Working Capital Management in ONGC

Presented by:

Richa Bansal

Company Profile
 Oil and natural gas corporation ltd., a Navaratna public sector enterprise is

one of the leading enterprises in the country with significant contribution to industrial and economic growth.ONGC has produced more than 600 metric Tons of crude oil and supplied 200 billion cubic meters of gas since its inception today, ONGC Indias highest profit making corporate. It has a share of 77 percent in Indias crude oil production and 81 percent in Indias natural gas production.
 ONGC is developing a long-term strategy aimed at value creation over

long-term. It currently controls 90% of Indias E&P business and employs over 40000 trained manpower.

 ONGC is Indias highest profit making company with record profit

exceeding Rs.14000 crore in the financial year 2006.

Working Capital
 Fund required to finance day to day business operation are called

working-capital.
 Circulating capital means current assets of the company that

change in the ordinary course of business firm from one form to another, as for example from cash to inventories to receivables, receivables to cash. - Genestenberg
 Working Capital = Current Assets Current Liabilities

Operating Cycle of Working Capital

Cash Raw Materials

Receivables

Sales

Wages

Finished Goods

Expenses

WORKING CAPITAL STATEMENT OF ONGC

2009 CURRENT ASSETS Inventories Debtors Cash and bank balances Deposit with bank under site restoration fund scheme Loans and advances Other current assets TOTAL CURRENT LIABILITIES Current liabilities and provisions and short term loans 211051 176083 139932 105951 108763 89080 69557 260043.83 13548.86 546000 64033 182467.09 13277.70 498331 56103 185945.25 0.35 443953 45336 212549.33 0.21 371615 36181 159637.38 10.11 321658 31682 141029.72 99.82 280615 40607 40838 121405 34806 43604 160143 30338 27594 136704 30385 37043 42792 25692 37293 58488 24057 23178 55735 2008 2007 2006 2005 2004

WORKING CAPITAL

334949

322248

304021

265664

212895

191535

Current Ratio:
4 3.51 3.5 3 2.5 2.96 3.17 2.83 2.59

Ratio

2 1.5 1 0.5 0 2004 - 05 2005 - 06 2006 -07 2007 - 08 2008 - 09

Years

Current ratio = current assets Current liabilities

Liquid ratio
3.5 3 2.5

3.22 2.72

2.96 2.63 2.39

ratio

2 1.5 1 0.5 0

2004 - 05 2.72

2005 - 06 3.22

2006 - 07 2.96

2007 - 08 2.63

2008 - 09 2.39

Series 1

years

Liquid ratio = liquid assets = current assets-inventories Current liability current liability

Debtor turnover ratio

25

21.4
20

ratio

15

12.7

13.3

14.1

15.6

10

0 Column1

2004 - 05 12.7

2005 - 06 13.3

2006 - 07 21.4

2007 - 08 14.1

2008 - 09 15.6

years

Debtor turnover ratio = sales Debtor

Working Capital Turnover Ratio

2.5 2 Ratio 1.5 1 0.5 0 Working Capital Turnover Ratio 0 2004-05 2005-06 2006-07 2007-08 2008-09 2.22 1.86 1.94 1.91 1.94

Working Capital Turnover Ratio =

Sales Net Working Capital

Components of Working Capital

 Management of Receivables  Management of Inventories

Average collection period

30

28.5

27

26 23.1 17

25

20

ratio

15

10

0 Series 1

2004 - 05 28.5

2005 - 06 27

2006 - 07 17

2007 - 08 26

2008 - 09 23.1

years Average collection period = 360 Debtor turnover ratio

Management of Inventories in ONGC

Inventory Holding Period in ONGC
23.5 23 22.5 22 No. of Days 21.5 21 20.5 20 19.5 19 18.5 Inventory Holding Period in ONGC 2004-05 20 2005-06 23 2006-07 20 2007-08 21 2008-09 23

Findings
y ONGC has got a very sound working capital management, during the period y y y y y

of study. There is an increase in current assets during the period of study, which shows that the company has the ability to pay its current obligations. The liquidity position of the company is very strong; it means that ONGC is in a credit worthy position. The company is not taking care of its profit margin, as it is decreasing in the current year i.e. in 2008-09. Average collection period of ONGC is quite good. The net profit of the company is decreasing in the current year but the sales are increasing. This shows that the net profit is decreasing because of fluctuations in prices. ONGC has introduced the concept of JIT (Just in Time) technique in a bit, to maintain the inventory properly.

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