Arpan Project Report on Working Capital Management

1
Project Report
ON
WORKING CAPITAL MANAGEMENT
IN
ORISSA POWER TRANSMISSION CORPORATION LIMITED
INTERNAL GUIDE EXTERNAL GUIDE
Mr. Dipti Ranjan Sadhangi Mr. Bibhuti Bhusana Nayak
(Prof. of AMITY) A.G.M. (corporate finance),
OPTCL
SUBMITTED BY
Arpan Ghosh
PGPM+MBA
BATCH (2011-2013)
(3rd
semester)
Roll no.-A30401911004

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AMITY GLOBAL BUSINESS SCHOOL
ACKNOWLEDGEMENT
This project report bears the imprint of many people on it.
I am very much thankful to of Amity Global Business School, BBSR for the successful
completion of my SIP report
I would like to thank my project supervisor and guide Mr Dipti Ranjan Sadhangi, the
Faculty Member, AMITY Global Business School, Bhubaneswar, for his invaluable
guidance and assistance in preparing the project report and also contributing a lot for
accomplishment of this project.
I am highly indebted to Mr. Bibhuti Bhusana Nayak, A.G.M. (corporate Finance),
OPTCL, Bhubaneswar, my corporate guide, who guided me during the internship
period and suggested many issues which has been taken care in my project work.
I am also expressing my indebtedness to my parents and my friends who gave their full-
fledged co-operation for the successful completion of project.
Arpan Ghosh
MBA 2nd
year
AMITY BUSINESS SCHOOL

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DECLARATION
I am Arpan Ghosh, a bonafide student of AMITY Business School, BBSR, pursuing
Master of Business Administration, do hereby declare that the study entitled “A study
on working capital management in OPTCL”, is my authentic work, I have completed
my study under the guidance of Mr Dipti Ranjan Sadhangi, the Faculty Member,
Amity Global Business school, Bhubaneswar and my company guide Mr. Bibhuti
Bhusan Nayak, A.G.M. (corporate Finance), OPTCL, BBSR. All the data furnished
in this project report are authentic and genuine and this report neither full nor in part has
ever been submitted for award of any other degree to either this university or any other
university.
Arpan Ghosh
MBA 2nd
year
AMITY BUSINESS SCHOOL

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CHAPTERS CONTENTS PAGE
NO.
CHAPTER-1 INTRODUCTION
BACKGROUND OF THE STUDY 1
RELEVANCE OF THE STUDY 2
PROBLEM STATEMENT 2
HYPOTHESIS OF THE STUDY 3
OBJECTIVES OF THE STUDY 3
LIMITATIONS OF THE STUDY 4
CHAPTERISATION 4
CHAPTER-2 COMPANY PROFILE 5
CHAPTER-3 REVIEW OF LITERATURE 11
CHAPTER-4 RESEARCH METHODOLOGY
SELECTION OF TOPIC 18
RESEARCH DESIGN 18
SOURCES OF DATA COLLECTION 19
FORMULAS OF RATIO ANALYSIS &
DEFINITION
19
STATISTICAL AND ANALYTICAL TOOLS
USED FOR DATA ANALYSIS
22
CHAPTER-5 RESULTS & FINDINGS 23-54
CHAPER-6 CONCLUSIONS & RECOMMENDATION 55-56
CHAPTER-7 IMPLICATION FOR FUTURE
RESEARCH
57
DISCLAIMER
BIBLIOGRAPHY
ANNEXURE

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ABSTRACT
This project report entitled with “a study on working capital management in
OPTCL” is overall on working capital management of ORISSA POWER
TRANSMISSION CORPORATION LIMITED. The project on Working Capital
Management has been a very good experience. Every company faces the problem of
Working Capital Management in their day to day processes. An organization‟s cost can
be reduced and the profit can be increased only if it is able to manage its Working
Capital efficiently. At the same time the company can provide customer satisfaction and
hence can improve their overall productivity and profitability. Working capital is the
fund invested by a firm in current assets. Now in a cut throat competitive era where
each firm competes with each other to increase their production and sales, holding of
sufficient current assets have become mandatory as current assets include inventories
and raw materials which are required for smooth production runs. Holding of sufficient
current assets will ensure smooth and uninterrupted production but at the same time, it
will consume a lot of working capital. Here creeps the importance and need of efficient
working capital management. This project is a sincere effort to study and analyze the
Working Capital Management of OPTCL. The project was focused on making a
financial overview of the company by conducting a Working Capital analysis of
OPTCL, the years 2007 to 2010 and Ratios & various components of working capital &
for the year 2007 to 2010. The project was of 45days duration. During the project data
are collected from company records & annual reports. The data collected were then
compiled, tabulated and analyzed. Investments in current assets represent a substantial
portion of total investment. Investment in current assets & the level of current liabilities
have to be geared quickly to change sales. By studying about the company s different
areas it to know certain things like Acid test ratio is less than one. Standard current ratio
is 2:1 and for OPTCL it is ratios not satisfactory. Debtors of the company were high;
they were increasing year by year, so more funds were blocked in debtors. Quick ratio
is satisfactory for the company. Debtor‟s turnover ratio improved from 2007 to 2009 so
number of collection period decreases. But in 2010 debtor‟s turnover ratio decreases
and collection period increases. The study will give immense understanding about the
components of working capital, liquidity trend, working capital trend, utilisation of
current asset and short-comings if any and to measure the effective of working capital.

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CHAPTER-1
INTRODUCTION
BACKGROUND OF STUDY:
Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies fail each
year due to poor working capital management practices. Entrepreneurs often don't
account for short term disruptions to cash flow and are forced to close their operations.
In simple term, working capital is an excess of current assets over the current liabilities.
Good working capital management reveals higher returns of current assets than the
current liabilities to maintain a steady liquidity position of a company. Otherwise,
working capital is a requirement of funds to meet the day to day working expenses. So a
proper way of management of working capital is highly essential to ensure a dynamic
stability of the financial position of an organization.
OPTCL is one of the largest power transmission organizations in the country, which
plays the role of transmission of electricity in the entire state of Orissa. Seeing the good
opportunity to study financial systems and practices of OPTCL, it is relatively important
take up internship assignment on „WORKING CAPITAL MANAGEMENT IN
OPTCL‟. During the project work, it is being analyzed the working capital position of
this organization. Decisions relating to working capital and short term financing are
referred to as working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of Working
capital management is to ensure that the firm is able to continue its operations and that
it has sufficient money flow to satisfy both maturing short-term debt and upcoming
operational expenses.
Working capital management deals with maintaining the levels of working capital to
optimum, because if a concern has inadequate opportunities and if the working capital is
more than required then the concern will lose money in the form of interest on the
blocked funds. Therefore working capital management plays a very important role in
the profitability of a company. And also due to heavy competitions among different
organization‟s it is now compulsory to look after working capital

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RELEVANCE OF STUDY
At OPTCL a substantial part of the total assets are covered by current assets. Current
assets form around 30%- 40% of the total assets. However this could be less profitable
on the assumption that current assets generate lesser returns as compared to fixed assets.
But in today‟s competition it becomes mandatory to keep large current assets in form of
inventories so as to ensure smooth production an excellent management of these
inventories has to be maintained to strike a balance between all the inventories required
for the production.
So, in order to manage all these inventories and determine the investments in each
inventories, the system call for an excellent management of current assets which is
really a tough job as the amount of inventories required are large in number.
Here comes the need of working capital management or managing the investments in
current assets. Thus in big companies like OPTCL it is not easy at all to implement a
good working capital management as it demands individual attention on its different
components.
The study of working capital management is very helpful for the organisation to know
its liquidity position. The study is relevant to the organization to know the day to day
expenditure. This study is relevant to give an idea to utilise the current assets.
This study is also relevant to the student as they can use it as a reference. This report
will help in conducting further research. Other researcher can use this project as
secondary data
PROBLEM STATEMENT:
Working capital management or simply the management of capital invested in current
assets is the focus of study. So topic is to study working capital management of OPTCL.
Working capital is the fund invested by a firm in current assets. Now in a cut throat
competitive era where each firm competes with each other to increase their production
and sales, holding of sufficient current assets have become mandatory as current assets
include inventories and raw materials which are required for smooth production runs.
Holding of sufficient current assets will ensure smooth and un interrupted production

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but at the same time, it will consume a lot of working capital. Here creeps the
importance and need of efficient working capital management. Working capital
management aims at managing capital assets at optimum level, the level at which it will
aid smooth running of production and also it will involve investment of nominal
working capital in capital assets.
“The problem generally explains that, less attention has been paid to the area of short-
term finance, in particular that of working capital management. Such neglect might be
acceptable were working capital considerations of relatively little importance to the
firm, but effective working capital management has a crucial role to play in enhancing
the profitability and growth of the firm. Indeed, experience shows that inadequate
planning and control of working capital is one of the more common causes of business
failure.”
HYPOTHESIS OF THE STUDY:
The following are the hypothesis of the study
1) The firm is facing difficulty in paying short-term debt.
2) The firm is not properly managing the sundry debtor.
3) The current liabilities are increasing than current assets year by year.
OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives to
be fulfilled. This study is not an exception to it. The following are a few straight
forward goals which i have tried to fulfil in my project:
1) To study the various components of working capital.
2) To analyze the liquidity trend.
3) To analyze the working capital trend.
4) To appraise the utilization of current asset and current liabilities and find out short-
comings if any.
5) To suggest measure for effective management of working capital.

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LIMITATIONS OF THE STUDY:-
Following are the limitations of the study:
1) The topic working capital management is itself a very vast topic yet very important
also. Due to time restraints it was not possible to study in depth in get knowledge what
practices are followed at OPTCL.
2) Many facts and data are such that they are not to be disclosed because of the
confidential nature of the same.
3) Since the financial matters are sensitive in nature the same could not acquired easily.
4) The study is restricted to only the Four Year data of OPTCL.
CHAPTERISATION:
Following are the chapterisation of the study:
Chapter-1 Represents the background of the study, relevance of the study, problem
statements, hypothesis, objectives as well as limitations of the study.
Chapter-2 Represents company profile of OPTCL.
Chapter-3 Represents review of literature.
Chapter-4 Represents research methodology of the study including sources of data
collection, formulas and statistical tools used for data analysis.
Chapter -5 Represents results and findings.
Chapter -6 Represents conclusion and suggestion.
Chapter -7 Represents implication for future research.

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CHAPTER-2
COMPANY PROFILE
ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)
Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /
2542320
ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the
largest Transmission Utility in the country was incorporated in March 2004 under the
Companies Act, 1956 as a company wholly owned by the Government of Orissa to
undertake the business of transmission and wheeling of electricity in the State.
 Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a
deemed Transmission Licensee under Section 14 of Electricity Act, 2003)
 Notified as the State Transmission Utility (STU) by the State Govt. and discharges
the State Load Dispatch functions.
 Number of employees as on (01.10.2008): 3799
Executives-722, Non-Executives - 3077
 Number of posts vacant as on 1/2007 – 1186
Executives-744, Non-Executives- 442
 Number of pensioners as on 31.01.2007 – 6200
 Number of Grid S/S including switching stations – 81
 Length of EHT lines – 9550 Ckt-Kms.
 Number of Bays – 1506
The registered office of the Company is situated at Bhubaneswar, the capital of the State
of Orissa. Its projects and field units are spread all over the State. OPTCL became fully
operational with effect from 9th June 2005 consequent upon issue of Orissa Electricity
Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the
provisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the State
Government for transfer and vesting of transmission related activities of GRIDCO with
OPTCL. The Company has been designated as the State Transmission Utility in terms
of Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intra
state transmission and wheeling of electricity under a license issued by the Orissa
Electricity Regulatory Commission. The Company is also discharging the functions of
State Load Despatch Centre. The Company owns Extra High Voltage Transmission
system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV,

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132 kV levels and 81 nos. of substations with transformation capacity of MVA. The
day-to-day affairs of the Company are managed by the Managing Director assisted by
whole-time Functional Directors as per the advice of the Board of Directors constituted.
They are in turn assisted by a team of dedicated and experienced professionals in the
various fields.
VISION AND MISSION OF OPTCL:
VISION:
1)To build up OPTCL as one of the best transmission utility in the country in terms of
uninterrupted power supply, minimizing the loss, contributing states‟ industrial growth.
2)Development of a well coordinated transmission system in the backdrop of formation
of strong National Power Grid as a flagship, endeavour to steer the development of
Power System on Planned path leading to cost effective fulfilment of the objective of
'Electricity to All‟ at affordable price.
MISSION:
Plan & operate the Transmission system so as to ensure that transmission system built,
operated and maintained to provide efficient, economical and coordinated system of
Transmission and meet the overall performance Standards.
(i) To upgrade the transmission system network so as to handle power to the tune of
3000 MW for 100% availability of power to each family.
(ii) To impart advanced techno managerial training to the practicing engineers and work
force so as to professionalism them with progressive technology and capable
commercial organization of the country so as to build up the most techno-commercially
viable model of the country

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OBJECTIVES OF OPTCL:
To effectively operate Transmission lines and Sub-Stations in the State for evacuation
of power from the state generating stations feed power to state distribution companies,
wheeling of Power to other states, maintenance of the existing lines and sub-stations for
power transmission and to undertake power system improvement by renovation, up-
gradation and modernization of the transmission network.
OPTCL being a State Transmission Utility Public Authority has set the following
objectives.
Undertake transmission and wheeling of electricity through intra- State Transmission
system
1) Discharge all functions of planning and coordination relating to Intra State, inter
State transmission system with Central Transmission Utility, State Govt. Generating
Companies, Regional Power Board, Authority, Licensees or other person notified by
State Govt. in this behalf.
2) Ensure development of an efficient and economical system of intra state and inter
State transmission lines for smooth flow of electricity from generating station s to the
load centres.
3) Provide non-discriminatory open access to its transmission system for use by any
licensee or generating company or any consumer as and when such open access is
provided by the State Commission on payment of transmission charges/surcharge as
may be specified by the State Commission.
4) Exercise supervision and control over the intra-state transmission system, efficient
operation and maintenance of transmission lines and substations and operate State Load
Despatch Centres to ensure optimum scheduling and despatch of electricity and to
ensure integrated operation of power systems in the State.
5)Restore power at the earliest possible time through deployment of emergency
Restoration system in the event of any Natural Disasters like super cyclone, flood etc.

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POWER SECTOR REFORM IN THE STATE:
The Power Sector Reforms in the State of Orissa was started during November 1993
in an organized manner. The main objective of the reform was to unbundle
generation, transmission and distribution and to establish an independent and
transparent Regulatory Commission in order to promote efficient and accountability
in the Power Sector.
In order to implement the reform, in the first phase, two corporate entities namely
Grid Corporation of Orissa Limited (GRIDCO) and Orissa Hydro Power
Corporation Limited (OHPC) were established in April 1995. GRIDCO was
incorporated under the Companies Act, 1956 in April 1995 to own and operate the
transmission and distribution systems in the State. Similarly OHPC was
incorporated to own and operate all the hydro generating stations in the State.
The State Government enacted the Orissa Electricity Reform Act, 1995 which came
into force with effect from 1.4.1996. In exercise of power under Section 23 and 24
of the Orissa Electricity Reform Act, 1995,the State Govt. notified the Orissa
Electricity Reform (Transfer of Undertakings, Assets, Liabilities, proceedings and
Personnel ) Scheme Rules 1996. As per the scheme, the transmission ,distribution
activities of the erstwhile OSEB along with the related assets, liabilities, personnel
and proceedings were vested on GRIDCO . Simultaneously the hydro generation
activities of OSEB along with related assets, liabilities, personnel and proceedings
were vested on OHPC.
In order to privatize the distribution functions of electricity in the State, four
Distribution Companies namely Central Electricity Supply Company of Orissa
Limited (CESCO), North Eastern Electricity Supply Company of Orissa Limited
(NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) &
Western Electricity Supply Company Orissa Limited (WESCO) were incorporated
under the Companies Act, 1956 as separate corporate entities. During November
1998 the State Govt. issued the “Orissa Electricity Reform (Transfer of Assets,
Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules
1998” wherein the electricity distribution and retail supply activities along with the

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related assets, liabilities, personnel and proceedings were transferred from GRIDCO
to the four Distribution Companies. Through a process of international Competitive
Bidding (ICB), the four Distribution Companies were privatized during 1999.
After separation of Distribution business, GRIDCO left with electricity
Transmission and Bulk Supply/Trading activities. GRIDCO was also declared as the
State Transmission Utility and was discharging the functions of State Load Despatch
Centre (SLDC).
The Government of India enacted the Electricity Act, 2003 which came into effect
from 10th June 2003. Under the provisions of the said Act, trading in electricity has
been recognised as a distinct licensed activity, which can only be undertaken by a
licensee to be granted by the appropriate commission. The Act specifically prohibits
the STU and Transmission Company in the State from engaging in the business of
trading. GRIDCO being a State Transmission Utility was not permitted to engage
itself in the trading in electricity and was required to segregate its activities in a
manner within the transional period allowed under the Act that, the entity which will
undertake transmission STU and SLDC function will not undertake the activities of
Trading and Bulk Supply of Electricity.
Keeping in view the statutory requirement of the Electricity Act for separation of
trading and transmission functions into two separate entities, the State Govt
incorporated Orissa Power Transmission Corporation Limited (OPTCL) to take over
the transmission, STU/SLDC functions of GRIDCO.
In exercise of the power conferred under Section 39,131, 133 & 134 of the
Electricity Act, 2003, read with Section 23 & 24 of the Orissa Electricity Reform
Act , 1995, the State Govt. issued the notification “Orissa Electricity Reform
(Transfer of Transmission and Related Activities) Scheme 2005” on 9.6.2005. The
Scheme was made effective from 1.4.2005.
By virtue of the Transfer Scheme, 2005, OPTCL now undertaking the functions of
transmission of electricity in the State of Orissa and has been declared as the State
Transmission Utility. GRIDCO is also discharging the functions of SLDC.

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REFORM ACHIEVEMENT:
Milestones of Orissa Power Sector Reform
1) First Transfer between OHPC and GRIDCO effected on 1st April, 1996
2)OER Act, 1995 created Orissa Electricity Regulatory Commission,
a Regulatory Body which became functional on 1.8.1996
3) Unbundling of Transmission and Distribution via Second Transfer Scheme
effective from November 26, 1998
4)9 Tariff Orders after public hearing have been passed by OERC
(FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06)
5) BSES took over management and operational control of 3 Distribution Companies
(WESCO, SOUTHCO and NESCO) from April 1, 1999
6) Privatization of Distribution completed with AES taking over the
fourth distribution company, CESCO from September 1, 1999
7) CESCO remained under the management of an Administrator (CEO)
appointed by OERC with effect from 27.8.2001
8)A new public limited company under the name “ Orissa Power Transmission
Corporation Limited “ was incorporated on 29.03.2004 to carry on the
business of Transmission, STU, and SLDC functions of GRIDCO
9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry on
its Bulk Supply and Trading functions

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CHAPTER-3: REVIEW OF LITERATURE
The purpose of this chapter is to present a review of literature relating to the working
capital management. The following are the literature review by different authors and
different research scholars.
Pass C.L., Pike R.H1
(1984), studied that over the past 40 years major theoretical
developments have occurred in the areas of longer-term investment and financial
decision making. Many of these new concepts and the related techniques are now being
employed successfully in industrial practice. By contrast, far less attention has been
paid to the area of short-term finance, in particular that of working capital management.
Such neglect might be acceptable were working capital considerations of relatively little
importance to the firm, but effective working capital management has a crucial role to
play in enhancing the profitability and growth of the firm. Indeed, experience shows
that inadequate planning and control of working capital is one of the more common
causes of business failure.
Herzfeld B2
(1990), studied that “Cash is king”--so say the money managers who share
the responsibility of running this country's businesses. And with banks demanding more
from their prospective borrowers, greater emphasis has been placed on those
accountable for so-called working capital management. Working capital management
refers to the management of current or short-term assets and short-term liabilities. In
essence, the purpose of that function is to make certain that the company has enough
assets to operate its business. Here are things you should know about working capital
management.
Samiloglu F.and Demirgunes K3
(2008), studied that the effect of working capital
management on firm profitability. In accordance with this aim, to consider statistically
significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed

17
Appuhami, Ranjith B4
(2008), studied impact of firms' capital expenditure on their
working capital management. The author used the data collected from listed companies
in the Thailand Stock Exchange. The study used Schulman and Cox's (1985) Net
Liquidity Balance and Working Capital Requirement as a proxy for working capital
measurement and developed multiple regression models. The empirical research found
that firms' capital expenditure has a significant impact on working capital management.
The study also found that the firms' operating cash flow, which was recognized as a
control variable, has a significant relationship with working capital management.
Hardcastle J5
(2009)., studied that Working capital, sometimes called gross working
capital, simply refers to the firm's total current assets (the short-term ones), cash,
marketable securities, accounts receivable, and inventory. While long-term financial
analysis primarily concerns strategic planning, working capital management deals with
day-to-day operations. By making sure that production lines do not stop due to lack of
raw materials, that inventories do not build up because production continues unchanged
when sales dip, that customers pay on time and that enough cash is on hand to make
payments when they are due. Obviously without good working capital management, no
firm can be efficient and profitable.
Thachappilly G6
(2009)., “Working Capital Management Manages Flow of
Funds”,(2009) describes that Working capital is the cash needed to carry on operations
during the cash conversion cycle, i.e. the days from paying for raw materials to
collecting cash from customers. Raw materials and operating supplies must be bought
and stored to ensure uninterrupted production. Wages, salaries, utility charges and other
incidentals must be paid for converting the materials into finished products. Customers
must be allowed a credit period that is standard in the business. Only at the end of this
cycle does cash flow in again

18
Beneda, Nancy; Zhang, Yilei7
(2008), studied impact of working capital management
on the operating performance and growth of new public companies. The study also
sheds light on the relationship of working capital with debt level, firm risk, and
industry. Using a sample of initial public offerings (IPO's), the study finds a significant
positive association between higher levels of accounts receivable and operating
performance. The study further finds that maintaining control (i.e. lower amounts) over
levels of cash and securities, inventory, fixed assets, and accounts.
Dubey R8
(2008)., studied The working capital in a firm generally arises out of four
basic factors like sales volume, technological changes, seasonal , cyclical changes and
policies of the firm. The strength of the firm is dependent on the working capital as
discussed earlier but this working capital is itself dependent on the level of sales volume
of the firm. The firm requires current assets to support and maintain operational or
functional activities. By current assets we mean the assets which can be converted
readily into cash say within a year such as receivables, inventories and liquid cash. If
the level of sales is stable and towards growth the level of cash, receivables and stock
will also be on the high.
McClure B9
(2007)., “Working Capital Works” describes that Cash is the lifeline of a
company. If this lifeline deteriorates, so does the company's ability to fund operations,
reinvest and meet capital requirements and payments. Understanding a company's cash
flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM).
Cash is king, especially at a time when fund raising is harder than ever. Letting it slip
away is an oversight that investors should not forgive. Analyzing a company's working
capital can provide excellent insight into how well a company handles its cash, and
whether it is likely to have any on hand to fund growth and contribute to shareholder
value.

19
Gass D10
(2006)., studied "Cash is the lifeblood of business" is an often repeated maxim
amongst financial managers. Working capital management refers to the management of
current or short-term assets and short-term liabilities. Components of short-term assets
include inventories, loans and advances, debtors, investments and cash and bank
balances. Short-term liabilities include creditors, trade advances, borrowings and
provisions. The major emphasis is, however, on short-term assets, since short-term
liabilities arise in the context of short-term assets. It is important that companies
minimize risk by prudent working capital management.
Maynard E. Refuse11
(1996), Argued that attempts to improve working capital by
delaying payment to creditors is counter-productive to individuals and to the economy
as a whole. Claims that altering debtor and creditor levels for individual tiers within a
value system will rarely produce any net benefit. Proposes that stock reduction
generates system-wide financial improvements and other important benefits. Urges
those organizations seeking concentrated working capital reduction strategies to focus
on stock management strategies based on “lean supply-chain” techniques.
Thomas M. Krueger12
(2005), studied distinct levels of WCM measures for different
industries, which tend to be stable over time. Many factors help to explain this
discovery. The improving economy during the period of the study may have resulted in
improved turnover in some industries, while slowing turnover may have been a signal
of troubles ahead. Our results should be interpreted cautiously. Our study takes places
over a short time frame during a generally improving market. In addition, the survey
suffers from survivorship bias – only the top firms within each industry are ranked each
year and the composition of those firms within the industry can change annually.
Eljelly13
(2002) empirically examined the relationship between profitability and
liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample

20
of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis,
Eljelly [9]found significant negative relationship between the firm's profitability and its
liquidity level, as measured by current ratio. This relationship is more pronounced for
firms with high current ratios and long cash conversion cycles. At the industry level,
however,he found that the cash conversion cycle or the cash gap is of more importance
as a measure of liquidity than current ratio thataffects profitability. The firm size
variable was also found to have significant effect on profitability at the industry level.
Lazaridis and Tryfonidis 14
(2004), conducted a cross sectional study by using a
sample of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004
and found statistically significant relationship between profitability, measured through
gross operating profit, and the cash conversion cycle and its components (accounts
receivables, accounts payables, and inventory). Based on the results analysis of annual
data by using correlation and regression tests, they suggest that managers can create
profits for their companies by correctly handling the cash conversion cycle and by
keeping each component of the conversion cycle (accounts receivables, accounts
payables, and inventory) at an optimal level.
Raheman and Nasr15
(2004), studied the effect of different variables of working
capital management including average collection period, inventory turnover in days,
average payment period, cash conversion cycle, and current ratio on the net operating
profitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed on
Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a strong
negative relationship between variables of working capital management and
profitability of the firm. They found that as the cash conversion cycle increases, it leads
to decreasing profitability of the firm and managers can create positive value for the
shareholders by reducing the cash conversion cycle to a possible minimum level.
Garcia-Teruel and Martinez-Solano16
(1996) collected a panel of 8,872 small to
medium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. They
tested the effects of working capital management on SME profitability using the panel

21
data methodology. The results, which are robust to the presence of endogeneity,
demonstrated that managers could create value by reducing their inventories and the
number of days for which their accounts are outstanding. Moreover, shortening the cash
conversion cycle also improves the firm's profitability.
Falope and Ajilore17
(2003), used a sample of 50 Nigerian quoted non-financial firms
for the period 1996 -2005. Their study utilized panel data econometrics in a pooled
regression, where time-series and cross-sectional observations were combined and
estimated. They found a significant negative relationship between net operating
profitability and the average collection period, inventory turnover in days, average
payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on
the Nigerian Stock Exchange. Furthermore, they found no significant variations in the
effects of working capital management between large and small firms.
Kouma Guy18
, (2001) in a study on, “Working capital management in healthcare”,
Working capital is the required to finance the day to day operations of an organization.
Working capital may be require to bridge the gap between buying of stocked items to
eventual payment for goods sold on account. Working capital also has to fund the gap
when products are on hand but being held in stock. Products in stock are at full cost,
effectively they are company cash resources which are out of circulation therefore
additional working capital is required to meet this gap which can only be reclaimed
when the stocks are sold (and only if these stocks are not replaced) and payment for
them is received. Working capital requirements have to do with profitability and much
more to do with cash flow.
Mehmet SEN, Eda ORUC (2005)19
in the study “Relationship between the
efficiency of working capital management and company size”, As it is known, one
of the reasons which cause change in working capital from one period to another is the
change in management efficiency. The change in management efficiency will affect the
change in working capital in a way as increaser or reducer from on period to another. In

22
this study, the effect of change in management efficiency in working capital
management in to the change in working capital is compared by company size and
sectors. The data of this study covers sixty periods as the total of quarterly financial
statement of 55 manufacturing companies which were in operation in Istanbul Stock
exchange (ISE) between the years 1993 and 2007. In every period we studied, for
inventories short term commercial receivables and short term commercial liabilities, and
calculated the effect of change in management efficiency on to the effect of working
capital change. In all sectors considered, in the change in working capital, and observed
the effect of reducing of efficiency in inventory management. It is also observed that
efficiency change in the management of the short term commercial receivables and the
short term commercial liabilities by the company sizes and sectors make a positive
effect in to the change in working capital
Brealey, R., (1997)20
in a study on, “Working Capital management concepts work
sheet university of phoenix”. Concept application of concept in the Simulation
reference to concept in reading cash conversion cycle cash conversions is the process of
managing a company‟s cash inflows and outflows. In the simulation, the finance
manager was responsible for balancing sales with collections or accounts receivables
(cash inflows) and purchases with payments or accounts payables (cash outflows). This
delicate balance maintains the company‟s balance sheet keeping the cash and loans in a
situation of financial stability and keeping the money from being tied up. Principles of
corporate finance. Working capital management. New York: McGraw-Hill.

23
CHAPTER-4
RESEARCH METHODOLOGY
Research methodology is a systematic approach in management research to achieve
pre-defined objectives. It helps a researcher to guide during the course of research work.
Rules and techniques stated in research methodology save time and labour of the
researcher as researcher know how to proceed to conduct the study as per the objective.
SELECTION OF TOPIC: The selection of topic is a crucial factor in any research
study. There should be newness and it should give maximum scope to explore the ideas
from different angles.
In present day due to increase in competition, working capital is becoming necessary for
the organisation. It is that part of capital which is necessary to undertake day to day
expenditure of the business organization. Whatever may be the organization, working
capital plays an important role, as the company needs capital for its day to day
expenditure. Thousands of companies fail each year due to poor working capital
management practices. Entrepreneurs often don't account for short term disruptions to
cash flow and are forced to close their operations. Working capital is the fund invested
by a firm in current assets. Now in a cut throat competitive era where each firm
competes with each other to increase their production and sales, holding of sufficient
current assets have become mandatory as current assets include inventories and raw
materials which are required for smooth production runs. Holding of sufficient current
assets will ensure smooth and un interrupted production but at the same time, it will
consume a lot of working capital. Here creeps the importance and need of efficient
working capital management. After due to consultation with the external guide /internal
guide, the topic was finalized and titled as-“A STUDY ON WORKING CAPITAL
MANAGEMENT IN OPTCL, BBSR”
SELECTION OF LOCATION FOR THE STUDY: The location for study was
selected as the corporate office of OPTCL, Bhubaneswar.
RESEARCH DESIGN: “A Research design is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure” The research design followed to study the

24
working capital management in ORISSA POWER TRANSMISSION CORPORATION
LIMITED (OPTCL) is Descriptive and Analytical Research Design.
SOURCES OF DATA COLLECTION:
1. Secondary data collection
Secondary data collection:
The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company
etc. It will save the time, money and efforts to collect the data. Secondary data also
made available through trade magazines, annual reports, books etc.
This project is based secondary data collected through annual reports of the
organization. The data collection was aimed at study of working capital management of
the company.
Project is based on
1. Annual report of OPTCL. 2008-2009
FORMULAS OF RATIO ANALYSIS & DEFINITION
RATIO:
Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as
“the indicated quotient of two mathematical expressions” and as “the relationship
between two or more things”. The absolute figures reported in the financial statement do
not provide meaningful understanding of the performance and financial position of the
firm. Ratio helps to summaries large quantities of financial data and to make qualitative
judgment of the firm‟s financial performance.

25
ROLE OF RATIO ANALYSIS
Ratio analysis helps to appraise the firms in the term of there profitability and efficiency
of performance, either individually or in relation to other firms in same industry. Ratio
analysis is one of the best possible techniques available to management to impart the
basic functions like planning and control. As future is closely related to the immediately
past, ratio calculated on the basis historical financial data may be of good assistance to
predict the future. E.g. On the basis of inventory turnover ratio or debtor‟s 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 firm‟s financial analysis
liquidity, solvency, activity, profitability and overall performance, it enables the
interested persons to know the financial and operational characteristics of an
organization and take suitable decisions.
LIQUDITY RATIO:
Liquidity refers to ability of a concern to meet its current obligations as and when these
become due. The short-term obligations are met by realising amounts from current,
floating or circulating asset. The current asset either be liquid or near liquidity. These
should be convertible into cash for paying obligation of short-term nature. To measure
the liquidity of a firm, following ratios can be calculated:
A) CURRENT RATIO: Current assets include cash and those assets which can be
converted in to cash within a year, such marketable securities, debtors and inventories.
All obligations within a year are include in current liabilities. Current liabilities include
creditors, bills payable accrued expenses, short term bank loan income tax liabilities and
long term debt maturing in the current year. Current ratio indicates the availability of
current assets in rupees for every rupee of current liability.
CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES

26
B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship between
quick or liquid assets and liabilities. An asset is liquid if it can be converting in to cash
immediately or reasonably soon without a loss of value. Cash is the most liquid asset
.other assets which are consider to be relatively liquid and include in quick assets are
debtors and bills receivable and marketable securities. Inventories are considered as less
liquid. Inventory normally required some time for realizing into cash. Their value also
be tendency to fluctuate. The quick ratio is found out by dividing quick assets by
current liabilities.
QUICK RATIO = Total liquid asset/Total current liabilities
C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are
considered as more liquid then inventories, it cannot be converted in to cash
immediately or in time. Therefore while calculation of absolute liquid ratio only the
absolute liquid assets as like cash in hand cash at bank, short term marketable securities
are taken in to consideration to measure the ability of the company in meeting short
term financial obligation. It calculates by absolute assets dividing by current liabilities.
ABSOLUTE LIQUID RATIO=absolute liquid asset/total current liabilities
EFFICIENCY RATIO: Funds are invested in various assets in business to make sales
and earn profits. The efficiency with which assets are managed directly affects the
volume of sale. Activity ratios measure the efficiency and effectiveness with which a
firm manages its resources or assets. These ratios are also called turnover ratios.
A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship
between credit sales and receivables of a firm. It indicates how quickly receivables are
converted into sales.
DEBTORS TURNOVER RATIO= SALES/AVERAGE ACCOUNT RECEIVABLES.
AVERAGE A/C RECEIVABLES= Opening Trade Debtor + Closing Trade Debtor/2
AVERAGE COLLECTION PERIOD= (365/DTR) days
Or RECEIVABLES * 365/ Sale

27
B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of
sales, a relative amount of working capital is needed. If any increase in sales
contemplated working capital should be adequate and thus this ratio helps management
to maintain the adequate level of working capital. The ratio measures the efficiency with
which the working capital is being used by a firm. It may thus compute net working
capital turnover by dividing sales by net working capital.
WORKING CAPITALTURNOVER RATIO= Cost Of Sales/ Net Working Capital
CURRENT ASSET TURNOVER RATIO:
CURRENT ASSET TURNOVER RATIO= Sales / Current Asset
STATISTICAL TOOLS USED FOR DATA ANAYLSIS:
The various statistical tools used for data analysis is as follows:
a) Tables:
b) Bar-chart
c) Graphs
d) Correlation
ANALYTICAL TOOLS USED:
The analytical tools used for data analysis is as follows:
a) Ratio analysis
b) Schedule of change in working capital
c) Cash flow statements

28
CHAPTER-5
RESULTS AND FINDINGS
The result and discussion of the study is presented in five different sections. The first
sections explain about the various components of working capital, variable of working
capital. The second section explains about the liquidity trend of the organization. The
third section explains about the working capital trend .The fourth section explains the
utilization of current assets and current liabilities. The fifth section explains the measure
to effective management of working capital.
The first section explains about the various components of working capital and
variables of working capital. The components of working capital are presented in Table
5.1.
(TABLE 5.1: COMPONENTS OF WORKING CAPITAL)
Table 1.1 2008-2009(Rs) 2009-2010(Rs) 2010-2011(Rs)
Cash 907,019,750 727,106,129 579,433,119
Debtors 1,055,097,473 1,055,631,698 1,558,735,700
Inventories 808,519,278 969,056,460 1,144,269,951
Sundry Creditors 689,526,597 724,051,456 855,552,857
Provisions 4,817,002,603 5,695,667,475 5,629,960,268
An insight into the table reveals that:
a) Cash and bank balances in 2008-2009 were Rs 907019750. It is decreased to Rs
727106129 in 2009-2010, with a -19.23% growth. In 2010-2011 it suddenly again
decreased to Rs 579433119.
b) Debtors increases which was not a good sign. In 2008-2009 debtors were Rs
1,055,097,473 and it increased Rs 1,055,631,698 in 2009-2010. In 2010-2011 it was
again increased to Rs 1,558,735,700. Total increase in Debtors is Rs 503,638,227.

29
c) Inventories were increased at a good speed. The inventories were Rs 808519278 in
2008-2009. In 2009-2010 it increased to Rs 969056460, ultimately increase in Rs
160537182, with the percentage growth 19.85%. In 2010-2011 it again increased to Rs
175213491 with the increase in 18.08%.
d) Sundry creditors also increased a lot. In 2008-2009 it was Rs 689526597. Then it
increased by Rs 34524859 which ultimately amounted to Rs 724051456 with a increase
of 5.00% in the year 2009-2010. In 2010-2011 it increased to Rs 131501401 with a
percentage increase of 18.16%.
e) Provisions also increased throughout this 3years. In 2008-2009 it was Rs
4817002603. Then it increased to Rs 5695667475 with a percentage increase of
18.24%. In 2010-2011 it again increased to Rs 5629960268 with a percentage increase
in 1.15%.
(Table 5.2: Variables of Working Capital Management)
VARIABLES
YEARS
2008-2009 2009-2010 2010-2011
ROTA (Return on Total
Assets)
0.22 0.10 0.18
OPM (operating profit
margin)
27.78% 34.65%
38.58%
GEAR (Gearing Ratio i.e.
financial debt / total
assets)
0.43:1 0.33:1
0.38:1
CR (Current Ratio) 0.86:1 0.62:1 0.89:1
QAR (Quick Assets Ratio) 0.27:1 0.22:1 0.25:1
CA/TA (Current Assets to
Total Assets)
0.21 0.16
0.18

30
CL/TA (Current
Liabilities to Total Assets)
0.24 0.26 0.32
SK/CA (Stocks to Current
Assets)
0.13 0.19 0.26
TD/CA (Trade Debtors to
Current Assets)
0.17 0.21 0.35
CA_TURN (Current
Assets Turnover is
Sales/Current Assets)
1.08 0.60 0.91
The various variables of working capital is presented in table 5.2. An analysis of data
presented in the table reveals the following findings;
A) Return on total asset came 0.22 in 2008-2009, 0.10 in 2009-2010 and 0.18 2010-
2011.
B) Operating profit margin was 27.78% in 2008-2009 then it increased to, 34.65%, and
38.58% in 2009-2010, and 2010-2011 respectively. Anything between 65% - 85% is
known as a good operating margin. And for OPTCL is a sign of alarm.
C) Gearing ratio was 0.43:1 in 2008-2009, in 2009-2010 it is 0.33:1 and in 2010-2011
0.38:1
D) Current ratio generally reduced for the organisation, in 2008-2009 it was 0.86:1 and
it reduced to 0.62:1 in 2009-2010 and then it again reduced to 0.89:1 in 2010-2011.
E) Quick asset ratio in 2008-2009 as it was 0.27:1, in 2009-2010 it became 0.22:1 and
in 2010-2011 it became 0.89:1.
F) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,
2009-2010 and 2010-2011.
G) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came
0.26, and in 2010-2011 it came to 0.32:1.

31
H) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-
2011 respective years.
I) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.
J) Current asset turnover is 1.08 in 2008-2009, 0.60 in 2009-2010 and it become 0.91 in
2010-2011.
Table 5.3: Components of Current ratio, Quick ratio and Absolute Liquid Ratios
2008-2009 2009-2010 2010-2011
Current ratio
0.86:1 0.62:1
0.89:1
Quick ratio 0.27:1 0.22 0.25:1
Absolute Liquid
Ratio 0.12:1 0.08:1 0.07:1
SK/CA 0.13 0.19
0.26
TD/CA 0.17 0.21 0.35
CA/TA 0.21 0.16 0.18
CL/TA 0.24 0.26 0.32
Inventory Days 43 days 115days 122days
Debtor Turnover
Days
57days 126days 119days
Creditors turnover
days
37 days 86days 98days

32
Table-5.3 revels the components of current ratio, quick ratio and absolute quick
ratio. From the table following things can be derived:
a) In 2008-2009, it is found that the current ratio of OPTCL is 0.86:1. . It is below the
standard of 2:1 and it is due to a decrease in total current assets from previous year and
an increase in current liability this year. It is a not good indication according to the rule
of thumb. Because the firm has more current liabilities than current assets. The firm
may not be able to meet its short term obligations in time. In 2009-2010, it is found that
the current ratio of OPTCL was 0.62:1 it was not a good indication according to rule of
thumb. In 2010-2011, it is found that the current ratio of OPTCL was 0.89:1 it was not a
good indication according to rule of thumb.
b) Quick ratio in 2008-2009 it was 0.27:1 in 2009-2010 it was 0.22:1 and in 2010-2011 it was
0.25:1.
c) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be
0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash and
bank balances of the organization in comparison to the Current Liabilities. In the year
2009-2010, the absolute liquid ratio found to be 0.08:1. In the year 2010-2011, the
absolute liquid ratio found to be 0.07:1.
d) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-2011
respective years.
e) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.
f) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,
2009-2010 and 2010-2011.
g) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came
0.26, and in 2010-2011 it came to 0.32:1.
h) Cash conversion ratio for inventory came 43 days, 115 days and 122 days. Cash
conversion for debtor comes 57 days in 2008-2009, and it increased to 126 days in
2009-2010. But in 2010-2012 it decreased to 119 days. Cash conversion ratio came to
37days, 86days and 98days respectively.

33
THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF
THE ORGANIZATION.
LIQUIDITY RATIO
CURRENT RATIO
Table5.4
CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY)
YEAR CURRENT ASSET
(IN RUPEES)
CURRENT LIABILITY
(IN RUPEES)
RATIO
2008-2009 6,30,63,13,319 7,29,34,88,649 0.86:1
2009-2010 5,07,93,75,378 8,21,36,64,274 0.62:1
2010-2011 4,43,85,38,139 8,42,34,81,867 0.89:1
2008-2009 2009-2010 2010-2011
current ratio 0.86 0.62 0.89
0.86
0.62
0.89
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
RATIO
CURRENT RATIO

34
From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL,
various results can be made.
A) In 2008-2009, it was found that the current ratio of OPTCL was 0.86:1. . It is a not
good indication according to the rule of thumb. Because the firm has more current
assets than current liabilities. The firm may be able to meet its short term obligations in
time.
B) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not a
good indication according to rule of thumb. Because the firm has more current assets
than current liabilities. The firm was not able to meet its short term obligation in time.
C) In 20010-2011, it was found that the current ratio of OPTCL was 0.89:1. It was not a
good indication according to rule of thumb. Because the firm has more current assets
than current liabilities. The firm was not able to meet its short term obligation in time.
D) Because of increase in administrative overhead expenses, super annuity benefits and
payment of past loan etc. are the major factor for increasing of current liabilities.
E) Situation can be controlled. So more emphasis can be given on these areas to reduce
current liabilities and to increase current assets so that the actual standard of 2:1 can be
achieved.
In addition to, company should make clear cut strategic planning to sell electricity to
major industries at industrial rate to achieve higher revenue
TABLE5.5Quick Ratio- (Liquid Asset/ Current Liability)
YEAR LIQUID ASSET CURRENT LIABILITY RATIO
2008-2009 1,96,21,17,223 7,29,34,88,649 0.27:1
2009-2010 1,78,27,37,827 8,21,36,64,274 0.22:1
2010-2011 2,13,81,68,819 8,42,34,81,867 0.25:1

35
FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:
A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2008-2009
Is found that the QUICK ratio of OPTCL IS 0.27:1, which is just normal standard. It is
due to a little bit increase in current liabilities.
B) In the year 2009-2010 it is found that the Quick ratio was 0.22:1.Which is below
standard of 1:1? Management should have an eye on to that.
C) In the year 2009-2010 it is found that the Quick ratio was 0.25:1.Which is below
standard of 1:1.
0.27
0.22
0.25
0
0.05
0.1
0.15
0.2
0.25
0.3
2008-2009 2009-2010 2010-2011
R
A
T
I
O
YEARS
QUICK RATIO

36
TABLE 5.6
ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT
LIABILITY):
YEAR Absolute Liquid Asset Current Liability Ratio
2008-2009 90,70,19,750 7,29,34,88,649 0.12:1
2009-2010 72,71,06,129 8,21,36,64,274 0.08:1
2010-2011 57,94,33,119 8,42,34,81,867 0.07:1
By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet of
OPTCL the following results can be drawn.
0
0.05
0.1
0.15
2008-2009
2009-2010
2010-2011
0.12
0.08
0.07
r
a
t
i
o
year
ABSOLUTE LIQUID RATIO

37
A) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to
be 0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash
and bank balances of the organization in comparison to the Current Liabilities.
B) In the year 2009-2010, the absolute liquid ratio found to be 0.08:1. This is due to less
cash and bank balances of the organization in comparison to the Current liabilities.
C) The Absolute Liquid Ratio of the firm for the financial year 2010-2011 is found to
be 0.07:1 which is below from the previous year of the normal standard of 1:2. This is
due to less cash and bank balances of the organization in comparison to the Current
Liabilities.
(Table 5.7)
CASH FLOW STATEMENTS
(2011-2010) (2009-2010) (2008-2009)
amount in (Rs) amount in (Rs) amount in (Rs)
profit/loss before tax & extraordinary
items
12,73,12,985 -71,37,17,644 -18,30,29,883
adjustment for:
appropriation to reserves and surpluses 13,09,96,775 1,18,36,39,044 6,33,87,383
interest and finance charges 42,43,77,484 54,16,01,198 97,24,54,617
Depreciation 1,23,90,63,901 1,08,22,03,592 1,09,74,37,879
preliminary expenses W/O -------------- 30,26,423 30,26,423
excess provision written back -------------- -1,04,00,87,510 -47,574
interest income -4,28,44,898 -4,55,13,310 -6,90,09,008
provisions for wealth tax 47,481 27,846 46,318
provision/write off against theft materials 11,59,214 15,22,603 29,50,312
provisions for obsolete stock-store etc --------------- -------------- -------------
bad and doubtful debt 8,12,05,348 4,47,68,652 11,63,525
provisions for fringe benefit tax -------------- -------------------- -23,96,915
OPERATING PROFIT BEFORE
WORKING CAPITAL CHANGE (A) 17,06,692,319 1,05,74,70,893 1,88,59,83,078
WORKING CAPITAL CHANGE
stores and spares -17,63,72,705 -16,20,59,785 -4,46,04,328
sundry debtors -50,31,04,002 -4,53,02,877 -37,81,016
other current assets -64,38,311 -59,43,581 -1,43,98,325
loan and advances 1,17,79,20,033 1,20,34,71,087 -2,72,53,85,618
current liabilities 27,27,22,589 4,93,59,037 42,88,03,928

38
Table 5.7 defines the following:
a) Cash generated from investing activities, Rs-1,730,727,631 , Rs-88,86,44,331 and
Rs-84,78,28,424 in the year 2010-2011, 2009-2010 and 2008-2009 respectively.
b)Hence, there is a generation of Rs1,730,727,631 cash flow from its operating
activities for the year 2011-2010, where as in 2009-2010, it was Rs.4,01,57,47,156 and
where as in 2008-2009, it was Rs.3,04,97,18,374.
c) The net cash flow of Rs-82,26,58,095 from financing activities in 2011-2010.
Whereas it was Rs-3,307,016,446 and Rs-1,785,751,383 in year 2010-2009 and 2009-
2008 respectively.
Provisions -6,57,07,207 1,91,87,52,382 3,52,31,00,656
NET WORKING CAPITAL
CHANGES (B)
69,90,20,397 2,95,82,76,263 1,16,37,35,296
CASH GENERATED FROM THE
OPERATION (A)+(B)
2,40,57,12,716 4,01,57,47,156 3,04,97,18,374
CASH FLOW FROM INVESTING
ACTIVITIES:
capital expenditure (CAPEX) -1,77,35,72,529 -93,41,57,641 -91,68,37,432
Interest received revenue 4,28,44,898 4,55,13,310 6,90,09,008
CASH GENERATED FROM
INVESTING ACTIVITIES ( C )
-1,73,07,27,631 -88,86,44,331 -84,78,28,424
CASH FLOW FROM FINANCING
ACTIVITIES:
proceeds from secured loan -1,08,80,34,380 -1,06,41,24,474 -1,05,96,33,683
proceeds from unsecured loan 2,03,48,78,848 32,39,10,165 -6,95,82,948
interest paid -2,48,89,47,563 -2,61,68,02,137 -88,70,89,752
proceed from share capital 71,94,45,000 5,00,00,000 23,05,55,000
CASH FLOW FROM FINANCING
ACTIVITIES (D)
-82,26,58,095 -3,30,70,16,446 -1,78,57,51,383
NET CASH GENERATED FROM
ALL ACIVITIES (A+B+C+D)
-14,76,73,010 -17,99,13,621 41,61,38,567
Cash and cash equivalent at the beginning
of the year
72,71,06,129 90,70,19,750 49,08,81,183
cash equivalent at the end of the period 57,94,33,119 72,71,06,129 90,70,19,750

39
d)That, the net cash flow from its operating, investing and financing activities for the
year 2010-2011 and 2009-2010 is in negative figure of Rs-147,673,010 and Rs.-
17,99,13,621 respectively. And it became positive in the year 2008-2009, which was Rs
41, 61, 38,567.
The Third Section Explains About The Working Capital Trend
Table-5.8
Size of Working Capital:
CURRENT ASSETS(CA) 2009(rupees) 2010(rupees) 2011(rupees)
Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951
Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700
Cash and bank balances 90,70,19,750 72,71,06,129 57,94,33,119
Other current assets 66,69,51,629 74,48,94,758 75,13,33,069
Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300
Total 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139
Less: CURRENT
LIABILITIES(CL)
2009(rupees) 2010(rupees) 2011(rupees)
Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857
Deposits and retention from
suppliers/contractors
14,91,29,269 12,89,91,075 15,76,14,454
Interest accrued but not due on
loans
1,30,49,185 51,73,055 79,27,784
Liabilities for wealth tax 47,253 28,781 48,416
Electricity duty payable 1,82,269 1,56,113 1,63,387
Liabilities for fringe benefit
tax
68,51,705 68,51,705 68,51,705
Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996
Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599
Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268
Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867
working capital( CA-CL) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728
(Amount. In Rs.)

40
From the table -5.8 following things are derived:
In 2008-2009 working capital is Rs -987175330 due to excessive of provisions. In
2009-2010 working capital is Rs -3134288896 and in 2010-2011 working capital
became Rs – 3984943728. It became negative because current liabilities exceed current
assets in these years.
WORKING CAPITAL TREND ANALYSIS: In working capital analysis the
direction at changes over a period of time is of crucial importance. Working capital is
one of the important fields of management. It is therefore very essential for an analyst to
make a study about the trend and direction of working capital over a period of time.
Such analysis enables as to study the upward and downward trend in current assets and
current liabilities and its effect on the working capital position. “The term trend is very
commonly used in day-today conversion trend, also called secular or long term need is
the basic tendency of population, sales, income, current assets, and current liabilities to
grow or decline over a period of time” “The trend is defined as smooth irreversible
movement in the series. It can be increasing or decreasing.” Emphasizing the
importance of working capital trends, “analysis of working capital trends provide as
base to judge whether the practice and privilege policy of the management with regard
to working capital is good enough or an important is to be made in managing the
working capital funds.
TABLE-5.9
Working Capital Size trend
Years 2008-2009 2009-2010 2010-2011
Net W.C (A-B) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728
W.C. Indices -100 -317.50 -403.67
(Amount. In Rs.)

41
From the table 5.9 followings things are derived: It is observed that working capital
index in 2008-2009, 2009-2010 and 2010-2011 it became negative. Here in the year
2008-2009 and 2009-2010 current liabilities exceeded current assets. The company was
unable to manage their working capital efficiently.
TABLE-5.10
WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING
CAPITAL)
Working capital turnover ratio
YEAR Cost of Sales Net working capital Ratio
2009 6789295427 -98,71,75,330 -6.88 times
2010 3051627568 -3,13,42,88,896 -0.97 times
2011 4051914743 -3,98,49,43,728 -1.02 times

42
From the table 5.10 following things derived:
A) In the year 2008-2009, it was -6.88, there was decrease in net current assets due to
increase in current liabilities.
B) But in 2009-2010, working capital turnover was -0.97, which indicates there was
decrease in net current assets due to increase in current liabilities, which is better than
the previous year.
C) But in 2010-2011, working capital turnover was -0.97
TABLE 5.11
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2010 and 2011)
(2009-2010)
(Rs)
(2010-2011)
(Rs)
Increase in
working
capital
(Rs)
Decrease in
working capital
(Rs)
Current Assets:
Stores and spares 96,90,56,460 1,14,42,69,951 17,52,13,491 -
Sundry debtors 1,05,56,31,698 1,55,87,35,700 50,31,04,002 -
Cash & bank
balances
72,71,06,129 57,94,33,119 - 14,76,73,010
Other current
assets
74,48,94,758 75,13,33,069 64,38,311 -
Loans & advances 1,58,26,86,333 40,47,66,300 - 1,17,79,20,033

43
Total 5,07,93,75,378 4,43,85,38,139
Current Liabilities
Current liabilities 2,51,79,96,799 2,79,35,21,599 - 27,55,24,800
Provisions 5,69,56,67,475 5,62,99,60,268 6,57,07,207 -
Total 8,21,36,64,274 8423481867
-85,06,54,832 -
Working capital
(current assets-
current liabilities)
-3,13,42,88,896 -3,98,49,43,728
Net decrease in
working capital -85,06,54,832
-3,13,42,88,896 -3,98,49,43,728 1,60,11,17,843 1,60,11,17,843
From the table 5.11 following things are derived:
By going through the statement showing changes in working capital the following
results can be made.
A) That the total current asset of the year 20010-2011 is decreased to Rs. 438538139
from a previous year‟s figure of Rs. 5079375378.
B) The total value of stores and spare is increased from the previous year‟s figure and
the value of sundry debtors is also increased from the previous year‟s figure.
C) The cash and bank balances of the organization have a decrease of Rs. 147673010
from the previous year‟s figure. Similarly the figure for loans and advances is also
decreased to Rs. 404766300 from the previous year‟s figure of Rs.1582686333.
D) The other current assets like prepaid expenses and sundry receivables have also
increased from the previous year‟s figure.
E) The total current liabilities of the year 2007-2008 are increased to Rs. 8423481867
from a previous year‟s figure of Rs. 8,21,36,64,274.

44
F)That, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.
G) Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.
H) Due to increase in current liabilities and provisions for pension and gratuity and
retrospective revision of pay, there is a sign of decrease in working capital.
I)As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous year‟s and the decrease sign of working capital is
Rs. -85,06,54,832 (2010-2011), which has impacted the steady increase of current
working capital & negatively affected the profitability of the organization.
J) It is found that the current asset‟s figure is decreased from the previous year‟s figure
& the current liabilities figure is increased from the previous year. As a result of which,
there is a net decrease (negative figure) in working capital this financial year (2010-
2011).
K) That, some more emphasis can be given on current assets to increase its figure and to
decrease current liabilities‟ figure as a result of which the figure for working capital can
be increased.
TABLE-5.12
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2009 TO 2010)
(2008-2009)
(Rs)
(2009-2010)
(Rs)
Increase in
working
capital
(Rs)
Decrease in
working
capital
(Rs)
Current assets
Stores and spares 808,519,278 96,90,56,460 160537182 -
Sundry debtors 1,055,097,473 1,05,56,31,698 534225 -

45
Cash & bank
balances
907,019,750 72,71,06,129 179913621
Other current
assets
66,69,51,629 74,48,94,758 77943129 -
Loans & advances 2,86,87,25,189 1,58,26,86,333 - 1,28,60,38,856
Total 6,30,63,13,319 5,07,93,75,378
Current liabilities
Current liabilities 2,47,64,86,046 2,51,79,96,799 - 4,15,10,753
Provisions 4,81,70,02,603 5,69,56,67,475 - 87,86,64,872
Total 7,29,34,88,649 8,21,36,64,274
2147113566
Working capital
(current assets-
current liabilities)
-98,71,75,330 -3,13,42,88,896
Net decrease in
working capital -2147113566
-3,13,42,88,896 -3,13,42,88,896 2386128102 2386128102
By going through the table5.12 showing changes in working capital the following
results can be made:
a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378
From a previous year‟s figure of Rs. 6,30,63,13,319 .
b) The total value of stores and spare is increased from the previous year‟s figure and
the value of sundry debtors is also increased from the previous year‟s figure.
c) The cash and bank balances of the organization have a decrease of
Rs.17,99,13,621from the previous year‟s figure. Similarly the figure for loans and
advances is also decreased to Rs.1,58,26,86,333 from the previous year‟s figure of Rs.
2,86,87,25,189.

46
d) The other current assets like prepaid expenses and sundry receivables have also
increased from the previous year‟s figure.
e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274
From a previous year’s figure of Rs. 7,29,34,88,649.
f)That, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous year‟s figure.
g)Due to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. However, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.
h)Due to increase in current liabilities and provisions for pension and gratuity of pay,
there is a sign of decrease in working capital.
i)As per the analysis, it is observed that, the ratio of increase of working capital is
drastically reduced than the previous year‟s and the decrease sign of working capital is
Rs. -2147113566 (2009-2010), which has impacted the steady increase of current
working capital & negatively affected the profitability of the organization.
j) It is found that the current asset‟s figure is decreased from the previous year‟s figure
& the current liabilities figure is increased from the previous year. As a result of which,
there is a net decrease (negative figure) in working capital this financial year (2009-
2010).
k) That, some more emphasis can be given on current assets to increase its figure and to
decrease current liabilities‟ figure as a result of which the figure for working capital can
be increased.

47
FORTH SECTION EXPLAINS ABOUT CURRENT ASSETS AND CURRENT
LIABILITIES
CURRENT ASSETS
Total assets are basically classified in two parts as fixed assets and current assets. Fixed
assets are in the nature of long term or life time for the organization. Current assets
convert in the cash in the period of one year. It means that current assets are liquid
assets or assets which can convert in to cash within a year.
TABLE 5.13
CURRENT ASSETS SIZE
Current assets(CA) 2009(rupees) 2010(rupees) 2011(rupees)
Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951
Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700
Cash and bank
balances
90,70,19,750 72,71,06,129
57,94,33,119
Other current assets 66,69,51,629 74,48,94,758 75,13,33,069
Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300
Total of CA 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139
CA indices 100 80.54 129.62
(Amnt. In Rs.)

48
From the table-5.13 followings things are derived: The current asset indices show
growth in the year 2008-2009. In 2009-2010 it declines marginally and in 2010-2011 it
again increase.
TABLE-5.14
CURRENT ASSET TURNOVER RATIO- (sales/current Assets)
YEAR SALES CURRENT ASSETS RATIO
2009 6,78,92,95,427 6,30,63,13,319 1.08
2010 3,05,16,27,568 5,07,93,75,378 0.60
2011 4,05,19,14,743 4,43,85,38,139 0.91
2008-2009 2009-2010 2010-2011
current asset 100 80.54 129.62
100
80.54
129.62
0
20
40
60
80
100
120
140
i
n
d
i
c
e
s
CURRENT ASSET INDICES

49
From the table 5.14 following things are derived: In the year 2008-2009, the current
asset turnover was 1.08 which became 0.60 and 0.91 in the year 2009-2010, 2010-2011
respectively. But in the year 2009-2010, the current asset turnover was 0.60 due to sale
was less than the current assets.
COMPONENTS OF CURRENT ASSETS
Analysis of current assets components enable one to examine in which components the
working capital fund has locked. A large tie up of funds in inventories affects the
profitability of the business or the major portion of current assets is made up cash alone,
the profitability will be decreased because cash is non earning assets.
1.08
0.6
0.91
0
0.2
0.4
0.6
0.8
1
1.2
2008-2009 2009-2010 2010-2011
RATIO
YEAR
CURRENT ASSET TURNOVER RATIO

50
TABLE 5.15
(No. in %)
Current assets(CA) 2009 2010 2011
Stores and spares 12.82 19.08 24.69
Sundry debtors 16.73 20.78 33.89
Cash and bank balances 14.38 14.31 15.80
Other current assets 10.58 14.67 21.01
Loan and advances 45.49 31.16 4.61
Total of CA 100 100 100
2008-2009 2009-2010 2010-2011
p
e
r
c
e
n
t
a
g
e
year
stores and spares
sundry debtors
cash and bank
other current assets
loans and advances

51
CURRENT LIABILITIES:-
TABLE 5.16
TABLE 5.17
CURRENT LIABILITIES SIZE
100
112.62
115.49
90
95
100
105
110
115
120
2008-2009 2009-2010 2010-2011
indices
years
CURRENT LIABILITIES
current liabilities
2009(rupees) 2010(rupees) 2011(rupees)
Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857
Deposits and retention from
suppliers/contractors
14,91,29,269 12,89,91,075
15,76,14,454
Interest accrued but not due on
loans
1,30,49,185 51,73,055
79,27,784
Liabilities for wealth tax 47,253 28,781 48,416
Electricity duty payable 1,82,269 1,56,113 1,63,387
Liabilities for fringe benefit tax 68,51,705 68,51,705 68,51,705
Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996
Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599
Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268
Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867
Current liabilities indices 100 112.62 115.49

52
From the table 5.17 following things are derived: The current liabilities graph shows
a rapid growth. In 2008-2009, the current asset indices is 100 and thereafter it increases
to 112.62, 115.49 in 2009-2010, 2010-2011 respectively. The current liabilities
increased at a speed.
(TABLE 5.18)
DEBTOR TURN OVER RATIO- (NET SALES/AVERAGE DEBTORS)
YEAR Net Sales Average Debtors Ratio
Average Collection
Period
(365/DTR)days
2009 6,78,92,95,427 1,05,37,88,728 6.44 57
2010 3,05,16,27,568 1,05,53,64,586 2.89 126
2011 4,05,19,14,743 1,30,71,83,699 3.09 119
6.44
2.89 3.09
0
1
2
3
4
5
6
7
2008-2009 2009-2010 2010-2011
ratio
years
DEBTOR TURN OVER RATIO

53
Debtor Turn Over Ratio- By going through our calculation table and diagrams of
Debtor Turnover Ratio, profit and loss accounts and balance sheets of OPTCL the
following results can be drawn.
A) In the year 2008-2009 the debtor turnover ratio is 6.44 times and the average
collection period is 57 days. This year, the value of debtor turnover is higher than the
previous year due to decrease in average debtor.
B) In the year 2009-2010 the debtor turnover is 2.89 times and the average collection
period is found to be 126 days. This year, there is higher value of debtor turn over.
C) In the year 2010-2011 the debtor turnover is 3.09 times and the average collection
period is found to be 119 days. This year, the value of debtor turnover is higher than the
previous year due to increase in average debtor.
D) OPTCL used to collect pending dues directly from consumers for which, substantial
delay in getting payment was . However, the present average period of collection is
decreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. for
collection of revenue on behalf of OPTCL and the same has been made through banks.
The shorter the average collection period, the better the quality of debtors, since a short
collection period implies the prompt payments by debtors. So this is a good indication
for the organization.
0
20
40
60
80
100
120
140
2008-2009 2009-2010 2010-2011
57
126 119
DAYS
YEARS
AVERAGE COLLECTION PERIOD

54
SECTION FIVE Generally Defines Measures To Improve Working Capital
Management at OPTCL
The essence of effective working capital management is proper cash flow forecasting.
This should take into account the impact of unforeseen events, market cycles, loss of a
prime customer and actions by competitors. So the effect of unforeseen demands of
working capital should be factored by company. This was one of its reasons for the
variation of its revised working capital projection from the earlier projection.
a) Addressing the issue of working capital on a corporate-wide basis has certain
advantages. Cash generated at one location can well be utilized at another.
b) An innovative approach, combining operational and financial skills and an all-
encompassing view of the company‟s operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having
the right set of executives who are responsible for setting targets and performance
levels. They could be then held accountable for delivering, encouraged to be
enterprising and to act as change agents.
c) It pays to have contingency plans to tide over unexpected events. While market-
leaders can manage uncertainty better, even other companies must have risk-
management procedures. These must be based on objective and realistic view of the role
of working capital.
d) Working capital management is an important yardstick to measure a company
operational and financial efficiency. This aspect must form part of the strategic and
operational thinking. Efforts should constantly be made to improve the working capital
position. This will yield greater efficiencies and improve customer satisfaction.
e) Placing the responsibility for collecting the debt upon the centre that made the sale.
f) Cash should be managed properly.
g) Effort should be made to reduce the current liabilities and to increase the current
asset.

55
HYPOTHESIS TESTING:
Generally hypothesis means a mere assumption or some supposition to be proved or
disproved. Hypothesis is usually considered as the principle instrument in research. Its
main function is to suggest new experiments and observations.
Hypothesis: 1- The firm is facing difficulty in paying short-term debt.
The following table contains the details about the average collection period from
debtors and average payment period to creditors from the period 2008-2009 to 2010-
2011.
Years Average
collection
period (x)
Average
payment
period(y)
XY X2
y2
2008-2009 57 37 2109 3249 1369
2009-2010 126 86 10836 15876 7396
2010-2011 119 98 11662 14161 9604
∑x= 302 ∑ Y=221 XY=24607
∑ x2 =
33286
∑ y2
=
18369
KARL PEARSONS’S COFFICIENT OF CORRELETION:
By putting the values in the formula the “r” came = 0.96
From the calculation value of “r” come = 0.96 which is a positive one. As the
correlation came a positive one which ensures that the firm is facing difficulty in paying
short-term debt. It is the case where current liabilities are increased throughout the
financial years from, 2008-2009, 2009-2010 and 2010-2011.

56
HYPOTHESIS:2 THE FIRM IS NOT PROPERLY MANAGING THE SUNDRY
DEBTOR.
The following table contains average collection period from debtors and sundry debtors
(in crore) from the period 2008-2009 to 2010-2011.
years Average
collection
period (x)
sundry debtors
(in crore)
(y) XY X2 y2
2008-2009 57 106 6042 3249 11236
2009-2010 126 106 13356 15876 11236
2010-2011 119 156 18564 14161 24336
∑x= 302 ∑Y=368 XY=37962 ∑ x2 =
33286 ∑ y2
=46808
KARL PERSON’S COFFICIENT OF CORRELETION:
By putting the values in the formula the “r” came = 0.4
The correlation came negative to the second hypothesis.
After putting the data “r” is found = 0.4 which is a positive one. So the hypothesis is
accepted. As the firm is able to manage the sundry debtor.

57
HYPOTHESIS: 3- THE CURRENT LIABILITIES ARE INCREASING THAN
CURRENT ASSETS YEAR BY YEAR.
The following table contains the amount of current liabilities(in crore) and current assets
(in crore) from the period 2006-2007 to 2009-2010.
years CURRENT
LIABILITIES
(in crore)
(x)
CURRENT
ASSETS
(in crore)
(y)
XY X2
y2
2008-2009 729 631 459999 531441 398161
2009-2010 821 508 417068 674041 258064
2010-2011 842 444 373848 70894 197136
∑x=2392 ∑Y=1583 XY=1250915 ∑ x2
= 1276376 ∑ y2
= 853361
KARL PERSON’S COFFICIENT OF CORRELETION:
By putting the values in the formula the “r” came = -0.11
As the hypothesis is negative which ensures that the current liabilities of firm is
increased at a speed than current assets. So the firm should have an eye to this one.

58
FINDINGS OF THE STUDY
Following are the findings of the study:
A) Working capital of three years i.e., (2008-2009, 2009-2010and 2010-2011) is in
negative figure. The reason is that the company‟s current liabilities exceeds current
assets from 2008-2009 to 2010-2011. The company created more provisions throughout
these 3 years. Sundry creditors increased at a speed in these 3 years. It is an alarm sign
for the company. Besides these sundry creditors, other current liabilities also increased
like deposits and retention from supplies, liability for wealth tax, electricity duty
payable.
B) The standard current ratio is 2:1. And for OPTCL it is not satisfactory. The reason
behind such result is that the current liabilities exceed current assets. The standard
current ratio in the year 2008-2009, 2009-2010 and 2010-2011 situations is worst. The
reason behind is the increase in current liabilities and provisions. It is not a good sign
for the company.
C) The standard quick ratio is 1:1. And for OPTCL it is not satisfactory. The reason
behind OPTCL did not achieve the rule of thumb. The current liabilities exceed the
liquid assets. There is an increase in current liabilities like sundry creditor, interest
accrued but not due on loans, liability for wealth tax and liabilities for fringe benefit tax
than of liquid assets.
D) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason is
that liquid assets fall very short than current liabilities. The current liabilities again
exceed the absolute liquid assets. There is not significant increase in absolute current
assets like cash and bank balances from 2008-2009 to 2010-2011. But there is a rapid
increase in current liabilities like sundry creditors, deposits and retention from suppliers,
liabilities for fringe benefit tax and provisions.
E) Debtors of the company were high; they were increasing year by year, so more funds
were blocked in debtor. As the company is selling electricity to the sundry debtors and
the cash is not immediately received so some amount of cash is blocked in that matter.

59
F) The current asset trend increased in 2009, but in 2010 it declines and 2011 it again
increases. The current assets like stores and spare declined in 2008-2009 it and then it is
increased in 2009-2010 and again declined in 2010-2011. Sundry debtors declined in
2008-2009 but again it is increased in 2009-2010 and in 2010-2011 it again declined.
G) The current liabilities trend increasing at a speed which is worried thing for
company. Current liabilities like sundry creditors, deposits and retention from suppliers,
interest accrued but not due on loans, liabilities for wealth tax, electricity duty payable,
liabilities for fringe benefit tax increased from 2008-2009 to 2010-2011.
H) Debtor‟s turnover ratio improved in 2009 and so number of collection period
decreases. But in 2010 debtor‟s turnover ratio was decreases and collection period
increases. In 2008-2009 it was 57 days. Then it is increased to 126 days in 2009-2010.
But in 2010-2011 it again decreased to 119 days.
J) Current asset ratio decrease throughout the year. It was 1.08 in 2008-2009, 0.60 in
2009-2010 and 0.91 in 2010-2011.
K) Working capital turnover ratio was negative in 2008-2009, 2009-2010 and 2010-
2011. It slope downward and it was -6.88, -0.97 and -1.02 in 2008-2009, 2009-2010 and
2010-2011 respectively.

60
CHAPTER -6
CONCLUSION AND RECOMMENDATION
:CONCLUSION:
On the basis of data analysis on working capital management in OPTCL, the following
conclusions arrived.
A) The company has gross profit for the past four years (2008-2009, 2009-2010 and
2010-2011) in negatives and the current liabilities are increasing, in comparison to
current assets position. Hence, it is an alarming sign for the smooth working capital
management.
B) The OPTCL didn‟t manage the liquidity position of the company. But, in the year
2007-08, 2008-2009, 2009-2010 and 2010-2011 the situation of liquidity position was
alarming due to increase in total current liabilities and decrease in total current assets
which led to the decrease in the net working capital of the company.
C) During the year 2008-2009, 2009-2010 and 2010-2011 the company‟s liquid assets
were not satisfactory.
D) The average collection period of the company during the year 2008-2009 is 57 days,
it is increased to 126 days in 2009-2010 but the average collection period again
increases to 119 days in 2010-2011.
E) There is also satisfactory net cash flow from the operating, investing and financing
activities of the organization.
F)Though the net working capital of the company is decreased, still the company is in a
better manageable position and the company‟s present status of maintaining current
assets and current liabilities are satisfactory.
G) They are unable to manage their cash, funds and debts.
By adapting better management practices, the company may attain a sound financial
position in future and able to manage its working capital efficiently

61
RECOMMENDATION
OPTCL is the soul of Orissa‟s power transmission and is playing a pivotal role in
making surplus power consumption state through efficiently administering the system
of transmission. For improvement of organization‟s profitability, much emphasis is
needed to improve the better working capital management by decreasing the current
liabilities through reducing of unplanned over head expenses. In such process, current
assets position will be improved through collection of revenue from power transmission
as well as recovery of past dues from consumers, Govt. and other agencies etc. The
company should give more attention on increasing its collection of revenue from
wheeling of power and should give more emphasis to curtail unplanned expenses to
decreases the loss. Further, the management should focus on shortening its average
collection period by changing its credit terms and conditions.
By taking the above remedial measures, the organization can be an EVA+ company
with due emphasis on proper way of managing the working capital.
.

62
CHAPTER -7
IMPLICATION FOR FUTURE RESEARCH:
This study is the foundation stone for carrying out further research in the field of
working capital management. Further research can be also be carried out the study of
working capital management. This one of such preliminary research work and further
review of this research work can open up many dimensions for researchers. Although
the objective taken in research study is diverse, yet a trend can be observed from the
findings for future research work.
One of the major drawbacks of the study is the lack of time. Working capital
management is a very vast topic and hence in a limited time it is impossible to know
every aspects of working capital management. And also it was study that depended on
3years of data. There is future scope for studying these things.

63
DISCLAIMER
The present study of working capital management in OPTCL is purely academic in
nature. The analysis of the data and interpretation of the matters in the project report are
purely academic purpose and nobody should take it as a fact finding conclusion for
lodging any claim or submission of above facts for their personal benefits for which the
undersigned will not be held responsible. The views suggestions, conclusions etc. are
the bonfied work of mine and nobody should claim or copy it for their benefit without
permission.
*******************

64
BIBLIOGRAPHY
TEXT BOOKS:
1. Maheswari Dr S.n “Financial management”, Ninth edition, 2006 sultan chand & sons,
New Delhi
2. Pandey I.M., “Financial Management”, Vikas Publishing House Pvt.Ltd. 8th
Edition
1999.
3. Prasanna Chandra, “Financial management”, Fourth edition 1999, Tata Mc.graw hill
publishing company ltd, New Delhi.
4. Gupta, sashi., “financial management”, 4th
edition,2007, kalyani publisher, new delhi
5. Kothari C.R. “Research Methodology”, Wishva prakashan, New Delhi, 2001.
ARTICLES:
An overview of working capital management and corporate financing.
Working capital management.
Working Capital Management Manages Flow of Funds” (Year 2009)
“Working Capital Management-an Effective Tool for Organisational Success” Year
(2008)
Website:
www. Optcl.co.in
www. Google.com
www. Investopedia.com
www.moneycontrol.com
www.wikipedia.com

65
: ANNEXTURE:
BALANCE SHEETS OF OPTCL
&
PROFIT & LOSS ACCOUNTS OF OPTCL

66
PROFIT & LOSS ACCOUNTS OF OPTCL
PROFIT AND LOSS
ACCOUNTS
FOR THE YEAR ENDED
31.03.2011 31.03.2010 31.03.2009
INCOME
Revenue from wheeling of Power 4,051,914,743 3,05,16,27,568 6,78,92,95,427
Other Income 255,068,122 1,36,62,18,959 36,84,47,083
Total 4,306,982,865 4,41,78,46,527 7,15,77,42,510
EXPENDITURE
Administrative, General & Other
Expenses
2,721,385,964 3,49,84,56,298 5,27,76,66,633
Depreciation 1,223,379,955 1,08,03,34,520 1,09,82,41,352
Total 3,944,765,919 4,57,87,90,818 6,35,79,07,985
Profit/ (Loss) before interest & finance
charges
362,216,946 -16,09,44,291 78,18,34,525
Interest & Finance Charges -424,377,484 -54,16,01,198 -97,24,54,617
Net prior period income/(expenditure) -65,152,447 -1,11,72,155 75,90,209
Profit/(Loss) before Taxation &
Contingency
-127,312,985 -71,37,17,644 -18,30,29,884
Provision for taxation:-
Current year 0 0 0
Fringe Benefit Tax 0 0 0
Profit After Tax -127,312,985 -71,37,17,644 -23,96,915
Reserve Appropriation ------------- ------------ -18,54,26,799
Appropriation to Contingencies Reserve -118,840,923 -10,93,51,080 -9,99,26,786
Profit/(Loss) After Taxation &
Contingency Reserve
-246,153,908 -82,30,68,724 -28,53,53,585
Balance of P&L Account Brought
Forward from Last Year
-1,600,747,175 -77,76,78,451 -49,23,24,866
Balance Carried over to Balance Sheet -1,846,901,083 -1,60,07,47,175 -77,76,78,451

67
BALANCE SHEETS OF OPTCL
(IN RUPEES)
as on
31.03.2011
as on
31.03. 2010
as on
31.03. 2009
i)sources of funds
1.shareholder’s funds:
Share capital 1,600,700,000 881,255,000 831,255,000
share reserves and surplus 7,074,504,648 6,824,666,950 5,531,676,826
8,675,204,648 7,705,921,950 6,362,931,826
2.loans funds:
Secured loans 1,882,808,719 2,970,843,099 4,034,967,573
Unsecured loans 7,305,769,031 7,338,214,991 9,081,629,634
3. others funds
Consumer security deposit 7,868756
455,334 83,334
ii)application of funds:
1. fixed assets 27,935,440,372 26,037,473,415 24,152,614,571
Gross block
Less: accumulated depreciation 13,758,811,668 12,519,750,138 11,437,546,544
Net block 14,176,628,704 13,517,723,277 12,715,068,027
Capital work-in-progress 5,562,515,095 5,760,703,817 6,711,033,019
2. Investments 207,550,000 270,550,000 270,550,000
3. current assets, loans and advances:
Stores and spaces 1,144,269,951 969,056,460 808,519,278
Sundry debtors 1,558,735,700 1,055,631,698 1,055,097,473
Cash and bank balance 579,433,119 727,106,129 907,019,750
Other current assets 751,333,069 744,894,758 738,951,177
Loans and advances 404,766,300 1,582,686,333 2,786,157,419
Less:-
Current liabilities and provisions
Current liabilities 2,793,,521,599 2,517,996,799 2,476,486,046
Provisions 5,629,960,268 5,695,667,475 4,817,002,603
Net current assets -3,984,943,728 -3,134,288,896 -997,743,553
4(a) miscellaneous expenditure to the
extent not written off or adjusted
are not written off or adjusted
- - 3,026,423
(b)profit and loss account (1,846,901,083) (1,600,747,175) (777,678,451)
Total 17,871,651,154 18,015,435,374 19,479,612,367

Arpan Project Report on Working Capital Management

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