A

PROJECT FINAL REPORT

ON

Working capital
management at Nalco

BY
BISWA RANJAN DAS
ROLL NO-MBA15/23
(MBA)

GOVT AUTONOMOUS
COLLEGE,ANGUL

Summer Internship Project

(Batch of 2015-17)
 PREFACE

To start any business, First of all we need finance and the success of that
business entirely depends on the proper management of day-to-day finance and
the management of this short-term capital or finance of the business is called
Working capital Management.

Working Capital is the money used to pay for the everyday trading activities
carried out by the business - stationery needs, staff salaries and wages, rent,
energy bills, payments for supplies and so on.

I have tried to put my best effort to complete this task on the basis of skill that I
have achieved during the last one year study in the institute.

I have tried to put my maximum effort to get the accurate statistical data.
However I would appreciate if any mistakes are brought to my by the reader.
 ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude to the

intelligence and co-operation of those people who had been so easy to let me
understand what I needed from time to time for completion of this exclusive
project.

I am greatly indebted to my guides Prof. DEBASISH PANDA ,faculty guide

for Finance (summer internship), GOVT AUTONOMOUS COLLEGE & Mr.
B.C.BARICK , Manager , Finance Department ,CPP, NALCO , Angul for their
constant guidance ,advice and help which enabled me to finish this project
report properly in time .

I am also grateful to Prof. Ashis mohapatra (sr.faculity), autonomous college

angul for coperate me .

Last but not the least, I would like to forward my gratitude to my friends &
other faculty members who always endured me and stood with me and without
whom I could not have completed the project.

Biswa Ranjan Das

 DECLARATION

I do hereby declare that this piece of project report entitled A Study on

Working capital Management practices in NALCO for partial fulfillment of
the requirements for the award of the degree of MBA(FINANCE) is a record
of original work done by me under the supervision and guidance of Prof.
DEBASISH PANDA, Govt(auto) college,Angul .This project work is my own
and has neither been submitted nor published elsewhere.

PLACE: SIGNATURE OF THE STUDENT

DATE:
 CERTIFICATE

This is to satisfy that the summer project work of Mr. BISWA RANJAN DAS
Titled Working capital management is an original work and this work has not
been submitted elsewhere in any form. The indebtness to
otherworks/publications has been duly acknowledged at the relevant places. The
project work was carried out during 13.06.2016 to 12.07.2016 in National
Aluminum Company Limited (NALCO).

Date:
Mr. B.C.BARIK, Manager (finance)
CPP ,Nalco,Angul.
 TABLE OF CONTENTS

Sr. No. Contents Page No.

1 Preface 2
2 Acknowledgement 3
3 Declaration 4
4 Certificate 5
5 Executive Summary 8
6 Introduction To The Study 9-10
Objective Of The Study
(A)

Research Methodology and Scope Of Study

(B)

Limitation Of The Study

(C )

7 Introduction- Indian Aluminium Industry 11-21

Aluminium Structure, Inputs and Products
(A)

Financial Year-2015
(B)

Prospects
(c)

Salient Features Of The Industry

(D)

Quantitative Industry
(E)

Consumption Of Aluminium In India

(F)

8 Introduction NALCO 22-34

 Brief History
(A)

Achievements
(B)

Nalco- products
(C)

5 years performance physical and highlights

(D)

Production - next 5 years

(E)

9 Introduction-Working Capital 35-42

10 Working Capital Management 43-51
Consequences of under and over assessment of W.C
(A)

Types of W.C
(B)

Financing W.C
(C)

Inventory Management
(D)

Cash Management
(E)

Receivables Management
(F)

11 Important Terms and Ratios (graphical presentation) 52-62

12 Conclusion 63
13 Bibliography 64
 EXECUTIVE SUMMERY
The major objective of the study is to proper understanding the working capital
of NALCO & to suggest measures to overcome the shortfalls if any.

Funds needed for short term needs for the purpose like raw materials, payment
of wages and other day to day expenses are known as working capital.
Decisions relating to working capital (Current assets-Current liabilities) and
short term financing are known as working capital management. It involves the
relationship between a firms short-term assets and its short term liabilities. By
definition, working capital management entails short-term definitions, generally
relating to the next one year period.

The goal of working capital management is to ensure that the firm is able to
continue its operation and that it has sufficient cash flow to satisfy both
maturing short term debt and upcoming operational expenses.

Working capital is primarily concerned with inventories management,

Receivable management, cash management & Payable management.

Inventories management at NALCO:

NALCO is a large scale manufacturing company involved in mining of Bauxite
and production of Aluminum. Therefore, it has to maintain large quantity of
inventories at production units for its smooth running and functioning.

Cash management at NALCO:

NALCO has been accumulating huge cash surpluses over last several years,
which enables the organization to maintain adequate cash reserves and to
generate required amount of cash.

Receivables management at NALCO:

NALCO has set up its marketing office at all metro cities in India i.e. Mumbai,
Kolkata, New Delhi, Chennai, Bangalore, and Pondicherry. This marketing
office obtains sales order from Aluminum users in India as well as globally. On
the basis of order received for different products it marks production planning
of different i.e. Ingot sow ingot, Billets, Wire etc.
INTRODUCTION

Working Capital:-
The life blood of business, as is evident, signified funds required for day-to-day
operations of the firm. The management of working capital assumes great
importance because shortage of working capital funds is perhaps the biggest
possible cause of failure of many business units in recent times. There it is of
great importance on the part of management to pay particular attention to the
planning and control for working capital. An attempt has been made to make
critical study of the various dimensions of the working capital management of
NALCO, a Star Trading House with NAVRATNA Status.

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.

Objective of the study:-

The following are the main objective which has been undertaken in the present
study:

1. To determine the amount of working capital requirement and to calculate

various ratios relating to working capital.

2. To make an item wise study of the components of the working capital.

3. To suggest the steps to be taken to increase the efficiency in management

of working capital.
Place of study:-
The project study is carried out at the Finance Department of NALCO Cpp
Situated at Angul, ODISHA. The study is undertaken as a part of the MBA
curriculum from 13 JUN 2016 to 12 JULY 2016 in the form of summer
placement.

Study design and methodology:-

Two types of data are collected, one is primary data and second one is
secondary data. The primary data were collected from the Department of
finance, NALCO. The secondary data were collected from the Annual Report of
NALCO, NALCO website, etc.

Limitations:-
There may be limitations to this study because the study duration (summer
placement) is very short and its not possible to observe every aspect of working
capital management practices.
 INDIAN ALUMINIUM INDUSTRY
Aluminium Industries in India is one of the leading industries in the Indian
economy. The growth of the aluminum Metal industry in India would be
sustained by the diversification and exploration of new horizons for the
industry. India has huge deposits of natural resources in form of minerals like
copper, chromite, iron ore, manganese, bauxite, gold, etc. The India aluminum
industry falls under the category of non iron based which include the production
of copper, tin, brass, lead, zinc,aluminum,andmanganese.

The main operations of the of the India aluminum industry is mining of ores,
refining of the ore, casting, alloying, sheet, and rolling into foils. At present,
Hindalco and Nalco are one of the most economical in the production of
aluminum in the world. For the sustenance of the growth the aluminum industry
in India has to develop research and development units to assist the production
and improve on the quality measures to keep a stringent quality control.

The India aluminum Metal Industries sector in the previous decade experienced
substantial success among the other industries. The India aluminum industry is
developing fast and the advancement in its technologies is boosting the growth
even faster. The utilization of both international and domestic resources was
significant in the rapid development of the India aluminum industry. This rapid
development has made the India aluminum industry prominent among the
investors. The India aluminum industry has a bright future as it can become one
of the largest players in the global aluminum market as in India the consumption
is fairly low, the industry may use the surplus production to cater the
international need for aluminum which is used all over the world for several
applications such as aircraft manufacturing, automobile manufacturing, utensils,
etc.

The per capita consumption of aluminium in India is only 0.5 kg as against 25

kg. In USA, 19 kg.in Japan and 10 kg. In Europe , Even the Worlds average
per capita consumption is about 10times of that in India. One reason of low
consumption in the country could be that consumption pattern of aluminium in
India is vastly different from that of developed countries. The demand of
aluminium is expected to grow by about 9 percent per annum from present
consumption levels. This sector is going through a consolidation phase and
existing producers are in the process of enhancing their production capacity so
that a demand supply gap expected in future is bridged. However, India is a net
exporter of alumina and aluminium metal at present.
 ALUMINIUM-STRUCTURE
The aluminium industry in India can be classified as:
(a) The primary producers who produce ingots and billets (primary form
of aluminium) using bauxite.
(b) The secondary producers who add value to the ingots and billets to
produce semi-fabricated products.

At present there are only five companies in the primary aluminium

market viz. Hindalco, Indian Aluminum (Indal), Madras Aluminum
(Malco), National Aluminum (Nalco) and Bharat Aluminum (Balco). The
former three are private sector companies while the latter two are
government owned.

All the primary producers have integrated forward into the manufacture
of high value semi-fabricated products like rods, rolled products,
extrusions and foils.

Regulated till 1989

o Until 1989, the Aluminum Control Order (ACO) required all domestic
manufacturers to ensure that atleast 50% of their ingot production was
electrical grade, for use by the transmission power industry. The
government fixed ingot prices on the basis of a Retention Pricing
Mechanism, taking into consideration the average retention prices of all
producers and a minimum return on equity.

o The above control resulted in a skewed product mix and shortages of

aluminum for other sectors. The problem was further compounded by the
vulnerable financial position of State Electricity Boards (the main users
of electrical grade aluminum) and high import and excise duties. The
producers resorted to inflated prices for other types of aluminium to
compensate for the disadvantages they suffered because of this
regulation.

o The ACO was scrapped in 1989 and in 1991 the government lifted
restrictions on capacity additions resulting in a free market environment.
 Aluminium Inputs

The aluminium industry in India can be classified as: Captive power,

ample bauxite reserves, coupled with cheap labour costs make Indian
companies amongst the most competitive aluminium producers globally.

The main raw material for the manufacture of aluminium includes

bauxite, caustic soda, calcined petroleum coke, coal tar pitch, and LS/FS
furnace oil. The production process for manufacture of aluminium is
briefly outlined below.

The mined bauxite ore is mixed with caustic liquor and is refined to
produce alumina. This is then smelted (through electrolysis in a smelter)
to obtain aluminium. Depending on the quality of bauxite, 2.5 3 tonnes
are required for manufacture of 1 tonne of alumina. In turn, 2 tonnes of
alumina are required for manufacture of 1 tonne of aluminium.
Bauxite
o Indian bauxite reserves at 3 bn tonnes, are the 5th largest in the world,
and account for 6% of total world reserves. Most alumina refineries are
designed around the bauxite reserves to reduce transportation costs. Cost
per tonne of bauxite varies for players depending on the location of the
refinery and bauxite mines.

o For example, Nalco has an estimated 1,600 m tonnes of bauxite reserves

only 20 kms from its alumina refinery, enabling it to become one of the
most economical bauxite producers in the world.

Power

Power constitutes the single largest cost component for aluminium

manufacturers (3540% of operating costs). Almost all the major Indian
companies have captive power plants thus giving them access to cheap
power. This makes India one of the most competitive low cost aluminium
producers in the world.

Hindalco and Nalcos production costs are amongst the lowest in the
world. Both companies have the advantage of 100% captive power, vital
in a power intensive industry and in a power deficit country like India.

Aluminium Products
o Aluminium products can be segregated into rolled products, extrusions,
and foils.

o Rolled products find applications in automobiles (paneling, floors and

windows, but are yet to find use in structural parts and bodies),
construction (roofing and walls), consumer durables, engineering
applications, web stock for laminated packaging (for toothpastes). A
major portion of rolled products capacity is accounted for by the five
integrated producers (around 82%).

o Extrusions include products as bars, pipes and tubes. Major users of

extruded aluminium products are buildings, transportation and electrical
sector

o Production in this segment is widely spread and the top three players
control around 31% of the market (the largest company - Hindalco
commands around 14% market share in this segment).

o Foils are sheets having thickness of less than 0.2 mm up to 0.006 mm

finding application mainly in the packaging sector. Major users of
aluminium foils include the pharmaceutical, consumer products, cigarette
and cable manufacturing industries.

KEY POINTS
Supply - Supply of aluminum is in excess and any deficit can be imported
at low rates of duty. Currently, domestic production comfortably meets
domestic requirements.

Demand- Demand for aluminium is estimated to grow at 6%-8% per annum

in view of the low per capita consumption in India. Also, demand for the
metal is expected to pick up as the scenario improves for user industries, like
power, infrastructure and transportation.

Barriers to entry- Large economies of scale. Consequently, high capital

costs.
 Bargaining power of suppliers- Most domestic players operate integrated
plants. Bargaining power is limited in case of power purchase, as
Government is the only supplier. However, increasing usage of captive
power plants (CPP) will help to rationalise power costs to a certain extent in
the long-term.

Bargaining power of customers- Being a commodity, customers enjoy

relatively high bargaining power, as prices are determined on demand and
supply.

Competition- competition is primarily on quality and price, as being a

commodity, differentiation is difficult. However, the recent spate of
consolidation has reduced the competitive pressure in the industry. Further,
increasing value addition to aluminium products has helped some companies
protect themselves from the high volatilities witnessed in this industry.

FINANCIAL YEAR-2015

Global production of primary aluminum rose from 32 million tons (MT)

in 2005 to 34 MT in 2006, a jump of 6%. In 2007, it further increased to
38 MT, an increase of 12% YoY. China alone accounted for 29% of
global primary aluminum production. Asia, once again showed the largest
annual increases in consumption of primary aluminum, driven largely by
increased industrial consumption in China, which has emerged as the
largest aluminum consuming nation, accounting for 30% of global
primary aluminum consumption in 2007. As far as global consumption is
concerned, it increased by 8.2% in 2006 and touched 34.7 MT. In 2007,
the corresponding figures were 10% and 37.8 MT respectively.

The Indian aluminium industry registered a strong double-digit growth in

2007 in tune with the economic growth. Strong growths in industrial,
infrastructure, automobile, transportation and power sectors were the
drivers for the metals demand. However, macroeconomic parameters like
the rupee appreciation, import duty cut and unrelenting cost-push
impacted the sector adversely. Thus causing margins to squeeze at both
 ends. Although the average LME remained strong but could not help the
companies like Hindalco to increase the domestic realisation due to fall in
import duty and rupee appreciation, causing a drop in average rupee
realisation per tonne of the primary metal as compared to FY07.

PROSPECTS
o Globally, newer packaging applications and increased usage in
automobiles is expected to keep the demand growth for aluminium over
5% in the long-term. Asia will continue to be the high consumption
growth area led by China, which is expected to continue to register
double-digit growth rates in aluminium consumption in the medium-term.
o With key consuming industries forming part of the domestic core sector,
the aluminium industry is sensitive to fluctuations in performance of the
economy. Power, infrastructure and transportation account for almost
3/4th of domestic aluminium consumption. With the government focusing
towards attaining GDP growth rates above 8%, the key consuming
industries are likely to lead the way, which could positively impact
aluminium consumption. Domestic demand growth is estimated to
average in the region of over 8% over the longer-term.
o Lowering of duties reduces the net tariff protection for domestic
aluminium producers. Aluminum imports are currently subject to a
customs duty of 5% and an additional surcharge of 3% of the customs
duty. The customs duty has been reduced in a series of steps from 15% in
2003 to 5% in January 2007. With reduction in import duties, domestic
realisation of aluminium majors, namely Hindalco and Nalco, is likely to
be under pressure, as the buffer on international prices is reduced.
Moreover, with greater linkage to international prices, volatility in
financials could increase. However, producers are moving downstream to
negate the higher volatility.

Salient features of Indian Aluminium Industry

Highly concentrated industry with only five primary plants in the country

Controlled by two private groups and one public sector unit

Bayer-Hall-Heroult technology used by all producers

 Electricity, coal and furnace oil are primary energy inputs

All plants have their own captive power units for cheaper and un-
interrupted power Supply

Energy cost is 40% of manufacturing cost for metal and 30% for rolled
products

Plants have set internal target of 1 2% reduction in specific energy

consumption in the next 5 8 years

Energy management is a critical focus in all the plants

Two plants have declared formal energy policy

Each plant has an Energy Management Cell

Achievements in energy conservation are highlighted in the Annual

Report of the Company

Energy targets are based on best energy figures achieved in their sector /
region and by the plant itself in the past

Generally, government policies were rated as conducive to energy

management

Task Force formed by BEE in this sector to work as catalyst in

promoting energy efficiency

High cost of technology is the main barrier in achieving high energy

efficiency
Quantitative details

Raw material and product type:

Bauxite and calcined petroleum coke are primary raw materials for this industry.
However, alumina is raw materials for smelters and aluminium metal is raw
material for fabrication units.
Fuel Usage:

Coal, Furnace oil and electricity are primary energy inputs in aluminium
production. Coal is primarily used to generate steam, which is used in the
process while fuel oil is mainly used in Calcinations of alumina and various
furnaces in fabrication plants. Electricity is the major energy input in aluminium
production and is considered to be prime factor in determining economics of
aluminium production. Hence, all primary metal producers have installed their
own captive power plants to supply cheaper and uninterrupted power for their
use. Majority of electricity consumed in this industry is supplied by their
captive power plants.

Technology Status:

Invented over 100 years ago, Bayer-Hall-Heroult is the only available

commercial technology, even today, for the production of aluminium. Alumina
is the basic raw material for the production of aluminium metal through
electrolytic process. The production of alumina obtained from bauxite, a
mineral containing up to 60% in the form of mono/tribhydrate is carried out
through the Bayer route, which is an extractive hydro-metallurgical process.

Consumption of Aluminium in India

The consumption of aluminium in India of 0.7 kg per person in 2005 is very low
in keeping with the countries low GDP. However, the low per capita
consumption of aluminum in India is in fact an opportunity for growth in
aluminium consumption against the back drop of fast growing economic
conditions in India.

However, aluminum consumption has increased 12.6% in 2006 to around

1.08mt. Consumption is estimated to have increased to a 5 year CAGR of
12.9%. Secondary aluminium demand also shot up to 0.6 MT last year.
Sector-wise aluminum consumption
Aluminium is used in various sectors, such as, transportation, packaging,
building / construction and electricity. However, the usage pattern differs
significantly for Indian and rest of the world. Globally, the automotive,
packaging and the construction sectors are the major end users of aluminium,
while in India the power sector consumes most followed by automotive and
housing sectors.

Sector wise consumption break up

Electrical 65%

Transport-21%

Construction -8%

Packaging 5%

Industrial machinery 4%

Consumer durables 4%

Steel sweetening, powers & chemicals 13%

The Transportation sector is a major driver of aluminum consumption in the

future where the onus of growing consumption lies with the industry. The
automobile segment has attracted major global producers to set up their
manufacturing facilities in the country. All these manufacturers are now
engaged in bringing out high quality fuel-efficient cars in the market for India as
well as global markets. Besides cars, there are commercial vehicles which have
also witnessed quantum growth over the years.

Use of Aluminum as an alternative to steel has huge potential in the railways.

The government has taken note of this and has started working on that.
Aluminum castings are primarily used in transport and automobile sectors.
The global casting is currently estimated at around 7.4 million tons, against that
consumption in India as only around 110,000 tons. The countrys share in the
global downstream sector is low as compared to other developed countries.

Casting of aluminum alloys is a particularly versatile process and offers greater

degree of flexibility than other methods of manufacture, and can be done by
various methods like in sand, in metallic dies, under gravity or pressure, and
cast by modern methods like low-pressure die- casting (LPDC), investment
casting, and squeeze casting. No other metal can be cast under such a wide
range of processes and sizes varying from a few grams to 100 kg.

Although, domestic aluminum production exceeds the domestic demand, India

imports on an average 15-20 per cent of the total supply of aluminum. Imports
are necessary, due to the shortage of domestically produced ingots. Indias
imports of aluminum and products primarily comprise of unwrought items like
ingots, billets, scrap, bars and rods. Imports of primary aluminum products
account for less than 10 per cent of domestic consumption. India also exports
aluminum products such as, scrap, powder and flakes, bar rods, foil, pellets,
sheets, tubes and pipes. Exports figures hovers around 82000 tons annually and
the major importer countries of Indian aluminium are Bangladesh, Sri Lanka,
Egypt and Iraq.

NATIONAL ALUMINIUM COMPANY LTD.

National Aluminium Company Ltd. (Nalco) is considered to be a

turning point in the history of Indian Aluminium Industry. In a major leap
forward, Nalco has not only addressed the need for self-sufficiency in
aluminium, but also given the country a technological edge in producing this
strategic metal to the best of world standards. Nalco was incorporated in 1981
in the Public Sector, to exploit a part of the large deposits of bauxite
discovered in the East Coast. The Captive Power Plant (CPP) & Smelter Plant
are situated near Angul.
Nalco is one of the biggest and Asias largest integrated complex, encompassing
Bauxite mining, Alumina refining, Aluminium smelting and casting power
generation, rail and port operations. NALCO was established in 1981 as a
public sector enterprise of the Govt.of India. It is considered a truing point in
the 50-year-old history of the Indian aluminum industry.

In Orissa, for setting up Asia's largest integrated alumina-aluminium complex in

1981, National Aluminium Company Limited (Nalco) acquired 7263 acres of
land at Damanjodi in Koraput district and 4057 acres at Angul. During the
inception of the company, 635 families in 51 villages were displaced - 600
families in Damanjodi sector and 35 families in Angul sector. From these 635
displaced families, employment has been provided to 625 nominees. Confusion
regarding educational background and nomination status of balance 10 families
has been taken up at appropriate level. Besides, 1495 families were substantially
affected (i.e. parting with one third or more land) in Angul sector. Even from
these, jobs have been provided to 1060 persons. Nalco has also been sponsoring
ITI training to such persons and 543 have been technically trained so far. Apart
from financial compensation, employment and rehabilitation packages, Nalco
has also spent more than Rs. 100 crore towards various social sector
development activities. Creation of infrastructure in the surrounding villages for
communication, education, health care and drinking water gets priority in the
periphery development plans of the company. Community participation in
innovative farming, pisciculture, social forestry and sanitation programmes
apart, encouragement to sports, art, culture and literature are all a part of Nalco's
deep involvement with the life of the community. Successful operations of the
company have led to employment and income generation for the local people in
many significant ways.

ALUMINIUM SMELTER PLANT

The 2, 30,000 tpa capacity Aluminium Smelter is located at Angul in Orissa.

Based on energy efficient state-of-the-art technology of smelting and
pollution control, the Smelter Plant is in operation since early 1987.

Presently, the capacity is being expanded to 3, 45,000 tpa.

The salient features:

o Advanced 180 KA cell technology

 o Micro-processor based pot regulation system

o Fume treatment plant with dry-scrubbing system for pollution control

and fluoride salt recovery

o Integrated facility for manufacturing carbon anodes, bus bars, anode

tems etc.

o 4 x 35 tone and 4 x 45 tone furnaces and 2 x 15 tph and 2 x 20 tph

ingot casting machines
o 4 x 45 tonne furnaces and 2 x 9.5 tph wire rod mills

o 2 x 45 tonne furnaces and 60/42 per drop billet casting machine

o 2 x 1.5 tonne induction furnace with a 4 tph alloy ingot casting machine

o 26,000 tpa strip casting machines

With the acquisition and subsequent merger of International Aluminium

Products Limited (IAPL) with Nalco, the 50,000 tpa export-oriented Rolled
Products Unit is all set to produce foil stock, fin stock, can stock, circles, coil
stock, cable wraps, standard sheets and coils

CAPTIVE POWER PLANT

Close to the Aluminium Smelter at Angul, a Captive Power Plant of 720 MW

capacity, comprising 6 x 120 MW clusters, has been established for firm
supply of power to the Smelter.

Presently, the capacity is being expanded to 960 MW.

The salient features:

Micro-processor based burner management system for optimum thermal

efficiency

Computer controlled data acquisition system for on-line monitoring

 Automatic turbine run-up system

Specially designed barrel type high pressure turbine

Electrostatic precipitators with advanced intelligent controllers

Wet disposal of ash

The water for the Plant is drawn from River Brahmani through a 7 km long
double circuit pipeline. The coal demand is met from a mine of 3.5 million
tpa capacity opened up for Nalco at Bharatpur in Talcher by Mahanadi
Coalfields Limited. The Power Plant is inter-connected with the State Grid.
Brief History:
After the discovery of 1000 million tons of Bauxite reserves in the Eastern
Ghats, the govt. of India on the 28th March, 1978, authorized Aluminum
Pechiney of France to prepare a feasibility report on the industrial exploration of
bauxite for the establishment of an integrated

Aluminum complex. The result of this study led to sifting of focus of attention
to Panchpattermali, 30km.East of Koraput District of Orissa. Nalco was
incorporated in 1981as a public sector Unit. The newly founded NALCO signed
an agreement of collaboration with aluminum Pechiney, the world leader in this
field for incorporation of technical know-how to set up Asias largest integrated
aluminium complex.

Location:

Registered office...Bhubaneswar

Bauxite mine.Panchpatmali

Aluminium refinery..............................Damanjodi

Captive power plant.Angul

Aluminium smelter..Angul

Port facilities..Visakhapatnam

Rolled product unit.Angul

Achievements of Nalco:
1980:
A Memorandum of Understanding was signed in January, by the Government of
India for technical collaboration and financing of an integrated alumina-
aluminium complex with Aluminium Pechiney of France.

1981:
The Company was incorporated on 7th January, as a wholly owned enterprise of
Government of India. The Company Manufacture aluminium hydrate, claimed
alumina, aluminium ingots and aluminium wire rods.

1993:
NALCO signed a project co-operation agreement with Hydro Aluminium AG,
Norway to carry out a joint study for feasibility of setting up a100% export
oriented aluminium plant of 0.9 million tonnes per annum capacity.
1,28,86,19,200 No. of shares allotted

1994:
The Company proposed to undertake expansion of bauxite mine from2.4million
TPA. to 4.8 million tpa. and alumina refinery from 8,00,000 tpa. to 13,50,000
tpa. This was subject to necessary clearances.

1995:
A Smelter plant at Angul was undertaken with a capacity of 26000 TPY of strip
casting facility. A special Alumina plant at Damanjodi was undertaken with a
Capacity of 20,000 TPY. A 10,000 TPY detergent grade Zeolite (Zeolite-A)
plant at Damanjodi, was undertaken.

1996:
The proposal to expand the capacities of bauxite mine at Panchpatmali from 24
lakh tonnes to 48 lakh tonnes and alumina refinery at Damanjodi from 8 lakh
tonnes to 15.75 lakh tonnes was approved by the Government on 18.12.1996.
1997:
Subject to necessary approvals being obtained the company proposed to convert
50% of its existing equity capital into debt. The public sector aluminium giant,
National Aluminium Company (NALCO) set up in technical collaboration with
Pechiney, France is the largest integrated aluminium company in Asia. National
Aluminium Company Ltd (Nalco), country's largest Aluminium Company, has
opened a stockyard at Bhiwandi in Thane district. National Aluminium
Company (Nalco), India's largest producer andex porter, got the ISO 14001
certification for environmental excellence. The National Aluminium Company,
Bhubaneswar, signed an agreement of national importance with the NRDC for
licensing from the NRDC the knowhow to manufacture gallium from the
sodium alumina plant.

1998:
The company has been forced to curtail its power generation capacity due to a
drastic reduction in intake by Gridco. - the nodal power transmission and
distribution agency in Orissa.

1999:
The National Aluminium Company Ltd (NALCO) a Government of India
undertaking is setting up a plant for extraction of gallium at its aluminium
refinery complex at Damanjodi. The National Aluminium Company (Nalco)
will take over International

2000:
Icra has retained the Laaa rating for the Rs 642.58-crore Non-convertible
debenture issue of the company, while it has assigned an A1 rating to the Rs 5-
crore CP issue of Narmada Chematur Petrochemicals.

2001:
A public sector Aluminium Company making a foray into detergent business
sounds out of place. But if senior officials of National Aluminium Company
(Nalco) are to be believed, the countrys second largest aluminium company
will be doing that at its zeolite plant scheduled to start operations in July end.
2002:
S Behuria appointed as part time official Director of Nalco. Nalco's alumina
refinery capacity increased to 15.75 lakh tone

2003:
Commissions one unit of Captive Power Plant with a capacity of 120 MW and
120 pots of Smelter with a capacity to produce 57,500 MT of Aluminium per
year Nalco members okay delisting of securities from stock exchanges of
Bhubaneshwar, Delhi, Calcutta & Madras

2004:
National Aluminium Company Limited (NALCO) has informed that Madras
Stock Exchange Limited vide its letter dated December 22, 2003 have
withdrawn the admission granted to dealings on their exchange for the securities
of NALCO. Nalco open offer to acquire 20% stake for Ondeo Nalco India.

2005:
Nalco inks agreement with NMDC.
 NALCO-PRODUCTS

Aluminium Metal
Ingots

Sows

Billets

Wire rods

Alloy wire rods

Cast strips

Alumina & Hydrate

Calcined Alumina

Alumina Hydrate

Zeolite-A
 5 years performance at a glance (physical)

particulars units 2014-15 2013-14 2012-13 2011-12 2010-11

1.production
Bauxite MT 57,39,120 62,92,677 54,19,391 50,02,626 48,23,908

Alumina MT 18,51,000 19,25,000 18,02,000 16,87,000 15,56,000

Hydride
Alumina for MT 3,27,070 3,16,492 4,03,384 4,13,089 4,43,597
In
consumption
Rolled products MT 10,004 2,587 5,040 858 2,660
Power(net) MU 5,131 4,989 6,076 6,200 6,608
2.Export sales
Alumina MT 11,84,59 13,09,47 9,44,117 7,92,552 6,39,855
5 3
Aluminum MT 60,752 1,01,243 1,44,161 98,399 98,200
3.Domestic
sales
Alumina MT 40,048 33,288 40,605 50,253 45,916
/hydride
Aluminum MT 2,65,328 2,18,420 2,58,941 3,17,517 3,40,752
Power MU 175 144 14 - -
 5 YEARS PERFORMANCE HIGHLIGHTS

1. SALES Rs.crores

2. EXPORTS-Rs.crores
3. NET PROFIT-Rs.crores

4. EARNING PER SHARE-Rs.

PRODUCTION-NEXT 5 YEARS
 Working Capital

Every business needs investment to procure fixed assets, which remain in use
for a longer period. Money invested in these assets is called Long term Funds
or Fixed Capital.
Business also needs funds for short-term purposes to finance current operations.
Investment in short term assets like cash, inventories, debtors etc., is called
Short-term Funds or Working Capital. The Working Capital can be
categorized, as funds needed for carrying out day-to-day operations of the
business smoothly. The management of the working capital is equally important
as the management of long-term financial investment.

Every running business needs working capital. Even a business which is fully
equipped with all types of fixed assets required is bound to collapse without
o adequate supply of raw materials for processing;
o cash to pay for wages, power and other costs;
o creating a stock of finished goods to feed the market demand regularly;
and,
o The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a
business. The business will not be able to carry on day-to-day activities without
the availability of adequate working capital.

Working capital cycle involves conversions and rotation of various constituents

Components of the working capital. Initially cash is converted into raw
materials.

Subsequently, with the usage of fixed assets resulting in value additions, the raw
materials get converted into work in process and then into finished goods. When
sold on credit, the finished goods assume the form of debtors who give the
business cash on due date. Thus cash assumes its original form again at the
end of one such working capital cycle but in the course it passes through various
other forms of current assets too. This is how various components of current
assets keep on changing their forms due to value addition. As a result, they
rotate and business operations continue. Thus, the working capital cycle
involves rotation of various constituents of the working capital.
While managing the working capital, two characteristics of current assets
should be kept in mind viz. (i) short life span, and (ii) swift transformation into
other form of current asset.

Each constituent of current asset has comparatively very short life span.
Investment remains in a particular form of current asset for a short period. The
life span of current assets depends upon the time required in the activities of
procurement; production, sales and collection and degree of synchronization
among them. A very short life span of current assets results into swift
transformation into other form of current assets for a running business.

These characteristics have certain implications:

Decision regarding management of the working capital has to be taken

frequently and on a repeat basis.

The various components of the working capital are closely related and
mismanagement of any one component adversely affects the other
components too.

The difference between the present value and the book value of profit is
not significant.

The working capital has the following components, which are in several forms
of current assets:

o Stock of Cash

o Stock of Raw Material

o Stock of Finished Goods

o Value of Debtors

o Miscellaneous current assets like short term investment loans &

Advances
A number of definitions have been formulated: perhaps the most widely
acceptable would be;

WORKING CAPITAL represents the excess of CURRENT ASSETS over

CURRENT LIABILITIES

The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being
constantly converted in to cash and this cash flows out again in exchange for
other current assets. Thus it is known as revolving or circulating capital or short
term capital.

These are two concepts of working capital:-

a. Gross Working Capital.

b. Net Working Capital.

Gross working capital is the total of all current assets. Net working capital is the
difference between current assets and current liabilities. Though the later
concept of working capital is commonly used it is an accounting concept with
little sense to say that a firm manages its net working capital. What a firm really
does is to take decisions with respect to various current assets and current
liabilities. The constituents of current assets and current liabilities are shown in
table A.
Constituents of Current Assets and Current Liabilities

Current Assets
Inventories Raw materials and components, Work in progress, Finished
goods, other.

Trade Debtors.
Loans and Advances.
Investments.
Cash and Bank balance.

Current Liabilities
Sundry Creditors.
Trade Advances.
Borrowings.
Provisions.

The working capital needs of a business are influenced by

numerous factors. The important ones are discussed in brief as
given below:

Nature of Enterprise

The nature and the working capital requirements of an enterprise are interlinked.
While a manufacturing industry has a long cycle of operation of the working
capital, the same would be short in an enterprise involved in providing services.
The amount required also varies as per the nature; an enterprise involved in
production would require more working capital than a service sector enterprise.
Manufacturing/Production Policy

Each enterprise in the manufacturing sector has its own production policy, some
follow the policy of uniform production even if the demand varies from time to
time, and others may follow the principle of 'demand-based production' in
which production is based on the demand during that particular phase of time.
Accordingly, the working capital requirements vary for both of them.

Working Capital Cycle

In manufacturing concern, working capital cycle starts with the purchase of raw
materials and ends with realization of cash from the sale of finished goods. The
cycle involves the purchase of raw materials and ends with the realization of
cash from the sale of finished products. The cycle involves purchase of raw
materials and stores, its conversion in to stock of finished goods through work
in progress with progressive increment of labor and service cost, conversion of
finished stick in to sales and receivables and ultimately realization of cash and
this cycle continuous again from cash to purchase of raw materials and so on.

Operations

The requirement of working capital fluctuates for seasonal business. The

working capital needs of such businesses may increase considerably during the
busy season and decrease during the slack season. Ice creams and cold drinks
have a great demand during summers, while in winters the sales are negligible.

Market Condition

If there is high competition in the chosen product category, then one shall need
to offer sops like credit, immediate delivery of goods etc. for which the working
capital requirement will be high. Otherwise, if there is no competition or less
competition in the market then the working capital requirements will be low.
Credit Policy
The credit policy is concerned in its dealings with debtors and creditors
influence considerably the requirements of the working capital. A concern that
purchases its requirements on credit and sells its products/services on cash
requires lesser amount of working capital. On the other hand a concern buying
its requirements for cash and allowing credit to its customers, shall need larger
amount of funds are bound to be tied up in debtors or bills receivables.

Business Cycle

Business Cycle refers to alternate expansion and contraction in general business

activities. In a period of born i.e. when the business is prosperous there is a need
for larger amount of working capital due to increase in sales, rise in prices,
optimistic expansion of business etc. On the country at he time of depression i.e.
when there is a down swing of the cycle, business contracts, sales decline,
difficulties are faced in collections from debtors and firms may have a large
amount of working capital lying ideal

Availability of Raw Material

If raw material is readily available then one need not maintain a large stock of
the same, thereby reducing the working capital investment in raw material
stock. On the other hand, if raw material is not readily available then a large
inventory/stock needs to be maintained, thereby calling for substantial
investment in the same.

Growth and Expansion

Growth and expansion in the volume of business results in enhancement of the

working capital requirement. As business grows and expands, it needs a larger
amount of working capital. Normally, the need for increased working capital
funds precedes growth in business activities.

Earning Capacity and Dividend policy

Some firms have more earning capacity than others due to the quality of their
products, monopoly conditions etc. Such firms with high earning capacity may
generate cash profits from operations and contribute to their capital. The
dividend policy of a concern also influences the requirements of the working
capital. A firm that maintains steady high rate of cash dividend irrespective of
its generation of profits needs more capital than the firm retains larger part of its
profits and does not pay high rate of cash dividend.

Price Level Changes

Generally, rising price level requires a higher investment in the working capital.
With increasing prices, the same level of current assets needs enhanced
investment.

Manufacturing Cycle

The manufacturing cycle starts with the purchase of raw material and is
completed with the production of finished goods. If the manufacturing cycle
involves a longer period, the need for working capital would be more. At times,
business needs to estimate the requirement of working capital in advance for
proper control and management. The factors discussed above influence the
quantum of working capital in the business. The assessment of working capital
requirement is made keeping these factors in view. Each constituent of working
capital retains its form for a certain period and that holding period is determined
by the factors discussed above. So for correct assessment of the working capital
requirement, the duration at various stages of the working capital cycle is
estimated. Thereafter, proper value is assigned to the respective current assets,
depending on its level of completion.
 Other Factors

Certain other factors such as operating efficiency, management ability,

irregularities a supply, import policy, asset structure, importance of labor,
banking facilities etc. also influences the requirement of working capital.

Component of Working Capital Basis of Valuation

Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is lower

Stock of finished goods Cost of production

Debtors Cost of sales or sales value

Cash Working expenses

Each constituent of the working capital is valued on the basis of valuation

Enumerated above for the holding period estimated. The total of all such
valuation becomes the total estimated working capital requirement.

The assessment of the working capital should be accurate even in the case of
small and micro enterprises where business operation is not very large. We
know that working capital has a very close relationship with day-to-day
operations of a business. Negligence in proper assessment of the working
capital, therefore, can affect the day-to-day operations severely. It may lead to
cash crisis and ultimately to liquidation. An inaccurate assessment of the
working capital may cause either under-assessment or over-assessment of the
working capital and both of them are dangerous.
 WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and

current liabilities. The major thrust of course is on the management of current
assets .This is understandable because current liabilities arise in the context of
current assets. Working Capital Management is a significant fact of financial
management. Its importance stems from two reasons:-

Investment in current assets represents a substantial portion of

total investment.
Investment in current assets and the level of current liabilities have to be
geared quickly to change in sales. To be sure, fixed asset investment and
long term financing are responsive to variation in sales. However, this
relationship is not as close and direct as it is in the case of working capital
components.

The importance of working capital management is effected in the fact that

financial manages spend a great deal of time in managing current assets and
current liabilities. Arranging short term financing, negotiating favorable credit
terms, controlling the movement of cash, administering the accounts receivable,
and monitoring the inventories consume a great deal of time of financial
managers.

The problem of working capital management is one of the best utilization of a

scarce resource.

Thus the job of efficient working capital management is a formidable one, since
it depends upon several variables such as character of the business, the lengths
of the merchandising cycle, rapidity of turnover, scale of operations, volume
and terms of purchase & sales and seasonal and other variations.
CONSEQUENCES OF UNDER ASSESSMENT OF WORKING
CAPITAL

o Growth may be stunted. It may become difficult for the enterprise to

undertake profitable projects due to non-availability of working capital.

o Implementation of operating plans may become difficult and

consequently the profit goals may not be achieved.

o Cash crisis may emerge due to paucity of working funds.

o Optimum capacity utilization of fixed assets may not be achieved due to

non availability of the working capital.

o The business may fail to honour its commitment in time, thereby

adversely affecting its credibility. This situation may lead to business
closure.

o The business may be compelled to buy raw materials on credit and sell
finished goods on cash. In the process it may end up with increasing cost
of purchases and reducing selling prices by offering discounts. Both these
situations would affect profitability adversely.

o Non-availability of stocks due to non-availability of funds may result in

production stoppage.

o While underassessment of working capital has disastrous implications on

business, over assessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING

CAPITAL

o Excess of working capital may result in unnecessary accumulation of

inventories.

o It may lead to offer too liberal credit terms to buyers and very poor
recovery system and cash management.

o It may make management complacent leading to its inefficiency.

 o Over-investment in working capital makes capital less productive and
may reduce return on investment. Working capital is very essential for
success of a business and, therefore, needs efficient management and
control. Each of the components of the working capital needs proper
management to optimize profit.

The working capital in certain enterprise may be classified into

the following kinds.

1. Initial working capital. The capital, which is required at the time of the
commencement of business, is called initial working capital. These are the
promotion expenses incurred at the earliest stage of formation of the enterprise
which include the incorporation fees. Attorney's fees, office expenses and other
expenses.

2. Regular working capital. This type of working capital remains always in the
enterprise for the successful operation. It supplies the funds necessary to meet
the current working expenses i.e. for purchasing raw material and supplies,
payment of wages, salaries and other sundry expenses.

3. Fluctuating working capital. This capital is needed to meet the seasonal

requirements of the business. It is used to raise the volume of production by
improvement or extension of machinery. It may be secured from any financial
institution which can, of course, be met with short term capital. It is also called
variable working capital.

4. Reserve margin working capital. It represents the amount utilized at the

time of contingencies. These unpleasant events may occur at any time in the
running life of the business such as inflation, depression, slump, flood, fire,
earthquakes, strike, lay off and unavoidable competition etc. In this case greater
amount of capital is required for maintenance of the business.
 Financing Working Capital

Now let us understand the means to finance the working capital. Working
capital or current assets are those assets, which unlike fixed assets change their
forms rapidly. Due to this nature, they need to be financed through short-term
funds. Short-term funds are also called current liabilities. The following are the
major sources of raising short-term funds:
I. Suppliers Credit

At times, business gets raw material on credit from the suppliers. The cost of
raw material is paid after some time, i.e. upon completion of the credit period.
Thus, without having an outflow of cash the business is in a position to use raw
material and continue the activities. The credit given by the suppliers of raw
materials is for a short period and is considered current liabilities. These funds
should be used for creating current assets like stock of raw material, work in
process, finished goods, etc.

ii. Bank Loan for Working Capital

This is a major source for raising short-term funds. Banks extend loans to
businesses to help them create necessary current assets so as to achieve the
Required business level. The loans are available for creating the following
current
Assets:
Stock of Raw Materials
Stock of Work in Process
Stock of Finished Goods
Debtors
Banks give short-term loans against these assets, keeping some security margin.
The advances given by banks against current assets are short-term in nature and
banks have the right to ask for immediate repayment if they consider doing so.
Thus bank loans for creation of current assets are also current liabilities.

iii. Promoters Fund

It is advisable to finance a portion of current assets from the promoters funds.

They are long-term funds and, therefore do not require immediate repayment.
These funds increase the liquidity of the business.
 Management of Inventory

Inventories constitute the most significant part of current assets of a large

majority of companies in India. On an average, inventories are approximately
60 % of current assets in public limited companies in India.

Because of the large size of inventories maintained by firms maintained by

firms, a considerable amount of funds is required to be committed to them. It is,
therefore very necessary to manage inventories efficiently and effectively in
order to avoid unnecessary investments. A firm neglecting a firm the
management of inventories will be jeopardizing its long run profitability and
may fail ultimately.

The purpose of inventory management is to ensure availability of materials in

sufficient quantity as and when required and also to minimize investment in
inventories at considerable degrees, without any adverse effect on production
and sales, by using simple inventory planning and control techniques.

Needs to hold inventories:-

There are three general motives for holding inventories:-

Transaction motive emphasizes the need to maintain inventories

to facilitate smooth production and sales operation.

Precautionary motive necessities holding of inventories to guard against

the risk of unpredictable changes in demand and supply forces and other
factors.
 Speculative motive influences the decision to increases or reduce
inventory levels to take advantage of price fluctuations and also for
saving in re-ordering costs and quantity discounts etc.

Objective of Inventory Management:-

The main objectives of inventory management are operational and financial.

The operational mean that means that the materials and spares should be
available in sufficient quantity so that work is not disrupted for want of
inventory. The financial objective means that investments in inventories should
not remain ideal and minimum working capital should be locked in it.

The following are the objectives of inventory management:-

o To ensure continuous supply of materials, spares and finished goods.

o To avoid both over-stocking of inventory.
o To maintain investments in inventories at the optimum level as required
by the operational and sale activities.
o To keep material cost under control so that they contribute in reducing
cost of production and overall purchases.
o To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centralizing purchases.
o To minimize losses through deterioration, pilferage, wastages and
damages.
o To design proper organization for inventory control so that management.
Clear cut account ability should be fixed at various levels of the
organization.
o To ensure perpetual inventory control so that materials shown in stock
ledgers should be actually lying in the stores.
o To ensure right quality of goods at reasonable prices.
 o To facilitate furnishing of data for short-term and long term planning and
control of inventory

Management of cash

Cash is the important current asset for the operation of the business. Cash is the
basic input needed to keep the business running in the continuous basis, it is
also the ultimate output expected to be realized by selling or product
manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will
disrupt the firms manufacturing operations while excessive cash will simply
remain ideal without contributing anything towards the firms profitability. Thus
a major function of the financial manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm
and balances in its bank account. Sometimes near cash items such as marketing
securities or bank term deposits are also included in cash. Generally when a
firm has excess cash, it invests it is marketable securities. This kind of
investment contributes some profit to the firm.

Need to hold cash

The firms need to hold cash may be attributed to the following three motives:-

The Transaction Motive: The transaction motive requires a firm to hold cash
to conduct its business in the ordinary course. The firm needs cash primarily to
make payments for purchases, wages and salaries, other operating expenses,
taxes, dividends, etc.
The Precautionary Motive: A firm is required to keep cash for meeting various
contingencies. Though cash inflows and outflows are anticipated but there may
be variations in these estimates. For example a debtor who pays after 7 days
may inform of his inability to pay, on the other hand a supplier who used to give
credit for 15 days may not have the stock to supply or he may not be in
opposition to give credit at present.

Speculative Motive: - The speculative motive relates to the holding of cash for
investing in profit making opportunities as and when they arise.

The opportunities to make profit changes. The firm will hold cash, when it is
expected that interest rates will rise and security price will fall.

Components of working capital are calculated as follows:

1) Raw Materials Storage Period=Average stock of raw materials/Average
cost of raw material consumption per day.

2.) W-I-P Holding period=Average w-i-p in inventory/Average cost of

production per day.

3.) Stores and spares conversion period= Average stock of Stores and spares/
Average consumption per day.

4.) Finished goods conversion period= Average stock of finished

goods/Average cost of goods sold per day.

5.) Debtors collection period=Average book debts/Average credit sales per

day.

6.) Credit period availed=Average trade creditors/Average credit purchase per

day.

Management of Receivables
A sound managerial control requires proper management of liquid assets and
inventory. These assets are a part of working capital of the business. An efficient
use of financial resources is necessary to avoid financial distress. Receivables
result from credit sales.

A concern is required to allow credit sales in order to expand its sales volume.
It is not always possible to sell goods on cash basis only. Sometimes other
concern in that line might have established a practice of selling goods on credit
basis. Under these circumstances, it is not possible to avoid credit sales without
adversely affecting sales.

The increase in sales is also essential to increases profitability. After a certain

level of sales the increase in sales will not proportionately increase production
costs. The increase in sales will bring in more profits. Thus, receivables
constitute a significant portion of current assets of a firm. But for investment in
receivables, a firm has to insure certain costs. Further, there is a risk of bad
debts also. It is therefore, very necessary to have a proper control and
management of receivables.

Needs to hold cash:

Receivables management is the process of making decisions relating to
investment in trade debtors. Certain investments in receivables are necessary to
increase the sales and the profits of a firm. But at the same time investment in
this asset involves cost consideration also. Further, there is always a risk of bad
debts too.

Thus, the objective of receivable management is to take a sound decision as

regards investments in debtors. In the words of Bolton, S.E., the need of
receivables management is to promote sales and profits until that point is
reached where the return of investment in further funding of receivables is less
than the cost of funds raised to finance that additional credit.

Important Terms

Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's life
blood and every manager's primary task is to help keep it flowing and to use the
cash flow to generate profits. If a business is operating profitably, then it should,
in theory, generate cash surpluses. If it doesn't generate surpluses, the business
will eventually run out of cash and expire.

The faster a business expands , the more cash it will need for working capital
and investment. The cheapest and best sources of cash exist as working capital
right within business. Good management of working capital will generate cash
will help improve profits and reduce risks. Bear in mind that the cost of
providing credit to customers and holding stocks can represent a substantial
proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory
(stocks and work-in-progress) and Receivables (debtors owing you money).
The main sources of cash are Payables (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and

payables) has two dimensions ........TIME ......... and MONEY. When it comes to
managing working capital - TIME IS MONEY. If you can get money to move
faster around the cycle (e.g. collect monies due from debtors more quickly) or
reduce the amount of money tied up (e.g. reduce inventory levels relative to
sales), the business will generate more cash or it will need to borrow less money
to fund working capital. As a consequence, you could reduce the cost of bank
interest or you'll have additional free money available to support additional sales
growth or investment. Similarly, if you can negotiate improved terms with
suppliers e.g. get longer credit or an increased credit limit; you effectively
create free finance to help fund future sales.

If you....... Then......
Collect receivables (debtors) You release cash
faster from the cycle
 Collect receivables (debtors) Your receivables
slower soak up cash
Get better credit (in terms of You increase your
duration or amount) from cash resources
suppliers
Shift inventory (stocks) faster You free up cash
Move inventory (stocks) slower You consume more
cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers,
plant, vehicles etc. If you do pay cash, remember that this is now longer
available for working capital. Therefore, if cash is tight, consider other ways of
financing capital investment - loans, equity, leasing etc. Similarly, if you pay
dividends or increase drawings, these are cash outflows and, like water flowing
downs a plug hole, they remove liquidity from the business.

More businesses fail for lack of cash than for want of

profit.

Sources of Additional Working Capital

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit
Long-term loans

If you have insufficient working capital and try to increase sales, you can easily
over-stretch the financial resources of the business.
This is called overtrading. Early warning signs include:

o Pressure on existing cash

o Exceptional cash generating activities e.g. offering high discounts for
early cash payment
o Bank overdraft exceeds authorized limit
o Seeking greater overdrafts or lines of credit
o Part-paying suppliers or other creditors
o Paying bills in cash to secure additional supplies
o Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages,
pending receipt of a cheque).

Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are
collected faster. Every business needs to know.... who owes them money.... how
much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad

debts.

Slow payment has a crippling effect on business; in particular on small

businesses who can least afford it. If you don't manage debtors, they will
begin to manage your business as you will gradually lose control due to
reduced cash flow and, of course, you could experience an increased incidence
of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that
it gets the priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers
and customers.
4. Be professional when accepting new accounts, and especially larger ones.
 5. Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
6. Establish credit limits for each customer... and stick to them.
7. Continuously review these limits when you suspect tough times are
coming or if operating in a volatile sector.
8. Keep very close to your larger customers.
9. Invoice promptly and clearly.
10.Consider charging penalties on overdue accounts.
11.Consider accepting credit /debit cards as a payment option.
12.Monitor your debtor balances and ageing schedules, and don't let any
debts get too large or too old.

Recognize that the longer someone owes you, the greater the chance you will
never get paid. If the average age of your debtors is getting longer, or is already
very long, you may need to look for the following possible defects:

weak credit judgement

poor collection procedures
lax enforcement of credit terms
slow issue of invoices or statements
errors in invoices or statements
Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally
demand immediate attention. Look for the warning signs of a future bad debt.
For example.........

o longer credit terms taken with approval, particularly for smaller orders
o use of post-dated checks by debtors who normally settle within agreed
terms
o evidence of customers switching to additional suppliers for the same
goods
 o new customers who are reluctant to give credit references
o Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasons
and therefore put on the long finger because they convince themselves there is
something more urgent or important that demand their attention now. There is
nothing more important than getting paid for your product or service. A
customer who does not pay is not a customer.

Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can

create liquidity problems. Consider the following:

o Who authorizes purchasing in your company - is it tightly managed or

spread among a number of (junior) people?
o Are purchase quantities geared to demand forecasts?
o Do you use order quantities which take account of stock-holding and
purchasing costs?
o Do you know the cost to the company of carrying stock?
 o Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms, and reduce
dependence on a single supplier.
o How many of your suppliers have a returns policy?
o Are you in a position to pass on cost increases quickly through price
increases to your customers?
o If a supplier of goods or services lets you down can you charge back the
cost of the delay?
o Can you arrange (with confidence!) to have delivery of supplies staggered
or on a just-in-time basis?

There is an old adage in business that if you can buy well then you can sell
well. Management of your creditors and suppliers is just as important as the
management of your debtors. It is important to look after your creditors - slow
payment by you may create ill-feeling and can signal that your company is
inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance
the future viability and profitability of your company

Key Working Capital Ratios

The following, easily calculated, ratios are important measures of working
capital utilization.

Ratio Formulae Result Interpretation

Stock Average Stock = x On average, you turn over the value of
Turnover * 365/ days your entire stock every x days. You may
(in days) Cost of Goods need to break this down into product
Sold groups for effective stock management.
 Obsolete stock, slow moving lines will
extend overall stock turnover days.
Faster production, fewer product lines,
just in time ordering will reduce average
days.
It takes you on average x days to collect
monies due to you. If youre official
Receivables credit terms are 45 day and it takes you
Debtors * 365/ = x
Ratio 65 days... why?
Sales days
(in days) One or more large or slow debts can drag
out the average days. Effective debtor
management will minimize the days.
On average, you pay your suppliers
every x days. If you negotiate better
credit terms this will increase. If you pay
Creditors *
Payables earlier, say, to get a discount this will
365/ =x
Ratio decline. If you simply defer paying your
Cost of Sales days
(in days) suppliers (without agreement) this will
(or Purchases)
also increase - but your reputation, the
quality of service and any flexibility
provided by your suppliers may suffer.
Current Assets are assets that you can
readily turn in to cash or will do so
within 12 months in the course of
business. Current Liabilities are amount
Total Current you are due to pay within the coming 12
Current Assets/ =x months. For example, 1.5 times means
Ratio Total Current times that you should be able to lay your hands
Liabilities on $1.50 for every $1.00 you owe. Less
than 1 times e.g. 0.75 means that you
could have liquidity problems and be
under pressure to generate sufficient cash
to meet oncoming demands.
(Total Current
Assets - Similar to the Current Ratio but takes
=x
Quick Ratio Inventory)/ account of the fact that it may take time
times
Total Current to convert inventory into cash.
Liabilities
(Inventory +
Working A high percentage means that working
Receivables - As %
Capital capital needs are high relative to your
Payables)/ Sales
Ratio sales.
Sales
Other working capital measures include the following:

Bad debts expressed as a percentage of sales.

Cost of bank loans, lines of credit, invoice discounting etc.
Debtor concentration - degree of dependency on a limited number
of customers.

Once ratios have been established for your business, it is important to track
them over time and to compare them with ratios for other comparable
businesses or industry sectors.

When planning the development of a business, it is critical that the impact of

working capital be fully assessed when making cash flow forecasts.

DATA ANALYSIS AND INTERPRETATION

(Rs in cores)

2004/05 2005/6 2006/7

2007/8
A: CURRENT ASSETS:

Inventories: 529.06 591.58 634.96

686.65

Sundry debtors: 92.81 29.42 34.13

60.65
Cash and bank balance: 755.21 2193.71 3686.53
3516.46

Other current assets: 82.01 118.62 212.4

236.46

Loans and advances: 351.95 364.95 406.42

541.10

..

TOTAL: 1811.04 3257.88 5041.33

4974.08

B: CURRENT LIABELITIES:

Sundry creditors:

a) On capital a/c: 64.72 44.39 102.09

272.78

b) on others: 169.38 222.95

260.74 324.94

Other liabilities: 326.92 284.96

424.64 557.94

Security deposit: 55.92 55.10

74.66 162.69

Book over draft . 9.98

.

Provisions: 190.14 332.82 346.49

222.57

TOTAL: 806.39 940.15

1218.61 1540.40

WORKING CAPITAL (A-B): 1004.65 2317.73 3822.72

3433.68

IMPORTANT RATIOS OF NALCO

 1. OPERATING PROFIT MARGIN (%)

2. NET PROFIT MARGIN (%)

3. RETURN ON NETWORTH (RONW) (%)

4. RETURN ON CAPITAL EMPLOYED (ROCE)

CONCLUSION
After studying the components of working capital management
system of NALCO. It is found that the company has a sound and
effective policy and its performance is very good even in this bad
recession situation company has managed to post good profit.
Company is competing well at the domestic as well as the
international level and it is among the low cost producers of
aluminium in the world only because of its proper management of
finance, specially the short term finance known as the working
capital.
The company is a matured one and it has contributed well in the
countries growth and development and will also continue to perform
and contribute to the whole nation.
In conclusion ,we can say that the companies management is an
effective one and knows well the management of finance, its working
capital management system is very good because of which only the
company has got the status of NAVRATNA company.

BIBLIOGRAPHY

1. Financial Management..Prasanna Chandra

2. Financial Management.I.M.Pandey

3. Annual Report of NALCO.

4. Auditors Report, Directors Report and Investors Report.

5. Nalcos official website.www.nalco.co.in

6. www.google.co.in