Summer Internship Project Report

On

“WORKING CAPITAL CYCLE AND RATIO ANALYSIS OF

NALCO”

A Navaratna Company

Submitted For the Partial Fulfillment of the Requirement for the Degree

Of

Master in Business Administration

INTERNAL GUIDE: SUBMITTED BY:

Mr. Goutam Tanty Samaresh Nath

Lecturer (Finance) Regd. No; 0806804045

IIPM-School of Management MBA 2008-2010

Biju Patnaik University of Technology,

Rourkela, Orissa

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DECLARATION:

I do hereby declare that the project study entitled” STUDY ON

WORKING CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO” is

submitted to IIPM SCHOOL OF MANAGEMENT for award of MASTER IN

BUSINESS ADMINISTRATION is based on the study undertaken by me, to

the best of my knowledge and belief it has not been published earlier elsewhere

or presented to any University/Institution for award of any degree, diploma or

other similar title. The information used in the study report is collected from

published financial statement, Annual report, various articles and in house

journal of the NATIONAL ALUMINIUM COMPANY LTD.This report shall

be used for academic purpose only.

SAMARESH NATH

Place: MBA (FINANCE)

Date: IIPM-School of Management

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CERTIFICATE FROM CORPORATE GUIDE

This is to certify that Samaresh Nath, student of IIPM School of

Management, pursuing Master in Business Administration has worked under

my guidance and supervision on his project entitled “A STUDY ON WORKING

CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO”. To the best of my

knowledge, this is an original piece of work.

Mr. C.Padhiary

Chief.Manager (Finance)

NALCO, SMELTER PLANT, ANGUL, ORISSA

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CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the project work entitled “A STUDY ON WORKING

CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO” is a piece of

work done by Samaresh Nath(MBA/08-10), student of IIIPM School Of

Management, under my guidance and supervision for the partial fulfillment of

the course Master in Business Administration, Biju Pattnaik University of

Technology, Rourkela.

To the best of my knowledge and belief, the thesis embodies the work of the

candidate himself and has been duly completed. Simultaneously, the thesis

fulfills the requirements of the rules and regulations related to the summer

internship of the institute and I am assured that the project is up- to the standard

both in respect to the contents and language for being referred to the examiner.

Mr. Goutam Tanty

Lecturer (Finance)

IIPM School of Management

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ACKNOWLEDGEMENT:

I am extremely thankful to Mr. C.padhiary for his guidance and support

and it has been a wonderful learning experience for which I feel indebted to him

and keenly look forward to such a value adding opportunity again, He provided

immense support, encouragement and confidence during the course of the

project. I express my heartfelt gratitude to the IIPM SCHOOL OF

MANAGEMENT for giving me this opportunity to do the project.

I am thankful to Mr. PEEYUSH SHARMA for his cooperation to complete

my project and giving me the best of his job experience. I am also thankful to

my faculty guide Mr. Goutam Tanty for guiding me and giving the

suggestions and guidelines about my project. I also want to say my sincere

thanks to my team members for their co-operation and co-ordination during the

training.

Last but not the least I am thankful to almighty God, my family and my friends

for their love and moral support.

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CONTENTS

CHAPTER NO PARTICULAR PAGE NO

Chapter 1 Executive Summary 07-08

Chapter 2 Company profile 09-17

Chapter 3 Introduction to the study 18-19

Chapter 4 Literature Review 20-46

Chapter 5 Objective and Scope of the study 47-48

Chapter 6 Research Methodology 49-50

Chapter 7 Analysis & Interpretation 51-62

Chapter 8 Limitation 63-64

Chapter 9 Recommendations 65-66

Chapter 10 Conclusion 67-68

Chapter 11 Bibliography 69-70

Chapter 12 Annexure 71-73

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EXECUTIVEEXECUTIVE

SUMMARYSUMMARY

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The major objectives of the study is

1. To give an insight into the concept and process of working capital management.

2. To study working capital management of National Aluminium Company Ltd.

3. To study the ratio analysis or liquidity position of NALCO

And finally to suggest measures to overcome the hurdles & ways of better management of

working capital

PLACE OF STUDY

Study is based on the secondary data collected from SMELTER PLANT of NALCO located

at Angul, Orissa

STUDY PERIOD:-

The period is covered in the study, which extends from the financial year 2003 – 2004 to

2007-2008. These five years data were collected for the study.

LIMITATION OF THE STUDY

The company is yet to finalize accounts for the financial year 2008-09.The study is strictly

based on mathematical interpretation of the figures and ignores the factors such as

management style, motivation, leadership etc.

The entire study is based upon the secondary data available at the office. All financial decision

taken at corporate office and time being the constraint; it was not possible for collection of

primary data, and an extensive study on the topic.

Ratios used for financial performance analysis are not necessarily the true indicators of the

future results. Firms may adopt changes in accounting policies, procedures, due to change in

accounting standards from time to time. The ratio analysis may be misleading.

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COMPANY PROFILE

COMPANY BRIEF

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THE NALCO STORY

National Aluminum Company Limited (NALCO) is considered to be a turning point in the

history of Indian Aluminum Industry. In a major leap forward, Nalco has not only addressed

the need for the self – sufficiency in aluminum but also given the country a technological

edge in producing this strategic metal as per world standards.

Incorporated in 1981 as a public sector enterprise, NALCO was set up to exploit a part of the

large bauxite deposits discovered in the east coast, in technological collaboration with

Aluminum Pechinery of France.

With consistent track record in capacity utilization, technology absorption, quality assurance,

exports performance and posting of profits, NALCO is a bright example of India’s industrial

capability. Today as an ISO-9001: 2000 and 14001 company, with its products registered in

London Mental Exchange, NALCO has emerged as the greatest integrated bauxite-alumna-

aluminum complex in ASIA.

COMPANY BACKGROUND

The discovery of large reserves of Bauxite ore in the east coast and the preliminary Project

work done by Bharat Aluminum Company Limited, the Company was set up by the

Government of India in 1981 to implement one of the largest multi-locational integrated

Aluminum projects of the world with its own Captive Power Plant and Port Facilities.

The technical collaboration of Aluminum Pechinery of France, the support of Euro-dollar

loans from a consortium of international Banks and the special dispensations of the

Government of India and the Govt. of Orissa helped the Company to implement the project

expeditiously within the budgeted cost of Re.2408 crore, under very difficult logistics of

project management.Different segments of the Company went into production in a phased

manner starting from November 1985. Within a short span of time, the company has emerged

as a leader in the field of Aluminum production in the country to make a quantum jump in

production of Aluminum and has also been earning substantial foreign exchange through

creditable export performances year after year.

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The Integrated complex has five main segments:

SEGMENT CAPACITY LOCATION

Bauxite mine 2,400,000 tpy Panchpatmali in Koraput

Alumina Refinery 800,000 tpy Damanjodi in Koraput

Aluminium Smelter 218,000 tpy Angul

Captive Power Plant 720 MW Angul

Port Facilities 375,000 tpy

(Alumina Export)

Visakhapatanam

(Andhra Pradesh)

.THE MANAGEMENT:

The Company is a Government of India Enterprise under the Administrative control of the

Ministry of Mines. The Company is managed by a Board of Directors appointed by the

President of India. The Board consists of 10 Directors including the Chairman-cum-

Managing Director of the Company. Apart from CMD, there are 4 functional & full time

Directors heading Production, Finance, Project & Technical and Personnel & Administration

disciplines. There are 2 senior Govt. officials nominated to the Board as Directors by the

Government of India. Besides, there are non official Directors in the Board.

The Management’s Control system is based on delegation of authority and individual

accountability for results. The responsibility and authority to take decisions on various

matters are delegated by the Chairman-cum-Managing Director to different levels in the

Management hierarchy. For personnel matters such as appointments, confirmations,

promotions, discipline, transfer, and grant of various benefits, leave etc., and powers have

been delegated to different levels of executives, in conformity with the principles and policies

of the management. The schedule of delegation of powers is a published document available

for reference, which is subjected to review, from time to time, to incorporate necessary

changes.

PLANT LOCATIONS

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The Corporate headquarters of the Company is located at Bhubaneswar, the capital city of

Orissa, its mining operation and the manufacturing units are located at Damanjodi and Angul.

Damanjodi, in Koraput district of Orissa, in 550 km. by road to south of Bhubaneswar. Angul

is 150 km. from Bhubaneswar on the north. It may be useful for you to get some general

information on Damanjodi and Angul which are the main centers of the Company’s activities.

DAMANJODI PLANT

Introducing Koraput, the Gazetteer of India writes: “Koraput with the rolling mountains,

undulating meadows, roaring rapids, enchanting waterfalls and terraced valleys leading up to

verdant hills, feast the eye as few other districts can. Koraput with her golden eye autumn and

misty morning of the monsoon months, her painted spring and slumbering summer and her

winter ranging from fierce to mild, provide varieties of living in different season, which is

rare elsewhere. Hear in spring, nature and men with each other to make living joyous”.

Damanjodi, Nalco has established its Alumina Refinery and a township, is one of the

picturesque valley of this beautiful district, on the foot hills of Panchapatamali hills. The

plateau of Panchapatamali, where the bauxite mine of Nalco is located is connected by a 16

km. long up hill road.. The Sunabeda Township is of Hindustan Aeronautics limited is 18km

from Damanjodi. Koraput town the head quarter of district is 36km from Damanjodi.

NALCO NAGAR, ANGUL PLANT

Nanco Nagar is situated within 5km. of Angul town. Angul was once a feudal state with a

chequered history of palace intrigues and wars with neighboring states. In 1847 the state was

confiscated on account of the revel ion against the British by the then ruling Chief Somanath

Singh. Thus, Angul passed under the British rule earlier to many other parts of Orissa. Angul

became a district heard quarter in 1994.

Nalco has established its smelter plant, the captive power plant and its township close to the

national highway. The place is easily accessible from Cuttack & Bhubaneswar by road and

rail.The Nalco Township known as NALCO Nagar is modern and well planned. In addition

to 2947 dwelling units and trainees’ hostel with 300 rooms, Nalco Nagar has many civic

facilities like community center, clubs, stadiums, Swimming pool, Market Complex etc. The

company has established here a 50 bedded hospital with ultra modern facilities.

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COMPANY PROFILE

VISION:-

To be a Company of Global repute in aluminium.

MISSION:-

To achieve growth in business with global competitive edge providing satisfaction to the

customers, employees, share holders and community at large.

COMPANY PROFILE Modern updated technology.

Captive recourses in raw materials.

Integrated operation.

Pithead location of the power plant.

9th largest producer of Aluminum in the world.

Efficient logistics in transportation.

Dedicated port facilities on the Bay of Bengal.

International Linkages in technology and markets.

Environment friendly operations.

OBJECTIVES

To maximize capacity utilization.

To optimize operational efficiency and productivity.

To maintain highest international standards of excellence in product quality, cost

efficiency and customer service.

To provide a steady growth in business by technology up gradation, expansion and

diversification.

To have Global presence and earn foreign exchange.

COMPANY PROFILE

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National Aluminum Company Limited (NALCO) is the only Public Sector Undertaking in

India producing alumina, primary aluminum and semi-finished products. NALCO is a Star

Trading House and has received highest Capelin awards many times for excellent export

performance. NALCO is the largest integrated Aluminum Complex with operations spanning

from mining, refining, power generation, smelting and production of value added products

such as strips, billets, sheets etc. Since inception of the company NALCO has produced high

purity aluminium, alumina and established itself in both domestic and international market.

The products are registered in London Metal Exchange (LME). NALCO is one the profit

making PSUs and Mini Ratnas which has always strived to produce high quality metal and

alumina with state-of-the-art technology. NALCO is an early adopter of best of technology

and has always believed in continuous up gradation and renovation which have resulted in

minimizing cost of production and better quality products.

UNIT PROFILE

Smelter unit is located in Angul district of Orissa. The Smelter unit has increased its

production capacity from 2,30,000 MT to 3,45,000 MT with the commissioning of 3 rd Pot

Line consisting of 240 electrolytic pots. Smelter unit has adopted technology from

Aluminium Pechiney, France.

NALCO’s smelter unit has received ISO 9001, 2000 certificate from RWTUV, Germany. It

has made constant efforts to implement Quality Management System by employee

involvement through Quality Circles and Quality Improvement Projects. Smelter unit’s

quality circles have participated in various national and international level competitions and

received many awards. Smelter unit is also certified for ISO 14001 from RWTUV and it is

also going for OHSAS 18001 certification.

NALCO smelter unit is also the recipient of many more awards such as:

National award on Excellence in Energy Management, from CII, 2004.

Best Energy Conservation Project Implemented for the year 2004, from CII.

FIMI environment award 2000 -01

Indira Gandhi Paryavaran Award, 2000

State Pollution control award – 2002.

FICCI Award for pollution control and environment, 1996–1997

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ENERGY CONSERVATION COMMITMENT, POLICY AND ORGANIZATIONAL SET UP

Smelter unit has constituted an Energy Conservation Cell (ECC) under the Chairmanship of

General Manager (O&M). A senior DGM (Electrical) has been nominated as Energy

Manager and he is also the convener of Energy Cell. Members of ECC have also been

nominated from various cross functional departments e.g. Production, Maintenance, R&D

etc. The ECC members meet regularly to discuss various strategies and action plans to

implement energy conservation measures in line with NALCO’s energy conservation policy

and objectives. Apart from that small group activity (SGA) involving employees from

various functions and levels and Quality Circle teams are encouraged to work on energy

saving projects.

CAPTIVE POWER PLANT (CPP)

FEATURES

Close to the Aluminum Smelter at Angul, a Captive Power Plant of 960 MW capacity,

comprising 8 x 120 MW clusters, has been established for firm supply of power to the

Smelter. Presently, the capacity is being expanded to 1200 MW.

The water for the Plant is drawn from River Brahmani through a 7 km long double circuit

pipeline. The coal demand is met from a mine of 3.5 million tpa capacity opened up for

Nalco at Bharatpur in Talc her by Mahanadi Coalfields Limited.

PORT FACILITIES

On the Northern Arm of the Inner Harbour of Visakhapatnam Port on the Bay of Bengal,

Nalco has established mechanized storage and ship handling facilities for exporting Alumina

in bulk and importing Caustic Soda.

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ROLLED PRODUCTS

Nalco has set up a 50,000 MT per annum Rolled Products Unit, integrated with the Smelter

Plant at Angul, for production of aluminium cold rolled sheets and coils from continuous

caster route, based on the advanced technology of FATA Hunter, Italy. After acquisition and

merger of international Aluminum products Ltd. NALCO has started production from the

50,000 tpa plant. This 100% export –oriented Rolled Product Units has facilities to produce

foil stock, cable wraps, standard sheets and coils for a variety of end uses. Set up in technical

collaboration with Fata Hunter, Italy, the plant incorporates high precision equipments and on

line quality monitoring systems

PLANT'S SPECIAL FEATURES TO ENSURE WORLD CLASS QUALITY

Sidewell type Melting Furnace Ensures better temperature control, composition uniformity,

higher melt rate and higher yields when melting light scrap.Tilting type Holding Furnace

Excellent level control of metal in the launder which results in better quality.On-line

Degassing Facility Removes hydrogen and alkali metal impurities from molten

aluminium.Ceramic Foam Filter Eliminates inclusions and suspended impurities.Four

separate Casting lines,individually complete with its own Furnaces,Casters etc. To ensure

casting of four different grades of aluminium products simultaneously, thus reducing lead

time drastically.Cold Rolling Mill with automatic gauge control and automatic flatness

control Reduction in thickness upto 0.12 mm with gauge accuracy and flatness to

International Standards.Annealing Furnace with Nitrogen Controlled atmosphere Ensures

brighter surface with no brown stain.Precision Slitters & Cut-to-Length equipment Ensure

close tolerance on width, length and diagonal, straight build-up and smooth, tear-free

edge.Special Roll Grinder with Millitron System Computerized numerical control cambering

maintains stringent tolerance while recording actual profile of the roll in the form of a chart

Along with the above, the plant has facilities for analysis through Optical Emission

Spectrometer, fully computerized Tensile Testing Machine, Hydrogen Analyzer, combined

with an overall close vigil on process and an all-round in-line Quality System Standard from

input to finished product conforming to World Class Standards

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COMMUNITY CARE.

PRODUCT ALUMINA

Calcined Alumina

Alumina Hydrate

Cast strips

Detergent Grade Zeolite

Billets

Wire rods

Alumina Chemicals

ENVIRONMENT

Nalco assigns high importance to promotion and maintained of pollution-free environment in

all its activities. The Environment management Systems in all production units conforms to

the ISO 14001 norms. Indira Priyadarshini Vrikshamitra Award, conferred on the company,

bears further testimony of Nalco commitment for the environment. Nalco has also won the

pollution control Excellence Award of Orissa State Pollution Control Board.

ALUMINIUM METAL

Standard ingots (in 20kg &22 kg)

Sow ingots(each max.750 kgs)

Wire Rods (in coil form,9.5 mm dia weight approx.2mt)

Alloy ingots(each approx.10kgs)

Billets(in four sizes:127mm/152mm/178mm/203mm)

Cold Rolled Sheets

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Introduction to the study

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Working Capital Management means managing current assets of business firm. Current

assets are those assets, which can be converted into cash within a short period of time, i.e. 1

year. It is the outcome of a need for proper management of funds in a business.

Inventories management at NALCO:

 NALCO is a large scale manufacturing company involved in mining of Bauxite and

production of Aluminum. Therefore, it has to maintain large quantity of inventories at

production units for its smooth running and functioning.

Cash management at NALCO:

NALCO has been accumulating huge cash surpluses over last several years, which enables

the organization to maintain adequate cash reserves and to generate required amount of cash.

Receivables management at NALCO:

NALCO has set up its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New

Delhi, Chennai, Bangalore, and Pondicherry. This marketing office obtains sales order from

Aluminum users in India as well as globally. On the basis of order received for different

products it marks production planning of different i.e. Ingot sow ingot, Billets, Wire etc.

Working capital cycle at NALCO

It starts with the purchase of raw materials and ends with realization of cash from the sale of

finished goods. The cycle involves the purchase of raw materials and ends with the

realization of cash from the sale of finished products.

Ratio Analysis at NALCO

The ratio is used as a benchmark for evaluating the financial position and performance of

NALCO. The absolute accounting figures reported in financial statements do not provide a

meaningful understating of performance and financial position of a firm. An accounting

figure conveys meaning when it is related to some other information.

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LITERATURE REVIEW

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The theoretical analysis of Working Capital Management & Ratio Analysis is collected from

the various books of Management Accounting. Dr. S.P. Gupta, R.K. Sharma & Shashi K.

Gupta’s and I. M. Pandey management accounting books are best for the study of working

capital management.

4.1. WORKING CAPITAL MANAGEMENT

Every business needs investment to procure fixed assets, which remain in use for a longer

period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.

Business also needs funds for short-term purposes to finance current operations. Investment

in short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or

‘Working Capital’. The ‘Working Capital’ can be categorized, as funds needed for carrying

out day-to-day operations of the business smoothly. The management of the working capital

is equally important as the management of long-term financial investment

Finance required for a business can be classified under two main categories:

1. Long-Term Finance

2. Short-Term Finance

Every business needs funds for two purposed – For it establishments and to carry out its day-

to-day operations. Long-term funds are required to created production facilities, through

purchase of fixed assets, such as, plant, machinery, land, building, furniture etc. Investments

in these assets represent that part of firm’s capital which is blocked on a permanent or fixed

basis and is called fixed capital or long-term finance. Funds are also needed for short-term

purposes for the purchase of raw materials, payment of wages and other day-to-day expenses

etc. The se 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 & inventories.

In the other words of Shubin. “Working Capital is the amount of funds necessary to cover the

cost of operation the enterprise.”

According to Genestenberg, “Circulating capital means current assets of a company that are

changed in the ordinary course of business from one form to another, as for example, from

cash to inventories, inventories to receivables, receivables in to cash.”

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4.2 Concepts of Working Capital:-

There are two concepts of Working Capital.

a. Gross Working Capital

b. Net Working Capital.

GROSS CONCEPT OF WORKING CAPITAL refers to the firm’s investment in current assets. Current assets are the assets which can be converted into cash within an accounting year.

NET CONCEPT OF WORKING CAPITAL refers to the difference between current assets and current liabilities. Current liabilities are those claim of outsiders which are expected to mature for payment within an accounting year

Net working capital can be positive or negative. A positive net working capital arises when current assets exceed current liabilities. A negative working capital occurs when current liabilities are in excess of current assets.

4.3 IMPORTANCE OF WORKING CAPITAL:-

Working Capital is the lifeblood & nerve center of a business. Just as circulation of blood is

essential for maintaining life in the human body, 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. The main advantages of maintaining adequate amount of working

capital are:

1. Solvency of the 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 & hence helps in creating & maintaining goodwill.

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

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

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

discounts on the purchases and hence, it reduces cost.

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5. Regular supply of raw materials: Sufficient working capital ensures regular supply

of raw materials and continuous production.

6. Regular payment of salaries, wages and other day-to-day commitments: A

company which has adequate working capital can make regular payment of salaries, wages

and other day to day commitments which raises the morale of its employees, increases their

efficiency, reduces wastages & costs and enhances production and profit.

7. Exploitation of favorable market conditions: Only concerns with adequate working

capital can exploit favorable market conditions, such as, purchasing its requirements in bulk

when the prices are lower and by holding its inventories for higher prices.

8. Ability to face crises: Adequate working capital enables a concern to face business

crisis in emergencies, such as, depression because during such periods, generally, there is

much pressure on working capital.

9. Quick and Regular return on Investment: Every investor wants a quick and regular

return on his investments. Sufficiency of working capital enables a concern to pay quick and

regular dividends to its investors, as there may not be much pressure to plough back profits.

This gains the confidence of its investors and creates a favorable market to raise additional

funds in the future.

10. High Morale: Adequacy of working capital creates an environment of security,

confidence, high morale and creates overall efficiency in a business.

4.4 EXCESS OR INADEQUATE WORKING CAPITAL:-

Every businessman should have adequate working capital to run its business operations. It

should have neither redundant or excess working capital nor inadequate nor shortage of

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

business. However, out of the two, it is the inadequacy of working capital, which is more

dangerous from the point of view of the firm.

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Disadvantages of Redundant or Excessive Working Capital:

1. Excessive Working Capital means idle funds, which earn no profit for the

business, and hence the business cannot earn a proper rate of return on its

investments.

2. When there is an excessive working capital, it may lead to unnecessary purchasing

and accumulation of inventories causing more chances of theft, waste and losses.

3. Excessive Working Capital implies excessive debtors and defective credit policy,

which may cause higher incidence of bad debts.

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

5. When there is excessive working capital, relations with banks and other financial

institutions may not be maintained.

6. Due to low rate of return on investments, the value of shares may also fall.

7.

Disadvantages of Inadequate or Shortage Working Capital:

1. A Concern, which has inadequate working capital, cannot pay its short-term credit

liabilities in time. Thus, it will lose its reputation and shall not be able to get good

credit facilities.

2. It cannot buy its requirements in bulk and cannot avail of discounts etc.

3. It becomes difficult for the firm to exploit favorable market conditions and

undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations and it creates

inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non-availability

of liquid funds.

6. The rate of return on investments also falls with the shortage of working capital.

4.5 NEED OR OBJECTS OF WORKING CAPITAL:-

The need for working capital cannot be over emphasized. Every business needs some amount

of working capital. The need for working capital arises due to the time gap between

production and realization of cash from sales. There is an operating cycle involved in the

sales & realization of cash. There are time gaps in purchase of raw materials & production;

production and sales and sales and realization of cash. Thus, working capital is needed for the

following purposes.

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1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.

3. To incur day-to-day expenses and over head costs such as fuel, power and office

expenses etc.

4. To meet the selling costs as packing, and advertising etc.

5. To provide credit facilities to the customers.

6. To maintain the inventories of raw materials, work-in-progress, stores & Spares

and finished stocks.

4.6 ESTIMATE OF WORKING CAPITAL REQUIREMENTS:-

“Working capital is the life-blood and controlling nerve center of a business.” No business

can be successfully run without an adequate amount of working capital. To avoid the

shortage of working capital at once, an estimate of working capital requirements should be

made in advance so that arrangements can be made to procure adequate working capital. But

estimation of working capital requirements is not an easy task and a large number of factors

have to be considered before starting this exercise. For a manufacturing organization, the

following factors have to be taken into consideration while making an estimate of working

capital requirements:

1. Total Costs incurred on material, wages and overheads.

2. The length of time for which raw materials are to remain in stores before they are

issued for production.

3. The length of the production cycle or work-in-progress, i.e. the time taken for

conversion of raw material into finished goods.

4. The length of sales cycle during which finished goods are to be kept waiting for

sales.

5. The average period of credit allowed to customers.

6. The amount of cash required to pay day-to-day expenses of the business.

7. The average amount of cash required to make advance payments, if any.

8. The average credit period expected to be allowed by suppliers.

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From the total amount blocked in current assets estimated on the basis of the first seven items

given above, the total of the current liabilities, i.e. the last two items, is deducted to find out

the requirements of working capital.

4.7 OPERATING CYCLE

Operating cycle is the time duration required to convert sales, after the conversion of

resources into inventories, into cash. The operating cycle of a manufacturing company like

NALCO involves three phases:

1. Acquisition of resources such as raw material, labour, power and fuel etc.

2. Manufacture of the product which involves conversion of raw material into work-in-

progress into finished goods.

3. Sale of the product either for cash or on credit. Credit sales create amount receivable for

collection.

Working Capital Cycle

CALCULATION OF LENGTH OF OPERATING CYCLE:

The gross operating cycle of a firm is the sum of: Inventory conversion period (ICP) and debtor’s conversion period (DCP).

Gross Operating Cycle = RMCP + W-I-P CP + FGCP +DCP

RMCP = Raw Material conversion Period

WIPCP = Work In Progress conversion Period

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Cash Raw Materials

Work-in-progress

Finished Goods Sales

Debtors

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FGCP = Finished Goods conversion Period

DCP = debtor’s conversion period

Net Operating Cycle Period = Gross Operating Cycle – Payable deferral Period

Following formula can be used to determine the conversion periods.

Raw Material conversion Period= Average stock of Raw Materal* 360/ Raw material consumption per day

Work In Progress conversion Period = Average stock of WIP* 360/ Total Cost of production per day

Finished Goods conversion Period = Average stock of Finished goods* 360/ Total Cost of goods sold per day

Debtor’s conversion period = Average Accounts Receivables*360/Net Credit Sales Per Day

Payables Deferral Period = Average Payables*360/Net Credit Purchases Per Day

4.8 POLICIES OF NALCO

In Nalco the working capital is financed from internal sources. The financial statement shows

that it is a cash rich company having large funds available in general reserve and surplus, and

retained earnings. There are also sources like “sycar overseas loans” for financing working

capital and short-term bank loans as external sources of financing for working capital.

The utilisation of long-term internal sources is a major source of financing

for Nalco. For the last7 to8 years in between Nalco has not used any long-term external

sources for financing as it has large amount of unutilised internally generated funds. The

internally generated funds come from the sources like large amount of depreciation charged

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to the profit and loss account of the company every year, allocation of funds towards

reserves, every year. Regarding short-term financing, the main source is internal source i.e.,

current liabilities and provisions and is within 35% of total funds.

CASH MANAGEMENT

4.2.1 INTRODUCTION:

Cash is the important current assets for the operation of business. Cash is the basic input

needed to keep the business running on a continuous basis. It is the ultimate output expected

to be realized by selling the service or product manufactured by the company.The company

should keep sufficient cash neither more or less. Cash shortage will disrupt the company’s

manufacturing operation while excessive cash will simple remain idle without contributing

anything towards the company’s profitability. Thus, a major function to the financial manager

is to maintain a sound cash position. Cash is the money, which a company can disabuse

immediately without any restriction .The term cash includes coins, currency, and cheques

held by the company and balance in term deposits are also included in cash. The basic

characteristics of near cash assets are that they can readily be converted into cash .generally,

when a company has excess cash; it invests it in marketable securities. This kind of

investment contributes some profit to the company.

4.2.2 CASH MANAGEMENT IN NALCO:

Nalco has been accumulating huge cash surpluses over last several years, which enables the

organization to maintain adequate cash reserves and to generate required funds from within

the organization.

The key areas of effective cash management in NALCO are

o Identifying the requirements of funds at various units.

o Investment of surplus funds productively.

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o Repayment of loans.

o Proper capital expenditure.

o Standardized reporting system.

CONTROL ON CASH FLOWS:

NALCO, a multi core organization, excises good control over cash flows by adopting

centralized cash management system and strict reporting system.

4.2.3 CENTRALIZED CASH MANAMENT SYSTEM:

For centralized cash management system ,NALCO has chosen STATE BANK OF INDIA as

its sole banker and control cash account of the company is maintained at SBI ,main

branch ,Bhubaneswar under direct control of NALCO’s corporate office .About ten branches

of the company including manufacturing units, spread across the country are covered under

the centralized cash management system .No cash is maintained at the branches and all the

branches have been authorized to honor the cheques presented by the company without any

upper limit. All the transactions are transmitted to the central cash account at corporate office

on a day-to-day basis.

Similar account is also maintained by NALCO’s corporate office for proper reconciliation.

The information regarding daily cash flows from different branches is monitored

simultaneously by the SBI as well as by NALCO’s corporate office .Be and sides NALCO

also has cash collection centers at different branches and realization of sales are credited and

transferred to the central cash account daily. This ensures timely and quick realization of

cash. Moreover, optimums levels of funds are readily of funds are readily available with the

company by not maintaining any balances at different branches of SBI. Similarly NALCO is

exercising strict control over the authorized to issue cheques, they are required to obtain

clearance from corporate office for all payments exceeding a prescribed limit before the

actual realization of routine basis and intimate the same to corporate office to ensure prompt

availability of funds.

The cash flow projection by different branches to the corporate office

consolidated .Accordingly the corporate office checks out effective cash flow strategy to

ensure minimum holding of cash flows as well as avoiding deficit at the same.

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NALCO being a cash rich company by nature the extent of success lies in how quick the

company has identified its surplus funds and invested the same in short terms investment for

optimization of wealth.

4.2.4 THE REPORTING SYSTEM OF NALCO:

Proper reporting or management information system is one of the key factors for the

Success of an organization. NALCO has introduced strict management information

System to ensure proper functioning of control mechanism and fulfillment of objectives.

The reporting system of NALCO mainly includes.

1. Forecasting of monthly cash flows.

2. Reporting of actual vis-à-vis forecasted cash flow on weekly basis.

3. Reporting of receipts and payments at different units on daily basis.

The monthly forecast of cash flows is flexible in nature. While reporting the weekly cash

flows, the units have a scope to revise the forecasts are submitting them to corporate office

before the beginning of every month. Based on these, the corporate office prepares a

consolidated cash flow statements. This consolidated cash flow statement forms the main

basis for planning the funds flow for the coming month, and this is a continuous process. On

the other hand, the daily reports enables the company to know the latest surplus cash balance

available and thus helps the company in taking various investment decisions. In case of any

crises, the special efforts are made to identify the resources where the funds can be realized

NALCO even, has a cash credit arrangement with SBI, through there has never been any

excess withdrawal during the last five years. This clearly indicates the effective and efficient

cash management in NALCO.

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ACCOUNTS RECEIVABLE MANAGEMENT

4.3.1 INTRODUCTION :

A sound managerial control requires proper management of liquid assets and inventory.

These assets are a part of working capital of the business. An efficient use of financial

resources is necessary to avoid financial distress. Receivables result from credit sales. A

concern is require to allow credit sales in order to expand its sales volume. It is not always

possible to sell goods on cash basis only. Sometimes, other concerns in that line might have

established a practice of selling goods on credit basis. Under these circumstances, it is not

possible to avoid credit sales without adversely affection sales. The increase in sales is also

essential to increase profitability. After a certain level of sales the increase in sales will not

proportionately increase production costs. The increase in sales will bring in more profits.

4.3.2 MANAGEMENT OF RECEIVABLES:

Accounts receivables is an important component of working capital, and for many

Companies, it is the measure component; this represents the extension of open account Credit

by one company to other company and individuals. From the marketing point of View, the

extension of credit is an important facility to boost sales. The credit and Collection policies of

the company as a whole and the collection producers for individual accounts are closely

related. The credit policies involve a trade-off between the profits on sales that gives rise to

the receivables plus the potential bad debts losses on the other.

4.3.3 FACTORS INFLUENCING THE SIZE OF RECEIVABLES:

Besides sales, a number of other factors also influence the size of receivables. The

Following factors directly and indirectly affect the sizes of receivables.

1. Size of credit sales.

2. Credit policies.

3. Terms of trade.

4. Expansion plans.

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5. Credit collection efforts.

4.3.4 RECEIVABLES MANAGEMENT IN NALCO :

NALCO has setup its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New

Delhi, Chennai, Bangalore and Pondicherry. These marketing offices obtain sale order from

Aluminium users in India as well as globally. On the basis of order received for different

products it marks production planning of different products i.e. Ingot, Sow Ingot, Billets, and

Wire etc. and accordingly advice production planning at production Units. Marketing offices

also sends dispatch instruction to dispatch section, which indicates various commercial terms

i.e. product requirement, mode of dispatch, payment terms etc.

The function of dispatch department is to receive finished product from production

department and segregate it on the basis of its laboratory analysis and grade. As per the sale

order/ dispatch instructions received from marketing office for export/ domestic sale the

dispatch departments steerages and prepares the materials for dispatching the same by

Rail/Road/Trucks. The materials are handed over to the transporter. On completion of

dispatch of the consignment as per dispatch advice, the dispatch department sent all the

dispatch documents with delivery invoice and a copy of L.R. to finance department. On the

basis of this, finance department makes commercial invoice which takes care of taxes and

other duties over and above the cost of the product and sends it to the marketing office in the

form of banker’s cheques, bank draft or in the form of Letter of Credit opened by the buyer

opens a Letter of credit with its banker. On completion of dispatch, on the basis of

commercial invoice and proof of dispatch, the money is realized by the Nalco’s banker from

the buyer’s bank.

4.3.5 DEBT MANAGEMENT IN NALCO

NALCO has become a zero-debt company, following the repayment of 3rd and final

installment on 14.5% non-convertible, redeemable secured debentures, amounting to Rs.

214.39 cr. on March 25, 2005. At the beginning of 2004-05, NALCO had loans amounting to

Rs. 654.39 cr. However, the company has been able to repay the entire loan amount with

prudent financial management, coupled with increased production and realization. NALCO

had also achieved the zero debt status in September 1999, when the company had

successfully discharged the last foreign currency loan of 20 billion Japanese yen plus interest,

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which in Indian currency worked out to Rs. 627.64 cr. (principal) and Rs. 11.86 cr. (interest).

The company had borrowed a consortium of international banks to finance its initial project

costs.

INVENTORY MANAGEMENT

4.4.1 INTRODUCTION

Inventories constitute the most significant part of the current assets of a large majority of the

companies in India. On average inventories are 60% of current assets in public limited

companies in India. Because of the large size of the inventories maintained by firms, a

considerable amount of funds is required to be committed to them. It is, therefore, absolutely

imperative to manage inventories efficiently and effectively in order to avoid unnecessary

investment.

4.4.2 NATURE OF INVENTORIES

Inventories are the stock of the product a firm is manufacturing for sale and components that

make up the product, The various forms in which inventories exist in manufacturing company

are: raw material, work-in-process and finished goods.

● Raw materials are those basic inputs that are converted into finished product through the

manufacturing process. Raw material inventories are those units, which have been purchased

and stored for future productions.

● Work-in-process inventories are semi-manufactured products. They represent products that

need more work before they become finished products for sale.

● Finished goods inventories are those completely manufactured products which are ready

for sale. Stocks of raw materials and work-in-process facilitate production, while stock of

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finished goods is required for smooth marketing operation. Thus, inventories serve as a link

between the production and consumption of goods.

4.4.3 OBJECTIVE OF INVENTORY MANAGEMENT

In the context of inventory management, the firm is faced with the problem of meeting two

conflicting needs.

To maintain large size of inventory for efficient and smooth production and sales

operation.

To maintain a minimum investment in inventories to maximise profitability.

Both excessive and inadequate inventories are undesirable. These are two danger points

within which the firm should operate. The objective of inventory management should be to

determine and maintain optimum level of inventory investment. The optimum level of

inventory will lie between the two danger points of excessive and inadequate inventories.

The excessive level of inventories consumes funds of the firm, which can not be used for any

other purpose, and thus it involves an opportunity cost. The carrying costs, such as cost of

shortage, handling, insurance, recording and inspection, also increase in proportion to the

volume of inventory. These costs will impair the firm’s profitability further. Excessive

inventories carried for a long period increase chances of loss of liquidity. Another danger of

carrying excessive inventory is the physical deterioration of inventories while in storage.

Maintaining an inadequate inventory is also dangerous. The aim of inventory management,

thus, should be to avoid excessive and inadequate levels of inventories and to maintain

sufficient inventory for the smooth production and sales operation. An effective inventory

management should

Ensure a continuous supply of raw materials to facilitate uninterrupted production,

Maintain sufficient stocks of raw materials in periods of short supply and anticipate price

changes,

Maintain sufficient goods inventory for smooth sales operation, and efficient customer

service,

Minimise the carrying cost and time, and

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Control investment in inventories and keep it an optimum level.

4.4.4 INVENTORY MANAGEMENT IN NALCO:

NALCO is a large scale manufacturing company involved in mining of bauxite and

production of Alumina and Aluminium. Therefore, it has to maintain large quantity of

inventories at production units for its smooth running and functioning.

During the year 2003-04, the company bettered its own records of previous years in many a

key field and has exceeded the target set for the year. In the mine sector, Bauxite

transportation of 48,16,762 MT have been the highest since inception exceeding the previous

best 47,77,003 MT during the 2002-03. Alumina production is 15,50,100 MT are the highest

since inception exceeding the previous best of 14,80,600 MT achieved during the year 2002-

03.

The Major Inventory Items in NALCO are composed of:

1. Raw Materials:

These consists C.P. Coke, C.T. Pitch, Aluminium Fluoride, Pig iron, HFO (Heavy Furnace

Oil), Alumina and anodes for Smelter and Coal, HFO, LDO (Light Diesel Oil) for CPP and

Caustic Soda, Alam, Lime, CGM etc. for Alumina Plant and it has not faced a situation like

out of stock of raw materials during the recent year.

2. Stores and Spares:

At the time of procurement of machinery, generally some spares are procured for immediate

maintenance which is directly linked to different equipments. These spares are known as

instance spares and most of these items are of High value.

Besides for day-to-day maintenance some spares, tools, consumables etc. are procured from

the near by available market. This also requires involvement of High value and these items

are consumed on regular basis for observation and maintenance.

Some items required on regular basis are also procured as AP items, i.e. automatic

procurement basis, once this stock is reduced below minimum level.

Attempt is being made to depravities and gets the same from indigenous sources for some

reputed spares.

3. Intermediary Goods:

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Which consists of Green Anodes, Baked Anodes, Rodded Anode, Anode stem etc. for which

NALCO has installed its own plant for producing the Green & Baked anodes & imports them

only when there is a shortage?

RATIO ANALYSIS

4.5.1 INTRODUCTION

It is a powerful tool of financial analysis A Ratio is defined as “the indicated quotient of two

mathematical expressions”. In financial analysis, a ratio is used as a benchmark for

evaluating the financial position and performance of a firm.

The absolute accounting figures reported in financial statements do not provide a meaningful

understating of performance and financial position of a firm. An accounting figure conveys

meaning when it is related to some other information.

The relationship between two account figures, expressed mathematically, is known as a

FINANCIAL RATIO. Financial ratio helps to summarize large quantities of financial data

and to make qualitative judgment about company’s financial performance.

4.5.2 TYPES OF RATIOS:

Several ratios, calculated from accounting data, can be grouped into various classes according

to financial activity or function to be evaluated. The parties interested in financial analysis are

short- and long-term creditors, owners and management. Short-term creditor’s main interest

is in the liquidity position or short-term solvency of firm. Long-term creditors are interested

in the long-term solvency and profitability of the firm. Similarly, owners concentrate on the

company’s profitability and performance. They have to protect the interest of all parties and

see the firm grows profitably.

There are generally four types of financial rations. There are as follows.

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1. LIQUIDITY RATIOS.

2. LEVERAGE RATIOS.

3. ACTIVITY RATIOS.

.4. PROFITABILITY RATIOS.

1. LIQUIDITY RATIOS:

CURRENT RATIO

QUICK RATIO or ACID TEST RATIO .

2. LEVERAGE RATIO:

DEBT RATIO

DEBT-EQUITY RATIO.

.

3. ACTIVITY RATIO:

COVERAGE RATIO.

INTEREST COVERAGE RATIO.

FIXED-CHARGE COVERAGE RATIO TURNOVER RATIO

INVENTORY TURNOVER RATIO

DEBTORS TURNOVER RATIO.

ASSET TURNOVER RATIO

NET ASSET TURNOVER RATIO

FIXED ASSET TURNOVER RATIO.

CURRENT ASSET TURNOVER RATIO.

WORKING CAPITAL TURNOVER RATIO.

4. PROFITABILITY RATIO.

GROSS PROFIT MARGIN.

NET PROFIT MARGIN.

RETURN ON INVESTMENT (ROI).

RETURN ON TOTAL ASSET (ROTA).

RETURN ON EQUITY (ROE).

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EARNING PER SHARE (EPS).

4.5.3 LIQUIDITY RATIOS.

1. This measure the ability of the company to meet its current its obligations. (Liabilities)

2. Analysis of liquidity needs the preparation of cash budgets and cash and fund flow

statement; but liquidity ratios, by establishing a relation between cash and other assets to

current obligations, provide a quick measure of liquidity.

3. The failure of a company to meet its obligations due to lack of sufficient liquidity, will

result in a poor worthiness, loss of creditor’s confidence resulting in closure of the company.

CURRENT RATIO:

1. A liquidity ratio that measure a company‘s ability to pay short- term

obligations.

CURRENT ASSETS

CURRENT RATIO = ----------------------------------------------------------------

CURRENT LIABILITIES

2. Current assets include cash and those assets that can converted into cash within a year,

such marketable securities, sundry debtors, prepaid expense, bills receivables etc. Current

liabilities include bills payables, sundry creditors, accrued expenses, short-term bank loan,

income tax liability and long-term debt maturing in the current year.

3. A current ratio of 2: l or more is considered satisfactory. However, the current ratio is a

crude-and –quick measure of firm’s liquidity.

QUICK RATIO:

1. Quick ratio establishes relationships between quick or liquid, assets and current liabilities.

QUICK/LIQUID ASSETS

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QUICK RATIO = ----------------------------------------------------------------

CURRENT LIABILITIES

2. An assets is liquid if it can be converted into cash immediately without a loss of value.The

liquid assets include cash, sundry debtor’s, bills receivables and marketable securities. 3.

Generally, a quick ratio of 1:1 is considered satisfactory current financial condition.

3. This ratio is also called acid-test ratio.

CASH-RATIO:

1.Since cash is most liquid assets, a financial analyst may examine cash ratio and its

equivalent to current liabilities.

2.Trade investment or marketable securities are equivalent of cash;therefore,it may be included in

computation of cash ratio.

CASH+ MARKETABLE SECURITIES

CASH RATIO = ----------------------------------------------------------------

CURRENT LIABILITIES

INTERVAL MEASURE:

1. This assesses a firm’s ability to meet its regular expenses. This relates liquid assets to

average daily operating cash outflows.

CURRENT ASSETS-INVENTORY

INTERVAL MEASURE = ---------------------------------------------------------------------

AVERAGE DAILY CASH OPERATING EXPENSES

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2.Daily operating expenses will be equal to cost of goods sold plus selling, administrative

and general expenses less depreciation(other non-cash expenditures) divided by number of

days in year(say 360).

4.5.4 LEVERAGE RATIOS:

1. There are two types of leverage named as (a) operating leverage, (b) financial leverage.

The process of the magnifying the shareholder’s return through the use of debt is called

“FINANCIAL LEVERAGE”.

2. Thus, leverage ratios are calculated the measure financial risk and the firm’s ability of

using debt to shareholder’s advantage.

DEBT EQUITY RATIO:

1. A measure of a company’s financial leverage calculated by dividing long-term debt by stockholder

equity. It indicates what proportion of debt and equity the company is using to finance its assets.

TOTAL DEBT TOTAL DEBT

DEBT-EQUITY RATIO= ------------------------------- = ----------------------------------

NET WORTH SHAREHOLDER’S EQUITY

2. If a lot of debt is used to finance increased operations the company could generate more

earning than it would have without this outside financing. If this were to increase earnings by

a greater amount than debt cost than the shareholders benefit as more earnings are being

spread around to the same amount of shareholders

INTEREST COVERAGE RATIO:

1. The interest coverage ratio shows the number of times the interest charges are

covered by funds that are ordinarily available for their payment.

EBIT

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INTEREST COVERAGE RATIO = -------------------------------------

INTEREST

2. A high is desirable, but too high a ratio indicates that the firm is very conservative in

using debt and it is not using credit to advantages of shareholders. A low ratio indicates that

excessive use of debt, or inefficient operations.

4.5.5 ACTIVITY RATIO:

1. Activity ratio are employed to evaluate the efficiency with which firm manages and

utilizes its assets. These ratios are also called Turnover ratio, they indicate the speed with

which assets are being converted or turned over into assets.

2. Activity ratios, involve a relationship between sales and assets. A proper balance

between sales and assets generally reflects that assets are managed well.

INVENTORY TURNOVER RATIO:

1. A ratio indicates the efficiency of the company in producing and selling its product. Or

a ratio showing how many times a company’s inventory is sold and replaced over a period.

2. The cost of goods sold figure may not be available to an outside analyst from the published

annual accounts. Hence, computation of inventory turns over as follows.

NET SALES

INVENTORY TURNOVER RATIO = --------------------------------------------

AVERAGE INVENTORY

1. The inventory used for computation purpose may net average inventory or the year end

inventory.

2. Days of inventory holding=360/inventory turn over

3. The manufacturing company ‘s inventory consists of two components

o Raw material

o Work in progress

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4. This ratio should be compared against industry averages. A low turnover implies poor

sales and therefore, excess inventory .A high ratio implies either strong sales or in

effective buying .High inventory levels are un healthy they represent an investment with a

rate of return of zero.

CAPITAL TURNOVER RATIO:

1. Assets are used to generate sales. Therefore, a company should manage its assets

efficiency to maximize sales. The relationship between sales and assets is called CAPITAL

TURNOVER RATIO.

2. Several Capital Turnover Ratios are as follows.

NET SALES

CAPITAL TURNOVER RATIO = --------------------------------------------

CAPITAL EMPLOYED

3. Net asset (NA) include net fixed assets (NFA) and net current assets (NCA=CA-CL),

where CA present current assets and CL represent current liabilities. Since net assets equal

capital employed.

NET SALES

FIXED ASSETS TURNOVER RATIO = ---------------------------------------

FIXED ASSETS

WORKING CAPITAL TURNOVER RATIO:

1. A measurement comparing the depletion of working capital to the generation of sales over a given

period. This provides some useful information as to how effectively a is using its working capital to

generate sales.

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NET SALES

WORKING CAPITAL TURNOVER = ----------------------------------------

WORKING CAPITAL

2. The working capital turnover ratio is used to analyze the relationship between the money

used to fund operations and the sales generated from these operations. In general, sense, the

higher the working capital turnover, the better because it means that the company is

generating many sales compared to the money it used to fund the sales.

4.5.6 PROFITABILITY RATIOS:

1. A company should earn profits to survive and grow for a long period. Profits are essential.

Profit is the difference between revenue and expenses over a period (usually one year). It is

the ultimate output of a company and it will have no future if it fails to make sufficient profit.

Therefore, financial manager should continuously evaluate the efficiency of the company in

items of profit. The PROFITABILITY RATIO is calculated to measure the operating

efficiency of the company.

Besides management of the company, creditors and owners of the company are also

interested in the profitability of the company. Creditors want to get interest and repayment of

principal regularly. Owners want to get a required rate of return on their investment. All these

are possible only when the company earn enough profit.

2. Generally, two types of profitability ratios are calculated.

(a)Profitability in relation sales.

(b)Profitability in relation to investment.

GROSS PROFIT MARGIN:

1. Gross profit is the difference between sales and the manufacturing cost of goods sold.

A number of Multinational Companies call this profit as EBITDA (Earnings before

Interest, Tax depreciation and Amortization)Operating profit is equivalent of EBIIT.

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This measure of profit shows earnings arising directly from the commercial operation of

business without the effect of financing. This also includes non-operating income if they

exist. On after tax rate. This profit measure is called net operating profit tax or

NOPAT.

SALES - COST OF GOODS SOLD EBIT

GROSS PROFIT MARGIN= -------------------------------------------------= -----------------------------

SALES NET SALES

2. A high gross profit margin is a sign of good management .A gross profit margin ratio may

be increase due to

o Higher sales price and cost of goods sold remain constant.

o Lower cost of goods sold and sales price remain constant.

o A combination of variation in sales price and costs , the margin is widening.

o An increase in proportionate volume of higher margin items.

1. A gross profit margin may reflect higher cost of goods sold due to the company’s

inability to purchase raw material at favorable terms, inefficient utilization of plant

and machinery or over investment, resulting in higher cost of production .This ratio

will also be low due to fall in prices in market, marked reduction in selling price by

the firm in an attempt to obtain large sales volume, the cost of goods sold remain

unchanged

NET PROFIT MARGIN:

PROFIT AFTER TAX

NET PROFIT MARGIN =-------------------------------------------- * 100

NET SALES

1. Net profit margin establishes a relationship between sales and net profit and indicates the

management’s efficiency in manufacturing, administering and selling the products. This is

the overall measure of company’s ability to turn each rupee of sales into net profit. If the net

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profit in adequate the company will fail to achieve satisfactory return on shareholder’s

funds.A high net profit margin would be in an advantageous position to survive in the face of

falling selling prices, rising cost of production or declining demand for the product.Thus, net

profit margin (for evaluating operating performance) may be computed in the following way

OPERATING EXPENSES RATIO:

OPERATING EXPENSES

OPERATING EXPENSES RATIO = -------------------------------------------------

NET SALES

Operating expenses include cost of goods sold plus selling expenses and general

administrative expenses (excluding depreciation).

RETURN ON INVESTMENT:

1. A performance measure used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments.

2. Return on investment is calculated on the basis of

o Total asset

o Net asset

EBIT

RETURN ON TOTAL ASSET = ----------------------------------------

AVERAGE TOAL ASSETS

3. RONA is equivalent of Return on capital employed (ROCE).

Thus, ROI is a popular metric because of its versatility and simplicity.i.e if an investment

does not have high or positive ROI, then the investment should be not undertaken.

RETURN ON EQUITY (ROE):

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1. A measure of corporation’s profitability. ROE reveals how much profit a company

generates with the money shareholder is invested in it. This is useful for comparing the

profitability of a company to that of other company in the same industryThe return on

owner’s equity of the company should be compared with the ratios of other similar

companies and the industry average. This will reveal the relative performance and strength of

the company in attracting the future investment.

2. Thus, ROE indicates how well the firm has used the resources of owners.

NET PROFIT AFTER TAX DIVIDEND

RETURN ON EQUITY CAPITAL = ---------------------------------------------------------

EQUITY SHARE CAPITAL

EARNING PER SHARE (EPS):

1. The portion of a company’s profit allocated to each outstanding share of common stock. EPS

serves as a indicator’s of company’s profitability.

PROFIT AFTER TAX

EPS = ---------------------------------------------------------------

NUMBER OF EQUITY SHARE

EPS indicates the company’s earning power on per-share basis has changed over that period.

The EPS of the company should be compared with the industry average and the EPS of the

other firms. It shows only the profitability of the firm on a per share basis: it does not reflect

how much is retained in the business.

4.5.7 UTILITY OF RATIO ANALYSIS:

The RATIO ANALYSIS is the powerful tool of Financial Analysis. This helps to indicate

the operating, financial efficiency and growth of the firm. With the help of ratio, one can

determine:

o The ability of the company to meets its current obligations.

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o The extent to which the company has used its long-term solvency by

borrowing funds.

o The efficiency with which the company is utilizing its assets in generating

sales revenue.

o The overall operating and performance of the company.

Objective and Scope of the study

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5.1 OBJECTIVE OF THE STUDY:-

The objective of working capital is to maintain the optimum balance of each of the working capital

components. The need for working capital cannot be over emphasized. The need for working capital

arises due to the time gap between production and realization of cash from sales. Thus the

objectives of working capital are as follows::

(a) To study the Working Capital Management Policy & Ratio

analysis that is being pursued at present in NALCO.

(b) To suggest steps that should be taken to increase the

efficiency in management of working capital.

5.2 SCOPE:

This is the study on Working Capital Cycle & Ratio Analysis of NALCO. NALCO is a large

public sector company engaged in production of various grades of Alumina and Aluminum

Products. The different components of Working Capital management like Cash Management,

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Inventory Management, working capital cycle, receivable Management and Ratio Analysis

are discussed in this study.

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

It should have neither excess working capital nor shortage of working capital. Both excess as

well as short working capital positions are bad for any business.

A new concern requires a lot of liquid funds to meet initial expenses like promotion,

formation etc. These expenses are called preliminary expenses and are capitalized. The

amount needed as working capital in a new concern depends primarily upon its size and the

ambitions of its promoters. Greater the size of the business unit, generally, larger will be the

requirements of working capital. The amount of working capital needed goes on increasing

with the growth and expansion of business till it attains maturity. At the time of maturity the

amount of working capital needed is called normal working capital.

RESEARCH METHODOLOGY

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This study is basically done with the collection of data from the secondary sources. Studies

previously made by others for their own purposes represent secondary data. Secondary data

are an integral part of a larger research study or of a research report to justify having by

passed the costs and benefits of doing primary research. Secondary data may be used as the

sole basis for a research study, since in many situations one cannot conduct primary research

because of physical, legal or cost influences. Secondary sources can usually be found more

quickly and cheaply than primary data. Most research on past events also has to rely on

secondary data sources. Similarly, data about distant places often can be collected more

cheaply through secondary sources.

Sources of secondary data which is used for the study are as follows:

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Internal sources - These include employees of the company, company’s database,

accounting and management information system (MIS), departmental reports,

production summaries, financial and accounting reports, and marketing and sales

studies.

External sources – These sources are created outside the organization and more varied

than internal sources. These include worldwide network called Internet, Online public

access catalogs (OPAC) and other computerized files, reference books etc.

Analysis & Interpretation

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CALCULATION OF GROSS OPERATING CYCLE PERIOD FOR

(2002-03, 2003-04, 2004-05, 2005-06, 2006-07)

The following formula is used to express the framework for the operating cycle:

Gross Operating Cycle = RMCP + W-I-P CP + FGCP +DCP

RMCP = Raw Material conversion Period

WIPCP = Work In Progress conversion Period

FGCP = Finished Goods conversion Period

DCP = debtor’s conversion period

Raw Materials = Average raw materials used per year * 365

Raw material consumed

YEARRMCP = Average raw materials used per year * 365

Raw material consumedRMCP

2007-08 (82.45+62.72)/2 *365 46 days

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574.36

2006-07(50.48+82.45)/2 *365

557.5943 days

2005-06(56.17 + 50.48) / 2 *365

521.0537 days

2004-05(48.08 + 56.17) / 2 *365

444.24

43 days

2003-04(71.61 + 48.08) / 2 *365

409.04

53 days

Work-in-progress = Average work-in-progress * 365

Total cost of production

Total cost of production = Opening WIP + Raw material consumed + Power & Fuel +Repairs &

Maintenance + Manufacturing Expenses + Administrative Expenses – Closing WIP.

YEAR Work-in-progress = Average work-in-progress * 365

Total cost of productionWIPCP

2007-08(70.33 + 71.70) / 2 * 365

2069.7812 days

2006-07(60.10 + 70.33) / 2 * 365

1012.3712 days

2005-06(53.22 + 60.10) / 2 * 365

1384.7711 days

2004-05(60.10 + 53.22) / 2 * 365

1565.38

13 days

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2003-04(52.34 + 53.22) / 2 * 365

1384.7714 days

Total Cost of Production:

In 2003-04 = 52.34 + 409.04 + 648.29 + 165.73 + 95.09 + 67.50 – 53.22 = 1384.77

In 2004-05 = 60.10 + 444.24 + 758.34 + 164.37 + 112.45 + 79.10 – 53.22 = 1565.38

In 2005-06 = 53.22 + 521.05 + 937.84 + 191.93 + 139.96 + 78.56 – 60.10 = 1869.74

In 2006-07 =60.10 +557.59 +851.02 +230.34 +152 .66 + 85.37 − 70.33 = 2007.44

In 2007-08 =70.33 +574.36 +994.69 +231.54 +163.82 + 106.74 − 71.70 = 2069.78

Finished Goods = Average Stock * 365

Total cost of goods sold

Total cost of good sold = Opening stock of finished goods + Total cost of Production – Administrative

Expenses – Closing stock of finished goods.

YEARFinished Goods = Average Stock * 365

Total cost of goods soldFGCP

2007-08(101.57 +120.22)/2 *365

2052.5820 days

2006-07(100.82 +101.57)/2 *365

1790.8621 days

2005-06(115.31 + 100.82) / 2 * 365

1805.2722 days

2004-05 (95.63 + 115.31) / 2 * 365 26 days

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1459.72

2003-04(85.26 + 95.63) / 2 * 365

1307.7825 days

Total cost of goods sold:

In 2003-04 = 85.26 + 409.04 + 648.29 + 165.73 + 95.09 - 95.63 = 1307.78

In 2004-05 = 95.63 + 444.24 + 758.34 + 164.37 + 112.45 – 115.31 = 1459.72

In 2005-06 = 115.31 + 521.05 + 937.84 + 191.93 + 139.96 – 100.82 = 1805.27

In 2006-07= 100.82 +557.59 +851.02 +230.34 +152.66 −101.57=1790.86

In 2007-08 =101.57 +574.36 +994.69 +231.54 +163.82 + 106.74 − 120.22= 2052.58

Debtors = Average Debtors * 365

Credit Sales

YEARDebtors = Average Debtors * 365

Credit SalesDCP

2007-08(34.34+24.43)/2 *365

6240.192 days

2006-07(29.42 +34.34)/2 *365

5940.192 days

2005-06(92.81 + 29.42) / 2 * 365

4860.425 days

2004-05(102.24 +92.81) / 2 * 365

4123.969 days

2003-04(101.83 + 102.24) / 2 * 365

2564.3015 days

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GROSS OPERATING CYCLE PERIOD:-

2003-04: 53 + 14 + 25 + 15 = 107 days

2004-05: 43 + 13 + 26 + 9 = 91 days

2005-06: 37 + 11 + 22+ 5 = 75 days

2006-07: 43 + 12 +21 +2 = 78 days

2007-08: 46 + 12 +20 +2 = 80 days

Interpretation:-The gross operating cycle period in the year 2007-08 is comparatively

shorter than the previous three years. It implies that locking up of funds in current assets is

for a relatively shorter duration and NALCO can obtain greater mileage for each rupee

invested in current assets. The shorter the duration of operating cycle period, faster is the

transformation of current assets into cash. The decrease in the raw material storage period,

work-in-progress period and debtor’s collection period reflects the efficiency in management

of the Gross working capital cycle.

FINANCIAL RATIO ANALYSIS OF

NALCO

1.PROFITABILITY RATIO

NET PROFIT RATIO

FORMULA:(Net profit /Net sales)*100 (Rupees in crore)

YEAR NET PROFIT NET SALES NP RATIO (%)

2007-08 1631.52 4988.80 32.70

2006-07 2381.38 5940.19 40.08

2005-06 1562.2 4888.7 31.96

2004-05 1234.84 4104.11 30.09

2003-04 737.37 3124.07 23.60

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NET PROFIT RATIO:

Net profit margin is obtained when operating expenses , interest and taxes are subtracted

from gross profit .This ratio is used to see profitability arising directly from sales. In NALCO

the net profit margin is 40.08% and 32.70% in the year 2007 and year 2008 respectively.

GROSS PROFIT RATIO

FORMULA :( Gross profit/Net sales)*100 (Rupees in crore)

YEAR GROSS PROFIT NET SALES GP RATIO (%)

2007-08 2491.98 4988.80 49.95

2006-07 3626.43 5940.19 61.04

2005-06 2682.64 4888.7 54.87

2004-05 2384.92 4104.11 60.54

2003-04 1513.99 3124.07 48.46

GROSS PROFIT MARGIN RATIO:

The gross profit margin reflects the efficiency with which management produces each unit of

product. This ratio indicates the average spread between the cost of goods sold and the sales

revenue. In NALCO the gross profit margin is 61% and 50%in the year 2007 and the year

2008 respectively.

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RETURN ON CAPITAL EMPLOYED

FORMULA: PAT/TOTAL CAPITAL EMPLOYED * 100 (Rupees in crore)

YEAR PAT TCE ROCE RATIO(%)

2007-08 1631.52 7031.00 23.21

2006-07 2381.38 7466.00 32.89

2005-06 1562.20 6302.24 24.79

2004-05 1234.84 5143.65 24.01

2003-04 737.37 4029.71 18.30

TOTAL CAPITAL EMPLOYED = FIXED ASSET + CURRENT ASSET

RETURN ON SHAREHOLDER'S EQUIT

FORMULA: PAT/NET WORTH * 100 (Rupees in crore)

YEAR PAT NET WORTH ROSE RATIO (%)

2007-08 1631.52 8874.45 18.3

2006-07 2381.38 7695.22 30.9

2005-06 1562.2 5892.67 26.5

2004-05 1234.84 4697.81 26.2

2003-04 737.37 3756.67 19.6

NET WORTH = SHAREHOLDER’S FUND

The ROI used for measuring the overall efficiency of a firm. As this ratio reveals how well

the resources of a firm are being used, higher the ratio ,better are the result . In NALCO the

ROI is found to be 30% and 18% in the year 2007 and year 2008 respectively..

EARNING PER SHARE

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FORMULA: Net profit available to shareholder/no. of ordinary shares (Rupees in crore)

YEAR NP NO.OF SHARE EPS (RS)

2007-08 1632.00 64.431 25.32

2006-07 2380.70 64.431 36.94

2005-06 1562.20 64.431 24.25

2004-05 1234.84 64.431 19.16

2003-04 737.37 64.431 11.44

The EPS of the company should be compared with the industry average and the earning per

share of other firms.EPS simply shows the profitability of the firm on a per share basis. In

NALCO the EPS is found to be Rs 37 crore and Rs25 crore in the year 2007 and year 2008

respectively

2. LIQUIDITY RATIO

CURRENT RATIO

FORMULA: Current Asset/Current Liabilities (Rupees in crore)

YEAR CA CL CURRENT RATIO(%)

2007-08 5041.33 1318.33 3.82

2006-07 4974.08 872.02 5.70

2005-06 3297.88 607.33 5.43

2004-05 1811.04 616.20 2.93

2003-04 990.51 547.88 1.80

CURRENT RATIO ANALYSIS:-

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A current ratio of 2 to 1 more is considered satisfactory. The NALCO has a current

ratio of 5.7 in Year 2007 and 3.82 in years 2008 respectively.

An increase in current ratio represents improvement in liquidity position of the

company while a decrease in current ratio indicates that there has been deterioration

in the liquidity position of the company.

The current ratio represents the margin of safety for creditors .The higher the current

ratio, greater the margin of safety , the larger the amount of current assets in relation

to current liabilities , the more the company’s ability to meet its current obligations .

The current ratio is a test of quantity not quality. Liabilities are not subject to any fall

in value ;they have to be paid .But current assets can decline in value .

QUICK RATIO

FORMULA: Quick assets/current Liabilities (Rupees in crore)

YEAR Quick Assets Current Liabilities QUICK RATIO(%)

2007-08 4354.68 1318.33 3.30

2006-07 4339.12 872.02 4.97

2005-06 2706.32 607.33 4.45

2004-05 1281.98 616.20 2.08

2003-04 510.03 547.88 0.93

QUICK RATIO-ANALYSIS:-

Generally, a ratio of 1 to 1 is considered to represent a satisfactory financial condition. All

debtors may not be liquid and cash may be immediately needed to pay operating expenses In

NALCO, the quick ratio is 3.57 in the year 2007 and the quick ratio is 2.13 in the year 2008

respectively .A high quick ratio indicates that the firm is liquid and has the ability to meet it’s

current or liquid liabilities in time.

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INVENTORY TURN OVER RATIO

FORMULA: Cost of Goods Sold/Average Inventory (Rupees in crore)

YEAR COGS AVG. Inventory ITO RATIO(times)

2007-08 4988.80 660.80 7.54

2006-07 5940.19 613.27 9.68

2005-06 4888.70 560.32 8.72

2004-05 4104.11 504.77 8.13

2003-04 3124.07 969.73 3.22

INVENTORY TURN OVER RATIO ANALYSIS; Inventory turnover ratio measures the

velocity of conversion of stock into sales. Usually, a high Inventory turnover indicates

efficient management of inventory because more frequently the stocks are sold. In NALCO,

the Inventory turnover ratio is 9.68 in the year 2007 and 7.54 in the year 2008 respectively

CAPITAL TURN OVER RATIO

1 FIXED ASSET TURN OVER RATIO

FORMULA: NETSALES/ FIXED ASSETS (Rupees in crore)

YEAR NET SALES FIXED ASSETS FAT RATIO(times)

2007-08 4988.80 3531.00 1.41

2006-07 5940.19 3711.00 1.60

2005-06 4888.7 3944.51 1.23

2004-05 4104.11 4139.00 0.99

2003-04 3124.07 3903.48 0.80

2 WORKING CAPITAL TURNOVER RATIO

FORMULA: NET SALES/WORKING CAPITAL (Rupees in crore)

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YEAR NET SALESWORKING CAPITAL NET RATIO(times)

2007-08 4988.80 3500 1.42

2006-07 5940.19 3755 1.57

2005-06 4888.7 2357 2.07

2004-05 4104.11 1005 4.08

WORKING CAPITAL TURNOVER RATIO ANALYSIS:

A company should manage its assets efficiently to maximize its sales because assets are used

to generate sales. In NALCO, the working capital turnover ratio is 1.57 in the year 2007 and

the is 1.42 in the year 2008 respectively .This shows that NALCO is in liquid position and

has the ability to meet its current or liquid liabilities in time.

3. LEVERAGE OR CAPITAL STRUCTURE RATIO

DEBT EQUITY RATIO

FORMULA: TOTAL DEBT/TOTAL EQUITY (Rupees in crore)

YEAR TOTAL DEBT TOTAL EQUITY RATIO

2007-08 0 8874.00 0

2006-07 0 7695.00 0

2005-06 0 5892.67 0

2004-05 0 4697.81 0

2003-04 654.39 3756.67 0.174

DEBT EQUITY RATIO-ANALYSIS:-

The debt equity ratio is determined to assertion the soundness of the long-term financial policies of the company. This is calculated to measure the extent to which debt financing used in business. Generally, a high ratio means that claims of creditors are greater than those of owner’s.In NALCO the company is debt free in the year 2008.

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INTEREST COVERAGE RATIO

FORMULA: EBIT/INTEREST (Rupees in crore)

YEAR EBIT INTEREST RATIO(times)

2007-08 2754.00 1.51 1823

2006-07 3942.00 1.12 3519

2005-06 2811.24 - 2811

2004-05 2389.59 60.61 3943

2003-04 1583.6 NA NA

INTEREST COVERAGE RATIO-ANALYSIS:-Interest coverage ratio is used to test the

company’s debt servicing capacity i.e. to show the number of times the interest charges are

covered by funds that are ordinarily available for the payment. A high ratio is desirable and a

low ratio indicates excessive use of debt or inefficient operation. In NALCO, this ratio is at

3519 times in the year 2007 while in the year 2008 is 1823 times respectively.

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MAJOR FINDINGS

MAJOR FINDINGS:

o In the year 2008, quick ratio decreases to 3.30 as compared to 4.97 in the YEAR 2007

Quick ratio shows that NALCO is in liquid position and has the ability to meet its

current or liquid liabilities in time.

o In the YEAR 2008, current ratio decreases to 3.82 as compared to 5.70 in the YEAR

2007. Decrease in current assets represents that there has been deterioration in the

liquidity position of the company

o Debt-Equity ratio shows that the company is debt free in the YEAR 2008 .

o Inventory turnover ratio indicates NALCO has high inventory turnover i.e. indicative of

good inventory management.

o In the YEAR 2008, interest coverage ratio decreases 1823 times as compared to 3519

times in the YEAR 2007.this shows indicates low use of debt and efficient operation.

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o In the YEAR 2008, Earning Per Share decreases to 25.32 as compared to 36.94 in the

YEAR 2007

o Fixed Asset Turnover ratio shows in the year 2008, NALCO has managed its assets

efficiently to maximize its sales.

o Gross profit Margin ratio and Net Profit Margin ratio are decreases in the year 2008 as

compared to the year 2007.

o Return on Investment is decreases in the year 2008 as compared to the year 2007.

o Since, Return on Capital Employed of NALCO In 2008 is decreases than of the year

2007, this shows NALCO has not satisfied the owners, that that their money has not

profitably utilized.

RECOMMENDATION

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RECOMMENDATIONS:

1) NALCO should control over current assets, which should be consistently proportional

to forecasted sales.

2) Since, NALCO produces different varieties of products, their profit margin should be

evenly balance, so as to give a sound Gross and Net Profit Margin.

3) The management of NALCO needs to have counter check and provide additional

control. Over the cost of producing goods. This may improve the operating efficiency.

4) Proper monitoring of accumulation of goods may improve to yield good return on

investment.

5) Enhancement of asset turnover may also yield better Return on Investment.

6) NALCO seems to be upgrading its technology obsolescence from time to time;

NALCO requires strategy of expansion and diversification to be evolved as a major

competitor in Aluminum Industry. Since NALCO is a cash rich company, borrowing

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of loans may not be compulsory for further expansion and diversification. As Interest

Coverage Ratio is sufficiently high, the analyst for NALCO recommends borrowing

of funds in case fund is required in expansion period. This may increase the Working

Capital of NALCO to match with the foreseeing future prospects.

7) Since NALCO is a centralized cash management company as it showed better

performance? In overall Liquidity position, it should open up its avenues in new

emerging technology indifferent products it produces. NALCO settles the payments in

e-banking mode.

8) The Export can be improved in cachinnated Alumina and Alumina standards and

show ingots better than the earlier.

CONCLUSION

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NALCO has not only addressed itself to the country’s need for self sufficiency in

Aluminium, but has also given the country, the technology edge in producing strategic

material. Besides being the leader in the domestic primary Aluminium market excluding the

semi-finished products, NALCO has also earned a good name in the global market in export

of Alumina and Aluminium metal earning valuable foreign exchange for the country. With its

consistent track record in capacity utilization, technology absorption, quality assurance export

performance, servicing of loans, internal source generation and posting of profits, NALCO

has chartered a course of international confidence.

NALCO is a well known public sector company in the Aluminium sector in the world. It

shows how a well managed company achieves the mission of the company and gives much

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more profit. Just as circulation of blood is essential in human body for maintaining life like

that working capital is also an important aspect and can be a main contributor to a company’s

profit if managed efficiently.

BIBLIOGRAPHY

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BIBLIOGRAPHY

BOOKS

Financial Management - I.M. PANDEY

Management Accounting - R.K. SHARMA & S.K. GUPTA

Advanced Accountancy - S.P. JAIN & K.L. NARANG

Essentials of business finance - R.M. SRIVASTAVA

Websites

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www.google.com

www.indiainfoline.com

www.nalcoindia.com

www.aluminumworld.com

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ANNEXURE

Financial Performance

Particulars 2007-08 2006-07 2005-06 2004-05 2003-04

Income Statement :

1. Exports 2,134 2,586 2,306 2,200 1,717

2. Domestic Sales 3,340 3,929 3,018 2,220 1,632

3. Gross Sales  (1+2) 5,474 6,515 5,324 4,420 3,349

4. Less : Excise Duty 485 575 435 316 225

5. Net Sales  (3 - 4) 4,989 5,940 4,889 4,104 3,124

6. Other Income :

7.     Operating 146 103 101 174 131

8.     Non-operating 441 311 132 77 70

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9. Operating expenses 2,822 2,412 2,311 1,965 1,741

10. Operating Profit (5+7-9) 2,313 3,631 2,679 2,313 1,514

11. Earning before interest, dep. & taxes (EBIDT)(10+8)

2,754 3,942 2,811 2,390 1,584

12. Interest & Financing charges

2 - - 61 85

13. Earning before dep. & taxes (EBDT) (11-12)

2,752 3,942 2,811 2,329 1,499

14. Depreciation and Amortisation

285 322 381 459 446

15. Profit before Tax (PBT) (13-14)

2,467 3,620 2,430 1,870 1,053

16. Provision for Tax 835 1,239 868 635 316

17. Net Profit (PAT) (15 - 16) 1,632 2,381 1,562 1,235 737

Balance Sheet :

18. Equity Capital 644 644 644 644 644

19. Reserves & Surplus 8,230 7,051 5,249 4,054 3,113

20. Networth (18+19) 8,874 7,695 5,893 4,698 3,757

21. Loans Outstanding - - - - 654

22. Net Fixed Assets  3,531 3,711 3,944 4,139 3,904

23. Net Current Assets 3,500 3,755 2,357 1,005 126

24. Capital Employed (22+23)

7,031 7,466 6,301 5,144 4,030

Ratios :

25. Operating Profit Margin (OPM) (%) (10 / 5*100)

46.36 61.12 54.81 56.36 48.46

26. Net Profit Margin (%)  (17 / 5 *100 )

32.71 40.09 31.96 30.09 23.60

27. Return on Capital Employed (ROCE) (%) (17/24*100)

23.21 31.89 24.79 24.01 18.30

28. Return on Networth (RONW)(%) (17/20*100)

18.39 30.95 26.51 26.29 19.63

29. Debt Equity  ( 21 / 20 ) - - - - 17.00

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Others :

30. Book value per share of Rs.10 each(in Rs.)

137.73 119.43 91.46 72.91 58.31

31. Earnings per share (in Rs.)

25.33 36.96 24.25 19.17 11.44

32. Dividend declared ( % ) 60 75 50 40 40

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