Working capital

1. To study of Working
capital Management at
OPTCL
Presented by: Padmanav Rout
Guided by: CA Debasisha Mohanty

2. INTRODUCTION
• Definition: WORKING CAPITAL MANAGEMENT refers to
company’s managerial accounting strategy designed to monitor and
utilize the two components of Working capital, Current assets &
Current liabilities, to ensure the most financially efficient operation of
the company.
• Funds required for short term purpose of for meeting day to day
expenses of business are called Working capital.

3. OBJECTIVE
The following further objectives are for a depth analysis.
• To study the working capital management of Orissa power
transmission corporation project limited.
• To study the optimum level of current assets and current liabilities of
the company.
• To study the liquidity position through various working capital related
ratios.

4. METHODOLOGY
• Sources of data collection-
1. Secondary data collection through annual reports from 2015-2019 of the
organisation, company website.
• Tools use for the analysis-
1. Current ratio
2. Quick ratio
3. Working capital turnover ratio
4. Inventory turnover ratio

5. • The scope of the study is identified after and during the study of the
project.
• The study of the working capital is totally based on the trend analysis
ratio analysis working capital leverage etc. and 5 years annual reports
of the company while other things like competitor analysis, industry
analysis are discussed in the part of company profile.
SCOPE OF STUDY

6. COMPANY PROFILE
• ODISHA POWER TRANSMISSION CORPORATION LIMITED
(OPTCL), one of the largest Transmission Utility in the country was
incorporated in March 2004 under the Companies Act, 1956 as a company
wholly owned by the Government of Odisha to undertake the business of
transmission and wheeling of electricity in the State. The registered office
of the Company is situated at Bhubaneswar, the capital of the State of
Odisha. Its projects and field units are spread all over the State.
• Started commercial operation from 01.04.2005 only as a Transmission
Licensee. (a deemed Transmission Licensee under Section 14 of Electricity
Act, 2003)
• Notified as the State Transmission Utility (STU) by the State Govt.

7. DATA ANALYSIS
1. Current Ratio = Current Asset / Current liabilities
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2015 2016 2017 2018 2019
YEAR 2015 2016 2017 2018 2019
TotalCA 949.17 1193.56 2372.26 5655.41 5878.45
TotalCL 619.85 706.1 2637.37 4823.38 5518
CURRENT
RATIO
1.53 1.69 0.89 1.17 1.06
According to convention, current ratio should be 2:1, i.e., every current liability of Re. 1 should be backed by
current asset of Rs. 2. If the ratio is more than this, it means the working capital position is sound. If current
ratio is less than this,1.e., 2:1, there is a need to investigate whether the position is satisfactory or not.As a
matter of fact, a ratio higher than 2:1 may be unsatisfactory from the point of view of profitability though it
may be satisfactory from the viewpoint of solvency. Here, in the years 2015,2016,2018 and 2019 the company
had an average current ratio; whereas, in the year 2017, the company had an unsatisfactory current ratio.

8. 2. Quick ratio = Quick asset / current liabilities
Where, Quick assets = (current assets — inventories) or (cash and equivalents +
marketable securities + accounts receivable)
YEAR 2015 2016 2017 2018 2019
Total CA 949.17 1193.56 2372.26 5655.41 5878.45
Inventories 123.71 179.37 178.56 157.86 166.12
Quick asset
(Total CA-
Inventories
825.67 1014.19 2148.7 5497.55 5712.33
Total CL 619.85 706.1 2637.37 4823,38 5518.17
QUICK
RATIO
1.332 1.436 0.814 1.139 1.035
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2015 2016 2017 2018 2019
As per the convention, normal quick ratio should be 1:1, i.e., every rupee of quick liability should be backed
by equivalent liquid assets. If the ratio is less than this, it means that arrangement from outside will have to
be made for meeting immediate obligations. This is not a desirable situation and it should be avoided. Here,
in the year 2017 the company had an unsatisfactory quick ratio; whereas in the years 2015, 2016,2018 and
2019, the company had a very satisfactory quick ratio.

9. 3. Working Capital Turnover Ratio=
𝑺𝒂𝒍𝒆𝒔
𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝑪𝒂𝒑𝒊𝒕𝒂𝒍
YEAR 2015 2016 2017 2018 2019
Total CA 949.17 1193.56 2372.26 5655.41 5878.12
Total CL 619.85 706.1 2637.37 4823.38 5518.17
Working
Capital
329.32 487.46 265.11 823.03 360.28
Sales 634.34 661.58 665.31 7845.12 7900.79
Working
Capital
Turnover
1.93 1.36 -2.50 9.53 21.92
-5
0
5
10
15
20
25
2015 2016 2017 2018 2019
This ratio indicates extent of working capital, which should be always moderate. The decline in working
capital indicates that either working capital is in excess of requirements or there is operational inefficiency.
Here, in the year 2019 the company had very high working capital and in 2017 the company had a very bad
working capital turnover ratio resulting in a wide fluctuation; whereas in the years 2015,2016 and 2018, the
company maintained a moderate working capital.

10. 4. Inventory Turnover Ratio= Cost of Goods Sold / Average Inventory at
Cost
YEAR 2015 2016 2017 2018 2019
Sales 634.34 661.58 665.31 7845.12 7900,79
Opening
inventory
140.39 123.71 179.37 178.56 157.86
Closing
Inventories
123.71 179.37 178.56 157.86 166.12
Average
Inventories
132.05 151.54 268.65 168.21 161.99
Inventory
Turnover
Ratio(in
times)
4.80 4.36 2.47 46.63 48.77
0
10
20
30
40
50
60
2015 2016 2017 2018 2019
Normally, the higher ration indicates better inventory management. Low ratio means that sales require to be
pushed up and action is called for. At times even high ratio should convey a danger signal. It means
customers demand cannot be met properly and thus it indicates that profitable opportunities are not being
fully unlised. Here, in all the five years from 2015 to 2017 the company maintained an average inventory
ratio and in years 2018 and 2019 the company maintained a satisfactory inventory ratio.

11. FINDINGS
Following are the findings of the study:
• The standard quick ratio is 1:1 and for OPTCL it is satisfactory. The reason behind
OPTCL achieve the rule of thumb. The current liabilities lower than the liquid
assets.
• Absolute liquid test ratio is above 1:2, which are good for OPTCL. The current
liabilities lower than absolute liquid assets.
• Debtors of the company were low- the current asset trend decreased in 2017, but
in 2018-2019 It increased. The current asset like stores and spare increased
continuously.
• The standard current ratio is 2:1. And for OPTCL it is satisfactory. The standard
current ratio for 2015-2016 & 2018 -2019 are satisfactory but in the year 2017
situation was worst. The reason behind the increase in current liabilities and
provisions. It was not a good sign for the company.

12. CONCLUSION
The study has been conducted on working capital ratio analysis working capital
components which helped the company to manage its working capital efficiently
and effectively.
1. Working capital of the company was increasing and showing positive
working capital per year. It shows good liquidity position. Positive working capital
indicates that company has the ability of payments of payments of short terms
liabilities.
2. The liquidity ratio of the company is in excellent position as the current
assets and the quick current assets both are very high. The company can pay its
current liabilities and quick current liabilities and quick current liabilities and quick
current liabilities.
3. Gross profit ratio and net profit ratio shows the company earns much more
profit and its finical position is good.