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WORKING CAPITAL MANAGEMENT


IN
ODISHA POWER TRANSMISSION CORPORATION LIMITED
COMPANY GUIDE:
Sri Samarendra Mohapatra.
Pradhan.
AM (F), Banking.

Submitted by:
Bibekananda Das Mallik
Regd.No-1206284062

FACULTY GUIDE:
Sushmita
(Asst.Proffesor)

I am sincerely expressing my gratitude to our Company guide


Sri Samaredra Mohapatra & Project guide Asst.Prof.Sushmita
Pradhan
In Department of Master in Business Administration For his
guidance, valuable suggestion and constant help without which
the
Completion of the present report was not possible.
I am also grateful to the ASST. prof. SIDDHARTHA GHOSH Head
of the Department of Master In Business Administration For
kind permission to carry out this Seminar Report proving all
kinds of information facilities.
Bibekananda Das Mallik
Regd.no-1206284062

This is to certify that Mr. Bibekananda das mallik of


Department of MBA ASTHA SCHOOL OF
MANAGEMENT doing Master of Business
administration (MBA) has successfully completed his

project work under the topic: working capital


management from 18th, June to 31st July, 2013.

REGARDS
Sri Samarendra
Mohapatra
AM (F), Banking

This is to certify that project Report entitled working capital


management in Odisha power Transmission Corporation limited
Carried out under the direction supervision of Asst.Prof.Sushmita
Pradhan
And is accepted as partial fulfillment for the requirement of 2 nd
semester M.B.A at Astha School OF Management, Bhubaneswar,
Odisha.

I am satisfied that He had worked sincerely and with proper


care.

Project Guide:
Asst.Prof.Sushmita Pradhan
SIDDHARTHA GHOSH

H. O. D:
ASST. prof.

I bibekananda das mallik, a student of Mba, 2nd semester of department


of business administration, astha school of management, Bhubaneswar,
odisha, session (2012-2013,) hereby declare that the project report
entitled WORKING CAPITAL MANAGEMENT at OPTCL, Bhubaneswar is
the outcome of my own work and the same has not been submitted to
any university/Institute for the award of any degree or any professional
courses.
All the data and analytic statement being stated in the project that had
been submitted by me may be accepted as fully authentic genuine.

Date:
bibekananda das mallik.

CONTENT
Chapter-1
Introduction
Chapter-2

Research methodology

Purpose of the study

Scope of the study

Objective of the study

Need and importance of the study

Limitation of the Study.

Chapter-3

Company profile
Vision and mission of OPTCL
Objectives of OPTCL
Functional Area
Organisation Structure

Chapter-4
Theoretical Background
Chapter-5
DATA COLLECTION
Instrumental Technique
Collection of data
Chapter-6
Review of the literature

INTRODUCTION
: Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies fail

each year due to poor working capital management practices. Entrepreneurs often
don account for short term disruptions to cash flow and are forced to close their
operations. In simple term, working capital is an excess of current assets over the
current liabilities. Good working capital management reveals higher returns of
current assets than the current liabilities to maintain a steady liquidity position of a
company. Otherwise, working capital is a requirement of funds to meet the day to
day working expenses. So a proper way of management of working capital is
highly essential to ensure a dynamic stability of the financial position of an
organization.OPTCL is one of the largest power transmission organizations in the
country, which plays the role of transmission of electricity in the entire state of
Odisha. Seeing the good opportunity to study financial systems and practices of
OPTCL, it is relatively important take up internship assignment on WORKING
CAPITAL MANAGEMENT INOPTCL. During the project work, it is being analyzed
the working capital position of this organization. Decisions relating to working
capital and short term financing are referred to as working capital management.
These involve managing the relationship between a firms short-term asset and its
short-term liabilities. The goal of Working capital management is to ensure that the
firm is able to continue its operations and that it has sufficient money flow to satisfy
both maturing short-term debt and upcoming operational expenses. Working
capital management deals with maintaining the levels of working capital to
optimum, because if a concern has inadequate opportunities and if the working
capital isomer than required then the concern will lose money in the form of
interest on the blocked funds. Therefore working capital management plays a very
important role in the profitability of a company.

RESEARCH METHODOLOGY
Research methodology is a systematic approach in management research to
achiever-defined objectives. It helps a researcher to guide during the course of

research work. Rules and techniques stated in research methodology save time
and labor of the researcher as researcher know how to proceed to conduct the
study as per the objective. SELECTION OF TOPIC: The selection of topic is a
crucial factor in any research study. There should be newness and it should give
maximum scope to explore the ideas from different angles. In present day due to
increase in competition, working capital is becoming necessary for the
organization. It is that part of capital which is necessary to undertake day to day
expenditure of the business organization. Whatever may be the organization,
working capital plays an important role, as the company needs capital for its day to
day expenditure. Thousands of companies fail each year due to poor working
capital management practices. Entrepreneurs often dont account for short term
disruptions to cash flow and are forced to close their operations. Working capital is
the fund invested by a firm in current assets. Now in a cut throat competitive era
where each firm competes with each other to increase their production and sales,
holding of sufficient current assets have become mandatory as current assets
include inventories and raw materials which are required for smooth production
runs. Holding of sufficient current assets will ensure smooth and uninterrupted
production but at the same time, it will consume a lot of working capital. Here
creeps the importance and need of efficient working capital management. After
due to consultation with the external guide /internal guide, the topic was finalized
and titled as-A STUDY ON WORKING CAPITALMANAGEMENT IN OPTCL,
BBSRSELECTION OF LOCATION FOR THE STUDY: The location for study was
selected as the corporate office of OPTCL, Bhubaneswar. RESEARCH DESIGN:
A Research design is the arrangement of conditions for collection and analysis of
data in a manner that aims to combine relevance to the research purpose with
economy in procedure.

REGULATION AND TARIFF WING


OPTCL raises customer-bills on a monthly basis as follows:
Intra-state transmission charge bills are raised upon grid co towards transmission of energy
for four discos (cues, Ensco, south co and Wasco) who are long-term open access
customers.

Bills on other long-term open access customers like Nalco and icicle are raised for
wheeling of energy from their caps to their industries located at damanjodi and therubali
respectively.
Inter-state wheeling charge bills are raised upon scab, muse, and mesh, did and den for
wheeling of central sector power to their territories through optical network.
Inter-state wheeling charge bills are raised upon muse / scab for wheeling of power from
harked power station (5 mw share of map.)

FINANCIAL STATEMENT ANALYSIS:

Comparative Analysis:
identifying

It is a simple method of
periodic changes in the financial performance of the company. It

helps in highlighting the significant points and facts about the company
.Comparative financial statements will contain items at least for two
periods .Changes increases or decreases in income statement and balance
sheet over periods can be shown in two ways aggregate and proportional
change.
Ratio Analysis: Mere statistics / data presented in the
different
financial statements do not reveal the true picture of a
financial position of a firm. Properly analyzed and interpreted financial
statements can provide valuable insights into a firms performance. To
extract the information from the financial statements, a number of tools are
used to analyze such statements. The most popular tool is the ratio analysis.
The analysis is used to provide indicators of performance in terms of critical
success factors of a business. This assistance in decision making reduces
reliance on guesswork and intuition and establishes a basis for sound
judgment.

SIGNIFICANCE OF USING RATIOS:


The significance of a ratio can only truly be appreciated when:
It is compared with other ratios in the same set of financial statements.
It is compared with the same ratio in previous financial statements
(trend analysis).
It is compared with a standard of performance (industry average).Such
a standard may be either the ratio which represents the typical
performance of the trade or industry, or the ratio which represents the
target set by management as desirable for the business.

TYPES OF RATIOS:
Following are the main types of ratios are as follows

1. Solvency ratios

2. Activity ratios
3. Profitability

SOLVENCY RATIO:
It can be of two types such as

Short term solvency ratio or liquidity ratio


Long term solvency ratio

SHORT TERM SOLVENCY RATIO OR LIQUIDITY RATIO :

Liquidity refers to the ability of a firm to meet its short-term financial


obligations when and as they fall due.
The main concern of liquidity ratio is to measure the ability of the
firms to meet their short term maturing obligations. Failure to do this
will result in the total failure of the business, as it would be forced into
liquidation.
Following ways are used to measure the liquidity of a firm;

1. CURRENT RATIO:
The current ratio expresses the relationship between the firms
current assets and its current liabilities. As a convention rule, a current ratio
should be 2:1. It is based on the logic that even in the worst situation if the
value of current assets becomes half, firm will be able to meet its obligation.
Current ratio represents a margin of safety for creditors. But it should be not
followed blindly, because it tests the quantity not the quality.
Current Ratio= Current assets
Current liability

2. QUICK RATIO:
It establishes the relationship between liquid assets and current
liabilities. An asset is liquid if it is quickly converted into cash

immediately without any loss of value. Generally 1:1 ratio is considered


to be satisfactory for financial condition of the company.

Quick Ratio = Current assets-Inventories-Prepaid Expenses


Current Liability- Overdraft

3. ABSOLUTE LIQUID RATIO:


There may be down regarding reliability receivables in time. So
some authority are of opinion that absolute liquid ratio should be
calculated for knowing short term solvency. The absolute liquid ratio,
the relationship between Absolute liquid asset and current liabilities.
Absolute liquid asset includes cash in hand, cash at bank and
marketable securities. A ratio of 1:2 is considered as good ratio .

Absolute liquid ratio = Absolute liquid asset


Current liabilities

LONG TERM SOLVENCY RATIO:


The ratios indicate the degree to which the activities of a firm are
supported by creditors funds as opposed to owners. The relationship of
owners equity to borrowed funds is an important indicator of financial
strength . The debt requires fixed interest payments and repayment of the
loan and legal action can be taken if any amounts due are not paid at the
appointed time. A relatively high proportion of funds contributed by the
owners indicate a surplus which shields creditors against possible losses
from default in payment. The following ratios can be used to identify the
financial strength and risk of the business.

EQUITY RATIO:
The high equity ratio reflects a strong financial structure of the
company. A relatively low equity ratio reflects a more speculative

situation because of the effect of high leverage and the greater


possibility of financial difficulty arising from excessive debt burden.
Equity Ratio =

Share holders Funds

100%

Total Assets

DEBT RATIO:
This is the measure of financial strength that reflects the proportion of
capital which has been funded by debt, including preference shares.
This ratio is calculated as follows:
Debt Ratio

Total Debt

X 100%

Total Assets

DEBT TO EQUITY RATIO:

This ratio indicates the extent to which debt is covered by shareholders


funds. It
reflects the relative position of the equity holders and the
lenders and indicates the companys policy on the mix of capital funds. The
debt to equity ratio is calculated as follows:
Debt Equity Ratio

Total Debt

X 100%

Net Worth

ACTIVITY RATIOS:
If a business does not use its assets effectively, investors in the
business would rather take their money and place it somewhere else. In
order for the assets to be used effectively, the business needs a high
turnover. Activity ratios are therefore used to assess how active various
assets are in the business.

INVENTORY TURNOVER RATIO:

It indicates the efficiency of the firm in producing and selling its product.
This ratio measures the stock in relation to turnover in order to
determine how often the stock turns over in the business.

Inventory Turnover Ratio = cost of Goods sold


Average inventory

Average inventory refers to simple average of opening and closing


inventory. The inventory turnover ratio tells the efficiency of inventory
management. Higher the ratio, more the efficient of inventory
management.
INVENTORY HOLDING PERIOD:

It is also known as inventory velocity. It is an average time taken for the


clearing the stocks. This period is calculated by dividing the number of
days in a year by inventory turnover ratio.
Inventory holding period

360 days

Inventory turnover ratio

DEBTOR TURNOVER RATIO:

The debtor turnover ratio measures the movement of debtors in


corporations. It also indicates the velocity / turnover of debt collection of
a firm. The higher the value of debtor turnover the more efficient is the
management of debtors/ sales on more liquid cash.
Debtors turnover ratio

Net Credit Sales


Average Debtors

DEBTOR COLLECTION PERIOD:

Average collection period represents the number of days worth credit


sales that is locked in debtors (accounts receivable). Average collection
period and the accounts receivable (debtors) turnover are related as
follows;

Average Collection period

360 days
Debtors turnover ratio

TOTAL ASSETS TURNOVER RATIO:


It helps in measuring how efficiently all types of assets are employed. It
gives the information about, for each rupee which company has
invested in assets what amount of sales it has generated from that. A
high total assets turnover ratio is good for the company.

Total Assets turnover ratio =

Net sales

Average total assets


DEFERRAL PERIOD:

It is the average time taken by the firm in paying its suppliers.


Deferral period =

Creditors X 360 days


credit purchase

WORKING CAPITAL TURNOVER RATIO:

This is the ratio of sales to net working capital. The higher the ratio is
better for the company. It indicates the sales generated by the company out
of 1 rupee invested in net current assets.

Working Capital Turnover Ratio

Sales

Net Working Capital

PROFITABILITY RATIOS:
Profitability is a result of a larger number of policies and
decisions. The profitability ratios show the combined effects of
liquidity , asset management ( activity ) and debt management on
operating results. The overall measure of success of a business is the
profitability which results from the effective use of its resources. It
evaluates the efficiency of a company in terms of profit.
Profitability and operating / management efficiency of a firm is judged
mainly by the following profitability ratios:

GROSS PROFIT MARGIN:

Normally the gross profit has to rise proportionately with sales. It may
be calculated by subtracting the cost of goods sold from net sales.
Gross profit margin =

Net sales - cost of goods sold

X 100

Net sales

It reflects the efficiency with which the company produces each unit of
product. Higher the percentage the better it is for the company.
OPERATING PROFIT MARGIN:

This is the ratio of operating profit to sales.


Operating profit margin

Operating profit

100

Net sales

The term operating profit is the difference between gross


profit t and administration and selling overheads. Non operating income
and expenses are excluded. Interest expenditure is also excluded
because interest is the reward for a particular form of financing and has
nothing to do with operating activities. Higher the percentage the better
it is for the company.

NET PROFIT MARGIN:

The term net profit refers to the final profit of the company. It takes
into account all incomes and all expenses including interest costs. It is also
known as profit after tax. Higher the percentage the better it is for the
company.

Net profit margin =


Net sales

Net profit

100

RETURN ON TOTAL ASSETS OR

RETURN ON INVESTMENT:

Income is earned by using the assets of a business productively.


The rate of return on total assets indicates the degree of efficiency with
which management has used the assets o f the enterprise during an
accounting period. This is an important ratio for all readers of financial
statements.

Return on investment

EBIT
Total Assets

ANALISIS OF OPTCL ORGANISATION


NET WORKING CAPITAL
= TOTAL CURRENT ASSET-TOTAL CURRENT LIABILITY

PARTICULA

07-08

08-09

09-10

10-11

11-12

12-13

RS

Rs.Cr

Rs.Cr

Rs.Cr

Rs.Cr

Rs.Cr

Rs.Cr

TOTAL

310.61

630.63

309.35

314.36

283.39

377.46

335.97

730.4

518.84

678.99

468

608.8

-25.36

-99.77

-209.49

-364.63

--184.63

-231.34

CURRENT
ASSET (A)
TOTAL
CURRENT
LIABILITY
(B)
NET
WORKING
CAPITAL
(A-B)

REVIEW OF THE LITERATURE:


In analysis of this organization,

OPTCL is the only transmission utility in the state of odisha, there is no


competition from any other transmission corporation limited.

The strong transmission network is having 81 grid substations spread


throughout the state, is a great asset of optcl.

A strong team of technically skilled work force is another grid asset to the
organization.

There is enough scope for creating network for both inter as well as intra state in
the absence of any competitors.

Availability of technical persons within the state in a large number is an


opportunity in the organization for fresh recruitment.

Continuous operation and maintenance of grid substation and extra high voltage
(EHV) transmission lines has become a challenge to the organization, unless
properly maintained it will break down of the entire system.

There is a great competition in the international market and also there is a


chance of invention of other transmission company in the state.

It helps to transport the power from one state to another state, which also
generates revenue.

Use of superior technology in power supply also helps to decrease in cost and
increase in revenue.

Lack of computerization system in the organization also decreases the efficiency


and increase the cost.

BIBLIOGRAPHY:

Financial Management Sharma and Gupta ,I.M. Pandey

Financial Management S.N. Maheshwari

Annual Report of OPTCL

www.google.co.in

www.optcl.co.in