SUMMER INTERNSHIP REPORT On

INVESTMENT AND FUND MANAGEMENT

Of

PREPARED BY: SIDHARTH RANJAN SAHU B.COM (HONS) 3RD YEAR A3104610040

Name of the Faculty Guide: Mrs. Deepika Arora Professor, ACCF, Amity

Name of the Corporate Guide: Mr. Srimanta Panda Senior Manager (Finance)

AMITY COLLEGE OF COMMERCE AND FINANCE AMITY UNIVERSITY SECTOR 125, NOIDA, UTTAR PRADESH

CERTIFICATE FROM THE ORGANISATION

This is to certify that SIDHARTH RANJAN SAHU, student of AMITY COLLEGE OF COMMERCE AND FINANCE has completed his field work report at NALCO on the topic of Investment and Fund Management of NALCO and has submitted the field work report in partial fulfillment of B.Com (Hons) Degree. He has worked under my guidance and direction.

Date:

Mr. Srimanta Panda Senior Manager (Finance)

CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that SIDHARTH RANJAN SAHU, student of AMITY COLLEGE OF COMMERCE AND FINANCE has completed her field work report at NALCO on the topic of Investment and Fund Management of NALCO and has submitted the field work report in partial fulfillment of B.Com (Hons) degree. He has worked under my guidance and direction.

Date:

Mrs. Deepika Arora Professor,ACCF,Amity

ACKNOWLEDGEMENT
This project is an authenticated work on Summer Training Project at National Aluminum Company Limited, Bhubaneswar. I would like to take this opportunity to thank all the people, who extended their immense help to complete my project. I would like to express my gratitude to Mr. Srimanta Panda Senior Manager (Finance), Nalco, who spent his valuable time to discuss about the project and his continuous co- operation helped to get on with the project on a full swing without much hassles. I would like to thank Mrs.Deepika Maam for her valuable advice and guidance during my project completion. I also thank to all staff members of account department for helping me to complete the summer internship program.

PREFACE

It is a great privilege for me to place this report before the readers. The report is concerned with Investment and Fund Management of NALCO. This report is proposed in a very simple and understandable language. I would also like to state that although every possible care has been taken to make this report error free but still the possibility of some errors creeping in inadvertently cannot be ruled out. I shall feel highly obliged to all the readers if the same are brought to my notice. Critical evaluation and suggestions for improvement are most welcome and shall be greatly acknowledged. I sincerely express my gratefulness to all those who have directly or indirectly helped us in preparing this report. I firmly believe that this direction from all readers which will be thankful acknowledged.

EXECUTIVE SUMMARY
The major objective of the study is proper understanding the investment process and fund management of NALCO & to suggest measures to overcome the shortfalls if any. Every business earns some money and has to spend it some areas for the development of the company and to meet the daily requirements. The remaining fund which is left out with the company at the day end is essential to invest it in different areas to get interest which increase the companys profit. The company on a daily basis invests the funds in different banks and Mutual Funds, Short Term Deposits, Long Term Deposits. Company maintains several different account for each unit such as collection account, payment account, expansion account but at the end of the day all the money receipt by all the accounts are transferred to a central account showing all other accounts nil. The central account has a capacity of 3000 crores overdraft capacity with other all accounts having a capacity of 1 lakh overdraft capacity. As NALCO is a Navratna Company it enjoys some privileges as the guidelines issued based on investment and other guidelines such as by DPE and DFHI. It can modify but the percentage or rate mentioned on the guideline or the no of days mentioned cannot be lowered but it can be increased as per the wish of directors in AGM. The company is advisable to invest 60% of the funds in PSUs and the remaining in private nationalized banks. The concept of fund management is to help out the company in earning some extra money through investment without vaguely keeping the high amount of cash in the company account.

TABLE OF CONTENTS
1. Investment and Fund Management. 2. Objective of Internship. 3. History and Evolution of the Company. 4. Corporate Strength. 5. Policies related to Business. 6. Organisational Structure of NALCO. 7. Working Capital Management. 8. Cash Management. 9. Data Analysis and Interpretation. 10. Ratio Analysis. 11. Findings. 12. Suggestions. 13. Conclusion. 14. References.

Investment and fund management

A generic term that most commonly refers to the buying and selling of investments within a portfolio. Investment management can also include banking and budgeting duties, as well as taxes. But the term most often refers to portfolio management and the trading of securities to achieve a specific investment objective. Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity. Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of workingcapital. Investment refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise. Fund management means the funds (i.e.; capital) available and used for day to day operations (i.e.; working) of an enterprise. It consists broadly of that portion of assets of a business which are used in or related to its current operations. It refers to funds which are used during an accounting period to generate a current income of a type which is consistent with major purpose of a firm existence.

Advantages of fund management: It helps the business concern in maintaining the goodwill. It can arrange loans from banks and others on easy and favorable terms.

 It enables a concern to face business crisis in emergencies such as depression. It creates an environment of security, confidence, and overall efficiency in a business. It helps in maintaining solvency of the business.

Disadvantages of fund management: Rate of return on investments also fall with the shortage of working capital. Excess working capital may result into over all inefficiency in organization. Excess working capital means idle funds which earn no profits. Inadequate working capital cannot pay its short term liabilities in time.

OBJECTIVES OF THE INTERNSHIP

Evaluation of fund management and different ways of investment. Evaluation of Liquidity position & working capital utilization. Analysis of relationship between working capital and profitability. Analysis & sources of funds. Analyzing the level of current assets with relation to current liabilities. Study how the funds are invested and where are the funds invested for how much period. Study the fund management of Nalco inventory mgt; cash mgt; debtors mgt etc. Evaluate the existing measures and suggest methods for further improvement. Evaluation of liquidity position- arrangement of deficit and allocation of surplus funds.

SIGNIFICANCE OF THE STUDY

Investment is the floating capital and contributes to turnover of a company as against this, the fixed capital is the amount that an organization spends on plant, machinery etc, which are retained for production of goods or services. These costs are recovered over a period of time. Investment helps the amounts blocked in stores and spares of plant, inventory of raw materials, cost of finished goods lying unsold and the amounts due from buyers, to whom normally credit is extended and of course, also the cost of goods in transit between dispatch and receipt by customer. Investment helps the company to invest its blocked cash in different investment plans and earn some interest over the invested amount which gives a concept of fund management in the company.

LIMITATIONS OF THE STUDY

During the course of study of summer training project entitled investment and fund management of Nalco the report has been prepared subject to the following limitations. The study is limited to five financial years from 2007 to2011 Performance. The data used in the study have been taken from balance sheet and their related schedule of Nalco. The study has been conducted during the boundaries of Nalco. The analysis ignores the time value of money

HISTORY & EVOLUTION OF THE COMPANY:

The story of NALCO is deep rooted in the bounty and the benevolence of benign mother earth and in the indomitable spirit of man. The years of unseen and unsung quest of prospectors in the hostile wilderness of Eastern Ghats leads to a momentous discovery of over 1000 million tone bauxite reserve in 1975. The country is pushed up to the 5th rank in the world bauxite resources graph, with a total estimated reserve of 2900 million tons. The Government of India on 28 March 1978 authorizes Aluminum Pechiney of France to prepare a feasibility report on industrial exploitation of bauxite for establishment of an integrated Aluminum complex. Feasibility report focus on Panchapatmali (which means five flat-top hills in local parlance), 30 km east of Koraput of Orissa and 130 km north of Vishakhapatnam port, containing the single largest deposit of 310 million tone of bauxite of

unquestionable potential. In May 1980, Bharat Aluminum Company Limited, the forerunner in public sector Aluminum industry, puts forth the Orissa Aluminum proposal to the Government of India. The Government takes the colossal investment decision on 1 November 1980. Thus National Aluminum Company, truly a national venture gets incorporated on 7 January 1981 in1981 to implement one of the largest multi-location integrated Aluminum projects of the world with its own captive power plant and port facilities. The technical collaboration of aluminum Pechiney of France, The support of Euro Dollar loan from a consortium of international banks and the special dispensation of the govt. of India and the govt. of Orissa helped the company to implement the project expeditiously within the budgeted cost of Rs2408crores, under very difficult logistics of project management. Different segments of the company went into production in a phased manner starting from November 1985.Within a short span of time, the company has emerged as a leader in the field of aluminum production in the country and also has made significant impact abroad. The company has helped the company to make quantum jump in production. In a major leap forward, Nalco has not only addressed the need for self-sufficiency in aluminum, but also given the country a technological edge in producing this strategic metal to the best of world standards. Nalcos spectrums of activities span bauxite mining, alumina refining, aluminum smelting and casting, power generation, rail and port operations. The corporate office is situated in Bhubaneswar.

VISION
To be a reputed global company in the Metals and Energy sectors.

MISSION
To achieve sustainable growth in business through diversification, innovation and global competitive edge. To continuously develop human resources, create safe working conditions, improve productivity and quality and reduce cost and waste. To satisfy the customers and shareholders, employees and all other stakeholders.

To be a good corporate citizen, protecting and enhancing the environment as well as discharging social responsibility in order to ensure sustainable growth. To intensify R&D for technology development.

OBJECTIVE OF THE COMPANY

The philosophy of Nalco in the field of human resources and management has been: To attract competent personnel with growth potential and develop their skills and capabilities in a congenial work and social environment through opportunities for training, recognition career advancement and other incentives. To develop and nurture favorable attitude among employees and to obtain their best contribution to the organization by providing stable employment, safe working conditions, job satisfaction, quick redress of grievances and through good pay and welfare amenities, commensurate with the company's capacity to spend and the governments guidelines. To foster fellowship and sense of belongingness among all sections of employees through closer association of employees with the management and by encouraging healthy trade union practices.

CORPORATE STRENGTH
Captive resources Advanced technology Integrated operation World-class products Well-trained manpower Sound financial mgt Care for Ecology & Environment Self-funded expansion Expertise in project mgt International linkage Technology & Market

BAUXITE MINES

A fully mechanized open-cast mine of 4800000tpa, on Panchpatmali hills of Koraput district in Orissa, serves feed-stock to the Alumina Refinery at Damanjodi, located 16km downhill. The transportation is done through a 14.6km long single flight, multi-curve, cable belt conveyor of 1800 tph capacity. The mining capacity has been expanded to 6300000tpa.

Area of deposit : Resource : Ore quality Mineralogy Over burden Ore thickness : : : :

16sq.km 310mt Alumina 45%, silica2% over 90% gibbsite 3mtr (avg) 14mtr (avg)

Alumina Refinery
The 1575000tpa energy-efficient Alumina Refinery, having 3 parallel streams of equal capacity is located in the picturesque valley of Damanjodi. The Refinery provides alumina to the co.s smelter at Angul & exports the balance alumina to overseas markets through Vishakhapatnam Port. Presently, has been expanded to 2100000 tpa capacity. The salient features: Atmospheric pressure digestion process Inter-stage cooling for higher productively Co-generation of 3818.5 MW power by use of back pressure turbine in steam generation plant.

Smelter plant
The 345000 tpa capacity Aluminum smelter, located at Angul in Orissa, is based on advanced technology of smelting & pollution control. Its capacity has been expanded to 460000tpa. The salient feature of the plant: 180 KA cell technology Fume treatment with dry-scrubbing system Manufacturing of carbon anodes, bus bars, anode stems etc. Integrated facility for manufacturing ingots, sows, billets, wire rods.

Captive Power Plant

Close to the Aluminum at Angul, a captive power plant of 960MW capacity, comprising 8*120MW clusters, has been established for firm supply of power to the smelter presently, the capacity has been expanded to 1200MW. The salient features: Micro-processor based burner Mgt system for optimum thermal efficiency. Computer controlled data acquisition system for on-line monitoring.

Automatic turbine run-up system Specially designed barrel type high pressure turbine.

Port facility
On the Northern Arm of inner Harbor of Vishakhapatnam port on the Bay of Bengal, Nalco has established mechanized storage & ship handling facilities for exporting Alumina in bulk & importing Caustic Soda. The salient features: Maximum ship size-35000DWT Alumina reception-48*53 tone pay-load wagons Alumina storage-3*25000ton RCC silos Ship loading rate-2200tph

Environment
A tree for a tonne as unwritten policy is put into action in NALCO with millions of trees planted so far. In its care for ecology and environment, the Company is not merely bound to the tenets of

statutory regulations. The managements policy on environment is to anticipate and act. Full advantage is taken of latest pollution control techniques right from the very start of the project.

Mining
Reshaping of mined areas to blend with surrounding landscape. Construction of water basins and waterways to control run-off and soil erosion from mine area. Afforestation to create peripheral barrier all around the plateau of Panchpatmali hills

Alumina
Electrostatic precipitators to arrest particulate matter in steam generation plant and in calcines Tall stack of 120 m for venting out flue gas. Multi-stage washing of red mud to reduce the soda content and lining of the red mud pond to prevent permeating of soda impregnated water to adjacent areas. Dust collectors to trap dust from alumina transport areas. Treatment of process and sewerage water for effluent control. Efficient equipment design for minimizing noise pollution.

Captive Power Plant

Electrostatic precipitators to reduce the ash content of the flue gas to around 260 mg/mn3 Provision of 150 m high stack for wide dispersal of chimney emission. Creation of a vast ash pond for collection of the entire amount of ash disposed of from the Power Plant by a 2600 tpd hydro-sluicing system. Treatment of the Power Plant hydro-effluents. Elimination of carbon monoxide generation by efficient burner management.

Smelter
Availability of large buffer zone in the most frequent wind direction.

 Provision of hoods on all pots and exhaust pot gases through dry scrubber using alumina injection for adsorption of hydrogen fluoride emission. Provision of central automatic feeding of pots. Sewerage and process water treatment and recycling of process water to minimize discharge of effluents.

NALCO has always paid due importance towards a clean and green environment. In this line, the company is implementing different environment-oriented projects under Clean Development Mechanism (CDM), conforming to the norms of Kyoto Protocol at its different units, wherein better technology would be used to further reduce greenhouse gases.

Modernization/ De-bottlenecking/ Expansion of M&R Complex

The massive modernization/ de-bottlenecking & expansion program of M&R Complex has been completed. The methodology followed for the exercise was as follows: The constraints in production, quality and cost of production were studied in detail in-house as well by process licensors. This was followed up with identifying solutions for each constraint and choosing the most modern and economical techniques to achieve the objectives. Implementation of these techniques and installation/ commissioning of the new equipment on the earlier two streams rated at 800,000 MTPY enhanced the capacity to 10,50,000 MTPY. The Changes being incorporated are primarily as follows: Increase in speed of Cable belt to double that of the existing speed Pre-desalination of Bauxite, before digestion

Double stage dilution, with second dilution after settling High concentration post-desalination and settling. Individual Kelly feed and lime dosing
1975

Discovery of Bauxite in East Coast

Improved Heat exchangers for better exchange rate with lower surface area Inter-stage cooling of precipitators

POLICIES RELATED TO BUSINESS

SOCIAL POLICIES OF NALCO:
Nalco being a public sector enterprise has contributed a lot for the society and has performed the following Corporate Social Responsibility functions. Rehabilitation of displaced families. Schemes for income and employment generation. Rural drinking water supply. Rural roads and communication. Development of educational institutions. Human and animal health care programs. Promotion of agriculture and social forestry. Encouragement to sports, arts and culture. Development of public places and heritage sites. Relief and assistance during natural calamities.

Landmark events

Detail report on exploitation work by mineral exploitation corporation

1977-79

Preparation of NALCOS bankable feasibility report by Aluminum pechiney of JULY 1979 France

Investment decisions by the govt. Indo-French collaboration agreement Formation of the Company Foundation stone laid by late Smt. Indira Gandhi Signing of major Euro-dollar loan agreement Civil work starts Commissioning datesPort facilities Bauxite mines Alumina Refinery Captive power plant Smelter plant Commencement of sale of Aluminum Commencement of Alumina export Commencement of Aluminum export Dedicated to the nation by late Rajiv Gandhi Installation of satellite network across units and corporate office Internet connectivity with zonal offices Stockyard opened JAGADHARI FARIDABAD PONDICHERRY

JAN 1980 JAN 1981 JAN 1981 MAR 1981 FEB 1982 FEB 1982

SEPT 1985 NOV 1985 SEPT 1986 SEPT 1986 MAR 1987 MAY 1987 JAN 1988 SEPT 1988 JUNE 1989 APRIL1991 FEB 1994

APRIL 1994 -DOJUNE 1994

DELHI Commencement of sale of special grade of Alumina( NSPL-120) Commissioning of casting facilities Nalcos in house R & D units recognized by DSIR Proposal for expansion of mines and Refinery complex cleared by govt.. JUNE 1994 SEPT 1994 JAN 1995 DEC 1996

MAJOR ACHIEVEMENTS

First mines safety award CAPEXIL export award

MARCH 1988 1988-95

LME(London Metal Exchange) registration Star trading house status Indira Gandhi Rajbhasa award ISO 9002 certification to :Alumina refinery Smelter plant Captive power plant Bauxite mines CITD special gold award for Coal India productivity award for mines Best exporters award by govt of orissa Safety & Fuel conservation award by CII, Calcutta for CPP Safety award for eco-friendly factory

MAY 1989 JAN 1982 1993,95

NOV 1994 FEB 1995 DEC 1994 JAN 1996 1994,95,96 SEPT 1994 NOV 1994 MARCH 1995 MARCH 1995

Award for best projects at National Conservation of Quality Circles Indira priyadarshini Vrikshamitra award

DEC 1995

SEPT 1996

Environmental management certification to ISO-14001 FOR SEPT 1996 bauxite mines Quality certification :ISO 14001 Smelter Plant Bauxite mines Captive power plant Environment protection award by IIEE Excellent P.S. Enterprise award First EEPC Export award Pollution control excellence award for CPP Best exporters award for the year FIMI Environment award State pollution control excellence award Dedication of mines and Refinery expansion FIEO Niryat Shree Award Capexils Highest Export Award FEB 1997 MAY 1998 DEC 1997 DEC 1997 1996-97 1998-99 2000 1998-01 2000-01 2002 18TH APRIL 02 2002-03 2004

ORGANISATION STRUCTURE

The aluminum industry can broadly be categorized into two segments- primary and secondary. The key segment is the production of primary metal by integrated producers. These producers cover the entire value chain -- from the mining of bauxite, production of alumina using bauxite in a refinery, and converting alumina into primary metal in a smelter. Primary aluminum is commercially available in ingots, billets, wire rods or properzi rods (also called conductor redraw rods). The other segment comprises the downstream, or secondary, producers manufacturing value-added semi-fabricated aluminum products such as rolled products, extrusions and foils. In the past the integrated and secondary players were separate constituents, with little overlap between them. Over the last couple of years, a spate of mergers and acquisitions has virtually made the downstream segment the preserve of the integrated producers.

The manufacturing workforce of the major aluminum companies is heavily unionized. The industry's two major unions are the United Steelworkers and the Aluminum, Brick, and Glass Workers. The agreements set broad, goals for employee safety, job security, influence, control, and accountability for the work environment. Analyst John C. Tumazos, aluminum analyst at Donaldson, Lufkin & Jenrette, told American Metal Market that they were "more expensive than the national inflation rates and our own expectations." Not surprisingly, given the labor agreements and the consolidation, the number of workers in the aluminum industry has been slowly decreasing, except for a small blip in the mid-1990s. Presently its again on a rise due to the expansion projects of companies.

NALCO is considered to be a turning point in the history of Indian aluminium industry. Nalco has not only has addressed the need for self-sufficiency in aluminum but also given the country a technological edge in producing this strategic metal to the best of world standard. NALCO was incorporated in 1981 as a public sector. This has emerged as the largest integrated bauxite alumina aluminum complex in Asia. By considering its capacity utilization, technology absorption, quality assurance, export performance & earning profit, Nalco is a bright example of Indias industrial development. Today, as an ISO9001, ISO 14001, OHSAS 18001 co. with its products registered in London Metal Exchange, Nalco has emerged as the largest in integrated bauxite alumina aluminum complex in Asia.

INDUSTRY OF ALUMINiUM
The aluminum market is like a box of chocolates: you never know what you're goanna get." With due credit to Forrest Gump, David Hamill of American Metal Market aptly described the volatility of this sector in the mid-1990s. In the 1993-96 period alone, the market bottomed out, peaked, and drew back once more. While the gyrations made life interesting for speculators, they were anathema to users who sought stable, predictable pricing. By the late 1990s, the industry had begun to consolidate considerablymost notably with the merger of giants Alcoa and Reynolds. Industry shipments totaled $11.5 billion in 2001, down from $12.8 billion in 2000. The industry remained relatively flat in 2002 with little growth anticipated during 2003. Over the past several decades, aluminum makers have been successful in developing new products and taking market share from competitors like steel. Much of the industry's gains could be traced to the intrinsic qualities of the metalaluminum is strong, lightweight, and eminently recyclable, all qualities that were still highly prized in the 1990s. Skilled management and smart marketing, however, had also been significant factors in the industry's advance. Thus it had come to dominate the beverage can market and had established an increasing presence in automobile manufacturing.

While the industry had done an excellent job in spurring demand, the volatility in aluminum markets was causing more than a few users to have second thoughts about the metal. In the important automotive marketand even in canssome executives were taking another look at steel. Nevertheless, producers remained optimistic that aluminum's physical traits would make it the metal of choice in a growing variety of applications. The economic conditions of the early 2000s were putting pressure on aluminum as oversupply and lack of demand combined to slow the industry's growth. Aluminum sheet, plate, and foil represent the aluminum industry's major product group and account for the majority of shipments from aluminum producers. Aluminum is first produced in the form of sheet ingot. This ingot, which may weigh as much as 20 tons, are flat rolled and re rolled until the desired thickness, or gauge, is achieved. The gauge determines what product has been produced: plate is a quarter-inch thick or more; sheet is.006 inch to .249 inch; and foil is less than .006 inch. Sheet is by far the most widely used form of aluminum and is found in the industrys entire major markets, including containers and packaging (most notably beverage cans) and transportation (i.e. panels for automobile bodies). Plate is used for the skins of jetliners and to make storage tanks, among other heavy-duty application wrap the Thanks giving turkey, but is also utilized in building insulation and electrical capacitors, as well as a wide variety of packaging applications.

RESEARCH AND TECHNOLOGY

The enormous strides that aluminum has made in displacing steel and other materials in the container/packaging, automotive, aerospace, and construction markets demonstrates the substantial investment it has made in research and development. This effort has been instrumental in developing a wide range of new aluminum products including beverage cans, baseball bats, grain bins, roofing, windows, appliance parts, and truck trailers; it has also yielded stronger, lighter, cheaper alloys, and improved production processes. A comment of David Moison, a consultant at Resource Strategies, to the Wall Street Journal is telling: "People in aluminum don't have the belief somebody's going to use it just because they make it. They've had to fight like hell to convert people to aluminum." Producers have also made remarkable strides in improving productivity, which has advanced from 15 man hours per ton in the 1960s to 6 man-hours per ton in the early 1990s. Since aluminum by weight costs six times as much as steel and is so energy-intensive, the industry has had to strive constantly to

reduce its costs to remain competitive. In 1994 Alcoa received grants totaling $33 million from the Department of Energy to develop more efficient methods for producing both alumina and aluminum sheet. There are six Aluminum-manufacturing processes. These are the Hall-Herault Process, the Alcoa Smelting Process, Toth Process, Direct Reduction Process, Carbo-Thermic Process and Sub Halide Process. In the Hall-Herault process Aluminium is manufactured in three stages involving bauxite mining, alumina refining, Aluminium smelting. Bauxite mining is the first stage in the manufacturing process. This is conducted in benches through a shear and dumper combination, which feeds the material to the crusher, where bauxite is crushed for conversion into alumina. Plant design is influenced by bauxite composition. The key variables are alumina-silica content and mineralogical form of occurrence. Alumina refining is the second stage in a vertically integrated Aluminium plant. Bauxite is converted into alumina through Bayer Process, the most economical and popular process used in alumina refining. Under the Bayer Process mineral impurities such as iron oxide and silica are removed from bauxite to ensure higher yield of alumina. Smelting, the final stage in the manufacture of Aluminium metal, is an energy intensive process, the energy consumption varying from about 16,000 KWH per ton. Aluminium is conventionally produced by electrolysis using the Herault Process where calcined alumina is dissolved in molten cryolite at a temperature of 900C. The process also requires an uninterrupted supply of power. The Tooth Process consists of exchange relation between Aluminum chloride and manganese. Bauxite mixed with carbon is chlorinated through fractional condensation and purification to form Aluminum chloride. The Aluminum chloride reacts with manganese to produce Aluminum. Direct Reduction Process adopts the blast furnace route to reduce clay/bauxite with coke and produce 70 % Aluminum and 30% silicon alloy-Alusil. The main advantage of the process is the substitution of expensive electricity by cheaper thermal energy. Carbo-Thermic Process for the production of Aluminum may either use bauxite or alumina. In the case of bauxite the material is reduced in an electrical furnace where by fused alumina is produced and impurities are removed. The fused alumina is then reduced in another furnace in the presence of pure carbon where Aluminum is produced. The process consumes lower energy as compared to the Hall and Herault Process.

Aluminium production is directly proportional to the current flowing through the electrolysis cells. The electrolysis cells have cathodes and anodes while the electrolysis bath consists of Aluminium fluoride and cryolite. The anode is made of calcined petroleum coke. Alcoa Smelting Process consists of chlorinating of alumina or bauxite in the presence of carbon to produce Aluminium chloride and then electrolysis of molten Aluminium chloride with the recovery of chloride. With this process power consumption can be reduced by 30%.

BACKGROUND AND DEVELOPMENT

Aluminium is the third most abundant element in the Earth's crust and constitutes 7.3% by mass. In nature however it only exists in very stable combinations with other materials (particularly as silicates and oxides) and it was not until 1808 that its existence was first established. It took many years of painstaking research to "unlock" the metal from its ore and many more to produce a viable, commercial production process Aluminium has only been produced commercially for 156 years and is still a very young metal. Mankind has been using copper, lead and tin for thousands of years and yet today more aluminium is produced than all other non-ferrous metals combined. Aluminium ore, most commonly bauxite, is plentiful and occurs mainly in tropical and sub-tropical areas. According to a statistics of USGS, world bauxite resources is 32 billion tons, mainly is distributed in south America (33%), Africa (27%), Asia (17%), Oceania (17%), and other-where (10%). Reserve in Guinea & Australia accounts for half of worlds and reserve in Brazil, Jamaica, Guyana and Suriname represents one forth of worlds total. According to recent report, bauxite resource has been found in Vietnam, with estimated reserve of 0.8 billion tons. The first major application, cast cooking utensils, did not appear until the 1890s. Following the turn of the century, however, prices fell, production rose, and applications grew. World War I greatly expanded use of the metal, as armies searched for lightweight, durable materials for military equipment. In the 1920s, high-strength alloys were developed that were used in the development of the commercial airline industry in the 1930s. During World War II aluminum output increased, primarily due to demand from warplane production and soldiers' rations packaging. While consumption dropped briefly right after the war, consumer demand soon picked up the slack. In the early 1950s the Korean War produced another surge in aluminum shipments. As consumer demand

grew during the postwar prosperity, the range of applications increased accordingly. Use of aluminum building products in commercial and residential construction expanded, and aluminum foil became a staple of the American kitchen. The advent of a strong environmental movement gave new prominence to the industry, since aluminum was particularly suited to recycling. To produce aluminum from recycled scrap requires only 5 percent of the energy that it takes to make it from scratch. Since the economics of recycling make so much sense, industry participants have supported the efforts of environmentalists in this area. Moreover, as governments pressure automakers to increase gas mileage of their vehicles and thus save energy, lightweight aluminum is gaining favor among manufacturers in a variety of applications. Aluminum is a notoriously cyclical business, and after a very strong performance at the end of the 1980s, a few lean years might have been expected. The extent of the downturn, however, was an alarming one for industry participants and well beyond expectations. In the early 1990s the aluminum industry became one of the unintended victims of the Cold War's aftermath. Russia no longer needed much aluminum for its defense sector, but it did hunger for export earnings. Before the fall of the Berlin Wall in 1989, Russia sent about 250,000 metric tons of aluminum overseas each year; by 1993 they were shipping aluminum at an annual rate of 1.2 million metric tons. As Clifford Gaddy, a Brookings Institution economist told the Wall Street Journal, "We were used to a world in which one of the biggest commodity producers was the most stable and predictableeverything was planned five years ahead with the absolute minimum of surprise. Now it's switched to the exact opposite, where even their government doesn't know what's happening." In 1994, however, the industry staged a strong recovery on the back of an improved economy and tighter supply. Overall demand for aluminum sheet increased 11 percent; the transportation sector was particularly strong, with usage in passenger cars up 23 percent. Moreover, under the so-called Memorandum of Understanding, the aluminum-producing nations agreed to shut down 1.5 million to 2.0 million tons of overall capacity. Russia alone cut its production by 500,000 tons a year. As demand grew and supply was restricted, inventories fell, prices strengthened, and profits rose. In late 1995 and 1996, however, market conditions again took a turn for the worse. Some industry observers traced the weakness to protracted "de stocking" by aluminum consumers. The prices for aluminum ingot on the London Metal Exchangewhich has a strong effect on sheet and can stock pricesaveraged 68 cents per pound in 1996 versus 82 cents per pound in 1995. According to

statistics of the Aluminum Association, sheet, plate, and foil volume fell 4 percent in 1996 to 10.7 billion pounds. At that level, the three products accounted for 59 percent of the industry's total shipments. The lower level of shipments and weak pricing were reflected in the 1996 pretax profits of the six largest aluminum producers, which fell 36 percent. The industry began to turn around in the late 1990s, although employment figures continued to drop. Consolidations within the industry lead to further restructuring. After fluctuating wildly during the 1990s, the aluminum industry looked forward to a period of stability. However, the terrorist attacks of September 11, 2001 threw the U.S. economy, as well as the aluminum industry, into turmoil. Following the terrorist attacks, the economy, which had already showed signs of weakness earlier in the year, came to a halt. In turn, the demand for aluminum abated, oversupply became an issue, and the industry feared another near collapse. Despite the downturn in the economy, the aluminum industry had found several bright spots. First, although commercial airplane manufacturing went down, military airplane orders were on the rise. Planes such as the F-16, FA-18, and the C-17 consist of up to 80 percent aluminum. Increased auto sales during 2000-02 also provided opportunities for the aluminum industry. However, a boom in new housing started, spurred by extremely low interest rates, growth of auto sales, as well as new house sales, was expected to slow as pent-up demand is fulfilled and interest rates inch back up. Consolidation of the Russian aluminium industry in 2001 produced two major groups, Rusal and Saul, operating the world's largest capacity smelters. In 2002, Norsk Hydro acquired the German company VAW, and Hydro Aluminium became the fifth largest producer of primary aluminium in the world. Reductions in costs, brought about by economies of scale and more efficient use of energy, are enabling aluminium producers to remain viable at lower price levels. At the same time, high-energy costs have forced older and smaller smelters, largely in the USA, to cut back or close. The increasing efficiency of the aluminium production industry is borne out by the fact that in 2003 prices are their lowest ever level in constant dollar terms, yet new primary capacity is planned over the next years. Between 2000 and 2002 supply of primary aluminium grew at a 3.3% year on year average, compared with 2.2% for consumption. Much of the increase in output was in China, where year on year production increased by an average of 14.2% between 1993 and 2002. It is now the world's largest producer with 16% of global output. The expansion of the Chinese industry

was encouraged by the government to meet rising demand, which resulted in significant deficits in 1999 and 2000. The Chinese alumina industry is handicapped by a lack of suitable bauxite resources, resulting in high energy consumption and poor quality alumina. High power tariffs make high production costs another problem for the Chinese aluminium industry. In 2002, thirty-four primary aluminium-smelting projects with a total capacity of about 7.6Mtpy were under consideration outside China in 2003. Twelve are green field projects and the remainders are expansions to existing smelters. New Chinese projects add a further 3.8Mtpy.

INDUSTRY PROFILE
A) MARKET UNIVERSE & RELATED MARKET SHARE: DOMESTIC MARKET SIZE:
The Aluminium requirement in the country is basically catered by Primary Producers namely: Balco & Malco (Sterlite Group Companies) Hindalco Indal (Aditya Birla Group Companies) Nalco (Public Sector Undertaking)

PRODUCERS/ PRODUCTS INGOT WIRE ROD

BALCO

MALCO

NALCO

HINDALCO

INDAL

5% 27.3%

0.5% 17%

42% 23%

52.5% 32.7%

ROLLED PRODUCT TOTAL

22.75%

4.15%

37.6%

35.5%

16%

5%

26%

44%

9%

Fund MANAGEMENT AT NALCO

A) Inventory Management in NALCO
NALCO is a large scale manufacturing company involved in mining of Bauxite and production of Aluminum. Therefore, it has to maintain large quantity of inventories at production units for its smooth running and functioning. During the year 2010 2011, the company bettered its own records of previous years in many a key field and has exceeded the target set of the year. In the mine sector, annual Bauxite transportation and excavation of 46,84684 MT have been the highest since inception exceeding the previous best of 46,23,278 MT during the year 2008 2009.Allumina production is 9,34,874MT are highest ever since inception exceeding the previous best of MT achieved during 2010-2011. The major inventory items in NALCO are composed of:1)Raw material The raw material that consist of CP coke, CT pitch, Aluminum fluoride, Pig iron, HFO Alumina and anodes for SMELTER & COAL, HFO, LDO for CPP & Caustic Soda, Alum, Lime, CGM etc. for Alumina Plant & it has not faced the situation like out of stock of raw materials during the recent part. 2) Stores and Spares At the time of Procurement of the machinery, generally some spares procured for immediate maintenance that directly linked with different equipments. These spares are known as instance spares and most of these items of High Value. Besides for day-to-day maintenance some spares, tools, Consumable etc are procured from the near by available market. This also requires involvement of High Value and these items are consumed on regular basis for observation and maintenance.

3) Intermediary Goods Which consist of Green Anodes, Baked Anodes, Rodded Anode, and Anode stem, etc. for which NALCO has installed its own plant for producing the Green & Baked Anodes and imports them only when there is a shortage. 4) Finished GoodsThat consists of Bauxite, Aluminum Hydrate, Alumina, Aluminum Ingots, Sow Ingots, Billets, Wire rod Sheets etc. The finished Products of NALCO move fast and hence the stock of Finished Goods is very less in company. The company also effectively reduces the rejected inventory. The rejected inventory in NALCO comprises of anode butts and rejected finished products. Anode rejects are recycled and reused in the process while finished stocks rejects are either recycled or sold at a lower price.

B) CASH MANAGEMENT OF NALCO

NALCO has been accumulating huge cash surpluses over last several years, which enables the organization to maintain adequate cash reserves and to generate required funds from within the organization i.e. from internal sources. The key areas of effective cash management in NALCO are: 1. Identifying the requirements of funds at various units 2. Investment of surplus funds productively. 3. Repayment of loans. 4. Proper capital expenditure. 5. Standardized reporting system Control on cash flows: NALCO, a multi-core Organization, exercises food control over its cash flows by adopting centralized cash management system and strict reporting system. Centralized Cash Management system: For centralized cash management system, NALCO has chosen State Bank of India (S.B.I) as its sole banker and the control cash account of the company is

maintained at the S.B.I. main branch, Bhubaneswar under direct control of NALCOs Corporate Office. About ten branches of the company, including manufacturing units, spread across the country, are converted under the centralized cash management system. No cash is maintained at the branches and the TM branches have been authorized to honor the cheque presented by the company without any upper limit TM the transactions are transmitted to the central cash account at Corporate Office on a day to day basis. Similar account is also maintained by NALCOs corporate office for proper reconciliation. The information regarding daily cash flows different branches is monitored simultaneously by the S.B.I. as well as by NALCOs corporate office. Besides, NALCO also has cash collection center at different branches and realization of sale are credited and transferred to the central cash account daily. The encores time and quick realization of cash.Moreover, optimum level of funds is readily available with the company, by not maintaining any balances at different branches of S.B.I. Similarly, NALCO is exercising strict control over the payments made by its various branches. Through the manufacturing units are authorized to issue cheques, they are required to obtain clearance from the corporate office for all payments exceeding a prescribed limit, before the actual realization of such cheques. Further, the units are required to make forecast of cash flow on a routine basis and intimate the same to the corporate office to ensure prompt availability of funds. The cash flow projections submitted by different branches at the corporate office are consolidated. Accordingly, the corporate office chalks out effective cash flow strategy to ensure minimum holding of cash as well as avoiding deficit at the same time. NALCO being cash rich company by nature, the extent of success lies in how quick the company has identified its surplus funds and invested the same in short term investment for optimization of wealth.

Working capital management

Every running business needs working capital. Even a business which is fully equipped with all types of fixed assets required is bound to collapse without adequate supply of raw materials for processing, cash to pay for wages, power and other costs creating a stock of finished goods to feed the market demand regularly. The ability to grant credit to its customers. All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Working capital cycle involves conversions and rotation of various constituents/ components of the working capital. Initially cash is converted into raw materials. Subsequently, with the usage of fixed

assets resulting in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus cash assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result, they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital. While managing the working capital, two characteristics of current assets should be kept in mind viz. (i) short life span, and (ii) swift transformation into other form of current asset. Each constituent of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. The life span of current assets depends upon the time required in the activities of procurement; production, sales and collection and degree of synchronization among them. A very short life span of current assets results into swift transformation into other form of current assets for a running business. These characteristics have certain implications: Decision regarding management of the working capital has to be taken frequently and on a repeat basis. The various components of the working capital are closely related and mismanagement of any one component adversely affects the other components too. The difference between the present value and the book value of profit is not significant. The working capital has the following components, which are in several forms of current assets: Stock of Cash Stock of Raw Material Stock of Finished Goods Value of Debtors Miscellaneous current assets like short term investment loans & advances

DEFINITION:
There are two concepts of working capital: gross and net.

The term gross working capital, also referred to as working capital, means the total current assets. The term net working capital can be defined in two ways:(i)The most common definition of net working capital(NWC) is the difference between current assets and current liabilities; and (ii)Alternate definition of NWC is that portion of current assets which is financed with long term funds. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive; rather both have their own merits. The gross concept is sometimes preferred to the net concept of working capital for the following reasons: It enables the enterprise to provide correct amount of working capital at the right time. Every management is more interested in the total current assets with which it has to operate than the sources from where it is made available. The gross concept takes into consideration the fact that every increase in the funds of the enterprise would increase in its working capital The gross concept of working capital is more useful in determining the rate of return on the investments in working capital. The net working capital concept however is also important for the following reasons: It indicates the margin of protection available to the short term creditors, i: e, the excess of current assets over current liabilities. It is an indicator of the financial soundness of an enterprise. It suggests the need for financing a part of the working capital requirements out of the permanent sources of funds.

TYPES OF WORKING CAPITAL:

1) Permanent working capital: These components represent the value of current assets required on a continuing basis over the entire year and for several years. Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. The minimum level of current assets is called permanent or fixed working capital

as this part is permanently blocked in current assets. This amount varies from year to year, depending upon the growth of the company and the stage of the business cycle in which it operates. It is the amount of funds required to produce the goods and services, which are necessary to satisfy demand at a particular point of time. It represents the current assets, which are required on a continuing basis over the entire year. It is maintained as the medium as to continue the operations at any time. Characteristics of permanent working capital It is classified on the basis of the time period. It constantly changes from one asset to another and continues to remain in the business process. Its size increases with the growth of business operations. 2) Temporary working capital: Contrary to the above you will find that temporary working capital represents a certain amount of fluctuations in the total current assets during a short period. These fluctuations are increased or decreased and are generally cyclical in nature. Additional current assets are required at different times during the operating year. Variable working capital is the amount of additional current asset that are required to meet the seasonal needs of a firm, so is also called as the seasonal working capital. For example: additional inventory will be required for meeting the demand during the period of high sales When the peak period is over variable working capital starts decreasing or very little during the normal period. It is temporarily invested in current assets. Say for an example a shopkeeper invests more money during winter season because he/ she require keeping more amount of stock of woolen cloths. The same happens in a sugar factory how: the factory manager buys more quantity of sugarcane during the harvesting season and them continuously stops for some time. Characteristics of temporary working capital It is not always gainfully employed, though it may change from one asset to another asset, as permanent working capital does. It is particularly suited to business of a seasonal or cyclical nature.

Determinants of working capital:

1) Nature of business: The working capital requirements are basically related to the conduct of the business. Public utility undertakings like Electricity, Water supply, Railways etc. need very limited working capital because they offer cash sales only and supply services, not products and as such no funds are ties up in inventories and receivables .But at the same time have to invest fewer amounts in fixed assets .The manufacturing concerns on the other hand require sizeable working capital along with fied investments, as they have to build up the inventories. 2) Terms of sale and purchases: Credit sales are granted by the concerns too its customers as well as credit terms granted by the suppliers also affect the working capital. If the credit terms of the purchases are more favorable and at the same time those of sales less liberal, less cash will be invested in the inventory. With more favorable credit terms, working capital requirements can be reduced. 3) Manufacturing cycle: The length of manufacturing cycle influences the quantum of working capital needed. Manufacturing process always involves a time lag between the time when raw materials are fed into the production line and finished goods are finally turned out by it. The length of the period of manufacture in turn depends on the nature of product as well as production technology used by a concern. Shorter the manufacturing cycle, lesser the working capital required.

4) Rapidity of turnover: If the inventory turnover is high, the working capital requirements will be low. With a better inventory control, a firm is able to reduce its working capital requirements. When a firm has to carry on a large slow moving stock, it needs a larger working capital as against another whose turnover is rapid. A firm should determine the minimum level of stock, which it will have to maintain throughout the period of its operation. 5) Business cycle: Cyclical changes in the economy also influence quantum of working capital. In a period of boom i.e. when the business is in prosperous, there is a need of larger amount of working capital due to increase in sales, rise in price etc. and vice versa during period of depression. 6) Changes in technology: Changes in technology may lead to improvements in processing of raw materials, savings in wastage, greater productivity, and more speedy production. All these improvements may enable the firm to reduce investments in inventory. 7) Seasonal variation: The inventory of raw materials spares and stores depend on the condition of supply. If the supply is prompt and adequate the firm can manage with small inventory. However, if the supply were unpredictable and scant then the firm, to ensure the continuity of production, would have to acquire stocks as and when they are available and carry larger inventory on an average. 8) Market conditions: The degree of competition prevailing in the market place has an important bearing on working capital needs. When the competition is keen, a larger inventory of finished goods is required to promptly serve the customers who may not be inclined to wait because other manufacturers are ready to meet their needs. 9) Seasonality of operations: Firms, which have marked seasonality in their operation usually, have highly fluctuating working requirements. Let us take an example to illustrate this point. Consider firm manufacturing fans. The sale of fans reaches a peak during the summer months and drops sharply during the winter period. The working capital need of such a firm is likely to increase considerably in summer months and decrease significantly during winter season. 10) Dividend policy: It has a dominant influence on the working capital position of a firm. If the firm is following a conservative dividend policy, the need for working capital can be met with retained earnings. 12) Price level changes: Changes in the price level also affect the working capital requirements. Generally, the rising prices will require the firm to maintain a larger amount of working capital as more funds will be required to maintain the same current assets. The effect of rising prices may be

different for different firms. Some firms may be affected much while some others may not be affected at all by the rise in prices.

3D Nature of Working Capital Management

Dimension Dimension II Profitability, Profitability, Risk, & Liquidity Risk, & Liquidity

I n II el son I evel i io ens & L men n& Lev ii Dm ton D stiio i A po i os A o C omp offC Com C

D D Com im n Com pimeensio n o possiti sion IIII ition on & I I & L ev o C offC L L v el e el L

PRINCIPLES OF WORKING CAPITAL MANAGEMENT/ POLICY

The following are the general principles of a sound working capital management policy: 1. Principle of Risk Variation: Risk here refers to the inability of a firm to meet its obligations as and when they become due for payment. Larger investments in current assets with less dependence on short term borrowings increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the other hand less investment in current assets with greater dependence on short term borrowings increases risk, reduces liquidity and increases profitability. In other words, there is a definite direct relationship between the degree of risk and profitability. A conservative management prefers to minimize risk by maintaining a higher Level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However, the goal of the management should be to establish a suitable tradeoff between profitability and risk. 2. Principle of Cost of Capital: The various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher the risk lower is the cost and lower the risk higher is the cost. A sound working 3. Principle of Equity Position: This principle is concerned with planning the total investment in current assets. According to this principle, the amount of working capital invested in each component should be adequately justified by a firms equity position. Every rupee invested in the current assets should contribute to the net worth of the firm. The level of current assets may be measured with the

help of two ratios: (i) current assets as a percentage of total assets and (ii) current assets as a percentage of total sales. While deciding about the composition of current assets, the financial manager may consider the relevant industrial averages. 4. Principle of Maturity of Payment: This principle is concerned with planning the sources of finance for working capital. According to this principle, a firm should make every effort to relate maturities of payment to its flow of internally generated funds. Maturity pattern of various current obligations is an important factor in risk assumptions and risk assessments.

Financing Mix
One of the most important decisions, involved in the management of working capital is how current assets will be financed. There are, broadly speaking, two sources from which funds can be raised from current asset financing; (i) short term sources (current liabilities), and (ii) long term sources, such as share capital, long term borrowings, internally generated resources le retained earnings and so on. What proportion of current assets should be financed by current liabilities and how much by long term resources? Decisions on such questions will determine the financing mix. There are three basic approaches to determine an appropriate financing mix :(a) Hedging approach, also called the Matching approach; (b) Conservative approach and (c) Tradeoff between these two. (a)Hedging approach: The term hedging is often used in the sense of a risk reducing investment strategy involving transactions of a simultaneous but opposing nature so that the effect of one is likely to counter balance the effect of the other. With the reference to an appropriate financing-mix, the term hedging can be said to refer to the process of matching maturities of debt with the maturities of financial needs. This approach to the financing decision to determine an appropriate financing mix is, therefore, also called as Matching approach.

According to this approach, the maturity of the source of funds should match the nature of the assets to be financed. For the purpose of analysis, the current assets can be broadly classified into two classes: Those which are required in a certain amount for a given level of operation and hence, do not vary over time. Those which fluctuate overtime.

The hedging approach suggests that long term funds should be used to finance the fixed portion of current assets requirements as spelt out in(1) above, in a manner similar to the financing of fixed assets. The purely temporary requirements, that is, the seasonal variation over and above the permanent financing needs should be appropriately financed with short term funds (current liabilities).This approach, therefore, divides the requirements of total funds into permanent and seasonal components, each being financed by a different source. According to the hedging approach, the permanent portion of funds required should be financed with long term funds and the seasonal portion with short term funds. With this approach the short term financing requirements (current assets) would be just equal to the short-term financing available (current liabilities). (b)Conservative Approach: This approach suggests that the estimated requirements of total funds should be met from long term sources; the use of short term funds should be restricted to only emergency situations or when there is an unexpected out flow of funds.

Accounts Payable

Value Addition

Raw Materials

WIP

Cash

THE WORKING CAPITAL CYCLE (OPERATING CYCLE)

Finished Goods

Accounts Receivable

SALES

CASH MANAGEMENT

What is cash?
Cash is the most liquid asset of all and is vital for existence of any business firm. Its efficient management is crucial to the solvency of the business because as we all know cash is the focal point of the funds flows in a business. It can be understood in two senses, one is actual cash held by firm and deposits withdraw able on demand, and in another sense it includes marketable securities, which can be convertible into cash immediately The goal of cash management is to reduce the amount of cash that is being used within the firm so as to increase profitability, but without reducing Cash flows in connection with credit serve to introduce the concept of FLOAT which is the time lag or delay between the moment of disbursement of funds on the part of the customer and the moment of receipt of funds on the part of the seller (i.e., mail time, processing time, and clearing time with the banking system).

Motives for holding cash

I. The transaction motive: Firms are in existence to create products or provide services. The providing of services and creating of products results in the need for cash inflows and outflows. Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they have. II. The precautionary motive: Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are not received as expected cash held on a precautionary basis could be used to satisfy short term obligations that the cash inflow may have been bench marked for. III. Compensating motive: Banks provide a variety of services to business firms, such as clearance of cheque, supply of creditetc., for which a minimum balance is required to be kept with the bank; this balance is to compensate banks for services rendered. IV. Speculative motive: It refers to the desire of the firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business.

Cash Management:
Cash management has assumed importance because it is the most significant of all the current assets. It is required to meet the business obligations and it is unproductive when not used. Cash management deals with the following: I. Cash inflows and outflows. II. Cash flows within the firm. III. Cash balances held by the firm at a point of time. Cash management needs strategies to deal with various facets of cash. Following are some of its facets:

Cash Planning:
Cash planning is a technique to plan and control the use of cash. A projected cash flow statement may be prepared, based on the present business operations and anticipated future activities. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash.

Cash Forecasts and Budgeting:

A cash budget is the most important device for the control of receipts and payments of cash. A cash budget is an estimate of cash receipts and disbursements during a future period of time. It is an analysis of flow of cash in a business over a future, short or long period of time. It is a forecast of expected cash intake and outlay. The short term forecasts can be made with the help of cash flow projections. The finance manager will make estimates of likely receipts in the near future and the expected disbursements in that period. Though it is not possible to make exact forecasts even then estimates of cash flows will enable the planners to make arrangement for cash needs. It may so happen that the expected cash receipts may fall short or payments may exceed estimates. A financial manager should keep in mind the sources from where he will meet short-term needs. He should also plan for productive use of surplus cash for short periods.

DATA ANALYSIS AND INTERPRETATION

BALANCE SHEET
Balance Sheet of National Aluminium Company Mar '11 ------------------- in Rs. Cr. ------------------Mar '10 Mar '09 Mar '08 Mar '07

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Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 1,288.62 1,288.62 0.00 0.00 9,875.99 0.00 11164.61 14.88 0.00 14.88 11179.49 Mar '11 644.31 644.31 0.00 0.00 9,751.27 0.00 10395.58 0.00 0.00 0.00 10395.58 Mar '10 644.31 644.31 0.00 0.00 9,125.50 0.00 9769.81 0.00 0.00 0.00 9769.81 Mar '09 644.31 644.31 0.00 0.00 8,230.14 0.00 8874.45 0.00 0.00 0.00 8,874.45 Mar '08 644.31 644.31 0.00 0.00 7,050.91 0.00 7695.22 0.00 0.00 0.00 7,695.22 Mar '07

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Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance 12076.15 6582.62 5,493.53 1,743.53 1,331.67 1,058.47 112.40 3.60 11017.96 6181.65 4,836.31 2,243.40 986.75 944.92 181.78 7.75 9899.84 5868.30 4,031.54 2,867.13 895.93 841.90 26.50 14.63 9137.26 5606.31 3,530.95 2,334.59 115.03 686.65 60.65 40.13 9034.06 5323.18 3,710.88 840.41 0.00 634.96 34.13 12.02

Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets

1,174.47 1,247.23 3,791.63 6,213.33 0.00 3,216.08 386.49 3,602.57 2,610.76 0.00 11179.49

1,134.45 1,054.37 3,144.60 5,333.42 0.00 2,634.32 369.98 3,004.30 2,329.12 0.00 10,395.58

883.03 868.13 2,854.41 4,605.57 0.00 2,300.52 329.84 2,630.36 1,975.21 0.00 9,769.81

787.43 839.45 3,476.33 5,103.21 0.00 1,986.76 222.57 2,209.33 2,893.88 0.00 8,874.45

681.11 689.33 3,674.51 5,044.95 0.00 1,554.43 346.59 1,901.02 3,143.93 0.00 7,695.22

Contingent Liabilities Book Value (Rs)

2,188.93 43.32

2,416.28 161.34

1,995.77 151.63

2,525.26 137.74

3,176.59 119.43

PROFIT AND LOSS ACCOUNT

Profit & Loss account of National Aluminium Company Mar '11 ------------------- in Rs. Cr. ------------------Mar '10 Mar '09 Mar '08 Mar '07

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12 mths

12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 871.34 1,785.83 989.02 411.06 165.82 101.71 0.00 4,324.78 935.42 1,603.70 843.60 306.21 146.91 87.10 -0.22 3,922.72 813.00 1,313.71 771.06 257.75 166.07 89.96 -0.19 3,411.36 680.96 997.01 552.97 249.83 136.65 97.03 0.00 2,714.45 645.95 853.35 392.88 259.07 138.68 65.42 0.00 2,355.35 6,481.35 422.37 6,058.98 338.43 1.56 6,398.97 5,440.43 255.70 5,184.73 333.82 -21.67 5,496.88 5,647.27 425.92 5,221.35 384.19 88.27 5,693.81 5,629.79 485.65 5,144.14 408.30 21.85 5,574.29 6,627.87 571.27 6,056.60 285.56 12.08 6,354.24

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

12 mths

12 mths

12 mths

12 mths

12 mths

Operating Profit PBDIT Interest PBDT

1,735.76 2,074.19 109.84 1,964.35

1,240.34 1,574.16 92.08 1,482.08

1,898.26 2,282.45 88.57 2,193.88

2,451.54 2,859.84 67.86 2,791.98

3,713.33 3,998.89 51.43 3,947.46

Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

430.06 0.00 1,534.29 -0.94 1,533.35 455.48 1,069.30 3,453.44 0.00 257.72 42.56

319.39 0.00 1,162.69 25.63 1,188.32 354.56 814.22 2,987.30 0.00 161.08 27.38

272.44 0.00 1,921.44 18.62 1,940.06 659.70 1,272.27 2,598.36 0.00 322.16 54.75

281.10 0.00 2,510.88 -5.33 2,505.55 855.13 1,631.52 2,033.49 0.00 386.59 65.70

306.13 0.00 3,641.33 -6.35 3,634.98 1,238.70 2,381.38 1,709.40 0.00 483.23 72.56

25,772.39 4.15 30.00 43.32

6,443.10 12.64 25.00 161.34

6,443.10 19.75 60.00 151.63

6,443.10 25.32 60.00 137.74

6,443.10 36.96 75.00 119.43

CASHFLOW STATEMENT
Cash Flow of National Aluminium Company ------------------- in Rs. Cr. -------------------

Mar '11

Mar '10

Mar '09

Mar '08 Mar '07

12 mths

12 mths

12 mths

12 mths 12 mths

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

1524.70 1630.53 -768.48 -219.17 642.88 3152.35 3795.23

1154.86 1171.65 -593.14 -303.81 274.70 2877.65 3152.35

1927.16 1938.22 -2197.98 -387.66 -647.42 3516.46 2869.04

2466.58 3620.40 1901.91 2722.50 -1544.13 -641.94 -527.85 -587.74 -170.07 1492.82 3686.53 2193.71 3516.46 3686.53

RATIO ANALYSIS
Ratio implies the relationship of various items of financial statement in arithmetical term. One item of financial statement is related with other item of financial statement and the relation is expressed in mathematical terms. Financial ratios can be divided into five categories such as Liquid ratio, Efficiency ratio, leverage ratio, profitability ratio.

Use / Advantages / Importance of RatioRatio analysis can be utilized for the following purposes a. Simplification of financial statements - change of financial position can be pointed through implementation of various ratios. b. Inter- firm comparison- success of the organization can be known from the various ratio. c. Planning- planning and forecasting of the organization can be easier with the implementation of the ratio analysis. d. Solvency position- soundness of the firm can be known with the help of ratio analysis. e. Efficiency of the firm to utilize the assets for generation of revenues also can be revealed. f. Overall efficiency of the organization can also be known from ratio analysis. g. with the help of ratio analysis Controlling function of management became easier .

1) Liquid Ratio. Liquid ratios are used to measure the ability of the firm to meet short term financial obligations. Current Ratio = Current asset / Current liability. In NALCO the current ratio indicates much more than the industries average. The high current ratio is due to the fact that NALCO has a large current asset base and the other factor that it has very less current liabilities. The high current asset is the result of its huge inventories, which the company holds. Nalco holds total current assets of Rs 6213 Crores. Its current liabilities account for Rs.3602 Crores in the same year. So the current ratio comes to around 1.72. This is advisable to the company to reduce their large inventory and the debtors. If it does so the volume of the current assets will come

down and it will enable the company to have more money to be invested in long term assets which may reap more profit to the company Quick Ratio or Acid test ratio = Quick Asset / Current liability Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. But NALCO has got a quick ratio of 2.83:1, which is more than the standard value. A quick ratio of 1:1 or more does not necessarily imply sound liquidity position. It should be remembered that all debtors may not be liquid, and cash may be immediately needed to pay operating expenses. It should be noted that inventories are not absolutely non-liquid. To a measurable extent, inventories are available to meet current obligation. Thus, a company with a high value of quick ratio can suffer from the shortage of funds if it has slow-paying, doubtful and long duration outstanding debtors. Absolute quick asset = Absolute Quick asset / Current liability Current asset- cash or other assets which can be converted into cash within one accounting period such as a.cash in hand b. cash at bank. c. bills receivable d. Sundry debtor. e. Accrued income. f. Prepaid exp. g. short term securities. h. Closing stocks. Etc. Current liabilities- Those liabilities which are to be paid within one accounting period such as a. Sundry creditor. b. Bills payable. c. outstanding exp. d. Short term loan. e. Income tax payable. f. dividend payable etc. Quick asset- those assets which can be realized in the form of cash without loss of any time and value. So, quick asset = Current asset ( Prepaid exp. + Closing stock). Those asset should be equal to the current liabilities to be paid in near future. Absolute quick asset- those asset already in the form of cash and available in the organization always. Those are cash, Bank balance, and short term securities. So, those assets should be fifty % of total current liabilities to be paid.

2) Efficiency ratio/ Turn over- This ratio measure the ability of the firm to utilize resources of the organization to generate the revenues. So, this ratio is otherwise known as activity ratio. In this ratio

various items are related with sales of the year and ratios are found out. Common activity or efficiency ratios are given as under. Debtor turnover ratio - Annual credit sales / Sundry debtor. Sundry debtors include bills receivable. Average collection period= 360 / Debtors turnover ratio. This ratio indicates the period on which debtors are collected. Stock turnover ratio = Cost of goods sold / Average inventories. This ratio is indication of closing stock remain in the organization with sales. Cost of goods sold = sales gross profit or opening stock+ purchase + direct exp.-closing stock. Stock conversion period= 360/ stock turnover ratio. Indicates the period taken to sell out the stocks at hand Creditor turnover ratio= Annual credit purchase / Sundry creditor. This ratio relates total purchase with the creditors of the organization. Average payment period= 360 / Creditors turnover ratio. Indicates the period taken to pay the creditors. Fix asset turnover ratio = Sales / net fix asset. indicates firms ability to utilizes the investment in fix asset to increase the efficiency of the organization. Total asset turnover = Sales / Total asset. This ratio indicates the ability of the firm to utilize its asset for generating the revenue for the organization. Debt ratio = Total long term debt / Total Capital. It indicates proportion of outsiders fund used for financing total resources of the organization. Total capital = Total long term debt + Equity resources. Debt Equity ratio = Total long term debt / Equity Equity = Equity share capital + Preference share capital+ Reserve & Surplus + Retain earning etc. The times interest earned Ratio = PBDIT / interest. Indicates whether profit earned during the period is sufficient to cover the amount interest or not.

PBDIT= profit before depreciation, interest, tax. Debt service coverage ratio= PBDIT / (Interest + debt repayment). Indicates ability For Nalco, the ratio is: 0 From the above calculation, it is clear that NALCO maintains a low debt-equity ratio. It implies that the claim of owners is far more than the creditors. From the point of view of creditors, it represents a satisfactory situation since a high proportion of equity provides a larger margin of safety for them. During the periods of low profits, the debt servicing will prove to be less burdensome for Nalco. However from the shareholders point of view, it is a point of disadvantage because during the periods of good economic activities the company employs a low amount of debt. The higher the debt-equity ratio, the larger the shareholders earnings, when the cost of debt is less than the firms overall rate of return on investment. Thus, there is a need to strike a proper balance between the use of debt and equity. The most appropriate debt-equity combination would involve a trade-off between return and risk for NALCO.

3) Inventory Turnover Ratio Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of goods sold by the average inventory: Inventory turnover = Cost of goods sold / Average inventory 35 days for NALCO The average inventory is the average of opening and closing balances of inventory. In manufacturing company like NALCO, inventory of finished goods is used to calculate inventory turnover. NALCO shows a low level of inventory turnover, which implies excessive inventory levels than warranted by production and sales activities, or a slow moving obsolete inventory; which should be taken care of. 4) Debtors Turnover Ratio A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of companies. When the firm extends credits to its customers, debtors are created in the firms accounts. Debtors are expected to be converted into cash over a short period and therefore, are included in current assets. The liquidity position of the firm depends on the quality of debtors to a great extent.

Debtors turnover is found out by dividing credit sales by average debtors:

Debtors turnover = Credit sales/Average debtors Debtors turnover indicates the number of times debtors turnover each year. Generally, the higher the value of debtors turnover, the more efficient is the management of credit. Debtors turnover = 6058/147=41.19 %

5) Working Capital Turnover Ratio Working capital turnover ratio is calculated by dividing sales by net working capital. Working capital turnover = sales/ working capital For NALCO, the net working capital turnover =4988 /2610.76 = 1.91 The reciprocal of the ratio is1.91 Thus it is indicated that for one rupee of sales, the company needs Rs. Of 1.91 working capital. This gap is bridge in NALCO through borrowings in the form of issuing non-convertible redeemable debentures. 6) Return on Investment (ROI) The term investment may refer total assets or net assets. The fund employed in net assets is known as capital employed. Net assets include net fixed assets plus current assets minus current liabilities excluding bank loans. Alternatively, capital employed is equal to net worth plus total debt. The conventional approach of calculating return on investment (ROI) is to divide PAT by investment. Investment represents pool of funds supplied by shareholders and lenders, while PAT represents residue income of shareholders; therefore, it is conceptually unsound to use PAT in the calculation of ROI. Also, PAT is affected by capital structure. It is, therefore more appropriate to use one of the following measures of ROI for comparing the operating efficiency of firms: ROI = ROTA =EBIT /Total assets = EBIT/TA ROI = RONA = EBIT/Net assets = EBIT/NA

Where ROTA and RONA are respectively return on total assets and return on net assets. RONA is equivalent of return on capital employed, i.e.ROCE.

7) Profitability Ratio- This ratio indicates impact of sales on profitability of the organization. Various types of profitability ratios are as under. Gross profit ratio- (Gross profit / sales) x 100 Net profit ratio - (Net profit / sales) x 100 Operating ratio (operating cost / sales) x100. Operating cost = Cost of goods sold + operating expenses Operating profit ratio= (operating profit / sales) x100. Operating profit = net profit non operating income+ non-operating expenses. Return on investment - Operating profit / Total asset. Operating profit implies profit before depreciation, interest, tax. This ratio indicates profitability of the organization in relation to total investment on assets. Return on equity- Net profit available to equity share holder / Equity fund . Equity fund = equity share capital + reserve + surplus Earning per share Net profit available to equity share holder / No. of equity shares. Price earnings ratio- Market price of share / Earning per share. Dividend yield ratio- Dividend declared per share / Market price per share. Interest coverage ratio- (net profit before interest and tax / interest) Coverage of preference dividend (profit after tax / preference dividend) Coverage of equity dividend (profit after preference dividend / equity dividend) 8) Leverage ratio- This ratio is indication of capacity of the firm to utilize fixed cost assets and the fixed interest bearing securities. so, when firm uses fixed cost asset there is charge of depreciation which hampers the operational profit of the firm , which is operating leverage and again when firm

uses fixed interest bearing securities it is to pay fix interest charges which hampers the financial position of the firm known as financial leverage.

Operating leverage = contribution / EBIT Financial leverage = EBIT / EBT Combined leverage = operating leverage x financial leverage = contribution / EBT.

Limitation of financial ratioA. Financial ratios do not provide full pictures of company s performance. B. Ratios are just indicators but not finding the proper verdict. C. Application of various ratios results different performances D. No specific ratios are there to judge the performance of the organization.

RATIO ANALYSIS
Key Financial Ratios of National Aluminium Company

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin (%) Cash Profit Margin (%) Adjusted Cash Margin (%) 28.50 20.39 21.40 23.01 23.01 23.54 16.43 17.38 19.58 19.58 36.20 28.84 30.98 27.25 27.25 47.28 38.59 41.82 34.79 34.79 61.06 53.38 62.20 42.29 42.58 5.00 1.50 6.70 23.51 38.32 50.00 10.00 2.50 18.95 80.47 151.34 -10.00 6.00 29.34 81.04 141.62 -10.00 6.00 37.76 79.84 127.73 -10.00 7.50 57.40 94.00 109.42 --

Net Profit Margin (%) Adjusted Net Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Adjusted Return on Net Worth (%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds (%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio

16.80 16.80 14.30 9.57 9.26 43.32 43.32 14.32

14.84 14.84 11.55 7.83 7.26 161.34 161.34 11.55

22.68 22.68 20.51 13.02 12.85 151.63 151.63 20.51

29.27 29.27 29.08 18.38 18.68 137.74 137.74 29.08

37.47 37.77 47.95 30.95 31.19 119.43 119.43 47.95

1.71 1.38 ---

1.78 1.42 ---

1.75 1.40 ---

2.31 1.97 ---

2.65 2.28 ---

15.89 0.00 18.48 14.65

14.19 -16.52 13.31

24.82 -25.70 18.44

42.23 -42.18 29.18

84.51 -77.71 53.26

10.26 41.19 10.26 0.50 0.54 0.50

10.42 49.79 10.42 0.47 0.50 0.47

11.01 119.82 11.01 0.53 0.53 0.53

13.47 108.55 13.47 0.56 0.58 0.56

10.01 190.61 17.13 1.39 0.79 0.67

Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio Adjusted Cash Flow Times

43.31 22.04 155.12

27.58 17.22 161.72

32.88 24.87 136.19

37.66 22.52 202.52

49.09 33.69 186.87

14.38 20.37 1.29 34.81

18.04 10.94 1.80 40.02

15.57 12.69 1.91 40.16

13.23 14.06 1.86 40.73

10.66 10.43 1.44 42.53

28.08 20.02 70.97 79.50 0.01

23.14 16.62 75.03 82.46 --

29.62 24.40 69.99 75.34 --

27.72 23.64 72.73 76.69 --

23.33 20.68 76.85 79.47 --

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

Earnings Per Share Book Value

4.15 43.32

12.64 161.34

19.75 151.63

25.32 137.74

36.96 119.43

SCOPE & SIGNIFICANCE OF RATIO ANALYSIS

Ratio analysis is used as a device to analyze and interpret the financial health of the organization. Its scope is not confined to financial managers only but there are different parties interested in knowing the financial position of the firm for different purpose. They use the ratio analysis to work out a particular financial characteristic of the company in which they are interested. Ratios have wide applications and are of immense use today like:

To workout the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. It helps the management to know about the earning capacity of the business concern. In this way profitability ratios show the actual performance of the business.

To workout the solvency: With the help of solvency ratios, solvency of the company can be measured. These ratios show the relationship between the liabilities and assets. In case external liabilities are more than that of the assets of the company, it shows the unsound position of the business. In this case the business has to make it possible to repay its loans.

Helpful in analysis of financial statement: Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc.

Helpful in comparative analysis of the performance: With the help of ratio analysis a company may have comparative study of its performance to the previous years. In this way company comes to know about its weak point and be able to improve them.

To simplify the accounting information: Accounting ratios are very useful as they briefly summarize the result of detailed and complicated computations.

To workout the operating efficiency: Ratio analysis helps to work-out the operating efficiency of the company with the help of various turnover ratios. All turnover ratios are worked out to evaluate the performance of the business in utilizing the resources.

To workout short-term financial position: Ratio analysis helps to work-out the short-term financial position of the company with the help of liquidity ratios. In case short-term financial position is not healthy efforts are made to improve it.

Helpful for forecasting purpose: Accounting ratios indicate the trend of the business. The trend is useful for estimating future. With the help of previous years ratios, estimates for future can be made. In this way these ratios provide the basis for preparing budgets and also determine future line of action.

Helpful in communicating: The financial strength and weakness of an organization are communicated in a much easier and understandable manner by the use of ratios and enhance the value of the financial statements.

Helpful to shareholders/investor: An investor in an organization will like to know about the financial position of the company where he is going to invest. Long term solvency ratio will help him to assess the financial condition of the concern. Thus, ratio analysis will be useful to

the investor in making up his mind whether present financial position warrants further investment or not.

Helpful to employee: The employee will also be interested in knowing about the financial position of the organization as their increase in wages and amount of fringe benefits depend upon the volume of the profits earned by the organization. Thus, various profitability ratios will be useful to them.

Helpful to government: Government is interested in knowing the overall strength of the industry. Various financial statements published by the organization are used to calculate ratios for determining short term, long term and overall financial position of the concern. The ratios may be used as indicator of overall financial strength of public as well as private sector. In the absence of the reliable economic information, government plans and policies may not prove successful.

Tax audit requirement: Section 44AB was inserted in the Income Tax Act by Finance Act, 1984. Under this act every business having a turnover more than 40 lakhs is required to get the account audited by a chartered accountant and submit the tax audit report before the due date for filling the return of income under section 139(1). Clause 32 of the income tax Act requires that the following ratios should be given:

1. Gross Profit/ turnover 2. Net Profit/ turnover 3. Stock-in-trade 4. Material consumed/ finished goods produced

LIMITATIONS OF RATIO ANALYSIS

In spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting financial statements. The following are the main limitations of accounting ratios:

1. Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm cannot always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc.

2. False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct.

3. Effect of Price Level Changes: Price level changes often make the comparison of figures Difficult over a period of time. A change in price affects the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price level changes before any comparison.

4. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.

5. Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way.

6. Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it.

7. Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10, 00,000 and sales are Rs. 40, 00,000. Even the profitability of the two firms is same but the magnitude of their business is quite different.

8. Absence of standard university accepted terminology: There are no standard ratios, which are universally accepted for comparison purposes. As such, the significance of ratio analysis technique is reduced.

FINDINGS
(1) The liquidity position is very sound .So NALCO is liquid enough to fulfill its short term obligations. (2) There is a huge improvement in the efficiency of operation as the stock turnover ratio has been reduced from 65 days to 53 days. (3) The long term financial position is also very satisfactory as there is an increase of 8 % in fixed assets. (4) As the debt equity ratio is around 30 % which means NALCO is maintaining a high safety margin. (5) NALCO depends on both the shareholders fund as well as the outsiders fund to finance its huge fixed assets. But since I repaying its long term debts to make it a zero debt

company that means it is using its current fund to finance fixed assets, which is not good for any company. (6) Regarding the profitability the net profit has been increased 41.5% as compared to previous year. The gross profit ratio of 50% and the net profit ratio of 23% indicate the profitability of NALCO.

SUGGESTIONS
NALCO should set planning standards for stock days, debtor and creditor days. An understanding among the staff should be instilled that proper WCM produces profit. NALCO is a zero debt company so it should try to reduce its equity and increase its debt portion in order to leverage the return on equity. The company should try to invest surplus cash in some other profitable manner without keeping it idle. Inventory management is a great concern for NALCO especially stores and spares. Proper steps must be taken for purchase and procurement of inventory.

 A proper stock level should be maintained in order to avoid interruption in production and sales while at the same time the stock level should be economic to avoid unnecessary carrying cost. Proper planning of production should be made and communicated to all the concerned department so as to determine the exact need of materials and prevent unnecessary blockage of useless materials. Reassess all significant customers periodically. Stop supplying existing customers who are poor payers. Plant should be given some freedom in deciding the credit policies, cash discount and credit rating.

CONCLUSION
NALCO hasnt only addressed itself to the countrys need for self-sufficiency in Aluminium but has also given the country the technology edge in producing good quality material. Besides being the leader in domestic primary Al market, NALCO has also earned a good name in global market in export of Alumina and Aluminium metal earning valuable foreign exchange for country with its consistent track record in capacity utilization, technology absorption, quality assurance, export performance, internal power generation and posting of profits .

NALCO shows how a well-managed company achieves the mission and gives much more profit. Working capital is an important area in financial management. No business can run without adequate amount of working capital. Since NALCO is a manufacturing company its working capital need is very high. From the study, its clear that NALCO manages its high level of working capital decently to get a good return on investment. This Navratna Company has managed to post profit even at the period of economic recession.

REFERENCES

1. Mr Srimanta Panda (Senior Manager (Fin)) 2. Annual report of Nalco 3. Auditors Report, Directors Report and Investors Report.

4. Nalcos official website : www.nalco.co.in 5. www.google.com