Professional Documents
Culture Documents
MANAGEMENT
AT
R.VIGNESWARAN
ROLL NO :12C1/015
R.VIGNESWARAN
ROLL NO :12C1/015
Under the Guidance of
N.RAJENDIRAN ,M.com,MBA,M.Phill
Dy. Chief Manager(FINANCE)ACCOUNTS CENTRE , T/A
NEYVELI LIGNITE CORPORATION (NLC)
ACKNOWLEDGEMENT
I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals. I would like to extend my sincere thanks to all of
them.
I would like to thank Prof. V.G.SARANGAN, P.G.D.B.A Chairperson SMOT School of
Business, for being a point of Project Ideation. I would also like to thank him for having
provided me with the opportunity to conduct this research.
My sincere thanks to,Shri.T.S SIVASUBRAMANIAN, GM/ED & Shri.A.MOHAMED
DAWOOD CM/ED,EDCfor providing me the opportunity to carry out the project in NLC
Ltd.
I am highly indebted to N.RAJENDIRAN ,Dy. Chief Manager(FINANCE) ACCOUNTS
CENTRE , T/Afor his guidance and constant supervision aswell as for providing necessary
information regarding the project & also for the support in completing the project.
I would like to express my gratitude towards my parents & members of SMOT School of
Business for their kind co-operation and encouragement which helped me in completion of
this project.
I would like to express my special gratitude and thanks to all the respondents of the survey
without whom the project would not have been possible.
My thanks and appreciations also go to my colleague in developing the project and people
who have willingly helped me out with their abilities.
Last but not the least; I would like to thank the Almighty for having bestowed wisdom and
knowledge upon me.
DECLARATION
Name of Student
Roll No
Date
Place
Approved by
CERTIFICATE
This is to certify that the report entitled A STUDY ON WORKING CAPITAL
MANAGEMENT is the bonafide project work done by VIGNESWARAN.R of SMOT
School of Business, Chennai.
In partial fulfillment of the requirement of the award of the degree of POST
GRADUATE
DIPLOMA
IN
BUSINESS
ADMINISTRATIONfrom
Shri.N.RAJENDIRAN M.Com,MBA,M.Phill.
External Guide
Dy.Cheif Manager (Finance)
Accounts Centre, NLC Ltd, Neyveli.
Permitted to submit the project report to the university/college authority.
DATE:
PLACE:
GENERAL MANAGER/EDC
EMPLOYMENT DEVELOPMENT CENTRE
NLC.Ltd.,Neyveli
CONTENTS
CHAPTER
TITLE
1.
ABSTRACT
LIST OF TABLES
LIST OF CHARTS
1.1 Introduction to the study
1.2 Industry profile
1.3 Company profile
1.4 Need for the study
1.5 Objectives of the study
1.6 Scope of the study
1.7 Limitations of the study
2.
Review of Literature
PAGE NO
I
II
III
1
2
6
13
13
14
14
15
20
3.
Research Methodology
23
4.
5.
5.1 Findings
61
5.2 Suggestions
62
5.3 Conclusions
63
Bibliography
64
LIST OF TABLES
TABLE
TITLE
PAGE NO.
NO.
1.
2.
3.
Price of electricity
Sales revenue
Features of Neyveli Lignite Mines
8
9
9
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
12
23
24
25
26
27
28
29
30
31
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
LIST OF CHARTS
CHART
NO
TITLE
PAGE NO.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
24
25
26
27
28
29
30
31
32
35
37
39
41
43
45
16.
17.
18.
47
49
51
ABSTRACT:
Analysis of Working Capital Management is the process of identifying the
Operational Efficiency and measure the firm establishing relationship between balance sheet
and profit and loss account. The study was undertaken in the NLC Limited with the view to
have an insight in the Working Capital Management, Ratio analysis of NLC.
In the present study, efforts have been taken to determine the financial condition and
performance of NLC. The present study throws a major concentration on Working Capital
Management from the 4 years financial statement of NLC. The study throws a light on
various aspects such as efficiency in utilizing its assets and the overall financial performance
of NLC. The objective of study is the Change in Working Capital, level of current asset and
current liability, profitability, liquidity position of NLC and to study the composition in the
capital structure and servicing the capacity of NLC limited.
The data was collected from secondary source an interaction with the senior executive
of the firm. Based on the analysis, suitable suggestions /recommendations have been
specified to thr firm.
Finance is the life blood of a business. Hence the financial requirement of a company
is a vital factor to be faced by all companies. The companies must be financially sound to
meet its short term and long term obligations.
Every company should know the financial strength of its operations. It points out the
problems faced or likely to be faced by the companies. The financial information of a
company is available in the financial statements or accounting reports.
Finance is the major source for investment of funds in the business of production,
process of service so as to maximize the wealth position of any business entity. Finance is the
life blood of economic activity. A well-Knit financial system directly contributes to the
growth of the economy. An efficient financial system calls for the effective performances of
the financial institutions, financial instruments and financial markets.
fueled thermal power plants have appeared also. Non-nuclear thermal power plants,
particularly fossil-fueled plants, which do not use co-generation, are sometimes referred to as
conventional powerplants.
Commercial electric utility power stations are usually constructed on a large scale and
designed for continuous operation. Electric power plants typically use three-phase electrical
generators to produce alternating current (AC) electric power at a frequency of 50 Hz or 60
Hz. Large companies or institutions may have their own power plants to supply heating or
electricity to their facilities, especially if steam is created anyway for other purposes. Steamdriven power plants have been used in various large ships, but are now usually used in large
naval ships. Shipboard power plants usually directly couple the turbine to the ship's
propellers through gearboxes. Power plants in such ships also provide steam to smaller
turbines driving electric generators to supply electricity. Shipboard steam power plants can be
either fossil fuel or nuclear. Nuclear marine propulsion is, with few exceptions, used only in
naval vessels. There have been perhaps about a dozen turbo-electric ships in which a steamdriven turbine drives an electric generator which powers an electric motor for propulsion.
Combined heat and power plants (CH&P plants), often called co-generation plants,
produce both electric power and heat for process heat or space heating. Steam and hot water
lose energy when piped over substantial distance, so carrying heat energy by steam or hot
water is often only worthwhile within a local area, such as a ship, industrial plant, or district
heating of nearby buildings.
Efficiency
The energy efficiency of a conventional thermal power station, considered salable
energy produced as a percent of the heating value of the fuel consumed, is typically 33% to
48%. As with all heat engines, their efficiency is limited, and governed by the laws of
thermodynamics. By comparison, most hydropower stations in the United States are about 90
percent efficient in converting the energy of falling water into electricity.
The energy of a thermal not utilized in power production must leave the plant in the
form of heat to the environment. This waste heat can go through a condenser and be disposed
of with cooling water or in cooling towers. If the waste heat is instead utilized for district
Where required by law, the sulphur and nitrogen oxide pollutants are removed by
stack gas scrubbers which use a pulverized limestone or other alkaline wet slurry to remove
those pollutants from the exit stack gas. Other devices use catalysts to remove Nitrous Oxide
compounds from the flue gas stream. The gas travelling up the flue gas stack may by this
time have dropped to about 50 C (120 F). A typical flue gas stack may be 150180 metres
(490590 ft) tall to disperse the remaining flue gas components in the atmosphere. The tallest
flue gas stack in the world is 419.7 metres (1,377 ft) tall at the GRES-2 power plant in
Ekibastuz, Kazakhstan.
In the United States and a number of other countries, atmospheric dispersion
modeling studies are required to determine the flue gas stack height needed to comply with
the local air pollution regulations. The United States also requires the height of a flue gas
stack to comply with what is known as the "Good Engineering Practice (GEP)" stack height.
In the case of existing flue gas stacks that exceed the GEP stack height, any air pollution
dispersion modeling studies for such stacks must use the GEP stack height rather than the
actual stack height.
Fly ash collection
Fly ash is captured and removed from the flue gas by electrostatic precipitators or
fabric bag filters (or sometimes both) located at the outlet of the furnace and before the
induced draft fan. The fly ash is periodically removed from the collection hoppers below the
precipitators or bag filters. Generally, the fly ash is pneumatically transported to storage silos
for subsequent transport by trucks or railroad cars .
Bottom ash collection and disposal
At the bottom of the furnace, there is a hopper for collection of bottom ash. This
hopper is always filled with water to quench the ash and clinkers falling down from the
furnace. Some arrangement is included to crush the clinkers and for conveying the crushed
clinkers and bottom ash to a storage site . Ash extractor is used to discharge ash from
Municipal solid waste fired boilers.
1.2COMPANY PROFILE
is
Rs.2000
crores
against
which
the
pain
up
share
capital
is
Inventory Management
Raw material handling in NLC is very straight forward. The production of lignite
through mining activities is fully utilized for producing electricity in the thermal power
stations. It is very much obvious that NLC cannot have any work in progress or finished
goods as inventory. Because electricity is the finished product and it cannot be stored for
future use. Raw material (lignite) management is very simple. All the lignite that is mined
isimmediately burned to produce electricity in the respective thermal power stations.
Maximum inventory period is just 2 days.
In NLC, mining out lignite and generation of electricity takes place simultaneously in
the same area. Therefore the required raw material for generation of electricity is obtained
from within. The dependence on outside dealers for raw material is almost nil in NLC. It
actually reduces the problems related to purchase of raw materials such as stock out. One of
the problems that NLC faces is the seasonal changes, like flooding, which disturbs the mining
operations adversely. So the mining operation will be reduced during this period.
NLC is mainly into the business of generation electricity. Therefore the selling of
lignite to outside buyers is very minimal. Lignite sales take place only when the production is
higher than demand for lignite within NLC. We could see that the sale of lignite to outside
buyers is less than 10% of the total lignite mined in a particular year.
To produce this amount of electricity NLC consumed around 16% of the total
electricity produced in the year 2010-11. NLC uses 1.18kg of lignite to produce one unit of
electricity. The price of one unit of electricity sold is around Rs.2.44.
TABLE NO-1
231.44
21.68
209.76
17881.08
14971.26
16%
3655.72
2.44
0.85
The following table shows the movement of the price of one unit of electricity sold by NLC
in the period from 2008-09 till 2011-12. The price of electricity has been increasing during
these years except in the year 2011-12. It was because the price of electricity has been
increased in the year 2009-10 by 31% when compared to the previous year. And this price
would be increasing in the future due to rising costs of mining, admin and selling expenses,
capital goods, and employee costs.
TABLE NO-2
Year
2011
2010
2009
2008
Sales revenue
(Rs in crores)
3655
3813
2578
2771.6
1497.10
1482.80
1320.40
1477.6
2.44
2.57
1.95
1.88
-5.06
31.71
4.09
5.07
Lignite
Power
Unit
Capacity
Unit
Capacity
Mine 1
10.5 MTPA
TPS1
600 MW
Mine 1A
3.0 MTPA
TPS2
1470 MW
15.0 MTPA
TPS-1expansion
420 MW
Barsingsar Mine
2.1 MTPA
BTPS
250 MW
Total
30.6 MTPA
Total
2740 MW
5. Project in Orissa.
NLC proposes to set up a 2000MW coal based Thermal Power Station in Orissa. A joint
venture company with MCL is proposed to be formed for supplying coal to this power plant.
6. Project in Gujarat.
A Lignite Mine cum Power Project at valid in Gujarat (8MTPA Lignite Mine with linked
1000MW power paint) is proposed by NLC. In this regard an MOU was signed between
Government of Gujarat and NLC at Chennai on 28 th July, 2006 in the presence of the
Honorable Chief Minister of Gujarat. Preparation of feasibility report and EIA\EMP report
are under progress.
TABLE NO-4
TAMIL NADU
KARNATAKA
KERALA
PONDY
ANDHRA PRADESH
STATION
CONSUMPTION
NLC SCHEMES
UNALLOCATED
POWER
TOTAL
TPS I
TPS I Exp
TPS II
(600MW)
(420MW)
(1470MW)
79%
46%
30%
NIL
22%
14%
NIL
14%
10%
NIL
3%
5%
NIL
NIL
19%
12%
NIL
NIL
9%
NIL
7%
NIL
15%
15%
100%
100%
100%
CSR Award 2009-10 from Govt. of Tamil Nadu in appreciation of NLCs yeoman service
Best Enterprise Award-2010 at the 21st National Meet of the Forum of Women in Public
Sector.
NLC is a Navratna Public Sector.
1.
2.
3.
4.
5.
Primary objective
To study about the Working capital management and Ratio Analsys in Neyveli Lignite
Corporation Limited.
Secondary objectives
1. To analyze the working capital requirement of Neyveli Lignite Corporation
Limited for the period 2008-09 to 2011-12.
2. To analyze the changes in working capital.
3. To study about the liquidity position of the company.
4. To judge the financial (both liquidity and solvency) position and financial
performance of the company.
5. To examine a proper utilization of current asset and current liability.
A detailed analysis is done to know about the financial performance of Neyveli Lignite
Corporation.
The study has been conducted with special reference to get a clear picture of
liquidity, Leverage, and Profitability to assess efficiency level.
1. This study helps to calculate the value of different ratios to be carried out for Ratio
Analysis and also to calculate the value of different Assets and Liabilities.
2. This Study helps to find out the resources for further development of the company.
3. An attempt can be made during this study to understand the efficiency of the company in
other aspects of Financial Management.
4. This Study will be useful for the Comparison of Financial Position of NLC Ltd., with any
other Public Sector Organization.
5. This Study can be utilized to find out the Current Financial position of NLC Ltd.
The present study aims at assessing the working capital management of Neyveli
Lignite Corporation Limited for the period 2008-09 to 2011-12.
1. The working capital analysis is based on the annual reports published by the
organization. Thus the reliability of the analysis is depending on the data provided in the
balance sheets.
2.
The study on working capital management is confined to a period of 4 years,
i.e., from 2008-2009 to 2011-2012 due to time constraints.
3.
The study is based on secondary data and not on the basis of primary data.
4.
The study is based on the accounting standards and not based on the economic
condition.
2. REVIEW OF LITERATURE
Banerjee (1982) conducted a study on the corporate liquidity and profitability. The
study related to the period 1970-71 to 1977-78. The purpose of the study was to analyse the
trend in the liquidity position and their relationship with the profitability in the medium and
large public limited companies in India. The study concluded that for some industry group
risk in liquidity will lead to risk in profitability and vice versa, there are other factors where
increase in liquidity is associated with a decline in profitability.
Link:http://library.binus.ac.id/eColls/eThesis/Bab2/Bab%202__10-52.pdf
2. Hampton view on adequacy on current assets and risk posed by current liabilities
According to Hampton (1983) the working capital management is the functional area
of finance that covers all the current accounts of the firm. It is concerned with the adequacy
of current assets as well as the level of risk posed by current liabilities. He also viewed that
the firms policies for managing its working capital should be designed to achieve three goals
such as adequate liquidity minimization of risk and contribute to minimizing firm value.
Link:http://www.slideshare.net/ChandraMohanty/project-on-working-capital-management
Akthar (1983) noticed that nominal interest rates had significant effects on the
behavior of inventories.
Link:http://seminarprojects.com/Thread-literature-review-on-working-capital-management2012
According to Know, Scoh, Martin and Petty (1983) working capital management
involves managing the firms liquidity, managing the firms investments in current assets and
its use of current assets was found to reduce the firms risk of liquidity at the expenses of
lowering its overall rate of return on its investment in assets. Furthermore the use of long
term sources of financing was found to enhance the firms liquidity, which reduces the rate of
return on assets.
Link:http://shodhganga.inflibnet.ac.in/bitstream/10603/703/8/08_chapter2.pdf
5. Sarma and Reddy study on liquidity position of Nizam Sugar Factories limited
Sarma and Reddy (1985) made a study on the liquidity position of Nizam Sugar
Factories Limited (NSF) during the year 1972-73 and 1981-82 to identify the factors
influencing the liquidity position of the firm with respect to input and output as well.
Link:http://www.studymode.com/subjects/review-of-literature-for-working-capitalmanagement-page1.html
6. Pradhan study on describing the demand for working capital and its various
components
Pradhan (1986) in his work on working capital management of Nepal Enterprise used
econometric models to describe the demand for working capital and its various components.
Using regression and coefficient of variation, it is used to find holding costs also.
Link:http://seminarprojects.com/s/review-of-literature-on-working-capital-management-inindia
7.Reddy study on maintaining the liquidity and sufficient amount of net woking capital
Reddy (1988) in his study stressed that the co-operative sugar mills did not manage
working capital properly. The study concludes that sustained efforts have to be made to
maintain liquidity and sufficient amount of net working capital in order to avoid the potential
danger of technical insolvency. The problem of management of working capital was also
traced to be seasonal character of raw material.
Link:http://www.thefreelibrary.com/Working+capital+management+and+firm
%27s+performance--a+study+of+Indian...-a0233291552
Hampton and Wagner (1989) in their study used the techniques of financial analysis to
address issues of working capital adequacy.
evaluating cash, current assets, quick assets, current liabilities and overall adequacy. Their
study developed an electronic spread sheet model to bring all the measures together to
compare the firms rations with norms taken from other similar firms.
Link:http://www.studymode.com/subjects/review-of-literature-of-working-capitalmanagement-author-publisher-year-contents-page2.html
Verma (1989) made a study on the management of working capital in respect of iron
and steel in India. The sample of this study covered both the public sector and private sector.
The study related to the period from 1978-79 to 1985-86 and Verma observed that the
problem of working capital was related more to surplus investment than to inadequacy in the
investment and receivables. But as far as cash was concerned almost all the units have
experienced inadequacies during the period. He also suggests that this can be tackled through
improved coordination in the functioning of some strategic department such as purchase,
production marketing and finance.
Since 1990 his study states that there are certain areas in which substantial efforts are
urgently required to keep the company on an even scale. The company can improve its
financial health, if it adopts a technique of more scientific control raw material, stores and
spares and strives to reduce the unprofitable investment blocked in loans and advanced and
other current weekly cash flow statement and also a cash budget be prepared on a regular.
Link:http://www.studymode.com/subjects/literature-review-of-working-capital-managementindian-rare-earth-limited-page1.html
Agarwal (1991) has developed a multi objective criterion to the problem of working
capital decisions by making use of the potential of goal programming which allows a
simultaneous situation of complementary and conflicting objectives rather than a single
objective only. The goal programming model may be used for different profit targets with
varying level of current assets in order to obtain a satisfying level of the various components
of working capital and the profitability and liquidity goals. It may be concluded that the goal
programming model formulated for the management of working capital to illustrate the need
for solution where conflicting objective defined.
Link:http://seminarprojects.com/Thread-literature-review-on-working-capital-management2012
Gupta has argued in favor of working capital control through variance analysis. He
was of the option that variance analysis may provide useful and relevant information to the
management enabling it to exercise timely and effective control over working capital.
Link:http://www.slideshare.net/ChandraMohanty/project-on-working-capital-management
Rao and Rao (1991) in their study state that the traditional liquidity ratios could not
help to find out the real position regarding the adequacy of the working capital involved. But
simple regression model is powerful enough to identify the exact working capital position
and in highlighting the ineffective planning and control of working capital.
Link:http://seminarprojects.com/s/review-of-literature-on-working-capital-management-inindia
3.RESEARCH METHODOLOGY
The term Research refers to the systematic method consisting of enunciating the
problem, formulating a hypothesis, collecting the data, analyzing the facts and reaching
certain conclusions either in the form of solutions towards the concerned problem or in
certain generalized form of some theoretical formulation.
This is an empirical study based on the financial information contained in the annual
reports of NLC. The study adopts descriptive methodology for evaluating the financial
performance of the organization.
A study on financial performance of Neyveli Lignite Corporation Limited has been
made by calculating various ratios. The data for such analysis have been extracted from the
financial statements. These ratios have been interpreted and conclusions have been drawn.
Based on which, suggestion have been made to improve the financial performance of Neyveli
Lignite Corporation Limited.
\
PERIOD OF STUDY:
The present study covers the period of eight years from 2008-09 to 2011-12
Gross Concept
Net Concept.
DATA COLLECTION
SECONDARY DATA:
. The analysis of working capital management of the organization necessitates
accurate and reliable data. Therefore the sources for collecting the data include secondary
data.
Note: This Study is limited to Secondary data available from various records of Annual
Reports of Neyveli Lignite Corporation Limited.
The working capital of an organization is the lifeblood, which flows through the veins
and arteries.
It gives courage and moral to the brain (management) and the muscles
(personnel). It digests to the best degree, the raw material used, by its constant and regular
flow and returns to the heart (cash flow) for another journey. Hence when working capital is
lacking or slow, the financial bodies have value only as a junk.
Funds are needed for short term purposes, viz., for purchases of raw material
payments of wages and other day to day business expenses. Many a times, in the event of
failure of a business concern, the shortage of working capital is given out as its main cause.
But in ultimate analysis, it may be the mismanagement of resources of the firm that could
have converted the otherwise successful business, an unsuccessful one. A firm can exist and
survive without making profit but cannot survive without working capital funds.
Working capital has acquired a great significance and a sound position for the twin
objects of Profitability and Liquidity.
YEAR
CURRENT ASSETS
(In Crores)
CURRENT
NET WORKING
LIABILITIES
CAPITAL
(In Crores)
(In Crores)
2008-09
7557.07
2851.56
4705.51
2009-10
7684.36
3003.19
4681.17
2010-11
7852.12
2584.05
5268.07
2011-12
8148.56
2760.95
5387.61
TABLE -6
COMPONENTS OF CURRENT ASSETS 2008-09 (Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2008-09
PERCENTAGE
Inventories
535.85
7.06
Sundry Debtors
781.44
10.3
5482.19
72.26
189.48
2.49
597.22
7.87
7586.18
100
CHART - 1
COMPONENTS OF CURRENT ASSETS 2008-09
2.5
7.9 7.1
10.3
Inventories
Sundry Debtors
Cash and Bank balance
Other current Assets
Loans and Advances
72.2
TABLE -7
COMPONENTS OF CURRENT ASSETS 2009-10 (Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2009-10
PERCENTAGE
Inventories
502.96
6.55
Sundry Debtors
1611.62
20.97
4823.63
62.77
164.56
2.14
581.59
7.57
7684.36
100
CHART - 2
COMPONENTS OF CURRENT ASSETS 2009-10
7.576.55
2.14
20.97
Inventories
Sundry Debtors
Cash and Bank balance
Other current Assets
Loans and Advances
62.77
TABLE -8
COMPONENTS OF CURRENT ASSETS 2010-11 (Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2010-11
PERCENTAGE
Inventories
491.71
Sundry Debtors
2202.39
28
4423.99
57
177.49
560.05
7855.63
100
CHART NO-3
COMPONENTS OF CURRENT ASSETS 2010-11
TABLE NO-9
COMPONENTS OF CURRENT ASSETS 2011-12 (Rs. In Crores)
COMPONENTS OF
2011-12
PERCENTAGE
Inventories
506.19
6.21
Sundry Debtors
3647.03
44.75
3329.10
40.85
259.44
3.18
406.80
4.99
8148.56
100
CURRENT ASSETS
CHART NO-4
COMPONENTS OF CURRENT ASSETS 2011-12
44.75
TABLE 10
COMPONENTS OF CURRENT LIABILITIES 2007-08 (Rs. In Crores)
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crs
PERCENTAGE
Sundry Creditors
439.68
23.97
486.65
26.53
Other Liabilities
539.63
29.42
Provisions
368.08
20.06
1834.04
100
2007-08
CHART 5
COMPONENTS OF CURRENT LIABILITIES 2007-08
20
24
Sundry Creditors
Capital Works & Purchases
Other Liabilities
29
Provisions
27
TABLE 11
COMPONENTS OF CURRENT LIABILITIES 2008-09 (Rs. In Crores)
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crs
PERCENTAGE
Sundry Creditors
734.16
25.69
471.41
16.5
Mine Closure
399.20
13.97
Other Liabilities
459.32
16.07
Provisions
792.66
27.74
2856.75
100
2008-09
CHART 6
COMPONENTS OF CURRENT LIABILITIES 2008-09
25.7
27.8
Sundry Creditors
Capital Works & Purchases
Mine Closure
Other Liabilities
16.5
16
Provisions
14
TABLE 12
COMPONENTS OF CURRENT LIABILITIES 2009-10 (Rs. In Crores)
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crs
PERCENTAGE
Sundry Creditors
1175.70
39
426.60
14
Mine Closure
491.40
17
Other Liabilities
276.87
Provisions
613.28
21
2983.85
100
2009-10
CHART 7
COMPONENTS OF CURRENT LIABILITIES 2009-10
21%
Mine Closure
39%
Other Liabilities
9%
16%
Provisions
14%
TABLE 13
COMPONENTS OF CURRENT LIABILITIES 2010-11 (Rs. In Crores)
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crs
PERCENTAGE
Sundry Creditors
1108.80
39
721.47
26
Mine Closure
108.94
Other Liabilities
225.15
Provisions
649.94
23
2814.3
100
2010-11
CHART 8
COMPONENTS OF CURRENT LIABILITIES 2010-11
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crs
PERCENTAGE
2011-12
Trade payables
1315.06
47.59
647.40
23.43
Provisions
798.49
28.89
2762.95
100
23%
39%
8%
4%
Mine Closure
Other Liabilities
Provisions
26%
TABLE NO-14
COMPONENTS OF CURRENT LIABILITIES 2011-12 (Rs In Crs )
CHART NO-9
28.89
47.59
trade payables
other current liabilities
provisions
23.43
RATIO ANALYSIS
Ratios can be classified into four different groups of ratios. They are,
Liquidity ratios: they measure the firms ability to meet current obligations.
Leverage ratios: they show the proportions of debt and equity in the firms assets.
Activity ratios: they reflect the firms efficiency in utilizing its assets.
Profitability ratios: they measure overall performance and effectiveness of the firm.
The parties interested in financial analysis are short term and long term creditors, owners, and
management.
Short term creditors main focus is on the liquidity position or the short term solvency of the
firm. Long term creditors, on the other hand, are more interested in the long term solvency
and profitability of the firm.
Similarly owners concentrate on the firms profitability and financial condition. Management
is interested in evaluating every aspect of the firms performance. They have to protect the
interests of all parties. And see that the firm grows profitably.
LIQUIDITY RATIOS
CURRENT RATIO:
Current ratio is a measure of the firms short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A ratio of
greater than one means that the firm has more current assets than current claims against them.
Current Ratio = (current assets/ current liabilities)
CURRENT RATIO
TABLE NO-15
YEAR
CURRENT ASSETS
(In Crores)
CURRENT
LIABILITIES
CURRENT RATIO
(In Crores)
2008-09
7557.07
2851.56
2.65
2009-10
7684.36
3003.19
2.56
2010-11
7852.12
2584.05
3.04
2011-12
8148.56
2760.95
2.95
CURRENT RATIO
CHART NO-10
3.1
3
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2008-09
Interpretation:
2009-10
2010-11
2011-12
QUICK RATIO
Quick ratio which is also called as acid-test ratio, establishes a relationship between
quick assets and current liabilities. An asset is liquid if it can be converted into cash
immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other
assets that are considered to be relatively liquid and included in quick assets are debtors, bills
receivables, and marketable securities. Inventories are considered to be less liquid. Therefore
quick ratio can be found out in the following manner.
QUICK RATIO
TABLE NO-16
YEAR
2008-09
QUICK ASSETS
(In Crores)
7021.22
CURRENT
LIABILITIES
QUICK RATIO
(In Crores)
2851.56
2.46
2009-10
7181.4
3003.19
2.39
2010-11
7360.41
2584.05
2.85
2011-12
7771.53
2559.79
3.04
QUICK RATIO
CHART NO-11
3.5
3
2.5
2
1.5
1
0.5
0
2008-09
Interpretation
2009-10
2010-11
2011-12
Since the inventories have been subtracted from the current assets, quick ratio gives the
lenders even more correct idea regarding the liquidity position of the firm.. In the case of
NLC LTD., this ratio is between 2.35 and 3. A quick ratio of 1 to 1 does not necessarily
imply sound liquidity position. It is because not all debtors can be liquid. And not all
inventories are absolutely non-liquid. But in the case of NLC LTD, it can rely on its debtors
because the debtors are all state governments. There is least possibility that these debtors will
fail to make the payments.
TABLE NO-17
YEAR
CURRENT
LIABILITIES
CASH RATIO
(In Crores)
2008-09
5452.20
2851.56
1.91
2009-10
4823.63
3003.19
1.61
2010-11
4420.73
2584.05
1.71
4415.55
2559.79
1.72
2011-12
CHARTNO-12
1.95
1.9
1.85
1.8
1.75
1.7
1.65
1.6
1.55
1.5
1.45
2008-09
2009-10
2010-11
2011-12
Interpretation
The cash ratio gives the extent to which cash at hand and bank can be used to manage the
current liabilities. In the case of NLC LTD, it has very high cash reserves. And in India, firms
have credit limits sanctioned from banks, and they can easily draw cash. Since we have this
sort of credit facility, NLC can try to invest this amount in newer projects. Or else it can try to
pay back its creditors with that cash.
LEVERAGE RATIOS
Debt-Equity ratio
This is a relationship between the lenders contribution and that of the owners. Debtequity ratio is computed as follows,
TABLE NO-18
Total Debt
Total Equity
(In Crores)
(In Crores)
2008-09
4057.70
9412.78
0.43
2009-10
4077.36
10225.60
0.40
2010-11
4004.04
11121.40
0.36
2011-12
4957.76
12609.96
0.39
YEAR
DEBT-EQUITY RATIO
Debt-Equity ratio
CHART NO-13
0.44
0.42
0.4
0.38
0.36
0.34
0.32
2008-09
2009-10
2010-11
2011-12
Interpretation
Debt-Equity ratio shows the relationship between the debt and owners funds in the company.
In the years 2006-07, the D-E ratio was quite low. Debt was 0.16 times that of owners funds.
But from the financial year 2007-08 onwards the D-E ratio is between 0.3 and 0.43. There
was no infusion of funds from the government or any new issue of shares in the market.
The interest coverage ratio is used to test the firms debt servicing capacity. The
interest coverage ratio is computed by dividing earnings before the interest and taxes by
interest charges.
TABLE NO-19
EBIT
Interest
Interest Coverage
(In Crores)
(In Crores)
ratio
2008-09
1281.21
231.79
5.53
2009-10
1884.89
288.06
6.54
2010-11
1680.24
348.04
4.83
2011-12
2050.76
376.47
5.45
YEAR
CHART NO-14
7
6
5
4
3
2
1
0
2008-09
2009-10
2010-11
2011-12
Interpretation
This ratio is very crucial because of its significance to the lenders or creditors. The term loan
lenders will be interested in collecting interest for the money they have lent. Therefore every
lender will analyze whether the borrower will be able to pay interest for the principal
regularly. In NLC LTD, we could see that the ratio is always above one. In the year 2007-08,
we could see that ratio increased sharply. It is due to the sizable reduction in raw material
costs. In the years from 2006-07 till2007-08, the ratio had been quite high. But the ratio got
reduced to around 5 or 6 in the period from 2008-09 till 2011-12. Even in the projected
period, the ratio is around 5 to 6. It is due to the change in the capital structure.
When a firm extends credits to its customers, debtors are created in the firms
accounts. Debtors are convertible 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.
TABLE NO-20
Credit Sales
Average Debtors
Debtors Turnover
(In Crores)
(In Crores)
ratio
2008-09
3354.91
781.44
4.29
2009-10
4121.02
1611.62
2.56
2010-11
3949.08
2202.39
1.79
2011-12
4489.46
2503.45
1.79
YEAR
CHART NO-15
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2008-09
2009-10
2010-11
2011-12
Interpretation
This ratio shows the number of times the debtors turnover each year. In the year 2006-07 it
was 23 times. But in the year2010-11, it was just 2 times. It is because NLC allowed its
customers to have longer payable periods. Meanwhile NLC had obtained securities for the
accounts receivables from its customers. This means the NLC has introduced customer
friendly policies that help the customers make their payment over a prolonged time period.
But extending collection period may impact the working capital of NLC adversely.
ACTIVITY RATIOS
FIXED ASSET TURNOVER RATIO
A firm may wants to know its efficiency of utilizing fixed assets and current assets
separately. This ratio shows the ability of the firms fixed assets in generating revenue for the
firm.
NET SALES
FIXED ASSETS
FIXED ASSET
(In Crores)
(In Crores)
TURNOVER RATIO
2008-09
3354.91
4502.96
0.75
2009-10
4121.02
5238.80
0.79
2010-11
3949.08
6795.82
0.58
2011-12
4488.91
8515.84
0.53
YEAR
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2008-09
2009-10
2010-11
2011-12
Interpretation
Assets are used to create revenues from operations. Therefore every organization should
make it a point to manage its assets efficiently to maximize sales. In NLC, the ratio is around
0.5 to 0.8. Even though the fixed assets have been utilized to the fullest extent possible, the
ratio appears to be less than 0.8. It is because of the new projects that are coming up in the
various locations.
PROFITABILITY RATIOS
NET PROFIT RATIO
This is a ratio which shows the relationship between the net profit and net sales in a
particular year. Net profit is obtained when operating expenses, interest, and taxes are
subtracted from the gross profit.
Net Profit margin = (Net profit/ Net sales)
TABLE NO-22
NET SALES
NET PROFIT
NET PROFIT
(In Crores)
(In Crores)
RATIO
2008-09
3354.91
821.09
0.24
2009-10
4121.02
1247.46
0.30
2010-11
3949.08
1298.33
0.33
4488.91
1295.90
0.29
YEAR
2011-12
CHART NO-17
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2008-09
2009-10
2010-11
2011-12
Interpretation
This ratio indicates the cost effectiveness of the operations of NLC. When a company is
creating very large sales, but only a small percentage of profits, then that company is said to
be not having cost effectiveness or it may be following very poor cost management practices.
But NLC follows very good cost management policies that can be clearly seen in the average
net profit ratio of 0.32 for the period from 2006-05 till 2011-12. These earnings, which get
added up in the Reserves and Surpluses of the firm, are being used as investment for purchase
of fixed assets year on year.
The profitability of the shareholders investment can also be measured in many ways.
One such measure is to calculate the earnings per share. The earnings per share is calculated
by dividing the profit after taxes by the total number of ordinary shares outstanding.
TABLE NO-23
YEAR
NET PROFIT
(In Crores)
NO. OF EQUITY
SHARES
EPS
(In Crores)
2008-09
821.09
167.77
4.89
2009-10
1247.46
167.77
7.44
2010-11
1298.33
167.77
7.74
2011-12
1295.90
167.77
7.72
CHART NO-18
9
8
7
6
5
4
3
2
1
0
2008-09
2009-10
2010-11
2011-12
Interpretation
EPS is one of the most important measures that any investor in the stock market will
look into. Average EPS of NLC appears to be Rs.5.70 during period from 2006-07 to 201112. One can see that EPS in the projected period increases to around Rs.9. NLC pays
dividends to its shareholders year on year. It gives a very good positive picture about the
company to its investors. The increase or decrease in dividends given was exactly matching
the increase or decrease in net profit for that particular year. The dividends given by NLC are
well above the industry average. Among its competitors and other players only NTPC and
TATA POWER give higher EPS than NLC. Since the EPS keeps increasing in the projected
period, it is likely that the share price may increase from the todays level.
TABLE NO-24
2008-09
2009-10
INVENTORIES
535.85
502.96
SUNDRY DEBTORS
781.44
1611.62
5452.2
4823.63
628.57
189.47
164.56
24.91
598.11
581.59
16.52
7557.07
7684.36
CURRENT LIABILITIES
2008-09
2009-10
CURRENT LIABILITIES
2058.9
2389.91
PROVISIONS
792.66
613.28
TOTAL (B)
2851.56
3003.19
331.01
179.38
4705.51
4681.17
499.17
523.51
TOTAL (A)
INCREASE
DECREASE
32.89
830.18
830.18
702.89
331.01
179.38
24.34
INTERPRETATION
Schedule of changes in working capital, when compared between 2008-09 and 200910. It is stated that,
IN CURRENT ASSETS:
TABLE NO-25
DECREAS
10
11
INVENTORIES
502.96
491.71
SUNDRY DEBTORS
1611.62 2202.39
4823.63 4420.73
164.56
177.48
581.59
559.81
2009-
2010-
10
11
CURRENT LIABILITIES
2389.91 1934.11
PROVISIONS
613.28
E
11.25
590.77
402.9
12.92
21.78
603.69
435.93
455.8
649.94
36.66
36.66
455.8
567.03
19.87
INCREASE IN WORKING
CAPITAL
547.16
INTERPRETATION
Schedule of changes in working capital, when compared between 2009-10 and 2010-11. It is
stated that,
IN CURRENT ASSETS:
TABLE NO-26
2010-11
2011-12
INCREASE
DECREASE
INVENTORIES
491.71
506.19
14.48
SUNDRY DEBTORS
2202.39
3647.03
1444.64
4420.73
3329.10
177.48
259.44
559.81
406.80
8148.56
1091.63
81.96
153.01
1541.08
CURRENT LIABILITIES
2010-11
2011-12
CURRENT LIABILITIES
1934.11
1962.46
28.35
PROVISIONS
649.94
798.49
148.55
2760.95
176.9
5387.61
1364.18
INCREASE IN WORKING
CAPITAL
1265.88
1265.88
98.3
INTERPRETATION
Schedule of changes in working capital, when compared between 2009-10 and 201011. It is stated that,
IN CURRENT ASSETS:
PARTICULARS
AS AT 31.3.2012
AS AT 31.3.2011
1.Shareholders Fund
12039.89
11174.53
2.Non-Current Liabilities
4235.13
4155.56
3.Current Liabilities
3000.91
2762.95
TOTAL
19035.97
1342.00
ASSETS
1.Non-Current Assets
2.Current Assets
10887.41
7870.59
8148.56
TOTAL
10471.41
19035.97
18342.00
5.1FINDINGS
1. Current ratio of 2 or more is considered to be good. And NLC has current ratio to
be always 2.5 or more.
2. Quick ratio of 1:1 is considered to be good. In NLC, it is always above 2.35.
3. NLC has its cash ratio to be always 1.5 or more. So it is possible for it to fund its
current liabilities through the cash itself. And it need not think of selling any other
current assets to pay back its current liabilities in any possible situation.
4. Debt-Equity ratio happened to be less in the period from 2004-05 to 2006-07. It
was around 0.16 in that period. But it is rose to around 0.3 to 0.4 in the period
from 2007-08 to 2011-12.
5. Debtors turnover ratio had been very high in the beginning, but reduced to almost
2 in the recent years.
6. Net profit ratio, on an average, is around 0.32. That is, NLC is having around 32%
of its earnings as its net profit.
7. NLC has very good working capital management policies; it never uses its short
term sources of funds for long term uses. But it has a policy of using a small
amount of its long term sources to fund its short term uses.
8. NLC does not have high stocks of inventories. It uses the lignite that is produced
from the mines within span of 48 hours. It need not have very good inventory
management policy as far as lignite is concerned. Simple and effective policies are
being followed.
9. Management of tools and spares, fixed assets is also good. Mines have some very
big machines still working even after their useful lifetime.
5.2SUGGESTIONS
1. To earn more profit the amount invested in current assets can be reduced by way of
reducing the quantum of inventories and debtors.
2. Asset utilization is good more efforts can be taken to achieve efficient utilization of
assets to earn more profit.
3. We could see that the sundry creditors have increased from less than Rs.100 crores in
2006-07 to around Rs.2200 crores in 2010-11. Therefore NLC can make sure that its
creditors do not default.
4. By looking at the gigantic size of NLC in terms of its revenues and the area, it can
very well look at the possibilities of acquiring the smaller profitable companies in the
other countries. This will help the company to manage its dwindling resources in
these times. It can import its raw materials at relatively lower costs. And there is
always very good demand for power through these sources at least for 2 decades in
the future.
5.3CONCLUSION
BIBLIOGRAPHY
1.
2.
3.
4.