Ntpc Project Final

8/12/2019 Ntpc Project Final

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SIKKIM MANIPAL UNIVERSITY

2013

Working Capital

Management of NTPC Ltd

Project Report for MBA_DS (Finance)

Ajay Singhal

R E G I S T A R T I O N N O . - 1 2 0 8 0 1 4 0 0 6



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PROJECT REPORT

On

SUBMITTED BY

NAME : AJAY SINGHAL

ENROLLMENT NO : 1208014006



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Submitted in par tial f ul fi llment of the requir ements for qua l i fy i ng

MBA_ DS (FINANCE)

UNDER SUPERVISION OF :

Submitted By:

Name : AJAY SINGHAL

Programme Code : MBA_ DS(Finance)

Enrollment No. : 1208014006

Name of the Learning Centre : SHAKTINAGAR

Learning Centre Code : 03032



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ACKNOWLEDGEMENT

With Candor and Pleasure I take opportunity to express my sincere thanks and

obligation to my esteemed guide . It is because of his able and mature

guidance and co-operation without which it would not have been possible for me to

complete my project.

Finally, I gratefully acknowledge the support, encouragement & patience of my wife

Mr s. Seema Singhal, my sons Aseem Singhal & Akshat Sin ghal, and as always,

nothing in my life would be possible without my parents & God, Thank You!



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DECLARATION

I hereby declare that this project work titled “Working Capital Management of

N TPC L t d ” is my original work and no part of it has been submitted for any other

degree purpose or published in any other from till date.



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TABLE OF CONTENTS

S. NO. CONTENTS PAGE NO.

1. Introduction to topic…………………………………………….……7

2. Review of Literature...……………………………………………....41

3. Objective of the study……………………………………………….54

4. Research Methodology………………………………………….….55

5. Data Analysis…………………………………………….……...….56

6. Conclusion and Major Finding..…………………………….…..81

7. Recommendation and Limitation……………………………… 83

8. References.………………………………………...…………….…85



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CHAPTER -1

INTRODUCTION

India‘s largest power company, NTPC was set up in 1975 to accelerate power developmentin India. NTPC is emerging as a diversified power major with presence in the entire value

chain of the power generation business. Apart from power generation, which is the

mainstay of the company, NTPC has already ventured into consultancy, power trading, ash

utilization and coal mining. NTPC ranked 337 th in the ‗2012, Forbes Global 2000‘ ranking

of the World‘s biggest companies. NTPC became a Maharatna company in May, 2010, one

of the only four companies to be awarded this status.

The total installed capacity of the company is 40,674 MW (including JVs) with 16 coal

based and 7 gas based stations, located across the country. In addition under JVs, 7

stations are coal based & another station uses naptha/LNG as fuel. The company has set a

target to have an installed power generating capacity of 1,28,000 MW by the year 2032.

The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear

and 17% Renewable Energy Sources (RES) including hydro. By 2032, non fossil fuel based

generation capacity shall make up nearly 28% of NTPC‘s portfolio.

NTPC has been operating its plants at high efficiency levels. Although the company has

17.75% of the total national capacity, it contributes 27.40% of total power generation due

to its focus on high efficiency.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as

fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed

company in November 2004 with the Government holding 89.5% of the equity share

capital. In February 2010, the Shareholding of Government of India was reduced from

89.5% to 84.5% through Further Public Offer. The rest is held by Institutional Investors

and the Public.

At NTPC, People before Plant Load Factor is the mantra that guides all HR related

policies. NTPC has been awarded No.1, Best Workplace in India among large

organizations and the best PSU for the year 2010, by the Great Places to Work Institute,

India Chapter in collaboration with The Economic Times.



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The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture.

Through its expansive CSR initiatives, NTPC strives to develop mutual trust with the

communities that surround its power stations.

Diversif ied Growth

As per new corporate plan, NTPC envisages to have an installed capacity of 128 GW by the

year 2032 with a well diversified fuel mix comprising 56% coal, 16% gas, 11% nuclear

energy, 9% renewable energy and 8% hydro power based capacity.

As such, by the year 2032, 28% of NTPC‘s installed generating capacity will be based on

carbon free energy sources. Further, the coal based capacity will increasingly be based on

high-efficient-low-emission technologies such as Super-critical and Ultra-Super-critical.

Along with this growth, NTPC will utilize a strategic mix of options to ensure fuel security

for its fleet of power stations.

Looking at the opportunities coming its way, due to changes in the business environment,

NTPC made changes in its strategy and diversified in the business adjacencies along the

energy value chain. In its pursuit of diversification NTPC has developed strategic alliances

and joint ventures with leading national and international companies. NTPC has also made

long strides in developing its Ash Utilization business.

Hydro Power: In order to give impetus to hydro power growth in the country and to

have a balanced portfolio of power generation, NTPC entered hydro power businesswith the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects

have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro

Ltd., is setting up hydro projects of capacities up to 250 MW.

Renewable Energy: In order to broad base its fuel mix NTPC has plan of capacity

addition of about 1,000 MW through renewable resources by 2017.

Nuclear Power: A Joint Venture Company "Anushakti Vidhyut Nigam Ltd." has

been formed (with 51% stake of NPCIL and 49% stake of NTPC) for development of

nuclear power projects in the country.

Coal Mining: In a major backward integration move to create fuel security, NTPC

has ventured into coal mining business with an aim to meet about 20% of its coal

requirement from its captive mines by 2017. The Government of India has so far

allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint



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venture route.

Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned

subsidiary was created for trading power leading to optimal utilization of NTPC‘s

assets. It is the second largest power trading company in the country. In order to

facilitate power trading in the country, ‗National Power Exchange Ltd.‘, a JV of

NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange.

Ash Business: NTPC has focused on the utilization of ash generated by its power

stations to convert the challenge of ash disposal into an opportunity. Ash is being

used as a raw material input by cement companies and brick manufacture` NVVN is

engaged in the business of Fly Ash export and sale to domestic custome` Joint

ventures with cement companies are being planned to set up cement grinding units

in the vicinity of NTPC stations.

Power Distri bution: ‗NTPC Electric Supply Company Ltd.‘ (NESCL), a wholly

owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively

engaged in ‗Rajiv Gandhi Gramin Vidyutikaran Yojana‘pro gramme for rural

electrification.

Equipment Manufacturing: Enormous growth in power sector necessitates augmentation

of power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat

Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake inTransformers and Electricals Kerala Ltd. (TELK) for manufacturing and repair of

transforme`

Future Capacity Additions

NTPC has formulated a long term Corporate Plan upto 2032. In line with the Corporate Plan, the

capacity addition under implementation stage is presented below:

PROJECT STATE MW

Coal

1. Mouda I( 500) Maharashtra 500

2. Vallur I -JV with TNEB ( 500) Tamilnadu 500



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3. Bongaigaon I (3 x 250) Assam 750

4. Mouda II Maharashta 1320

5. Rihand Stage-III(500) Uttar Pradesh 500

6. Muzaffarpur Expansion (2x195) – JV with BSEB Bihar 390

7. Nabinagar TPP-JV with Railways (4 x 250) Bihar 1000

8. Barh II (2 X 660) Bihar 1320

9. Barh I (3 X 660) Bihar 1980

10. Solapur I (2 X 660) Maharashtra 1320

11. Kudgi(3 X 800) Karnataka 2400

12. Meja (2 X 660) Uttar Pradesh 1320

13. Vindhyachal (500) Madhya Pradesh 500

14. Lara I (2 X 800) Chhatisgarh 1600

Hydro

1. Koldam HEPP ( 4 x 200) Himachal

Pradesh800

2. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 520

3. Singrauli CW Discharge(Small Hydro) Uttar Pradesh 8

4. Lata Tapovan Uttarakhand 171

Solar

1 A & N Solar PV (5) Port Blair 5

2. Dadri Solar PV (5) Uttar Pradesh 5

Total 16,909

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B USINESSD EVELOPMENT

NTPC, with a rich experience of engineering, construction and operation of around 35,000

MW of thermal generating capacity, is the largest and one of the most efficient power

companies in India, having operations that match the global standards.

Commensurate with our country‘s growth challenges, NTPC has embarked upon an

ambitious plan to attain a total installed capacity of 128,000 MW by 2032. Towards this

end, NTPC has adopted a multi-pronged strategy such as Greenfield Projects, Brownfield

Projects, Joint Venture and Acquisition route. Apart from this, NTPC has also adopted the

Diversification Strategy in related business areas, such as, Services, Coal Mining, Power

Trading, Power Exchange, Manufacturing to ensure robustness and growth of the

company.

JOINT VENTURE (JV) COMPANIES

The following joint venture companies have been formed so far:

JVs FOR CAPACITY ADDI TION

1. A Joint Venture Company of NTPC and SAIL (50: 50 equity) was incorporated on 08.02.1999.

2. BESCL (Bhilai Electric Supply Co. Pvt Ltd), another JV Co. of NTPC and SAIL with 50:50

equity participation), has merged with NSPCL w.e.f 2nd August 2006.

OBJECTIVE To own and operate captive power plants for SAIL‘s steel manufacturing facilities

located at Durgapur, Rourkela and Bhilai. To undertake expansion of Bhilai plants.

This JV was incorporated on 23.05.2003 with Tamil Nadu Electricity Board, a State run

Electricity Board in the State of Tamil Nadu engaged in generation, transmission and distribution

of electricity.

OBJECTIVE

To set up a 1500 MW coal based power station at vallur, Ennore in Tamil

Nadu utilising the existing infrastructure facility at Ennore and supply power

mainly to Tamil Nadu and the states of Kerala, Karnataka and Pondicherry.

PROMOTERS'

EQUITY

NTPC: 50%

TNEB : 50%



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3. The JV Company was Incorporated on 21.12.2006 with, Indraprastha Power Generation

Company Ltd. (IPGCL) and Haryana Power Generation Company Ltd (HPGCL).

OBJECTIVE To set up a coal-based power station of 1500MW capacity in Distt. Jhajjar, Haryana, in joint venture with IPGCL and HPGCL to supply power to Delhi

and Haryana.

PROMOTERS'

EQUITY NTPC-50%, IPGCL-25%, HPGCL-25%

4. The Joint Venture Company has been incorporated on 02.04.2008 with UPRVUNL.

OBJECTIVE

To set up a 2 X 660MW Thermal Power Plant at Meja, Distt. Allahabad

in UP.

PROMOTERS' EQUI TY NTPC: 50%

UPRVUNL : 50%

5. This Joint Venture Company was Incorporated on 08.07.2005

OBJECTIVE To own and operate the assets of the erstwhile Dhabol Power Company (

1967 MW) and 5 MMTPA LNG Re-gasification Terminal

PROMOTERS'

EQUITY

NTPC: 30.17%GAIL: 30.17%

IFIs: 21.77% (ICICI: 10.65%, SBI: 7.14%, CANARA BANK: 1.87%)

MSEB HOLDING CO. LTD.: 17.89%

Entire Power Block (1967 MW) of the Gas Power project is under commercial operation.

Domestic gas from KG basin has been made available by MoPNG for long term

requirement for operation of Gas Power Plant.

6. The JV Company was Incorporated on 09.09.2008 with Bihar State Electricity Board

OBJECTIVE

To set up 3x660 MW Thermal Power Plant at New Nabinagar, Bihar and

operation & maintenance thereof



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PROMOTERS'

EQUITY

NTPC: 50%

BSEB: 50%

JVS FOR SERVICES

7. The JV Company was incorporated on 27.09.1999 and formerly known as NTPC-ABB ALSTOM POWER SERVICES PVT. LTD)

OBJECTIVE Undertake Renovation & Modernisation of power stations in India and

other SAARC countries

PROMOTERS'

EQUITY

NTPC: 50% ,

ALSTOM Power Generation AG : 50%

Company is engaged in undertaking works of Renovation & Modernization of Power Plants

for Power plant life extension, performance optimization and improvement of availability &efficiency.

8. This JV company incorporated on 23.11.1995 has been promoted with Reliance Infrastructure

Limited (formerly BSES Limited), a private sector Indian power company.

OBJECTIVE To undertake project construction, erection and supervision in power

sector and other sectors in India and abroad

PROMOTERS'

EQUITY

NTPC: 50%

Reliance Infrastructure Ltd.: 50%

9. This JV was incorporated along with NHPC, PGCIL and DVC on 22.05.2009

OBJECTIVE To set up an Online High Power Test Laboratory for short circuit testing

acility of electrical equipments.

PROMOTERS'

EQUITY

NTPC: 25%

NHPC: 25%

PGCIL: 25%

DVC: 25%

JVs FOR POWER TRADING &POWER EXCHANGE

10. This Joint venture Company was incorporated on 11.12.2008 along with NHPC, PFC and TCS



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OBJECTIVE

To facilitate nation - wide trading of all forms of contract for buying and

selling of all forms of electrical energy for clearing and settlement of trade in

a transparent, fair and open manner

PROMOTERS'

EQUITY

NTPC: 16.67%

NHPC :16.67%

PFC: 16.66%

TCS: 19.04%

BSE: 16.66 %

IFCI: 5.72 %

MEENAKSHI: 4.77 %

DPSC: 3.81 %

JVs FOR COAL M INING

11. The JV Company with Singareni Coalieries Company Limited (SCCL) was incorporated on

31.07.2007

OBJECTIVE To jointly undertake Development and O & M of Coal Blocks(s) and

Integrated Coal based Power Projects in India and overseas.

Promoters’

EQUITY

NTPC - 50 %

SCCL – 50 %

12. The JV Company was incorporated on 20.05.2009

OBJECTIVE For procurement of metallurgical coking coal and thermal coal from

overseas & acquisition of coal assets abroad

PROMOTERS'

EQUITY

NTPC: 14.28%

NMDC: 14.28%

RINL: 14.28%

CIL: 28.58%

SAIL: 28.58%

JVs FOR MANUFACTURING & SUPPLY OF EQUIPMENT

13. The Joint Venture Company was incorporated on 28.04.2008 with BHEL

OBJECTIVE To explore, secure and execute EPC contracts for Power plants and other

Infrastructure projects in India and abroad.



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To engage in manufacturing and supply of equipments for power plants and

other infrastructure projects in India and abroad.

Promoters’EQUITY

NTPC: 50% BHEL : 50%

14. This JV Company with Bharat Forge Limited (BF) was incorporated on 19.06.2008

OBJECTIVE

To establish a facility for manufacturing of castings, forgings, fittings and

High Pressure piping, required for Power and other industries, Balance o

Plant (BOP) equipment for the power sector etc.

PROMOTERS'

EQUITY

NTPC: 49%

BF : 51%

N 15. The shares of Transformers & Electricals Kerala Ltd. (TELK) was bought by NTPC on

19.12. 2009

OBJECTIVE For Manufacturing and repair of Transformers

PROMOTERS' EQUITY

NTPC: 44.6%

Govt. of Kerala: 54.56%

Public: 0.84%

16. This JV was incorporated on 10.12.2009 amongst NTPC, PFC, POWERGRID and REC with

equal equity participation.

OBJECTIVE

To carry out and promote the business of Energy Efficiency, Energy

Conservation and Climate Change including manufacture and supply of

energy efficiency services and products.

PROMOTERS'

EQUITY

NTPC: 25%

PFC: 25%

POWERGRID: 25%

REC: 25%

17. This JV was incorporated on 27.04.2010 with Coal India Limited (CIL) in New Delhi for

incorporation of Joint Venture Company with 50:50 equity participation



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OBJECTIVE

Development of Brahmini & Chichro Patsimal coal mine blocks for meeting

coal requirement of Farakka and Kahalgaon expansion projects of NTPC.

PROMOTERS'EQUITY

NTPC: 50%CIL: 50%

18. This JV was incorporated on 27.01.2011 with Nuclear Power Corporation of India Ltd

(NPCIL) for entering into the business of nuclear power generation

OBJECTIVE Setting up of nuclear power projects

PROMOTERS' EQUITY NPCIL: 51%

NTPC: 49%

PROPOSED JOINT VENTURES /MOUs/ AGREEMENT’s

Joint Venture Agreement has been signed with Asian Development Bank (ADB) and Kyuden

International Corporation (Kyushu) on 24.11.2010 for forming a JV Company to develop projects

and establish, over a period of three years, a portfolio of about 500 MW of Renewable Power

Generation in India.

ACQUISITION

Business development through Acquisition serves both NTPC's own commercial interest aswell as the interest of the Indian economy. Taking over, being a part of the acquisition

process, is also an opportunity for NTPC to add to its power generation capacity at a very

low gestation period. NTPC has, over the years, acquired the following power stations

belonging to other utilities/SEBs and has turned around each of them using its corporate

abilities.

POWER STATI ONS TAKEN OVER YEAR ORIGINAL OWNER

2x210 MW FEROZE GANDHI UNCHAHAR THERMAL

POWER STATION 1991

UP Rajya Vidyut Utpadan

Nigam Limited

4x60 MW +2x110 MW TALCHER THERMAL POWER

STATION Orissa State Electricity Board1995

Orissa State Electricity

Board



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4x110 MW TANDA THERMAL POWER STATION 2000UP Rajya Vidyut Utpadan

Nigam Limited

705MW Badarpur Thermal Power Station Central Electricity

Authority 2006 Central Electricity Authority

DIVERSIFICATION

To broad-base the business and also to ensure growth, diversification in the areas related

to NTPC's core business of power generation such as Hydro power, Distribution, Trading,

Coal mining, LNG etc. have been identified as priority areas.

A.BACKWARD INTEGRATION- COAL M INING

COAL M INING

The policy changes in coal sector provides an opportunity to NTPC to enter captive coal

mining business. Production is expected by 2012 in one coal block already allotted (Pakri

Barwadih in the state of Jharkhand). Five more blocks (~40MTPA) have been allotted to

NTPC, including two in JV with CIL.

In addition to development of its own domestic coal mines NTPC is exploring various other

options including acquisition of stake in coal mines abroad for sourcing of thermal coal for

addressing fuel security concerns.

Subsidiaries

NTPC Electr ic Supply Company Ltd. (NESCL)

The company was formed on August 21, 2002. It is a wholly owned subsidiary company of

NTPC with the objective of making a foray into the business of distribution and supply of

electrical energy, as a sequel to reforms initiated in the power sector.Company was also

mandated to take up consultancy and other assignments in the area of Electrical

Distribution Management System.

Maiden entry into Power distribution by forming 50:50 JV company KINESCO Power and

Utility Private Ltd. with Kerala Industrial Infrastructure Development Corporation

(KINFRA), already distributing power in KINFRA owned industrial theme parks.



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With the objective of sectoral support in the area of distribution, NESCL has been assigned

the responsibility of implementing rural electrification works under Rajiv Gandhi Gramin

Vidyutikaran Yojana (RGGVY).

NTPC Vidyut Vyapar Nigam Ltd. (NVVN)

NTPC Vidyut Vyapar Nigam Ltd. (NVVN) was formed by NTPC Ltd, as its wholly owned

Subsidiary to tap the potential of Power Trading in the Country thereby promoting optimum

capacity utilization of generation and transmission assets in the Country and to act as a

catalyst in development of a vibrant Electricity Market in India. The Company holds the

highest category ‗I‘ trading license from CERC.

The Government of India has designated the Company as the Nodal Agency for Phase I of

Jawaharlal Nehru National Solar Mission (JNNSM) with a mandate for purchase of power

from Solar Power Projects connected to grid at 33 KV and above and for Sale of such power bundled with the power sourced from NTPC Coal Power Stations to Distribution

Utilities under Phase I (2010-2013) of JNNSM, which envisages setting up of 1000 MW

Solar Capacity.

The Company has been designated as the Nodal Agency for Cross-border trading with

Bhutan and Bangladesh and has entered into an Agreement with Bangladesh (BPDB) for

supply of 250 MW power for 25 years from various Central Generating Stations of NTPC.

The Company is also engaged in Ash Business involving Sale of Fly Ash and Cenosphere

from various Coal Power Stations of NTPC.

NTPC Hydro Ltd. (NHL)

The company was formed on December 12, 2002, as a wholly owned subsidiary company of

NTPC with an objective to develop small and medium hydroelectric power projects of up to

250 MW. NHL is implementing Lata-Tapovan H.E. project (171 MW) and Rammam stage

III H.E. project (120MW).

Kanti Bi jl ee Utpadan Nigam L imited, (formerly known as Vaishali Power Generating

Company Limi ted)

To take over Muzaffarpur Thermal Power Station (2*110MW), a subsidiary company

named ‗Vaishali Power Generating Company Limited (VPGCL)‘ was incorporated on



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September 6, 2006 with NTPC contributing 51% of equity and balance equity was

contributed by Bihar State Electricity Board. The company was rechristened as ‗Kanti

Bijlee Utpadan Nigam Limited‘ on April 10, 2008. Present equity holding is NTPC 64.57%

& BSEB 35.43%. Company is Renovating and modernising the existing unit and

establishing new plant.

Bharatiya Rail B ij lee Company Limi ted (BRBCL)

A subsidiary of NTPC under the name of ‗Bharatiya Rail Bijlee Company Limited‘ was

incorporated on November 22, 2007 with 74:26 equity contribution from NTPC and

Ministry of Railways, Govt. of India respectively for setting up of four units of 250 MW

each of coal based power plant at Nabinagar, Bihar. Investment approval of the project

was accorded in January, 2008. 90% power from this project is to be supplied to Railways

to meet the traction and non-traction power requirements.

Company Rankings

1. Ranked 348th in Global ranking among ‗Global 2000‘ list of companies compiledby Forbes in 2011.

2. Forbes' Global 2000 list of top listed firms

NTPC has been ranked 341 among the world's 2000 most powerful listed

companies.

Forbes' ranking of the world's biggest companies used an equal weighting of sales,

profits, assets and market value to rank companies according to size and this year's

list reveals the dynamism of global business

3. Platts Top 250 Global Energy Company Rankings – 2010 The award was received on behalf of NTPC by Shri N. K. Sharma, ED(CP) and Shri

A. K. Gupta, GM(BD) on 2nd November, 2010 in Singapore.

NTPC Ltd earned a ranking of 52 on overall global performance. NTPC Limited

ranked No. 1 in Independent Power Producer & Energy Traders in Asia. 10th in

overall performance in Asia. 2nd Independent Power Producers and Energy

Traders globally. The company rankings are derived using a special Platts formulaadding each company's numerical ranking for asset worth, revenues, profits, and

ROIC and assigned a rank of 1 to the company with the lowest total, 2 to the

company with the second-lowest total, and so on. Earnings per share figures were

not included in the ranking calculation because some companies are privately held.

4. NTPC – the Most Respected Company in Power Sector



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NTPC the largest power utility in the country has been bestowed the honour of

being most respected company in Power Sector for the year 2011 by Businessworld.

The Award was presented by Shri Pranab Mukherjee, Union Minister of Finance to

Shri Arup Roy Choudhury, CMD, NTPC at a function in New Delhi.

5.

India‘s Biggest News Makers Survey Business Today

NTPC has been ranked Number One News Maker in the Power Sector of India by

the Business Today – India‘s Biggest News Makers Survey.

The survey took into account public relations and image building efforts of the

Corporates, their visibility quotient and quality of exposure as well as image score

to determine Indian Corporates who got the best press coverage.

The survey has been published in the May 31, 2009 edition of Business Today.

6.

Business Standard's "BS1000" companies Business Standard

NTPC ranked amongst top 10 companies by the premier business daily Business

Standard in the 'BS 1000' listing of India's corporate giants for the year 2009.

NTPC ranked 9th in the list of 1000 companies.

The rankings are based on the net sales of the top 1000 listed companies during

2008-09.

The distinguished six-member jury comprised India Inc.'s leading decision makers

Mr. Adi Godrej (Chairman, Godrej Group), Mr. S. Ramadorai (Vice-Chairman,

TCS), Mr. Sanjay Nayyar (CEO, KKR India), Mr. Arun Balakrishnan (CMD,

HPCL), Mr. Rajiv Memani (CEO & Country Managing partner, E&Y) and Ms.

Meher Pudmjee (Chairperson, Thermax).



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I NTRODUCTION OF WORKING CAPITAL

Working capital refers to the cash that a business requires for day-to-day

operations or more specifically, for financing the conversion of raw materials into

finished goods which the company sell s for payment. Working Capital is a life blood and

nerve centre of business. Just as circulation of blood is essential for the survival of the

human being, similarly working capital is necessary for the survival of every business

organization, whether it is a small organization or a big organization.

Every business needs funds for two purposes-for establishment and to carry out its day-

to-day operations. Long terms funds are required to create production facilities

through purchase of fixed assets, such as plant & machinery, land & building, furniture

& fixtures etc. Investment in these assets present that part of the firm‘ s capital which is

blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed

for short-term purposes as for the purchase of raw material, payment of wages &

other day-to-day expenses etc. These funds are known as working capital.

In simple words, working capital refers to that part of the firm‘ s capital which is

required for financing short term or current assets such as, cash, marketable securities,

debtors and inventories In other words; the working capital is the excess of current assets

over current liabilities.

W W W ORK I I I NG C C C AP P P I I I T T T ALLL = = = C C C U U U R R R R R R E N N N T T T AAAS S S S E T T T S S S - - - C C C U U U R R R R E E E N N N T T T LLL I I I AAAB I I I LLL I I I T T T I I I E S S S



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TYPES OF WORKING CAPITAL

Working capital may be classified in two ways:

a) On the basis of concept

b) On the basis of time

On the basis of concept, working capital is classified as gross worki ng capital and net

working capital. This classification is important from the point of view of the financial

manager.

G G R R O O S S S S W W O O R R K K I I N N G G C C AAP P I I T T AALL : This is a wider term in relation to the working

capital. It includes all current assets. So gross working capital of NTPC Ltd in 2011-12

was ` 21674 crore. Thus the gross working capital is the capital invested in total

current assets of the company. Current assets include-

Cash in hand and bank

Bills receivables

Sundry debtors

Short term loans and advances

Inventory of stock

Prepaid expenses

Gross Work ing Capital = Total Cur rent Assets

N N E E T T W W O O R R K K I I N N G G C C AAP P I I T T AALL : : is the difference between the current assets and current

liabilities. Therefore it is called net working capital. When current assets exceed

current liabilities, then the working capital is positive otherwise negative. Current

liabilities include-

Bill Payable

Sundry creditors

Outstanding expenses

Short term loans



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Bank overdraft

COMPANY ’ S NET WORKING CAPITAL

Net Working Capital = Current Assets – Cur rent L iabili ties

On the BASIS OF TIME, working capital is classified as PERMANENT OR FIXED

WORKING CAPITAL and TEMPORARY OR VERIABLE WORKING

CAPITAL:

P P E E R R M M AAN N E E N N T T O O R R F F I I X X E E D D W W O O R R K K I I N N G G C C AAP P I I T T AALL: Permanent working capital is the

minimum amount which is required to ensure effective utilization of fixed facilities and

or maintaining the circulation of current assets. There is always a minimum level of

current assets which is continuously required by the enterprise to carry out its normal

business operations. For example, work-in-progress, finished goods and cash balance.

This minimum level of current assets is called permanent working capital as this part of

the capi tal is per man ent ly blocked in current asset s . As the ↓↓bus iness

grows, the requirements of permanent working capital also increase due to the

increase in current assets.

T T E E M M P P O O R R AAR R Y Y O O R R V V AAR R I I AAB B LLE E W W O O R R K K I I N N G G C C AAP P I I AALL: Temporary working capital is

the amount of working capital which is required to meet the seasonal demands and

some special exigencies. Variable working capital can be further classified as seasonal

working capital and special working capital. Most of the enterprises have to provide

additional working capital to meet the seasonal and social needs. The capital required

to meet the seasonal needs of the enterprise is called seasonal working ca pital .

Special working capital is that part of working capital which is required to meet

exigencies such as launching of extensive marketing campaign for conducting research,etc.



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FI NANCING OF WORKING CAPI TAL

A firm can adopt different financial policies to finance its current assets. There are

various types of sources for financing working capital. These are as follows:

[[

Sources of Working Capital

Permanent or Fixed Temporary or vari able

1 Share 1. Commercial banks

2. Debentures 2. Indigeneous bankers

3. Public deposits 3. Trade creditors

4. Ploughing back of profits 4. Instalment credit

5. Loans from financial institutions 5. Advances

6. Accounts receivable

7. Accrued expenses



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Sources of Permanent or F ixed Working Capital

Permanent working capital should be financed in such a matter that the enterprise

may have its uninterrupted use for a long period. There are five sources of long term

working capital:

1. Shares: Issue of shares is the most important source for raising long term capital. A

company can issue various types of shares like equity shares, preference shares and

deffered shares. As\far as possible, a company should raise the maximum amount of

permanent capital by issue of shares.

2. Debentures: A debentures is an instrument issued by the company acknowledging

to its debt to its holder. The debenture holders are the creditors of the company. A

fixed rate of interest is paid on the debentures. The debentures may be of various

kinds such as unsecured, secured, redeemable, irredeemable, convertible

debentures and non convertible debentures. The debentures as a source of

finance have a number of advantages both to investors and company.

3. Publi c Deposits: Public deposits are the fixed deposits accepted by a business

enterpr i se d ir ectl y from the public. This source of raising short term and medium

term finance was very popular in absence of banking facilities. Public deposits as a

source of finance have a large number of advantages such a convenient source of

finance, taxation benefits, no need of securities and inexpensive source of finance.

4. Ploughing Back of Prof its: It means the reinvestment by the concern of its surplus

earning in its business. This method of finance has a large number of advantages as

it is the cheapest rather cost free source of finance, there is no need to keep

securities, it ensures stable dividend policy.

5. Loan From Financial Inst i tut ions: Financial inst itutio ns such as

commercial banks, insurance corporations, idbi etc also provides short term,

medium term and long term loans. This source of finance is more suitable to meet

the medium term demands of working capital.



- 27 -

F inancing Of Short Term Working Capital

The main source of short term working capital are as follows:

1. I ndigenous Bankers: Private money lenders and other country bankers used to be

the only source of finance prior to the establishment of commercial banks. They

used to charge very high rate of interest. Even today some business houses have to

depend upon indigenous bankers for obtaining loans to meet their working capital

requirements.

2. Trade Credit: Trade credit refers to the credit extended by the suppliers of goods in

the normal course of business. At present commerce is build upon credit, tradecredit arrangement of a firm with its suppliers is an important source of finance.

It may also take the form of bills payable whereby the buyer signs a bills of

exchange payable on a specified future date.

3. I nstalment Credit: This is another method by which the assets are purchased and

the possession of goods is taken immediately but the payment is made in

instalments over a pr e d etermined period of time. In this interest is charged on the

unpaid price or it may be adjusted in the price.

4. Commercial Paper: It is an important money market instrument for raising short-

term finances. Commercial papers represent the unsecured promissory notes issued

by firms to raise short term funds. Firms, banks, insurance companies, individuals

etc. With short-term surplus funds invest in commercial pape` Investors would

generally invest in commercial paper of a financially sound and creditworthy firm.

In India, commercial papers of 91 to 180 days maturity are being f l oated. The

interest rate will be determined in the market.

5. Advances: Some business houses get advantages from their customers and agents

against orders and this source is a short term source of finance for them. It is a

cheap source of finance and in order to minimize their investment in working capital.



- 28 -

6. Commercial banks: Commercial banks are most important source of short term

capital. The major portion of working capital loans are provided by commercial

banks. They provide a large variety of loans to meet the specific requirements of a

firm. The different form in which the banks normally provide loans and advances

are as follows:

(a) Loans

(b) Cash credits

(c) Overdrafts

(d) Discounting of bills

FACTORS DETERMINI NG THE WORKING CAPI TAL

The working capital requirement of the concern depends upon a large numbers of factors

such as nature and the size of business, the character of their operations, the length of

production cycles, the rate of stock turnover and the state of economic situation. It is not

possible to rank them because all such factors are of different importance and influence

of individual factor changes for a firm overtime. However, the following are important

factors generally influencing the working capital requirements.

• Nature and character of business.

• Size of business\scale of operation.

• Production policy.

• Manufacturing process\length of production cycle.

• Seasonal variation.

• Working capital cycle : The working capital cycle can be defined as:

The period of time which elapses between the point at which cash begins to be expended

on t he production of a product and the collection of cash from a customer

The way working capital moves around the business is modeled by the working capital

cycle . This shows the cash coming into the business, what happens to it while the



- 29 -

business has it and then where it goes. A simple working capital cycle may look

something like:-

Cash withdrawal Injection of Cash

Between each stage of this working capital cycle there is a time delay. For some

businesses this will be very long where it takes them a long time to make and sell the

product. They will need a substantial amount of working capital to survive. Others

though may receive their cash very quickly after paying out for raw materials etc.

(perhaps even before they've paid their bills) - They will need le ss working capital.

For all businesses though they need to plan how much cash they are going to have. The

best way of doing this is a CASH FLOW FORECAST .

Payments for, Suppliers,

new materials, work

wa es

Goods Produced

Cash

Goods Sold, debtorgenerated and cash

recived



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IMPORTANCE OF ADEQUATE WORKING CAPITAL

Working Capital is a life blood and nerve centre of business. Just as the circulation of

blood i s essential in the human bodies for maintaining life, working capital is very

essential to maintain the running of business. No business can run successfully without an

adequate amount of working capital.

Merits of working capital are as fol lows:

1. Solvency of business : Adequate working capital helps in maintaining solvency of

the business by providing uninterrupted flow of production.

2. Goodwill : Sufficient working capital enables a business concern to make prompt

payments.

3. Easy loans : A concern having adequate working capital high solvency and good

credit standing can arrange loans from banks and other on easy terms.

4. Cash discounts : Adequate working capital also enables a concern to avail cash

discounts on the purchase and hence it reduces costs.

5. Regular supply of raw materi als : Adequate working capital ensures regular and

continuous supply of raw materials. 6. Regular payments of salar ies, wages & other day to day commitments : A

company which has adequate working capital can make regular payments of

salaries, wages & other day to day commitments with raises the morale of its

employees, increase their efficiencies, reduces wastages and enhance production

and profits.

7. Abi li ty to face crises : Adequate working capital also enables a concern to face

business crises in emergencies such as depression because in such periods, generally, there is much pressure on working capital.



- 31 -

Excessive or inadequate working capital

Every business concern should have adequate working capital to run its business

operations. Both excess as well as short working capital positions are bad for any

business.

Disadvantages of excessive working capital

1. Excessive working capital means idle funds, which earn no profits for the

business and hence business cannot earn a proper rate of return on its investment.

2. Excessive working capital implies excessive debtor.

3. It may result into overall inefficiency in the organization.

4. When there is a excessive working capital, relations with banks and other

financial institutions may not be maintained.

5. The excessive working capital gives rise to speculative transactions.

Working Capital Management

Working capital is the life blood and nerve centre of a business. Just as circulation of

blood i s e ssential in the human body for maintaining life, working capital is very

essential to maintain the smooth running of a business. No business can run successfully

without an adequate amount of working capital.

Working capital refers to that part of firm‘ s capital which is required for financing

short term or current assets such as cash, marketable securities, debtors, and

inventories. In other words working capital is the amount of funds necessary to

cover the cost of operating the enterprise.

I n working capital management, we analyze fol lowing three points.

Fi rst Point

What is the need for worki ng capital?

After study the nature of production, we can estimate the need for working capital. If

Power Company has large scale of g e n e r a t i o n c a p a c i t y , t h e n it needs high



- 32 -

amount of working capital.

Second Poin t

What is optimum level of work ing capital in NTPC L td?

Have you achieved the optimum level of working capital which has invested in current

assets? Because high amount of working capital will decrease the return on investment

and low amount of working capital will increase the risk of business. So, it is very

important decision to get optimum level of working capital where both profitability and

risk will be balanced

Thir d Point

What are main working capital policies of NTPC L td?

Polices are the guidelines which are helpful to direct business. Finance manager can

also make working capital policies.

Fir st work ing Capital Poli cy

L iquidity policy

N T P C L t d has been practicing good Corporate Governance even before Securities

Exchange Board of India (SEBI) made it a mandatory requirement from 2001. At the

NTPC Ltd there is a policy, Under this policy , finance manager will increase the

amount of liquidity for reducing the risk of business. If business has high volume of cash

and bank balance then business can easily pays his dues at maturity.

Second working capital poli cy

Profi tabili ty Poli cy

Under is policy, finance manager will keep low amount of cash in business and try to

invest maximum amount of cash and bank balance. It will sure that profit of business will

increase due to increasing of investment in proper way but risk of business will also

increase. So reported net profit of NTPC Ltd in 2012 is ` 9,548.73 Cr.



- 33 -

ESTIM ATION OF WORKING CAPITAL M ANGEMENT

As discussed above a number of factors are responsible for determining the amount of

working capital required by firm. Let us know discuss the various methods/ techniqueused in assessment of firm‘ s working capital requirements. These methods are as below.

Estimation of components of working capital method

This method is based on the basic definition of working capitalizes, excess of current

assets over the current liabilities. In other word the amount of different constituent of the

working capital such as debtors, cash inventories, creditors etc are estimated

separately and the total amount of working ca pital r equir ement is worked out

accordingly.

Percent sales method

This is the most simple and widely used method in combination with other scientific

methods. According to this method a ratio is determined for estimating the future

working capital requirement. This is the generally based on the past experience of

management as the ratio var ie s from industry to industry.

For example if the past experience shows that the amount of working capital has been

20% of sales and projected amount of sales for the next year is Rs 10 lakes, the required

amount of working capital shall be Rs 2 lakh.

As seen from above the above method is merely an estimation based on past experience.

Therefore a lot depends on the efficiency of decision maker, which may not be correct in

all circumstances. Moreover the basic assumptions regarding linear relationship

between sales and the working capital may not hold well in all the cases. Therefore this

method is not dependable and not universally acceptable. At best, this method gives a

rough idea about the working capital.



- 34 -

Operating cycle approach

The need of working capital arises mainly because of them gap between the production of

goods and their actual realization after sales. This gap is technically referred as the

―operating cycle‖ or the ―ca sh cycle‖ of the business. If it were possible to complete

the entire job instantaneously, there would be no need for current asset (working capital)

but since it is not possible, every business organization is forced to have current asset

and hence operating cycle. It may be divided into four stages.

1. Raw materials and stores storage space.

2. Work in process stage.

3. Finished goods inventory stage.

4. Debtor‘ s collection stage,

Dur ation of operating cycle

The duration of the operating cycle is equal to sum of the duration of these stages less the

credit period allowed by the suppliers of the firm. In symbol

OC= R+W+F+D — C

WHERE

OC= Duration of the Operating Cycle

R= Raw materials and storage space periods

W= work in process periods.

F= finished goods storage periods

D= debtor collection period

C= Creditors collection period.

The component of the operating cycles has already been calculated in ―ratio Analysi s‖

which is as follow.

R = Average stock of raw material

Average raw material consumption per day



- 35 -

F = Average stock of stores

Average stores consumption per day

W = Average work in process inventory

Average cost of production per day

D = Average book debts

Average credit sales per day

C = Average trade credit

Average trade credit purchase per day

Working Capital approach in Power Sector: The working capital in Power Sector

companies is decided by CERC( Central Electricity Regulatory Commission) because it is

a integral part of Power company tariff. Based on how much working capital company

have tariff of power will depends hence CERC keep check how much working capital a

company should have, further it is depends on unit to unit basis.

(1) The worki ng capital shal l cover:

(a) Coal-based/li gni te-f ir ed thermal generating stations

(i) Cost of coal or lignite and limestone, if applicable, for 1½ months for pithead

generating stations and two months for non-pit-head generating stations, for

generation corresponding to the normative annual plant availability factor;

(ii) Cost of secondary fuel oil for two months for generation corresponding to the

normative annual plant availability factor, and in case of use of more than one secondary fuel oil, cost of fuel oil stock for the main secondary fuel oil.

(iii) Maintenance spares @ 20% of operation and maintenance expenses specified in

regulation 19.



- 36 -

(iv) Receivables equivalent to two months of capacity charges and energy charges for

sale of electricity calculated on the normative annual plant availability factor,

(v)

Operation and maintenance expenses for one month.

(b) Open-cycle Gas Turbine/Combined Cycle thermal generating stations:

(i) Fuel cost for one month corresponding to the normative annual plant availability

factor, duly taking into account mode of operation of the generating station on

gas fuel and liquid fuel;

(ii)

Liquid fuel stock for ½ month corresponding to the normative annual plant

availability factor, and in case of use of more than one liquid fuel, cost of main

liquid fuel.

(iii) Maintenance spares @ 30% of operation and maintenance expenses specified in

regulation 19.

(iv) Receivables equivalent to two months of capacity charge and energy charge for

sale of electricity calculated on normative plant availability factor, duly taking

into account mode of operation of the generating station on gas fuel and liquid

fuel.

(v) Operation and maintenance expenses for one month.

(c) Hydro generating stations:

(i) Receivables equivalent to two months of fixed cost.

(ii) Maintenance spares @ 15% of operation and maintenance expenses specified in

regulation 19;

(iii)

Operation and maintenance expenses for one month.

(2) The cost of fuel in cases covered under sub-clauses (a) and (b) of clause (1) shall be

based on the landed cost incurred (taking into account normative transit and

handling losses) by the generating company and gross calorific value of the fuel as



- 37 -

per actual for the three months preceding the first month for which tariff is to be

determined and no fuel price escalation shall be provided during the tariff period.

(3) Rate of interest on working capital shall be on normative basis and shall be equal to

the short-term Prime Lending Rate of State Bank of India as on 1.4.2009 or on 1 st

April of the year in which the generating station or a unit thereof or the transmission

system, as the case may be, is declared under commercial operation, whichever is

later.

(4) Interest on working capital shall be payable on normative basis notwithstanding that

the generating company or the transmission licensee has not taken loan for working

capital from any outside agency.

Operation and Maintenance Expenses. Normative operation and maintenance expenses

shall be as follows, namely:

(a) Coal based and lignite fired (including those based on CFBC technology) generating

stations, other than the generating stations referred to in clauses (b) and (d):

Year

600 MW andabove sets

200/210/250

MW sets

300/330/350

MW sets 500 MW sets 600 MW andabove sets

2009-10 18.20 16.00 13.0011.70

2010-11 19.24 16.92 13.74 12.37

2011-12 20.34 17.88 14.53 13.08

2012-13 21.51 18.91 15.36 13.82

2013-14 22.74 19.99 16.24 14.62

. Provided that the above norms shall be multiplied by the following factors for additional

units in respective unit sizes for the units whose COD occurs on or after 1.4.2009 in the

same station:

Additional 5th & 6 th units 0.9

200/210/250 MW Additional 7 th & more units 0.85

Additional 4th & 5th units 0.9



- 38 -

300/330/350 MW

Additional 6 th & more units 0.85

Additional 3rd & 4th units 0.9

500 MW and above Additional 5th & above units 0.85

(b) Talcher Thermal Power Station(TPS), Tanda TPS, Badarpur TPS of NTPC

(` in lakh/MW)

Year Talcher TPS Tanda TPS Badarpur TPS

2009-10 32.75 26.25 31.35

2010-11 34.62 27.75 32.25

2011-12 36.60 29.34 33.17

2012-13 38.70 31.02 34.12

2013-14 40.91 32.79 35.09

(c) Open Cycle Gas Turbine/Combined Cycle generating stations.

(` in lakh/MW)

Year

Gas Turbine/ Combined Cycle

generating stations other than

small gas turbine power

generating stations

Small gasturbine power

generating stations

Agartala

GPS

(1) (2) (3)

2009-10 14.80 22.90 31.75

2010-11 15.65 24.21 33.57

2011-12 16.54 25.59 35.49

2012-13 17.49 27.06 37.52

2013-14 18.49 28.61 39.66

(d) In case of coal-based or lignite-fired thermal generating station a separate

compensation allowance unit-wise shall be admissible to meet expenses on new assets of

capital nature including in the nature of minor assets, in the following manner from the year

following the year of completion of 10, 15, or 20 years of useful life:

Years of operation Compensation



- 39 -

Allowance (` lakh/MW/year)

0-10 Nil

11-15 0.15

16-20 0.35

21-25 0.65

(e) Hydro generating station

(i) Operation and maintenance expenses, for the existing generating stations which have

been in operation for 5 years or more in the base year of 2007-08, shall be derived on the

basis of actual operation and maintenance expenses for the years 2003-04 to 2007-08,

based on the audited balance sheets, excluding abnormal operation and maintenance

expenses, if any, after prudence check by the Commission.

(ii) The normalised operation and maintenance expenses after prudence check, for the years

2003-04 to 2007-08, shall be escalated at the rate of 5.17% to arrive at the normalized

operation and maintenance expenses at the 2007-08 price level respectively and then

averaged to arrive at normalized average operation and maintenance expenses for the

2003-04 to 2007-08 at 2007-08 price level. The average normalized operation and

maintenance expenses at 2007-08 price level shall be escalated at the rate of 5.72% to

arrive at the operation and maintenance expenses for year 2009-10:

Provided that operation and maintenance expenses for the year 2009-10 shall be furtherrationalized considering 50% increase in employee cost on account of pay revision of the

employees of the Public Sector Undertakings to arrive at the permissible operation and

maintenance expenses for the year 2009-10.

(iii) The operation and maintenance expenses for the year 2009-10 shall be escalated

further at the rate of 5.72% per annum to arrive at permissible operation and maintenance

expenses for the subsequent years of the tariff period.

(iv) In case of the hydro generating stations, which have not been in commercial operation

for a period of five years as on 1.4.2009, operation and maintenance expenses shall be fixed

at 2% of the original project cost (excluding cost of rehabilitation & resettlement works).

Further, in such case, operation and maintenance expenses in first year of commercial

operation shall be escalated @5.17% per annum up to the year 2007-08 and then averaged



- 40 -

to arrive at the O&M expenses at 2007-08 price level. It shall be thereafter escalated @

5.72% per annum to arrive at operation and maintenance expenses in respective year of the

tariff period.

(v) In case of the hydro generating stations declared under commercial operation on or

after 1.4.2009, operation and maintenance expenses shall be fixed at 2% of the original

project cost (excluding cost of rehabilitation & resettlement works) and shall be subject to

annual escalation of 5.72% per annum for the subsequent Yea`

Expenses on secondary fuel oil consumption f or coal -based and l ignite-fi red generating

station:

(1) Expenses on secondary fuel oil in Rupees shall be computed corresponding to

normative secondary fuel oil consumption (SFC) specified in clause (iii) of regulation 26, in

accordance with the following formula:

= SFC x LPSFi x NAPAF x 24 x NDY x IC x 10

Where,

SFC – Normative Specific Fuel Oil consumption in ml/kWh

LPSFi – Weighted Average Landed Price of Secondary Fuel in `/ml considered initially

NAPAF – Normative Annual Plant Availability Factor in percentage

NDY – Number of days in a year

IC - Installed Capacity in MW.

(2) Initially, the landed cost incurred by the generating company on secondary fuel oil shall

be taken based on actuals of the weighted average price of the three preceding months and

in the absence of landed costs for the three preceding months, latest procurement price for

the generating station, before the start of the year.

The secondary fuel oil expenses shall be subject to fuel price adjustment at the end of the

each year of tariff period as per following formula:

SFC x NAPAF x 24 x NDY x IC x 10 x (LPSFy – LPSFi)Where,

LPSFy = The weighted average landed price of secondary fuel oil for the year in ` /ml



- 41 -

CHAPTER -2

REVIEW OF LI TERATURE

Working capital shows a company‘ s operational efficiency. If there is any money that is

used for inventory or customer‘ s accounts, it cannot be used to pay a company‘ s bills or

other liabilities. An increase in working capital means that it is negative and a firm is

not being efficient in its oper ations and accounts receivable collections are slow. Since

working capital is the current assets minus the current liabilities, it can be used by

investors and other reviewers of financial statements to show t hat a company is having

trouble paying its creditors short term. The firm may have to consider bankruptcy as a

way to take care of their liabilities and hopefully regain strength in their

assets (Investopedia, 2010). A positive working capital discloses that a company can

pay its short term liabilities. Working capital management is how companies improve

their earnings, keep sufficient

An efficient Working Capital Management (WCM) has a significant effect toward the

creation of a firm‘ s value. It is a fact that financial managers in the firms used to give

concentration on managing long-term financial decisions, especially capital structure,

investment decisions, company valuation & dividends decisions. Only little attention was

given to managing the short-term assets and liabilities, managers began to realize the

importance of investigating those short-term assets and liabilities since the working

capital management has an important role for the firm‘ s profitability & risk and the

overall value of the firm. There is no doubt about the criticality of this issue to firms as

holding t oo much working capital is inefficient and holding too little is dangerous to the

organization's survival. This study looks at some. For the successful working of any



- 42 -

business organization, fixed and current assets play a vital role. Management of working

capital is essential as it has a direct impact on profitability and liquidity.

In intention to discover the relationship between efficient working capital management

and firm‘ s profitability (Shin & Soenen, 1998) used net-trade cycle (NTC) as a measure of

working capital management. NTC is basically equal to the CCC whereby all three

components are expressed as a percentage of sales. The reason by using NTC because it

can be an easy device to estimate for additional financing needs with regard to working

capital expressed as a fun ction of the projected sales growth. This relationship

is examined using correlation and regression analysis, by industry and working

capital intensity. Using a Compustat sample of 58,985 firm years covering the period

1975-1994, in all cases, they found, a strong negative relation between the length ofthe firm's net- trade cycle and its profitability. In addition, shorter NTC are associated

with higher risk- adjusted stock returns. In other word, (Shin & Soenen, 1998) suggest

that one possible way the firm to create shareholder value is by reducing firm‘ s NTC.

The study of (Shin & Soenen, 1998) consistent with later study on the same objective

that done by (Deloof, 2003) by using sample of 1009 large Belgian non-financial firms

for the period of 1992-1996. However, (Deloof, 2003) used trade credit policy and

inventory policy are measured by number of d a ys accounts receivable, accounts payableand inventories, and the cash conversion cycle as a comprehensive measure of working

capital management. He founds a significant negative relation between gross operating

income and the number of days accounts receivable, inventories and accounts payable.

Thus, he suggests that managers can create value for their shareholders by reducing

the number of days accounts receivable and inventories to a reasonable minimum. He

also suggests that less profitable firms wait longer to pay their bills.

In other study, ( Lyroudi & Lazaridis, 2000) use food industry Greek to examined the

cash conversion cycle (CCC) as a liquidity indicator of the firms and tries to determine its

relationship with the current and the quick ratios, with its component variables, and

investigates the implications of the CCC in terms of profitability, indebtness and firm

size. The results of their study indicate that there is a significant positive relationship



- 43 -

between the cash conversion cycle and the traditional liquidity measures of current and

quick ratios. The cash conversion cycle also positively related to the return on assets and

the net profit margin but had no linear relationship with the leverage ratios.

Conversely,the current and quick ratios had negative relationship with the debt to equity

ratio, and a positive one with the times interest earned ratio. Finally, there is no

difference between the liquidity ratios of large and small firms.

Many researchers have studied working capital from different views and in different

environments. The following ones were very interesting and useful for our research:

( El jelly, 2004 ) elucidated that efficient liquidity management involves planning and

controlling current assets and current liabilities in such a manner that eliminates the

risk of inability to meet due short-term obligations and avoids e xce ssive investment in

these assets. The relation between profitability and liquidity was examined, as

measured by current ratio and cash gap (cash conversion cycle) on a sample of joint

stock companies in Saudi Arabia using correlation and regression analysis. The study

found that the cash conversion cycle was of more importance as a measure of liquidity

than the current ratio that affects profitability. The size variable was found to have

significant effect on profitability at the industry level. The results were stable and had

important implications for liquidity management in various Saudi companies. First, it

was clear that there was a negative relationship between profitability and liquidity

indicators such as current ratio and cash gap in the Saudi sample examined. Second,

the study also revealed that there was great variation among industries with respect to

the significant measure of liquidity.

According to Deloof , 2003:-

Discussed that most firms had a large amount of cash invested in working capital. It can

therefore be expected that the way in which working capital is managed will have a

significant impact on profitability of those firms. Using correlation and regression tests

he found a significant negative relationship between gross operating income and the

number of days accounts receivable, inventories and accounts payable of Belgian firms.

On basis of these results he suggested that managers could create value for



- 44 -

their shareholders by reducing the number of day s‘ accounts receivable and

invent or ie s to a reasonable minimum. The negative relationship between

accounts payable and profitability is consistent with the view that less profitable firms

wait longer to pay their bills.

According to Ghosh and Maji , 2003:-

In this paper made an attempt to examine the efficiency of working capital management

of the Indian cement companies during 1992 – 1993 to 2001 – 2002. For measuring the

efficiency of work ing ca pital management, performance, utilization, and overall

efficiency indices were calculated instead of using some common working capital

management ratios. Setting industry norms as target-efficiency levels of the individual

firms, this paper also tested the speed of achieving that target level of efficiency by an

individual firm during the period of study. Findings of the study indicated t hat t he Indian

Cement Industry as a whole did not perform remarkably well during this period.

According to Shin and Soenen, 1998 :-

Highlighted that efficient Working Capital Management (WCM) was very important for

creating value for the shareholde` The way working capital was managed had a

significant impact on both profitability and liquidity. The relationship between the length

of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined

using correlation and regression analysis, by industry and capital intensity. They found

a strong negative relationship between lengths of the firm‘ s net trading Cycle and

its profitability. In addition, shorter net trade cycles were associated with higher

risk adjusted stock returns.

According to Smith and Begemann 1997:-

Emphasized that those who promoted working capital theory shared that profitability and

liquidity comprised the salient goals of working capital management. The problem arose

because the maximization of the firm's returns could seriously threaten its liquidity, and

the pursuit of liquidity had a tend enc y t o dilute returns. This article evaluated the

association between traditional and alternative working capital measures and return



- 45 -

on investment (ROI), specifically in industrial firms listed on the Johannesburg

Stock Exchange (JSE). The problem under investigation was to establish whether the

more recently developed alternative working capital concepts showed improved

association with return on investment to that of traditional working capital ratios or

not. Results indicated that there were no significant differences amongst the years with

respect to the independent variables. The results of their stepwise regression

corroborated that total current liabilities divided by funds flow accounted for most of the

variability in Return on Investment (ROI). The statistical test results showed that a

t r ad itional work ing capital leverage ratio, current liabilities divided by funds

flow, displayed the greatest associations with return on investment. Wellknown

liquidity concepts such as the current and quick ratios registered insignificant

associations whilst only one of the newer working capital concepts, the

comprehensive liquidity index, indicated significant associations with return on

investment. All the above studies provide us a solid base and give us idea regarding

working capital management and its components. They also give us the results and

conclusions of those researches already conducted on the same area for different

countries and environment from different aspects. On basis of these researches done in

different countries, we have developed our own methodology for research.

According to Marc Deloof 25 th

APR 2003:-

The relation between working capital management and corporate profitablity is

investigated for a sample of 1,009 large Belgian non-financial firms for the 1992-1996

period. Trade credit policy and inventory policy are measured by number of days

accounts receivable, accounts payable and inventories, and the cash conversion cycle

is used as a comprehensice measure of working capital management. The results

suggest that managers can increase corporate profitablity by reducing the number

of days accounts receivable and inventories. Less profitable firms wait longer to paytheir bills.

M. A., Zariyawati a, M . N., Annuar b and A.S., Abdul Rahim c a ,b & c Univeri sti

Putra Malaysia, M alaysia.



- 46 -

Working capital management is important part in firm financial management decision.

An optimal working capital management is expected to contribute positively to the

creation of firm value. To reach optimal working capital management firm manager

should control the trade off between profitability and liquidity accurately. The purpose of

this study is to investigate the relationship between working capital management and firm

profitability. Cash conversion cycle is used as measure of working capital management.

This study is used panel data of 1628 firm-year for the period of 1996-2006 that consist

of six different economic sectors which are listed in Bursa Malaysia. The coefficient

results of Pooled OLS regression analysis provide a strong negative significant

relationship between

Amber Colli ns University of Phoenix: -

Working Capital Management Concepts Worksheet Concept Application of Concept in

the Simulation Reference to Concept in Reading Describe the firm's cash conversion

cycle: Cash inflow "Most firms keep track of the average time it takes customers to pay

their bills. From this they can forecast what proportion of a quarter's sales is likely to

be converted into cash in that quarter and what proportion is likely to be carried over to

the next quarter as accounts receivable" (Allen, Brealey, & Myers 2005). Lawrence

having a positive cash balance would have help in the event of emergencies as well asunplanned outflow of money. Cash flow comes from collections on accounts

receivable (Allen, Brealey, & Myers 2005). Examine the effects of credit policy on cash

conversion cycle and revenue: Commit ment Lawr ence had a commitment to the bank,

Mayo, Murray, and Gartner.

According to Carole Howorth and Paul Westhead March 2003:-

Working capital management routines of a large random sample of small companies in

the UK are examined. Considerable variability in the take-up of 11 working capital

management routines was detected. Principal components analysis and cluster analysis

confirm the identification of four distinct ‗ type s‘ of companies with regard to patterns of

working capital management. The first three ‗ types‘ of companies focused upon cash



- 47 -

management, stock or debtors routines respectively, whilst the fourth ‗ type‘ were less

likely to take-up any working capital management routines. Influences on the amount and

focus of working capital management are discussed. Multinomial logistic regression

analysis suggests that the selected independent variables successfully discriminated

between the four ‗ type s‘ of companies. The results suggest that small companies focus

only on areas of working ca pital mana g ement where they expect to improve marginal

returns. The difficulties of establishing causality are highlighted and implications for

academics, policy-makers and practitioners are reported.

According to Maynard E. Rafuse, (1996):- Argues that attempts to improve working capital by delaying payment to creditors is

counter-productive to individuals and to the economy as a whole. Claims that altering

debtor and cr ed it or levels for individual tiers within a value system will rarely produce

any net benefit. Proposes that stock reduction generates system-wide financial

improvements and other impor tant bene f it s. Urges those organizations seeking

concentrated working capital reduction strategies to focus on stock management

strategies based on ―lean supply-chain‖ techniques.

According to James A. Gentr y, Di leep R. Mehta

Working capital literature is rather limited and the process of managing

shortterm resources is not understood well by academicians. In contrast, corporate

managers are continuously involved in the working capital decision-making process,

but their perspective is limited to the practices within their firm. In order to fill this

gap in the working capital literature, a study of management perceptions of the

working capital process was undertaken. A survey was used to collect information

from a sample of marketing, production, and financial executives in large corporations

in Belgium, France, India, and the United States. The study interprets management

ranking of working capital objectives and indicates the need to improve financial

planning models to include explicitly short-run objectives; further, predictability of

cash inflows and outflows is examined and the potential factors affecting

predictability are evaluated. Finally, this study examines management perceptions of

long-range objectives in order to provide a proper perspective to the short run financial



- 48 -

planning.

According to M .K. Kolay:-

The article analyses the ― pr os‖ and ―cons‖ of different strategies to be adopted to

manage and avoid working capital crisis situations in any organisation. The workingcapital position depends on many organisational parameters which are interrelated

and interdependent, and also vary over time. In such a situation, the use of a system

dynamics approach has been advocated to reflect the relevant dynamic cause-and-effect

relationships for the development of appropriate long-term and short-term strategies.

According to Wang Zhuquan et al 2007:-

Working capital management is the main contents of corporate finance, so the study in

this field should gain much attention. Compared with the rapidly development of the

practice, the development of the theory has been lagged obviously since 1990's.We

suggest that the study should begin from the reclassification of working capital, and then,

the new framework of the theory should be set up, which is based on the supply-chain

management, the channel management and the customer relationship

management. Meanwhile, we should launch on the survey of working capital

management of Chinese companies and promulgate the results, which can offer the

data for the study and evaluation of working capital management.

According to James A. Gentry, Paul Newbold, David T. Whitf ord, (1984)

The objectives of this study are to offer cash based funds flow components as an

alternative to financial ratios for classifying the financial performance of companies;

to test empirically the ability of funds flow components to distinguish between failed and

no failed companies with special emphasis on working capital components; to analyze

the empirical results and make recommendations for future study.

According to Jeffrey Ashe 2000:-

Working Capital is the United States' largest peer-group lending program. This article

reviews what Working Capital has learned about the market, its customers, program

impact, and service delivery over its ten year history. It presents a model for



- 49 -

understanding how participating in peer lending groups develops ― social and

economic capital ‖ in poor communities. The article then discusses how participants

judge the group model as they identify the characteristics of successful groups and the

impact of the group on their businesses, on themselves personally, and on the larger

community. The r e st of the article discusses how Working Capital evolved from a start-

up operation in a single town into a multistate program and explores the advantages

and limitations of rapid expansion. A checklist for choosing affiliate partners is

presented, along with a list of the lessons learned about delivering services though

affiliates.

According to Alan P. Hamlin, David F. Heathf ield 2000:-

Working capital is a necessary input to the production process and yet is ignored in most

economic mod el s of production. The implications of modeling the time dimension of

production, and hence the working capital requirements of firms, are explored, with

particular stress placed on the competitive advantage gained by firms that

retain flexibility in the time structure of their production.

According to VELLANKI S.S. KUMAR, AWAD S. HANNA, TERESA ADAMS,(2000):-

The systematic assessment of working capital requirement in construction projects deals

with the analysis of various quantitative and qualitative factors in which information is

subjective and based on uncertainty. There exists an inherent difficulty in the classical

approach to evaluate the impact of qualitative factors for the assessment of working

capital requirement. This paper presents a methodology to incorporate linguistic

variables into workable mathematical propositions for the assessment of work ing

capital using fuzzy set theory. This article takes into consideration the uncertainty

associated with many of the project resource variables and these are reflected

satisfactorily in the working capital computations. A case study illustrates the

application of the fuzzy set approach. The results of the case study demonstrate the

superiority of the fuzzy set approach to classical methods in the assessment of realistic

working capital requirements for construction projects.



- 50 -

According to Richard Petty, James Guthri e, (2000):-

The rise of the ―new economy‖ , one principally driven by information and knowledge, is

attributed to the increased prominence of intellectual capital (IC) as a business and

research topic. Intellect ual ca pital is implicated in recent economic, managerial,

technological, and sociological developments in a manner previously unknown and

largely unforeseen. Whether these developments are viewed through the filter of the

information society, the knowledge-based economy, the network society, or innovation,

there is much to support the assertion that IC is instrumental in the determination of

enterprise value and national economic performance. First, we seek to review some of the

most significant extant literature on intellectual capital and its developed path. The

emphasis is on im p or ta nt theoretical a nd em pi ri ca l c on tr ib u ti o ns

r e l a t i n g t o t h e measurement and reporting of intellectual capital. The second part of

this paper identifies possible future research issues into the nature, impact and

value of intellectual management and reporting.

According to Sushma Vishnani , FCA, and F inance Facul ty:-

It is felt that there is the need to study the role of working capital management policies on

profitability of a company. Conventionally, it has been seen that if a company desires to

take a greater risk for bi gg er prof it s and losses, it reduces the size of its working capital in

relation to its sales. If it is interested in improving its liquidity, it increases the level of its

working capital. However, this policy is likely to result in a reduction of the sales

volume, therefore of profitability. Hence, a company should strike a balance between

liquidity and profitability. In this paper an effort has been made to make an empirical

study of Indian Consumer Electronics Industry for assessing the impact of working

capital policies & practices on profitability during the period 1994 – 95 to 2004 – 05. The

impact of working capital policies on profitability has been examined by computing

coefficient of correlation and regression analysis between profitability ratio and some key

working capital policy indicator ratios.



- 51 -

According to Charles O. Egbu, (2004):-

Innovation is viewed as a major source of competitive advantage and is perceived to be a

pre-requisite for organizational success and survival. The ability to innovate depends

largely on the way in which an organisation uses and exploits the resources available

to it. The paper explores the importance of knowledge management (KM) and

intellectual capital (IC) in organisations. It also considers the critical factors that lead

to successful innovations and the role of KM and IC in this regard. The paper argues

that effective management of knowledge assets involves a holistic approach to a host of

facto` It i s al so suggested that there are a host of factors that combine in different ways

to produce successful organizational inn ova ti ons . It recommends that more is

needed on the education and training of construction personnel and that these

education and training programmes should reflect the nature of innovation and KM

dimensions as very complex social processes.

According to Kenneth A. Fr oot and Jeremy C. Stein in 1998:-

We develop a framework for analyzing the capital allocation and capital

structure decisions facing financial institutions. Our model incorporates two key features:

(i) value- maximizing banks have a well-founded concern with risk management; and

(ii) not all the risks they face can be frictionlessly hedged in the capital market. This

approach allows us to show how bank-level risk management considerations should

factor into the pricing of those risks that cannot be easily hedged. We examine several

applications, including: the evaluation of proprietary t r a d i n g o p e r a t i o n s ,

a n d the pricing of unhedgeable derivatives posit ions . We also compare our

approach to the RAROC methodology that has been adopted by a number of banks.

According to Pradeep Singh (2008):-

Empirically analysed that a firm‘ s working capital consists of its investments in current

assets, which includes short-term assets — cash and bank balance, inventories,

receivable and marketable securities. Therefore, the working capital management



- 52 -

refers to the management of the levels of all these individual current assets. On the

other hand, inventory, which is one of the important elements of current assets,

reflects the investment of a firm‘ s fund. Hence, it is necessary to efficiently manage

inventories in order to avoid unnecessary investments. A firm, which neglects the

management of inventories, will have to face serious problems relating to long-term

profitability and may fail to survive. With the help of better inventory management, a

firm can reduce the levels of inventories to a considerable degree. This paper tries to

evaluate the effect of the size of inventory and the impact on working capital through

inventory ratios, working capital ratios, trends, computation of inventory and

working capital, and liquidity ranking. Finally, it was found that the size of inventory

directly affects working capital and it‘s management. Size of the inventory and

working capital of Indian Farmers Fertilizer Cooperative Limited (IFFCO) is properly

managed and controlled compared to National Fertilizer Ltd. (NFL).

According to Pedro Juan Garc ı a-Teruel and Pedro Mart ı nez-Solano (2007):-

Conducted research for the object of the research presented in this paper is to provide

empir ical evid ence on the effects of working capital management on the profitability of a

sample of small and medium-sized Spanish firms. The results, which are robust to the

presence of endogeneity, demonstrate that managers can create value by reducing

their inventories and the number of days for which their accounts are outstanding.

Moreover, shortening the cash conversion cycle also improves the firm‘ s profitability.

The aim is to ensure that the relationships found in the analysis carried out are due to

the effects of the cash conversion cycle on corporate profitability and not vice versa.

According to Naila I qbal (2001):-

Examined that for increasing shareholder's wealth a firm has to analyze the effect of fixed

assets and curr ent assets on its return and risk. Working Capital Management is

related with the Management of current assets. The Management of current assets is

different from fixed assets on the basis of the following points i.e Current assets are

for short period while fixed assets are for more than one Year.The large holdings of



- 53 -

current assets, especially cash, strengthens Liquidity position but also reduces overall

profitability, and to maintain an optimum level of liquidity and profitability, risk

return trade off is involved holding Current assets.Only Current Assets can be

adjusted with sales fluctuating in the short run. Thus, the firm has greater degree of

flexibility in managing current Assets. The management of Current Assets helps

affirm in building a good market reputation regarding its business and economic

condition.

According to Vell anki S. Kumar, Awad S.Hanna, Teresa Adams (2000): -

Conducted research and examined that the systematic assessment of working capital

requirement in construction projects deals with the analysis of various quantitative

and qualitative factors in which information is subjective and based on uncertainty.

There exists an inherent difficulty in the classical approach to evaluate the impact of

qualitative factors fo r the a ss es sm en t of wo rk in g cap ita l re qu ir em en t . This

paper presents a methodology to incorporate linguistic variables into workable

mathematical propositions

for the assessment of working capital using fuzzy set theory. This article takes into

consideration the uncertainty associated with many of the project resource variables

and these are reflected satisfactorily in the working capital computations. A case

study illustrates the application of the fuzzy set approach. The results of the case

study demonstrate the superiority of the fuzzy set approach to classical methods

in the assessment of realistic working capital requirements for construction projects.

According to Maynard E. Rafuse (1996) :-

Argues that attempts to improve working capital by delaying payment to creditors is

counter-productive to individuals and to the economy as a whole. Claims that altering

debtor and cr ed it or levels for individual tiers within a value system will rarely produce

any net benefit. Proposes that stock reduction generates system wide financial

improvements and other impor tant bene f it s. Urges those organizations seeking

concentrated working capital reduction strategies to focus on stock management



- 54 -

strategies based on ―lean supply-chain‖ techniques.

CHAPTER -3

OBJECTIVES OF THE REASERCH

Following are the objectives which are being considered in my study:-

1. To analyze the various components of working capital of NTPC Ltd.

2. To study the financing of working capital of NTPC Ltd.

3. To study and analyze the cash flow, liabilities, working capital management of

NTPC Ltd with reference to BCG matrix.



- 55 -

CHAPTER -4

RESEARCH METHODOLOGY:

The research design is a pattern or an outline of research project working. It is a

statement of onl y essential elements of study, those that provide basic guidelines for

the details of the project . The pr esent study is bein g condu cted fol lowed by

Descri ptive Research Design.

Data Collection: Primary as well as secondary data is used for the project. The

research vehicle for primary data collection is unstructured interview with the

managers to get information regarding all variables for working capital management.

Secondary data is collected from Annual Report, relevant f il es & records of NTPCL td .

Analysis of Data: The information gathered are the policies & practices regarding

management of the working capital. Analysis is done in terms of theoretical concepts.

Analysis of working capital perf ormance is done with the help of percentages by

showing graphs, ratios etc.



- 57 -

Agg.of non promotoholding

(%)15.50 15.50 15.50 15.50 15.50

OPM (%) 25.48 27.25 23.73 25.73 18.90

GPM (%) 25.53 28.94 23.84 25.80 20.43

NPM (%) 15.71 18.30 14.83 15.23 13.11

Half yearly results in br ief(` crore)

Sep ' 12 Mar ' 12 Sep ' 11 Mar ' 11 Sep ' 10

Sales 32,517.28 31,746.25 30,223.39 29,943.33 28,416.45

Operating profit 8,292.49 7,118.15 6,779.49 8,579.59 7,216.72

I nterest 802.81 936.62 705.52 1,023.13 1,125.95

Gross prof it 8,985.17 7,712.52 7,405.34 7,964.11 6,571.18

EPS (Rs) 6.84 5.73 5.46 6.25 4.79

Half yearl y resul ts in details ( In cr.)

Sep ' 12 Mar ' 12 Sep ' 11 Mar ' 11 Sep ' 10

Other income 1,495.49 1,530.99 1,331.37 407.65 480.41

Stock adjustment - - - - -

Raw mater ial - - - - -

Power and fuel 20,530.38 21,236.24 20,399.22 18,064.20 17,309.58

Employee expenses 1,687.12 1,615.15 1,475.33 1,396.71 1,393.00

Excise - - - - -

Admi n and sell ing expenses - - - - -

Research and developmentexpenses

- - - - -

Expenses capital ised - - - - -

Other expenses 2,007.29 1,711.55 1,569.33 1,613.46 1,234.37

Provisions made - 65.16 0.02 289.37 1,262.78

Depreciati on 1,546.74 1,492.29 1,299.41 1,296.69 1,189.00

Taxation 1,797.41 1,496.40 1,606.03 1,514.10 1,432.91



- 58 -

Net profit / loss 5,641.02 4,723.83 4,499.90 5,153.32 3,949.27

Extr a ordinary item - - - - -

Pri or year adjustments - - - - -

Equ ity capital 8,245.46 8,245.46 8,245.46 8,245.46 8,245.46Equity dividend rate - - - - -

Agg.of non-prom. shares (Lacs) 12781.03 12781.03 12781.03 12781.03 12781.03

Agg.of non promotoholding (%) 15.50 15.50 15.50 15.50 15.50

OPM (%) 25.50 22.42 22.43 28.65 25.40

GPM (%) 26.42 23.18 23.47 26.24 22.74

NPM (%) 16.59 14.20 14.26 16.98 13.67

Annual r esul ts in brief ( I n cr.)

Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08

Sales 62,053.58 58,359.78 48,221.32 44,126.08 37,050.10


Interest 1,711.64 2,149.08 1,808.93 2,022.90 1,798.10

Gross profit 15,117.86 14,535.29 13,535.52 11,723.95 12,393.40

EPS (Rs) 11.19 11.04 10.59 9.95 8.99

Annual resul ts in details ( I n cr.)


Other income 2,778.42 888.06 1,025.33 1,146.68 2,967.60

Stock adjustment - - - - -

Raw material - - - - -

Power and fuel 41,635.46 35,373.78 29,462.74 27,110.69 22,020.20

Employee expenses 3,090.48 2,789.71 2,412.36 2,463.13 1,896.00 Excise - - - - -

Admin and selling expenses - - - - -

Research and development

expenses- - - - -

Expenses capitalised - - - - -



- 59 -

Other expenses 3,211.38 2,847.83 2,027.10 1,952.09 1,910.00

Provisions made 65.18 1,552.15 - - -

Depreciation 2,791.70 2,485.69 2,650.06 2,364.48 2,138.50

Taxation 3,102.43 2,947.01 2,157.26 1,158.17 2,840.10

Net profit / loss 9,223.73 9,102.59 8,728.20 8,201.30 7,414.80

Extra ordinary item - - - - -

Prior year adjustments - - - - -

Equity capital 8,245.46 8,245.46 8,245.46 8,245.46 8,245.50

Equity dividend rate - - - - -

Agg.of non-prom. shares(Lacs)

12781.03 12781.03 12781.03 8658.30 8658.30

Agg.of non promoter holding

(%) 15.50 15.50 15.50 10.50 10.50

OPM (%) 22.64 27.07 29.69 28.55 30.29

GPM (%) 23.32 24.53 27.49 25.90 30.97

NPM (%) 14.23 15.36 17.72 18.12 18.53

Balance sheet ( I n cr.)


Sources of funds

Owner's fund

Equity share capital 8,245.46 8,245.46 8,245.50 8,245.50 8,245.50

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 65,045.71 60,138.66 55,478.60 50,749.40 46,021.90

Loan funds

Secured loans 9,156.30 9,910.68 9,079.90 8,969.60 7,314.70



- 60 -

Unsecured loans 38,182.03 33,277.56 28,717.10 25,598.20 19,875.90

Total 1,20,629.50 1,11,572.36 1,01,521.10 93,562.70 81,458.00

Uses of funds

Fixed assets

Gross block 81,723.52 72,583.94 66,663.80 62,353.00 53,368.00

Less : revaluation reserve - - - - -

Less : accumulated

depreciation 36,465.12 33,519.19 32,088.80 29,415.30 27,274.30

Net block 45,258.40 39,064.75 34,575.00 32,937.70 26,093.70

Capital work-in-progress 41,827.82 38,441.84 32,290.60 26,404.90 22,478.30

Investments 11,206.38 12,344.84 14,807.10 13,983.50 15,267.20

Net current assets

Current assets, loans &

advances 42,545.20 35,396.79 30,815.70 30,925.30 30,527.80

Less : current liabilities &

provisions 20,208.30 13,675.86 10,967.30 10,688.70 12,909.00

Total net current assets 22,336.90 21,720.93 19,848.40 20,236.60 17,618.80

Miscellaneous expenses

not written - - - - -

Total 1,20,629.50 1,11,572.36 1,01,521.10 93,562.70 81,458.00

Notes:

Book value of unquotedinvestments 11,194.38 12,332.84 14,795.10 13,785.00 15,453.10

Market value of quoted

investments 73.32 100.92 133.60 275.50 304.30



- 61 -

Contingent liabilities 42,308.16 33,227.29 40,044.00 66,083.20 29,361.80

Number of equity shares

outstanding (Lacs) 82454.64 82454.64 82454.64 82454.64 82454.64

Profi t loss account ( I n cr.)


Income

Operating income 62,052.23 54,938.68 46,377.70 41,975.20 37,091.00

Expenses

Material consumed 45.24 31.33 31.10 31.00 26.80

Manufacturing expenses 43,700.89 37,069.51 30,785.70 28,232.30 23,080.70

Personnel expenses 3,090.48 3,395.27 2,946.80 2,897.60 2,229.30

Selling expenses - 174.22 65.10 57.50 45.00

Adminstrative expenses 1,478.12 2,676.34 977.60 851.10 726.80

Expenses capitalised - -1,052.98 -866.90 -637.40 -544.70

Cost of sales 48,314.73 42,293.69 33,939.40 31,432.10 25,563.90


Other recurring income 2,778.42 2,477.56 2,859.60 3,307.00 2,957.60

Adjusted PBDIT 16,515.92 15,122.55 15,297.90 13,850.10 14,484.70

Financial expenses 1,711.64 2,027.21 1,861.90 1,737.00 1,982.20



- 62 -

Depreciation 2,791.70 2,485.69 2,650.10 2,364.50 2,138.50

Other write offs - 4.50 4.30 3.60 3.10

Adjusted PBT 12,012.58 10,605.15 10,781.60 9,745.00 10,360.90

Tax charges 3,241.49 2,630.54 2,682.70 2,554.70 2,994.20

Adjusted PAT 8,771.09 7,974.61 8,098.90 7,190.30 7,366.70

Nonrecurring items 325.00 47.92 13.20 -294.20 162.10

Other non cash adjustments 452.64 1,330.06 616.10 1,305.20 -114.00

Reported net profit 9,548.73 9,352.59 8,728.20 8,201.30 7,414.80

Earnigs before appropriation 9,581.07 9,382.18 8,743.30 8,222.40 7,504.70

Equity dividend 3,298.19 3,133.26 3,133.20 2,968.30 2,885.90

Preference dividend - - - - -

Dividend tax 527.92 514.77 527.60 501.70 490.50

Retained earnings 5,754.96 5,734.15 5,082.50 4,752.40 4,128.30

Cash f low ( I n cr.)


Profit before tax 12,326.16 10,410.88 10,807.60 9,467.80 10,529.40

Net cash flow-operatingactivity

13,866.57 11,095.20 10,594.20 9,688.10 10,171.10

Net cash used in investing

activity-11,036.61 -7,658.85 -10,497.70 -7,500.40 -6,203.80

Net cash used in fin. activity -2,869.11 -1,710.57 -1,908.60 -849.30 -2,348.70

Net inc/dec in cash and

equivalent-39.15 1,725.78 -1,812.10 1,338.40 1,618.60

Cash and equivalent begin of

year16,185.26 14,459.48 16,271.60 14,933.20 13,314.60

Cash and equivalent end of year

16,146.11 16,185.26 14,459.50 16,271.60 14,933.20



- 63 -

Capital structure ( I n cr.)

FromYear

ToYear

Class OfShare

AuthorizedCapital

IssuedCapital

Paid UpShares (Nos)

Paid Up

Face

Value

Paid UpCapital

2011 2012 Equity

Share10,000.00 8,245.46 8245464400 10 8,245.46

2010 2011 Equity

Share10,000.00 8,245.46 8245464400 10 8,245.46

2009 2010 EquityShare

10,000.00 8,245.46 8245464400 10 8,245.46

2008 2009 Equity

Share10,000.00 8,245.46 8245464400 10 8,245.46


10,000.00 8,245.46 8245464400 10 8,245.46


10,000.00 8,245.46 8245464400 10 8,245.46


10,000.00 8,245.46 8245464400 10 8,245.46

2004 2005 Equity

Share10,000.00 8,245.46 8245464400 10 8,245.46

2003 2004 Equity

Share10,000.00 7,812.55 7812549400 10 7,812.55

2000 2002 Equity

Share8,000.00 7,812.55 78125494 1,000 7,812.55

1999 2000 Equity

Share8,000.00 7,812.55 78125494 1,000 7,812.55

1994 1995 Equity

Share8,000.00 7,999.84 79998394 1,000 7,999.84

1993 1994 Equity

Share8,000.00 7,999.84 79998394 1,000 7,999.84


8,000.00 7,508.27 75082694 1,000 7,508.27



- 64 -

Cash f low

The cash flow and cash equivalent and cash flow on various activities for the past five years

are tabulated below

Our net cash from operating activities for the year ended March 31 2012 increased by

24.98% from the previous year. The net cash from operating activities was ` 13866.57 Cr.

as against ` 11095.2 Cr. for the previous year.

Net cash used in investing activities increased by 44% and was ` 11,037 crore in financial

year 2011-12 as compared to ` 7,656 crore in the previous year. Cash flows on investing

activities arise from expenditure on setting up power projects, investment of surplus cash in

various securities, investments in joint ventures and subsidiaries. Cash invested on

purchase of Fixed Assets increased by 18% i.e. from ` 11,115 crore in financial year 2010-

11 to ` 13,136 crore in financial year 2011-12. During the year, there was sale of non-trade

investments and redemption of OTSS Bonds.

During the year, out of cash raised from operating activities the Company paid net ` 2,869

crore of cash for servicing financing activities as against ` 1,704 crore in the previous year.

During the financial year 2011-12 the Company had an inflow of ` 8,736 crore from long

term borrowings as against ` 9,046 crore in the previous year. Cash used for repayment of

long term borrowings during the financial year 2011-12 was ` 3,523 crore as against `



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3,999 crore repaid in the previous year. Cash used for paying dividend and the tax thereon

was ` 4,115 crore.

Net cash used in investing activities increased by 44% and was`

11,037 crore in financial

year 2011-12 as compared to ` 7,656 crore in the previous year. Cash flows on investing

activities arise from expenditure on setting up power projects, investment of surplus cash in

various securities, investments in joint ventures and subsidiaries. Cash invested on

purchase of Fixed Assets increased by 18% i.e. from ` 11,115 crore in financial year 2010-

11 to ` 13,136 crore in financial year 2011-12. During the year, there was sale of non-trade

investments and redemption of OTSS Bonds.

( I n cr.)


Profit before tax 12,326.16 10,410.88 10,807.60 9,467.80 10,529.40

Net cash flow-

operating activity 13,866.57 11,095.20 10,594.20 9,688.10 10,171.10

Net cash used in

investing activity -11,036.61 -7,658.85 -10,497.70 -7,500.40 -6,203.80

Net cash used in fin.

activity -2,869.11 -1,710.57 -1,908.60 -849.30 -2,348.70

Net inc/dec in cash

and equivalent -39.15 1,725.78 -1,812.10 1,338.40 1,618.60

Cash and equivalent

begin of year 16,185.26 14,459.48 16,271.60 14,933.20 13,314.60

Cash and equivalent

end of year 16,146.11 16,185.26 14,459.50 16,271.60 14,933.20



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Receivable

Cash and bankbalance

16146.11 41.49 16185.26 44.82 -39.15 -1.4

Short term loanand advance

2754.73 7.1 3777.86 10.46 -1023.13 -27

Other currentasset

8,853.86 22.75 9,264.44 25.65 -410.58 -4.0

Total current

asset38912.52 100 36,113.64 100 2,798.88 8.0

A major portion of current assets comprised of cash and bank balances. As at March 31,

2012, cash and bank balances stood at ` 16,146.11 Cr. being 41% of the total current

assets in comparison to ` 16,185.26 Cr. as at March 31, 2011 which was 45% of the total

current assets as at that date. Of this, ` 15,657.98 Cr. was kept as term deposits with

banks as at March 31, 2012 against ` 15,847.23 Cr. as at March 31, 2011.

The next largest component of our current asset is other current assets which is ` 8853.86.

This component was 22.75% of total and it was decreased ` 410.58 Cr. from last year‘s `

9264.44 Cr.

Inventories as at March 31 2012 were ` 3702.85 Cr. being 9.51% of current asset as

against ` 3639.12 Cr. as on march 31, 2011 which was 10.07 % of the current asset as on

the date . Our inventories mainly comprise components and spares and coal which we

maintain for operating our plants.



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Observations:-

It was observed that the size of current assets is increasing with increases in the

sales. The excess of current assets is showing positive liquidity position of the firm but it

is not always good because excess current assets then required, it may adversely

affects on profitability. Current assets include some funds investments for which

company pay interest .

4%

10%

15%

41%

7%

23%

Current Asset details 2011-12

Current investments

inventories

Trade Receivable

Cash and bank balance

Short term loan and advance

Other current asset



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Current L i ab i l i t ie s

Current liabilities mean the liabilities which have to pay in current year. It includes

sundry creditor‘ s means supplier whose payment is due but not paid yet, thus creditors

called as current liabilitie s. Curr ent liabilities also include short term loan and

provision as tax provision. Current liabilities also includes bank overdraft. For some

current assets like bank overdrafts and short term loan, company has to pay

interest thus the management of current liabilities has importance

The current liabilities as at March 31, 2012 were ` 17,238.64 Cr. as against ` 14,041.04

Cr. as at the end of previous year. The break-up of current liabilities is as under:

( In Cr.)

2011-12 2010-11 Change

amount

% of

current

asset

amount

% of

current

asset

amount

% of

current

asset

Trade payable 4,468.07 25.9 4,088.01 29.11 380.06 9

Other current

liabilities9,554.95 55.42 7,762.50 55.28 1,792.45 23

Short term

provision3,215.62 18.65 2,190.53 15.61 1,025.09 47

Total 17,238.64 100 14,041.04 100 3,197.60 23



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The Trade payables mainly comprise of amount payable towards supply of goods &

services, deposits & retention money from contracto` Other current liabilities mainly

comprise of current maturities of long term borrowings, payable towards capital

expenditure and other statutory liabilities. The details of other current liabilities are as

under: ( I n cr.)

2011-12 2010-11

Other current liabilities 9,554.95 7,762.50

Less: Current maturities of

long term borrowings,

Finance lease obligations

4,371.10 3,452.56

Other current liabilities (net) 5,183.85 4,309.94

Other current liabilities (net) have increased mainly due to increase in amount payable for

capital expenditure on account of performance and guarantee test results of SG/TG at

some of the stations which has become due as well as increase in liability for capital

expenditure in respect of stations under construction.

Short-term provisions mainly consists of provisions for employee benefits, provision for

proposed dividend and taxes thereon, provision for obligations incidental to land

4,468.07

9,554.95

3,215.62

2011-12

Trade payable

Other current liabilities

Short term provision



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acquisition and provision for tariff adjustment. As at 31.03.2012, the Company had

outstanding short term provisions of ` 3,215.62 crore as against ` 2,190.53 crore as at

31.03.2011. The increase is due to transfer of provision for tariff adjustment as at

31.03.2012 amounting to`

1,213.70 crore to short-term provisions while the

corresponding amount in the previous year amounting to ` 1,526.45 crore has been netted

off with ‗unbilled revenues‘ under other current assets.

Provision for tariff adjustment was created in the books of accounts as a prudent and

conservative policy in the year 2010-11, to the extent of the impact of the issues challenged

by CERC in Supreme Court on the APTEL‘s judgment. The Appeal is still pending for

disposal and the CERC tariff orders are subject to the outcome of this appeal.

On comparable basis, after including provision for tariff adjustment, short-term provisions

for previous year amount to ` 3,716.98 crore. The reduction in short-term provisions is

mainly due to lower provisions for final dividend and dividend distribution tax thereon in

2011-12 at ` 475.10 crore which was at ` 763.56 crore in the previous financial year. The

proposed final dividend for the year 2011-12 is 5% as compared to 8% in the previous

year.

During the year 2010-11, the CERC issued draft notification of proposed amendment toTariff Regulations, 2009 for upfront truing up of capital cost as at 01.04.2009, with regard

to un-discharged liability for tariff determination. As a measure of abundant precaution,

your Company had provided 263.59 crore as provision for tariff adjustment. Upon

issuance of second amendment to the Tariff Regulations, 2009 in July 2011, which stated

that the un-discharged liabilities would not be considered for arriving at capital cost, this

provision has been reversed as the corresponding impact has been considered in the sales

for the year. In addition, ` 49.16 crore has been written back from the provision for tariff

adjustment consequent upon issue of tariff order under Regulations, 2009 for some of the

stations. Thus, the net write-back of provision for tariff adjustments during the year 2011-

12 amounts to ` 312.75 crore.



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Further, Other provisions include ` 41.19 crore (previous year ` Nil) towards cost of

unfinished minimum work programme demanded by the Ministry of Petroleum and Natural

Gas (MoP&NG) in relation to block AA-ONN-2003/2.

An amount of`

341.83 crore was written back out of provisions for employee benefits

during the year on review of the liability towards employee pension benefits.

Observations:-

Current liabilities show continues growth each year because company creates the credit

in the market by good transaction. To get maximum credit from supplier which is

profitable to the company it reduces the need of working capital of firm. As a current

liability increase in the year 2011-12 by ` 5,183.85 cr., also the working capital size in

the same year is increasing. But company enjoyed over creditors which may include

indirect cost of credit terms.

Working Capital Size

Working Capital Size ( I n cr.)

Years 2008-09 2009-10 2010-11 2011-12

Net W.C 10689 20057 22324 21674

W.C. I ndices 100 187.64 208.85 202.77



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Observations:-

It was observed that working capital of the company is increasing

gradually since past four years and this is due to expansion of the

company, Although company could not expend in ratio of working

capital but it is comparable if we go in terms of profit . In year 2008-09

the company net working capital was ` 10689 Cr and after 4 years it increasing and

2011-12 the company net working capital was ` 21674 Cr.

The basic aim of working capital management is

Adequacy of current assets to ensure uninterrupted business operations.

Adequate liquidity to ensure payment of its suppliers due.

Matching of current assets and current liabilities to ensure minimization of risk

being unable to pay its dues / obligations.

Proper investment of surplus cash, minimization of inventories, speedy collection of

0

5000

10000

15000

20000

25000

2008-09 2009-10 2010-11 2011-12

Net Working Capital

Net WC



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receivable and avoidance of costly short term financing to maximize the value of

firm.

In NTPC there is no hurdle in payment in relation to regular business operations and

payment to supplier is made as and when they become dues there is no delay. There is sufficient amount of current assets in relation to current liabilities so that the risk in

relation to payment of dues and obligations in minimum. Working capital is that part of

current assets which is financed by the long term resources.

NTPC is having cash resources which all are properly invested in bank deposits and other

marketable securities.

The issues in NTPC regarding working capital management is as follows

First of all the billing period and collection from beneficiary period is more so that it

require a large amount of Working capital apart from this the major expenditure of NTPC

is fuel procurement comprising of more than 70% of total expenditure and NTPC has to

pay in advance to the fuel supplier in advance for uninterrupted fuel supply.

We can easily link the Working Capital Management with the BCG matrix that depicts the

four scenarios regarding a business cycle. Those are as follows

1. Stars- Stars represent business units having large market share in a fast growing

industry. They may generate cash but because of fast growing market, stars require

huge investments to maintain their lead. Net cash flow is usually modest. SBU‘s

located in this cell are attractive as they are located in a robust industry and these

business units are highly competitive in the industry. If successful, a star will become

a cash cow when the industry matures.

2.

Cash Cows- Cash Cows represents business units having a large market share in a

mature, slow growing industry. Cash cows require little investment and generate

cash that can be utilized for investment in other business units. These SBU‘s are the

corporation‘s key source of cash, and are specifically the core business. They are the

base of an organization. These businesses usually follow stability strategies.



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3. Question M arks - Question marks represent business units having low relative market

share and located in a high growth industry. They require huge amount of cash to

maintain or gain market share. They require attention to determine if the venture can

be viable. Question marks are generally new goods and services which have a good

commercial prospective. There is no specific strategy which can be adopted. If the

firm thinks it has dominant market share, then it can adopt expansion strategy, else

retrenchment strategy can be adopted. Most businesses start as question marks as the

company tries to enter a high growth market in which there is already a market-

share. If ignored, then question marks may become dogs, while if huge investment is

made, and then they have potential of becoming sta`

4. Dogs- Dogs represent businesses having weak market shares in low-growth markets.

They neither generate cash nor require huge amount of cash. Due to low market

share, these business units face cost disadvantages. Generally retrenchment

strategies are adopted because these firms can gain market share only at the expense

of competitor‘s/rival firms. These business firms have weak market share because of

high costs, poor quality, ineffective marketing, etc. Unless a dog has some other

strategic aim, it should be liquidated if there is fewer prospects for it to gain market

share. Number of dogs should be avoided and minimized in an organization .



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Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business

units and makes it possible to compare many business units at a glance. But BCG Matrix is

not free from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be

medium also. Thus, the true nature of business may not be reflected.

2. Market is not clearly defined in this model.

3. High market share does not always leads to high profits. There are high costs also

involved with high market share.

4. Growth rate and relative market share are not the only indicators of profitability.

This model ignores and overlooks other indicators of profitability.

5. At times, dogs may help other businesses in gaining competitive advantage. They

can earn even more than cash cows sometimes.

6. This four-celled approach is considered as to be too simplistic.

If we compare the performance of NTPC in relation to BCG matrix than we can say that

NTPC has a high market share but low growth rate as its capacity addition is having a low

growth rate and it is a PSU which is made for public welfare and working under a

regulations (CERC). So that we can say that the position of NTPC is like cash cow which

require a little investment and can generate resources for investing in other business.

The overall management of working capital in NTPC is good which is having a large

amount of resources and not facing any problem in efficient utilisation of resources and

running business efficiently. It is a established business which does not requires a lot of

resources for liquidity, it has a good market image so that it can take a large credit period

for payment to supplier.



- 77 -

Changes in Worki ng Capital

There are so many reasons to changes in working capital as follow

1. Changes in sales and operating expanses

The changes in sales and operating expenses may be due to three reasons

• There may be long run trend of change e.g. The price of row material say oil may

constantly raise necessity the holding of large inventory.

• Cyclical changes in economy dealing to ups and downs in business activity will

influence the level of working capital both permanent and temporary.

• Changes in seasonality in sales activitie s

2. Poli cy changes



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The second major case of changes in the level of working capital is because of policy

changes initiated by management. The term current assets policy may be defined as the

relationship between current assets and sales volume.

1. Technology changes

The third major point if changes in working our business more working capital is

required A change in operating expenses rise or full will have similar effects on the levels

of working following working capital statement is prepared capital are changes

in technology because changes in technology to install that technology in on the base

of balance sheet of last two year

Changes in Worki ng Capital ( I n Cr.)

Statement of Changes in Worki ng Capital

2010-11 2011-12 Increase In

WC

Decrease In

WC

current asset amount

Current investments 1812.00 1622.46 -189.54

inventories 3639.12 3702.85 63.73

Trade Receivable 1434.96 5832.51 4397.45

Cash and bank

balance16185.26 16146.11 -39.15

Short term loan andadvance

3777.86 2754.73 -1023.13

Other current asset 9,264.44 8,853.86 -410.58

Total cur rent asset 36,113.64 38912.52

Curr ent Liabiliti es

Trade payable 4,088.01 4,468.07 380.06



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Other current

liabilities7,762.50 9,554.95 1,792.45

Short term provision 2,190.53 3,215.62 1,025.09

14,041.04 17,238.64

Working Capital 22092.6 21673.88

Working Capital Turnover Ratio

It signifies that for an amount of sales, a relative amount of working capital is needed. If

any increase in sales contemplated working capital should be adequate and thus this

ratio helps management to maintain the adequate level of working capital. The ratio

measures the efficiency with which the working capital is being used by a firm. It

may thus computer net working capital turnover by dividing sales by working capital.

Working Capital Tur nover Ratio= Sa le s

___________________________________________ ______________Net Working Cap i ta l



- 80 -

Working Capital Turnover ( I n cr.) Particular

2010-2011 2011-2012

Sales 55063 62052

Net WC 22092.6 21673.88

W.C. Turnover Ratio 2.4923 2.5629

Observations:-

High working capital ratio indicates the capability of the organization to

achieve maximum sales with the minimum investment in working capital. Company

working capital ratio shows mostly more than 2, it indicates that the capability of the

company to achieve maximum sales with the minimum investment in working capital.

Cur rent Assets Turnover Ratio

Current assets turnover ratio is calculate to know the firms efficiency of utilizing the

current assets .current assets includes the assets like inventories, sundry debtors, bills

receivable, cash in hand or bank, marketable securities, prepaid expenses and short

term loans and advances. This ratio includes the efficiency with which current assets

turn into sales. A higher ratio implies a more efficient use of funds thus high

turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of

this ratio over a period of time reflects working capital management of a firm.

Cur rent Assets Turnover Ratio =

Sales

Cur rent Assets



81

Calculation of Cur rent Assets Tur nover Ratio

( I n Cr.)

2010-2011 2011-2012

Sales 55063 62052

Current Assets 36,113.64 38912.52

Current Assets Turnover

Ratio1.52 1.60

Observations

It was observed that current assets turnover ratio does not indicate any trend over the

period of time. Turnover ratio was 1.52 in the year 2010-2011 and increase to 1.60 in the

year 2011-12. Company increased its sales with increased investment in current

assets, thus current assets turnover ratio increased to 0.08 in the year 2011-12.

Current Ratio

The current is calculated by dividing current assets by current liabilities:

Curr ent Ratio =

Current ass e ts

Current li ab i l i t ie s



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Current assets include cash and those assets which can be converted in to cash within

a year, such marketable securities, debtors and inventories. All obligations within a

year are include in current liabilities. Current liabilities include creditors, bills payable

accrued expenses, short term bank loan income tax liabilities and long term debt

maturing in the current year. Current ratio indicates the availability of current assets

in rupees for every rupee of current liability.

Curr ent Ratio

Particular 2010-11 2011-12

Current Assets36,113.64 38, 912.52

Current Liabilities5,183.85 4,309.94

Current Ratio 6.966 9.028

Observations:

The current ratio indicates the availability of funds to payment of current liabilities in

the form of current assets. A higher ratio indicates that there were sufficient assets

available with the organization which can be converted in cash, without any reduction in

the value.

It is very high 6.996 in 2010-11, but regularly increasing. In 2011-12 it comes at

9.028.



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CHAPTER -6

CONCLUSION AND MAJOR F INDS

Conclusion

Working capital management is important aspect of financial management. The study of

working capital management of NTPC Ltd has revealed that the Net Working Capital

was improving regularly from ` 10689 Cr. in 2008-09 to ` 21674 Cr. in 2011-12 which

is as per standard industrial practice. The current Assets of the company showed an

increasing`

17,618.80 Cr. in year 2007-08 but in 2011-12 it is`

22,336.90 cr.

The study has been conducted on working capital ratio analysis, current ratio, and

Change the working capital components which hel ped the company to manage its

working capital efficiency and affectively.

1. Working capital of the company was increasing from year from ` 10689 Cr.

in 2008-09 to ` 21674 Cr. in 2011-12. It is showing positive working capital

per year. It shows good liquidity position.

2. Positive working capital indicates that company has the ability of payments of

short terms liabilities.

3. Working capi tal in cr ea se d beca use of incr eme nt in the cur ren tassets.

Company‘ s current assets were always more than requirement it affect on

profitability of the company.

4. The company has used working capital mainly for raw material ie fuel and

for spares, the Inventories as at March 31, 2012 were ` 3,702.85 crore

(being 10% of current assets) as against ` 3,639.12 crore as at March 31,

2011. Inventories mainly comprise of components and spares and coal



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CHAPTER -7

RECOMMENDATION AND LI M ITATION

Limitations:- [

Even though every effort will be taken to minimize the variation and present a factual

picture with the help of statistical methods, but still there are some limitations, which

are as follows:

• The preparation and interpretation of data may not be 100% free from errors

and may be affected by the Respondents biased mindset to some extent.

• Sampling size of the targeted employees of NTPC Ltd is small, because non-

reachable due to their busy schedule.

• The study will be based on the balance sheet of the company and depends directly

on balance sheet and annual reports of the company.

Recommendation:-

Recommendation can be use by the firm for the betterment increased of the firm after

study and analysis of project report on study and analysis of working capital. I would

like to recommend.

1. Company should reduce the inventory holding period. It is the major part of

working capital of company. Although fuel inventory holding period is very



- 86 -

less but spares holding period is very high which should be reduced.

2. Company has to take control on cash balance because cash is non earning

assets and increase cost of funds. The company has huge cash which is in

government securities or government funds which has very low return , these

cash should be invested so that maximum return can be get by company which

will further improve company‘s profitability.

3. Since it is already being explained through BCG matrix that company has high

market share and slow growth, The company should take advantage give

consideration on foreign exchanges losses and take required step to minimize

it in future.

4. Company should raise it fund through short term sources for short term

requirement of funds.



- 87 -

CHAPTER -8

REFERENCES

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Bangladesh.

[2] Afza, T. and M. S. Nazir, (2008). Working Capital Approaches and Firm‘ s Returns.

Pakistan Journal of Commerce and Social Sciences. 1(1), 25-36.

[3] Baltagi, B. H. (2001). Econometric Analysis of Panel Data. 2nd Edition, John Wiley

& Sons. Chichester.

[4] Blinder, A. S. and L. Macinni, (1991). Taking Stock: A critical Assessment of Recent

Research on Inventories. Journal of Economic Perspectives. 5(1), 73-96.

[5] Czyzewski, A.B., and D.W. Hicks, (1992). Hold Onto Your Cash. Management

Accounting. 27-30.

[6] Deloof, M. (2003). Does Working Capital Management Affects profitability of

Belgian Firms? Journal of Business Finance & Accounting. 30(3) & (4), 0306-686X.

[7] Eljelly, M.A. (2004). Liquidity – Profitability Tradeoff: An empirical investigation in

an emerging market. International Journal of Commerce & Management. 14(2).



- 88 -

[8] Filbeck, G. and T. M. Krueger, (2005). An Analysis of Working Capital Management

results across Industries. American Journal of Business. 20(2), 11-18.

[9] Garcia-Teruel, P.J. and Martinez-Solano, P. (2007). Effects of WorkingCapital Management on SME Profitability. International Journal of Managerial

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[10] Gitman, L.J. (1991). Principles of Managerial Finance. Collins Publishers

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[13] Kargar, J. and R. A. Blumenthal, (1994). Leverage Impact of Working Capital in

Small Businesses. TMA Journal. 14(6), 46-53.

[14] Lazaridis, I. and D. Tryfonidis, (2006). Relationship between Working Capital

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[15] Mukhopadhyay, D. (2004). Working Capital Management in Heavy Engineering

Firms — A Case Study. Accessed from myicwai.com/knowledgebank/fm48.

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Reference of Books

1. Management Accounting and Business Finance-By R.K. Sharma and Shashi K

Gupta-16 th

Edition 2008

2. Working Capital Management- By B. Murali Krishna 2010

3. Financial Management: Theory & Practice-By Prasanna Chandra 2004

4. Managing Finance: A Socially Responsible Approach-By David Crowther 2004

Reference of Web Pages

1. http://www.answer.com/topic/cash-management

2. http://www.ntpc.co.in

3. www.google.co.in

4. www.moneycontrol.com

http://www.answer.com/topic/cash-management


http://www.google.co.in/




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