This presentation analyzes the working capital management practices of NTPC, a major Indian power company, over the period of 2004-2014. It finds that NTPC has maintained adequate current and quick ratios to meet short-term obligations. Regression analysis shows a strong correlation between profit and working capital. The optimum and actual working capital levels were closest in 2012-13, indicating maximum liquidity that year. Inventory management was identified as an area for improvement due to increasing inventory turnover days. Recommendations include using excess cash reserves more efficiently and targeting the optimum working capital level to boost profits.

1. A PRESENTATION ON
WORKING CAPITAL MANAGEMENT
AT
By-
Neeraj Rattan
ROLL NO. 30
BATCH 2 (2014-2016)
National Thermal Power Corporation
(A Maharatna Company)

2. Objectives
 To study the working capital management practices of NTPC.
 To study and analyze the different trends exhibited by different
financial ratios.
 To know the relationship of profitability (PBT)and working
capital by using regression analysis.
 To find the optimum working capital of NTPC.
 To determine the liquidity position of NTPC over the period
under consideration

3. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Non- Current
Liability
Current
Liabilities
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Fixed Assets
Current
Assets
Proportion
of CA has
increased
from
around
25% to
35%
Proportion
of CL has
increased
from
around
14% to
21%
%
%
Proportion of Current Assets and Current Liabilities

4. -5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Percentage
increase in
Current Assets
Percentage
Increase in Fixed
Assets
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Percentage increase
in Current
Liabilities
Percentage increase
in non-current
Liabilities
Trade-off in Allocation
%
%
Increased
investment in
FA, then there
is less
investment in
CA
Increased
investment in
non-current CL
then there is
less investment
in CA

5. 0
10
20
30
40
50
60Percentage
Components of Current Assets
Inventory
Sundry Debtors
Cash and Bank
Loans and Advances
Majority component of the current assets is Cash and Loan & Advance.
The proportion of Cash and Bank balance has decreased, the proportion of
Loan and Advances has increased.
Debtors are converted into loans and Advances (onetime settlement scheme )

6. Important Ratios
Year Current
Ratio
Quick
Ratio
Absolute
Liquid
Ratio
Net
Sales/CA
Debtors/
CA
Debtors
Turnover
Ratio
Inventory
Turnover
Ratio
CA/TA CL/TA
2004-05 1.72 1.512 0.71 1.512 0.09 24.47 14.08 32.3 1.512
2005-06 2.108 1.837 0.979 1.837 0.05 23.32 12.31 28.4 1.837
2006-07 2.416 2.182 1.244 2.182 0.05 30.78 14.1 31.13 2.182
2007-08 2.365 2.158 1.157 2.158 0.10 17.52 33.59 31.07 2.158
2008-09 2.893 2.59 1.522 2.59 0.12 12.78 28.21 25.11 2.59
2009-10 2.81 2.505 1.318 2.505 0.11 9.06 27.54 26.81 2.505
2010-11 2.135 1.934 0.894 1.934 0.09 13.62 15.13 21.74 1.934
2011-12 1.962 1.795 0.746 1.795 0.09 17.08 16.76 22.13 1.795
2012-13 1.831 1.683 0.614 1.683 0.08 11.73 16.19 26.01 1.683
2013-14 1.685 1.514 0.489 1.514 0.10 13.61 13.4 24.68 1.514

7. y = 1.4849x + 1842.8
R² = 0.734
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
0.00 5,000.00 10,000.00 15,000.00 20,000.00
Working Capital(in ₹ Cr)
Working
Capital(in ₹
Cr)
Linear
(Working
Capital(in ₹
Cr))
₹ Crore
Using the linear
regression model, we can
predict the Optimum
amount of Working
Capital required for a
particular projected
value of PBT
Here we witness a good
correlation between PBT
and Working capital as
indicated by R-square
value of 0.734which
implies that linear
regression model is very
good
Correlatio
n Between
Inventory Book
Debts
Cash/Ba
nk
Balance
Loan &
Advance
s
Provisio
ns
Current
Assets
Current
liability
PBT 0.829 0.829 0.787 0.849 0.672 0.945 0.876
₹ Crore
PBT
Working Capital
Regression and Correlation Analysis

8. Comparison of Optimum and Actual Working
Capital with PBT
₹ Crore
Year
-4,000.00
-2,000.00
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
Changes in PBT
Difference
between actual
and Optimum
working Capital
PBT(Increas
e)-37.76%
Min Diff (2012-
13)-₹105.15 Cr
Max Diff
(2008-09)- ₹
2,985.915cr
PBT (Decrease)-
(9.922%)

9. Mootal's Comprehensive Test of Liquidity
Year WC to
CA Ratio
Rank Stock/C
A
Rank2 LR to
CA
Ratio
Rank3 Total
Rank
Ultimate
Rank
2004-05 0.4185 9 1.512 1 0.8792 9 19 9
2005-06 0.5256 6 1.837 5 0.8716 10 21 10
2006-07 0.5861 3 2.182 8 0.9029 5 16 5
2007-08 0.5771 4 2.158 7 0.9124 3 14 3
2008-09 0.6544 1 2.59 10 0.8951 7 18 7
2009-10 0.6441 2 2.505 9 0.8914 8 19 8
2010-11 0.5316 5 1.934 6 0.9059 4 15 4
2011-12 0.4925 7 1.795 4 0.9149 2 13 2
2012-
13
0.4539 8 1.683 3 0.9194 1 12 1
2013-14 0.4065 10 1.514 2 0.8982 6 18 6

10. Findings
 Current liabilities to total assets are less than current assets to total assets.
 Healthy Debtors Turnover Ratio- Successful recovery of dues from the
customers due to Long term Power Purchase agreements and its rebate
scheme.
 Loan & Advances and Cash & Bank Balances form an important part of
current Assets.
 Regression analysis -strong correlation exists between profit before tax and
working capital.
 Liquidity of the firm is best in the year in which the year (2012-13) -
difference between Optimum and Actual Working capital is almost negligible
(₹105.15 Cr).
 NTPC has current ratio, liquid ratio and absolute ratio inaccordance with the
thumb rule for these ratios.
 The inventory turnover days are increasing pointing to decreased
efficiency of the company in managing inventory.

11. Recommendations
 NTPC should strictly revive its cash management system and thus make use
of the excess cash which is lying idle with the company.
 NTPC should use the Optimum working capital to increase its
profitability .
 The inventory turnover days has increased for the company. It should make
an effective strategy to reduce them to the previous level.
Limitations
 Study may not be a future indicator.
 Results of the test cannot be generalized to other companies in the power
sector.
 Qualitative factors affecting working capital which are hard to quantify are
not included in the regression analysis.