the firm has more current assetsthan current liabilities. The firm was not able to meet its short term obligation in time.C) In 20010-2011, it was found that the current ratio of OPTCL was 0.89:1. It was not agood indication according to rule of thumb. Because the firm has more current assetsthan current liabilities. The firm was not able to meet its short term obligation in time.D) Because of increase in administrative overhead expenses, super annuity benefits andpayment 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 reducecurrent liabilities and to increase current assets so that the actual standard of 2:1 can beachieved.In addition to, company should make clear cut strategic planning to sell electricity tomajor industries at industrial rate to achieve higher revenueTABLE5.5Quick Ratio- (Liquid Asset/ Current Liability)YEAR LIQUID ASSET CURRENT LIABILITY RATIO2008-2009 1,96,21,17,223 7,29,34,88,649 0.27:12009-2010 1,78,27,37,827 8,21,36,64,274 0.22:12010-2011 2,13,81,68,819 8,42,34,81,867 0.25:1
35FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2008-2009Is found that the QUICK ratio of OPTCL IS 0.27:1, which is just normal standard. It isdue to a little bit increase in current liabilities.B) In the year 2009-2010 it is found that the Quick ratio was 0.22:1.Which is belowstandard of 1:1? Management should have an eye on to that.C) In the year 2009-2010 it is found that the Quick ratio was 0.25:1.Which is belowstandard of 1:1.0.270.220.2500.050.10.150.20.250.32008-2009 2009-2010 2010-2011RATIOYEARSQUICK RATIO
36TABLE 5.6ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENTLIABILITY):YEAR Absolute Liquid Asset Current Liability Ratio2008-2009 90,70,19,750 7,29,34,88,649 0.12:12009-2010 72,71,06,129 8,21,36,64,274 0.08:12010-2011 57,94,33,119 8,42,34,81,867 0.07:1By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet ofOPTCL the following results can be drawn.00.050.10.152008-20092009-20102010-20110.120.080.07ratioyearABSOLUTE LIQUID RATIO
37A) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found tobe 0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cashand 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 lesscash 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 tobe 0.07:1 which is below from the previous year of the normal standard of 1:2. This isdue to less cash and bank balances of the organization in comparison to the CurrentLiabilities.(Table 5.7)CASH FLOW STATEMENTS(2011-2010) (2009-2010) (2008-2009)amount in (Rs) amount in (Rs) amount in (Rs)profit/loss before tax & extraordinaryitems12,73,12,985 -71,37,17,644 -18,30,29,883adjustment for:appropriation to reserves and surpluses 13,09,96,775 1,18,36,39,044 6,33,87,383interest and finance charges 42,43,77,484 54,16,01,198 97,24,54,617Depreciation 1,23,90,63,901 1,08,22,03,592 1,09,74,37,879preliminary expenses W/O -------------- 30,26,423 30,26,423excess provision written back -------------- -1,04,00,87,510 -47,574interest income -4,28,44,898 -4,55,13,310 -6,90,09,008provisions for wealth tax 47,481 27,846 46,318provision/write off against theft materials 11,59,214 15,22,603 29,50,312provisions for obsolete stock-store etc --------------- -------------- -------------bad and doubtful debt 8,12,05,348 4,47,68,652 11,63,525provisions for fringe benefit tax -------------- -------------------- -23,96,915OPERATING PROFIT BEFOREWORKING CAPITAL CHANGE (A) 17,06,692,319 1,05,74,70,893 1,88,59,83,078WORKING CAPITAL CHANGEstores and spares -17,63,72,705 -16,20,59,785 -4,46,04,328sundry debtors -50,31,04,002 -4,53,02,877 -37,81,016other current assets -64,38,311 -59,43,581 -1,43,98,325loan and advances 1,17,79,20,033 1,20,34,71,087 -2,72,53,85,618current liabilities 27,27,22,589 4,93,59,037 42,88,03,928
38Table 5.7 defines the following:a) Cash generated from investing activities, Rs-1,730,727,631 , Rs-88,86,44,331 andRs-84,78,28,424 in the year 2010-2011, 2009-2010 and 2008-2009 respectively.b)Hence, there is a generation of Rs1,730,727,631 cash flow from its operatingactivities for the year 2011-2010, where as in 2009-2010, it was Rs.4,01,57,47,156 andwhere as in 2008-2009, it was Rs.3,04,97,18,374.c) The net cash flow of Rs-82,26,58,095 from financing activities in 2011-2010.Whereas it was Rs-3,307,016,446 and Rs-1,785,751,383 in year 2010-2009 and 2009-2008 respectively.Provisions -6,57,07,207 1,91,87,52,382 3,52,31,00,656NET WORKING CAPITALCHANGES (B)69,90,20,397 2,95,82,76,263 1,16,37,35,296CASH GENERATED FROM THEOPERATION (A)+(B)2,40,57,12,716 4,01,57,47,156 3,04,97,18,374CASH FLOW FROM INVESTINGACTIVITIES:capital expenditure (CAPEX) -1,77,35,72,529 -93,41,57,641 -91,68,37,432Interest received revenue 4,28,44,898 4,55,13,310 6,90,09,008CASH GENERATED FROMINVESTING ACTIVITIES ( C )-1,73,07,27,631 -88,86,44,331 -84,78,28,424CASH FLOW FROM FINANCINGACTIVITIES:proceeds from secured loan -1,08,80,34,380 -1,06,41,24,474 -1,05,96,33,683proceeds from unsecured loan 2,03,48,78,848 32,39,10,165 -6,95,82,948interest paid -2,48,89,47,563 -2,61,68,02,137 -88,70,89,752proceed from share capital 71,94,45,000 5,00,00,000 23,05,55,000CASH FLOW FROM FINANCINGACTIVITIES (D)-82,26,58,095 -3,30,70,16,446 -1,78,57,51,383NET CASH GENERATED FROMALL ACIVITIES (A+B+C+D)-14,76,73,010 -17,99,13,621 41,61,38,567Cash and cash equivalent at the beginningof the year72,71,06,129 90,70,19,750 49,08,81,183cash equivalent at the end of the period 57,94,33,119 72,71,06,129 90,70,19,750
39d)That, the net cash flow from its operating, investing and financing activities for theyear 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 Rs41, 61, 38,567.The Third Section Explains About The Working Capital TrendTable-5.8Size of Working Capital:CURRENT ASSETS(CA) 2009(rupees) 2010(rupees) 2011(rupees)Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700Cash and bank balances 90,70,19,750 72,71,06,129 57,94,33,119Other current assets 66,69,51,629 74,48,94,758 75,13,33,069Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300Total 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139Less: CURRENTLIABILITIES(CL)2009(rupees) 2010(rupees) 2011(rupees)Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857Deposits and retention fromsuppliers/contractors14,91,29,269 12,89,91,075 15,76,14,454Interest accrued but not due onloans1,30,49,185 51,73,055 79,27,784Liabilities for wealth tax 47,253 28,781 48,416Electricity duty payable 1,82,269 1,56,113 1,63,387Liabilities for fringe benefittax68,51,705 68,51,705 68,51,705Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867working capital( CA-CL) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728(Amount. In Rs.)
40From the table -5.8 following things are derived:In 2008-2009 working capital is Rs -987175330 due to excessive of provisions. In2009-2010 working capital is Rs -3134288896 and in 2010-2011 working capitalbecame Rs – 3984943728. It became negative because current liabilities exceed currentassets in these years.WORKING CAPITAL TREND ANALYSIS: In working capital analysis thedirection at changes over a period of time is of crucial importance. Working capital isone of the important fields of management. It is therefore very essential for an analyst tomake a study about the trend and direction of working capital over a period of time.Such analysis enables as to study the upward and downward trend in current assets andcurrent liabilities and its effect on the working capital position. “The term trend is verycommonly used in day-today conversion trend, also called secular or long term need isthe basic tendency of population, sales, income, current assets, and current liabilities togrow or decline over a period of time” “The trend is defined as smooth irreversiblemovement in the series. It can be increasing or decreasing.” Emphasizing theimportance of working capital trends, “analysis of working capital trends provide asbase to judge whether the practice and privilege policy of the management with regardto working capital is good enough or an important is to be made in managing theworking capital funds.TABLE-5.9Working Capital Size trendYears 2008-2009 2009-2010 2010-2011Net W.C (A-B) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728W.C. Indices -100 -317.50 -403.67(Amount. In Rs.)
41From the table 5.9 followings things are derived: It is observed that working capitalindex in 2008-2009, 2009-2010 and 2010-2011 it became negative. Here in the year2008-2009 and 2009-2010 current liabilities exceeded current assets. The company wasunable to manage their working capital efficiently.TABLE-5.10WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKINGCAPITAL)Working capital turnover ratioYEAR Cost of Sales Net working capital Ratio2009 6789295427 -98,71,75,330 -6.88 times2010 3051627568 -3,13,42,88,896 -0.97 times2011 4051914743 -3,98,49,43,728 -1.02 times
42From 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 toincrease in current liabilities.B) But in 2009-2010, working capital turnover was -0.97, which indicates there wasdecrease in net current assets due to increase in current liabilities, which is better thanthe previous year.C) But in 2010-2011, working capital turnover was -0.97TABLE 5.11STATEMENT SHOWING CHANGES IN WORKING CAPITAL(2010 and 2011)(2009-2010)(Rs)(2010-2011)(Rs)Increase inworkingcapital(Rs)Decrease inworking 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 & bankbalances72,71,06,129 57,94,33,119 - 14,76,73,010Other currentassets74,48,94,758 75,13,33,069 64,38,311 -Loans & advances 1,58,26,86,333 40,47,66,300 - 1,17,79,20,033
43Total 5,07,93,75,378 4,43,85,38,139Current LiabilitiesCurrent liabilities 2,51,79,96,799 2,79,35,21,599 - 27,55,24,800Provisions 5,69,56,67,475 5,62,99,60,268 6,57,07,207 -Total 8,21,36,64,274 8423481867-85,06,54,832 -Working capital(current assets-current liabilities)-3,13,42,88,896 -3,98,49,43,728Net decrease inworking capital -85,06,54,832-3,13,42,88,896 -3,98,49,43,728 1,60,11,17,843 1,60,11,17,843From the table 5.11 following things are derived:By going through the statement showing changes in working capital the followingresults can be made.A) That the total current asset of the year 20010-2011 is decreased to Rs. 438538139from a previous year‟s figure of Rs. 5079375378.B) The total value of stores and spare is increased from the previous year‟s figure andthe value of sundry debtors is also increased from the previous year‟s figure.C) The cash and bank balances of the organization have a decrease of Rs. 147673010from the previous year‟s figure. Similarly the figure for loans and advances is alsodecreased to Rs. 404766300 from the previous year‟s figure of Rs.1582686333.D) The other current assets like prepaid expenses and sundry receivables have alsoincreased from the previous year‟s figure.E) The total current liabilities of the year 2007-2008 are increased to Rs. 8423481867from a previous year‟s figure of Rs. 8,21,36,64,274.
44F)That, the increase for current liabilities is due to increase in the figure of sundrycreditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.G) Due to increase in the value of stores and spares, sundry debtors, and other currentassets, there is a sign of increase in working capital. However, due to a decrease in thefigure of cash, bank balances, loan and advances etc, there is a clear sign of decrease inthe working capital.H) Due to increase in current liabilities and provisions for pension and gratuity andretrospective revision of pay, there is a sign of decrease in working capital.I)As per the analysis, it is observed that, the ratio of increase of working capital isdrastically reduced than the previous year‟s and the decrease sign of working capital isRs. -85,06,54,832 (2010-2011), which has impacted the steady increase of currentworking 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 todecrease current liabilities‟ figure as a result of which the figure for working capital canbe increased.TABLE-5.12STATEMENT SHOWING CHANGES IN WORKING CAPITAL(2009 TO 2010)(2008-2009)(Rs)(2009-2010)(Rs)Increase inworkingcapital(Rs)Decrease inworkingcapital(Rs)Current assetsStores and spares 808,519,278 96,90,56,460 160537182 -Sundry debtors 1,055,097,473 1,05,56,31,698 534225 -
45Cash & bankbalances907,019,750 72,71,06,129 179913621Other currentassets66,69,51,629 74,48,94,758 77943129 -Loans & advances 2,86,87,25,189 1,58,26,86,333 - 1,28,60,38,856Total 6,30,63,13,319 5,07,93,75,378Current liabilitiesCurrent liabilities 2,47,64,86,046 2,51,79,96,799 - 4,15,10,753Provisions 4,81,70,02,603 5,69,56,67,475 - 87,86,64,872Total 7,29,34,88,649 8,21,36,64,2742147113566Working capital(current assets-current liabilities)-98,71,75,330 -3,13,42,88,896Net decrease inworking capital -2147113566-3,13,42,88,896 -3,13,42,88,896 2386128102 2386128102By going through the table5.12 showing changes in working capital the followingresults can be made:a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378From a previous year‟s figure of Rs. 6,30,63,13,319 .b) The total value of stores and spare is increased from the previous year‟s figure andthe value of sundry debtors is also increased from the previous year‟s figure.c) The cash and bank balances of the organization have a decrease ofRs.17,99,13,621from the previous year‟s figure. Similarly the figure for loans andadvances is also decreased to Rs.1,58,26,86,333 from the previous year‟s figure of Rs.2,86,87,25,189.
46d) The other current assets like prepaid expenses and sundry receivables have alsoincreased from the previous year‟s figure.e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274From a previous year’s figure of Rs. 7,29,34,88,649.f)That, the increase for current liabilities is due to increase in the figure of sundrycreditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.g)Due to increase in the value of stores and spares, sundry debtors, and other currentassets, there is a sign of increase in working capital. However, due to a decrease in thefigure of cash, bank balances, loan and advances etc, there is a clear sign of decrease inthe working capital.h)Due to increase in current liabilities and provisions for pension and gratuity of pay,there is a sign of decrease in working capital.i)As per the analysis, it is observed that, the ratio of increase of working capital isdrastically reduced than the previous year‟s and the decrease sign of working capital isRs. -2147113566 (2009-2010), which has impacted the steady increase of currentworking capital & negatively affected the profitability of the organization.j) It is found that the current asset‟s figure is decreased from the previous year‟s figure& the current liabilities figure is increased from the previous year. As a result of which,there is a net decrease (negative figure) in working capital this financial year (2009-2010).k) That, some more emphasis can be given on current assets to increase its figure and todecrease current liabilities‟ figure as a result of which the figure for working capital canbe increased.
47FORTH SECTION EXPLAINS ABOUT CURRENT ASSETS AND CURRENTLIABILITIESCURRENT ASSETSTotal assets are basically classified in two parts as fixed assets and current assets. Fixedassets are in the nature of long term or life time for the organization. Current assetsconvert in the cash in the period of one year. It means that current assets are liquidassets or assets which can convert in to cash within a year.TABLE 5.13CURRENT ASSETS SIZECurrent assets(CA) 2009(rupees) 2010(rupees) 2011(rupees)Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700Cash and bankbalances90,70,19,750 72,71,06,12957,94,33,119Other current assets 66,69,51,629 74,48,94,758 75,13,33,069Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300Total of CA 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139CA indices 100 80.54 129.62(Amnt. In Rs.)
48From the table-5.13 followings things are derived: The current asset indices showgrowth in the year 2008-2009. In 2009-2010 it declines marginally and in 2010-2011 itagain increase.TABLE-5.14CURRENT ASSET TURNOVER RATIO- (sales/current Assets)YEAR SALES CURRENT ASSETS RATIO2009 6,78,92,95,427 6,30,63,13,319 1.082010 3,05,16,27,568 5,07,93,75,378 0.602011 4,05,19,14,743 4,43,85,38,139 0.912008-2009 2009-2010 2010-2011current asset 100 80.54 129.6210080.54129.62020406080100120140indicesCURRENT ASSET INDICES
49From the table 5.14 following things are derived: In the year 2008-2009, the currentasset turnover was 1.08 which became 0.60 and 0.91 in the year 2009-2010, 2010-2011respectively. But in the year 2009-2010, the current asset turnover was 0.60 due to salewas less than the current assets.COMPONENTS OF CURRENT ASSETSAnalysis of current assets components enable one to examine in which components theworking capital fund has locked. A large tie up of funds in inventories affects theprofitability of the business or the major portion of current assets is made up cash alone,the profitability will be decreased because cash is non earning assets.1.080.60.9100.20.40.60.811.22008-2009 2009-2010 2010-2011RATIOYEARCURRENT ASSET TURNOVER RATIO
50TABLE 5.15(No. in %)Current assets(CA) 2009 2010 2011Stores and spares 12.82 19.08 24.69Sundry debtors 16.73 20.78 33.89Cash and bank balances 14.38 14.31 15.80Other current assets 10.58 14.67 21.01Loan and advances 45.49 31.16 4.61Total of CA 100 100 1002008-2009 2009-2010 2010-2011percentageyearstores and sparessundry debtorscash and bankother current assetsloans and advances
51CURRENT LIABILITIES:-TABLE 5.16TABLE 5.17CURRENT LIABILITIES SIZE100112.62115.4990951001051101151202008-2009 2009-2010 2010-2011indicesyearsCURRENT LIABILITIEScurrent liabilities2009(rupees) 2010(rupees) 2011(rupees)Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857Deposits and retention fromsuppliers/contractors14,91,29,269 12,89,91,07515,76,14,454Interest accrued but not due onloans1,30,49,185 51,73,05579,27,784Liabilities for wealth tax 47,253 28,781 48,416Electricity duty payable 1,82,269 1,56,113 1,63,387Liabilities for fringe benefit tax 68,51,705 68,51,705 68,51,705Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867Current liabilities indices 100 112.62 115.49
52From the table 5.17 following things are derived: The current liabilities graph showsa rapid growth. In 2008-2009, the current asset indices is 100 and thereafter it increasesto 112.62, 115.49 in 2009-2010, 2010-2011 respectively. The current liabilitiesincreased at a speed.(TABLE 5.18)DEBTOR TURN OVER RATIO- (NET SALES/AVERAGE DEBTORS)YEAR Net Sales Average Debtors RatioAverage CollectionPeriod(365/DTR)days2009 6,78,92,95,427 1,05,37,88,728 6.44 572010 3,05,16,27,568 1,05,53,64,586 2.89 1262011 4,05,19,14,743 1,30,71,83,699 3.09 1196.442.89 3.09012345672008-2009 2009-2010 2010-2011ratioyearsDEBTOR TURN OVER RATIO
53Debtor Turn Over Ratio- By going through our calculation table and diagrams ofDebtor Turnover Ratio, profit and loss accounts and balance sheets of OPTCL thefollowing results can be drawn.A) In the year 2008-2009 the debtor turnover ratio is 6.44 times and the averagecollection period is 57 days. This year, the value of debtor turnover is higher than theprevious year due to decrease in average debtor.B) In the year 2009-2010 the debtor turnover is 2.89 times and the average collectionperiod is found to be 126 days. This year, there is higher value of debtor turn over.C) In the year 2010-2011 the debtor turnover is 3.09 times and the average collectionperiod is found to be 119 days. This year, the value of debtor turnover is higher than theprevious year due to increase in average debtor.D) OPTCL used to collect pending dues directly from consumers for which, substantialdelay in getting payment was . However, the present average period of collection isdecreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. forcollection of revenue on behalf of OPTCL and the same has been made through banks.The shorter the average collection period, the better the quality of debtors, since a shortcollection period implies the prompt payments by debtors. So this is a good indicationfor the organization.0204060801001201402008-2009 2009-2010 2010-201157126 119DAYSYEARSAVERAGE COLLECTION PERIOD
54SECTION FIVE Generally Defines Measures To Improve Working CapitalManagement at OPTCLThe 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 aprime customer and actions by competitors. So the effect of unforeseen demands ofworking capital should be factored by company. This was one of its reasons for thevariation of its revised working capital projection from the earlier projection.a) Addressing the issue of working capital on a corporate-wide basis has certainadvantages. 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 andimplementing strategies that generate short-term cash. This can be achieved by havingthe right set of executives who are responsible for setting targets and performancelevels. They could be then held accountable for delivering, encouraged to beenterprising 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-management procedures. These must be based on objective and realistic view of the roleof working capital.d) Working capital management is an important yardstick to measure a companyoperational and financial efficiency. This aspect must form part of the strategic andoperational thinking. Efforts should constantly be made to improve the working capitalposition. This will yield greater efficiencies and improve customer satisfaction.e) 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 currentasset.
55HYPOTHESIS TESTING:Generally hypothesis means a mere assumption or some supposition to be proved ordisproved. Hypothesis is usually considered as the principle instrument in research. Itsmain function is to suggest new experiments and observations.Hypothesis: 1- The firm is facing difficulty in paying short-term debt.The following table contains the details about the average collection period fromdebtors and average payment period to creditors from the period 2008-2009 to 2010-2011.Years Averagecollectionperiod (x)Averagepaymentperiod(y)XY X2y22008-2009 57 37 2109 3249 13692009-2010 126 86 10836 15876 73962010-2011 119 98 11662 14161 9604∑x= 302 ∑ Y=221 XY=24607∑ x2 =33286∑ y2=18369KARL PEARSONS’S COFFICIENT OF CORRELETION:By putting the values in the formula the “r” came = 0.96From the calculation value of “r” come = 0.96 which is a positive one. As thecorrelation came a positive one which ensures that the firm is facing difficulty in payingshort-term debt. It is the case where current liabilities are increased throughout thefinancial years from, 2008-2009, 2009-2010 and 2010-2011.
56HYPOTHESIS:2 THE FIRM IS NOT PROPERLY MANAGING THE SUNDRYDEBTOR.The following table contains average collection period from debtors and sundry debtors(in crore) from the period 2008-2009 to 2010-2011.years Averagecollectionperiod (x)sundry debtors(in crore)(y) XY X2 y22008-2009 57 106 6042 3249 112362009-2010 126 106 13356 15876 112362010-2011 119 156 18564 14161 24336∑x= 302 ∑Y=368 XY=37962 ∑ x2 =33286 ∑ y2=46808KARL PERSON’S COFFICIENT OF CORRELETION:By putting the values in the formula the “r” came = 0.4The correlation came negative to the second hypothesis.After putting the data “r” is found = 0.4 which is a positive one. So the hypothesis isaccepted. As the firm is able to manage the sundry debtor.
57HYPOTHESIS: 3- THE CURRENT LIABILITIES ARE INCREASING THANCURRENT ASSETS YEAR BY YEAR.The following table contains the amount of current liabilities(in crore) and current assets(in crore) from the period 2006-2007 to 2009-2010.years CURRENTLIABILITIES(in crore)(x)CURRENTASSETS(in crore)(y)XY X2y22008-2009 729 631 459999 531441 3981612009-2010 821 508 417068 674041 2580642010-2011 842 444 373848 70894 197136∑x=2392 ∑Y=1583 XY=1250915 ∑ x2= 1276376 ∑ y2= 853361KARL PERSON’S COFFICIENT OF CORRELETION:By putting the values in the formula the “r” came = -0.11As the hypothesis is negative which ensures that the current liabilities of firm isincreased at a speed than current assets. So the firm should have an eye to this one.
58FINDINGS OF THE STUDYFollowing are the findings of the study:A) Working capital of three years i.e., (2008-2009, 2009-2010and 2010-2011) is innegative figure. The reason is that the company‟s current liabilities exceeds currentassets from 2008-2009 to 2010-2011. The company created more provisions throughoutthese 3 years. Sundry creditors increased at a speed in these 3 years. It is an alarm signfor the company. Besides these sundry creditors, other current liabilities also increasedlike deposits and retention from supplies, liability for wealth tax, electricity dutypayable.B) The standard current ratio is 2:1. And for OPTCL it is not satisfactory. The reasonbehind such result is that the current liabilities exceed current assets. The standardcurrent ratio in the year 2008-2009, 2009-2010 and 2010-2011 situations is worst. Thereason behind is the increase in current liabilities and provisions. It is not a good signfor the company.C) The standard quick ratio is 1:1. And for OPTCL it is not satisfactory. The reasonbehind OPTCL did not achieve the rule of thumb. The current liabilities exceed theliquid assets. There is an increase in current liabilities like sundry creditor, interestaccrued but not due on loans, liability for wealth tax and liabilities for fringe benefit taxthan of liquid assets.D) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason isthat liquid assets fall very short than current liabilities. The current liabilities againexceed the absolute liquid assets. There is not significant increase in absolute currentassets like cash and bank balances from 2008-2009 to 2010-2011. But there is a rapidincrease 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 fundswere blocked in debtor. As the company is selling electricity to the sundry debtors andthe cash is not immediately received so some amount of cash is blocked in that matter.
59F) The current asset trend increased in 2009, but in 2010 it declines and 2011 it againincreases. The current assets like stores and spare declined in 2008-2009 it and then it isincreased in 2009-2010 and again declined in 2010-2011. Sundry debtors declined in2008-2009 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 forcompany. 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 2010-2011.H) Debtor‟s turnover ratio improved in 2009 and so number of collection perioddecreases. But in 2010 debtor‟s turnover ratio was decreases and collection periodincreases. In 2008-2009 it was 57 days. Then it is increased to 126 days in 2009-2010.But in 2010-2011 it again decreased to 119 days.J) Current asset ratio decrease throughout the year. It was 1.08 in 2008-2009, 0.60 in2009-2010 and 0.91 in 2010-2011.K) Working capital turnover ratio was negative in 2008-2009, 2009-2010 and 2010-2011. It slope downward and it was -6.88, -0.97 and -1.02 in 2008-2009, 2009-2010 and2010-2011 respectively.
60CHAPTER -6CONCLUSION AND RECOMMENDATION:CONCLUSION:On the basis of data analysis on working capital management in OPTCL, the followingconclusions arrived.A) The company has gross profit for the past four years (2008-2009, 2009-2010 and2010-2011) in negatives and the current liabilities are increasing, in comparison tocurrent assets position. Hence, it is an alarming sign for the smooth working capitalmanagement.B) The OPTCL didn‟t manage the liquidity position of the company. But, in the year2007-08, 2008-2009, 2009-2010 and 2010-2011 the situation of liquidity position wasalarming due to increase in total current liabilities and decrease in total current assetswhich led to the decrease in the net working capital of the company.C) During the year 2008-2009, 2009-2010 and 2010-2011 the company‟s liquid assetswere not satisfactory.D) The average collection period of the company during the year 2008-2009 is 57 days,it is increased to 126 days in 2009-2010 but the average collection period againincreases to 119 days in 2010-2011.E) There is also satisfactory net cash flow from the operating, investing and financingactivities of the organization.F)Though the net working capital of the company is decreased, still the company is in abetter manageable position and the company‟s present status of maintaining currentassets 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 financialposition in future and able to manage its working capital efficiently
61RECOMMENDATIONOPTCL is the soul of Orissa‟s power transmission and is playing a pivotal role inmaking surplus power consumption state through efficiently administering the systemof transmission. For improvement of organization‟s profitability, much emphasis isneeded to improve the better working capital management by decreasing the currentliabilities through reducing of unplanned over head expenses. In such process, currentassets position will be improved through collection of revenue from power transmissionas well as recovery of past dues from consumers, Govt. and other agencies etc. Thecompany should give more attention on increasing its collection of revenue fromwheeling of power and should give more emphasis to curtail unplanned expenses todecreases the loss. Further, the management should focus on shortening its averagecollection period by changing its credit terms and conditions.By taking the above remedial measures, the organization can be an EVA+ companywith due emphasis on proper way of managing the working capital..
62CHAPTER -7IMPLICATION FOR FUTURE RESEARCH:This study is the foundation stone for carrying out further research in the field ofworking capital management. Further research can be also be carried out the study ofworking capital management. This one of such preliminary research work and furtherreview of this research work can open up many dimensions for researchers. Althoughthe objective taken in research study is diverse, yet a trend can be observed from thefindings for future research work.One of the major drawbacks of the study is the lack of time. Working capitalmanagement is a very vast topic and hence in a limited time it is impossible to knowevery aspects of working capital management. And also it was study that depended on3years of data. There is future scope for studying these things.
63DISCLAIMERThe present study of working capital management in OPTCL is purely academic innature. The analysis of the data and interpretation of the matters in the project report arepurely academic purpose and nobody should take it as a fact finding conclusion forlodging any claim or submission of above facts for their personal benefits for which theundersigned will not be held responsible. The views suggestions, conclusions etc. arethe bonfied work of mine and nobody should claim or copy it for their benefit withoutpermission.*******************
64BIBLIOGRAPHYTEXT BOOKS:1. Maheswari Dr S.n “Financial management”, Ninth edition, 2006 sultan chand & sons,New Delhi2. Pandey I.M., “Financial Management”, Vikas Publishing House Pvt.Ltd. 8thEdition1999.3. Prasanna Chandra, “Financial management”, Fourth edition 1999, Tata Mc.graw hillpublishing company ltd, New Delhi.4. Gupta, sashi., “financial management”, 4thedition,2007, kalyani publisher, new delhi5. 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.inwww. Google.comwww. Investopedia.comwww.moneycontrol.comwww.wikipedia.com
65: ANNEXTURE:BALANCE SHEETS OF OPTCL&PROFIT & LOSS ACCOUNTS OF OPTCL
66PROFIT & LOSS ACCOUNTS OF OPTCLPROFIT AND LOSSACCOUNTSFOR THE YEAR ENDED31.03.2011 31.03.2010 31.03.2009INCOMERevenue from wheeling of Power 4,051,914,743 3,05,16,27,568 6,78,92,95,427Other Income 255,068,122 1,36,62,18,959 36,84,47,083Total 4,306,982,865 4,41,78,46,527 7,15,77,42,510EXPENDITUREAdministrative, General & OtherExpenses2,721,385,964 3,49,84,56,298 5,27,76,66,633Depreciation 1,223,379,955 1,08,03,34,520 1,09,82,41,352Total 3,944,765,919 4,57,87,90,818 6,35,79,07,985Profit/ (Loss) before interest & financecharges362,216,946 -16,09,44,291 78,18,34,525Interest & Finance Charges -424,377,484 -54,16,01,198 -97,24,54,617Net prior period income/(expenditure) -65,152,447 -1,11,72,155 75,90,209Profit/(Loss) before Taxation &Contingency-127,312,985 -71,37,17,644 -18,30,29,884Provision for taxation:-Current year 0 0 0Fringe Benefit Tax 0 0 0Profit After Tax -127,312,985 -71,37,17,644 -23,96,915Reserve Appropriation ------------- ------------ -18,54,26,799Appropriation to Contingencies Reserve -118,840,923 -10,93,51,080 -9,99,26,786Profit/(Loss) After Taxation &Contingency Reserve-246,153,908 -82,30,68,724 -28,53,53,585Balance of P&L Account BroughtForward from Last Year-1,600,747,175 -77,76,78,451 -49,23,24,866Balance Carried over to Balance Sheet -1,846,901,083 -1,60,07,47,175 -77,76,78,451
67BALANCE SHEETS OF OPTCL(IN RUPEES)as on31.03.2011as on31.03. 2010as on31.03. 2009i)sources of funds1.shareholder’s funds:Share capital 1,600,700,000 881,255,000 831,255,000share reserves and surplus 7,074,504,648 6,824,666,950 5,531,676,8268,675,204,648 7,705,921,950 6,362,931,8262.loans funds:Secured loans 1,882,808,719 2,970,843,099 4,034,967,573Unsecured loans 7,305,769,031 7,338,214,991 9,081,629,6343. others fundsConsumer security deposit 7,868756455,334 83,334ii)application of funds:1. fixed assets 27,935,440,372 26,037,473,415 24,152,614,571Gross blockLess: accumulated depreciation 13,758,811,668 12,519,750,138 11,437,546,544Net block 14,176,628,704 13,517,723,277 12,715,068,027Capital work-in-progress 5,562,515,095 5,760,703,817 6,711,033,0192. Investments 207,550,000 270,550,000 270,550,0003. current assets, loans and advances:Stores and spaces 1,144,269,951 969,056,460 808,519,278Sundry debtors 1,558,735,700 1,055,631,698 1,055,097,473Cash and bank balance 579,433,119 727,106,129 907,019,750Other current assets 751,333,069 744,894,758 738,951,177Loans and advances 404,766,300 1,582,686,333 2,786,157,419Less:-Current liabilities and provisionsCurrent liabilities 2,793,,521,599 2,517,996,799 2,476,486,046Provisions 5,629,960,268 5,695,667,475 4,817,002,603Net current assets -3,984,943,728 -3,134,288,896 -997,743,5534(a) miscellaneous expenditure to theextent not written off or adjustedare not written off or adjusted- - 3,026,423(b)profit and loss account (1,846,901,083) (1,600,747,175) (777,678,451)Total 17,871,651,154 18,015,435,374 19,479,612,367