Table of contents

Chapter no. Topics Page nos.

1. Introduction
-objectives
-significance

Research methodology
-objectives
-research instruments


2. Company profile
-about company

3. Literature Survey
-Working capital management


4. Data Analysis and Interpretation
-working capital level and analysis
-working capital ratio analysis


5. Working capital finance & estimation


6. Findings of study


7. Recommendations


8. Bibliography


9. Website references














INTRODUCTION TO REPORT

The present report with the topic Analysis of working capital and its management in NTPC Ltd,
Hazaribag is the study of working capital management in a maharatna company. This study has been
done in NTPC Ltd, Hazaribag Jharkhand for its coil mining project .NTPC is Indias largest power
Generation Company, and 337thin the ranking of the world biggest companies. This company is working
in the area of power generation, power trading mining and oil exploration, power equipment and other
like electricity distribution consultancy services to SEB and other etc. NTPC group currently has projects
across 18 Indian state including coil mining projects. The current study is done on its one of the coil
mining projects. Here I got the real exposure to the corporate world through NTPC. It was also an
opportunity to learn practical aspects of the theories which had been taught to us in our curriculum. The
study is dealing with the working capital management and analysis.
We can defined as
Various ratios help the organization to understand the effectiveness in various has been calculated have
to analysis effective utilization as well as management of working capital in NTPC. Then ratios are
calculated.
On the basis of calculation and analysis certain intorprefatrans and conclusions have been drawn. And on
the basis of these conclusions and findings. I have attempted to make a few recommendations. This
report has been made with the best efforts but then also there are some limitations exist which may lead
to some shortcomings.











Objective of Study
To get aware of workings of a Maharatna Organization, and to have first hand exposure to the one of the
best Organization of India.
To have an effective exposure of the actual Corporate working environment.
To learn different managerial skills.
To sharpen our skills of understanding and interpreting Financial Statements.
To see the applicability and usability of theory which have been taught to us during the first year of the
Professional course.
To develop better interpretational skills of Financial Data.
To understand the importance of WCM an organization.
To learn the techniques to manage different elements of working capital.
To understand ratios financial ratios and & their impact and uses.
To gain practical working exposure of SAP ERP.
To learn interactive skills in working environment.











SIGNIFICANCE OF WORKING CAPITAL
Working Capital is considered as the lifeblood and nerve centre of any business. In the present day modern
industrial world the term Working Capital refers to the short term funds required for financing the entire
duration of the operating cycle of a business known as Accounting Year. It is a trading capital not retained in
the business in a particular form for more than a year. This is used for carrying out the routine or regular
business operations consisting of purchase of raw materials, payment of direct and indirect expenses, carrying
out production, investment in stock, etc. In short it represents the fund by which the day-to-day business is
carried on.
Working Capital refers to that part of the firms capital, which is required for financing short-term business
requirements or Current Assets (CAs) such as Cash, marketable securities, debtors and inventories. Funds so
invested in Current Assets keep revolving fast and are being constantly converted into Cash and this Cash turns
out again in exchange for other Current Assets. Hence, it is also known as revolving or circulating or short-term
capital . Working Capital is the amount of funds necessary to cover the cost of operating enterprise.
Circulating capital means Current Assets of a company that are changed in the ordinary course of business from
one form to another, Eg, from Cash to inventories; inventories to receivables to cash.























Limitation of Our Study in NTPC Limited Hazaribagh

NTPC Being a Maharatna Organization, initially there was lot of difficulties in coping up with the pace
of the highly Professional Environment of the Organization.

NTPC Officials made the training so lively , interesting and fruitful that, the entire training period
ended up with rapid learning and at end we realized that training duration should have been increased.

In spite of the willingness of Senior Official they were finding it difficult to devote more time to
trainees; However our doubts were cleared and proper guidance was given as and when required.

Considering the business Confidentiality we were guided with the data that is available to Public and
stakeholders at large.

NTPC being a listed Company Presentation of Financial statement have been done as per the
requirement of listing agreement and Companies Act. For purpose of our study we have done a re-
alignment of the statements based on our academic knowledge and expertise to make our study more
meaningful in line with our academic knowledge.

This is a general study with main intent of understanding and gaining exposure to actual Industry
working environment hence a Hypothesis could not be drawn.

NTPC works in a highly specialized business and Professional environment; considering our purpose
and requirement and time constrains it was not possible to study all aspect of the organization in detail.










RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying now research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem along with the logic behind
them.
It is important for research to know not only the research method but also know methodology.
The procedures by which researcher go about their work of describing, explaining and predicting
phenomenon are called methodology. Methods comprise the procedures for generating, collecting
and evaluating data. All this means that it is necessary for researcher to design his methodology
for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will be largely depend
upon how much accurate we will be able to collect and how much time, money and effort will be
able to collect that necessary data.
Data collection plays an important role in research work. Without proper data available for
analysis we cannot do the research work accurately.

R RE ES SE EA AR RC CH H D DE ES SI IG GN N
Research design helps in proper collection and analysis of the data. It helps in further course of
action.

R RE ES SE EA AR RC CH H A AP PP PR RO OA AC CH H
The most appropriate research is Descriptive. This is because the goal of the study is clear and a
detailed research will help to understand the concept better.

T TY YP PE ES S O OF F D DA AT TA A C CO OL LL LE EC CT TI IO ON N
There are two types of data collection methods. Those are-
1. Primary Data Collection
2. Secondary Data Collection

Primary Data
The primary data is that data which is collected fresh or first hand, and for first time. It can be
collected through personal interview, questionnaire etc. to support the secondary data.

Secondary Data
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, balance sheets, books etc.


This project is based on primary data collected through personal interview of head of account
department, civil department and other concerned staff members of finance department. But
primary data collection had limitations such as matter confidential information thus project is
based on secondary information collected through three years annual report of the company,
supported by various books and internet sites. The data collection was aimed at study of working
capital management of the company.




RESEARCH INSTRUMENTS
While doing the research on working capital management, I have used following documents that are given
below:-
1- NTPC Financial Reports.
2- News Magazine of NTPC.
3- Audited Reports of NTPC.
4- NTPC annual Reports










































Evolution of NTPC Limited
2012

Ranked as No.1 IPP & Energy Trader Globally
Added 4170 MW of highest ever Capacity.
JV Formed in Bangladesh for 1320 MW Power Pant
2011

Ranked as No.1 IPP Globally by Platts
Foray into Nuclear Energy in JV with NPCIL.
First Power Project outside India.
2010
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S
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a

C
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d

N
T
P
C

Government of India divests 5% of Paid up Capital
Became a Maharatna Company.
2009 Long term fuel supply agreement with CIL for 20 Years.
Initiated Bulk Tendering of Super Critical Equipment.
NTPC Exceeds 30,000 MW Capacity mark.
2007 Strategic diversification by foray into equipment manufacturing.
2005
Rechristened as NTPC Limited in line with diversification in business
operations beyond Power Generation.
2004 Listed on Stock exchange.
Coal Mining block allocated.
2003 Commenced construction of Hydro Electric Power Project of 800 MW.
2002 NTPC Exceeds 20,000 MW Capacity mark.
1997 Government of India conferred status of Navratna Granting more
autonomy to the Board.
1990 NTPC builds up total installed Capacity of 10,000 MW.
1982 First 200 MW Unit at Singrauli Commissioned.
1975 Set up in 1975 with 100% Ownership with Government of India





Overview of NTPC Limited

NTPC, India's largest power company, was set up in 1975 to accelerate power development in India. It is
emerging as an Integrated Power Major, with a significant presence in the entire value chain of power
generation business.
NTPC ranked 337
th
in the 2012, Forbes Global 2000 ranking of the Worlds biggest companies. With a
current generating capacity of 41,184 MW, NTPC plans to become a 128,000 MW company by 2032.

NTPC was Incorporated on 7
th
November 1975 with a distinct Corporate Identity as a Government Company
with prime objective of Thermal Power Generation , however with growth and diversification in business
Portfolio a special resolution passed by the Shareholders at the Companys Annual General Meeting on 23
September 2005 and the approval of the Central Government under section 21 of the Companies Act, 1956, the
name of the Company "National Thermal Power Corporation Limited" was changed to "NTPC Limited" with
effect from 28 October 2005. The primary reason for this is the company's foray into hydro and nuclear based
power generation along with backward integration by coal mining.

The total installed capacity of the company is 41,184 MW (including JVs) with 16 coal based and 7 gas based
stations, located across the country. In addition under JVs, 7 stations are coal based & another station uses
Naphtha/LNG as fuel and 2 renewable energy projects. The company has set a target to have an installed
power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix
comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By
2032, non-fossil fuel based generation capacity shall make up nearly 28% of NTPCs portfolio.

NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total
national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency.

At NTPC, People before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been
awarded No.1, Best Workplace in India among large organisations and the best PSU for the year 2010, by the
Great Places to Work Institute, India Chapter in collaboration with The Economic Times.




staff :
Data Entry Operator Key Financial Highlights for the Financial Year 2012-13 :
Total Revenue Rs. 68775.51 Corers
PBIT Rs. 16818.88 Corers
Net Worth Rs. 80387.51 Corers.
Cash & Bank Balance Rs. 16867.70 Corers.

1. Business Scenario
Power is an essential requirement for all facets of life and has been recognized as a basic human need. It is a
critical infrastructure on which the socio-economic development of a country depends. Under the Constitution
of India, electricity is a concurrent subject at entry number 38 in the List III of the Seventh Schedule.
Presently NTPC is Indias Largest Power Generating Utility which Operates in business of Electricity
Generation through its Thermal Power Stations located all over India . The Installed Capacity and Indian
Power Generation scenario is as below:





Installed Capacity of Electricity Generation
Utility
As on 01.04.2012 Add' During Yr 2012-13 As on 31.03.2013
MW % MW % MW %
NTPC Limited 37014 19% 4170 35% 41184 19%
Others 162863 81% 7719 65% 170582 81%
Total 199877

11889

211766




Source MW %
Thermal 141713.68 67%
Nuclear 4780.00 2%
Hydro 39416.40 19%
RES & Others 25856.14 12%
Total 211766.22



Share of Total Electricity Generation in India
Utility
2011-12 2012-13
BUs % BUs %
NTPC Limited 222.07 25% 240.02 26%
Others 654.82 75% 671.63 74%
Total 876.89

911.65

Different Types of Power Generation In India
Type
2011-12 2012-13
BUs % BUs %
Thermal 708.81 81% 760.37 83%
Nuclear 32.87 4% 32.37 4%
Hydro 130.51 15% 113.63 12%
Bhutan Import 4.70 1% 5.28 1%
Total 876.89

911.65

Different Sources of Power in India as on 31.03.2013


As on 31.03.2013 India have total Installed Capacity of 211766 Mega-Watts out of which the Major
source is Thermal Power Which Accounts for 67% of the Total Installed Capacity.
Out of 211766 MW NTPCs Share alone is 19% which is in Thermal Power.
In year 2012-13 NTPC added 4170MW of Installed Capacity which is highest ever in a single year and
accounts for 35% of the Total Capacity Installed in FY 2012-13.This shows the seriousness of Capacity
Addition as compared to its Peers and its indicative of Robust Operational Growth.

67%
2%
19%
12%
Thermal
Nuclear
Hydro
RES

Generation
Different Sources

Thermal Power

In India Total share of Thermal Power Generated is 83% of which 26% is generated alone by NTPC.

















83%
4%
12% 1%
Thermal
Nuclear
26%
74%
NTPC
Limited
Others

NTPC - PAN India Presence






NTPC Asias most Valuable Power Company




NTPC - Presence Across the Power Value Chain






Maharatna Status Empowers the Organisation to exercise more Powers.


Fueling Growth
Under JV/SPV Route
Enhancing Fuel Security
Under JV/SPV Route



Current Cap of Rs.1000 Crores
equity investment in JV/SPV
restricts Project Size to around
1000- 1200 MW.
Owning a Coal Mine/ Stake in Coal Mine
would help ensuring availability of Coal on
Long Term Basis.



Increase in Cap to Rs.5000 Crores
per Project shall enable setting up of
large size Projects.
Enhanced delegation of Power facilitates
decision making since the size of investment
can be upto Rs.5000 Crores per acquisition.


Empowered to Create and wind up all below Board Level Positions







About NTPC Limited, Coal Mining Project Hazaribag
In a major backward integration move to create fuel security, NTPC has ventured into coal mining business
with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India
has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Out
of these 7 Coal Blocks 3 Coal Blocks namely Pakri Barwadih, Chatty Bariatu and Keredari are located in District
Hazaribagh and the Hazaribagh Unit of NTPC is vested with the responsibility of mining Coal for Captive
Consumption of its Power Plant from these Coal Mining Project. Presently the Project is in Gestation Phase
and activities related to Land Acquisition for Purpose of Mining are in progress .

The Project is headed by a General Manager who in turn is Reported by different Departmental Heads.
Different Departments are vested with Different Functions and act toward a single Goal of Development of the
Project. Various Departments of the Project are as below :
1. Finance and Accounts Department takes care of Managing the Finances and Accounting Activities of
the Project.
2. Human Resource Department takes care of different HR,IR and other associated functions.
3. Civil Construction Department takes care of Civil Constructions activities of the Project.
4. Electrical Erection Department takes care of Installation of different Electrical Plant and Equipment.
5. Planning and System Department is vested with responsibility of Planning different activities.
6. IT Department Gives Computer and Networking Support.
7. Land Acquisition Department is vested with responsibility of Land Acquisition Activities.
8. R& R department is vested with responsibilities of Resettlement and Rehabilitation of displaced
People , in addition they take care of Community Development Activities.












Functioning and Organisation Structure of Finance Department:

As our Specialisation included the Studies of Finance and got our Summer Training in Finance and Accounts
Department of the Organisation we did a study of different functions of Finance Department. Finance
Department of this Project is vested with following activities:

Accounts and Audit
Preparation of books of Accounts of the Project and getting them Audited after necessary review.
Bank & Cash
Managing cash/funds flow through daily/weekly/monthly Cash flow. Raising fund requisition on timely
basis to meet fund requirment. Handling all Bank related transactions.
Establishment
Takes care of payroll accounting and payment, payment of all employee entitlement claims like travelling
allowance, LTC, medical bills, contingent expenditures, HBA, car/two-wheeler advance, computer advance
etc.
This section is also responsible for employee PF deductions, employers contribution, filing returns with PF
commissioner and maintenance of PF trust.
MIS
Responsible for preparation and submission of all MIS reports internal (to own co. management) as well
as external(Ministry of Power & Finance, CEA etc.)
Financial Concurrence
Financial vetting of cost estimates of work and purchase order proposals, financial vetting of comparative
statements after tendering and financial concurrence of work/purchase order proposals.
Budget(Construction)
Review of project construction budget, for timely utilisation of Budget .

Taxation
Compliances of requirement of different Direct and Indirect Taxation Activities like TDS, Remittance of
TDS , Issue of Different Certificates etc. Responsible for income tax, service tax and sales tax assessment;
issuance of circulars for important changes in taxation laws; attending court hearings.
Bills Payable
Timely processing of All the services, supplies and miscellaneous bills to different agencies .
All above activities are taken care by following Officials of the Unit to whom we are indebted for enhancement
of our Practical Working Exposures of their Specific area of work :
1. HoD (Finace)
2. DGM(Finance- Books Budget , Cash & Bank)- Supported by
(i) Manager (Cash and Bank)
(ii) Dy.Manger (Books and Budget)
3. DGM (Works and Establishment) Supported by
(i) Dy. Manager (Works Bills)
(ii) Dy.Manager (Establishment)
4. Senior Manager (Concurrence)
(i) Above Officers have below support
(ii) Attendants













ORGANISATIONAL STRUCTURE OF COAL MINING PROJECT HAZARIBAG (FINANCE
DEPTT.)

AGM FINANCE






















ANIRUDH RAHA
(DGM)
BISWAJEET HOTA
(DGM)
AMIT RAUTELA
(SENIOR MANAGER FINANCE)
B.K.SAHOO
(DEPUTY MANAGER
FINANACE)
SUJEET KUMAR
(DEPUTY MANAGER
FINANACE)
SUBBAL ROY
(DEPUTY MANAGER
FINANACE)
S.R.BARAI
(DEPUTY MANAGER
FINANACE)
DHANANJAY KUMAR
(DATA ENTRY)
MILAN KUMAR
(SENIOR ATTENDENT)
BRAHMDEV
(SENIOR ATTENDENT)


Balance Sheet as at Rs. In Crores
A EQUITY & LIABILITIES 31.03.2013 31.03.2012 31.03.2011
1 Shareholders fund


Share Capital 8245.46 8245.46 8245.46

Reserve & Surplus 72142.05 65045.71 59464.79

Shareholder's fund 80387.51 73291.17 67710.25
2 Deffered Revenue 1244.05 1430.06 854.48
3 Non Current Liabilities


Long Term Borrowings 53253.66 45908.27 39735.68

Deffered Tax Liabilities 915.3 636.9 602.95

Other Long Term Liabilities 1965.99 1729.06 2050.58

Long Term Provisions 739.92 603.7 561.9

NON CURRENT LIABILITIES 56874.87 48877.93 42951.11
4 Current Liabilities


Trade Payable 5158.77 4468.07 4088.01

Other Current Liabilities 10446.72 9554.95 7762.5

Short Term Provisions 7004.54 3215.62 2190.53

CURRENT LIABILITIES 22610.03 17238.64 14041.04

TOT EQUITY & LIABILITIES 161116.46 140837.8 125556.88
B ASSETS

1 Non Current Assets


Fixed Assets 100045.52 87084.22 74731.29

Non -Current Investment 9137.64 9583.92 10532.84

Long Term loans and Adv. 9633.45 5394.35 3901.96

Other non-current assets 1132.77 1371.88 459.15

NON-CURRENT ASSETS 119949.38 103434.37 89625.24
2 Current Assets


Current Investment 1622.46 1622.46 1812

Inventories 4057.19 3702.85 3639.12

Trade Receivables 5365.49 5832.51 1434.96

Cash & Bank Balances 16867.7 16141.83 16185.26

Short Term Loan & Advances 1745.53 1543.32 3777.86

Other Current Assets 11508.71 8553.4 9264.44

CURRENT ASSETS 41167.08 37396.37 36113.64

TOTAL ASSETS 161116.46 140830.74 125738.88

Statement of Profit and Loss for the Year Ended
Particulars 2012-13 2011-12 2010-11
Revenue from operations (gross) 65673.93 62052.23 55062.65
Other Income 3101.58 2778.42 2344.65
Total Revenue 68775.51 64830.65 57407.3
Expenses

Fuel 41018.25 41635.46 35373.78
Employee Cost 3360.12 3090.48 2789.71
Depreciation and amortisation expenses 3396.76 2791.7 2485.69
Generation,Administration & Other expenses 4181.5 3275.21 3287.56
TOTAL EXPENSES 51956.63 50792.85 43936.74
PBIT 16818.88 14037.8 13470.56
Finance Cost 1924.36 1711.64 1420.96
PBT 14894.52 12326.16 12049.6
TAX 3959.24 3102.43 2947.01
PAT 10935.28 9223.73 9102.59






































WORKING CAPITAL MANAGEMENT
Introduction
Working capital indicates the Capital or the Financial Resources required for day to day requirement of any
business operation. It also refers to some total of all current assets employed in the business process, which is
known as Gross Working capital concept while the term Net Working Capital Means excess of Current Assets
over Current Liabilities.
Gross concepts of working capital are useful in making correct estimate of working capital needs of the firms.
Net working capital is the portion of current assets (C.A) which cannot be financed by current liabilities (C.L).



CONSTITUENTS OF WORKING CAPITAL:-

1) CURRENT ASSETS: It refers to the assets which are used for day to day business operations of the
firm. It mainly constitutes of the following:
a) Inventories: - It represents all the raw materials and components of work in progress and
finished goods.
b) Trade debtors: - It comprises credit sales to customers.
c) Prepaid expense: - The expenses which have been paid for goods and services whose benefit
have yet to be received.
d) Loan and advances: - Loan and advances given by the firm to other firm for a very short
period of time.
e) Investments: - Is short term. It is surplus funds invested in the government security share and
short term bond.
f) Cash and Bank balances: - Assets represents cash in hand and at bank which is reserved for
meeting the operational requirement.
2) CURRENT LIABILITIES :- It is a part of working capital represent obligation which the
firm has to clear to the outside parties in a short period generally within a year and this is
mainly comprise of the following:
W.C. = C.A. C.L.
a) Sundry credit: - Liabilities which are steam out of purchases of raw material on credit terms
usually for a period of one or two months.
b) Bank o/d: - Withdrawals in excess of credit balance standing in the firms currents a/c with the
banks.
c) Short term loans: - Short term borrowing by the firms from bank and other firms part of C.L
as short terms loans.

TYPES OF WORKING CAPITAL
There are two types of W.C, which are as follows:-
1) Fixed / Regular / Permanent W.C.:- any business activity dose not comes to an end after the realization
of cash from customer.
For the company having continuous business process, regular supply of W.C requirement.
Fixed W.C is determined at the starting of the project planning.
2) Variable / Temporary W.C:- It fluctuates with the demand.
Any amount over and above the permanent level of W.C is temporary, fluctuating or variable W.C.
A amount of W.C needed to meet fluctuations in demand consequent upon changes in production and
sales as a result of seasonal changes.
APPROACHES OF W.C. :-
1) Hedging / Matching ;-
The hedging approaches suggest that long-term funds should be used to finance the fixed proportion of
C.A requirements which are required in a certain amount for a given level of operation.
Purely temporary requirements, the seasonal variations over and above the permanent financing needs
should be appropriately financed with short term funds (C.L)
This approach, therefore divides the requirements of total funds into permanent and seasonal
components, each being financial by a different source.

2) Conservative approach:-
This approach suggests that the estimated requirement of total funds should be met from long- term
funds should be restricted to only emergency situations or when there is an unexpected outflow of funds.

3) Aggressive approach: - Suggests that any firm has to use less long-term funds.
According to this, L.T funds should not be used to finance the whole permanent W.C.
Some part of permanent W.C should be financed from S.T funds.
Risk is high in this ratio.
NEED OF WORKING CAPITAL
Essentially sales generate working capital so long as cash, costs and expenses are less than sales income.
However sale is not immediately converted into cash. There is a time gap between conversion of goods and
receipt of cash.
Working capital is required for this period in order to maintain the satisfactory level or run the firm for
production of finished goods to sales of goods. So, corporation generally maintain the working capital an
opposition to purchase raw material, pay salaries to employees and wages, administrative expenses,
warehousing expenses and other expenses required for manufacturing the finished good to be sold to the
consumer.
The determination of working capital cycle is helpful for budgeting or forecasting and improving
previous working capital ratio.

SOURCES OF 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.
CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Growth may be stunted. It may become difficult for the enterprise to undertake profitable projects
due to non-availability of working capital.
Implementation of operating plans may become difficult and consequently the profit goals may not
be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non availability of the
working capital.
The business may fail to honors its commitment in time, thereby adversely affecting its credibility.
This situation may lead to business closure.
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.
Non-availability of stocks due to non-availability of funds may result in production stoppage.
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
Excess of working capital may result in unnecessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash
management.
It may make management complacent leading to its inefficiency.
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




WORKING CAPITAL CYCLE



Determinants of Working Capital

There is no set of universally acceptable rules to ascertain the Working Capital needs of a business organization.
The following is the description of factors, which generally influence the Working Capital requirements of
firms.

Nature of Business

The Working Capital requirements of a firm basically depend upon the nature of its business. Public utility
undertakings like Electricity, Water Supply and Railways need very limited Working Capital because they offer
only cash sales and supply services. As such no funds are tied up in inventories and receivables. On the other
hand, trading and financial firms require less investment in fixed assets, but have to invest large amount in
Current Assets like materials, receivables and Cash. The manufacturing firms also require sizable Working
Capital along with fixed investments.

e.g.:
a) In enterprise engaged in the manufacturing of essential product of daily consumption would
need less amount of working capital.

b) If the enterprise dealing in luxuries product it will require a large reserve of net working
capital.

Size of Business/Scale of Operation
The greater the size of a business unit, the larger will be the requirements of Working Capital. In some cases a
smaller concern may also need more Working Capital due to high overhead charges, inefficient use of available
resources and other economic disadvantages of small size.

e.g.;
a) 10 20 % of W.C is required in Hotels and restaurants.
b) 20 30 % of W.C in services and semi manufacturing organizations.
c) 80 90 % of W.C in hi-tech or heavy industry like steel, cement etc.

Production Policy
The demand is subject to wide fluctuations due to seasonal variations, where the requirement of Working
Capital depends upon the production policy. Production could be kept either steady by accumulating inventories
during slack periods with a view to meet high demand during the peak season or the production could be
curtailed during the slack season and increased during the peak season. If the policy is to keep production
steady by accumulating inventories it will require higher Working Capital.
e.g.;
a) Line Vs Batch production policy
b) Seasonal Vs Bulk
Progressive accumulation of stock affects the requirements of W.C .Higher
The accumulation, higher is the W.C requirement. e.g.; Automobile sector

Diversification of the business also require the high amount of W.C.

Manufacturing Process or Length of Production Cycle

The requirement of Working Capital increases in direct proportion to the length of manufacturing process. The
longer the process period of manufacture, the greater will be the amount of Working Capital required.

Seasonal Variations
In certain industries raw materials are not available throughout the year. They have to buy raw materials in bulk
during the season to ensure an uninterrupted flow and process it during the entire year. A huge amount is
blocked in the form of material inventories during such season which gives rise to more Working Capital
requirements. Generally, during the busy season, a firm requires larger Working Capital than in the slack
season.

Working Capital Cycle
In a manufacturing concern, the Working Capital cycle starts with the purchase of raw materials and ends with
the realization of Cash from the sale of finished products. The speed with which the Working Capital completes
one cycle determines the requirement of Working Capital. The larger the period of cycle, the greater will be the
requirement of Working Capital.

Rate of Stock Turnover
There is a high degree of inverse relationship between the quantum of Working Capital and the velocity or
speed with which the sales are affected.
A firm having a high rate of stock turnover will need lower amount of Working Capital as compared to a firm
having a low rate of turnover.

Credit Policy
A firm, which purchases its requirements on credit and sells its product or 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 a larger amount of Working Capital. Business Cycle Business cycle refers to
alternate expansion and contraction in general business activity. The period of boom needs larger amount of
Working Capital. On the contrary, in times of depression firms may also require large amount of Working
Capital.

It may depend on the:-
Economy conditions
Prevailing trade practices
Collection procedure
Customer patronage
Terms of creditors Vs terms of debtors

Rate of Growth of Business
The Working Capital requirements of a concern increases with the growth and expansion of its business
activities. In a fast growing concern large amount of Working Capital is required even though the relationship
between the growth in the volume of business and the growth in the Working Capital is difficult to determine.

Earning Capacity and Dividend Policy

Firms with high earning capacity may generate cash profits from operations and contribute to the Working
Capital. Likewise, a firm that maintains a steady high rate of cash dividend, irrespective of its quantum of
profits, needs more Working Capital.

Price Level Changes
Generally the rising prices will require the firm to maintain larger amount of Working Capital as more funds
will be required to maintain the same Current Assets. Some firms may be affected much while some others may
not be affected at all by the rise in prices.

Business cycle: - Business cycle of the enterprise also determines the W.C requirement.
In times of economic and business oscillations, the management has to carry enough W.C to handle the
situation of the upward and downward swings.



Other factors
Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy,
assets structure, importance of labour and banking facilities also influence the requirements of Working Capital.

Monitoring of Coal Supplies

Long Term Fuel Supply Agreement
Broken into Quarterly Quantities between NTPC and coal suppliers
Later Broken into Monthly Quantity
For Daily scheduling constant interaction with supplier in case of Pit Head station
Daily Monitoring of Stock w.r.t Schedulin






























































Working capital Level and Analysis


4.1 Working capital level.
4.2 Working capital trend analysis.
4.3 Current assets analysis.
4.4 Current liabilities analysis.
4.5 Change of working capital.
4.6 Operating cycle.
4.7 Working capital leverage.





















4.1 Working capital level

The consideration of the level investment current assets should avoid two danger point excessive and
inadequate investment in current assets. Investment in current assets should be just adequate, not more or less,
to the need of the business firms. Excessive investment in current assets should be avoided because it impair the
firms profitability, as idle investment earns nothing. On the other hand inadequate amount of working capital
can be threatened solvency of the firms because of its inability to meet its current obligation. It should be
realized that the working capital need of the firms may be fluctuating with changing business activity. This may
cause excess or shortage of working capital frequently. The management should be prompt to initiate an action
and current imbalance.

Table 4.1-Size of working capital
Particular 2010-11 2011-12 2012-13
A)Current Assets
Current Investment 1822 1622 1622
Inventories 3639 3703 4057
Trade Receivable 1435 5833 5365
Cash & Bank Balance 16185 16142 16868
Short Term Loan & Advance 3778 1543 1746
Other Current Assets 9264 8553 11509
Total of A(Gross w.c.) 36114 37396 41167
B)Current Liabilities
Current Liabilities 7763 9955 10447
Provisions 2191 3216 7005
Trade Payable 4088 4468 5159
Total of B 14041 17239 22610

Net W.C.(A-B) 22073 20158 18557








4.2) Working capital trend analysis

In working capital analysis the direction at change 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 annalist 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.

In the words of S.P. Gupta The term trend is very commonly used in day-to- day conversion trends, also
called secular or long term need is the basic tendency of population, sales, income, current assets, and current
liabilities to grow and decline over a period of time.

According to R. C. Galeziem The trend is defined as smooth irreversible movement in the series. It can be
increasing and decreasing.

Emphasizing the importance of working capital trends, Man Mohan and Goyal have point out that analysis the
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 mea in managing the working capital
funds.

Further, any one trend by itself is not very informative. The experts Illustrated their ideas in the words, An
upwards trends coupled with downward trend or sells, accompanied by market increase in plant investment
especially if the increase in planning investment by fixed interest obligation.











Table 4.2-Working capital size
(Rs. In crores)
Particular 2010-11 2011-12 2012-13
Current Assets 36114 37396 41167
Current Liabilities 14041 17239 22610
Total(CA-CL) 22073 20158 18557
W.C. Indices 100 92.06 81.05


Chart 4.2-Working capital size






0
5000
10000
15000
20000
25000
30000
35000
40000
45000
CURRENT
ASSETS(C.A.)
CURRENT
LIABILITIES(C.L.)
WORKING
CAPITAL (C.A.-
C.L)
36114
14041
22073
37396
17239
20158
41167
22610
18557
2010-11
2011-12
2012-13



Observation
It was observed that in the year 2011-12 current assets increase by around 3.55% and current liabilities
increased by 22.78% which affect as working capital decreased by 18.68%. In the year 2012-13 net working
capital decrease to Rs.18557 crores from Rs.20158 crores ,The decrease in working capital is 8%. While current
assets increased by 10% and current liabilities by 31.16%. It shows that management is using long term funds to
short term requirements. This together pushed down the net working capital to the present level. The fall in
working capital is a clear indication that the company is utilizing its short term resources with efficiency.


4.3) Current assets

Total assets are basically classified in two parts as fixed assets and current assets. Fixed assets are in the nature
of the 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.








100
92.06
81.05
0
20
40
60
80
100
120
2010-11 2011-12 2012-13
WORKING CAPITAL INDICES
WORKING CAPITAL
INDICES

Table 4.3-Current assets size
(Rs. In Crores)
Particulars 2010-11 2011-12 2012-13
Current Investment 1812 1622 1622
Inventories 3639 3703 4057
Trade Receivables 1435 5833 5365
Cash & Bank Balance 16185 16142 16868
Short Term Loan & Advance 3778 1543 1746
Other Current Assets 9264 8553 11509
Total of C.A.(Gross W.C.) 36114 37396 41167
C.A. Indices 100 103.55 110.09


Chart 4.3- C.A. Size




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 cashalone, the profitability will be decreased will be decreased because cash is non
earning assets.


100
103.55
110.09
94
96
98
100
102
104
106
108
110
112
2010-11 2011-12 2012-13
CURRENT ASSETS INDICES
CURRENT ASSETS
INDICES














Table 4.4 Composition of current assets
( No. In % )



















Particulars 2010-11 2011-12 2012-13
Current Investment 5.01 4.33 3.94
Inventories 10.22 9.90 9.85
Trade Receivables 3.97 15.59 13.03
Cash & Bank Balances 44.81 43.16 40.97
Short Term Loan & Advances 10.46 4.12 4.24
Other Current Assets 25.65 22.87 27.95

Total of Current Assets 36114 37396 41167
Indices 100 100 100

Chart 4.4 Current assets components













33000
34000
35000
36000
37000
38000
39000
40000
41000
42000
2010-11 2011-12 2012-13
36114
37396
41167
TOTAL OF CURRENT ASSETS
TOTAL OF CURRENT
ASSETS
100 100 100
0
20
40
60
80
100
120
2010-11 2011-12 2012-13
CURRENT ASSETS INDICES
CURRENT ASSETS
INDICES

4.4) Current Liabilities

Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditors means
supplier whose payment is due but not paid yet, thus creditors called as current liabilities. Current liabilities also
include short term loan and provision as tax provision. Current liabilities also includes bank overdraft. For some
current assets like bank overdrafts and short term loan, company has to pay interest thus the management of
current liabilities has importance.

Table 12.5 Current liabilities size
(In Crores)
Particulars 2010-11 2011-12 2012-13
Trade Payable 4088 4468 5159
Other Current Liabilities 7763 9555 10447
Short Term Provision 2191 3216 7005

Total Current Liabilities 14041 17239 22610
Indices of Current Liabilities 100 122.76 131.73













Chart 12.5






4.5) Changes in working capital

There are so many reasons to changes in working capital. These are:
1. Changes in sales and operating expenses:-
The changes in sales and operating expenses may be due to three reasons:
a) There may be long run trend of change e.g. the price of row material say oil may constantly raise
necessity the holding of large inventory.
0
5000
10000
15000
20000
25000
2010-11 2011-12 2012-13
14041
17239
22610
TOTAL CURRENT LIABILITIES
TOTAL CURRENT
LIABILITIES
100
122.76
131.73
0
20
40
60
80
100
120
140
2010-11 2011-12 2012-13
CURRENT LIABILITIES INDICES
CURRENT LIABILITIES
INDICES

b) Cyclical changes in economy dealing to ups and downs in business activity will influence the level of
working capital both permanent and temporary.
c) Changes in seasonality in sales activities.
2. Policy changes:-
The second major case of changes in the level of working capital is because of policy changes initiated by
management. The term current assets policy may be defined as the relationship between current assets and sales
volume.
3. Technology changes:-
The third major point if changes in working capital are changes in technology because changes in technology to
install that technology in our business more working capital is required.
A change in operating expenses rise or full will have similar effects on the levels of working following working
capital statement is prepared on the base of balance sheet of last two year.

Table 4.6 Statement of changes in working capital
Particulars On
March12
On
March13
Increase in
W.C.
Decrease in
W.C.
Current Assets
Current Investment 1622 1622 - -
Inventories 3703 4057 354
Trade Receivables 5833 5365 468
Cash & Bank Balances 16142 16868 726
Short Term Loan &
Advances
1543 1746 203
Other Current Assets 8553 11509 2956
Current Liabilities
Trade Payable 4468 5159 691
Other Current Liabilities 9555 10447 892
Short Term Provisions 3216 7005 3789
Total Current
Liabilities
17239 22610 5372
Working Capital(A-B) 20158 18557 197

Operating Cycle

The need of working capital arrived because of time gap between production of goods and their actual
realization after sale. This time gap is called operating Cycle or Working Capital Cycle. The operating
cycle of a company consist of time period between procurement of inventory and the collection of cash from
receivables. The operating cycle is the length of time between the companys outlay on raw materials, wages
and other expanses and inflow of cash from sales of goods.

Operating cycle is an important concept in management of cash and management of cash working capital. The
operating cycle reveals the time that elapses between outlays of cash and inflow of cash. Quicker the operating
cycle less amount of investment in working capital is needed and it improves profitability. The duration of the
operating cycle depends on nature of industries and efficiency in working capital management.

Cash Cycle:-

One of the distinguishing features of the fund employed as working capital is that constantly changes its form to
drive business wheel. It is also known as circulating capital which means current assets of the company,
which are changed in ordinary course of business from one form to another, as for example, from cash to
inventories, inventories to receivables and receivables to cash.



Fig. Cash cycle

Basically cash management strategies are essentially related to the cash cycle together with the cash turnover.
\The cash cycles refers to the process by which cash is used to purchase the row material from which are
produced goods, which are then send to the customer, who later pay bills. The cash turnover means the number
of time firms cash is used during each year.

4.7) Working capital leverage

One of the important objectives of working capital management is by maintaining the optimum level of
investment in current assets and by reducing the level of investment in current assets and by reducing the level
of current liabilities the company can minimize the investment in the working capital thereby improvement in
return on capital employed is achieved;. The term working capital leverage refers to the impact of level or
working capital on companys profitability. The working capital management should improve the productivity
of investment in current assets and ultimately it will increase the return on capital employed. Higher level of
investment in current assets than is actually required means increase in the cost of interest charges on short term
loans and working capital finance raised from banks etc, and will result in lower return on capital employed and
vice versa. Working capital leverage measures the responsiveness of ROCE (return on Capital Employed) for
changes in current assets. It is measures by applying the following formula,

The working capital leverage reflects the sensitivity of return on capital employed to changes in level of current
assets. Working capital leverage would be less in the case of capital intensive capital employed is same working
capital leverage expresses the relation of efficiency of working capital management with the profitability of the
company.










4.A.Working Capital Ratio Analysis

4.1) Introduction
4.2) Role of ratio analysis
4.3) Limitations of ratio analysis
4.4) Classifications of ratios
4.5) Efficiency
4.6) Liquidity ratio























4.1) Introduction
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
judgement of the firms financial performance.

4.2) Role of ratio analysis
Ratio analysis helps to appraise the firms in the term of their 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 data may be of good assistance to predict the future.
E.g. On the basis of inventory 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.


4.3) Limitations of ratio analysis

1. the basic limitation of ratio analysis is that it may be difficult to find a basis for making the comparison.
2. Normally, the ratios are calculated on the basis of historical financial statements. An organisation for the
purpose of decision making may need the hint regarding the future happiness rather than those in the past. The
external analyst has to depend upon the past which may not necessary to reflect financial position and
performance in future.
3. The technique of ratio analysis may prove inadequate in some situations if there is differs in opinion
regarding the interpretation of certain ratio.
4. As the ratio calculates on the basis of financial statements, the basic limitation which is applicable to the
financial statement is equally applicable in case of technique of ratio analysis also i.e. only facts which can be
expressed in financial terms are considered by the ratio analysis.
5. The technique of ratio analysis has certain limitations of use in the sense that it only highlights the strong or
problem areas, it does not provide any solution to rectify the problem areas.

4.4) Classification of working capital ratio

Working capital ratio means ratios which are related with the working capital management e.g. current assets,
current liabilities, liquidity, profitability and risk turnoff etc. these ratio are classified as follows:
1. Efficiency ratio
The ratios compounded under this group indicate the efficiency of the organization to use the various kinds of
assets by converting them the form of sale. This ratio also called as activity ratio or assets management ratio. As
the assets basically categorized as fixes assets and current assets and the current assets further classified
according to individual components of current assets viz. investment and receivables or debtors or as net current
assets, the important of efficiency ratio as follows:
a) Working capital turnover ratio
b) Inventory turnover ratio
c) Receivable turnover ratio
d) Current assets turnover ratio
e) Liquidity ratio
The ratios compounded under this group indicate the short term position of the organization and also indicate
the efficiency with which the working capital is being used. The most important ratio under this group is
follows:
a) Current ratio
b) Quick ratio
c) Absolute liquid ratio

4.5) Efficiency ratio
a) 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 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 working capital.

Table 4.1 W.C. turnover
(Rs. In Crores)
Particular 2010-11 2011-12 2012-13
C.O.G.S. 55062.65 62052.25 65673.93
Net W.C. 22073 20158 18557

W.C. TOR 2.5 3.07 3.54


Chart No. 4.1






0
10000
20000
30000
40000
50000
60000
70000
2010-11 2012-13 2013-14
55062.65
62052.25
65673.93
22073
20158
18557
COST OF GOODS SOLD
NET WORKING CAPITAL



2) Inventory turnover ratio

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is calculated
by dividing the cost of goods sold by average inventory:




The average inventory is the average of opening and closing balance of inventory in a manufacturing company.

Table 4.2 Inventory turnover
(Rs. In Crores)
Particulars 2010-11 2011-12 2012-13
Cost of goods sold 43936.74 50792.85 51956.63
Avg. Inventories 3848 3880 3671

Inventory turnover ratio 11.42 13.09 14.15







2.5
3.07
3.54
0
0.5
1
1.5
2
2.5
3
3.5
4
2010-11 2012-13 2013-14
WORKING CAPITAL TURNOVER RATIO
WORKING CAPITAL
TURNOVER RATIO


Chart 4.2












0
10000
20000
30000
40000
50000
60000
2010-11 2011-12 2012-13
43936.74
50792.85
51956.63
3848 3880 3671
cost of goods sold
avg. inventories
11.42
13.09
14.15
0
2
4
6
8
10
12
14
16
2010-11 2011-12 2012-13
inventory turnover ratio
inventory turnover ratio

Observations
It was observed that inventory turnover ratio indicates maximum sales achieved with the minimum investment
in the inventory. As such, the general rule high inventory turnover is desirable but high inventory turnover ratio
may not necessary indicates the profitable situation. An organization, in order to achieve a large sales volume
may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.


3) Receivable turnover ratio

The derivation of this ratio is made in following way






Gross sales are inclusive of excise duty and scrap sales because both may enter in to receivables by credit sales.
Average receivable calculate by opening plus closing balance divide by 2. Increasing volume of receivables
without a matching increase in sales is reflected by a low receivable turnover ratio. It is indication of slowing
down of the collection system or an extend line of credit being allowed by the customer organization. The latter
may be due to the fact that the firm is loosing out to competition. A credit manager engage in the task of
granting credit or monitoring receivable should take the hint from a falling receivable turnover ratio use his
market intelligence to find out the reason behind such failing trend.

Debtor turnover indicates the number of times debtors turnover each year. Generally the higher the value of
debtors turnover, the more is the management of credit.

Table 4.3 Receivable turnover ratio
(Rs. In Crores)
Particulars 2010-11 2011-12 2012-13
Gross Sales 55063 62052 65674
Average account receivables 2153 3634 5599

Receivable Turnover Ratio 25.57 17.07 11.72

Chart no. 4.3




0
10000
20000
30000
40000
50000
60000
70000
2010-11 2011-12 2012-13
55063
62052
65674
2135
3634
5599
gross sales
average account
recievables


4) Current assets turnover ratio

Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current assets current
assets includes the assets like inventories, sundry debtors, bills receivable, cash in hand or bank, marketable
securities, prepaid expenses and short term loans and advances. This ratio includes the efficiency with which
current assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio
indicate to reduced the lock up o funds in current assets. An analysis of this ratio over a period of time reflects
working capital management of a firm.

Table 4.4 Calculation of current assets turnover ratio
(Rs. In Crores)
Particular 2010-11 2011-12 2012-13
Sales 55062.65 62052.23 65673.93
Current Assets 36114 37396 41167

Current Assets TOR 1.52 1.66 1.59



25.57
17.07
11.72
0
5
10
15
20
25
30
2010-11 2011-12 2012-13
recievable turnover ratio
recievable turnover
ratio

Chart No. 4.4













0
10000
20000
30000
40000
50000
60000
70000
2010-11 2011-12 2012-13
55062.65
62052.23
65673.93
36114
37396
41167
SALES
CURRENT ASSETS
1.52
1.66
1.59
1.45
1.5
1.55
1.6
1.65
1.7
2010-11 2011-12 2012-13
CURRENT ASSETS TURNOVER RATIO
CURRENT ASSETS
TURNOVER RATIO

4.6) Liquidity ratio
1) Current ratio
The current is calculated by dividing current assets by current liabilities:






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 of current liability 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.





Table 4.5 Current ratio
(Rs. In Crores)
Particular 2010-11 2011-12 2012-13
Current Assets 36114 37396 41167
Current Liabilities 14041 17239 22610
Current Ratio 2.57 2.17 1.82






Chart No. 4.5






Observations
The current ratio indicates the availability of funds to payment of current liabilities in the form of current assets.
A higher ratio indicates that there were sufficient assets available with the organization which can be converted
in cash, without any reduction in the value. As ideal current ratio is 2:1, where current ratio of the firm is more
than 2:1, it indicates the unnecessarily investment in the current assets in the form of debtor and cash balance.



0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2010-11 2011-12 2012-13
36114
37396
41167
14041
17239
22610
Current Assets
Current Liabilities
2.57
2.17
1.82
0
0.5
1
1.5
2
2.5
3
2010-11 2011-12 2012-13
Current Ratio
Current Ratio

2) Quick ratio
Quick ratios establish the relationship between quick or liquid assets and liabilities. An asset is liquid if it can be
converting in to cash immediately or reasonably soon without a loss of value. Cash is the most liquid assets.
Other assets which are considered 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.








Table 4.6 Quick Ratio
(Rs. In Crores )






Chart No. 13.6


0
5000
10000
15000
20000
25000
2010-11 2011-12 2012-13
19432
23597
23855
14041
17239
22610
CASH
CURRENT LIABILITIES
Particular 2010-11 2011-12 2012-13
Cash 19432 23597 23855
Current Liabilities 14041 17239 22610

Quick ratio 1.38 1.36 1.06




Observations
Quick ratio indicates that the company has sufficient liquid balance for the payment of current liabilities. The
liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is more than 1:1 over the period of time, it
indicates that the firm maintains the over liquid assets than actual requirement of such assets.

3) Absolute liquid ratio
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. Hence, only absolute liquid assets such as cash in hand, cash at bank, marketable
securities are taken into consideration 1:2 is considered as ideal ratio. This ratio is shown as:











0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2010-11 2011-12 2012-13
QUICK RATIO
QUICK RATIO

Table 4.7 Absolute liquid ratio
(Rs. In Crores)
Particular 2010-11 2011-12 2012-13
Absolute Assets 16186 16142 16868
Current Liabilities 14041 17239 22610

Absolute liquid ratio 1.15 0.94 0.75


Chart No. 4.7


0
5000
10000
15000
20000
25000
2010-11 2011-12 2012-13
16186 16142
16868
14041
17239
22610
ABSOLUTE ASSETS
CURRENT LIABILITIES


Observations
Absolute liquid ratio indicates the availability of cash with company is sufficient because company also has
other current assets to support current liabilities of the company. The Absolute liquid ratio is 0.5:1 is suppose to
be standard or ideal but here ratio is more than 0.5:1 over the period of time, because of company carry more
cash balance, as a cash balance is ideal assets company has to take control on such availability of funds which is
affect on cost of the funds.


















1.15
0.94
0.75
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2010-11 2011-12 2012-13
ABSOLUTE LIQUID RATIO
ABSOLUTE LIQUID
RATIO









































Working Capital Finance

5.1) Introduction

5.2) Sources of Working Finance
























5.1) Introduction
Funds available for period of one year or less is called short term finance. In India short term finance are used as
working capital finance. Two most significant short term sources of finance for working capital are trade credit
and bank borrowing. Trade credit ratio of current assets is about 40%, it is indicated by Reserve Bank of India
data that trade credit has grown faster than the growth in sales. Bank borrowing is the next source of working
capital finance. The relative importance of this varies from time to time depending on the prevailing
environment. In India the primary source of working capital financing are trade credit and short term bank
credit. After determine the level of working capital, a firm has to consider how it will finance. Following are
sources of working capital finance.

5.2) Sources of Working Capital Finance
1) Trade credit
2) Bank Finance
3) Letter of credit
1) Trade Credit
Trade credit refers to the credit that a customer gets from suppliers of goods in the normal course of business.
The buying firms do not have to pay cash immediately for the purchase made. This deferral of payments is a
short term financing called trade credit. It is major source of financing for firm. Particularly small firms are
heavily depend on trade credit as a source of finance since they find it difficult to raised funds from banks or
other sources in the capital market. Trade credit is mostly an informal arrangement, and it granted on an open
account basis. A supplier sends goods to the buyers accept, and thus, in effect, agrees to pay the amount due as
per sales terms in the invoice. Trade credit may take the form of bills payable. Credit terms refer to the
condition under which the supplier sells on credit to the buyer, and the buyer required to pay the credit. Trade
credit is the spontaneous source of the financing. As the volume of the firms purchase increase trade credit also
expand. It appears to be cost free since it does not involve explicit interest charges, but in practice, it involves
implicit cost. The cost of credit may be transferred to the buyer via the increased price of goods supplied by
him.

2) Bank finance for working capital

Banks are main institutional source of working capital finance in India. After trade credit, bank credit is the
most important source of financing working capital in India. A bank considers a firms sales and production a
firms sales and production plane and desirable levels of current assets in determining its working capital
requirements. The amount approved by bank for the firms working capital is called credit limit. Credit limit is
the maximum funds which a firm can obtain from the banking system. In practice banks do not lend 100%
credit limit; they deduct margin money.

Forms of bank finance:-
a) Term Loan
b) Overdraft
c) Cash credit
d) Purchase or discounting of bills

a) Term Loan

In this case, the entire amount of assistance is disbursed at one time only, either in cash or the companys
account. The loan may be paid repaid in instalments will charged on outstanding balance.
b) Overdraft

In this case, the company is allowed to withdraw in excess of the balance standing in its Bank account.
However, a fixed limit is stipulated by the Bank beyond which the company will not able to overdraw the
account. Legally, overdraft is a demand assistance given by the bank i.e. bank can ask repayment at any point of
time.

c) Cash credit

In practice, the operations in cash credit facility are similar to those of overdraft facility except the fact that the
company need not have a formal current account. Here also a fixed limit is stipulate beyond which the company
is not able to withdraw the amount.

d) Bills purchased/discounted
This form of assistance is comparatively of recent origin. This facility enables the company to get the
immediate payment against the credit bills/invoice raised by the company. The banks hold the bills as a security
till the payment is made by the customer. The entire amount of bill is not paid to the company. The company
gets only the present worth of amount of bill from of discount charges. On maturity, bank collects the full
amount of bill from the customer.





3) Letter of credit

In this case the exporter and the importer are unknown to each other. Under these circumstances, exporter is
worried about getting the payment from the importer and importer is worried as to whether he will get goods or
not. In this case, the importer applies to his bank in his country to open a letter of credit in favour of the
exporter whereby the importers bank undertakes to pay the exporter or accept the bills or draft drawn by the
exporter on the exporter fulfilling the terms and conditions specified in the letter of credit.

Banks have been certain norms in granting working capital finance to companies. These norms have been
greatly influenced by the recommendation of various committees appointed by the Reserve Bank of India from
time to time. The norms of working capital finance followed by bank since mid-were mainly based on the
recommendations of the Tondan committee. The Chore committee made further recommendations of to
strengthen the procedure and norms for working capital fianc by banks.

























































Conclusion
Working capital management is important aspect of financial management. The study of working capital
management of NTPC ltd. has revealed that the current ratio was as per the standard industrial practice but the
liquidity position of the company showed an increasing trend. The study has been conducted on working capital
ratio analysis, working capital leverage, working capital components which helped the company to manage its
working capital efficiency and affectively.

1. Working capital of the company are decreasing year on year basis..

2. Positive working capital indicates that company has the ability of payments of short terms liabilities.

3. Working capital decreased because of increment in the current assets is more than increase in the current
liabilities. It indicates that company increasing their control over WC.

4. Companys current assets were always more than the requirement it affect on profitability of the company.

5. Current assets are more than current liabilities indicate that company used long term funds for short term
requirement, where long term funds are most costly then short term funds.

6. Current assets components, cash and bank are near about 42% of total CA, It shows that management of cash
is not up-to mark.

7. In the year 2011-12 working capital decreased because of increased the expenses as manufacturing expenses
and increase the price of raw material as increased in the inflation rate.

8. Inventory was supporting to sales, thus inventory turnover ratio was increased in the year 2010-11 and again
slightly increased in the year 2012-13.









































Recommendations
Recommendation can be use by the firm for the betterment increased of the firm after study and analysis of
project report on study and analysis of working capital. I would like to recommend.

1. Company should raise funds through short term sources for short term requirement of funds, which
comparatively economical as compare to long term funds.

2. Company should take control on debtors collection period.

3. Company has to take control on cash balance because cash is non earning assets and increasing cost of funds.

4. Company should reduce the inventory holding period with use of zero inventory concepts.

Over all company has good liquidity position and sufficient funds to repayment of liabilities. Company has
accepted conservative financial policy and thus maintaining more current assets balance. Company is increasing
sales volume per year which supported to company for sustain 1
st
position in India.













Introduction to ERP
ERP is abbreviation of Enterprise Resource Planning

ERP is one of the most widely implemented business software systems in a wide variety of industries and
organizations. ERP software consists of multiple software modules that integrate activities across functional
departments - from production planning, parts purchasing, inventory control and product distribution to order
tracking. Most ERP software systems include application modules to support common business activities like
finance, accounting and human resources.

ERP software attempts to integrate business processes across departments into a single enterprise-wide
information system. The major benefits of ERP are improved coordination across functional departments and
increased efficiencies of doing business. The implementations of ERP systems help to facilitate day-to-day
management as well. ERP software systems are originally and ambitiously designed to support resource
planning portion of strategic planning.

There are four components of an ERP System :

1) ERP software,
2) Business Processes that ERP software supports,
3) Users of ERP systems, and
4) Hardware and Operating Systems that run ERP applications


ERP IN NTPC
Widely Used ERP Packages are SAP, Baan, Ram co, PeopleSoft etc. However SAP is one of the most worlds
widely used ERP Package.

Originally SAP was founded by five (5) prior IBM employees in 1972 who wanted to create a real-time
business data system. The first name chosen for the company was Systeme, Anwendungen und Product in
der Datenverarbeitung (or SAP) but instead, what we know today as the company SAP was originally
called Systemanalyse und Programmentwicklung or in English, Systems analysis and program development.

NTPC Uses all the modules of SAP ERP i.e.
1. For Finance & Accounts Function; FI Module.
2. For Contract, Procurement & Material Management; MM Module.
3. For HR Function: HCM Module.

FI Module of SAP ERP in NTPC
Finance Department of NTPC Uses FI Module of SAP for their day to day activity.
FI module is a T-Code (Transaction Code) based module.
For each and every process there are defined T Codes which captures the data.
T-Codes are available in the screen itself.
Main T Codes Used is as below:
1. FB01 For Passing Journal Voucher.
2. MIRO For Processing Payments.
3. ZFIBS For Balance Sheet run.
4. Fbl1n For Vendor/Customer Balances.
5. Fbl3n For Gl Balances.
6. FG03 For different MIS reports.

All T codes are available in screen itself for facility of the users.













































BIBLIOGRAPHY

Books Referred

1. I.M. Pandey Financial Management Vikas Publishing House Pvt. Ltd. Ninth Edition 2006.

2. P.V. Kulkarni & B.G. Satyaprasad Financial Management - Himalaya Pulblishing House Thirteenth
edition 2005.

3. K.V. Smith Management of Working Capital Mc-Grow-Hill New York.





























































Websites References



1. www.ntpc.co.in
2. www.google.co.in
3. www.workingcapitalmanagement.com