CHAPTER 1

INTRODUCTION

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

Relevance of Study
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OPTCLs total assets are covered by current assets. Current assets form around 30% -40% of the total
assets. This could be less profitable on the assumption that current assets generates lesser returns as
compared to fixed assets.
In this competitive world it become mandatory to keep large current assets in form of inventories so as
to ensure smooth production an excellent management of these inventories has to be maintained to
strike a balance between all the inventories required for the production.
To manage all these inventories and determine the investments in each inventories, the system call for a
proper management of current assets which is really a tough job as the amount of inventories required
are large in numbers.
Here comes the need of working capital management or managing the investment s in current assets.
Thus companies like OPTCL it is not easy at all to implement a good working capital management as it
demands on individual attention on its different components.
The study of working capital management is very helpful for the organization to know its liquidity
position. The study is relevant to the organization to know the day to day expenditure. This study is
relevant to give an idea to utilize the current assets.
This study is also relevant to the student as they can use it as a reference. This report will help in
conducting further research in future. Others researcher can use this project as secondary data.

Company Profile
ODISHA POWER TRANSMISSION CORPORATION LIMITED,(OPTCL)
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Registered office: Janpath, Bhubaneswar-751022, Phone No: 06742541320, 2542320

ODISHA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the largest
transmission utility in the country was incorporated in March 2004 under the Companies Act, 1956 as a
company wholly owned by the Government of Odisha to undertake the business of transmission and
wheeling of electricity in the state.

It started its operations from 01.04.2005 only as a Transmission Licensee.

(A deemed Transmission Licensee under Section 14 of Electricity Act, 2003)

Notified as the State Transmission Utility (STU) by the State Government and discharges the State
Load Dispatch Function.

The registered office of OPTCL is situated at Bhubaneswar, the capital of the state of Odisha. Its
projects and field units are spread all over Odisha. OPTCL became fully functional on 9th June 2005
consequent upon issue of Odisha Electricity Reform (Transfer of Transmission and Related Activities)
Scheme, 2005 under the provision of Electricity Act, 2003 and the Odisha Reform Act, 1995 by the
State Government for transfer and vesting of transmission related activities of GRIDCO with OPTCL.
The company has been designated as the State Transmission Utility in terms of section 39 of the
Electricity Act, 2003. Presently the company is carrying on intra state transmission and wheeling of
electricity under a license issued by the Odisha Electricity Regulatory Commission. The company is
also discharging the functions of State Load Despatch Centre. The company owns Extra High Voltage
Transmission system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV, 132
kV levels and 81 nos. of substations with transformation capacity of MVA. The day-to-day affairs of
the company are managed by the Managing Director assisted by whole-time Functional Directors as
per the advice of the Board of Directors constituted. They are in turn assisted by a team of dedicated
and experienced professionals in the various fields.

Vision and Mission of OPTCL

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VISION

OPTCL is one of the best transmission utility in the country in terms of uninterrupted power
supply, lowering the loss, contributing to states industrial growth.
Developing the transmission system in the backdrop of formation of strong National Power
Grid as a flagship, endeavour to steer the development of power system on planned path leading
to cost effective fulfillment of the objective of Electricity to all at affordable price.

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

To upgrade the transmission system network so as to handle power to the tune of 3000 MW for
100% availability of power to each family.
To give training to practicing engineers and work force so as to professionalism them with
progressive technology and capable commercial organization of the country so as to build up
the most techno-commercially viable model of the country.

Objective of OPTCL
To finally conduct transmission lines and sub-station in the state for expulsion of power from the state
setup stations feed power to state distribution companies, circle of power to other states, manage the
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existing lines and sub-stations for power transmission and to launch power system improvement by
renovation, advancement and modernization of the transmission network.
OPTCL being a State Transmission Utility Public Authority has set the following objectives.

Clearing all functions of outlining and analysis relating to Intra State, Inter State transmission
with Central Transmission Utility, State Government, Generating companies, Regional Power
Board, Authority, Licensees or other person notified by State Government in this behalf.

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

Arrange unbiased open access to its transmission system for use by any licensee or generating
company or any consumer as and when such open access is provided by the state commission
on payment of transmission charges/surcharge as may be specified by the state commission.

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

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

Power sector reform in state

The Power Sector Reforms in the state of Odisha was started during November 1993 in an organized
manner. The main objective of the reform was to unbundle generation, transmission and distribution
and to establish an independent and transparent regulatory commission in order to promote efficient
and accountability in the Power Sector.

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In order to implement the reform, in the first phase, two corporate entities namely Grid Corporation of
Odisha Limited (GRIDCO) and Odisha Hydro Power Corporation Limited (OHPC) were established in
April 1995, GRIDCO was incorporated under the Companies Act, 1956. In April 1995 to own and
operate the transmission and distribution system in the state. Similarly OHPC was incorporated to own
and operate all the hydro generating stations in the state.
The state government enacted the Odisha Electricity Reform Act, 1995 which came into force with
effect from 1.4.1996. In exercise of power under section 23 and 24 of the Odisha Electricity Reform
Act, 1995, the State Government notified the Odisha Electricity Reform (Transfer of Undertakings,
Assets, Liabilities, Proceedings and Personnel) Scheme Rules 1996. As per the scheme, the
transmission, distribution activities and of the OSEB along with the related assets, liabilities, personnel
and proceedings were vested on GRIDCO. Simultaneously the hydro generation activities of OSEB
along with related assets, liabilities, personnel proceedings were vested in OHPC.
In order to privatize the distribution functions of electricity in the State, four distribution companies
namely Central Electricity Supply Company of Odisha Limited (CESCO), North Eastern Electricity
Supply Company of Odisha Limited (NESCO), Southern Electricity Supply Company of Odisha
Limited (SOUTHCO) and Western Electricity Supply Company Odisha Limited (WESCO) were
incorporated under the companies act, 1956 as separated corporate entities. During November 1998 the
state government issued the Odisha Electricity Reform(Transfer of Assets, Liabilities, Proceedings
and personnel of GRIDCO to distribution companies) Rules 1998 wherein the electricity distribution
and retail supply activities along with the related assets, liabilities, personnel and proceedings were
transferred from GRIDCO to the four Distribution Companies. Through a process of international
competitive bidding (ICB), the four distribution companies were privatized during 1999.
After separation of distribution business, GRIDCO left with electricity transmission and bulk
supply/trading activities. GRIDCO was also declared as the state transmission utility and was
discharged the functions of State Load Despatch Centre (SLDC).
The Government of India enacted the Electricity Act, 2003 which came into effect from 10th June,
2003. Under the provision of the said Act, trading in electricity has been recognized as a distinct
licensed activity, which can only be undertaken by a licensee to be granted by the appropriate
commission. The act specifically prohibits the STU and transmission company in the state from
engaging in the business of trading. GRIDCO being a State Transmission Utility was not permitted to
engage itself in the trading in electricity and was required to segregate its activities in a manner within
the period allowed under the Act that, the entity which will undertake transmission STU and SLDC
function will not undertake the activities of trading and bulk supply of electricity.
Keeping in view the statutory requirement of the Electricity Act for separation of trading and
transmission functions into two separate entities, the State Government incorporated Odisha Power
Transmission Corporation Limited(OPTCL) to take over the transmission, STU/SLDC functions of
GRIDCO.
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In exercise of the power conferred under section 39,131,133 and 134 of the Electricity Act, 2003, read
with section 23 and 24 of the Odisha Electricity Reform Act, 1995, the State Government issued the
notification Odisha Electricity Reform(Transfer of Transmission and Related Activities) Schemes
2005 on 9.6.2005. The Scheme was made effective from 1.4.2005. By virtue of the transfer scheme,
2005, OPTCL now undertaking the functions of transmission of electricity in the state of Odisha and
has been declared as the State Transmission Utility. GRIDCO is also discharging the functions of
SLDC.

Reform Achievements
1) First Transfer between OHPC and GRIDCO effected on 1st April, 1996
2) OER Act, 1995 created Odisha Electricity Regulatory Commission, a Regulatory body which
became functional on 1.8.1996
3) Unbundling of Transmission and Distribution via Second Transfer Scheme effective from November
26,1998.
4) 9 tariff orders after public hearing have been passed by OERC
(FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06)
5) BSES took over management and operational control of 3 Distribution Companies (WESCO,
SOUTHCO and NESCO) from April 1, 1999.
6) Privatization of Distribution completed with AES taking over the fourth distribution company,
CESCO from September 1, 1999
7) CESCO remained under the management of an administrator (CEO) appointed by OHRC with of
effect of 27.8.2001.
8) A new public limited company under the name Odisha Power Transmission Corporation Limited
was incorporated on 29.03.2004 to carry on the business of transmission, STU and SLDC functions of
GRIDCO.
9) OPTCL became functional on 1.04.2005. GRIDCO continue to carry on its bulk supply and trading
functions.

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Formulas of Ratio Analysis and Definations

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

ROLE OF RATIO ANALYSIS

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

LIQUIDITY RATIO
Liquidity refers to ability of a concern to meet its current obligation as and when these become due.
The short-term obligation are met by realizing amount from current, floating or circulating asset. The
current asset either be liquid or near liquidity. These should be convertible into cash for paying
obligation of short-term nature. To measure the liquidity of a firm, following ratios can be calculated.

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A) CURRENT RATIO: Current assets include cash and those assets which can be converted into
cash within a year, such marketable securities, debtors and inventories. All obligations within a year are
include in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short
term bank loan income tax liabilities and long term debt maturing in the current year. Current ratio
indicates the availability of current assets in rupees for every rupee of current liability.

CURRENT RATIO= CURRENT ASSET/CURRENT LIABILITIES

B) QUICK RATIO OR ACID TEST: Quick ratio establish the relationship between quick or
liquid assets and liabilities. As asset is liquid if it can be converting into cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset other assets which is relatively
liquid and include in quick assets are debtors and bills receivable and marketable securities. Inventories
are considered as less liquid. Inventory normally required some time for realizing into cash. Their value
also has tendency to fluctuate. The quick ratio is found out by dividing quick assets by current
liabilities.

QUICK RATIO=TOTAL LIQUID ASSET/TOTAL CURRENT LIABILITIES

C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are considered as
more liquid then inventories, it cannot be converted into cash immediately on time. Therefore while
calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash in bank,
short term marketable securities are taken into consideration to measure the ability of the firm in
meeting short term financial obligation. It calculates by absolute assets dividing by current liabilities.

ABSOLUTE LIQUID RATIO=ABSOLUTE LIQUID ASSET/TOTAL CURRENT

LIABILITIES

EFFICIENCY RATIO
Funds are invested in various assets in business to make sales and earn profits. The efficiency with
which assets are managed directly affects the volume of sale. Activity ratios measure the efficiency and
effectiveness which the firm manages its resources or assets. These ratios are also called turnover
ratios.
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A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship between

credit sales and receivable of a firm. It indicates how quickly receivables are converted into sales.

DEBTORS TURNOVER RATIO=SALES/AVERAGE ACCOUNT RECEIVABLES

AVERAGE A/C RECEIVABLES=OPENING TRADE DEBTORS+CLOSING
TRADE DEBTOR/2
AVERAGE COLLECTION PERIOD=(365/DTR)days
Or RECEIVABLES *365/SALE

B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of sales, a

relative amount of working capital is needed. If any increase in sales contemplated working capital
should be adequate and thus this ratio helps management to maintain the adequate level of working
capital. The ratio measures the efficiency with which the working capital is being used by a firm. It
may be net working capital turnover by dividing sales by net working capital.

WORKING CAPITAL TURNOVER RATIO=COST OF SALES/NET WORKING

CAPITAL

CURRENT ASSET TURNOVER RATIO:

CURRENT ASSET TURNOVER RATIO=SALES/CURRENT ASSET

Statistical tools used of data analysis

The various statistical tools used for the data analysis is as follows:
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a) Tables

Analytical tool used of data analysis

The analytical tools used for data analysis is as follows:
a) Ratio analysis
b) Schedule of change in working capital
c) Cash flow statement

CHAPTER 2
REVIEW OF THE LITERATURE
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Pass C.L., Pike R.H (1984), examined that in last 40 years major theoretical development have
occurred in the area financial decision making and long-term investment. Related technique and new
concepts are been implemented in industrial practices. In contrast less attention has been given in
respect to short-term finances, basically on working capital management. Less importance has been
given by the firm regarding working capital management, but effective working capital management
plays a crucial role in enhancing the profitability and growth of the firm. However, experience shows
that inadequate planning and control of working capital is one of the major causes of failure of
business.
Herzfeld B (1990), his studies say that Cash is King indeed money managers who share the
responsibility of running this countrys businesses. As bank demanding more from prospective
borrowers, great importance is given to those accountable for so-called working capital management.
Working capital management is all about managing the current and short-term assets and short-term
liabilities. The function of the firm is to make sure they have enough assets to continue its business.
Appuhami, Ranjita B (2008), studied impact on firms capital expenditure on their working capital
management. The author used the data collected from listed companies in the Thailand Stock
Exchange. The study used Schulman and Coxs (1985) Net Liquidity Balance and Working Capital
Requirement as a proxy for working capital measurement and developed multiple regression models.
The empirical research found that firms capital expenditure has a significant impact on working capital
management. The study also found that the firms operating cash flow, which was recognized as
practical variable, has a significant relationship with working capital management.

Hardcastle J (2009), stated that working capital, sometimes called gross working capital, simply refers
to the firms total current assets (the short-term ones), cash, marketable securities, accounts receivable
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and inventory. Long-term financial analysis primarily concerns strategic planning, working capital
management deals with day-to-day operations. By making sure that production lines do not stop due to
lack of raw materials, that customers pay on time and that enough cash is on hand to make payments
when they are due. Obviously without good working capital management, no firm can be efficient and
profitable.
Thachappilly G (2009) Working capital management manages flow of funds, (2009) describes that
working capital is the cash needed to carry on operations during the cash conversion cycle, i.e. the days
from paying for raw materials to collecting cash from customers. Raw materials and operating supplies
must be bought and stored to ensure uninterrupted production. Wages, salaries, utility charges and other
incidentals must be paid for converting the materials into finished products. Customers must be
allowed a credit period that is standard in the business. Only at the end of this cycle does cash flow in
again.
Beneda, Nancy; Zhang, Yilei (2008), he found out the impact of working capital management on the
operating performance and growth of new public companies. The study also sheds light on the
relationship of working capital with debt level, firm risk and industry. Using a sample of initial public
offerings (IPOs), the study finds a significant positive association between higher levels of accounts
receivable and operating performance. The study futher finds that maintaining control (i.e. lower
amounts) over levels of cash and securities, fixed assets and accounts.
Dubey R (2008), studied the working capital in a firm generally arises out of four basic factors like
sales volume, technological changes, seasonal, cyclical changes and policies of the firm. The strengths
of the firm is dependent on the working capital as discussed earlier but this working capital is itself
dependent on the level of sales volume of the firm. The firm requires current assets which can be
converted readily into cash say within a year such as receivables, inventories and liquid cash. If the
level of sales is stable and towards growth the level of cash, receivables and liquid cash. If the level of
sales is stable and towards growth the level of cash, receivables and stock will also be on the high.
McClure B (2007), describes that cash is the lifeline of a company. If this lifeline deteriorates, so does
the companys ability to fund operations, reinvest and meet capital requirements and payments.
Understanding a companys cash flow health is essential to making investment decisions. A good way
to judge a companys cash flow prospects is to look at its working capital management (WCM). Cash
is king when fund raising is harder than ever. Letting it slip away is an oversight that investors should
not forgive. Analyzing a companys working capital can provide excellent insight into how well a
company handles its cash, and whether it is likely to have any on hand to fund growth and contribute to
shareholder value.
Grass D (2006), stated that Cash is the lifeblood of business is an often repeated maximum amongst
financial managers. Working capital management refers to the management of current or short-term
assets and short-term liabilities. Components of short-term assets include inventories, loans and
advances, debtors, investments and cash and bank balances. Short-term liabilities include creditors,
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trade advances, borrowing and provisions. The major emphasis is, however, on short-term, since shortterm liabilities arise in the context of short-term assets. It is important that companies minimize risk by
prudent working capital management.
Maynard E. Refuse (1996), argued that attempts to improve working capital by delaying payment to
creditors is counter-productive to individuals and to the economy as a whole. Claims that altering
debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit.
Proposes that stock reduction generates system-wide financial improvement and other important
benefits. Urges those organization seeking concentrated working capital reduction strategies to focus on
stock management strategies based on lean supply-chain techniques.
Thomas M. Kruegar (2005), studied distinct levels of WCM measures for different industries, which
tend to be stable over time. Many factors help to explain this discovery. The improving economy
during the period of the study may have resulted in improved turnover in some industries, while
slowing turnover may have been a signal of trouble ahead. Our results should be interpreted cautiously.
Our study takes places over a short time frame during a generally improving market. In addition, the
survey suffers from survivorship bias- only the top firms within each industry are ranked each year and
the composition of those firms within the industry can change annually.
Eljelly (2002), it is examined the relationship between profitability and liquidity, as measured by
current ratio and cash gap(cash conversion ratio) on a sample of 929 joint stock companies in Saudi
Arabia. Using correlation and regression analysis, Eljelly[9] found significant negative relationship
between the firms profitability and its liquidity level, as measured by current ratios and long cash
conversion cycles. At the industry level, however, he found that the cash conversion cycle or the cash is
of more importance as a measure of liquidity than current ratio that affects profitability. The firm size
variable was also found to have significant effect on profitability at the industry level.

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CHAPTER 3
RESEARCH METHODS

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3.1 Research Problem

Working capital management in current assets is the focus of study. So the topic is to study working
capital management of OPTCL.
Working capital is the capital invested by the organization in current assets. Now in competitive era
where each organization competes with each other to increase their production and sales, holding of
sufficient current assets have become mandatory as current assets include inventories and raw materials
which are required for smooth production runs. Holding of sufficient current assets will ensure smooth
and uninterrupted production but at the same time, it will consume a lot of working capital. Working
capital management aims at managing capital assets at optimum level, the level at which there will be
smooth production and also it will involve investment of nominal working capital in capital assets.
Generally problem explains that, adequate attention has not been paid to the area of short-term finance,
in particular that of working capital management, but effective working capital management has a
crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that
inadequate planning and control of working capital is one of the more common causes of business
failure.

3.2 Research Methodology

Research methodology is a systematic approach in management research to achieve pre-defined
objectives. It helps a researcher to guide during the course of research work. Rules and techniques
stated in research methodology save time and labor of the researcher as researcher know how to
proceed to conduct the study as per the objective.

3.2.1 Research Objectives

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

3.2.2 Research Design

The research design is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure. The research
design followed by the study the working capital management in ODISHA POWER TRANSMISSION
CORPORATION LIMITED (OPTCL) is descriptive and analytical research design.

3.2.3 Data Collection

The project is based on secondary data collected from annual report of the organization. The data
collection was aimed to study of working capital management of the company.

Project based on
Annual report of OPTCL- 2006-07
Annual report of OPTCL-20007-08
Annual report of OPTCL-2008-09
Annual report of OPTCL-2009-10
Annual report of OPTCL-2010-11

Scope and Rationale of the study

The topic working capital management is itself a very vast topic yet very important also. Due to time
restraints it was not possible to study in depth in get knowledge what practices are followed at OPTCL.
Many and facts and data are such that they are not to be disclosed because of the confidential nature of
the same.
Since the financial matters are sensitive in nature the same could not acquired easily.
The study is restricted to only Five years data of OPTCL.
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CHAPTER 4

FINDINGS AND ANALYSIS/RESULTS

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

Table 1.1

2006-07

2007-08

2008-2009

2009-2010

2010-2011

Cash

64,82,76,812

49,08,81,183

90,70,19,750

72,71,06,129

57,94,33,229

Debtors

79,81,96,201
75,10,64,690

1,05,50,97,47
3
80,85,19,278

1,05,56,31,69
8
96,90,56,460

1,55,87,35,700

Inventories

1,05,24,79,98
2
76,68,65,262

Sundry
Creditors
Provision

61,03,22,496

66,51,67,980

68,95,26,597

72,40,51,456

85,55,52,857

83,08,65,819

1,30,45,17,74
4

4,81,70,02,60
3

5,69,56,67,47
5

5,62,99,60,268

1,14,42,69,951

Components of working capital

a) Cash in bank in the year 2006-07 was Rs64,82,76,812 . It is decreased to Rs49,08,81,183 in the year
2007-08. In year 2006-07 it increased to Rs90,70,019,750 . And then it suddenly decreases to
Rs72,71,06,129 again decreases to Rs57,43,31,119 in the year 2008-09.
b) Debtors increases which was not good sign for the organization. In 2006-07 debtors were
Rs79,81,96,201 and it increased to Rs1,05,24,79,982 in the year 2007-08 a total increases in
Rs25,42,83,781. In year 2006-07 it was increased Rs1,05,50,97,473. And in 2007-08 it again increased
in Rs1,05,56,31,698 and in 2008-09 in reached 1,55,87,35,700.
c) As per the above findings inventories were increased. The inventories were Rs79,81,96,201 in 200607.In 2007-08 it increased to Rs76,68,65,262, with an increase of Rs1,58,00572, with the percentage
growth of 2.10%. In 2006-07 it increased to Rs80,85,19,278 with the increase in 7.7%. In 2007-08 it
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again increased to 96,90,56,460 with a increase in 29%. It is futher increased to 1,14,42,69,951 in

2008-09.
d) Sundry creditors also increased a lot. In 2006-07 it was Rs61,03,22,496. Then it increased by
Rs5,48,45,484 which amounted to Rs66,51,67,980 with a increase of 8.99% in 2007-08. In the year
2006-07 it increased to Rs68,95,26,597 with a percentage increase of 12.98%. In 2007-08 it again
increase to Rs72,40,51,456 and Rs85,55,52,857 in the year 2008-09.
e) Provisions also increased throughout the years. In 2006-07 it was Rs83,08,65,819. Then it increased
to 1,30,45,17,744 with a percentage increase of 57% in 2007-08.In 2006-07 it again increased to
Rs4,81,70,02,603.In 2007-08 it again increased to Rs5,69,56,67,475. In 2008-09 there was not much
difference in 2006-07 and 2008-09.

Variable of working capital management

Variables

2006-07

2007-08

2008-09

2009-10

2010-11

ROTA(Return on
total assets)
OPM(Operating
Profit margin)
GEAR(Gearing Ratio
i.e. financial
debt/total assets)
CR(Current Ratio)

0.15

0.16

0.22

0.10

0.13

61.55%

56.40%

27.78%

34.65%

35.82%

0.64:1

0.55:1

0.43:1

0.33:1

0.34:1

1.28:1

0.94:1

0.86:1

0.62:1

0.68:1

0.58:1

0.46:1

0.27:1

0.22:1

0.24:1

0.13

0.12

0.21

0.16

0.20

0.11

0.13

0.24

0.26

0.28

0.23

0.25

0.13

0.19

0.16

0.25

0.34

0.17

0.21

0.23

QAR(Quick assets
ratio)
CA/TA(Current
Assets to Total
Assets)
CL/TA(Current
Liabilities to Total
assets)
SK/CA(Stocks to
Current assets)
TD/CA(Trade
Debtors to Current
Assets)

Page
21

CA_TURN
(Current Assets
Turnover is
sales/current assets)

1.10

1.29

1.08

0.60

0.61

The findings of various variables of working capital management

a) Return on total asset(ROTA) came 0.15 in 2006-07,0.16 in 2007-08,0.22 in 2006-07,0.10 in 2007-08
and 0.13 in 2008-09.
b) Operating profit margin(OPM) was 61.55% in 2006-07 then it reduced to 56.40% ,27.78%, 34.65%
and 35.82% in 2007-08,2006-07,2009 -10 and 2008-09 respectively. Anything between 65% to 85% is
known as a good operating margin, and for OPTCL it was a sign of alarm.
c) Gearing ratio was 0.64:1 in 2006-07 and in 2007-08 it is 0.55:1, 0.43:1in the year 2006-07, 0.33:1 in
2007-08 and 0.34:1 in 2008-09.
d) Current ratio(CR) generally reduced for the organization, in 2006-07 it was 1.28:1 and it reduced to
0.94:1 in 2007-08 and then it again reduced to 0.86:1 and 0.62:1 in 2009-10 and 0.68:1 in 2010-11.
e) Quick asset ratio(QAR) in 2006-07 was 0.58:1,in 2007-08 it became 0.46:1 and in 2008-09,2009-10
and 2010-11 it became 0.27:1,0.22:1 and 0.24:1.
f) Current asset to total asset ratio came 0.13, 0.12, 0.21, 0.16 and 0.20 in the year 2006-07,200708,2008-09,2009-10 and 2010-11
g) Current liability to total asset ratio came 0.11 in 2006-07, in 2007-08 it came 0.13, and in 2008-09,
2009-10 and 2010-11 it came 0.24, 0.26 and 0.28 respectively.
h) Stock to current asset is 0.23, 0.25, 0.13, 0.19 and 0.16 in respective years.
i) Trade debtors in 2006-07 was 0.25, in 2007-08 it was 0.34, in 2008-09 it was 0.17, in 2009-10 it was
0.21 and in 2010-11 it was 0.23.
j) Current asset turnover is 1.10 in 2006-07, 1.29 in 2007-08, 1.08 in 2008-09, 0.60 in 2009-10 and
0.61 in 2010-11.

Page
22

Components of Current ratio, Quick Ratio and Absolute Liquid Ratios

Current Ratio

2006-07
1.28:1

2007-08
0.94:1

2008-09
0.86:1

2009-10
0.62:1

2010-2011
0.68:1

Quick Ratio

0.58:1

0.46:1

0.27:1

0.22:1

0.24:1

Absolute
Liquid Ratio
Stocks to
Current Assets
Trade Debtors
to Current
Assets
Current Assets
to Total Assets
Current
Liabilities to
Total Assets

0.25:1

0.15:1

0.12:1

0.08:1

0.09:1

0.23

0.25

0.13

0.19

0.20

0.25

0.34

0.17

0.21

0.23

0.13

0.12

0.21

0.16

0.23

0.11

0.13

0.24

0.26

0.28

77 days

CCC(Cash
Conversion
Cycle)
70 days

43 days

115 days

118 days

125 days

85 days

57 days

126 days

128 days

63 days

61 days

37 days

86 days

89 days

Inventory
Days
Debtors
Turnover
Days
Creditors
Turnover
Days

Page
23

a) In 2006-07 the current ratio was 1.28:1 which is below the standard of 2:1. In 2007-08, it was found
that the current ratio of OPTCL was 0.94:1 and it was decreased from the total current assets from
previous year and an increased in current liability this year. In 2008-09, it was found that the current
ratio of OPTCL is 0.86:1. In 2009-10 the current ratio was 0.62:1 and in 2010-11 the current ratio was
0.68:1.
b) Quick ratio in 2006-07 it was 0.58:1 and 0.46:1, 0.27:1, 0.22:1 and 0.24:1 in 2007-08,
2009-10 and 2010-11.

2008-09,

c) In the year 2006-07 the absolute liquid ratio was found to be 0.25:1. In the year 2007-08 the absolute
liquid ratio of OPTCL was found to be 0.15:1. The absolute liquid ratio of the organization for the year
2008-09 was found 0.12:1 and in the year 2009-10 was 0.008:1 and for the financial year of 2010-11
was 0.09:1.
d) Stock to current assets is 0.23, 0.25, 0.13, 0.19 and 0.20 in the respective years.
e) Trade debtors to current asset ratio come 0.25, 0.34, 0.17, 0.21 and 0.23 in the respective years.
f) Current asset to total asset ratio come 0.13, 0.12, 0.21 and 0.16 in the year 2006-07, 2007-08, 200809, 2009-10 and 2010-11.
g) Current liabilities to total asset came 0.11 in 2006-07 and in 2007-08 it came 0.13, in 2008-09 it
came 0.24, in 2009-10 it came 0.26 and in 2010-11 in came 0.28.
h) Cash conversion ratio for inventory came 77days, 70days, 43days and 115days.
Cash conversion for debtors came 125 days in 2006-07, it reduced to 85 and 57 days in 2007-08,
2008-09 respectively. But in 2009-10 it increased to 126 days then in 2010-11 it increased to 128 days.
Cash conversion ratio came 63 days, 61 days, 37 days and 86 days respectively.

Page
24

THE SECOND SECTION EXPLAINS ABOUT THE

LIQUIDITY TREND OF THE ORGANIZATION
LIQUIDTY RATIO
Current Ratio-(Current Assets/Current Liability)

YEARS

CURRENT ASSETS
(IN RUPEES)

CURRENT
LIABILITY
(IN RUPEES)

RATIO

2006-07

3,21,50,26,429

2,50,80,12,516

1.28:1

2007-08

3,10,61,19,303

3,35,96,86,508

0.94:1

2008-09

6,30,63,13,319

7,29,34,88,649

0.86:1

2009-10

5,07,93,75,378

8,21,36,64,274

0.62:1

2010-11

4,43,85,38,139

8,42,34,81,867

0.53:1

A) 2006-07 it was found that the current ratio was 1.28:1 which is below the standard of 2:1. It is due
to a decrease of total current assets from the previous year to current year. Still it is manageable and
also the condition was under the control.
B) In the year 2007-08, it was found that the current ratio of OPTCL was 0.94:1. It was below the
standard of 2:1 and it is decrease in total current assets from previous year and an increase in current
liability this year. The cash and bank balance is found to decrease this year in comparison to that of
previous year where as the current liabilities and provisions both have increased this year.
Page
25

C) In the year 2008-09, it was found that the current ratio of OPTCL was 0.86:1. It is a not good
indication according to the rule of thumb because the firm has more current assets than current
liabilities. The firm may be able to meet its short term obligations in time.
D) 2009-10 and 2010-11, it was found that the current ratio of OPTCL was 0.62:1 and 0.53:1. It was
not a good indication according to rule of thumb because the firm has more current assets than current
liabilities. The firm was not able to meet its short term obligation in time.
E) As increase in administrative overhead expenses, super annuity benefits and payment of past loan
etc are the major factor for increasing of current liabilities.
F) Situation can be controlled so more emphasis can be given on these areas to reduce current liabilities
and to increase current assets so that the actual standard of 2:1 can be achieved.

In addition to, company should make clear cut strategic planning to sell electricity to major industries
at industrial rate to achieve higher revenue.

Page
26

Quick Ratio (Liquid Assets/Current Ratio)

Years

Liquid Assets

Current liability

Ratio

2006-07

1,44,64,73,013

2,50,80,,12,516

0.58:1

2007-08

1,54,33,61,165

3,35,96,86,508

0.46:1

2008-09

1,96,21,17,223

7,29,34,88,649

0.27:1

2009-10

1,78,27,37,827

8,21,36,64,274

0.22:1

2010-11

2,138,168,819

8,423,481,867

0.25:1

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

Page
27

Absolute Liquid Ratio (Absolute Liquid Asset/Current Liability)

YEAR

Absolute Liquid Ratio

Current Liabilities

Ratio

2006-07

64,82,76,812

2,50,80,12,516

0.25:1

2007-08

49,08,81,183

3,35,96,86,508

0.15:1

2008-09

90,70,19,750

7,29,34,88,649

0.12:1

2009-10

72,71,19,750

8,21,36,64,274

0.08:1

2010-11

57,94,33,119

8,32,34,81,867

0.06:1

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

Page
28

CASH FLOW STATEMENT

2009-2010
Amount in (Rs)
12,73,12,985

2008-2009
Amount in (Rs)
-71,37,17,644

2007-2008
Amount in (Rs)
-18,30,29,883

2006-2007
Amount in (Rs)
-3,64,99,383

13,09,96,775

1,18,36,39,044

6,33,87,383

11,15,56,818

42,43,77,484

54,16,01,198

97,24,54,617

1,10,65,54,318

1,23,90,63,901

1,08,22,03,592

1,09,74,37,879

1,09,90,58,990

30,26,423

30,26,423

30,26,423

-1,04,00,87,510

-47,574

-209

4,28,44,898

-4,5513,310

-6,90,09,008

-5,03,60,383

47,481

27,846

46,318

46,305

11,59,214

15,22,603

29,50,312

28,65,292

1,11,96,801

8,12,05,348

4,47,68,652

11,63,525

92,89,278

-23,96,915

-21,13,256

1,70,66,92,319
176372705

1,05,74,70,893

1,88,59,83,078

2,25,46,20,994

64,38,311

-16,20,59,785

-4,46,04,328

-2,98,62,664

Sundry Debtors

1,17,79,20,033

-4,53,02,877

-37,81,016

-26,35,73,059

Other Current assets

27,27,22,589

-59,43,581

-1,43,98,325

-2,44,71,317

Profit/Loss before tax

& extraordinary
items
Adjustment for
Appropriation to
reserves and
surpluses
Interest and finance
charges
Depreciation
Preliminary expenses
W/O
Excess provision
written back
Interest income
Provision for wealth
tax
Provision/write off
against theft
materials
Provision for
obsolete stock-store
etc
Bad and doubtful
debt
Provision for fringe
benefit tax
OPERATING
PROFIT BEFORE
WORKING
CAPITAL CHANGE
(A)
WORKING
CAPITAL CHANGE
Stores and Spares

50,31,04,002

Page
29

Loan and advances

6,57,07,207

1,20,34,71,087

-2,72,53,85,618

24,60,67,167

Current liabilities

69,90,20,397

4,93,59,037

42,88,03,928

42,01,27,401

Provisions

2,40,57,12,716

1,91,87,52,382

3,52,31,00,656

47,36,52,134

2,95,82,76,263

1,16,37,35,296

82,19,39,662

4,01,57,47,156

3,04,97,18,374

3,07,65,60,656

-93,41,57,641

-91,68,37,432

-1,03,91,08,694

4,55,13,310

6,90,09,008

5,03,60,383

1,73,07,27,631

-88,86,44,331

-84,78,28,424

-98,87,48,311

1,08,80,34,380

-1,06,41,24,474

-1,05,96,33,683

-1,02,66,95,328

2,03,48,78,848

32,39,10,165

-6,95,82,948

-36,86,01,393

2,48,89,47,563

-2,61,68,02,137

-88,70,89,752

-83,19,11,252

71,94,45,000

5,00,00,000

23,05,55,000

82,26,58,195

-3,30,70,16,446

-1,78,57,51,383

-2,24,52,07,973

14,76,73,010

-17,99,13,621

41,61,38,567

-15,73,95,628

NET CAPITAL
CHANGES (B)
CASH GENERATED
FROM THE
OPERATIONS (A)+
(B)

1,77,35,72,529

4,28,44,898
CASH FLOW FROM
INVESTING
ACTIVITIES:
Capital
Expenditure(CAPEX)
Interest received
revenue
CASH GERNRATED
FROM INVESTING
ACTIVITIES (C)

CASH FLOW FROM

FINANCING
ACTIVITIES
Proceeds from
secured loan
Proceed from
unsecured loan
Interest Paid
Proceed from Share
Capital
CASH FLOW FROM
FINANCING
ACTIVITIES (D)
NET CASH
GENERATED
FROM ALL
ACTIVITIES
(A+B+C+D)

Page
30

Cash and cash

equivalent at the
beginning of the year
Cash equivalent at the
end of the period

72,71,06,129

90,70,19,750

49,08,81,183

64,82,76,812

57,94,33,119

72,71,06,129

90,70,19,750

49,08,81,184

A) Cash generated from investing activities Rs 1,73,07,27,631, Rs-88,86,44,331, Rs-84,78,28,424 and

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

Page
31

SIZE OF WORKING CAPITAL

CURRENT
ASSETS (CA)
Stores and Spares

2006-07
(rupees)
75,10,64,690

Sundry Debtors

79,81,96,201

Cash and bank

balance
Other Current assets

64,82,76,812

Loan and advances

38,94,06,739

Total

3,21,50,26,429

Less: CURRENT
LIABILITIES
(CL)
Sundry Creditor

61,03,22,496

Deposits and
retention from
supplies/contractors
Interest accrued but
Not due on loans
Liabilities for
wealth tax
Electricity duty
payable
Liabilities for fringe
benefit tax

2007-08
(rupees)

2008-09
(rupees)

2009-10
(rupees)

2010-11
(rupees)

76,68,65,26
2
1,05,24,79,
982
49,08,81,18
3
65,25,53,30
4
14,33,39,57
2
3,10,61,19
,303

80,85,19,27
8
1,05,50,97,
473
90,70,19,75
0
66,69,51,62
9
2,86,87,25,
189
6,30,63,13
,319

96,90,56,460

1,14,42,69,9
51
1,55,87,35,7
00
57,94,33,11
9
75,13,33,06
9
40,47,66,30
0
4,43,85,38,
139

66,51,67,98
0
13,71,54,49
7

68,95,26,59
7
14,91,29,26
9

72,40,51,456

6,27,33,789

2,05,82,149

1,30,49,185

51,73,055

79,27,784

37,299

47,240

47,253

28,781

48,416

2,12,903

49,092

1,82,269

1,56,113

1,63,387

23,41,534

44,54,790

68,51,705

68,51,705

68,51,705

62,80,81,987

12,50,63,350

Page
32

1,05,56,31,6
98
72,71,06,129
74,48,94,758
1,58,26,86,3
33
5,07,93,75,
378

12,89,91,075

85,55,52,85
7
15,76,14,45
4

Other Liabilities

87,64,35,326

Current liabilities
Provisions

1,67,71,46,
697
83,08,65,819

Total Current
Liabilities
Working Capital
(CA-CL)

2,50,80,12,
516
70,70,13,91
3

1,22,77,13,
016
2,05,51,68
,764
1,30,45,17,
744
3,35,96,86
,508
25,35,67,2
05

1,61,76,99,
768
2,47,64,86
,046
4,81,70,02,
603
7,29,34,88
,649
98,71,75,3
20

1,65,27,44,6
14
2,51,79,96,
799
5,69,56,67,4
75
8,21,36,64,
274
3,13,42,88,
896

1,76,53,62,9
96
2,79,3521,
599
5,62,99,60,2
68
8,42,34,81,
867
3,98,49,43,
728

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

WORKING CAPITAL TREND ANALYSIS

In working capital analysis the direction at change over a period of time is of crucial importance.
Working capital is one of the important fields of management. It is therefore very essential for an
analyst to make a study about the trend and direction of working capital over a period of time. Such
analysis enables as to study the upward and downward trend is current assets and current liabilities and
its effect on the working capital position. The term trend is very commonly used in day to day
conversion trend, also called secular or long term need is the basic tendency of population, sales,
income, current assets and current liabilities to grow or decline over a period of time The trend is
defined as smooth irreversible movement in the series. It can be increasing or decreasing.
Emphasizing the importance of working capital trends, analysis of working capital trends provide as
base to judge whether the practice and privilege policy of the management with regard to working
capital is good enough or an important is to be made in managing the working capital funds.

WORKING CAPITAL SIZE TREND

YEARS
Net Working
Capital

2006-07
70,70,13,913

2007-08
-25,35,67,205

2008-09
-98,71,75,330

2009-10
-3,13,42,88,896

2010-11
-3,98,49,43,728

Working
Capital

100

-35.86

-139.62

-443.31

-563.63

Page
33

Indices

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

WORKING CAPITAL TURNOVER RATIO (SALES/NET WORKING CAPITAL)

YEAR
2006
2007
2008
2009
2010

Cost of sales
3,55,34,94,401
3,99,75,58,798
6,78,92,95,427
3,05,16,27,568
4,05,19,14,742

Net working capital

7,07,01,39,13
-25,35,67,205
-98,71,75,330
-3,13,42,88,896
-3,98,49,43,728

Ratio
5.03 times
-15.7times
-6.88times
-0.97times
-1.02times

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

Page
34

STATEMENT SHOWING CHANGE IN WORKING CAPITAL in the year

2007 and 2007- 2008)
(2006-2007)

(2007-2008)

(Rs)

(Rs)

(2006-

Increase in
working capital

Decrease in
working capital

(Rs)

(Rs)

Current assets
Stores and spares

75,10,64,690

76,68,65,262

1,58,00,572

Sundry Debtors

79,81,96,201

1,05,24,79,98
2

25,42,83,781

Cash and bank balance

64,82,76,812

49,08,81,183

15,73,95,629

Other current assets

62,80,81,987

65,25,53,304

2,44,71,317

Loan and advances

38,94,06,739

14,33,39,572

24,60,67,167

Total

3,21,50,26,42
9

3,10,61,19,30
3

Current liabilities

1,67,71,46,69
7

2,05,51,68,76
4

37,80,22,067

Provisions

83,08,65,819

1,30,45,17,74
4

47,36,51,925

Total

2,50,80,12,51

3,35,96,86,50

Current liabilities

Page
35

Working capital

70,70,13,913

-25,35,67,205

(CA-CL)
Net decrease in working
capital

-96,05,81,118
-25,35,67,205

96,05,81,118
-25,35,67,205

1,25,51,36,788

1,25,51,36,788

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

STATEMENT SHOWING CHANGES IN WORKING CAPITAL

2009 and 2009-2010)

Current asset
Stores and spares
Sundry debtors
Cash and bank
balances
Other current
assets
Loan and
advances
Total
Current liabilities
Current liabilities
Provision
Total

(2008-

(2009-2010)
(Rs)

(2008-2009)
(Rs)

Increase in
working capital
(Rs)

Decrease in
working capital
(Rs)

80,85,19,278
1,05,50,97,473
90,70,19,750

96,90,56,460
1,05,56,31,698
72,71,06,129

16,05,37,182
5,34,225

17,99,13,621

66,69,51,629

74,48,94,758

7,79,43,129

2,86,87,25,189

1,58,26,86,333

1,28,60,38,856

6,30,63,13,319

5,07,93,75,378

2,47,64,86,046
4,81,70,02,603
7,29,34,88,649

2,51,79,96,799
5,69,56,67,475
8,21,36,64,274

4,15,10,753
87,86,64,872

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Working
Capital(Current
asset-current
liabilities)

-98,71,75,330

Net decrease in
working capital

-2,14,71,13,566
-3,13,42,88,896

-3,13,42,88,896

2,14,71,13,566

-3,13,42,88,896

2,38,61,28,102

2,38,61,28,102

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

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K) More emphasis can be given on current assets to increase its figure and to decrease current
liabilities figure as a result of which the figure for working capital can be increased.

CURRENT ASSETS
Total assets are basically classified in two parts as fixed assets and current assets. Fixed assets are in the
nature of long term or life time for the organization. Current assets convert in the cash in the period of
one year. It means that current assets are liquid assets or assets which can convert in to cash within a
year.

CURRENT ASSETS SIZE

Current
Assets
Stores and
Spares
Sundry
debtors
Cash and
bank
balances
Other

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

75,10,64,690

76,68,65,262

80,85,19,278

96,90,56,460

79,81,96,201
64,82,76,812

1,05,24,79,98
2
49,08,81,183

1,05,50,97,47
3
90,70,19,750

1,05,56,31,69
8
72,71,06,129

1,14,42,69,95
1
1,55,87,35,70
0
57,94,33,119

62,80,81,987

65,25,53,304

66,69,51,629

74,48,94,758

75,13,33,069

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current
assets
Loan and
advances
Total of
CA
CA Indices

38,94,06,739

14,33,39,572

3,21,50,26,42
9
100

3,10,61,19,30
3
99.61

2,86,87,25,18
9
6,30,63,13,31
9
196.15

1,58,26,86,33
3
5,07,93,75,37
8
157.99

40,47,66,300
4,43,85,38,13
9
138.11

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

CURRENT ASSET TURNOVER RATIO-(sales/current assets)

Year
2006
2007
2008
2009
2010

SALES
3,55,34,94,401
3,99,75,58,789
6,78,92,95,427
3,05,16,27,568
4,05,19,14,743

CURRENT ASSETS
3,21,50,26,429
3,10,61,19,303
6,30,63,13,319
5,07,93,75,378
4438538139

RATIO
1.10
1.29
1.08
0.60
0.91

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

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COMPONENTS OF CURRENT ASSETS

(No. in %)

Analysis of current assets components enable one to examine in which components the working capital
fund has locked. A large tie up of funds in inventories affects the profitability of the business or the
major portion of current assets is made up cash alone, the profitability will be decreased because cash is
non earning assets.
Current Assets
(CA)
Stores and spares
Sundry debtors
Cash and bank
balances
Other current
assets
Loan and
advances
Total of CA

2006

2007

2008

2009

23.37
24.82
20.16

24.69
33.89
15.80

12.82
16.73
14.38

19.08
20.78
14.31

19.54

21.01

10.58

14.67

12.11

4.61

45.49

31.16

100

100

100

100

CURRENT LIABILITIES

2006(rupees)

2007(rupees)

2008(rupees)

2009(rupees)

2010(rupees)

Creditors

61,03,22,496

66,51,67,980

68,95,26,597

72,40,51,456

85,55,52,857

Deposits and retention

from
suppliers/contractors
Interest accrued but not
due on loans
Liabilities for wealth tax

12,50,63,350

13,71,54,497

14,91,29,269

12,89,91,075

15,76,14,454

6,27,33,789

2,05,82,149

1,30,49,185

51,73,055

79,27,784

37,299

47,240

47,253

28,781

48,416

Electricity duty sundry

payable
Liabilities for fringe
benefits tax

2,12,903

49,240

1,82,269

1,56,113

1,63,387

23,41,534

44,54,790

68,51,705

68,51,705

68,51,705

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Other liabilities

87,64,35,326

1,22,77,13,016

1,61,76,99,768

1,65,27,44,614

1,76,53,62,996

Total
Provision
Total
Current liabilities indices

1,67,71,46,697
83,08,65,819
2,50,80,12,516
100

2,05,51,68,764
1,30,45,17,744
3,35,96,86,508
133.96

2,47,64,86,046
4,81,70,02,603
7,29,34,88,649
290.81

2,51,79,96,799
5,69,56,67,475
8,21,36,64,274
327.50

2,79,35,21,599
5,62,99,60,268
8,42,34,81,867
335.85

DEBTORS TURNOVER RATIO-(net sales/average debtors)

Year

Net Sales

Average Debtors

Ratio

2006
2007
2008
2009
2010

3,55,34,94,401
3,99,75,58,798
6,78,92,95,427
3,05,16,27,568
4,05,19,14,743

1,21,68,45,410
92,53,38,091.5
1,05,37,88,728
1,05,53,64,568
1,55,87,35,700

2.92
4.32
6.44
2.89
2.61

Average
collection period
(365/DTR)days
125
85
57
126
132

Debtors Turn Over Ratio- By going through per calculation table and diagrams of Debtor Turn
Over Ratio, profit and loss accounts and balance sheet of OPTCL the following results can be drawn.

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A) In the year 2006-07 the debtor turnover ratio was 2.92 times and the average collection period is
found to be 125 days. This year, there is a higher value of debtor turn over and a shorter average
collection period in comparison to that of previous year. This is a good indication
B) In the year 2007-08 the debtor turn over ratio is 4.32 times and the average collection period is 85
days. This year, the value of debtors turnover is higher than the previous year due to decrease in
average debtors and an increase in net sales and the average collection period is also shorter than the
previous years figure.
C) In the year 2008-09 the debtor turn over ratio is 6.44 times and the average collection period is 57
days. This year, the value of debtor turnover is higher than the previous year due to decrease in average
debtors.
D) In the year 2009-10 the debtor turnover is 2.89 times and the average collection period is found to
be 126 days. This year, there is higher value of debtor turn over.
E) In the year 2010-11 the debtor turnover is 2.61 times and the average collection period is found to be
132 days.
F) OPTCL used to collect pending dues directly from consumers for which, substantial delay in getting
payment. However, the present average period of collection is decreased due to involvement of
NESCO, SOUTHCO, CESCO, WESCO etc. for collection of revenue on behalf of OPTCL and the
same has been made through banks. The shorter the average collection period, the better the quality of
debtors, since a short collection period implies the prompt payments by debtors. So this is a good
indication for the organization.

Section five generally defines measures to improve working capital management at

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

FINDING OF THE STUDY

A) Working capital of four year i.e. (2007-08, 2008-09, 2009-10, 2010-11) is negative figure. The
reason is that the companys current liabilities exceeds current assets from 2006-07 to 2010-11. The
company created more provisions throughout this 3year. Sundry creditors increased at a speed in these
4 years. It is an alarm sign for the company. Beside these sundry creditors, other current liabilities also
increased like deposits and retention from supplies, liability for wealth tax, electricity duty payable.
B) The standard current ratio is 2:1 and for OPTCL it is not satisfactory. The reason behind such result
is that the current liabilities exceed current assets. The standard current ratio for 2008-2009 was
satisfactory but in the year 2007-08, 2008-09, 2009-10 and 2010-11 situation became worst. The reason
behind the increase in current liabilities and provision. It is not a good sign for the company.
C) The standard quick ratio is 1:1 and for OPTCL it is not satisfactory. The reason behind OPTCL did
not achieve the rule of thumb. The current liabilities exceed the liquid assets. There is an increase in
current liabilities like sundry creditors, interest accrued but not due on loans, liability for wealth tax and
liabilities for fringe benefit tax than of liquid assets.
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D) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason is that liquid assets
fall very short than current liabilities. The current liabilities again exceed the absolute liquid assets.
There is not significant increase in absolute current assets like cash and bank balances from 2007-08 to
2010-11. But there is a rapid increase in case of current liabilities like sundry creditors, deposits and
retention from suppliers, liabilities for fringe benefit tax and provision.
E) Debtors of the company were high; they were increasing year to year, so more funds were blocked
in debtors. As the company is selling electricity to the sundry debtors and the cash is not immediately
received so some amount of cash is blocked in that matter.
F) The current assets trend increased from 2007-08, but in 2011 it decline. The current assets like stores
and spare increased in 2007-08 to 2008-09 but in 2009-10 it declined and then it is increased in 201011. Sundry debtors increased from 2009 -10 to 2008-09 but it declined in 2009-10 but again it is
increased in 2010-11.
G) The current liabilities trend increasing at a speed which is worried thing for company. Current
liabilities like sundry creditors, deposits and retention from supplier, interest accrued but not due on
loans, liabilities for wealth tax, electricity duty payable, liabilities for fringe benefit tax increased from
2007-08 to 2010-11.
H) Debtors turnover ratio improved from 2009 to 2011 and so the number of collection period
decreases. But in 2012 debtors turnover ratio decreases and collection period increases. In 2009-10 it
was 126 days. Then it is reduced to 85 and 57 days in 2007-08 and 2008-09 respectively. But in 200910 it again increased to 125 days.
J) Current asset ratio decrease throughout the year. It was 1.10 in 2006-07 then it increased to 1.29 then
a fall down occurred as it was 1.08 in 2008-09 and 0.60 in 2009-10.
K) Working capital turnover ratio was positive in 2006-07; it became negative in 2007-08, 2008-09,
2009-10 and 2010-11. It was 5.03 times in 2006-07 then is sloped downward and it was -15.7, -6.88,
-0.97, -1.02 in 2007-08, 2008-09, 2009-10 and 2010-11 respectively.

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CHAPTER 5
CONCLUSIONS AND RECOMMENDATIOND

Conclusion
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On the basis of analysis on working capital management in OPTCL, the following conclusion arrived.
A) The company has gross profit for the past four years (2007-08, 2008-09, 2009-10 and 2010-11) in
negative and the current liabilities are increasing, in comparison to current assets position. Hence, it is
an alarming sign for the smooth working capital management.
B) OPTCL didnt manage the liquidity position of the company. The liquidity position was in a good
condition and in 2006-07, it was also satisfactory. But, in the year 2007-08, 2008-09, 2009-10 and
2010-11 the situation of liquidity position was alarming due to increase to total current liabilities and
decrease in total current assets which led to the decrease in the net working capital of the company.
C) During the year 2006-07, 2007-08, 2008-09, 2009-2010 and 2010-11 the companys liquid assets
were not satisfactory.
D) The average collection period of the company during the year 2006-07 is 125 days, it is reduced to
85 days in 2007-08 and again it reduced to 57 days in 2008-09, but the average collection period again
increases to 126 days in 2009-10 and 132 days in 2010-11.
E) There is also satisfactory net cash flow from the operating, investing and financing activities of the
organization.
F) Through the net working capital of the company is decreased, still the company is in a better
manageable position and the companys present status of maintaining current assets and current
liabilities and satisfactory.
G) They are unable to manage their cash, funds and debts.
By adapting better management practices, the company may attain a sound financial position in future
and able to manage its working capital efficiently.

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

Implications for future research

This study is the foundation stone for carrying out further research in the field of working capital
management. Further research can be also carried out the study of working capital management. This
one of such preliminary research work and further review of this research work can open up many
dimensions for researchers. Although the objective taken in research study is diverse, yet a trend can be
observed from the findings for future research work.
One of the major drawbacks of the study is the lack of time. Working capital management is a very vast
topic and hence in a limited time it is impossible to know every aspects of working capital management
and also it was study that depended on 4 years of data. There is further scope for studying these things.

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References
Textbooks
1. Maheswari Dr s.n Financial Management, Ninth edition, 2006 sultan chand & sons,
New Delhi.
2. Pandey I.M., Financial Management, Vikas Publishing House Pvt. Ltd. 8th edition 1999.
3. Prasanna Chandra, Financial Management, Fourth edition 1999, Tata Mc.graw hill publishing
company Ltd, New Delhi.
4. Gupta, sashi., Financial Management, 4th edition, 2007, Kalyani publisher, New Delhi
5. Kothari C.R. Research Methodology, Wishva Prakashan, New Delhi, 2001

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

Bibliography

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

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Annexures

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