Professional Documents
Culture Documents
Finance is a scare resource and it to be managed efficiently for the successful functioning of an
enterprise. Inefficient financial management has resulted in failure of many businesses
organization. “Irrespective of any in difference in structure ownership and size, the finance
organizations of enterprise caught to be capable of ensuring that the various finance functions
planning and controlling are carried out at the highest degree of efficiency”.
It is the lifeblood of every business activity without which the wheels of modern business
organizations system cannot be greased. Thus the finance function assumes an important
role in affairs of business management. The profitability and suitability of the business depends
upon the manner how finance and the function are performed and related with other business
functions.
Working Capital management has become more and more important due to already shift towards
closer internal financial control. The main objective of working capital management thus, us to
ensure smooth functioning of the business and to gets timely funds sufficiently. In the opinion of
“Zenoff” and “Zwick”, “Proper management of Working Capital is very important for the
success of an enterprise. It aims at protecting the purchasing power of asset and maximizing the
return on investment “.
The effective management of working capital involves the balancing of current assets and
current liabilities in order ensure a reasonable margin of safety. In other words it is to manage
each of the firm's current assets and current liabilities in such away that an acceptable level of net
working capital is maintained.
Working Capital management has been looked upon as the driving seat of financial manger.
“Constant Management is required to maintain appropriate levels in the various working capital
accounts”. The importance that has been a given in economically advanced countries, was not
seriously considered and applied to many of the industries in India
Working Capital management has assumed great importance in recent times due to the
professionalism that has been brought into organization , in financial management of the
business enterprises. The theoretical frame of working capital management and its application in
the selected sugar factories is the subject matter of this chapter.
-J.S.MILL-
“Any acquisition of funds of which increase the Current Assets increase Working Capital also,
for the are one and the same
-BONNEVILE-
“Working Capital refers to a firm's investment in short-term Assets like cash, short term
securities, Account receivables and inventories”.
-WESTON&BRIGHAM-
In the Narrow sense, the working capital id regarded as the “Excess of Current assets over
current liabilities”. This is the definition used by most financial experts and authors rephrasing
the accounting phase of finance.
OBJECTIVES OF THE STUDY
In this chapter, objectives of the study and methodology employed are discusses in following
paragraph the methodology includes various items like sources of data, methods of data
collection significance of the study and limitations of the study.
The analyze the financial performance of the company using working capital
To give some pertinent suggestion to the management of IOCL about the working capital
management.
The most important functions of the business firm are production, marketing finance. It is
very difficult to separate finance functions from production, marketing and other functions. The
functions of raising funds, investing them in assets and distributing returns earned from assets to
share holders are respectively known as financing, investing and dividend decisions. In doing
so, a firm attempts to balance cash inflow and outflows. Finance function call for skillful
planning control and execution of firm's activities.
Hence, the study is taken to analyze the firm's activities through “Working Capital
Management”.
LIMITATIONS OF THE STUDY
Every study is conducted under some limitations. This study is not exception the main
limitations are.
The study is conducted by a student of K.U University for the purpose of fulfillment of
the condition stipulated by the University for the Completion the course. So the study
may not fulfill all the requirement of a detail investigation.
This is a study conducted with in a period of Severn weeks in total.
During this limited period of the study. It may not be a detailed, full-fledged and
utilitarian in all respects.
The study was conducted with the data available and the analysis was made accordingly.
METHODOLOGY OF THE STUDY
The following methodology has been used to the carryout the present study "Working Capital
Management in IOCL". To carry out the present study, both primary and secondary data have
been used. Primary data have been collected from officers and staff of finance and accounts
department of IOCL.
Secondary data on the other hand form the printed material of the company balance sheets and
profits and loss account of the year from 2006-2010 of IOCL, cashbooks, debtors ledgers and
stock registers, annual reports. Article from the journal "The Management Accounting book",
text books etc.
RESEARCH METHODOLOGY
Data collection:
Primary Data:
Secondary Data:
2. Trend Analysis.
A) Capital trend.
B) Sales trend.
C) PBT trend.
D) PAT trend.
3. Ratio Analysis.
A) Liquidity Ratios
B) Activity Ratios
METHODOLOGY
Preparation of numeric data tables with data of accounting year wise factors of ratios with
calculated ratios.
Graphical presentation of the ratios indicating changes.
Interpretation with the help of numeric and graphical presentation.
A wholly owned subsidiary, Indian Oil blending Ltd., manufactures over 450
grades of the country’s leading R brand of lubricants and greases. In pursuit of its
Vision of becoming ‘ a major, diversified, transnational, integrated energy
company, with national leadership and a strong environment conscience, playing a
national role in oil security and public distribution’, IndianOil is proactively
identifying and developing business opportunities in Exploration & Production
(E&P), Gas and Gas-to-Liquid, Petrochemicals, Power, Information Technology &
Communications, Collaborative R&D, Exports, Shipping, Training & Consultancy,
Engineering & Construction, and Transnational Operations. Twelve joint Ventures
are now operational in partnership with some of the leading international and
Indian companies;
• Avi-Oil (India) Pvt. Ltd. With NYCOSA, France, and Balmer Lawrie & Co.
for manufacturing and marketing Defence and civil aviation lubricants and
specialties.
• The cover depicts a bird, symbolizing IndianOil, breaking through barriers
to seek new horizons.
• It is a quest marked by immense possibilities a quest for progress through
pursuit of new opportunities.
• The colour blue signifies the vast expanse of a new world, and is a tangible
expression of widening horizons.
• Indian Oiltanking Ltd., with Oiltanking (India) GmbH, Germany, for
infrastructure development and terminalling services.
• Petronet India Ltd. (PIL), a consortium of oil companies and financial
institutions, for petroleum product pipeline projects.
• Petronet Vadinar-Kandla Ltd., as a subsidiary of PIL, for Vadinar-Kandla
product pipeline.
• Petronet Chennai-Trichy-Madurai Ltd., also as a subsidiary of PIL, for
Chennai-Trichy-Madurai product pipeline.
IndianOil’s investments in creation of assets will exceed Rs. 40,000/- Crore over
the decade beginning 1997. These investments, substantially funded from internal
resources, will result in expansion and modernisation of existing capacities, as well
as creation of state-of-the-art facilities.
IndianOil is an “academy” company with 18training centers. The IndianOil
Institute of Petroleum Management (IIPM), Gurgaon, serves as an apex training
and consultancy institute and conducts management development programmes in
association with reputed national and international institutes.
For the past two decades, IndianOil has been lending its expertise to several
countries in areas of refining, marketing, transportation, training and R&D. These
include Sri Lanka, Kuwait, Bahrain, Iraq, AbuDhabi, Tanzania, Ethiopias, Algeria,
Nigeria, Nepal, Bhutan, Maldives, Malaysia and Zambia.
The 17th largest petroleum company in the world, IndianOil, is now emerging as a
transnational energy conglomerate. From the icy slopes of Leh in the Himalayas to
Kanyakumari where the Bays of Bengal and the Arabian Sea join the Indian
Ocean, and from the Single Buoy Mooring at Salaya in the West to the
Monasteries at Tawang in the East, IndianOil lives in every heart and in every part
of India.
GLOBAL RANKING
Indian Oil Corporation maintained its position as the sole Indian presence in the
Fortune ‘Global 500’ listing of the world’s largest corporations for the eighth year
in succession. In the latest ranking released by the Fortune magazine for the year
2001, Indian Oil Corporation is ranked 226 against the ranking of 209 last year.
The lower ranking is mainly due to the diminished value of Rupee as compared to
the US $ by 5.65% for the period under review. As per the Fortune listing, amongst
the 269 largest petroleum-refining companies in the world, IndianOil is ranked 17,
a step above last year’s position of 18.
In the list of “Forbes International 500 Companies’ outside the US, IndianOil
retains its last year ranking of 112, and tops the list among the four Indian
corporates appearing in the listing.
In addition to the Fortune and Forbes rankings, Indian Oil Corporation has been
ranked ‘First’ in Petroleum Trading among the 15 National Oil Companies in the
Asia Pacific Region in the 2001 Industry Perception Survey conducted by Applied
Trading Systems, Singapore.
FINANCIAL REVIEW
TURNOVER
The turnover of Indian Oil Corporation for the year ended 31.03.2002 was Rs.
114,864 Crore as compared to Rs. 117,371 Crore in the previous year. The
reduction in turnover is mainly on account of reduced sale of crude and product to
other Oil Marketing Companies.
Further, the inland sales volume reduced by 0.63 million metric tones, from 47.80
million metric tones in 2000-01 to 47.17 million metric tones during 2001-02,
registering a decline of 1.32%. The reduction in sales is mainly due to lower off-
take of HSD, SKO and Naptha consequent to slow down of economy.
The Corporation recorded the highest ever Profit Before Tax of Rs. 4,599 Crore
during the current year as against Rs. 2,962 Crore in 2000-01, registering a growth
of 55%. The increase in Profit Before Tax is mainly on account of settlement of
Pool claims pertaining to previous year.
An amount of Rs. 977 Crore has been provided towards Current Tax considering
the applicable Income Tax rates, as against Rs. 242 Crore provided during 2000-
01. The effective tax rate for the current financial year works out to 21.68% as
against 8.18% in 2000-01. The increase in effective tax rate is due to provision of
tax during the current year at normal rates of tax due to higher profits as compared
to provision at MAT (Minimum Alternative Tax) rate in the previous year.
b) Deferred Tax
Profit After Tax has improved from Rs. 2,720 Crore in 2000-01 to Rs. 2,885 Crore
during current financial year, registering a growth of 6%.
DEPRECIATION
INTEREST (NET)
Interest Expenditure (net) decreased from Rs. 1,174 Crore during 2000-01 to Rs.
882 Crore for the current year. The decrease is mainly due to reduction in short
term loans and decrease in overall cost of borrowings.
BORROWINGS
The borrowings of the Indian Oil Corporation have also reduced from Rs. 20,636
Crore as on 31.03.2001 to Rs. 19,070 Crore as on 31.03.2002. The Total Debt to
Equity ratio as on 31.03.2002 works out to 1.25:1 as against 1.29:1 as on
31.03.2001 and long Term Debt to Equity ratio stands at 0048:1 as on 31.03.2002
as against.0.40:1 as on 31.03.2001.
EXPORT EARNING
During the year, Indian Oil Corporation earned Rs. 2,078 Crore through experts as
against Rs. 2,206 Crore in 2000-01. The exports include exports of R lubricants to
Nepal, Sri Lanka, Indonesia, Bangladesh, Bahrain and Mauritius, and sale of ATF
to international airlines.
PIPELINES
Indian Oil Corporation owns and operates the largest network of crude and product
pipelines in the country with a total length of 6,523 km and overall capacity 43.45
MMT. The pipeline network transported 40.36 MMT of crude and petroleum
products during 2001-02 against the previous year’s throughput of 39.44 MMT.
MARKETING
During the year, IndianOil’s Marketing Division performed well in all key areas
despite increased competition and unpredictable market conditions. New initiatives
in the form of products and services were taken to achieve ‘Customer Delight’.
SALES
CUSTOMER SERVICE
Indian Oil Corporation, in association with Chennai based Sundaram Finance ltd.,
also launched “Power Plus Fleet Card” for transport fleet operators.
During the year, Indian Oil Corporation enrolled 26 lakh Indane customers, and the
cumulative Indane consumer population reached 322 lakh.
The number of Indane distributorships commissioned during the year was 457
raising the total number of distributors to 3,881. During the year, seven new Indane
Bottling Plants were commissioned, thus raising the total number of Indane
Bottling Plants to 78 and the total bottling capacity to 32.21 metric tones per
annum.
AVIATION
LUBRICANTS
Indian Oil Corporation produced 3.96 lakh metric tones of lubes and 0.13 lakh
tonne of grease during the year. In spite of depressed market conditions, Indian Oil
Corporation improved its market share in finished lubricants. 36 R bazaar-on-
wheels were added to penetrate the bazaar trade. 24 R stockists (auto) and 11 R
stockists (industrial) were commissioned during the year to give a thrust to
lubricant sales. During the year, R lubricants were launched in Bangladesh and Sri
Lanka.
SPECIALITIES
Indian Oil Corporation introduced four new products, viz., Needle Coke (Guwahati
Refinery), Microcrystalline Wax (Haldia Refinery), and Polymer Grade Hexane
and Butene-2 (Gujarat Refinery) in the market as import substitutes.
SHIPPING
149 product import tankers, 11 product tankers and 444 crude import tankers were
handled during the year.
QUALITY ASSURANCE
IOCL consistently accorded top priority on Quality Assurance for its products and
services. IndianOil continues to be the market leader for testing petroleums
products by providing the largest network of testing facilities. More than 2 lakh
samples were tested in its 37 laboratories located across the country. During the
year, a mobile laboratory was added at Patna, taking the number of mobile
laboratories to 23. Laboratory Information Management System was successfully
commissioned in a few IndianOil laboratories with the Laboratory Documentation
and Management System software developed by the Quality Control Department
of Marketing Division.
INTERNATIONAL TRADE
Indian Oil Corporation arranged import of crude oil, petroleum products and
lubricants for meeting the country’s requirements through a carefully selected
diversified mix of supply sources and also exported petroleum products during
2001-02 as detailed hereunder:
The Instrumented Pig developed jointly by R&D Centre and Bhaba Atomic
Research Centre, Mumbai, has completed field trials and is ready for
commercialization.
INFORMATION SYSTEMS
PROJECT MANTHAN
A-30 A-31 Construction of the Data Communication Centre, the electronic and
communication hub of the project, at IIPM campus is in progress. It will not only
host SAP Production System (including Database Servers, Application Servers and
Storage Libraries) but also form the nucleus of a wide Area Network linking all
locations of Indian Oil Corporation through an extensive and robust
communication network using V-SATs, leased lines, ISDN / PSTN dial-up lines,
radio / wireless links and the Optical Fibre Cable communication system of
Pipelines Division.
HUMAN RESOURCES
EMPLOYEE PROFILE
WELFARE OF EMPLOYEES
Indian Oil Corporation has been diligently following the Presidential Directives
and various instructions / guidelines issued by the Government of India regarding
reservation in Services for SCs / STs/ OBCs/ Physically Handicapped/ Ex-
servicemen, etc. Sincere efforts have been made to recruit reserved category
candidates as per the Government’s instructions. It has been the endeavour of your
Corporation to utilise 25% of Community Development Funds towards Special
Component Plan (SCP) and Tribal Sub Plan (TSP) for meeting the needs of weaker
sections. Status on Implementation of Disabilities Act, 1995 Before the enactment
of the Act, Indian Oil Corporation had been extending reservation for physically
handicapped persons in recruitment to the posts in Group ‘C’ & ‘D’. With the
enactment of the act, w.e.f. 07.02.1996, the reservation for physically handicapped
persons has been extended to the posts in Group ‘A’ & ‘B’ as well. Indian Oil
Corporation has been implementing the provision of 3% reservations for physically
handicapped and disabled persons in letter and spirit. Besides, various concessions
and relaxataions are being extended to physically handicapped persons in
recruitment. Presidential Directives regarding Representation of SC’s and ST’s
Officials dealing with the subject are given training as required so as to enable
them to update their knowledge on the subject and perform their job effectively.
Liaison Officers have been appointed at various locations/ units/ installations all
over the country to ensure implementation of Government Directives.
In accordance with para-29 of the Draft Presidential Directives, a note about the
Corporation’s activities having direct relevance to advancement of SC / ST
category of employees along with statistics relating to presentation of SCs / STs, in
the prescribed proformae – Appendices VII(A) and VII(B) – is placed as
Annexure-2. In accordance with the revised instructions of the Government of
India.
As part of the Corporate Mission ‘to help enrich the quality of life of the
community and preserve ecological balance and heritage…’, Indian Oil
Corporation has set up The IndianOil Foundation as a non-profit Trust to protect,
preserve and promote our national heritage and culture, in collaboration with the
Archaeological Survey of India and the National Culture Fund of the Ministry of
Culture.
The Indian Oil Foundation will adopt at least one heritage site in every State and
Union Territory. Archaeological works will be funded by the IndianOil Foundation
to the Archaeological Survey of India through the National Culture Fund. Five
prestigious sites have been identified, viz., Qutb Minar, Delhi; Khajuraho, Madhya
Pradesh; Hampi, Karnataka; Kanheri Caves, Maharashtra; and Konarak, Orissa.
The IndianOil Foundation will develop world-class facilities and conveniences for
visitors. Indian Oil Corporation will provide refueling facilities for travelers and
also undertake community development in the neighborhood.
COMMUNITY DEVELOPMENT
CORPORATE COMMUNICATIONS
Indian Oil Corporation continues to project a positive image to the media, the
public and the stakeholders through various campaigns. During the year a number
of press conferences were organized by IOCL in Delhi, Mumbai, Kolkata and
Chennai. The R umbrella campaign on Television titled ‘Best Friends for Life’ was
well received and adjudged the Most Recalled Advertising Commercial on
Television, winning the Indian Express Award for Excellence. IndianOil Day was
celebrated on 01.09.2001 by the employees of Indian Oil Corporation to reinforce
the resolve of the Indian Oil People to strive for excellence.
The Annual Accounts and Directors’ Report of IndianOil Blending Ltd. (IOBL), a
wholly owned subsidiary of the Corporation, are annexed.
IOBL earned a Net Profit of Rs. 6.86 Crore and declared a Dividend of 30% for the
year 2001-02. The production for the year 2001-02 was 226 TMT, attaining a
capacity utilization of 95%.
The Annual Accounts and Directors’ Report of IBP Co. Limited, a subsidiary of
the Corporation, are annexured. IBP Co. Limited earned a Net Profit of Rs. 195.79
Crore on a turnover of Rs. 8,453 Crore and declared a Dividend of 100% for the
year 2001-02
.
CONCPTUAL FRAMEWORK OF WORKING CAPITAL:
“Working Capital sometimes called as Net Working Capital is represented by the excess of
current assets over the current liabilities and identified the relatively liquid portion to total
enterprise capital which constitutes a margin of buffer for maturing obligations within the
ordinary operating cycle of the business”.
'Working Capital is a excess of current assets over current liabilities'.
Gross Concept
Net Concept
The gross working capital simply called as working capital, refers to the firm's investment
in current assets. Current assets are the assets which can be converted into cash within an
accounting year (or operating cycle) and include cash, short-term securities, debtors, bills
receivables, inventories and prepaid expenses.
The term working capital refers to the capital required for day to day
over Current liabilities. It is necessary for any organization to run successfully its
circulations of blood is essential in the human body for maintaining life, working
can run successfully without an adequate amount of working capital. The main
good credit standing can arrange loans from banks and others on easy and
favorable terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail cash
5. Regular payments: Regular payments of salaries, wages and other day- To-day
commitments company, which has sample working capital, can make regular
payment of salaries. Wages and other day-to-day commitments. Which raise the
morale of its employees, increase their Efficiency, reduce wastage's and costs and
concern to pay quick and regular dividends to its investors, as their may not
be much pressure to plough back profits. this gains the confidence of its
future.
business.
Every business concern should have adequate working capital to run its
1. Excessive working capital means idle funds which earn no profits for the
business and hence the business cannot earn a proper rate of return on its
investments.
2.
• Due to low rate of return on investments the value of shares may also fall.
1. A concern, which has inadequate working capital, cannot pay its short term
liabilities in time. Thus it will loose its reputation and shall not be able to get
2. It cannot buy its requirements in bulk can cannot avail of discounts etc.
3. It becomes difficult for the firm to exploit favorable market conditions and
6. The rate of return on investments also falls with the shortage of working
capital.
an enterprise.
The start up of a new project years from the most crucial phase planning and
operating years, the rather casual approach to assessment of working capital needs
during the periods when industry and business functioned in a sellers market could
position has undergone radical change. The banker can no longer be taken for
granted and in the absence oil proper estimation of working capital needs, the
position. The upward wing is associated with spurt in sales and increase in levels
of inventories and book debts. There could be a cash shortage and borrowing may
inventories and book debts may fall, but revenues also fall, while certain categories
3. Nature of Business:
needs, some ventures like retail stores, construction companies etc. require an
A longer manufacturing cycle between the raw material purchase and the
to meet increased working capital needs. In such cases management should try to
increase the rate of production and reduce the cycle time and thus cut down
accumulations of working progress result in extending the time cycle and blocking
more funds. Organized negotiations with suppliers for attractive credit terms and
suitable credit policy relevant to each customer based on the merits of his case.
Unduly liable credit policies and permissive attitude in the matter of collections of
outstanding can lock up funds that would be other wise be available for operating
needs.
The sources of certain raw materials are few and irregular and pore problems
in the matter of procurement and holding, using up more funds. Materials that are
available only in certain seasons have to be obtained and stored in advance. The
order to utilize the capacity to the maximum possible extent, steady production
may have to be maintained, through the demand for finished products may very
from time to time. Finished goods inventories will therefore accumulate during off
inventory. Financial planning will have to provide for these funds, requirements
finished goods inventory levels until they are sold during the peak seasons, some
companies diversify and produce other products that are in demand, enabling
manufacture of the main product to follow the seasonal pattern of its demand.
9. Competitive Conditions:
To offer the customer the benefit of choice, a variety of products will have to
be manufactured and stocked. This would mean higher levels of inventories in all
stages and, therefore, additional working capital funds. More generous credit
terms may have to be extended and the investments in accounts receivables may
need for increased working capital does not follow the growth in business activity,
Owning concern. Or else, the company may have substantial earnings but little
cash. With fast growth, they may be under constant pressure for raising external
compared to others. The product category and the firm’s position in the market
may have given these advantages. Others have to struggle in a highly competitive
environment. But, profits cannot be considered as available cash at the end of the
period. Even as the companies operations are in progress, cash is used up for
augmenting stocks, book debts and fixed assets. Elaborate planning and
identified and where surpluses are expected, suitable applications will have to be
planned.
12. Taxation:
To able to get the best out of the available tax incentives, the finance manager has
to draw up the operating plans of the company in advance and utilize the resources
for research and development, exports or other purposes which promise tax
Management has to preserve cash resources but at the same time, it a cannot
fail to satisfy investor expectations. Market prestige for the shares of the company
has also lobe nurtured and maintained in its long run interests. During periods of
reserves out of profits the urge to retain profits may act as a major constraint on the
dividend policy, the funds position being given higher priority over dividend
policy.
15. Depreciation’ Policy:
various categories of fixed assets. The depreciation charges do not involve any
cash outflow. Enhanced rated of depreciation have the effect of reducing profits
This process conserves cash. Depreciation polices. Thus exert influence on the
Rapidly rising prices create the need for more funds for maintaining the
present volume of activity for same levels of inventories, higher cash outlays are
needed.
In an inflationary set up, even operating expenses will grow for given levels
and its working capital position. Waste elimination, improved coordination to cut
the initiatives taken to prevent erosion of profits. They also have the effect of
getting more out of a given volume of working capital or obtaining the current
operation accelerates the place of the cash cycle, and improves the working.
and has to plan and review constantly its working capital needs and strategy.
WORKING CAPITAL MANAGEMENT:
term assets and its short-term liabilities. The goal of working capital management
is to ensure that a firm is able to continue its operations and that it has sufficient
expenses.
economist JOHN Maynard Keynes to explain why firms hold cash. The three
reasons are for the purpose of speculation, for the purpose of precaution, and for
making transactions. All three of these reasons from the need for companies to
process liquidity.
In the broad sense, the term working capital refers to the gross working
capital and represents the amount of funds invested in current assets. Current assets
are those assets, which in the ordinary course of business can be converted into
In a narrow sense, the term working capital refers to the net working capital.
Net working capital is the excess of current assets over current liabilities.
Net working capital may be positive or negative. When the current assets
exceed the current liabilities, the working capital is positive and the negative
working capital results when the current liabilities are more than the current assets.
two concepts of working capital are not exclusive; rather both have their own
merits.
Gross concept is very suitable to the company form of organization where
there is divorce between ownership, management and control. The net concept may
partnership firms. However, it may be made clear that as per the general net
WORKING CAPITAL
Regular Reserve
Working capital Working capital
Seasonal special
Working Capital Working Capital
1. GROSS WORKING CAPITAL:
Gross working capital is represents by the sum total of all current assets of
the enterprise. Enough funds will have to be provided to sustain the movement of
But short term financing is more risky than long term financing. In process
to the finished goods stage and then to accounts receivables and up to the
realization of cash.
components, namely stock of raw materials and minimal cash and bank balances,
investment in current assets are under constant review, close attention and prompt
Net working capital is the difference between the current assets and current
liabilities. While current assets are short term assets that are expected to get
converted in to cash within one year, current liabilities are short – term liabilities
that are expect to fall due or mature for payment in a short period, generally within
a year, and represent short term sources of funds. The concept of net working
capital, as the excess of current assets over current liabilities, highlights the
character of he sources from which the funds have been obtained to support that
capital may be provided by way of share capital, from internal source such as
reserves or plough back of profits or from external sources in the form of long-
The management has to examine what proportion of the current assets has
eagerness of short – term creditors to verify whether the total current assets,
representing ultimate source of funds for the recovery of their dues, maintains a
policy of mixing long term and permanent as distinct from short term sources
In actual operation of typical going concern, the current assets and each
component of it, are subject to continuous and rapid pace of replacement. Over a
period of time, there is a constant or minimum level, below, which the total
This minimum level of current assets can be called as the ‘hared core’ or fixed or
interpreted to indicate that the fixed assets and permanent working capital should
be financed by long term sources of funds and that the variable working capital
The amount of funds needed over and above the fixed working capital to take care
of such seasonal shifts constitutes the variable working capital. These are also
cover also a part of this seasonal requirement form long term sources, as insurance
lifeblood and every manager's primary task is to help keep it, flowing and to use
The faster a business expands the more cash it will need for working capital
and investment. The cheapest and best sources of cash exist as working capital
Good management of working capital will generate cash will help improve
profits and reduce risks. Bear in mind that the cost of providing credit to customers
and holding stocks can represent a substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash inventory
(stocks and work-in -progress) and Receivables (debtors owing you money).The
main sources of cash payables (your creditors) and Equity and Loans.
managing working capital -TIME IS MONEY. If you can get money to move
faster around the cycle (e.g. collect monics due from debtors more quickly) or
reduce the amount of money tied up (e.g. reduce inventory levels relative to sales).
The business will generate more cash or it will need to borrow less money to find
working capital. Consequently, you could reduce the cost of bank interest or you
will have additional free money available to support additional sales growth or
investment.similarly,if you can negotiate, improved terms with suppliers e.g. get
longer credit or an increased credit limit; you effectively create free finance to help
It can be tempting to pay cash, if available, for fixed assets e.g. computers ,
plants, vehicles etc. if you do pay cash, remember that this is now longer available
increase drawings, these are cash outflows and, like water flowing down a
The operating cycle of the company can be said to cover distinct stage, each
stage requiring a level of supporting investment. The sum total of these stage-wise
certain number of days have cost of production. The finished goods inventory can
The number of days purchases on an average, included in the trade creditors can
also be calculated form the company’s data. The fact that the trade creditors
finance a good part of investment in raw materials and stores inventory desserts
particular attention.
t= (r-c) + w + f + b, where
t= Stands for the total period of the operating cycle, in number of days.
r= The number of days raw materials and stores consumption requirements held in
f= The number of days cost of sales included in the finished goods inventory.
r= Average inventory of raw materials and stores Average materials and stores
finding the mean between the opening and closing balances for the year. The
average consumption or output or cost of sakes or sales per day can be obtained by
The total operating cycle time, expressed in number of days, can at best give
a very general idea of the time interval for initial cash outlay on purchases to get
converted into cash again after passing through production, sales and collection
processes. But, the information pertaining to each distinct stage of the operating
that it can be used, directly or with modifications, in arriving at the money values
will represent the estimated working capital requirements. Such an estimate can
only indicate the magnitude of working capital needs, on an average. The short
run fluctuations attributable to seasonal and other factors and their impact on funds
working capital needs. To get at these specifics, Short run forecasts and budgets
accounting basis.
One of the main tasks of financial management is to hold and maintain
adequate, but not excessive, cash position. Cash is an essential input company’s
on accounting basis. Cash is also the major out put or result of the company’s
operations and there is the need for effective plan to deploy this liquid resource to
(Rs.in Lakhs)
Particulars
YEAR Changes in working capital
Increase Decrease
2005 2006
Current Assets 0.00
453.08 367.11 85.97
Inventories
Sundry Debtors 330.89 137.23 0.00 193.66
Cash and bank balances 1399.46 3191.94 1792.48 0.00
Loans and advances 325.45 305.52 0.00 19.93
Total current assets (A) 2508.88 4001.8
Liabilities and
provisions
Liabilities 297.53 692.77 0.00 395.27
Provisions 495.46 284.3 211.16 0.00
Total current liabilities (B) 792.99 977.07
Inference:In 2005-06 the percentage of cash and bank balance had been the highest followed by
inventory, debtors, loans and advances, to the total current asset. In this annual the period of the
company raised more cash and bank balance than actually required. From this, we can know the
other current assets declaimed too least from the total study period.
Table showing the working capital for the year 31-03-2006 to 31-03-2007
(Rs.in Lakhs)
Particulars
YEAR Changes in working capital
Increase Decrease
2006 2007
Current Assets 165.73
367.11 532.84 0.00
Inventories
Sundry Debtors 137.23 387.17 249.46 0.00
Cash and bank balances 3191.94 4615.58 1423.64 0.00
Loans and advances 305.52 371.36 65.84 0.00
Total current assets (A) 4001.8 5906.95 0.00
Liabilities and
provisions
Liabilities 692.77 279.29 413.48 0.00
Provisions 284.3 557.06 0.00 272.76
Total current liabilities (B) 977.07 836.35
Inference:In 2006-07 the percentage of cash and bank balance had been the highest followed by
inventory, debtors, loans and advances, to the total current asset. In this annual the period of the
company raised more cash and bank balance than actually required. In this annual the company
decrease the credit sales and increase cash and bank balances.
Table showing the working capital for the year 31-03-2007 to 31-03-2008
(Rs.in Lakhs)
Particulars
YEAR Changes in working capital
Increase Decrease
2007 2008
Current Assets 1.81
532.84 534.65 0.00
Inventories
Sundry Debtors 387.17 386.24 0.00 0.93
Cash and bank balances 4615.58 4685.06 69.48 0.00
Loans and advances 371.36 486.61 115.25 0.00
Total current assets (A) 5906.95 6092.56 0.00
Liabilities and
provisions
Liabilities 279.49 313.04 0.00 33.75
Provisions 557.06 394.54 162.52 0.00
Total current liabilities (B) 836.35 707.58
Inference: In 2007-08 the percentage of cash and bank balance had been the highest followed by
inventory, debtors, loans and advances, to the total current asset. In this annual the period of the
company raised more cash and bank balance than actually required. In this annual the company
decreases the credit sales and increase cash and bank balances.
Table showing the working capital for the year 31-03-2008 to 31-03-2009
(Rs.in Lakhs)
Particulars
YEAR Changes in working capital
Increase Decrease
2008 2009
Current Assets 121.86
534.65 656.51 0.00
Inventories
Sundry Debtors 386.24 495.42 109.18 0.00
Cash and bank balances 4685.06 4830.46 145.40 0.00
Loans and advances 486.61 623.24 136.63 0.00
Total current assets (A) 6092.56 6605.63 0.00
Liabilities and
provisions
Liabilities 313.04 620.99 0.00 307.95
Provisions 394.54 219.49 175.05
Total current liabilities (B) 707.58 840.48
Inference :In 2008-09 the percentage of cash and bank balance had been the highest followed by
inventory, debtors, loans and advances, to the total current asset. In this annual the period of the
company raised more cash and bank balance than actually required. In this annual the company
decreases the credit sales and increase cash and bank balances.
Table showing the working capital for the year 31-03-2009 to 31-03-2010
(Rs.in Lakhs)
Particulars
YEAR Changes in working capital
Increase Decrease
2009 2010
Current Assets
656.51 0.00
427.71 427.71
Inventories
Sundry Debtors 495.42 291.28 291.28 0.00
Cash and bank balances 4830.46 5501.81 5501.81 0.00
Loans and advances 623.24 675.24 675.24 0.00
Total current assets (A) 6605.63 6896.04 6896.04 0.00
Liabilities and
provisions
Liabilities 620.99 429.39 429.39 307.95
Provisions 219.49 305.80 305.80
Total current liabilities (B) 840.48 735.19 735.19
Inference:In 2009-10 the percentage of cash and bank balance had been the highest followed by
inventory, debtors, loans and advances, to the total current asset. In this annual the period of the
company raised more cash and bank balance than actually required. In this annual the company
decreases the credit sales and increase cash and bank balances.
FINDINGS
Though there are changes in the amount of net working capital of IOCL from year to all
the other years having the positive working capital.
The turn over ratio of IOCL, reveals that the company's ability in managing the current
assets for generation of sales has slightly decrease during the study period.
As the cash and bank balance is heavy it can be suggested the they are to utilized in an
effective manner.
Working capital in 2005- 2006 was decreased but after that from 2009 – 2010 it has been
increased tremendously. The keeping the funds ideally. The company has not gone for
expansion and bought any fixed assets.
The study reveals that the liquidity position of, IOCL is satisfactory as its current assets
remained above the standard norms through out the period of study.
On the whole it can be included that the working capital management is up to the
expected level.
It can be suggested the large amount of current assets should be managed properly.
SUGGESTIONS
It can be suggested that the large amount of current assets should be managed properly
As the cash and bank balance is heavy it can be suggested that they are to be utilized in
an effective manner.
Working capital in 2005-2006 was decreased but after that from 2009-10 it has been
increased tremendously. Keeping the funds ideally the company has not gone for
expansion and bought any fixed assets.
It is better to utilize funds by investing in fixed assets or going for expansion.
The company should effective measures for proper utilization of working capital, which
is more adequate to for diversification or expansion.
BIBILOGRAPHY
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