WORKING CAPITAL MANAGEMENT & INVENTORY CONTROL

OF
OPGC LIMITED, BHUBANESWAR

SUMMER OF INTERNSHIP A PARTIAL FULFILMENT PROGRAME

INTERNAL GUIDE EXTERNAL GUIDE

Prof. Debasis Nanda Mr Saroj Ku Samal
Asst. Prof. Dept. of Finance Sr. Manager (Finance)
OPGC Limited
Bhubaneswar

SUBMITTED BY
Priyanka Pradhan
Regd. No.: 1406356031
MASTER OF BUSINESS ADMINISTRATION

SUDDHANANDA SCHOOL OF MANAGEMENT & COMPUTER

SCIENCE NACHHIPUR, BHUBANESWAR
 TO WHOM IT MAY CONCERN

I certify that the project entitled A Case Study on Working

Capital Management & Inventory Control of OPGC Limited,
Bhubaneswar is the result of the research/survey work carried

out by Priyanka Pradhan under my supervision and guidance

for the partial fulfilment of Master of Business Administration,

Sudhananda School of Management & Computer Science,

Nachhipur, Bhubaneswar, Odisha.

Prof. Debasis Nanda

Asst. Professor
Dept. of Finance
SSM&CS, Nachhipur, Bhubaneswar
 DECLARATION

I, Prinyaka Pradhan, hereby declare that, the project entitled A Case

Study on Working Capital Management & Inventory Control is
submitted by me to OPGC Limited, is completely based on my own work
and experience in the past one month in your valuable organization.

Place: Bhubaneswar Signature

Date: Redg. No.- 1406356031

 ACKNOWLEDGEMENTS

It is my extreme pleasure in acknowledging my sense of gratitude to

all those who have helped me in completing this project.

First of all I would like to acknowledge my deep sense of gratitude to

my esteem guide Mr. Saroj Kumar Samal, Senior Manager (Finance),
OPGC Limited, Bhubaneswar for his timely guidance and support for
shaping up this report.

Lastly, I express my thanks to my Internal guide Mr. Debasish Nanda

(Asst. Professor - Finance) for his valuable time, co-operation and moral
boost-up in carrying out this project.

Name - Priyanka Pradhan

Redg. No- 1406356031

EXECUTIVE SUMMARY

Title of the project:-

"Working Capital Management & Inventory Control"

Name of the organization:

OPGC Ltd.

Name of the institute:-

Suddhananda School of Management & Computer Science

MAJOR OBJECTIVES OF THE STUDY:-

My project entitled, "Working capital Analysis of OPGC Ltd." The main

objective of study is to analyze the performance of OPGC over last few
years.

I got many information about my project from Chief

Manager, like fundamental idea of sales turnover & net Profit.

This project, "Working capital Analysis of OPGC Ltd." Provides a clear

and impartial picture of the company & sales sale and service climate from
an internal as well as an external perspective. Generally conducted
over a period.

The analysis is designed to give a comprehensive and Objective date

that can be used to make decision that will prepare the company for
successful change. The Research technique used by me was Random
Sampling as it is not possible for a researcher to collect data from
every member of the population for a particular research. In this
sampling procedure, it assures each element in the population an
equal chance of being included in the sample. Therefore I have selected
customers randomly and then collected the information through a
questionnaire which is related to my research.
ON THE JOB TRAINING

OBJECTIVES:

On The Job Training (OJT) gives a practical exposure and helps in

acquiring the on road skills.

OJT aims at relating of management theory in practice.

To generate the leads through the survey and to convert the

prospect customers in to end customers.

To get real business experience of OPGC Ltd.

To sort out the prospective leads from the data I have collected
through the survey.

To build the relationship with the employees of OPGC Ltd. & data
collected from them.

To maintain good relationship with the corporate employees.

To win over the employee's trust and belief by giving them clear
picture of working capital statement.
LIMITATIONS:

Getting accurate response form the respondents due to their

inherent problems. They may be partial or refuse to cooperate.
Many of the people do not find time to give response.

ACHIEVEMENTS:,

My OJT has given me a good experience in learning how to work in a

public sector , how to deal with the customers, how satisfy an un
satisfied customer, how to generate leads, how to maintain relation
with the existing customers & employees, how to get the references
from the existing customers. I have learnt the convincing and
persuasive skills in my OJT. Initially I have faced some hurdles in the
beginning of the project to get the leads, but later on I could coup with
the problems and I could reach the targets easily and successfully.
 CONTENTS
Chapter No. Topics Pg. No.

CHAPTER 1

INTRODUCTION

Meaning and concept of Working Capital

Scope of the study
Significance of the study
Objective of the study
Limitation of the study
Research Methodology

CHAPTER 2

COMPANY PROFILE OF OPGC LIMITED.

Detailed Profile
Vision, Mission & Values
Financial performance

CHAPTER 3
WORKING CAPITAL MANAGEMENT

Conceptual Studies
Management of account receivables

CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

USE OF VARIOUS RATIOS
CHAPTER 5
SUMMARY
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY
 CHAPTER - 1

INTRODUCTION
MEANING AND CONCEPT OF WORKING CAPITAL
SCOPE OF THE STUDY
SIGNIFICANCE OF THE STUDY
OBJECTIVE OF THE STUDY
RESEARCH METHODOLOGY
INTRODUCTION:-

As the business environment today becomes increasingly competitive, its

leader with the capacity to create a compelling vision and the ability to
translate that vision into reality that stands apart.

Leadership is not a merely a matter of size or numbers, its about setting

benchmarks; be in the areas of technology, innovation, quality, cost, service
or any other dimension of business. The ultimate aim is to enhance
stakeholders value.

We shall define management as working with an individual and groups to

accomplish organizational goals. In simple words we can say that
management means setting work done through the people.

It is the era of business every organization wants to cut another from the
market. So it is a very challenging job for the management people to serve
the organization in the present competitive situation.

In tough situations management helps us to take steps like planning,

organizing, staffing, directing, controlling, decision making etc according
to the circumstance of the organization.

Financial Management is one of the most vital parts of Management. An

effective financial management is the outcome among other things of proper
management of investment of funds in business.

In practice a firm needs short term assets and run sort sources of financing.
The management of such assets is known as WORKING CAPITAL
MANAGEMENT OR CURRENT ASSETS.

An organization can only survive when its financial position is sound. A

successful sales program only can give sound financial position of the firm.
But in present situation sales do not convert into cash instantly. There is a
time lag between sales of goods and receipt of cash. Therefore, a need for
working capital in the form of current assets becomes necessary in the lack
of realization of cash against goods sold.

If the firm finds problem and it do not give proper attention to manage the
working capital the firm might have liquidation problem which is harmful to
the organization. Technically, working capital management is an integral
part of financial management. It plays a vital role in any business enterprise.

SCOPE OF THE STUDY:-

The study of working capital helps us to know the current assets and current
liability of an organization. It gives a clear picture or idea about the
organizations working capital that how much amount they have kept in
advance to meet their day to day expenses.

An organization keeps some amount to maintain or meet their day to day

expenses. If the organization maintains that much of working capital which
they needed the we can say that they are managing their working capital
correctly or they are following the exact working capital according to their
need.

It the working capital is in excess then the excess amount of working capital
is idle. If the working capital is not sufficient to meet the day to day expenses
then it creates a problem.

So it is necessary to maintain exact working capital according to the

expenses of the organization.
SIGNIFICANCE OF THE STUDY:-

The significance of adequate working capital in commercial undertakings

can never be over emphasized. A concern needs funds for its day to day
running. Adequacy or inadequacy of these funds would determine the
efficiency with which the daily business may be carried on. Management of
working capital is an essential task of a finance manager. He has to ensure
that the amount of working capital available with his concern neither too
large nor too small for its requirements. A large amount of working capital
would mean that the company has idle funds. Since funds have a cost, the
company has to pay the amount as interest on such funds. Over
capitalization implies that a company has too large funds for its
requirements, resulting in a low rate of return. This situation implies a less
than optimal use of resources. A firm has, therefore to be very careful in
estimating its working capital requirements.

If the firm has inadequate working capital, it is said to be under capital or it

is said to be under - capitalization. Such a firm runs the risk of insolvency.
This is because; paucity of resources or working capital may lead to a
situation where the firm may not be able to meet its liabilities. It is
interesting to note that that many firms which are otherwise prosperous
(having good demand for their products and enjoying profitable marketing
conditions) may fail because of lack of liquid resources.
 Objective of the study:-

The present study has been taken up with the following objectives:
To know the various academic aspects of the Working Capital
Management in reality.
To study the practice of Working Capital Management in detail in
OPGC Limited.
To study the cash management, receivable management at OPGC
Limited.
To know the short term solvency of OPGC Limited.

LIMITATIONS OF THE STUDY

i. The first and for most constraint was the time factor with in a limited
period of time it was not possible to study various aspects of OPGC in
detail.
ii. As the executives were busy with their work, they could not afford much
time for discussion.
iii. The limitation of the project in due to short time sauna was not
sufficient to collect accurate data.
METHODOLOGY OF THE STUDY

The information for the study has been obtained from two resources:

Primary data
Secondary data

Primary data:

The primary data is collected from the discussion with the concerned officer
and the staff of OPGC Limited, Bhubaneswar.

Secondary data:

The secondary data is secured from the quarterly reports, financial

statements, balance sheet and profit & loss accounts which I got from the
organization. I have also collected some data from the internet and some
other information through financial books.

The calculation part is done on the basis of the secondary data by using the
quarterly reports and Annual Reports of the OPGC Limited.
 CHAPTER 2

COMPANY PROFILE OF OPGC LIMITED.

INTRODUCTION - DETAILED PROFILE
VISION, MISSION & VALUES
FINANCIAL PERFORMANCE
INTRODUCTION - DETAILED PROFILE

Odisha Power Generation Corporation Limited (OPGC) is the only

thermal power generating company owned by Government of Orissa. It was
incorporated under the Companies Act 1956 on 14th of November, 1984.
OPGC started as a solely owned Government Company of the state of Orissa.
It owns and operates 2 units of 210 MW power plant at Ib Thermal Power
Station (ITPS), Banharpali in Jharsuguda District of Odisha.

During 1990, OPGC started construction of 7 Mini Hyde Projects in different

locations of Orissa for generation of pollution free power by utilizing canal
falls to meet the increasing demand of power with the major FUNDING from
MNES and IREDA. The details are as follows:

Project Name Capacity (KW) Status as on 2009

Biribati MHP 2 X 325 Under Operation

Kendupatna MHP 2 X 250 Under Operation

Andharibhangi MHP 1 X 325 Under Operation

Badanala MHP 2 X 325 Revival Proposal in Phase II

Banpur MHP 2 X 150 Revival Proposal in Phase II

Harabhangi MHP 2 X 1000 Revival Proposal in Phase III

Barboria MHP 2 X 325 Revival Proposal in Phase III

 Odisha Power Generation Corporation Limited

Type State-owned enterprise

Public company

Industry Electric utility

Founded 1984

Headquarters Bhubaneswar, Orissa, India

Key people Suresh Chandra Mahapatra (Chairman)

Indranil Dutta(Managing Director)

Products Electric power

Services Electricity generation

Revenue $ 1150.4 million(US$18 million) (2010-11)

Number of 550 (2012)

employees

Website www.opgc.co.in
OPGC Expansion Project

OPGCs expansion project consists of addition of 2x660 MW (1320 MW) to

existing Ib Thermal Power Station. Captive coal mine and dedicated railway
line for transportation of coal, are in advanced stage of development. All
clearances for the power plant have been obtained. 50% of power to be
generated from the proposed capacity addition has been tied up with
GRIDCO under a long term power purchase agreement. Financing agreement
executed with PFC and REC for financing of 75% debt. Two captive coal
mines (namely Manoharpur and Dip-side of Manoharpur) allocated to OPGC
are in advanced stage of development, along with the dedicated railway line
(MGR) of 47 km for transporting the coal from the mine to the power plant.
Land acquisition process for railway line and coal mine have been
significantly advanced and the Stage-1 clearance has been obtained from
Ministry of Environment and Forest, Government of India for Forest
Diversion for coal mine and MGR alignment.

The power plant will depend on coal from its captive mine and associated
railway line for transportation, for commissioning and operation thereafter.
Based on the anticipated receipt of forest and environment clearance from
MoEF, progress on land acquisition for both coal mine and railway line, and
sanction of tapered linkage from Ministry of Coal, GoI, the project is expected
to be commissioned in the 12th Five Year Plan.

In addition to Units 3&4, based on the coal reserves available from the
captive mines, OPGC is in a position to pursue Units 5&6 of 2x660 MW (1320
MW) at the same location, which is proposed to be pursued after award for
commencement of construction is placed for units 3&4.
OPGC is also exploring allocation of another captive coal block in Talcher
area under Govt. dispensation route, in order to support capacity addition of
2x660 MW in that area.

PRESENT BUSINESS

As its maiden venture, the company has set

up two thermal power plants with a
capacity of 210 MW each in the IB valley
area of Jharsuguda District in the State of
Odisha (Ib Thermal power Station) at a cost
of Rs.11350 million. The locational
advantage of the power plant lies in its close proximity to the coal mines as
well as to the Hirakud reservoir. This gives the company the distinct
advantage of low cost of Raw Material leading to low cost generation.

It has also undertaken the construction of seven Mini Hydel stations having
a total capacity of 5075 kW as a technological demonstration.

The entire generation from Ib Thermal Power Station is committed to the

state transmission utility GRIDCO on the basis of a long term Power
Purchase Agreement. Payment is secured through an Escrow Account and
revolving Letter of Credit.

No. of Amount (In

Shareholder Percentage
Shares Rs.)
Govt. of Odisha 51 25,00,109 25,00,109,000
AES India Pvt. Ltd. 16.25 7,96,178 7,96,178,000
AES OPGC Holding
32.75 16,05,887 16,05,887,000
(incorporated in Mauritius)
Total 100 49,02,174
Vision

A world-class power utility committed to generate clean, safe and

reliable power, enhancing value for all stake holders and contributing
to national growth

Mission

To attain global best practices by adopting, innovating and deploying

cutting edge solutions.

To achieve excellence in reliability, safety and quality of power by

creating a culture of empowerment and high performance.

To be a responsible Corporate citizen having concern for

environment, society, employees and people at large

Core Values

Put Safety First

Honour our commitments

Act with integrity

Strive for Excellence

Have Organisational Pride

Foster Teamwork
Strength of OPGC

This is a Pithead Power plant with coal

field located nearby & a Merry go round
system for Coal transportation.

There is adequate water availability

from the nearby Hirakud Reservoir with
an Intake Channel connected to
Reservoir.

Long term PPA with the State Power Transmission utility i.e. GRIDCO for
100% off-take.

Payment security mechanism comprising Escrow Account and revolving

Letter of Credit with Gridco.
Infrastructure like land and common facilities are already available for
expansion of two more units.
 CHAPTER - 3

CONCEPTUAL STUDIES

WORKING CAPITAL MANAGEMENT

MANAGEMENT OF ACCOUNT RECEIVABLES

CONCEPTUAL STUDIES:

Working Capital is considered as the lifeblood and nerve centre of any

business

(Khan and Jain) In the present day modern industrial world the term
Working Capital refers to the short term funds required for financing the
entire duration of the operating cycle of a business known as "Accounting
Year". It is a trading capital not retained in the business in a particular form
for more than a year. This is used for carrying out the routine or regular
business operations consisting of purchase of raw materials, payment of
direct and indirect expenses, carrying out production, investment in stock,
etc. In short it represents the fund by which the day-to-day business is
carried on.

Working Capital refers to that part of the firm's capital, which is required for
financing short-term business requirements or Current Assets (CAs) such
as Cash, marketable securities, debtors and inventories. Funds so invested in
Current Assets keep revolving fast and are being constantly converted into
Cash and this Cash turns out again in exchange for other Current Assets.
Hence, it is also known as revolving or circulating or short-term capital.
"Working Capital is the amount of funds necessary to cover the cost of
operating enterprise". Circulating capital means Current Assets of a company
that are changed in the ordinary course of business from one form to
another, Eg, from Cash to inventories; inventories to receivables, to cash.

III.2 Concept of Working Capital

There are two possible interpretations for Working Capital

A. Balance Sheet Approach (BSA)

B. Operating Cycle Approach (OCA)

III.2.1. Balance Sheet Approach

There are two interpretations of Working Capital under the BSA, viz.,

(i) Gross Working Capital Approach (GWC), and

(ii) Net Working Capital Approach (NWC)

In the broad sense, the term Working Capital refers to the Gross Working

Capital and represents total amount of funds invested in Current Assets.

Gross Working Capital is the capital invested in total Current Assets of the
enterprise. Although Current

Assets vary from industry to industry, they constitute between 50 to 60 per

cent of the total assets of manufacturing concerns.

Current Assets are those assets which, in the ordinary course of business, can
be converted into Current Assets within a short period of time, say, one
year. The constituents of Current Assets are: -

Cash in hand and bank balance

Bills receivables
Sundry debtors less provision for bad debts
Short-term loans and advances
Inventories of stock - Raw materials, work-in-progress, stores and
spares, finished goods,
Temporary investment of surplus funds
Prepaid expenses, and
Accrued incomes
In a narrow sense, the term Working Capital refers to Net Working Capital.
When accountants use the term Working Capital, they generally refer to Net
Working. Capital, which is the difference between Current Assets and
Current Liabilities.

Net Working Capital refers to the difference between Current Assets and
Current Liabilities. Current Liabilities are those claims of outsiders that are
expected to mature for payment within an accounting year and include the
following:

Bills Payables
Sundry Creditors
Accrued or outstanding expenses
Short-term loans, advances and deposits
Dividends payable
Bank overdraft, and
Provision for taxation, if it does not amount to appropriation of profits.

The Net Working Capital may be positive or negative. A positive Net Working
Capital will arise when Current Assets exceed Current Liabilities. Negative
Net Working Capital occurs when Current Liabilities are in excess of Current
Assets. The Current Liabilities that amounted to 24 per cent unrepresented
by Current Assets, which, in turn, drastically affected turnover levels of heavy
engineering. The Gross Working Capital is financial or going concern
concept while Net Working Capital is an accounting concept of Working
Capital. These two concepts of Working Capital are not exclusive. The Net
Working Capital may be suitable only for proprietary form of organizations
such as sole-trader or partnership firms. The gross concept of Working
Capital, on the other hand, is suitable to the company form of organization
where there is diverse between ownership, management and control.
III.2.2 Operating Cycle Approach

In terms of liquidity, there is a

difference between current and fixed
assets. To recover the initial
investment in fixed assets, a firm
requires many years. On the contrary,
investments in Current Assets are
turned over many times in a year.

Investments in Current Assets such as inventories and debtors (accounts

receivables) are realized during the firm's operating cycle, which is usually
less than a year.

Operating cycle is the time duration required to convert sales, after the
conversion of resources into inventories and that into Current Assets. The
operating cycle of a manufacturing company involves three phases.

Acquisition of resources such as raw materials, labor, power and fuel.

Manufacture of the product, which includes conversion of raw
materials into work-in-progress, work-in-progress into finished goods.
Sale may be either for Cash or on credit. Credit sales create accounts
receivable for collection.

These phases affect Cash flows, which are neither synchronized nor certain.

They are not synchronized because Cash outflows usually occur before Cash
inflows. Cash outflows are relatively certain whereas the Cash inflows are
difficult to be forecast due to the time gap between sales and collections. This
requires the firm to invest in Current Assets for uninterrupted operations.
Liquidity has to be maintained to purchase raw materials and pay expenses,
as there is hardly a matching between Cash inflows and outflows. Cash is also
held to meet any future obligations. Stock of raw materials and work-in-
progress are kept to ensure smooth production and to guard against non-
availability of raw materials and other components. The firm holds stock of
finished goods to meet the demands of customers on continuous basis and
sudden demand from some other customers. Debtors are created because
goods are sold on credit for marketing and competitive reasons. Thus, a
firm makes adequate investment in materials, and debtors, for smooth,
uninterrupted production and sales to operate its business more efficiently
as there is no delay in obtaining materials due to credit difficulties, to
withstand in periods of depression smoothly, there can be operating losses or
decreased rate. The length of the operating cycle of a manufacturing firm can
be defined as the sum of inventory conversion period (ICP) and debtor's
conversion period (DCP). The operating cycle ranges from 96 days to 158
days in Case of Lupin Laboratories Ltd.

Inventory Conversion Period (ICP)

It is the total time needed for producing and selling the product which
includes raw materials conversion period (RMCP), work-in-progress
conversion period (WIPCP) and finished goods conversion period (FGCP).

Raw Material Conversion Period refers to the period in which the raw
materials are generally kept in stores before they are issued for
manufacturing to production department. Work-in-Progress Conversion
Period refers to the period for which the raw material remains in the
manufacturing process before it is taken out as finished product.

Finished Goods Conversion Period refers to the period for which finished
products remain in stores before being sold to a customer.
Debtors Conversion Period (DCP)

It is the time required to collect the outstanding amount from customers.

Gross Operating Cycle (GOC)

The total of inventory conversion period and debtors' conversion period is

referred to as Gross Operating Cycle (GOC) and symbolically represented as

GOC = RMCP + WIPCP + FGCP + DCP

Average Stock of Raw materials

RMCP =
Raw materials consumption per day

Average Stock of Workinprogress

WIPCP =
Total cost of production per day

Average Stock of Finished Goods

FGCP =
Total cost of sales per day

Average accounts Receivable

DCP =
Net Credit Sales

However, a firm may acquire resources for production activities, on credit

and temporarily postpone the payment of certain expenses, which can be
invested in Current Assets. The Payable Deferred Period (PDP) is the length
of time the firm is able to defer payments on various resource purchases. The
difference between Gross Operating Cycle and the Payable Deferred Period is
Net Operating Cycle (NOC).

Thus,

NOC = GOC - PDP

Where,
Average Payments
PDP =
Net Credit Purchases per day
III.2.3 Classification of Working Capital on the basis of time

Working Capital, on the basis of time can be categorized as:

A. Permanent or Fixed Working Capital

B. Temporary or Variable Working Capital
The classification is shown in figure III. (2).

III.3.1 Permanent or Fixed Working Capital

It is the minimum amount required to ensure effective utilization of fixed

facilities and for maintaining the circulation of Current Assets. There is
always a minimum level of Current Assets, which is continuously required
by the firm to carry out its normal business operations such as raw
materials, work-in-progress, finished goods and cash balance. This
minimum level of Current Assets, which is permanently blocked, is called
permanent or fixed Working Capital

It is further be classified as regular Working Capital and reserve Working

Capital. Regular Working Capital, as the name implies, refers to the Working
Capital required for regular conduct of operations. Reserve Working Capital
is the excess over the requirements for regular Working Capital, which may
be provided for contingencies, such as strikes and rise in prices.

III.3.2 Temporary or Variable Working Capital

It is the amount of Working Capital required to meet the seasonal demands

and some special exigencies. It can be further classified as seasonal Working
Capital and special Working Capital. The capital needed to meet the seasonal
needs of the business is termed as seasonal or variable working capital. It is
that part of the Working Capital which is required to meet special
exigencies, such as special campaign, conducting research and new product
launch, which is known as special Working Capital. The requirements of the
temporary Working Capital is shown in figure III. (3) and III (4).
Adequacy of Working Capital

The maintenance of the required amount of Working Capital is termed as

adequate Working Capital. The adequate Working Capital results in the
following benefits, viz, protects business from adverse effects of shrinkage in
the value of Current

Assets, ensures to a great extent the maintenance of company's credit

standing and provides for emergencies like strikes. It also permits the
carrying of inventories at a level that will enable a business to serve
satisfactorily to the need of its customers, enables a company to offer
favourable credit terms to customaries earnings, there can be excessive non-
operating or ordinary losses.

Inadequate Working Capital

It is a situation where the production facilities could not be utilized fully for
want of Working Capital. This results in the following dangers.

May not be able to take advantage of Cash discount facilities.

Credit worthiness of the company can be jeopardized due to lack of
liquidity.
May not be able to take advantage of profitable business opportunities.
Modernization and even routine repairs and maintenance facilities
may be difficult to administer.
Will not be able to pay dividends due to non-availability of funds.
May have to borrow funds at exorbitant rates of interest.
Low liquidity will lead to low profitability.
Loses its reputation on account of not honouring its short-term
obligations.
Excessive Working Capital

It refers to a situation of idle funds, which earn no profits for the firm. The
evils of excessive Working Capital are:

May be tempted to over trade and loose heavily.

Unnecessary accumulation of materials.
Imbalance between liquidity and profitability.
High liquidity will involve a company to undertake greater production
that may have a matching demand. It will find itself in a very
embarrassing position; its marketing policies are not properly
adjusted to boost up the market for its products.
May invest in fixed equipment heavily, which will not be justified by
actual sales of production leading to over capitalization.
May lead to inefficiency of operations.

Determination of adequacy of Working Capital poses problems to both

corporate and the banking sector. Hence it is absolutely essential to maintain
the right amount of Working Capital on a continuous basis, and then only a
proper functioning of the business operations will be ensured. Sound
financial and statistical techniques, supported by judgment, should be used to
predict the quantum of Working Capital needed at different time periods.

III.4 Principles of Working Capital Finance

1. Principle of Risk Variation

Risk variation refers to an ability of a firm to maintain sufficient Current

Assets to pay for its obligations. If Working Capital varied in relation to sales,
the amount of risk that a firm assumes is also varied and the opportunity for
gain or loss is increased. It means that there is a definite relationship
between the degree of risk and the rate of return.
2. Principle of Equity Position

The amount of Working Capital invested in each component should be

adequately justified by a firm's equity position. Every paisa contributed in the
Working Capital must contribute the Net Working Capital of the firm.

3. Principle of Cost of Capital

It emphasizes the different sources of finance and each source has a different
cost of capital. The cost of capital moves inversely with risk. As such
additional risk capital results in the decline in the cost of capital.

4. Principle of Maturity of Payments

A firm should make every attempt to relate maturities of payments to its flow
of internally created funds. The failure to meet such a match of generation
to outside demand would accentuate the risk.
CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

Using Ratios:

Current Ratio
Quick Ratio
Inventory Turnover Ratio

Working capital Management ensures a company has sufficient cash flows in

order to meet its short term debt obligation & operating expenses. The
management of current asset is vital for any manufacturing concern.

CONCEPT OF WORKING CAPITAL

There are two concept of working capital

i. Gross working capital

ii. Net working capital

a. Gross Working Capital

It refers to the firms investment in current asset. Current asset are those
Asset which can be converted in to cash within an accounting year.
b. Net Working Capital
It refers to the difference between current asset and current liability.
Current liability are those claims of considers which are expected to mature
for payment within an accounting year.
Gross working capital of M/s, OPGC LIMITED

CA (In lakhs)

=105018.20=2013-14

=102439.26=2012-13

=96260.24=2011-12

CL (In lakhs)

=9771.20=2013-14

=4899.74=2012-13

=5186.90=2011-12

G.W.C=Total current assets

Net working capital of M/s, OPGC LIMITED

N.W.C (In lakhs)=CA-CL

2013-14=95247

2012-13=97539.52

2011-12=91073.34
 DIAGRAM OF CURRENT ASSET

CURRENT ASSET

106000

104000

102000

100000

98000 CURRENT ASSET

96000

94000

92000

90000
2011-12 2012-13 2013-14

Interpretation

In the year 2013-14 current asset is Rs.105018.20 Lakhs, In 2012-13 It Is

Rs.102439.26 Lakhs & 2011-12 current asset is Rs.96260.24. The above
diagrammed shows that current asset of OPGC was gradually increase.
 DIAGRAM OF CURRENT LIABILITY

10000

9000

8000

7000

6000

5000 CURRENT LIABILITY

4000

3000

2000

1000

0
2011-12 2012-13 2013-14

Interpretation

In the year 2013-14 current liability is Rs.9771.20 lakhs, In 2012-13 It Is

Rs.4899.74 lakhs & 2011-12 current liability is Rs. 5186.90.
 DIAGRAM OF WORKING CAPITAL

WORKING CAPITAL
100000

98000

96000

94000

WORKING CAPITAL
92000

90000

88000

86000
2011-12 2012-13 2013-14

Interpretation

In the year 2013-14 working capital is Rs.95247 lakhs, In 2012-13 It Is

Rs.97539.52 lakhs & In 2011-12 working capital is Rs.91073.34. The above
diagrammed shows that working capital of OPGC .
 DIAGRAM OF TOTAL INVENYORY

6000

5000

4000

3000
Inventories

2000

1000

0
2011-12 2012-13 2013-14

Interpretation

In the year 2013-14 Inventories is Rs.4862.38 lakhs, In 2012-13 It Is

Rs.4801.92 lakhs & In 2011-12 Inventories is Rs. 3991.33 lakhs. The above
diagrammed shows that Inventories of OPGC was gradually increase.
 DIAGRAM OF TOTAL SALES

56000

54000

52000

50000

48000
Sales

46000

44000

42000

40000
2011-12 2012-13 2013-14

Interpretation

In the year 2013-14 Sales is Rs.53944.29 lakhs, In 2012-13 It Is Rs.49045.82

lakhs & In 2011-12 Sales is Rs.45303.72. The above diagrammed shows that
Sales of OPGC was gradually increase due to proper marketing.
 DIAGRAM OF SALES COMPARE WITH INVENTORIES & WORKING
CAPITAL

120000

100000

80000

sales
60000
inventories
working capital
40000

20000

0
2011-12 2012-13 2013-14

Interpretation

The above diagram shows that inventories & working capital of OPGC is very
low as compare to sales. It shows that the management is very good that for
the organisations get more & more profit and profit is increase year by year.
RATIO ANALYSIS ACCORDING TO THE WORKING CAPITAL
MANAGEMENT-

Important Terms-

Ratio analysis
Gearing
Liquidity
Overtrading

Ratio Analysis

This is the measure of inter relationship between different section of the

financial statement which then is compared with the budgeted or forecasted
results, prior year results and or the industrial results. To be most important
ratios must include a study of underlying data. Ratio should be taken as
guides that are useful in evaluating a companys financial position and
operations and making comparisons with results in previous years or with
other companies. The primary purpose of ratios is to point out areas needing
further investigations. Ratio will not carry meaningful business reasoning if
there is no supporting quantitative and financial information. Apart from the
ratios other information which should be looked at includes:

1. The contents of any accompanying commentary on the account.

2. The age & the nature of companys assets.
3. Current and future developments in the companys market, at home
and overseas, recent acquisition and disposal of a subsidiary by the
company
4. Extra ordinary items in the income statements.
5. The auditor opinion on the financial statements.
As we know there are vast number of users of parties interested in analyzing
the financial statements, including shareholders, lenders, customers,
government, employees and competitors. Yet in many respect, they will be
interested in different things. There are not therefore, any definitive, all
encompassing lists of points for analysis that would be useful to all these
stakeholder groups.

Ratio analysis is the first step in assessing an entity. It removes some of the
mystique surrounding the financial statements and makes it easier to the pin
point items which it would be interesting to investigate further.

These ratios can ably be classified according to the target group of the
stakeholders.

Profitability For shareholders, employees, creditors, investors,

management.

Liquidity - For share holders, management, suppliers, creditor and

competitors.

Efficiency - For share holders, management, creditors and

competitors.

Gearing - For shareholders, lenders, creditor & potential investors.

DATA PROCESSING AND ANALYSIS

TYPES OF RATIOS

1. Current ratio
2. Quick ratio
3. Inventory turnover ratio

Current Ratio:

This compares assets which will become liquid within approximately twelve
months with liabilities which will be due for payment in the same period and
is intended to indicate whether there are sufficient short term assets to meet
the short term liabilities. Recommended current ratio is 6:1. Any ratio below
indicates that the entity may never face liquidity problem but the above ratio
indicates under trading, that is the entity is over utilizing its current assets.

Current Ratio = Current assets / Current liabilities

The following are the statistical of last three years current ratios data.

Year 2011-12 2012-13 2013-14

Current Ratio 18.56 : 1.00 20.90 : 1.00 10.74 : 1.00

Interpretation

According to the standard rule the current ratio of an organization should be

2:1. The current ratio of OPGC Limited in the year 2013-14 it 10.74 : 1.00, It
was in the year 2012-13 is 20.90 : 1.00 in the year 2011-12 it is 18.56 : 1.00.
All the three years upon which I analyzed the current ratio is well healthy.
So it indicates that liquidity position of OPGC Limited is so good, wealthy and
it is satisfactory in all respects.

Quick / Acid Test Ratio:

This ratio indicates that creditor and debtors are paid at approximately the
same time, a view might be made as to whether the business has sufficient
liquid resources to meet it current liabilities.

This ratio should ideally be 1 for companies with a slow inventory turnover.
For companies with a faster inventory turnover, a quick ratio can be less
than 1 without suggesting that the company should be in cash flow trouble.

Both current and quick ratio offer an indication of the company is liquidity
position, but the absolute figures should not be interpreted too literally. It is
often theorized that an acceptable figure should be 2:1 for current ratio and
1:1 for quick ratio but these should only be used as a guide, different
business operate in very different ways. A super market group for example
might have a current ratio of .5 quick ratio of .17 supermarkets have low
receivables (as sale are usually made on credit), low cash, medium
inventories (high inventories but quick turnover). While as in a
manufacturing company these ratios may be regarded as showing solvency
problems.

Quick / Acid test ratio= quick or liquid assets / current liabilities

Year 2011-12 2012-13 2013-14

Quick Ratio 1.08 : 1.00 1.9 : 1.00 2.96 : 1.00

Interpretation

The quick ratio is very useful in measuring the liquidity position of a firm. It
measures the firms capacity to pay off current obligation. As rule of thumb
a quick ratio of 1:1 is considered satisfactory. I have calculated the three
years quick ratio of OPGC Limited, and it concludes that the company has
attained the healthy &satisfactory quick ratio.

Inventory turnover ratio:

The ratio is aimed at checking how vigorous the entity is trading. It measures
approximately the number of times on entity is able to acquire the
inventories and convert them into sales. A lengthening inventory turnover
period from one accounting year to the next indicates:-

1. A slowdown in trading; or
2. A build in inventory levels, perhaps suggesting that the investment in
inventories is becoming excessive
The higher turnover ratio is good for the firm, but several aspects of
inventory holding policy have to be balanced.

Lead times
Seasonal fluctuations in orders.
Alternative use of warehouse space
Bulk discounts

Inventory turnover ratio also known as stock velocity is normally calculated

as sales/average inventory or cost of goods sold.

Inventory turnover ratio = Net Sales / Inventory

Year 2011-12 2012-13 2013-14

Inventory
11.35 : 1.00 10.21 : 1.00 11.09 : 1.00
Turnover Ratio

Interpretation

It measures the velocity of conversion of stock into sales of high inventory

turnover indicates that efficient management of inventory. A low inventory
turnover ratio indicates an inefficient management of inventory. There is no
standard rule for maintaining inventory turnover ratio. In OPGC Limited.
There is satisfactory inventory turnover.
CHAPTER-5

SUMMARY

SUGGESTIONS

CONCLUSION
SUMMARY:

Working capital is the life blood and controlling nerve centre of any industry
and no business can survive for prosper without an appropriate amount of
it is components and a good managerial skill to manage it. Excessive working
capital results in unnecessary blockage of resources and low profitability.
Inadequate working capital on the other hand results in lower capital
utilization and hindrance to development measures therefore, there should
be appropriate amount of working of capital to run the business and only
large body of fixed asset is not enough. In OPGC Limited. The working capital
of the organization is properly managed. In our comparison of 2012-13 and
2013-14 it observed that the working capital of the organization has
decreased. This decrease of working capital is due to proper management.
After analysis of current asset & current liabilities it is bring to the notice
that the current liabilities of various aspects such as: short term borrowings,
trade payables are decreased.
 SUGGESTIONS

I. OPGC should invest more in different profitable securities considering

its requirements.
II. The OPGC should introduce an innovative idea of motivating its
employee and workers for their active participation in reducing of
illiteracy, spreading the message of family planning.
III. OPGC has to the adequate case to rending prompt and efficient security
to its workers and customers.
IV. Utmost care should be taken for management of cash, employee, bank
balance etc.
V. OPGC should take step to upgrade the skill, knowledge, attitude and to
make them to function more efficiently.
VI. Comply to all applicable legal & other recruitments to which OPGC
subscribes.
VII. Develop among employees & surrounding community an awareness of
environmental responsibility and adherence to sound environmental
practices.
VIII. Continually improve our environment management system
performance.
CONCLUSION

The study of working capital behaviour occupies an important place in

financial management. It has never received so much attention as in recent
years.

Working capital management is concerned with short-term financial

discussion and in order to determine the credit and other requirements,
bankers, financial institutions, government agencies and tax authoritys
effective working capital management is required

The management of working capital is a continuing function, which involves

control of the day-to-day flow of financial resources circulating in the
enterprises.

The size of working capital required by a firm has a much closed linkage with
its capacity utilization. The capacity of business enterprises to earn profits
depends largely on its ability to manage efficiently its working capital. In a
period of rising capital costs and scare funds, the working capital is one of
the more important areas requiring management review.

The transmutation of a company working capital into income and profits and
back into working capital is one of the most vital aspects of business
operations. And a proper relationship must be maintained between the
working capital and fixed capital of an enterprise if operations are to run
smoothly. We will hardly find a business firm, which doesnt require an
amount of working capital.
BIBLIOGRAPHY

Books:

Financial Management - Text and Cases Khan & Jain, TMH Publication.
Financial Management - I M Pandey - Vikas Publication House.
Management Accounting (Principles and Practice) - Shashi K Gupta & R
K Sharma

Websites:

www.opgc.com
www.mapsofindia.com
www.google.com

Others Sources:

Files and documents of OPGC Limited.

Annual Report (2013-2014) of OPGC Limited.