CHAPTER 1

INTRODUCTION

Background of StudyEvery organization, working capital plays a vital role, as the company needs capital for its expenditure. Many companies fail due to poor working capital management. Companies often fail every year due to poor working capital management practices. Entrepreneurs often dont account for short term confusions to cash flow and are forced to shutdown their operations.In easy term, working capital is a surplus of current assets over the current liabilities. Quality working capital management disclose higher returns of current assets than the current liabilities to maintain a stable liquidity position of a company. Otherwise, working capital is a need of funds to meet the day to day working expenses. So a systematic way of managing of working capital is highly required to ensure a proper 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 Odisha. Seeing the quality opportunity to study financial system and practices of OPTCL, it is relatively important to take up summer internship 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 mentioned to as working capital management. These involve managing the relationship between a organizations 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 ample money flow to satisfy both maturing short-term debt and upcoming operational expenses.Working capital management assign to maintain the level of working capital to optimum level, because if a concern has inadequate opportunities and if the working capital is more than required then the concern will lose money in the form of interest on the blocked funds. Therefore working capital management plays a very important role in the profitability of a company. And also due to heavy competitions among different organizations it is now compulsory to look after working capital.

Relevance of StudyOPTCLs total assets are covered by current assets. Current assets form around 30% -40% of the total assets. This could be less profitable on the assumption that current assets generates lesser returns as compared to fixed assets.In this competitive world it become 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.To manage all these inventories and determine the investments in each inventories, the system call for a proper management of current assets which is really a tough job as the amount of inventories required are large in numbers.Here comes the need of working capital management or managing the investment s in current assets. Thus companies like OPTCL it is not easy at all to implement a good working capital management as it demands on individual attention on its different components.The study of working capital management is very helpful for the organization 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 utilize 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 in future. Others researcher can use this project as secondary data.

Company ProfileODISHA POWER TRANSMISSION CORPORATION LIMITED,(OPTCL)Registered office: Janpath, Bhubaneswar-751022, Phone No: 06742541320, 2542320ODISHA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the largest transmission utility in the country was incorporated in March 2004 under the Companies Act, 1956 as a company wholly owned by the Government of Odisha to undertake the business of transmission and wheeling of electricity in the state. It started its operations 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 Government and discharges the State Load Dispatch Function.

The registered office of OPTCL is situated at Bhubaneswar, the capital of the state of Odisha. Its projects and field units are spread all over Odisha. OPTCL became fully functional on 9th June 2005 consequent upon issue of Odisha Electricity Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the provision of Electricity Act, 2003 and the Odisha Reform 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 Odisha Electricity Regulatory Commission. The company is also discharging the functions of State Load Despatch Centre. The company owns Extra High Voltage Transmission system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132 kV levels and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs of the company are managed by the Managing Director assisted by whole-time Functional Directors as per the advice of the Board of Directors constituted. They are in turn assisted by a team of dedicated and experienced professionals in the various fields.

Vision and Mission of OPTCL

VISION OPTCL is one of the best transmission utility in the country in terms of uninterrupted power supply, lowering the loss, contributing to states industrial growth. Developing the 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 fulfillment of the objective of Electricity to all at affordable price.

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

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. To give training to 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.

Objective of OPTCL

To finally conduct transmission lines and sub-station in the state for expulsion of power from the state setup stations feed power to state distribution companies, circle of power to other states, manage the existing lines and sub-stations for power transmission and to launch power system improvement by renovation, advancement and modernization of the transmission network.OPTCL being a State Transmission Utility Public Authority has set the following objectives. Clearing all functions of outlining and analysis relating to Intra State, Inter State transmission with Central Transmission Utility, State Government, Generating companies, Regional Power Board, Authority, Licensees or other person notified by State Government in this behalf.

Safeguard development of efferent and cost-effective system of intra state and interstate transmission lines for steady flow of electricity from generating stations to the load centre.

Arrange unbiased 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.

Administer and control over the intra-state transmission system, efferent operation and maintenance of transmission lines and sub-stations and move State Load Despatch Center to ensure optimum scheduling and dispatch of electricity and to ensure integrated operation of power systems in the state.

Modernize power at the earliest possible time through deployment of emergency restoration system in the event of any Natural Disasters like super cyclone, flood etc.

Power sector reform in state

The Power Sector Reforms in the state of Odisha 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 Odisha Limited (GRIDCO) and Odisha 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 system in the state. Similarly OHPC was incorporated to own and operate all the hydro generating stations in the state.The state government enacted the Odisha 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 Odisha Electricity Reform Act, 1995, the State Government notified the Odisha Electricity Reform (Transfer of Undertakings, Assets, Liabilities, Proceedings and Personnel) Scheme Rules 1996. As per the scheme, the transmission, distribution activities and of the 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 proceedings were vested in OHPC.In order to privatize the distribution functions of electricity in the State, four distribution companies namely Central Electricity Supply Company of Odisha Limited (CESCO), North Eastern Electricity Supply Company of Odisha Limited (NESCO), Southern Electricity Supply Company of Odisha Limited (SOUTHCO) and Western Electricity Supply Company Odisha Limited (WESCO) were incorporated under the companies act, 1956 as separated corporate entities. During November 1998 the state government issued the Odisha Electricity Reform(Transfer of Assets, Liabilities, Proceedings and personnel of GRIDCO to distribution companies) Rules 1998 wherein the electricity distribution and retail supply activities along with the related assets, liabilities, personnel and proceedings were transferred from GRIDCO to the four Distribution Companies. Through a process of international competitive bidding (ICB), the four distribution companies were privatized during 1999.After separation of distribution business, GRIDCO left with electricity transmission and bulk supply/trading activities. GRIDCO was also declared as the state transmission utility and was discharged 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 provision of the said Act, trading in electricity has been recognized 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 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 Government incorporated Odisha 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 and 134 of the Electricity Act, 2003, read with section 23 and 24 of the Odisha Electricity Reform Act, 1995, the State Government issued the notification Odisha Electricity Reform(Transfer of Transmission and Related Activities) Schemes 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 Odisha and has been declared as the State Transmission Utility. GRIDCO is also discharging the functions of SLDC.

Reform Achievements

1) First Transfer between OHPC and GRIDCO effected on 1st April, 19962) OER Act, 1995 created Odisha Electricity Regulatory Commission, a Regulatory body which became functional on 1.8.19963) 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, 19997) CESCO remained under the management of an administrator (CEO) appointed by OHRC with of effect of 27.8.2001.8) A new public limited company under the name Odisha 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 1.04.2005. GRIDCO continue to carry on its bulk supply and trading functions.

Formulas of Ratio Analysis and Definations

RATIORatio analysis is the powerful tool of financial statement analysis. A ratio is define as the indicated quotient of two mathematical expression and as the relationship between two or more things. The absolute figures reported in the financial statement do not provide meaningful understandings of the performance and financial data and to make qualitative judgement of the firms financial performance.

ROLE OF RATIO ANALYSIS Ratio analysis helps to appraise the firms in the term of their profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic function like planning and control. As future is closely related to the immediately past, ratio calculated on the basis historical financial data may be of good assistance to predict the future. E.g. On the basis of inventory turnover ratio or debtors turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales. Similarly, the ratio analysis may be able to locate the point out the various arise need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firms financial analysis liquidity, solvency, activity, profitability and overall performance, it enables the interested person to know the financial and operational characteristics of an organization and take suitable decisions.

LIQUIDITY RATIOLiquidity refers to ability of a concern to meet its current obligation as and when these become due. The short-term obligation are met by realizing amount 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 into cash within a year, such marketable securities, debtors and inventories. All obligations within a year are include in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short term bank loan income tax liabilities and long term debt maturing in the current year. Current ratio indicates the availability of current assets in rupees for every rupee of current liability.CURRENT RATIO= CURRENT ASSET/CURRENT LIABILITIES

B) QUICK RATIO OR ACID TEST: Quick ratio establish the relationship between quick or liquid assets and liabilities. As asset is liquid if it can be converting into cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset other assets which is 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 has 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 into cash immediately on time. Therefore while calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash in bank, short term marketable securities are taken into consideration to measure the ability of the firm 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 RATIOFunds 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 which the 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 receivable of a firm. It indicates how quickly receivables are converted into sales.

DEBTORS TURNOVER RATIO=SALES/AVERAGE ACCOUNT RECEIVABLESAVERAGE A/C RECEIVABLES=OPENING TRADE DEBTORS+CLOSING TRADE DEBTOR/2AVERAGE COLLECTION PERIOD=(365/DTR)daysOr RECEIVABLES *365/SALE

B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management 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 be net working capital turnover by dividing sales by net working capital.

WORKING CAPITAL TURNOVER RATIO=COST OF SALES/NET WORKING CAPITALCURRENT ASSET TURNOVER RATIO: CURRENT ASSET TURNOVER RATIO=SALES/CURRENT ASSET

Statistical tools used of data analysisThe various statistical tools used for the data analysis is as follows:a) Tables

Analytical tool used of data analysisThe analytical tools used for data analysis is as follows:a) Ratio analysisb) Schedule of change in working capitalc) Cash flow statement

CHAPTER 2 REVIEW OF THE LITERATURE

Pass C.L., Pike R.H (1984), examined that in last 40 years major theoretical development have occurred in the area financial decision making and long-term investment. Related technique and new concepts are been implemented in industrial practices. In contrast less attention has been given in respect to short-term finances, basically on working capital management. Less importance has been given by the firm regarding working capital management, but effective working capital management plays a crucial role in enhancing the profitability and growth of the firm. However, experience shows that inadequate planning and control of working capital is one of the major causes of failure of business.Herzfeld B (1990), his studies say that Cash is King indeed money managers who share the responsibility of running this countrys businesses. As bank demanding more from prospective borrowers, great importance is given to those accountable for so-called working capital management. Working capital management is all about managing the current and short-term assets and short-term liabilities. The function of the firm is to make sure they have enough assets to continue its business.Appuhami, Ranjita B (2008), studied impact on 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 Coxs (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 practical variable, has a significant relationship with working capital management.

Hardcastle J (2009), stated that working capital, sometimes called gross working capital, simply refers to the firms total current assets (the short-term ones), cash, marketable securities, accounts receivable and inventory. 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 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 G (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.Beneda, Nancy; Zhang, Yilei (2008), he found out the 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 (IPOs), the study finds a significant positive association between higher levels of accounts receivable and operating performance. The study futher finds that maintaining control (i.e. lower amounts) over levels of cash and securities, fixed assets and accounts.Dubey R (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 strengths 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 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 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 B (2007), describes that cash is the lifeline of a company. If this lifeline deteriorates, so does the companys ability to fund operations, reinvest and meet capital requirements and payments. Understanding a companys cash flow health is essential to making investment decisions. A good way to judge a companys cash flow prospects is to look at its working capital management (WCM). Cash is king when fund raising is harder than ever. Letting it slip away is an oversight that investors should not forgive. Analyzing a companys 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.Grass D (2006), stated that Cash is the lifeblood of business is an often repeated maximum 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, borrowing and provisions. The major emphasis is, however, on short-term, 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. Refuse (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 improvement and other important benefits. Urges those organization seeking concentrated working capital reduction strategies to focus on stock management strategies based on lean supply-chain techniques.Thomas M. Kruegar (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 trouble 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. Eljelly (2002), it is examined the relationship between profitability and liquidity, as measured by current ratio and cash gap(cash conversion ratio) on a sample of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis, Eljelly[9] found significant negative relationship between the firms profitability and its liquidity level, as measured by current ratios and long cash conversion cycles. At the industry level, however, he found that the cash conversion cycle or the cash is of more importance as a measure of liquidity than current ratio that affects profitability. The firm size variable was also found to have significant effect on profitability at the industry level.

CHAPTER 3 RESEARCH METHODS

3.1 Research ProblemWorking capital management in current assets is the focus of study. So the topic is to study working capital management of OPTCL.Working capital is the capital invested by the organization in current assets. Now in competitive era where each organization 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. Working capital management aims at managing capital assets at optimum level, the level at which there will be smooth production and also it will involve investment of nominal working capital in capital assets.Generally problem explains that, adequate attention has not been paid to the area of short-term finance, in particular that of working capital management, 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.

3.2 Research MethodologyResearch 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 labor of the researcher as researcher know how to proceed to conduct the study as per the objective.

3.2.1 Research ObjectivesTo study the various components of working capital.To analyze the working capital trend.To appraise the utilization of current asset and current liabilities and find out short-comings if any.To suggest measures for effective management of working capital.

3.2.2 Research DesignThe 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 by the study the working capital management in ODISHA POWER TRANSMISSION CORPORATION LIMITED (OPTCL) is descriptive and analytical research design.

3.2.3 Data CollectionThe project is based on secondary data collected from annual report of the organization. The data collection was aimed to study of working capital management of the company.Project based onAnnual report of OPTCL- 2006-07Annual report of OPTCL-20007-08Annual report of OPTCL-2008-09Annual report of OPTCL-2009-10Annual report of OPTCL-2010-11

Scope and Rationale of the studyThe 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.Many and facts and data are such that they are not to be disclosed because of the confidential nature of the same.Since the financial matters are sensitive in nature the same could not acquired easily.The study is restricted to only Five years data of OPTCL.

CHAPTER 4

FINDINGS AND ANALYSIS/RESULTS

The result and finding is in five different sections. The first sections explain about the components of working capital, variables 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 usages of current assets and current liabilities. The last section explains the measure to effective management of working capital in the organization.The first section explains about the various components of working capital and variables of working capital.

Table 1.12006-072007-082008-20092009-20102010-2011

Cash64,82,76,81249,08,81,18390,70,19,75072,71,06,12957,94,33,229

Debtors79,81,96,2011,05,24,79,9821,05,50,97,4731,05,56,31,6981,55,87,35,700

Inventories75,10,64,69076,68,65,26280,85,19,27896,90,56,4601,14,42,69,951

SundryCreditors61,03,22,49666,51,67,98068,95,26,59772,40,51,45685,55,52,857

Provision83,08,65,8191,30,45,17,7444,81,70,02,6035,69,56,67,4755,62,99,60,268

Components of working capital

a) Cash in bank in the year 2006-07 was Rs64,82,76,812 . It is decreased to Rs49,08,81,183 in the year 2007-08. In year 2006-07 it increased to Rs90,70,019,750 . And then it suddenly decreases to Rs72,71,06,129 again decreases to Rs57,43,31,119 in the year 2008-09.b) Debtors increases which was not good sign for the organization. In 2006-07 debtors were Rs79,81,96,201 and it increased to Rs1,05,24,79,982 in the year 2007-08 a total increases in Rs25,42,83,781. In year 2006-07 it was increased Rs1,05,50,97,473. And in 2007-08 it again increased in Rs1,05,56,31,698 and in 2008-09 in reached 1,55,87,35,700.c) As per the above findings inventories were increased. The inventories were Rs79,81,96,201 in 2006-07.In 2007-08 it increased to Rs76,68,65,262, with an increase of Rs1,58,00572, with the percentage growth of 2.10%. In 2006-07 it increased to Rs80,85,19,278 with the increase in 7.7%. In 2007-08 it again increased to 96,90,56,460 with a increase in 29%. It is futher increased to 1,14,42,69,951 in 2008-09.d) Sundry creditors also increased a lot. In 2006-07 it was Rs61,03,22,496. Then it increased by Rs5,48,45,484 which amounted to Rs66,51,67,980 with a increase of 8.99% in 2007-08. In the year 2006-07 it increased to Rs68,95,26,597 with a percentage increase of 12.98%. In 2007-08 it again increase to Rs72,40,51,456 and Rs85,55,52,857 in the year 2008-09.e) Provisions also increased throughout the years. In 2006-07 it was Rs83,08,65,819. Then it increased to 1,30,45,17,744 with a percentage increase of 57% in 2007-08.In 2006-07 it again increased to Rs4,81,70,02,603.In 2007-08 it again increased to Rs5,69,56,67,475. In 2008-09 there was not much difference in 2006-07 and 2008-09.

Variable of working capital managementVariables2006-072007-082008-092009-102010-11

ROTA(Return on total assets)0.150.160.220.100.13

OPM(OperatingProfit margin)61.55%56.40%27.78%34.65%35.82%

GEAR(Gearing Ratio i.e. financial debt/total assets)0.64:10.55:10.43:10.33:10.34:1

CR(Current Ratio)1.28:10.94:10.86:10.62:10.68:1

QAR(Quick assets ratio)0.58:10.46:10.27:10.22:10.24:1

CA/TA(Current Assets to Total Assets)0.130.120.210.160.20

CL/TA(Current Liabilities to Total assets)0.110.130.240.260.28

SK/CA(Stocks to Current assets)0.230.250.130.190.16

TD/CA(Trade Debtors to Current Assets)0.250.340.170.210.23

CA_TURN(Current Assets Turnover is sales/current assets)1.101.291.080.600.61

The findings of various variables of working capital managementa) Return on total asset(ROTA) came 0.15 in 2006-07,0.16 in 2007-08,0.22 in 2006-07,0.10 in 2007-08 and 0.13 in 2008-09.b) Operating profit margin(OPM) was 61.55% in 2006-07 then it reduced to 56.40% ,27.78%, 34.65% and 35.82% in 2007-08,2006-07,2009 -10 and 2008-09 respectively. Anything between 65% to 85% is known as a good operating margin, and for OPTCL it was a sign of alarm.c) Gearing ratio was 0.64:1 in 2006-07 and in 2007-08 it is 0.55:1, 0.43:1in the year 2006-07, 0.33:1 in 2007-08 and 0.34:1 in 2008-09.d) Current ratio(CR) generally reduced for the organization, in 2006-07 it was 1.28:1 and it reduced to 0.94:1 in 2007-08 and then it again reduced to 0.86:1 and 0.62:1 in 2009-10 and 0.68:1 in 2010-11.e) Quick asset ratio(QAR) in 2006-07 was 0.58:1,in 2007-08 it became 0.46:1 and in 2008-09,2009-10 and 2010-11 it became 0.27:1,0.22:1 and 0.24:1.f) Current asset to total asset ratio came 0.13, 0.12, 0.21, 0.16 and 0.20 in the year 2006-07,2007-08,2008-09,2009-10 and 2010-11g) Current liability to total asset ratio came 0.11 in 2006-07, in 2007-08 it came 0.13, and in 2008-09, 2009-10 and 2010-11 it came 0.24, 0.26 and 0.28 respectively.h) Stock to current asset is 0.23, 0.25, 0.13, 0.19 and 0.16 in respective years.i) Trade debtors in 2006-07 was 0.25, in 2007-08 it was 0.34, in 2008-09 it was 0.17, in 2009-10 it was 0.21 and in 2010-11 it was 0.23.j) Current asset turnover is 1.10 in 2006-07, 1.29 in 2007-08, 1.08 in 2008-09, 0.60 in 2009-10 and 0.61 in 2010-11.

Components of Current ratio, Quick Ratio and Absolute Liquid Ratios2006-072007-082008-092009-102010-2011

Current Ratio1.28:10.94:10.86:10.62:10.68:1

Quick Ratio0.58:10.46:10.27:10.22:10.24:1

Absolute Liquid Ratio0.25:10.15:10.12:10.08:10.09:1

Stocks to Current Assets0.230.250.130.190.20

Trade Debtors to Current Assets0.250.340.170.210.23

Current Assets to Total Assets0.130.120.210.160.23

Current Liabilities to Total Assets0.110.130.240.260.28

CCC(Cash Conversion Cycle)

Inventory Days77 days70 days43 days115 days118 days

Debtors Turnover Days125 days85 days57 days126 days128 days

Creditors Turnover Days63 days61 days37 days86 days89 days

a) In 2006-07 the current ratio was 1.28:1 which is below the standard of 2:1. In 2007-08, it was found that the current ratio of OPTCL was 0.94:1 and it was decreased from the total current assets from previous year and an increased in current liability this year. In 2008-09, it was found that the current ratio of OPTCL is 0.86:1. In 2009-10 the current ratio was 0.62:1 and in 2010-11 the current ratio was 0.68:1.b) Quick ratio in 2006-07 it was 0.58:1 and 0.46:1, 0.27:1, 0.22:1 and 0.24:1 in 2007-08, 2008-09, 2009-10 and 2010-11.c) In the year 2006-07 the absolute liquid ratio was found to be 0.25:1. In the year 2007-08 the absolute liquid ratio of OPTCL was found to be 0.15:1. The absolute liquid ratio of the organization for the year 2008-09 was found 0.12:1 and in the year 2009-10 was 0.008:1 and for the financial year of 2010-11 was 0.09:1.d) Stock to current assets is 0.23, 0.25, 0.13, 0.19 and 0.20 in the respective years.e) Trade debtors to current asset ratio come 0.25, 0.34, 0.17, 0.21 and 0.23 in the respective years.f) Current asset to total asset ratio come 0.13, 0.12, 0.21 and 0.16 in the year 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11.g) Current liabilities to total asset came 0.11 in 2006-07 and in 2007-08 it came 0.13, in 2008-09 it came 0.24, in 2009-10 it came 0.26 and in 2010-11 in came 0.28.h) Cash conversion ratio for inventory came 77days, 70days, 43days and 115days. Cash conversion for debtors came 125 days in 2006-07, it reduced to 85 and 57 days in 2007-08, 2008-09 respectively. But in 2009-10 it increased to 126 days then in 2010-11 it increased to 128 days. Cash conversion ratio came 63 days, 61 days, 37 days and 86 days respectively.

THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF THE ORGANIZATIONLIQUIDTY RATIOCurrent Ratio-(Current Assets/Current Liability)

YEARSCURRENT ASSETS(IN RUPEES)CURRENT LIABILITY(IN RUPEES)

RATIO

2006-073,21,50,26,4292,50,80,12,5161.28:1

2007-083,10,61,19,3033,35,96,86,5080.94:1

2008-09

6,30,63,13,3197,29,34,88,6490.86:1

2009-105,07,93,75,3788,21,36,64,2740.62:1

2010-114,43,85,38,1398,42,34,81,8670.53:1

A) 2006-07 it was found that the current ratio was 1.28:1 which is below the standard of 2:1. It is due to a decrease of total current assets from the previous year to current year. Still it is manageable and also the condition was under the control.B) In the year 2007-08, it was found that the current ratio of OPTCL was 0.94:1. It was below the standard of 2:1 and it is decrease in total current assets from previous year and an increase in current liability this year. The cash and bank balance is found to decrease this year in comparison to that of previous year where as the current liabilities and provisions both have increased this year.C) In the year 2008-09, it was found that the current ratio of OPTCL was 0.86:1. It is a not good indication according to the rule of thumb because the firm has more current assets than current liabilities. The firm may be able to meet its short term obligations in time.D) 2009-10 and 2010-11, it was found that the current ratio of OPTCL was 0.62:1 and 0.53:1. It was not a good indication according to rule of thumb because the firm has more current assets than current liabilities. The firm was not able to meet its short term obligation in time.E) As increase in administrative overhead expenses, super annuity benefits and payment of past loan etc are the major factor for increasing of current liabilities.F) Situation can be controlled so more emphasis can be given on these areas to reduce current liabilities and to increase current assets so that the actual standard of 2:1 can be achieved. In addition to, company should make clear cut strategic planning to sell electricity to major industries at industrial rate to achieve higher revenue.

Quick Ratio (Liquid Assets/Current Ratio)

Years Liquid Assets Current liability Ratio

2006-07

1,44,64,73,013 2,50,80,,12,5160.58:1

2007-08 1,54,33,61,165 3,35,96,86,5080.46:1

2008-09 1,96,21,17,223 7,29,34,88,6490.27:1

2009-10 1,78,27,37,827 8,21,36,64,2740.22:1

2010-11 2,138,168,819 8,423,481,8670.25:1

A) The quick ratio or the Acid Test Ratio of OPTCL for the financial year 2006-07 was found to be 0.58:1. So it was manageable situation. B) In the year 2007-08 it was found that the Quick Ratio of OPTCL was 0.46:1 which was below the normal standard. It was due to a little bit increase in current liabilities in comparison to that of previous year. Still it was also in a manageable position and by giving a small effort the normal standard of 1:1 can be achieved.C) In the year 2008-09 it is found that the QUICK ratio of OPTCL is 0.27:1, which is just normal standard. It is due to a little bit increase in current liabilities.D) In the year 2009-10 it is found that the Quick ratio was 0.22:1 which is below standard. Management should have an eye on to that.E) In the year 2010-11 the situation is also no good. The quick ratio is 0.25:1, which is below standard of 1:1.

Absolute Liquid Ratio (Absolute Liquid Asset/Current Liability)YEARAbsolute Liquid RatioCurrent LiabilitiesRatio

2006-0764,82,76,8122,50,80,12,5160.25:1

2007-0849,08,81,1833,35,96,86,5080.15:1

2008-0990,70,19,7507,29,34,88,6490.12:1

2009-1072,71,19,7508,21,36,64,2740.08:1

2010-1157,94,33,1198,32,34,81,8670.06:1

By going through the table of Absolute liquid Ratio, balance sheet of OPTCL the following results can be drawn.A) In the year 2006-07 the Absolute Liquid Ratio was found to be 0.25:1. Through it is below the normal standard still it is manageable condition.B) In the year 2007-08 the Absolute Liquid Ratio of OPTCL was found to be 0.15:1 which was below from the previous year. It is due to a decrease in cash and bank balances and also a slightly in current liabilities.C) The Absolute Liquid Ratio of the firm for the financial year 2008-09 is found to be 0.12:1 which is below the normal standard. This is due less cash and bank balances of the organization in comparison to the current liabilities.D) In the year 2009-10 and 2010-11, the absolute liquid ratio found to be 0.08:1 and 0.06:1 respectively. This is due to less cash and bank balances of the organization to the current liabilities.

CASH FLOW STATEMENT2009-2010Amount in (Rs)2008-2009Amount in (Rs)2007-2008Amount in (Rs)2006-2007Amount in (Rs)

Profit/Loss before tax & extraordinary items12,73,12,985-71,37,17,644-18,30,29,883-3,64,99,383

Adjustment for

Appropriation to reserves and surpluses13,09,96,7751,18,36,39,0446,33,87,38311,15,56,818

Interest and finance charges42,43,77,48454,16,01,19897,24,54,6171,10,65,54,318

Depreciation1,23,90,63,9011,08,22,03,5921,09,74,37,8791,09,90,58,990

Preliminary expenses W/O-30,26,42330,26,42330,26,423

Excess provision written back--1,04,00,87,510-47,574-209

Interest income4,28,44,898-4,5513,310-6,90,09,008-5,03,60,383

Provision for wealth tax47,48127,84646,31846,305

Provision/write off against theft materials11,59,21415,22,60329,50,31228,65,292

Provision for obsolete stock-store etc---1,11,96,801

Bad and doubtful debt8,12,05,3484,47,68,65211,63,52592,89,278

Provision for fringe benefit tax---23,96,915-21,13,256

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A)1,70,66,92,3191763727051,05,74,70,8931,88,59,83,0782,25,46,20,994

WORKING CAPITAL CHANGE50,31,04,002

Stores and Spares64,38,311-16,20,59,785-4,46,04,328-2,98,62,664

Sundry Debtors1,17,79,20,033-4,53,02,877-37,81,016-26,35,73,059

Other Current assets27,27,22,589-59,43,581-1,43,98,325-2,44,71,317

Loan and advances6,57,07,2071,20,34,71,087-2,72,53,85,61824,60,67,167

Current liabilities69,90,20,3974,93,59,03742,88,03,92842,01,27,401

Provisions2,40,57,12,7161,91,87,52,3823,52,31,00,65647,36,52,134

NET CAPITAL CHANGES (B)2,95,82,76,2631,16,37,35,29682,19,39,662

CASH GENERATED FROM THE OPERATIONS (A)+(B)1,77,35,72,5294,01,57,47,1563,04,97,18,3743,07,65,60,656

4,28,44,898

CASH FLOW FROM INVESTING ACTIVITIES:

Capital Expenditure(CAPEX)--93,41,57,641-91,68,37,432-1,03,91,08,694

Interest received revenue4,55,13,3106,90,09,0085,03,60,383

CASH GERNRATED FROM INVESTING ACTIVITIES (C)1,73,07,27,631-88,86,44,331-84,78,28,424-98,87,48,311

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from secured loan1,08,80,34,380-1,06,41,24,474-1,05,96,33,683-1,02,66,95,328

Proceed from unsecured loan2,03,48,78,84832,39,10,165-6,95,82,948-36,86,01,393

Interest Paid2,48,89,47,563-2,61,68,02,137-88,70,89,752-83,19,11,252

Proceed from Share Capital71,94,45,0005,00,00,00023,05,55,000-

CASH FLOW FROM FINANCING ACTIVITIES (D)82,26,58,195-3,30,70,16,446-1,78,57,51,383-2,24,52,07,973

NET CASH GENERATED FROM ALL ACTIVITIES (A+B+C+D)14,76,73,010-17,99,13,62141,61,38,567-15,73,95,628

Cash and cash equivalent at the beginning of the year72,71,06,12990,70,19,75049,08,81,18364,82,76,812

Cash equivalent at the end of the period57,94,33,11972,71,06,12990,70,19,75049,08,81,184

A) Cash generated from investing activities Rs 1,73,07,27,631, Rs-88,86,44,331, Rs-84,78,28,424 and Rs-98,87,48,311 in the year 2009-10, 2008-09, 2007-08 and 2006-07 respectivelyB) Hence, there is a generation of Rs1,77,35,72,529 , Rs4,01,57,156 cash flow from its operating activities for the year 2009-2010 and 2008-2009 where as in 2007-2008, it was Rs3,04,97,18,374 and in 2006-2007 it was Rs3,07,65,60,656C) The net cash flow of Rs82,26,58,095 from financing activities in 2009-2010 where it was Rs-3,30,70,16,446, Rs-1,78,57,51,383 and Rs-2,24,52,07,973 in 2008-2009, 2007-2008 and 2006-2007.D) That the net cash flow from its operating, investing and financing activities for the year 2009-2010 is a negative of Rs-17,99,13,621. It became positive in the year 2008-2009 which was Rs41,61,38,567 and in 2007-2008 it became Rs-15,73,95,628 in the year 2006-2007.

SIZE OF WORKING CAPITALCURRENT ASSETS (CA)2006-07(rupees)2007-08(rupees)2008-09(rupees)2009-10(rupees)2010-11(rupees)

Stores and Spares75,10,64,69076,68,65,26280,85,19,27896,90,56,4601,14,42,69,951

Sundry Debtors79,81,96,2011,05,24,79,9821,05,50,97,4731,05,56,31,6981,55,87,35,700

Cash and bank balance64,82,76,81249,08,81,18390,70,19,75072,71,06,12957,94,33,119

Other Current assets62,80,81,98765,25,53,30466,69,51,62974,48,94,75875,13,33,069

Loan and advances38,94,06,73914,33,39,5722,86,87,25,1891,58,26,86,33340,47,66,300

Total

3,21,50,26,4293,10,61,19,3036,30,63,13,3195,07,93,75,3784,43,85,38,139

Less: CURRENT LIABILITIES (CL)

Sundry Creditor61,03,22,49666,51,67,98068,95,26,59772,40,51,45685,55,52,857

Deposits and retention from supplies/contractors12,50,63,35013,71,54,49714,91,29,26912,89,91,07515,76,14,454

Interest accrued butNot due on loans6,27,33,7892,05,82,1491,30,49,18551,73,05579,27,784

Liabilities for wealth tax37,29947,24047,25328,78148,416

Electricity duty payable2,12,90349,0921,82,2691,56,1131,63,387

Liabilities for fringe benefit tax23,41,53444,54,79068,51,70568,51,70568,51,705

Other Liabilities87,64,35,3261,22,77,13,0161,61,76,99,7681,65,27,44,6141,76,53,62,996

Current liabilities1,67,71,46,6972,05,51,68,7642,47,64,86,0462,51,79,96,7992,79,3521,599

Provisions83,08,65,8191,30,45,17,7444,81,70,02,6035,69,56,67,4755,62,99,60,268

Total Current Liabilities2,50,80,12,5163,35,96,86,5087,29,34,88,6498,21,36,64,2748,42,34,81,867

Working Capital(CA-CL)70,70,13,913-25,35,67,205-98,71,75,320-3,13,42,88,896-3,98,49,43,728

In 2006-07, working capital was Rs70,70,13,913 because current asset was more than current liabilities. In 2007-2008 it became negative due to the fact that current liabilities exceeds than current assets. In 2008-2009 it became Rs-98,71,75,330 due to excessive of provisions. In that year current liabilities exceeds current assets. In 2009-2010, working capital again became negative. In 2010-2011 working capital again became negative.

WORKING CAPITAL TREND ANALYSISIn working capital analysis the direction at change over a period of time is of crucial importance. Working capital is one of the important fields of management. It is therefore very essential for an 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 is current assets and current liabilities and its effect on the working capital position. The term trend is very commonly used in day to day 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. WORKING CAPITAL SIZE TREND YEARS2006-072007-082008-092009-102010-11

Net Working Capital70,70,13,913-25,35,67,205-98,71,75,330-3,13,42,88,896-3,98,49,43,728

Working Capital Indices100-35.86-139.62-443.31-563.63

It is observed that in 2006-07, working capital indices was very high due to current assets exceeded current liabilities. In 2007-08 indices was also high because current asset were more than current liabilities. In 2008-09 the company was able to manage their working capital efficiently. But in 2009-10 and 2010-11 it became negative.

WORKING CAPITAL TURNOVER RATIO (SALES/NET WORKING CAPITAL)

YEARCost of salesNet working capitalRatio

20063,55,34,94,4017,07,01,39,135.03 times

20073,99,75,58,798-25,35,67,205-15.7times

20086,78,92,95,427-98,71,75,330-6.88times

20093,05,16,27,568-3,13,42,88,896-0.97times

20104,05,19,14,742-3,98,49,43,728-1.02times

A) In the year 2006-2007, there was an increase in working capital turnover ratio to 5.03.B) However, in the year 2007-2008, it was -15.7 which indicates there was a decrease in net current assets due to increase in current liabilities.C) In the year 2008-2009, it was -6.88 which was better than previous year.D) But in 2009-2010, working capital turnover was -0.97, which indicates there was decrease in net current assets due to increase in current liabilities.E) In 2010-2011, working capital turnover was -1.02.

STATEMENT SHOWING CHANGE IN WORKING CAPITAL in the year (2006-2007 and 2007- 2008)(2006-2007)(Rs)(2007-2008)(Rs)Increase in working capital(Rs)Decrease in working capital(Rs)

Current assets

Stores and spares75,10,64,69076,68,65,2621,58,00,572-

Sundry Debtors79,81,96,2011,05,24,79,98225,42,83,781-

Cash and bank balance64,82,76,81249,08,81,183-15,73,95,629

Other current assets62,80,81,98765,25,53,3042,44,71,317-

Loan and advances38,94,06,73914,33,39,572-24,60,67,167

Total3,21,50,26,4293,10,61,19,303

Current liabilities

Current liabilities1,67,71,46,6972,05,51,68,764-37,80,22,067

Provisions83,08,65,8191,30,45,17,744-47,36,51,925

Total2,50,80,12,5163,35,96,86,508

Working capital(CA-CL)70,70,13,913-25,35,67,205

Net decrease in working capital-96,05,81,11896,05,81,118

-25,35,67,205-25,35,67,2051,25,51,36,7881,25,51,36,788

A) The total current asset of the year 2007-08 is decreased to Rs 3,10,61,19,303 from previous years figure of Rs 3,21,50,26,429.B) The total value of stores and spares is increased from the previous year figure and the value of sundry debtors is also increased from the previous year figure.C) The cash and bank balances of the organization have a decrease of Rs 15,73,95,629 from previous year figure. Similarly the figure for loans and advances is also decreased to Rs 14,33,39,572 from the previous year figure of Rs 38,94,06,739.D) The other current assets like prepaid expenses and sundry receivables have also increased from the previous year figure.E) The total current liabilities of the year 2007-08 was increased to Rs 3,35,96,86,508 from a previous years figure of Rs 2,50,80,12,516.F) That, the increase for current liabilities is due to increase in the figure of sundry creditors, deposits and retention from supplier/contractors, liabilities for wealth tax, liabilities for fringe benefits tax and other liabilities from the previous years 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 increased of working capital is drastically reduced than the previous years and the decrease sign of working capital is Rs 96,05,81,118 (2007-08), which has impacted the steady increased of current working capital and negative affected the profitability of the organization.J) It is found that the current assets figure is decrease from the previous years figure and the current liabilities figure is increased from the previous year. As a result of which, there is a net decrease (negative figure) in working capital this financial year (2007-08).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.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL (2008-2009 and 2009-2010)

(2009-2010) (Rs)(2008-2009)(Rs)Increase in working capital(Rs)Decrease in working capital(Rs)

Current asset

Stores and spares80,85,19,27896,90,56,46016,05,37,182-

Sundry debtors1,05,50,97,4731,05,56,31,6985,34,225-

Cash and bank balances90,70,19,75072,71,06,12917,99,13,621

Other current assets66,69,51,62974,48,94,7587,79,43,129-

Loan and advances2,86,87,25,1891,58,26,86,333-1,28,60,38,856

Total6,30,63,13,3195,07,93,75,378

Current liabilities

Current liabilities2,47,64,86,0462,51,79,96,799-4,15,10,753

Provision4,81,70,02,6035,69,56,67,475-87,86,64,872

Total7,29,34,88,6498,21,36,64,274

Working Capital(Current asset-current liabilities)-98,71,75,330-3,13,42,88,8962,14,71,13,566

Net decrease in working capital-2,14,71,13,566

-3,13,42,88,896-3,13,42,88,8962,38,61,28,1022,38,61,28,102

A) The total current asset of the year 2008-09 decreased to Rs 5,07,93,75,378 from a previous year figure of Rs 6,30,63,13,619B) The total value of stores and spare is increased from the previous years figure and the value of sundry debtors is also increased from the previous year figure.C) The cash and bank balances of the organization have a decrease of Rs 17,99,13,621 from the previous years figure. Similarly the figure for loans and advances is also decreased to Rs 1,58,26,86,333 from the previous year figure of Rs 2,86,87,25,189.D) The other current asset like prepaid expenses and sundry receivables had also increased from the previous year figure of Rs 7,29,34,88,649.F) The increase for current liabilities is due to increase in the figure of sundry creditors, deposits and retention from supplier/contractors, liabilities for wealth tax, liabilities for fringe benefit tax and other liabilities from the previous year figure.G) Due to increase in the value of stores and spares, sundry debtors and other current assets, there is 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 provision for pension and gratuity of pay, there is a sign of decrease in working capitalI) As per the analysis, it was observed that, the ratio of increase of working capital is drastically reduced than previous year and the decrease sign of working capital is Rs -2,14,71,13,566 (2009-10), which has impacted the steady increase of current working capital and negatively affected the profitability of the organizationJ) It is found that the current assets figure is decreased from the previous year figure and 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 (2001-12)K) 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.

CURRENT ASSETSTotal 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.

CURRENT ASSETS SIZECurrent Assets2006-20072007-20082008-20092009-20102010-2011

Stores and Spares75,10,64,69076,68,65,26280,85,19,27896,90,56,4601,14,42,69,951

Sundry debtors79,81,96,2011,05,24,79,9821,05,50,97,4731,05,56,31,6981,55,87,35,700

Cash and bank balances64,82,76,81249,08,81,18390,70,19,75072,71,06,12957,94,33,119

Other current assets62,80,81,98765,25,53,30466,69,51,62974,48,94,75875,13,33,069

Loan and advances38,94,06,73914,33,39,5722,86,87,25,1891,58,26,86,33340,47,66,300

Total of CA3,21,50,26,4293,10,61,19,3036,30,63,13,3195,07,93,75,3784,43,85,38,139

CA Indices10099.61196.15157.99138.11

From the above table the current assets indices show growth in the year 2006-07. In 2007-08 it decline marginally and in 2008-09 it again increase and in 2009-10 it decline and it further decline in 2010-11

CURRENT ASSET TURNOVER RATIO-(sales/current assets)

YearSALESCURRENT ASSETSRATIO

20063,55,34,94,4013,21,50,26,4291.10

20073,99,75,58,7893,10,61,19,3031.29

20086,78,92,95,4276,30,63,13,3191.08

20093,05,16,27,5685,07,93,75,3780.60

20104,05,19,14,74344385381390.91

In the year 2006-07, the current asset turnover was 1.10 which became 1.29 and 1.08 in the year 2007-08 and 2008-09 respectively. But in the year 2009-10 and 2010-11, the current asset turnover was 0.60 and 0.91 respectively due to sale was less than the current assets.

COMPONENTS OF CURRENT ASSETS (No. in %)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.Current Assets (CA)2006200720082009

Stores and spares23.3724.6912.8219.08

Sundry debtors24.8233.8916.7320.78

Cash and bank balances20.1615.8014.3814.31

Other current assets19.5421.0110.5814.67

Loan and advances12.114.6145.4931.16

Total of CA100100100100

CURRENT LIABILITIES

2006(rupees)2007(rupees)2008(rupees)2009(rupees)2010(rupees)

Creditors61,03,22,49666,51,67,98068,95,26,59772,40,51,45685,55,52,857

Deposits and retention from suppliers/contractors12,50,63,35013,71,54,49714,91,29,26912,89,91,07515,76,14,454

Interest accrued but not due on loans6,27,33,7892,05,82,1491,30,49,18551,73,05579,27,784

Liabilities for wealth tax37,29947,24047,25328,78148,416

Electricity duty sundry payable2,12,90349,2401,82,2691,56,1131,63,387

Liabilities for fringe benefits tax23,41,53444,54,79068,51,70568,51,70568,51,705

Other liabilities87,64,35,3261,22,77,13,0161,61,76,99,7681,65,27,44,6141,76,53,62,996

Total1,67,71,46,6972,05,51,68,7642,47,64,86,0462,51,79,96,7992,79,35,21,599

Provision83,08,65,8191,30,45,17,7444,81,70,02,6035,69,56,67,4755,62,99,60,268

Total2,50,80,12,5163,35,96,86,5087,29,34,88,6498,21,36,64,2748,42,34,81,867

Current liabilities indices100133.96290.81327.50335.85

DEBTORS TURNOVER RATIO-(net sales/average debtors)

YearNet SalesAverage DebtorsRatioAverage collection period (365/DTR)days

20063,55,34,94,4011,21,68,45,4102.92125

20073,99,75,58,79892,53,38,091.54.3285

20086,78,92,95,4271,05,37,88,7286.4457

20093,05,16,27,5681,05,53,64,5682.89126

20104,05,19,14,7431,55,87,35,7002.61132

Debtors Turn Over Ratio- By going through per calculation table and diagrams of Debtor Turn Over Ratio, profit and loss accounts and balance sheet of OPTCL the following results can be drawn.A) In the year 2006-07 the debtor turnover ratio was 2.92 times and the average collection period is found to be 125 days. This year, there is a higher value of debtor turn over and a shorter average collection period in comparison to that of previous year. This is a good indicationB) In the year 2007-08 the debtor turn over ratio is 4.32 times and the average collection period is 85 days. This year, the value of debtors turnover is higher than the previous year due to decrease in average debtors and an increase in net sales and the average collection period is also shorter than the previous years figure.C) In the year 2008-09 the debtor turn over 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 debtors.D) In the year 2009-10 the debtor turnover is 2.89 times and the average collection period is found to be 126 days. This year, there is higher value of debtor turn over.E) In the year 2010-11 the debtor turnover is 2.61 times and the average collection period is found to be 132 days.F) OPTCL used to collect pending dues directly from consumers for which, substantial delay in getting payment. However, the present average period of collection is decreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. for collection of revenue on behalf of OPTCL and the same has been made through banks. The shorter the average collection period, the better the quality of debtors, since a short collection period implies the prompt payments by debtors. So this is a good indication for the organization.

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

FINDING OF THE STUDYA) Working capital of four year i.e. (2007-08, 2008-09, 2009-10, 2010-11) is negative figure. The reason is that the companys current liabilities exceeds current assets from 2006-07 to 2010-11. The company created more provisions throughout this 3year. Sundry creditors increased at a speed in these 4 years. It is an alarm sign for the company. Beside these sundry creditors, other current liabilities also increased like deposits and retention from supplies, liability for wealth tax, electricity duty payable.B) The standard current ratio is 2:1 and for OPTCL it is not satisfactory. The reason behind such result is that the current liabilities exceed current assets. The standard current ratio for 2008-2009 was satisfactory but in the year 2007-08, 2008-09, 2009-10 and 2010-11 situation became worst. The reason behind the increase in current liabilities and provision. 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 creditors, 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 2007-08 to 2010-11. But there is a rapid increase in case of current liabilities like sundry creditors, deposits and retention from suppliers, liabilities for fringe benefit tax and provision.E) Debtors of the company were high; they were increasing year to year, so more funds were blocked in debtors. As the company is selling electricity to the sundry debtors and the cash is not immediately received so some amount of cash is blocked in that matter.F) The current assets trend increased from 2007-08, but in 2011 it decline. The current assets like stores and spare increased in 2007-08 to 2008-09 but in 2009-10 it declined and then it is increased in 2010-11. Sundry debtors increased from 2009 -10 to 2008-09 but it declined in 2009-10 but again it is increased in 2010-11.G) The current liabilities trend increasing at a speed which is worried thing for company. Current liabilities like sundry creditors, deposits and retention from supplier, interest accrued but not due on loans, liabilities for wealth tax, electricity duty payable, liabilities for fringe benefit tax increased from 2007-08 to 2010-11.H) Debtors turnover ratio improved from 2009 to 2011 and so the number of collection period decreases. But in 2012 debtors turnover ratio decreases and collection period increases. In 2009-10 it was 126 days. Then it is reduced to 85 and 57 days in 2007-08 and 2008-09 respectively. But in 2009-10 it again increased to 125 days.J) Current asset ratio decrease throughout the year. It was 1.10 in 2006-07 then it increased to 1.29 then a fall down occurred as it was 1.08 in 2008-09 and 0.60 in 2009-10.K) Working capital turnover ratio was positive in 2006-07; it became negative in 2007-08, 2008-09, 2009-10 and 2010-11. It was 5.03 times in 2006-07 then is sloped downward and it was -15.7, -6.88, -0.97, -1.02 in 2007-08, 2008-09, 2009-10 and 2010-11 respectively.

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIOND

ConclusionOn the basis of analysis on working capital management in OPTCL, the following conclusion arrived.A) The company has gross profit for the past four years (2007-08, 2008-09, 2009-10 and 2010-11) in negative 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) OPTCL didnt manage the liquidity position of the company. The liquidity position was in a good condition and in 2006-07, it was also satisfactory. But, in the year 2007-08, 2008-09, 2009-10 and 2010-11 the situation of liquidity position was alarming due to increase to total current liabilities and decrease in total current assets which led to the decrease in the net working capital of the company.C) During the year 2006-07, 2007-08, 2008-09, 2009-2010 and 2010-11 the companys liquid assets were not satisfactory.D) The average collection period of the company during the year 2006-07 is 125 days, it is reduced to 85 days in 2007-08 and again it reduced to 57 days in 2008-09, but the average collection period again increases to 126 days in 2009-10 and 132 days in 2010-11.E) There is also satisfactory net cash flow from the operating, investing and financing activities of the organization.F) Through the net working capital of the company is decreased, still the company is in a better manageable position and the companys present status of maintaining current assets and current liabilities and 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.

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

Implications for future researchThis study is the foundation stone for carrying out further research in the field of working capital management. Further research can be also 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 4 years of data. There is further scope for studying these things.

ReferencesTextbooks1. 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 Delhi5. Kothari C.R. Research Methodology, Wishva Prakashan, New Delhi, 2001

ArticlesAn overview of working capital management and corporate financing.Working Capital Management.Working Capital Management Manages Flow of Funds (2009)Working Capital Management-an effective tool for organizational success(2008)

Bibliography

www.optcl.comwww.investopedia.comwww.moneycontrol.comwww.wikipedia.com

Annexures

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