CHAPTER-1

INTRODUCTION

BACKGROUND OF STUDY:

Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies fail each
year due to poor working capital management practices. Entrepreneurs often don't
account for short term disruptions to cash flow and are forced to close their operations.

In simple term, working capital is an excess of current assets over the current liabilities.
Good working capital management reveals higher returns of current assets than the
current liabilities to maintain a steady liquidity position of a company. Otherwise,
working capital is a requirement of funds to meet the day to day working expenses. So a
proper way of management of working capital is highly essential to ensure a dynamic
stability of the financial position of an organization.

OPTCL is one of the largest power transmission organizations in the country, which
plays the role of transmission of electricity in the entire state of Orissa. Seeing the good
opportunity to study financial systems and practices of OPTCL, it is relatively important
take up internship assignment on WORKING CAPITAL MANAGEMENT IN
OPTCL. During the project work, it is being analyzed the working capital position of
this organization. Decisions relating to working capital and short term financing are
referred to as working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of Working
capital management is to ensure that the firm is able to continue its operations and that it
has sufficient money flow to satisfy both maturing short-term debt and upcoming
operational expenses.

Working capital management deals with maintaining the levels of working capital to
optimum, because if a concern has inadequate opportunities and if the working capital is
more than required then the concern will lose money in the form of interest on the
blocked funds. Therefore working capital management plays a very important role in
the profitability of a company. And also due to heavy competitions among different
organizations it is now compulsory to look after working capital

[1]
 RELEVANCE OF STUDY

At OPTCL a substantial part of the total assets are covered by current assets. Current
assets form around 30%- 40% of the total assets. However this could be less profitable
on the assumption that current assets generate lesser returns as compared to fixed assets.

But in todays competition it becomes mandatory to keep large current assets in form of
inventories so as to ensure smooth production an excellent management of these
inventories has to be maintained to strike a balance between all the inventories required
for the production.

So, in order to manage all these inventories and determine the investments in each
inventories, the system call for an excellent management of current assets which is
really a tough job as the amount of inventories required are large in number.

Here comes the need of working capital management or managing the investments in
current assets. Thus in big companies like OPTCL it is not easy at all to implement a
good working capital management as it demands individual attention on its different
components.

The study of working capital management is very helpful for the organisation to know
its liquidity position. The study is relevant to the organization to know the day to day
expenditure. This study is relevant to give an idea to utilise the current assets.

This study is also relevant to the student as they can use it as a reference. This report
will help in conducting further research. Other researcher can use this project as
secondary data

PROBLEM STATEMENT:

Working capital management or simply the management of capital invested in current

assets is the focus of study. So topic is to study working capital management of OPTCL.

Working capital is the fund invested by a firm in current assets. Now in a cut throat
competitive era where each firm competes with each other to increase their production
and sales, holding of sufficient current assets have become mandatory as current assets
include inventories and raw materials which are required for smooth production runs.
Holding of sufficient current assets will ensure smooth and un interrupted production

[2]
but at the same time, it will consume a lot of working capital. Here creeps the
importance and need of efficient working capital management. Working capital
management aims at managing capital assets at optimum level, the level at which it will
aid smooth running of production and also it will involve investment of nominal
working capital in capital assets.

The problem generally explains that, less attention has been paid to the area of short-
term finance, in particular that of working capital management. Such neglect might be
acceptable were working capital considerations of relatively little importance to the
firm, but effective working capital management has a crucial role to play in enhancing
the profitability and growth of the firm. Indeed, experience shows that inadequate
planning and control of working capital is one of the more common causes of business
failure.

HYPOTHESIS OF THE STUDY:

The following are the hypothesis of the study

1) The firm is facing difficulty in paying short-term debt.

2) The firm is not properly managing the sundry debtor.

3) The current liabilities are increasing than current assets year by year.

OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives to

be fulfilled. This study is not an exception to it. The following are a few straight
forward goals which i have tried to fulfil in my project:

1) To study the various components of working capital.

2) To analyze the liquidity trend.

3) To analyze the working capital trend.

4) To appraise the utilization of current asset and current liabilities and find out short-
comings if any.

5) To suggest measure for effective management of working capital.

[3]
LIMITATIONS OF THE STUDY:-

Following are the limitations of the study:

1) The topic working capital management is itself a very vast topic yet very important
also. Due to time restraints it was not possible to study in depth in get knowledge what
practices are followed at OPTCL.

2) Many facts and data are such that they are not to be disclosed because of the
confidential nature of the same.

3) Since the financial matters are sensitive in nature the same could not acquired easily.

4) The study is restricted to only the 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, problem
statements, hypothesis, objectives as well as limitations of the study.

Chapter-2 represents company profile of OPTCL.

Chapter-3 represents review of literature.

Chapter-4 represents research methodology of the study including sources of data

collection, formulas and statistical tools used for data analysis.

Chapter -5 represents results and findings.

Chapter -6 represents conclusion and suggestion.

Chapter -7 represents implication for future research.

[4]
 CHAPTER-2

COMPANY PROFILE

ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)
Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /
2542320

ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the

largest Transmission Utility in the country was incorporated in March 2004 under the
Companies Act, 1956 as a company wholly owned by the Government of Orissa to
undertake the business of transmission and wheeling of electricity in the State.

Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a

deemed Transmission Licensee under Section 14 of Electricity Act, 2003)

Notified as the State Transmission Utility (STU) by the State Govt. and discharges
the State Load Dispatch functions.

The registered office of the Company is situated at Bhubaneswar, the capital of the State
of Orissa. Its projects and field units are spread all over the State. OPTCL became fully
operational with effect from 9th June 2005 consequent upon issue of Orissa Electricity
Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the
provisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the State
Government for transfer and vesting of transmission related activities of GRIDCO with
OPTCL. The Company has been designated as the State Transmission Utility in terms of
Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intra state
transmission and wheeling of electricity under a license issued by the Orissa Electricity
Regulatory Commission. The Company is also discharging the functions of State Load
Despatch Centre. The Company owns Extra High Voltage Transmission system and
operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132 kV levels
and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs
of the Company are managed by the Managing Director assisted by whole-time
Functional Directors as per the advice of the Board of Directors constituted. They are in
turn assisted by a team of dedicated and experienced professionals in the various fields.

[5]
VISION AND MISSION OF OPTCL:

VISION:

1)To build up OPTCL as one of the best transmission utility in the country in terms of
uninterrupted power supply, minimizing the loss, contributing states industrial growth.

2)Development of a well coordinated transmission system in the backdrop of formation

of strong National Power Grid as a flagship, endeavour to steer the development of
Power System on Planned path leading to cost effective fulfilment of the objective of
'Electricity to All at affordable price.

MISSION:

Plan & operate the Transmission system so as to ensure that transmission system built,
operated and maintained to provide efficient, economical and coordinated system of
Transmission and meet the overall performance Standards.

(i) To upgrade the transmission system network so as to handle power to the tune of
3000 MW for 100% availability of power to each family.

(ii) To impart advanced techno managerial training to the practicing engineers and work
force so as to professionalism them with progressive technology and capable
commercial organization of the country so as to build up the most techno-commercially
viable model of the country

OBJECTIVES OF OPTCL:

To effectively operate Transmission lines and Sub-Stations in the State for evacuation of
power from the state generating stations feed power to state distribution companies,
wheeling of Power to other states, maintenance of the existing lines and sub-stations for
power transmission and to undertake power system improvement by renovation, up-
gradation and modernization of the transmission network.

OPTCL being a State Transmission Utility Public Authority has set the following
objectives.

[6]
Undertake transmission and wheeling of electricity through intra- State Transmission
system

1) Discharge all functions of planning and coordination relating to Intra State, inter
State transmission system with Central Transmission Utility, State Govt. Generating
Companies, Regional Power Board, Authority, Licensees or other person notified by
State Govt. in this behalf.

2) Ensure development of an efficient and economical system of intra state and inter
State transmission lines for smooth flow of electricity from generating station s to the
load centres.

3) Provide non-discriminatory open access to its transmission system for use by any
licensee or generating company or any consumer as and when such open access is
provided by the State Commission on payment of transmission charges/surcharge as
may be specified by the State Commission.

4) Exercise supervision and control over the intra-state transmission system, efficient
operation and maintenance of transmission lines and substations and operate State Load
Despatch Centres to ensure optimum scheduling and despatch of electricity and to
ensure integrated operation of power systems in the State.

5)Restore power at the earliest possible time through deployment of emergency

Restoration system in the event of any Natural Disasters like super cyclone, flood etc.

[7]
POWER SECTOR REFORM IN THE STATE:

The Power Sector Reforms in the State of Orissa was started during November 1993
in an organized manner. The main objective of the reform was to unbundle
generation, transmission and distribution and to establish an independent and
transparent Regulatory Commission in order to promote efficient and accountability
in the Power Sector.

In order to implement the reform, in the first phase, two corporate entities namely
Grid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro Power
Corporation Limited (OHPC) were established in April 1995. GRIDCO was
incorporated under the Companies Act, 1956 in April 1995 to own and operate the
transmission and distribution systems in the State. Similarly OHPC was
incorporated to own and operate all the hydro generating stations in the State.

The State Government enacted the Orissa Electricity Reform Act, 1995 which came
into force with effect from 1.4.1996. In exercise of power under Section 23 and 24
of the Orissa Electricity Reform Act, 1995,the State Govt. notified the Orissa
Electricity Reform (Transfer of Undertakings, Assets, Liabilities, proceedings and
Personnel ) Scheme Rules 1996. As per the scheme, the transmission ,distribution
activities of the erstwhile OSEB along with the related assets, liabilities, personnel
and proceedings were vested on GRIDCO . Simultaneously the hydro generation
activities of OSEB along with related assets, liabilities, personnel and proceedings
were vested on OHPC.

In order to privatize the distribution functions of electricity in the State, four

Distribution Companies namely Central Electricity Supply Company of Orissa
Limited (CESCO), North Eastern Electricity Supply Company of Orissa Limited
(NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) &
Western Electricity Supply Company Orissa Limited (WESCO) were incorporated
under the Companies Act, 1956 as separate corporate entities. During November
1998 the State Govt. issued the Orissa Electricity Reform (Transfer of Assets,
Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules
1998 wherein the electricity distribution and retail supply activities along with the
related assets, liabilities, personnel and proceedings were transferred from GRIDCO
to the four Distribution Companies. Through a process of international Competitive
Bidding (ICB), the four Distribution Companies were privatized during 1999.

After separation of Distribution business, GRIDCO left with electricity

Transmission and Bulk Supply/Trading activities.
[8] GRIDCO was also declared as the
State Transmission Utility and was discharging the functions of State Load Despatch
Centre (SLDC).
REFORM ACHIEVEMENT:

Milestones of Orissa Power Sector Reform

1) First Transfer between OHPC and GRIDCO effected on 1st April, 1996

2)OER Act, 1995 created Orissa Electricity Regulatory Commission,

a Regulatory Body which became functional on 1.8.1996

3) Unbundling of Transmission and Distribution via Second Transfer Scheme

effective from November 26, 1998
4)9 Tariff Orders after public hearing have been passed by OERC
(FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06)
5) BSES took over management and operational control of 3 Distribution Companies
(WESCO, SOUTHCO and NESCO) from April 1, 1999

6) Privatization of Distribution completed with AES taking over the

fourth distribution company, CESCO from September 1, 1999

7) CESCO remained under the management of an Administrator (CEO)

appointed by OERC with effect from 27.8.2001

8)A new public limited company under the name Orissa Power Transmission
Corporation Limited was incorporated on 29.03.2004 to carry on the
business of Transmission, STU, and SLDC functions of GRIDCO

9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry on

its Bulk Supply and Trading functions

[9]
 CHAPTER-3: REVIEW OF LITERATURE

The purpose of this chapter is to present a review of literature relating to the working
capital management. The following are the literature review by different authors and
different research scholars.

Pass C.L., Pike R.H1 (1984), studied that over the past 40 years major theoretical
developments have occurred in the areas of longer-term investment and financial
decision making. Many of these new concepts and the related techniques are now being
employed successfully in industrial practice. By contrast, far less attention has been paid
to the area of short-term finance, in particular that of working capital management. Such
neglect might be acceptable were working capital considerations of relatively little
importance to the firm, but effective working capital management has a crucial role to
play in enhancing the profitability and growth of the firm. Indeed, experience shows
that inadequate planning and control of working capital is one of the more common
causes of business failure.

Herzfeld B2 (1990), studied that Cash is king--so say the money managers who share
the responsibility of running this country's businesses. And with banks demanding more
from their prospective borrowers, greater emphasis has been placed on those
accountable for so-called working capital management. Working capital management
refers to the management of current or short-term assets and short-term liabilities. In
1 Pass C.L., Pike R.H: An overview of working capital management and corporate
financing (1984).

2 Herzfeld B; How to Understand Working Capital Management (1990).

[10]
essence, the purpose of that function is to make certain that the company has enough
assets to operate its business. Here are things you should know about working capital
management.

Samiloglu F.and Demirgunes K3 (2008), studied that the effect of working capital
management on firm profitability. In accordance with this aim, to consider statistically
significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed

3 Samiloglu F. and Demirgunes K., The Effect of Working Capital Management on Firm
Profitability: Evidence from Turkey (2008)

[11]
Appuhami, Ranjith B4 (2008), studied impact of firms' capital expenditure on their
working capital management. The author used the data collected from listed companies
in the Thailand Stock Exchange. The study used Schulman and Cox's (1985) Net
Liquidity Balance and Working Capital Requirement as a proxy for working capital
measurement and developed multiple regression models. The empirical research found
that firms' capital expenditure has a significant impact on working capital management.
The study also found that the firms' operating cash flow, which was recognized as a
control variable, has a significant relationship with working capital management.

Hardcastle J5 (2009)., studied that Working capital, sometimes called gross working
capital, simply refers to the firm's total current assets (the short-term ones), cash,
marketable securities, accounts receivable, and inventory. While long-term financial
analysis primarily concerns strategic planning, working capital management deals with
day-to-day operations. By making sure that production lines do not stop due to lack of
raw materials, that inventories do not build up because production continues unchanged
when sales dip, that customers pay on time and that enough cash is on hand to make
payments when they are due. Obviously without good working capital management, no
firm can be efficient and profitable.

Thachappilly G6 (2009)., Working Capital Management Manages Flow of Funds,

(2009) describes that Working capital is the cash needed to carry on operations during
the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash
from customers. Raw materials and operating supplies must be bought and stored to
ensure uninterrupted production. Wages, salaries, utility charges and other incidentals
must be paid for converting the materials into finished products. Customers must be
allowed a credit period that is standard in the business. Only at the end of this cycle
does cash flow in again

4 Appuhami, Ranjith B A; The Impact of Firms' Capital Expenditure on Working Capital

Management: An Empirical Study across Industries in Thailand, (2008)

5 Hardcastle; Working Capital Management,(2009).

6 Thachappilly G. Working Capital Management Manages Flow of Funds,(2009)

[12]
[13]
Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital management
on the operating performance and growth of new public companies. The study also
sheds light on the relationship of working capital with debt level, firm risk, and industry.
Using a sample of initial public offerings (IPO's), the study finds a significant positive
association between higher levels of accounts receivable and operating performance.
The study further finds that maintaining control (i.e. lower amounts) over levels of cash
and securities, inventory, fixed assets, and accounts.

Dubey R8 (2008)., studied The working capital in a firm generally arises out of four
basic factors like sales volume, technological changes, seasonal , cyclical changes and
policies of the firm. The strength of the firm is dependent on the working capital as
discussed earlier but this working capital is itself dependent on the level of sales volume
of the firm. The firm requires current assets to support and maintain operational or
functional activities. By current assets we mean the assets which can be converted
readily into cash say within a year such as receivables, inventories and liquid cash. If
the level of sales is stable and towards growth the level of cash, receivables and stock
will also be on the high.

McClure B9 (2007)., Working Capital Works describes that Cash is the lifeline of a
company. If this lifeline deteriorates, so does the company's ability to fund operations,
reinvest and meet capital requirements and payments. Understanding a company's cash
flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM).
Cash is king, especially at a time when fund raising is harder than ever. Letting it slip
away is an oversight that investors should not forgive. Analyzing a company's working
capital can provide excellent insight into how well a company handles its cash, and

7 Beneda, Nancy; Zhang, Yilei, Working Capital Management, Growth and Performance of New
Public Companies, Credit & Financial Management Review, (2008)

8 Dubey R, Working Capital Management-an Effective Tool for Organisational Success

(2008)

9 McClure B, Working Capital Works (2007)

[14]
whether it is likely to have any on hand to fund growth and contribute to shareholder
value.

Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maxim
amongst financial managers. Working capital management refers to the management of
current or short-term assets and short-term liabilities. Components of short-term assets
include inventories, loans and advances, debtors, investments and cash and bank
balances. Short-term liabilities include creditors, trade advances, borrowings and
provisions. The major emphasis is, however, on short-term assets, since short-term
liabilities arise in the context of short-term assets. It is important that companies
minimize risk by prudent working capital management.

Maynard E. Refuse11 (1996), Argued that attempts to improve working capital by

delaying payment to creditors is counter-productive to individuals and to the economy
as a whole. Claims that altering debtor and creditor levels for individual tiers within a
value system will rarely produce any net benefit. Proposes that stock reduction
generates system-wide financial improvements and other important benefits. Urges
those organizations seeking concentrated working capital reduction strategies to focus
on stock management strategies based on lean supply-chain techniques.

Thomas M. Krueger12 (2005), studied distinct levels of WCM measures for different
industries, which tend to be stable over time. Many factors help to explain this
discovery. The improving economy during the period of the study may have resulted in
improved turnover in some industries, while slowing turnover may have been a signal
of troubles ahead. Our results should be interpreted cautiously. Our study takes places

10 Gass D, How To Improve Working Capital Management (2006)

11 Maynard E. Rafuse, Working capital management: an urgent need to refocus

Management Decision, (1996)

12 Thomas M. Krueger, An Analysis of Working Capital Management Results Across

Industries American Journal of Business, (2005)

[15]
over a short time frame during a generally improving market. In addition, the survey
suffers from survivorship bias only the top firms within each industry are ranked each
year and the composition of those firms within the industry can change annually.

Eljelly13 (2002) empirically examined the relationship between profitability and

liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample
of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis,
Eljelly [9]found significant negative relationship between the firm's profitability and its
liquidity level, as measured by current ratio. This relationship is more pronounced for
firms with high current ratios and long cash conversion cycles. At the industry level,
however,he found that the cash conversion cycle or the cash gap is of more importance
as a measure of liquidity than current ratio thataffects profitability. The firm size
variable was also found to have significant effect on profitability at the industry level.

Lazaridis and Tryfonidis 14(2004), conducted a cross sectional study by using a sample
of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004 and
found statistically significant relationship between profitability, measured through gross
operating profit, and the cash conversion cycle and its components (accounts
receivables, accounts payables, and inventory). Based on the results analysis of annual
data by using correlation and regression tests, they suggest that managers can create
profits for their companies by correctly handling the cash conversion cycle and by
keeping each component of the conversion cycle (accounts receivables, accounts
payables, and inventory) at an optimal level.

Raheman and Nasr15 (2004), studied the effect of different variables of working capital
management including average collection period, inventory turnover in days, average
payment period, cash conversion cycle, and current ratio on the net operating
profitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed on
Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a strong

13 Eljelly; cash conversion cycle year (2002.)

14 Lazaridis and Tryfonidis, cash conversion cycle year (2004)

15 Raheman and Nasr; variables of working capital management year ( 2004).

[16]
negative relationship between variables of working capital management and
profitability of the firm. They found that as the cash conversion cycle increases, it leads
to decreasing profitability of the firm and managers can create positive value for the
shareholders by reducing the cash conversion cycle to a possible minimum level.

Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small to

medium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. They
tested the effects of working capital management on SME profitability using the panel
data methodology. The results, which are robust to the presence of endogeneity,
demonstrated that managers could create value by reducing their inventories and the
number of days for which their accounts are outstanding. Moreover, shortening the cash
conversion cycle also improves the firm's profitability.

Falope and Ajilore17 (2003), used a sample of 50 Nigerian quoted non-financial firms
for the period 1996 -2005. Their study utilized panel data econometrics in a pooled
regression, where time-series and cross-sectional observations were combined and
estimated. They found a significant negative relationship between net operating
profitability and the average collection period, inventory turnover in days, average
payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on
the Nigerian Stock Exchange. Furthermore, they found no significant variations in the
effects of working capital management between large and small firms.

Kouma Guy18, (2001) in a study on, Working capital management in healthcare,

Working capital is the required to finance the day to day operations of an organization.
Working capital may be require to bridge the gap between buying of stocked items to
eventual payment for goods sold on account. Working capital also has to fund the gap

16 Garcia-Teruel and Martinez-Solano; working capital management of SMEs year 1996.

17 Falope and Ajilore: utilisation of resources year 2003

18 ) Kouma Guy, (2001)Working capital management in healthcare www.@akdesniz.edu.tr

Volume 5; page No 76-89

[17]
when products are on hand but being held in stock. Products in stock are at full cost,
effectively they are company cash resources which are out of circulation therefore
additional working capital is required to meet this gap which can only be reclaimed
when the stocks are sold (and only if these stocks are not replaced) and payment for
them is received. Working capital requirements have to do with profitability and much
more to do with cash flow.

Mehmet SEN, Eda ORUC (2005)19 in the study Relationship between the efficiency
of working capital management and company size, As it is known, one of the
reasons which cause change in working capital from one period to another is the change
in management efficiency. The change in management efficiency will affect the change
in working capital in a way as increaser or reducer from on period to another. In this
study, the effect of change in management efficiency in working capital management in
to the change in working capital is compared by company size and sectors. The data of
this study covers sixty periods as the total of quarterly financial statement of 55
manufacturing companies which were in operation in Istanbul Stock exchange (ISE)
between the years 1993 and 2007. In every period we studied, for inventories short term
commercial receivables and short term commercial liabilities, and calculated the effect
of change in management efficiency on to the effect of working capital change. In all
sectors considered, in the change in working capital, and observed the effect of reducing
of efficiency in inventory management. It is also observed that efficiency change in the
management of the short term commercial receivables and the short term commercial
liabilities by the company sizes and sectors make a positive effect in to the change in
working capital

Brealey, R., (1997)20 in a study on, Working Capital management concepts work
sheet university of phoenix. Concept application of concept in the Simulation

19 Mehmet SEN, Eda ORUC (2005) Relationship between the efficiency of working capital
management and company size, www.@akdesniz.edu.tr Volume 2; Pages No 32-42

20 Brealey, R., (1997) Working capital management Working Capital management

concepts work sheet university of phoenix. Volume 1; Pages No 123-128

[18]
reference to concept in reading cash conversion cycle cash conversions is the process of
managing a companys cash inflows and outflows. In the simulation, the finance
manager was responsible for balancing sales with collections or accounts receivables
(cash inflows) and purchases with payments or accounts payables (cash outflows). This
delicate balance maintains the companys balance sheet keeping the cash and loans in a
situation of financial stability and keeping the money from being tied up. Principles of
corporate finance. Working capital management. New York: McGraw-Hill.

[19]
 CHAPTER-4

RESEARCH METHODOLOGY

Research methodology is a systematic approach in management research to achieve

pre-defined objectives. It helps a researcher to guide during the course of research work.
Rules and techniques stated in research methodology save time and labour of the
researcher as researcher know how to proceed to conduct the study as per the objective.

SELECTION OF TOPIC: The selection of topic is a crucial factor in any research

study. There should be newness and it should give maximum scope to explore the ideas
from different angles.

In present day due to increase in competition, working capital is becoming necessary for
the organisation. It is that part of capital which is necessary to undertake day to day
expenditure of the business organization. Whatever may be the organization, working
capital plays an important role, as the company needs capital for its day to day
expenditure. Thousands of companies fail each year due to poor working capital
management practices. Entrepreneurs often don't account for short term disruptions to
cash flow and are forced to close their operations. Working capital is the fund invested
by a firm in current assets. Now in a cut throat competitive era where each firm
competes with each other to increase their production and sales, holding of sufficient
current assets have become mandatory as current assets include inventories and raw
materials which are required for smooth production runs. Holding of sufficient current
assets will ensure smooth and un interrupted production but at the same time, it will
consume a lot of working capital. Here creeps the importance and need of efficient
working capital management. After due to consultation with the external guide /internal
guide, the topic was finalized and titled as-A STUDY ON WORKING CAPITAL
MANAGEMENT IN OPTCL, BBSR

SELECTION OF LOCATION FOR THE STUDY: The location for study was
selected as the corporate office of OPTCL, Bhubaneswar.

RESEARCH DESIGN: A Research design is the arrangement of conditions for

collection and analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure The research design followed to study the

[20]
working capital management in ORISSA POWER TRANSMISSION CORPORATION
LIMITED (OPTCL) is Descriptive and Analytical Research Design.

SOURCES OF DATA COLLECTION:

1. Secondary data collection

Secondary data collection:

The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company
etc. It will save the time, money and efforts to collect the data. Secondary data also
made available through trade magazines, annual reports, books etc.

This project is based secondary data collected through annual reports of the
organization. The data collection was aimed at study of working capital management of
the company.

Project is based on

1. Annual report of OPTCL. 2006-2007

2. Annual report of OPTCL 2007-2008
3. Annual report of OPTCL. 2008-2009
4. Annual report of OPTCL. 2009-2010

FORMULAS OF RATIO ANALYSIS & DEFINITION

RATIO:

Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as
the indicated quotient of two mathematical expressions and as the relationship
between two or more things. The absolute figures reported in the financial statement do
not provide meaningful understanding of the performance and financial position of the
firm. Ratio helps to summaries large quantities of financial data and to make qualitative
judgment of the firms financial performance.

[21]
ROLE OF RATIO ANALYSIS
Ratio analysis helps to appraise the firms in the term of there profitability and efficiency
of performance, either individually or in relation to other firms in same industry. Ratio
analysis is one of the best possible techniques available to management to impart the
basic functions like planning and control. As future is closely related to the immediately
past, ratio calculated on the basis historical financial data may be of good assistance to
predict the future. E.g. On the basis of inventory turnover ratio or debtors turnover ratio
in the past, the level of inventory and debtors can be easily ascertained for any given
amount of sales. Similarly, the ratio analysis may be able to locate the point out the
various arias which need the management attention in order to improve the situation.
E.g. Current ratio which shows a constant decline trend may be indicate the need for
further introduction of long term finance in order to increase the liquidity position. As
the ratio analysis is concerned with all the aspect of the firms financial analysis
liquidity, solvency, activity, profitability and overall performance, it enables the
interested persons to know the financial and operational characteristics of an
organization and take suitable decisions.
LIQUDITY RATIO:
Liquidity refers to ability of a concern to meet its current obligations as and when these
become due. The short-term obligations are met by realising amounts from current,
floating or circulating asset. The current asset either be liquid or near liquidity. These
should be convertible into cash for paying obligation of short-term nature. To measure
the liquidity of a firm, following ratios can be calculated:
A) CURRENT RATIO: Current assets include cash and those assets which can be
converted in to cash within a year, such marketable securities, debtors and inventories.
All obligations within a year are include in current liabilities. Current liabilities include
creditors, bills payable accrued expenses, short term bank loan income tax liabilities and
long term debt maturing in the current year. Current ratio indicates the availability of
current assets in rupees for every rupee of current liability.

CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES

B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship between
quick or liquid assets and liabilities. An asset is liquid if it can be converting in to cash

[22]
immediately or reasonably soon without a loss of value. Cash is the most liquid asset
.other assets which are consider to be relatively liquid and include in quick assets are
debtors and bills receivable and marketable securities. Inventories are considered as less
liquid. Inventory normally required some time for realizing into cash. Their value also
be tendency to fluctuate. The quick ratio is found out by dividing quick assets by current
liabilities.

QUICK RATIO = total liquid asset/ total current liabilities

C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are
considered as more liquid then inventories, it cannot be converted in to cash
immediately or in time. Therefore while calculation of absolute liquid ratio only the
absolute liquid assets as like cash in hand cash at bank, short term marketable securities
are taken in to consideration to measure the ability of the company in meeting short
term financial obligation. It calculates by absolute assets dividing by current liabilities.

ABSOLUTE LIQUID RATIO=absolute liquid asset/ total current liabilities

EFFICIENCY RATIO: Funds are invested in various assets in business to make sales
and earn profits. The efficiency with which assets are managed directly affects the
volume of sale. Activity ratios measure the efficiency and effectiveness with which a
firm manages its resources or assets. These ratios are also called turnover ratios.

A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship

between credit sales and receivables of a firm. It indicates how quickly receivables are
converted into sales.

DEBTORS TURNOVER RATIO= SALES/ AVERAGE ACCOUNT RECEIVABLES.

AVERAGE A/C RECEIVABLES= opening trade debtor+ Closing trade debtor/2

AVERAGE COLLECTION PERIOD= (365/DTR) days

Or RECEIVABLES * 365/ sale

B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of

sales, a relative amount of working capital is needed. If any increase in sales
contemplated working capital should be adequate and thus this ratio helps management

[23]
to maintain the adequate level of working capital. The ratio measures the efficiency with
which the working capital is being used by a firm. It may thus compute net working
capital turnover by dividing sales by net working capital.

WORKING CAPITALTURNOVER RATIO=cost of sales/ net working capital

CURRENT ASSET TURNOVER RATIO:

CURRENT ASSET TURNOVER RATIO= sales / current asset

STATISTICAL TOOLS USED FOR DATA ANAYLSIS:

The various statistical tools used for data analysis is as follows:

a) Tables:

b) Bar-chart

c) Graphs

d) Correlation

ANALYTICAL TOOLS USED:

The analytical tools used for data analysis is as follows:

a) Ratio analysis

b) Schedule of change in working capital

c) Cash flow statements

CHAPTER-5

RESULTS AND FINDINGS

[24]
The result and discussion of the study is presented in five different sections. The first
sections explain about the various components of working capital, variable of working
capital. The second section explains about the liquidity trend of the organization. The
third section explains about the working capital trend .The fourth section explains the
utilization of current assets and current liabilities. The fifth section explains the measure
to effective management of working capital.

The first section explains about the various components of working capital and variables
of working capital. The components of working capital are presented in Table 5.1.

(TABLE 5.1: COMPONENTS OF WORKING CAPITAL)

Table 1.1 2006-2007(rs) 2007-2008(Rs) 2008-2009(Rs) 2009-2010(Rs)

Cash 648,276,812 490,881,183 907,019,750 727,106,129
Debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698
Inventories 751064690 76,68,65,262 80,85,19,278 96,90,56,460
sundry Creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456
Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475
An insight into the table reveals that:

a) Cash and bank balances in 2006-2007 were Rs 648276812. It is decreased to Rs

490,881183. With a-24.27% growth. In 2008-2009 it increased to Rs 907,019,750. And
then it suddenly decreased to Rs 727,106,129.

b) Debtors increases which was not a good sign. In 2006-2007 debtors were Rs
79,81,96,201 and it increased Rs 105,24,79,982 a total increase in Rs 254283781. In
2008-2009 it was Rs 1,05,50,97,473. And in 2009-2010 it again increased to Rs
1,05,56,31,698.

c) Inventories were increased at a good speed. The inventories were Rs 79,81,96,201 in

2006-2007. In 2007-2008 it increased to Rs 76,68,65,262, ultimately increase in Rs
15800572, with the percentage growth 2.10%. In 2008-2009 it increased to Rs
80,85,19,278 with the increase in 7.7% . in 2009-2010 it again increased to
96,90,56,460 with a increase in 29%.

d) Sundry creditors also increased a lot. In 2006-2007 it was Rs 61, 03, 22,496. Then it
increased by Rs 5,4 8,45,484 which ultimately amounted to Rs 66,51,67,980 with a
increase of 8.99%. in the year 2007-2008. In 2008-2009 it increased to Rs 68,95,26,597

[25]
with a percentage increase of 12.98%. in 2009-2010 it again increase to Rs
72,40,51,456.

e) Provisions also increased throughout this 4years. In 2006-2007 it was

Rs83,08,65,819. Then it increased to Rs 1,30,45,17,744 with a percentage increase of
57%. In 2008-2009 it again increased to Rs4,81,70,02,603 with a percentage increase in
479%. In 2009-2010 it again increased to Rs 5,69,56,67,475.

(Table 5.2: Variables of Working Capital Management)

VARIABLES YEARS
2006-2007 2007-2008 2008-2009 2009-2010
ROTA (Return on 0.15 0.16 0.22 0.10
Total Assets)
OPM (operating profit 61.55% 56.40% 27.78% 34.65%
margin)
GEAR (Gearing Ratio 0.64:1 0.55:1 0.43:1 0.33:1
i.e. financial debt /
total assets)
CR (Current Ratio) 1.28:1 0.94:1 0.86:1 0.62:1
QAR (Quick Assets 0.58:1 0.46:1 0.27:1 0.22
Ratio)
CA/TA (Current Assets 0.13 0.12 0.21 0.16
to Total Assets)
CL/TA (Current 0.11 0.13 0.24 0.26
Liabilities to Total
Assets)
SK/CA (Stocks to 0.23 0.25 0.13 0.19
Current Assets)
TD/CA (Trade Debtors 0.25 0.34 0.17 0.21
to Current Assets)
CA_TURN (Current 1.10 1.29 1.08 0.60
Assets Turnover is
Sales/Current Assets)

The various variables of working capital is presented in table 5.2. An analysis of data
presented in the table reveals the following findings;

[26]
A) Return on total asset came 0.15 in 2006-2007, 0.16 in 2007-2008, 0.22 in 2008-2009
and 0.10 in 2009-2010.

B) Operating profit margin was 61.55% in 2006-2007 then it reduced to 56.40%,

27.78%, and 34.65% in 2007-2008, 2008-2009, and 2009-2010 respectively. Anything
between 65% to 85% is known as a good operating margin. And for OPTCL is a sign of
alarm.

C) Gearing ratio came 0.64:1 in 2006-2007 and in 2007-2008 it is 0.55:1 and 0.43:1 and
0.33:1 in 2008-2009 and 2009-2010.

D) Current ratio generally reduced for the organisation, in 2006-2007 it was 1:28 and it
reduced to 0.94:1 in 2007-2008 and then it again reduced to to0.86:1 and 0.62 in 2008-
2009 and 2009-2010 respectively.

E) Quick asset ratio in 2006-2007 as it was 0.58:1, in 2007-2008 it became 0.46:1 and
in 2008-2009 and in 2009-2010 it became 0.27:1 and 0.22:1.

F) Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-
2007, 2007-2008, 2008-2009, and 2009-2010.

G) Current liability to total asset ratio came 0.11 in 2006-2007, in 2007-2008 it came
0.13, and in 2008-2009 and 2009-2010 it came 0.24:1 and 0.26:1 respectively.

H) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.

I) Trade debtors in 2006-2007 is 0.25, in 2007-2008 is 0.34, in 2008-2009 is 0.17 and in

2009-2010 is 0.21.

J) Current asset turnover is 1.10 in 2006-2007, 1.29 in 2007-2008, 1.08 in 2008-2009

and become 0.60 in 2009-2010

Table 5.3: Components of Current ratio, quick ratio and Absolute Liquid Ratios

2006-2007 2007-2008 2008-2009 2009-2010

Current ratio
1.28:1 0.94:1 0.86:1 0.62:1

Quick ratio 0.58:1 0.46:1 0.27:1 0.22

[27]
Absolute liquid 0.25:1 0.15:1 0.12:1 0.08:1
ratio
SK/CA 0.23 0.25 0.13 0.19
TD/CA 0.25 0.34 0.17 0.21
CA/TA 0.13 0.12 0.21 0.16
CL/TA 0.11 0.13 0.24 0.26
CCC( cash conversion cycle)
Inventory days 77 days 70 days 43 days 115days
Debtor 125days 85days 57days 126days
turnover days
Creditors 63 days 61days 37 days 86days
turnover days

Table-5.3 revels the components of current ratio, quick ratio and absolute quick
ratio. From the table following things can be derived:

a) In 2006-2007 it is found that the current ratio is 1.28:1 which is just below the
standard of 2:1. In 2007-2008, it is found that the current ratio of OPTCL is 10.94:1. It
is below the standard of 2:1 and it is due to a decrease in total current assets from
previous year and an increase in current liability this year. The cash and bank balance is
found to be decreased this year in comparison to that of previous year where as the
current liabilities and provisions both have increased this year. In 2008-2009, it is found
that the current ratio of OPTCL is 0.86:1. . It is a not good indication according to the
rule of thumb. Because the firm has more current liabilities than current assets. The firm
may not be able to meet its short term obligations in time. In 2009-2010, it is found that
the current ratio of OPTCL was 0.62:1 it was not a good indication according to rule of
thumb.

b) Quick ratio in 2006-2007 it was 0.58:1 and 0.46:1, 0.27:1 and 0.22:1 in 2007-2008, 2008-
2009, and 2009-2010 respectively.

c) In the year 2006-2007 the Absolute Liquid Ratio is found to be 0.25:1. In the year
2007-2008 the Absolute Liquid Ratio of OPTCL is found to be 0.15:1. The Absolute
Liquid Ratio of the firm for the financial year 2008-2009 is found to be 0.12:1 which is

[28]
below the normal standard of 1:2 or 0.5:1. This is due to less cash and bank balances of
the organization in comparison to the Current Liabilities. In the year 2009-2010, the
absolute liquid ratio found to be 0.08:1.

d) Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.

e) Trade debtor to current asset ratio come 0.25, 0.34, 0.17 and 0.21 respectively.

f) Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-2007,
2007-2008, 2008-2009, and 2009-2010.

Current liabilities to total asset came 0.11 in 2006-2007 and in 2007-2008 it came 0.13 ,
in 2008-2009 it came 0.24:1 and in 2009-2010 it came 0.26:1.

h) Cash conversion ratio for inventory came 77days, 70 days, 43 days and 115 days.

Cash conversion for debtor comes 125 days in 2006-2007, and it reduced to 85 and 57
days in 2007-2008, 2008-2009 respectively. But in 2009-2010 it increases to 126 days.
Cash conversion ratio came 63days, 61days, 37days and 86days respectively.

[29]
 THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF
THE ORGANIZATION.

LIQUIDITY RATIO

CURRENT RATIO

Table5.4
CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY)

YEAR CURRENT ASSET CURRENT LIABILITY RATIO

(IN RUPEES) (IN RUPEES)

2006-2007 3,21,50,26,429 2,50,80,12,516 1.28:1

2007-2008 3,10,61,19,303 3,35,96,86,508 0.94:1

2008-2009 6,30,63,13,319 7,29,34,88,649 0.86:1

2009-2010 5,07,93,75,378 8,21,36,64,274 0.62:1

CURRENT RATIO
1.4
1.28
1.2

1
0.94
0.86
0.8
RATIO
0.6 0.62

0.4

0.2

0
2006-2007 2007-2008 2008-2009 2009-2010

From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL,
various results can be made.

[30]
A) 2006-2007 it was found that the current ratio was 1.28:1 which is below the standard
of 2:1. It is due to a decrease of total current assets from the previous year to current
year. Still it is manageable and also the condition was under the control.

B) In 2007-2008, it was found that the current ratio of OPTCL was 0.94:1. It was below
the standard of 2:1 and it is decrease in total current assets from previous year and an
increase in current liability this year. The cash and bank balance is found to be
decreased this year in comparison to that of previous year where as the current liabilities
and provisions both have increased this year.

C) In 2008-2009, it was found that the current ratio of OPTCL was 0.86:1. . It is a not
good indication according to the rule of thumb. Because the firm has more current
assets than current liabilities. The firm may be able to meet its short term obligations in
time.

D) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not a
good indication according to rule of thumb. Because the firm has more current assets
than current liabilities. The firm was not able to meet its short term obligation in time.

E) Because of increase in administrative overhead expenses, super annuity benefits and

payment of past loan etc. are the major factor for increasing of current liabilities.

F) Situation can be controlled. So more emphasis can be given on these areas to reduce
current liabilities and to increase current assets so that the actual standard of 2:1 can be
achieved.

In addition to, company should make clear cut strategic planning to sell electricity to
major industries at industrial rate to achieve higher revenue
TABLE5.5Quick Ratio- (Liquid Asset/ Current Liability)

YEAR LIQUID ASSET CURRENT LIABILITY RATIO

2006-2007 1,44,64,73,013 2,50,80,12,516 0.58:1

2007-2008 1,54,33,61,165 3,35,96,86,508 0.46:1

2008-2009 1,96,21,17,223 7,29,34,88,649 0.27:1

2009-2010 1,78,27,37,827 8,21,36,64,274 0.22:1

[31]
 QUICK RATIO
0.7

0.6
0.58

0.5
0.46
R
0.4
A
T
I 0.3
0.27
O 0.22
0.2

0.1

0
2006-2007 2007-2008 2008-2009 2009-2010

YEARS

FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:

A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2006-2007
was found to be 0.58:1 and the normal standard for is 1:1. So it is a manageable
situation.

B) In the year 2007-2008 it was found that the Quick Ratio of OPTCL was 0.46:1 which
was below the normal standard. It was due to a little bit increase in current liabilities in
comparison to that of previous year. Still it was also in a manageable position and by
giving a small effort the normal standard of 1:1 can be achieved.

C) In the year 2008-2009 it Is found that the QUICK ratio of OPTCL IS 0.27:1, which is
just normal standard. It is due to a little bit increase in current liabilities.

D) In the year 2009-2010 it is found that the Quick ratio was 0.22:1. Which is below
standard of 1:1? Management should have an eye on to that.

[32]
 TABLE 5.6

ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT

LIABILITY):

YEAR Absolute Liquid Asset Current Liability Ratio

2006-2007 64,82,76,812 2,50,80,12,516 0.25:1

2007-2008 49,08,81,183 3,35,96,86,508 0.15:1

2008-2009 90,70,19,750 7,29,34,88,649 0.12:1

2009-2010 72,71,06,129 8,21,36,64,274 0.08:1

ABSOLUTE LIQUID RATIO

0.25
0.25

0.2
0.15
r 0.15
a 0.12
t 0.1
i 0.08
0.05
o
0
2006-2007
2007-2008
2008-2009
2009-2010

year

By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet of
OPTCL the following results can be drawn.

A) In the year 2006-2007 the Absolute Liquid Ratio was found to be 0.25:1. Though it
is below the normal standard still it is in a manageable condition.

[33]
B) In the year 2007-2008 the Absolute Liquid Ratio of OPTCL was found to be 0.15:1
which is below from the previous year. It is due to a decrease in cash and bank balances
and also a slightly increase in Current Liabilities.

C) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be
0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash and
bank balances of the organization in comparison to the Current Liabilities.

D) In the year 2009-2010, the absolute liquid ratio found to be 0.08:1. This is due to less
cash and bank balances of the organization in comparison to the Current liabilities.

(Table 5.7)

CASH FLOW STATEMENTS

(2009-2010) (2008-2009) (2007-2008)

amount in (Rs) amount in (Rs) amount in (Rs)
profit/loss before tax & extraordinary items -71,37,17,644 -18,30,29,883 -3,64,99,383
adjustment for:
appropriation to reserves and surpluses 1,18,36,39,044 6,33,87,383 11,15,56,818
interest and finance charges 54,16,01,198 97,24,54,617 1,10,65,54,318
Depreciation 1,08,22,03,592 1,09,74,37,879 1,09,90,58,990
preliminary expenses W/O 30,26,423 30,26,423 30,26,423
excess provision written back -1,04,00,87,510 -47,574 -209
interest income -4,55,13,310 -6,90,09,008 -5,03,60,383
provisions for wealth tax 27,846 46,318 46,305
provision/write off against theft materials 15,22,603 29,50,312 28,65,292
provisions for obsolete stock-store etc 1,11,96,801
bad and doubtful debt 4,47,68,652 11,63,525 92,89,278
provisions for fringe benefit tax -------------------- -23,96,915 -21,13,256
OPERATING PROFIT BEFORE
WORKING CAPITAL CHANGE (A) 1,05,74,70,893 1,88,59,83,078 2,25,46,20,994

WORKING CAPITAL CHANGE

stores and spares -16,20,59,785 -4,46,04,328 -2,98,62,664
sundry debtors -4,53,02,877 -37,81,016 -26,35,73,059
other current assets -59,43,581 -1,43,98,325 -2,44,71,317
loan and advances 1,20,34,71,087 -2,72,53,85,618 24,60,67,167
current liabilities 4,93,59,037 42,88,03,928 42,01,27,401
Provisions 1,91,87,52,382 3,52,31,00,656 47,36,52,134
NET WORKING CAPITAL CHANGES 2,95,82,76,263 1,16,37,35,296 82,19,39,662
(B)
CASH GENERATED FROM THE 4,01,57,47,156 3,04,97,18,374 3,07,65,60,656
OPERATION (A)+(B)

[34]
 CASH FLOW FROM INVESTING
ACTIVITIES:
capital expenditure (CAPEX) -93,41,57,641 -91,68,37,432 -1,03,91,08,694
Interest received revenue 4,55,13,310 6,90,09,008 5,03,60,383
CASH GENERATED FROM -88,86,44,331 -84,78,28,424 -98,87,48,311
INVESTING ACTIVITIES ( C )

CASH FLOW FROM FINANCING

ACTIVITIES:
proceeds from secured loan -1,06,41,24,474 -1,05,96,33,683 -1,02,66,95,328
proceeds from unsecured loan 32,39,10,165 -6,95,82,948 -36,86,01,393
interest paid -2,61,68,02,137 -88,70,89,752 -83,19,11,252
proceed from share capital 5,00,00,000 23,05,55,000 -----------------
CASH FLOW FROM FINANCING -3,30,70,16,446 -1,78,57,51,383 -2,24,52,07,973
ACTIVITIES (D)

NET CASH GENERATED FROM ALL -17,99,13,621 41,61,38,567 -15,73,95,628

ACIVITIES (A+B+C+D)
Cash and cash equivalent at the beginning 90,70,19,750 49,08,81,183 64,82,76,812
of the year
cash equivalent at the end of the period 72,71,06,129 90,70,19,750 49,08,81,184

Table 5.7 defines the following:

a) Cash generated from investing activities, Rs-88,86,44,331 , Rs-84,78,28,424 and

Rs-98, 87, 48,311 in the year 2009-2010, 2008-2009 and 2007-2008 respectively.

b)Hence, there is a generation of Rs.4,01,57,47,156 cash flow from its operating

activities for the year 2009-2010, where as in 2008-2009, it was Rs.3,04,97,18,374. And
in 2007-2008 it was 3,07,65,60,656.

c) The net cash flow of Rs-3,307,016,446 from financing activities in 2009-10. where it
was -1,78,57,51,383 and -2,24,52,07,973 in 2008-2009 and 2008-2007 respectively.

d)That, the net cash flow from its operating, investing and financing activities for the
year 2009-2010 is a negative figure of Rs.-17,99,13,621. It became positive in the year
2008-2009, which was Rs 41, 61, 38,567. And in 2007-2008 it becameRs-1573, 95,628.
The third section explains about the working capital trend

[35]
 Table-5.8
(Amount. In Rs.)
Size of Working Capital:

CURRENT ASSETS(CA) 2007(rupees) 2008(rupees) 2009(rupees 2010(rupees)

)
Stores and spares 751064690 76,68,65,26 80,85,19,2 96,90,56,46
2 78 0
Sundry debtors 798196201 1,05,24,79, 1,05,50,97, 1,05,56,31,6
982 473 98
Cash and bank balances 648276812 49,08,81,18 90,70,19,7 72,71,06,12
3 50 9
Other current assets 628081987 65,25,53,30 66,69,51,6 74,48,94,75
4 29 8
Loan and advances 389406739 14,33,39,57 2,86,87,25, 1,58,26,86,3
2 189 33
Total 3,21,50,26, 3,10,61,19 6,30,63,1 5,07,93,75,
429 ,303 3,319 378
Less: CURRENT 2007(rupees) 2008(rupees) 2009(rupees 2010(rupees)
LIABILITIES(CL) )
Sundry creditors 61,03,22,49 66,51,67,98 68,95,26,5 72,40,51,45
6 0 97 6
Deposits and retention from 12,50,63,35 13,71,54,49 14,91,29,2 12,89,91,07
suppliers/contractors 0 7 69 5
Interest accrued but not due 6,27,33,789 2,05,82,149 1,30,49,18 51,73,055
on loans 5
Liabilities for wealth tax 37,299 47,240 47,253 28,781
Electricity duty payable 2,12,903 49,092 1,82,269 1,56,113
Liabilities for fringe benefit 23,41,534 44,54,790 68,51,705 68,51,705
tax
Other liabilities 87,64,35,32 1,22,77,13, 1,61,76,99, 1,65,27,44,6
6 016 768 14
Total 1,67,71,46,6 2,05,51,68, 2,47,64,86, 2,51,79,96,7
97 764 046 99
Provisions 83,08,65,81 1,30,45,17, 4,81,70,02, 5,69,56,67,4
9 744 603 75
Total 2,50,80,12, 3,35,96,86 7,29,34,8 8,21,36,64,
516 ,508 8,649 274
working capital( CA-CL) 70,70,13,9 - - -
13 25,35,67,2 98,71,75, 3,13,42,88,
05 330 896
From the table -5.8 following things are derived:

[36]
In 2006-2007, working capital was Rs70,70,13,913 because current asset was more than
current liabilities. In 2007-2008 working was became negative due to the fact that
current liabilities exceeds current assets. In 2008-2009 it became Rs -98,71,75,330 due
to excessive of provisions. In that year current liabilities exceeds current assets. In
2009-2010, working capital again became negative.

WORKING CAPITAL TREND ANALYSIS: In working capital analysis the direction

at changes over a period of time is of crucial importance. Working capital is one of the
important fields of management. It is therefore very essential for an analyst to make a
study about the trend and direction of working capital over a period of time. Such
analysis enables as to study the upward and downward trend in current assets and
current liabilities and its effect on the working capital position. The term trend is very
commonly used in day-today conversion trend, also called secular or long term need is
the basic tendency of population, sales, income, current assets, and current liabilities to
grow or decline over a period of time The trend is defined as smooth irreversible
movement in the series. It can be increasing or decreasing. Emphasizing the
importance of working capital trends, analysis of working capital trends provide as
base to judge whether the practice and privilege policy of the management with regard
to working capital is good enough or an important is to be made in managing the
working capital funds.

TABLE-5.9
(Amount. In Rs.)
Working Capital Size trend

Years 2006-2007 2007-2008 2008-09 2009-10

Net W.C (A-B) 70,70,13,91 25,35,67,20 -98,71,75,330 -3,13,42,88,89
3 5 6
W.C. Indices 100 35.86 -139.62 -443.31

[37]
 WORKING CAPITAL TREND
200
100
0
2006-2007 2007-2008 2008-2009 2009-2010
-100
Axis Title
-200
-300
-400
-500

From the table 5.9 followings things are derived: It is observed that in 2006-2007,
working capital indices was very high due to current assets exceeded current liabilities.
In 2007-2008indices was also high because current asset were more than current
liabilities. In 2007-2008 the company was able to manage their working capital
efficiently. But in 2008-2009 and 2009-2010 it became negative. Here in the year 2008-
2009 and 2009-2010 current liabilities exceeded current assets.

TABLE-5.10

WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING

CAPITAL)

Working capital turnover ratio

YEAR Cost of Sales Net working capital Ratio

2007 3553494401 707013913 5.03times

2008 3997558798 -25,35,67,205 -15.7times

2009 6789295427 -98,71,75,330 -6.88times

2010 3051627568 -3,13,42,88,896 -0.97 times

[38]
 WORKING CAPITAL TURNOVER RATIO
10

5 5.03

0
2006-2007 2007-2008 2008-2009 -0.97
2009-2010
ratio -5
-6.88
-10

-15 -15.7

-20
YEARS

From the table 5.10 following things derived:

A) In the year 2006-2007, there was an increased in working capital turnover ratio to
5.03.
B) However, in the year 2007-2008, it was -15.7 which indicates there was a decrease in
net current assets due to increase in current liabilities.
C) In the year 2008-2009, it was -6.88 which is better than the previous year.
D) But in 2009-2010, working capital turnover was -0.97, which indicates there was
decrease in net current assets due to increase in current liabilities.
TABLE 5.11
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2007 and 2008)

(2006-2007) (20072008) Increase in Decrease in

(Rs) (Rs) working working capital
capital (Rs)
(Rs)
Current assets
Stores and spares 751064690 766865262 15800572 -
Sundry debtors 798196201 1052479982 254283781 -
Cash & bank 648276812 490881183 - 157395629
balances
Other current assets 628081987 652553304 24471317 -

[39]
Loans & advances 389406739 143339572 - 246067167
Total 3215026429 3106119303
Current liabilities

Current liabilities 1677146697 2055168764 - 378022067

Provisions 830865819 1304517744 - 473651925
Total 2508012516 3359686508
Working capital 707013913 -253567205
(currentassets-
current liabilities)
Net decrease in -960581118
working capital 960581118

-253567205 -253567205 1255136788 1255136788

From the table 5.11 following things are derived:

By going through the statement showing changes in working capital the following
results can be made.

A) that, the total current asset of the year 2007-2008 is decreased to Rs. 3,10,61,19,303
from a previous years figure of Rs. 3215026429.

B) The total value of stores and spare is increased from the previous years figure and
the value of sundry debtors is also increased from the previous years figure.

C) The cash and bank balances of the organization have a decrease of Rs. 157395629
from the previous years figure. Similarly the figure for loans and advances is also
decreased to Rs. 143339572 from the previous years figure of Rs. 389406739.

D) The other current assets like prepaid expenses and sundry receivables have also
increased from the previous years figure.

E) The total current liabilities of the year 2007-2008 are increased to Rs.3359686508
from a previous years figure of Rs.2508012516.

F)That, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous years figure.

[40]
G) Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.

H) Due to increase in current liabilities and provisions for pension and gratuity and
retrospective revision of pay, there is a sign of decrease in working capital.

I)As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous years and the decrease sign of working capital is
Rs.960581118(2007-2008), which has impacted the steady increase of current working
capital & negatively affected the profitability of the organization.

J) It is found that the current assets figure is decreased from the previous years 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 (2007-
2008).

K) That, some more emphasis can be given on current assets to increase its figure and to
decrease current liabilities figure as a result of which the figure for working capital can
be increased.

TABLE-5.12

STATEMENT SHOWING CHANGES IN WORKING CAPITAL

(2009 TO 2010)

(2008-2009) (2009-2010) Increase in Decrease in

(Rs) (Rs) working working
capital capital
(Rs) (Rs)
Current assets
Stores and spares 808,519,278 96,90,56,460 160537182 -
Sundry debtors 1,055,097,473 1,05,56,31,698 534225 -
Cash & bank 907,019,750 72,71,06,129 179913621
balances
Other current 66,69,51,629 74,48,94,758 77943129 -
assets
Loans & 2,86,87,25,189 1,58,26,86,333 - 1,28,60,38,85

[41]
 advances 6
Total 6,30,63,13,319 5,07,93,75,378
Current liabilities

Current liabilities 2,47,64,86,046 2,51,79,96,799 - 4,15,10,753

Provisions 4,81,70,02,603 5,69,56,67,475 - 87,86,64,872
Total 7,29,34,88,649 8,21,36,64,274
Working capital -98,71,75,330 -3,13,42,88,896
(current assets-
current liabilities)
Net decrease in -2147113566 2147113566
working capital

-3,13,42,88,896 -3,13,42,88,896 2386128102 2386128102

By going through the table5.12 showing changes in working capital the following
results can be made:

a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378

From a previous years figure of Rs. 6,30,63,13,319 .

b) The total value of stores and spare is increased from the previous years figure and
the value of sundry debtors is also increased from the previous years figure.

c) The cash and bank balances of the organization have a decrease of

Rs.17,99,13,621from the previous years figure. Similarly the figure for loans and
advances is also decreased to Rs.1,58,26,86,333 from the previous years figure of Rs.
2,86,87,25,189.

d) The other current assets like prepaid expenses and sundry receivables have also
increased from the previous years figure.

e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274

From a previous years figure of Rs. 7,29,34,88,649.

f)That, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous years figure.

[42]
g)Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.

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 is
drastically reduced than the previous years and the decrease sign of working capital is
Rs. -2147113566 (2009-2010), which has impacted the steady increase of current
working capital & negatively affected the profitability of the organization.

j)It is found that the current assets figure is decreased from the previous years 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 to
decrease current liabilities figure as a result of which the figure for working capital can
be increased.

SECTION-4 EXPLAINS ABOUT CURRENT ASSETS AND CURRENT

LIABILITIES

CURRENT ASSETS

Total assets are basically classified in two parts as fixed assets and current assets. Fixed
assets are in the nature of long term or life time for the organization. Current assets
convert in the cash in the period of one year. It means that current assets are liquid
assets or assets which can convert in to cash within a year.
TABLE 5.13
(Amnt. In Rs.)
CURRENT ASSETS SIZE

Current assets(CA) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Stores and spares 751064690 76,68,65,262 80,85,19,278 96,90,56,460

[43]
 Sundry debtors 798196201 1,05,24,79,98 1,05,50,97,47 1,05,56,31,69
2 3 8
Cash and bank 648276812 49,08,81,183 90,70,19,750 72,71,06,129
balances
Other current assets 628081987 65,25,53,304 66,69,51,629 74,48,94,758
Loan and advances 389406739 14,33,39,572 2,86,87,25,18 1,58,26,86,33
9 3
Total of CA 3,21,50,26,42 3,10,61,19,30 6,30,63,13,31 5,07,93,75,37
9 3 9 8
CA indices 100 99.61 196.15 157.99

CURRENT ASSET INDICES

250

200 196.15
i
n 157.99
150
d
i
c 100 100 99.61
e
s
50

0
2006-2007 2007-2008 2008-2009 2009-2010

From the table-5.13 followings things are derived: The current asset indices show
growth in the year 2006-2007. In 2007-2008 it declines marginally and in 2008-2009 it
again increase and in 2009-2010 it declines.

TABLE-5.14

CURRENT ASSET TURNOVER RATIO- (sales/current Assets)

YEAR SALES CURRENT ASSETS RATIO

[44]
 2007 3,55,34,94,401 3,21,50,26,429 1.10

2008 3,99,75,58,798 3,10,61,19,303 1.29

2009 6,78,92,95,427 6,30,63,13,319 1.08

2010 3,05,16,27,568 5,07,93,75,378 0.60

CURRENT ASSET TURNOVER RATIO

1.4
1.29
1.2
1.1 1.08
1

0.8
RATIO
0.6 0.6

0.4

0.2

0
2006-2007 2007-2008 2008-2009 2009-2010

YEAR

From the table 5.14 following things are derived: In the year 2006-2007, the current
asset turnover was 1.10 which became 1.29, 1.08, and 0.60 in the year 2007-2008,
2008-2009 respectively. But in the year 2009-2010, the current asset turnover was 0.60
due to sale was less than the current assets.

COMPONENTS OF CURRENT ASSETS

Analysis of current assets components enable one to examine in which components the
working capital fund has locked. A large tie up of funds in inventories affects the
profitability 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.

TABLE 5.15 (No. in %)

[45]
 Current assets(CA) 2007 2008 2009 2010
Stores and spares 23.37 24.69 12.82 19.08
Sundry debtors 24.82 33.89 16.73 20.78
Cash and bank 20.16 15.80 14.38 14.31
balances
Other current assets 19.54 21.01 10.58 14.67
Loan and advances 12.11 4.61 45.49 31.16
Total of CA 100 100 100 100

50
45
p 40
e 35
r
stores and spares
30 sundry debtors cash and bank
c
e 25
n 20
t
15
a
g 10
e other current assets
5 loans and advances

0
2006-2007 2007-2008 2008-2009 2009-2010

year

2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Sundry creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456
Deposits and retention from 12,50,63,350 13,71,54,497 14,91,29,269 12,89,91,075
suppliers/contractors
Interest accrued but not due on 6,27,33,789 2,05,82,149 1,30,49,185 51,73,055
loans
Liabilities for wealth tax 37,299 47,240 47,253 28,781
Electricity duty payable 2,12,903 49,092 1,82,269 1,56,113
Liabilities for fringe benefit tax 23,41,534 44,54,790 68,51,705 68,51,705
Other liabilities 87,64,35,326 1,22,77,13,016 1,61,76,99,768 1,65,27,44,614
Total 1,67,71,46,697 2,05,51,68,764 2,47,64,86,046 2,51,79,96,799
Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475
Total 2,50,80,12,516 3,35,96,86,508 7,29,34,88,649 8,21,36,64,274
Current liabilities indices 100 133.96 290.81 327.50
CURRENT LIABILITIES:-

[46]
 TABLE 5.16

TABLE 5.17

CURRENT LIABILITIES SIZE

CURRENT LIABILITIES
350
327.5
300 290.81
250
200
indices 150 current liabilities
133.96
100 100
50
0
2006-2007 2007-2008 2008-2009 2009-2010
years

From the table 5.17 following things are derived: The current liabilities graph shows
a rapid growth. In 2006-2007 ,the current asset indices is 100 and thereafter it increases
to 133.96, 290.81, 327.5 in 2007-2008, 2008-2009, 2009-2010 respectively. The
current liabilities increased at a speed.

(TABLE 5.18)

DEBTOR TURN OVER RATIO- (NET SALES/AVERAGE DEBTORS)

YEAR Net Sales Average Debtors Ratio Average Collection

Period
(365/DTR)days
2007 3,55,34,94,401 1216845410 2.92 125

2008 3,99,75,58,798 925338091.5 4.32 85

[47]
 2009 6,78,92,95,427 1,05,37,88,728 6.44 57

2010 3,05,16,27,568 1,05,53,64,586 2.89 126

DEBTOR TURN OVER RATIO

7
6.44
6
5
4.32
4
ratio 3 2.92 2.89
2
1
0
2006-2007 2007-2008 2008-2009 2009-2010
years

AVERAGE COLLECTION PERIOD

125 126
140
120
85
100
80 57
DAYS
60
40
20
0
2006-2007 2007-2008 2008-2009 2009-2010

YEARS

Debtor Turn Over Ratio- By going through our calculation table and diagrams of
Debtor Turn over Ratio, profit and loss accounts and balance sheets of OPTCL the
following results can be drawn.
[48]
A) In the year 2006-2007 the debtor turnover ratio is 2.92 times and the average
collection period is found to be 125 days. This year, there is a higher value of debtor
turn over and a shorter average collection period in comparison to that of previous year.
This is a good indication.
B) In the year 2007-2008 the debtors turnover ratio is 4.32 times and the average
collection period is 85 days. This year, the value of debtors turnover is higher than the
previous year due to decrease in average debtors and an increase in net sales. And the
average collection period is also shorter than the previous years figure.
C) In the year 2008-2009 the debtor turnover ratio is 6.44 times and the average
collection period is 57 days. This year, the value of debtor turnover is higher than the
previous year due to decrease in average debtor.
D) In the year 2009-2010 the debtor turnover is 2.89 times and the average collection
period is found to be 126 days. This year, there is higher value of debtor turn over.
E) OPTCL used to collect pending dues directly from consumers for which, substantial
delay in getting payment was . However, the present average period of collection is
decreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. for
collection 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 short
collection period implies the prompt payments by debtors. So this is a good indication
for the organization.

Section five generally defines Measures to Improve Working Capital Management

at OPTCL: The essence of effective working capital management is proper cash flow
forecasting. This should take into account the impact of unforeseen events, market
cycles, loss of a prime customer and actions by competitors. So the effect of unforeseen
demands of working capital should be factored by company. This was one of its reasons
for the variation of its revised working capital projection from the earlier projection.

a) 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 role
of working capital.

b) Addressing the issue of working capital on a corporate-wide basis has certain

advantages. Cash generated at one location can well be utilized at another.

[49]
 c) An innovative approach, combining operational and financial skills and an all-
encompassing view of the companys operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having
the right set of executives who are responsible for setting targets and performance
levels. They could be then held accountable for delivering, encouraged to be
enterprising and to act as change agents.

d) Working capital management is an important yardstick to measure a company

operational and financial efficiency. This aspect must form part of the strategic and
operational thinking. Efforts should constantly be made to improve the working capital
position. This will yield greater efficiencies and improve customer satisfaction.

e) Cash should be managed properly.

f) Effort should be made to reduce the current liabilities and to increase the current
asset.

g) Placing the responsibility for collecting the debt upon the centre that made the sale

HYPOTHESIS TESTING:
generally hypothesis means a mere assumption or some supposition to be proved or
disproved. Hypothesis is usually considered as the principle instrument in research. Its
main function is to suggest new experiments and observations.

Hypothesis: 1- The firm is facing difficulty in paying short-term debt.

The following table contains the details about the average collection period from
debtors and
average payment period to creditors from the period 2006-2007 to 2009-2010.

Years Average Average

collection payment XY X2 y2
period (x) period(y)

2006-2007 125 63 7875 15625 3969

2007-2008 85 61 5185 7225 3721
2008-2009 57 37 2109 3249 1369
2009-2010 126 86 10836 15876 7396

[50]
 x2 =
y2 =
41975
x= 393 Y=247 XY=26005 16455

KARL PEARSONSS COFFICIENT OF CORRELETION:

By putting the values in the formula the r came =0.86

From the calculation value of r come =0.86 which is a positive one. As the correlation
came a positive one which ensures that the firm is facing difficulty in paying short-term
debt. It is the case where current liabilities are increased throughout the financial years
from, 2006-2007, 2007-2008, 2008-2009 and 2009-2010.

HYPOTHESIS:2 THE FIRM IS NOT PROPERLY MANAGING THE SUNDRY

DEBTOR.

The following table contains average collection period from debtors and sundry debtors
(in crore) from the period 2006-2007 to 2009-2010.

years Average sundry debtors

collection (in crore) X2 y2
period (x) Xy

2006-2007 125 80 10000 15625 6400

2007-2008 85 105 8925 7225 11025
2008-2009 57 106 6042 3249 11236
2009-2010 126 106 13356 15876 11236
x2 =41975

x= 393 Y=394 XY=38323 y2 =39897

[51]
 KARL PERSONS COFFICIENT OF CORRELETION:

The correlation came negative to the second hypothesis.

After putting the data r is found= -0.52. So the hypothesis is rejected. As the firm is
able to manage the sundry debtor.

HYPOTHESIS: 3- THE CURRENT LIABILITIES ARE INCREASING THAN

CURRENT 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 CURRENT CURRENT

LIABILITIE ASSETS X2 y2
S (in crore) XY
(in crore)
2006- 251 322 80822 63001 103684
2007
2007- 336 321 107856 112896 103041
2008
2008- 729 631 459999 531441 398161
2009
2009- 821 508 417068 674041 258064

[52]
2010
x=2137 Y=1782 XY= x2 = 1381379 y2 = 862950
1065745

KARL PERSONS COFFICIENT OF CORRELETION:

=0.88

As the hypothesis is positive which ensures that the current liabilities of firm is
increased at a speed than current assets. So the firm should have an eye to this one.

[53]
 FINDINGS OF THE STUDY

Following are the findings of the study:

a) Working capital of three years i.e., (2007-2008, 2008-2009, 2009-2010) is in negative
figure. The reason is that the companys current liabilities exceeds current assets from
2006-2007 to 2009-2010. The company created more provisions throughout this 3
years. Sundry creditors increased at a speed in these 3 years. It is an alarm sign for the
company. Besides these sundry creditors, other current liabilities also increased like
deposits and retention from supplies, liability for wealth tax, electricity duty payable.

b) The standard current ratio is 2:1. And for OPTCL it is not satisfactory. The reason
behind such result is that the current liabilities exceed current assets. The standard
current ratio for 2006-2007 is satisfactory but in the year 2007-2008, 2008-2009, 2009-
2010 situations becomes worst. The reason behind the increase in current liabilities and
provisions. It is not a good sign for the company.

c) The standard quick ratio is 1:1. And for OPTCL it is not satisfactory. The reason
behind OPTCL did not achieve the rule of thumb. The current liabilities exceed the
liquid assets. There is an increase in current liabilities like sundry creditor, interest
accrued but not due on loans, liability for wealth tax and liabilities for fringe benefit tax
than of liquid assets.
d) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason is
that liquid assets fall very short than current liabilities. The current liabilities again
exceed the absolute liquid assets. There is not significant increase in absolute current
assets like cash and bank balances from 2006-2007 to 2009-2010. But there is a rapid

[54]
increase in case of current liabilities like sundry creditors, deposits and retention from
suppliers, liabilities for fringe benefit tax and provisions.
e) Debtors of the company were high; they were increasing year by year, so more funds
were blocked in debtor. As the company is selling electricity to the sundry debtors and
the cash is not immediately received so some amount of cash is blocked in that matter.
f) The current asset trend increased from 2007 to 2009, but in 2010 it declines. The
current assets like stores and spare increased in 2006-2007 to 2007-2008 but in 2008-
2009 it declined and then it is increased in 2009-2010. Sundry debtors increased from
2006-2007 to 2007-2008 but it declined in 2008-2009 but again it is increased in 2009-
2010.
g) The current liabilities trend increasing at a speed which is worried thing for company.
Current liabilities like sundry creditors, deposits and retention from suppliers, interest
accured but not due on loans, liabilities for wealth tax, electricity duty payable,
liabilities for fringe benefit tax increased from 2006-2007 to 2009-2010.
h) Debtors turnover ratio improved from 2007 to 2009 and so number of collection
period decreases. But in 2010 debtors turnover ratio decreases and collection period
increases. In 2006-2007 it was 126 days. Then it is reduced to 85 and 57 days in 2007-
2008 and 2008-2009 respectively. But in 2009-2010 it again increased to 125 days.
j) Current asset ratio decrease throughout the year. It was 1.10 in 2006-2007 then it
increased to 1.29 then a fall down occurred as it was 1.08 in 2008-2009 and 0.60 in
2009-2010.
k) Working capital turnover ratio was positive in 2006-2007; it became negative in
2007-2008, 2008-2009 and 2009- 2010. It was 5.03 times in 2006-2007 then is sloped
downward and it was -15.7, -6.88, -0.97 in 2007-2008, 2008-2009, 2009-2010
respectively.

[55]
 CHAPTER -6

CONCLUSION AND RECOMMENDATION

: CONCLUSION:

On the basis of data analysis on working capital management in OPTCL, the following
conclusions arrived.

a) The company has gross profit for the past four years (2006-07, 2007-08, 2008-09,
and 2009-10) in negatives and the current liabilities are increasing, in comparison to
current assets position. Hence, it is an alarming sign for the smooth working capital
management.

b) The OPTCL didnt manage the liquidity position of the company. The liquidity
position was in a good condition and in 2006-07, it was also satisfactory. But, in the
year 2007-08, 2008-2009, 2009-10 the situation of liquidity position was alarming due
to increase in total current liabilities and decrease in total current assets which led to the
decrease in the net working capital of the company.

c) During the year 2006-07, 2007-08, 2008-2009 and 2009-2010 the companys liquid
assets were not satisfactory.

d) The average collection period of the company during the year 2006--2007 is 125
days, it is reduced to 85 days in 2007-2008 and again it reduced to 57days in 2008-
2009, but the average collection period again increases to 126 days in 2009-2010.

e) There is also satisfactory net cash flow from the operating, investing and financing
activities of the organization.

[56]
f)Though the net working capital of the company is decreased, still the company is in a
better manageable position and the companys present status of maintaining current
assets and current liabilities are satisfactory.

g) They are unable to manage their cash, funds and debts.

By adapting better management practices, the company may attain a sound financial
position in future and able to manage its working capital efficiently

RECOMMENDATION

OPTCL is the soul of Orissas power transmission and is playing a pivotal role in
making surplus power consumption state through efficiently administering the system of
transmission. For improvement of organizations profitability, much emphasis is needed
to improve the better working capital management by decreasing the current liabilities
through reducing of unplanned over head expenses. In such process, current assets
position will be improved through collection of revenue from power transmission as
well as recovery of past dues from consumers, Govt. and other agencies etc. The
company should give more attention on increasing its collection of revenue from
wheeling of power and should give more emphasis to curtail unplanned expenses to
decreases the loss. Further, the management should focus on shortening its average
collection period by changing its credit terms and conditions.

By taking the above remedial measures, the organization can be an EVA+ company
with due emphasis on proper way of managing the working capital.

[57]
 CHAPTER -7

IMPLICATION FOR FUTURE RESEARCH:

This study is the foundation stone for carrying out further research in the field of
working capital management. Further research can be also be carried out the study of
working capital management. This one of such preliminary research work and further
review of this research work can open up many dimensions for researchers. Although
the objective taken in research study is diverse, yet a trend can be observed from the
findings for future research work.

One of the major drawbacks of the study is the lack of time. Working capital
management is a very vast topic and hence in a limited time it is impossible to know
every aspects of working capital management. And also it was study that depended on
4years of data. There is future scope for studying these things.

[58]
 DISCLAIMER

The present study of working capital management in OPTCL is purely academic in

nature. The analysis of the data and interpretation of the matters in the project report are
purely academic purpose and nobody should take it as a fact finding conclusion for
lodging any claim or submission of above facts for their personal benefits for which the
undersigned will not be held responsible. The views suggestions, conclusions etc. are
the bonfied work of mine and nobody should claim or copy it for their benefit without
permission.

...

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 BIBLIOGRAPHY

TEXT BOOKS:

1. Maheswari Dr S.n Financial management, Ninth edition, 2006 sultan chand & sons,
New Delhi

2. Pandey I.M., Financial Management, Vikas Publishing House Pvt.Ltd. 8 th Edition

1999.

3. Prasanna Chandra, Financial management, Fourth edition 1999, Tata Mc.graw hill
publishing company ltd, New Delhi.

4. Gupta, sashi., financial management, 4th edition,2007, kalyani publisher, new delhi

5. Kothari C.R. Research Methodology, Wishva prakashan, New Delhi, 2001.

ARTICLES:

An overview of working capital management and corporate financing.

Working capital management.

Working Capital Management Manages Flow of Funds (Year 2009)

Working Capital Management-an Effective Tool for Organisational Success Year

(2008)

Website:

www. Optcl.co.in

www. Google.com

www. Investopedia.com

www.moneycontrol.com

www.wikipedia.com

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 : ANNEXTURE:

BALANCE SHEETS OF OPTCL

PROFIT & LOSS ACCOUNTS OF OPTCL

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 BALANCE SHEETs OF OPTCL(IN RUPEES)
as on 31st as on 31st as aon as on 31st
march2010 march 2009 31st march 2007
march
2008
i)sources of funds
1.shareholders funds
Share capital 881,255,000 831,255,000 600,700,00 600,7000
0 00
share reserves and surplus 6,824,666,95 5,531,676,82 5,368,362, 5,143,178,9
0 6 657 90
7,705,921,95 6,362,931,82 5,969,062, 5,743,878,9
0 6 657 90
2.loans funds
Secured loans 2,970,843,09 4,034,967,5 5,094,601,2 6,121,296,5
9 73 56 84
Unsecured loans 7,338,214,99 9,081,629,6 9,058,314,7 9,128,121,4
1 34 52 39
3. others funds
Consumer security deposit
455,334 83,334 83,334 83,3
34
ii)application of funds
1.fixed assets 26,037,473,4 24,152,614, 22,725,369, 20,664,373,7
15 571 686 98
Gross block
Less: accumulated 12,519,750,1 11,437,546, 10,340,108, 9,241,049,6
depreciation 38 544 668 78
Net block 13,517,723,2 12,715,068, 12,385,261, 11,423,324,1
77 027 018 20
Capital work-in-progress 5,760,703,81 6,711,033,0 7,221,440,4 8,243,327,6
7 19 74 67
2.investments 270,550,000 270,550,00 270,550,00 270,550,0
0 0 00
3.current assets, loans and
advances
Stores and spaces 969,056,460 808,519,27 766,865,26 751,064,6
8 2 90
Sundry debtors 1,055,631,69 1,055,097,4 1,052,479,9 798,196,2
8 73 82 01
Cash and bank balance 727,106,129 907,019,75 490,881,18 648,276,8
0 3 12
Other current assets 744,894,758 738,951,17 652,553,30 628,081,9
7 4 87
Loans and advances 1,582,686,33 2,786,157,4 143,339,57 389,406,7
3 19 2 39
Less:
Current liabilities and
provisions
Current liabilities 2,517,996,79 2,476,486,0 2,055,168,7 1,677,146,69
9 46 64 7
Provisions 5,695,667,47 4,817,002,6 1,304,517,7 830,865,819
5 03 44
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Net current assets - - - 707,013,913

3,134,288,89 997,743,55 253,567,20
6 3 5
PROFIT AND LOSS FOR THE YEAR ENDED
31.03.2010 31.03.2009 31.03.2008 31.03.200
ACCOUNTS
INCOME
Revenue from wheeling of Power 3,05,16,27,568 6,78,92,95,427 3,99,75,58,798 355349440
Other Income 1,36,62,18,959 36,84,47,083 28,21,03,171 16861155
Total 4,41,78,46,527 7,15,77,42,510 4,27,96,61,969 372210595
EXPENDITURE
Administrative, General & Other 3,49,84,56,298 5,27,76,66,633 2,39,99,88,627 1,42,31,94,06
Expenses
1,09,82,4
Depreciation 1,08,03,34,520 1,352 1,08,54,85,700 986,381,45
Total 4,57,87,90,818 6,35,79,07,985 3,48,54,74,327 2,40,95,75,51
Profit/ (Loss) before interest & finance -16,09,44,291 78,18,34,525 79,41,87,642 1,31,25,30,43
charges
Interest & Finance Charges -54,16,01,198 -97,24,54,617 -1,10,65,54,318 -1,16,23,12,53
Net prior period income/(expenditure) -1,11,72,155 75,90,209 27,58,67,293 -15,59,79,19
Profit/(Loss) before Taxation & -71,37,17,644 -18,30,29,884 -3,64,99,383 -57,61,29
Contingency
Provision for taxation:-
Current year 0 0 0
Fringe Benefit Tax 0 0 -2113256 -234153
Profit After Tax -71,37,17,644 -23,96,915 -38612639 -810283
Reserve Appropriation ------------ -18,54,26,799 ------------ -----------
Appropriation to Contingencies Reserve -10,93,51,080 -9,99,26,786 -11,36,26,849 -8,24,85,48
Profit/(Loss) After Taxation & -82,30,68,724 -28,53,53,585 -15,22,39,488 -9,05,88,31
Contingency Reserve
Balance of P&L Account Brought -77,76,78,451 -49,23,24,866 -34,00,85,378 -24,94,97,06
Forward from Last Year
Balance Carried over to Balance Sheet -1,60,07,47,175 -77,76,78,451 -49,23,24,866 -34,00,85,37

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