WORKING CAPITAL MANAGEMENT

AT NARORA ATOMIC POWER STATION,

NUCLEAR POWER CORPORATION OF INDIA LIMITED.
SUBMITTED TO:
KURUKSHETRA UNIVERSITY, KURUKSHETRA
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD
OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA)
SESSION: 2006-0
UNDER THE GUIDANCE OF: SUBMITTED BY:
MR. RAMESH CHANDRA TUSHAR GARG
TRAINING SUPERINTENDENT M.B.A FINAL
N.A.P.S ROLL NO..
MR. S.M. MISHRA
DGM (F & A), N.A.P.S

MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT AND
TECHNOLOGY, JAGADHRI (APPROVED BY AICTE, NEW DELHI &
AFFILIATED TO URUSHETRA UNIVERSITY, URUSHETRA).
DECLARATION
I Tushar Garg, hereby declare that, the summer training project report titled
WORKING C!IT" #NG$#$NT %or the partial %ul%illment o% the degree o% #aster
o% &usiness dministration %rom Kuru'shetra (ni)ersity, Kuru'shetra is an original Wor'
o% mine and data pro)ided in the study is authentic to the best o% my 'no*ledge+
This study has not been submitted to any other institution or uni)ersity %or a*ard
o% any other degree+


( TUSHAR GARG)
PREFACE
For the compulsory traii! re"uire# $or my course i%e% M&A 'Master o$ &usiess
A#miistratio() I ha*e selecte# Narora Atomic Po+er ,tatio 'NAP,( a uit o$ Nuclear
Po+er Corporatio o$ I#ia Limite# 'NPCIL(%
Nuclear Po+er Corporatio o$ I#ia Limite# is a repute# pu-lic sector uit% It is a
repute# electricity !eerati! compay% Thou!h i po+er sector) I#ia has achie*e# a
remar.a-le impro*emet) e*e the +e are pro#uci! oly /012341 o$ electricity o$
our re"uiremet% I this situatio the role o$ Nuclear po+er statio -ecomes more
importat as $ar as a*aila-ility o$ ra+ material is cocere# i compariso to other
sources o$ !eeratio o$ electricity% The repute# status) latest techolo!y) -ri!ht $uture)
!oo# +or.i! e*iromet etc% are some importat $actors +hich has $orce# me to select
a Nuclear Po+er ,tatio $or !etti! summer traii!%
5uri! my traii! I ha*e -ee associate# +ith #i$$eret areas o$ $iace 6 accouts
#i*isio o$ Narora Atomic Po+er ,tatio 'NAP,( 6 leare# a-out ho+ to -ri#!e up !ap
-et+ee theoretical .o+le#!e 6 practical +or.i!% Maily I ha*e e7periece# o the
+or.i! capital maa!emet% Other tha this I ha*e e7plore# may other areas o$
Fiace 6 Accouts #i*isio%
I +oul# li.e to e7te# my sicere tha.s to the statio authority $or allo+i! me $or this
traii!) ,ectio 8ea# o$ Fiace6 Accouts #i*isio Mr%,%M%Mishra) 5GM '$iace 6
Accouts() NAP, a# my istructor Mr% P%K%Mishra) Asstt% Maa!er 'Fiace 6
Accouts( $or spari! their *alua-le time $or this purpose%
ACNOWLEDGEMENT
Preser*atio) ispiratio a# moti*atio ha*e al+ays playe# a .ey role i the
success o$ ay *eture% I the preset +orl# o$ competitio a# success) pro9ect is
li.e a -ri#!e -et+ee theoretical a# practical +or.i!% Willi!ly) I ha*e prepare#
this particular pro9ect%
I am *ery tha.$ul to 5r%Ra9 Kumar Goel) 5irector) Mahara9a A!rase Istitute o$
maa!emet a# techolo!y) :a!a#hri% I am tha.$ul to MR%,%M%MI,8RA) 5GM
'FINANCE AN5 ACCO;NT,() NAP, u#er +hose !ui#ace) I ha*e complete#
this pro9ect% 8e !a*e me a patiet listei! a# precious a#*ice% I am also *ery
tha.$ul to Mr% P%K%Mishra) Asstt% Maa!er 'Fiace a# Accouts( a# other
o$$icials at NAP,) Narora%
TUSHAR GARG
MBA III SEMESTER
MAHARAJA AGRASEN INSTITUTE OF
MANAGEMENT AND TECHNOLOGY,
JAGADHRI
CONTENTS
NPCIL, INTRODUCTION
P!"#$%& '(&!")*%&'"(
M'++'"(
V'+'"(
O,#$%&'-$+ ". NPCIL
P/+& P$!."!0/(%$
O(1"'(1 P!"#$%&+
P$!."!0/(%$ ". O2$!/&'(1 S&/&'"( /& / 13/(%$
F'(/(%'/3 O-$!-'$4
S"%'/3 %"+& & ,$($.'&+
NAPS, AN INTRODUCTION
D'+&'(%&'"( ,$&4$$( N*%3$/! 2"4$! 23/(& /() T5$!0/3 2"4$!
23/(&
M'++'"( ". NAPS
O,#$%&'-$ ". NAPS
P!"+2$%&+ ". N*%3$/! 2"4$! '( I()'/
S"0$ '02"!&/(& /() !$3$-/(& '(."!0/&'"( /,"*& NAPS
A&"0'% P"4$! S&/&'"(+ '( I()'/
P$!."!0/(%$ ". NAPS
D$,&"!+ ". NAPS
6SWOT7 /(/38+'+ ". NAPS


RESEARCH METHODOLOGY
T82$ ". !$+$/!%5
O,#$%&'-$ ". !$+$/!%5
R$+$/!%5 )$+'1
M$&5") ". )/&/ %"33$%&'"(

WORING CAPITAL MANAGEMENT

I(-$(&"!8 0/(/1$0$(&
C/+5 0/(/1$0$(&
R$%$'-/,3$+ 0/(/1$0$(&
RATIO ANALYSIS OF NAPS
C*!!$(& R/&'"
9*'%: R/&'"
A,+"3*&$ L';*')'&8 R/&'"
I(-$(&"!8 T*!("-$! R/&'"
D$,&"!+ T*!("-$! R/&'"
D$,&"! C"33$%&'"( P$!'")
W"!:'(1 C/2'&/3 T*!("-$! R/&'"
F'<$) A++$&+ T*!("-$! R/&'"
N$& P!".'& = 3"++ R/&'" ". NAPS
INTRODUCTION OF FINANCE AND ACCOUNTS
F'(/(%$ /() A%%"*(&+ S8+&$0 ". IBA, MAIS & PPPS
A%%"*(&'(1 P"3'%'$+ /() S/3'$(& .$/&*!$+ ". IBA, MAIS &
PPPS /() &5$'! -/!'"*+ )"%*0$(&+
FINDINGS
SUGGESTIONS AND RECOMMENDATIONS
LIMITATIONS OF THE STUDY
CONCLUSION
BIBLIOGRAPHY
ANNE>URES
INTRODUCTION
Gro+th o$ a success$ul *eture #epe#s upo e$$iciet 6 o*erall maa!emet o$
-usiess uits% It is a collecti*e e$$ort o$ Techical) Mar.eti! a# Fiace
persoel%
Wor.i! capital maa!emet is a ite!ral part o$ Fiacial Maa!emet%
Wor.i! capital has al+ays -ee a *ital i!re#iet +ith !ro+th o$ the compay%
Till recetly) -oth the pri*ate 6 pu-lic sector compaies e!lecte# +or.i!
capital maa!emet i I#ia% This +as to some e7tet a re$lectio o$ comparati*e
ease i a*aila-ility o$ $u#s $rom capital mar.et or commercial a# #e*elopmet
-a#s i case o$ pu-lic sector $u#s +ere a*aila-le to the Go*ermet% Further o
accout o$ sheltere# co#itio) a *ie+ #e*elopmet i recet years) situatio has
completely cha!e# i i#ustrial plai! a# pro9ect implemetatio% With
commercial 6 i#ustrial #e*elopmet i recet years) situatio has completely
cha!e# a# ee# $or +or.i! capital maa!emet is har# $elt%
No lo!er is it possi-le $or e*e a *ery -i! a# +ell2esta-lishe# compay to !et
$u#s $rom Fiacial Istitutios) the #epe#ece o +hich is $ast !ro+i!
+ithout most #etaile# scrutiy o$ its re"uests%
Apart $rom that the Fiacial Istitutios li.e to e7ercise cotrol o*er the
$uctioi! o$ the assiste# compaies% I a #e*elopi! coutries li.e I#ia +here
are limite#) they shoul# -e put to -est possi-le use% E7ceptioal care is ee#e# $or
maa!i! uit so that or!ai<atio ca +ithsta#s ups 6 #o+s a# there shoul#
-e reasoa-ly a#e"uate resources a*aila-le $or its #ay2to2#ay operatios% Thus the
ee# o$ W"!:'(1 C/2'&/3 M/(/1$0$(& arises%
Wor.i! capital i !eeral practice re$ers to the e7cess o$ curret assets o*er
curret lia-ilities% Maa!emet o$ +or.i! capital there$ore is cocere# +ith the
pro-lems that arise i attempti! to maa!e the curret assets) the curret
lia-ilities a# the iterrelatioship that e7ist -et+ee them% I other +or#s it
re$ers to all aspects o$ a#miistratio o$ -oth curret assets a# curret lia-ilities%
Ay $iacial cotrol or plai! ca -e e$$ecti*e oly +ith the acti*e
participatio o$ the etire maa!erial !roup o$ or!ai<atio% I$ a e+ pro9ect has
to come up) the Ci*il 6 Mechaical Pro9ect E!ieers ha*e to #o their 9o- +ell%
All are e"ual parters i achie*i! !oal $rame# -y the maa!emet%
Resposi-ility o$ Fiace is to .eep a close +atch o *arious $iacial operatios
a# act as a metor a# Cataly<i! A!et% For this) Fiace people must ha*e a
mo#icum o$ techical .o+le#!e e*e as mo#er techical people ha*e
.o+le#!e o$ the -asic aspects o$ $iace% Pu-lic sector uits also caot ta.e it
$or !rate# that Go*ermet +ill !i*e them all the moey they ee#% They must
lear to rely icreasi!ly o iteral resources -y ma7imi<i! their surplus%
Keepi! all these i *ie+ ot oly a sou# +or.i! capital maa!emet is
re"uire# $or e*ery -usiess -ut also a sou# sese o$ Wor.i! Capital
Maa!emet shoul# -e culti*ate# amo! all the e7ecuti*es techically% Fiace
E7ecuti*es help ot oly i e$$ecti*e rui! o$ the -usiess -ut it curates a close
relatioship at all maa!emet le*el to achie*e #esire# o-9ecti*e 6 !oals%
NPCIL, AN INTRODUCTION
Nuclear Po+er Corporatio o$ I#ia Limite# 'NPCIL( is a pu-lic sector
eterprise) +holly o+e# -y Go*ermet o$ I#ia) u#er the a#miistrati*e
cotrol o$ the 5EPARTMENT OF ATOMIC ENERG= '5AE(% It +as re!istere#
as a Pu-lic Limite# Compay u#er the Compaies Act >?0@) i ,eptem-er >?AB)
+ith the o-9ecti*e o$ u#erta.i! the #esi!) costructio) operatio 6
maiteace o$ Nuclear Po+er ,tatios $or !eeratio o$ electricity i pursuace
o$ schemes 6 pro!rams o$ Go*ermet o$ I#ia u#er the pro*isio o$ the
Atomic Eer!y Act) >?@/%
Nuclear Po+er Corporatio o$ I#ia Limite# +as earlier .o+ as Nuclear po+er
&oar# u#er total cotrol o$ 5epartmet o$ Atomic Eer!y% I >?AB2AA
Go*ermet o$ I#ia #eci#e# to co*ert it i to a Pu-lic Limite# Compay +ith a
*ie+ to step to+ar#s sel$2reliat $u# maa!emet) cost e$$ecti*eess) a#
pro$essioal maa!emet% The ultimate i#ea +as to ma.e the po+er sector more
competiti*e a# trasparet% With itCs past per$ormace i last >0 years NPCIL
has 9usti$ie# the #ecisio +ith cotiuous pro$it) sa$e operatio) uclear
a+areess) hi!h !ro+th rate a# challe!i! $uture prospects%



MISSION
T8E AIM OF NPCIL I, TO 5EDELOP N;CLEAR POWER TEC8NOLOG= 6
PRO5;CE IN A ,ELF E RELIANT MANNER) N;CLEAR POWER A, A ,AFE)
AN5 ENDIRONMENTAL FRIEN5L= 6 ECONOMICALL= DIA&LE ,O;RCE
OF ELECTRICAL ENERG= TO MEET T8E GROWING NEE5, OF T8E CO;NTR=
NEE5, OF T8E CO;NTR=%

VISION
NPCIL 8A, IT, TO 8ADE AN IN,TALLE5 N;CLEAR POWER CAPACIT= OF
/4)444 MWe &= T8E =EAR /4/4% T8I, CAPACIT= CO;L5 &E AC8IEDE5 &= T8E
5EDELOPMENT OF MORE //4 8EAD= WATER REACTOR,) IMPORTING LIG8T
WATER REACTOR, AN5 &= T8E INTRO5;CTION OF FA,T &REE5ER
REACTOR,%
OBJECTIVES OF NPCIL
T5$ C"!2"!/&'"( 5/+ +$&*2 &5$ ."33"4'(1 ",#$%&'-$+F
T" 0/<'0'?$ &5$ 2"4$! 1$($!/&'"( /() 2!".'&/,'3'&8 .!"0
N*%3$/! P"4$! S&/&'"(+ '( "2$!/&'"(.
T" '(%!$/+$ N*%3$/! P"4$! C/2/%'&8 '( &5$ %"*(&!8 %"(+'+&$(&
4'&5 /-/'3/,3$ !$+"*!%$+ '( / +$3. !$3'/(&, +/.$, $%"("0'%/3, /() !/2') 0/(($!.
T" %"(&'(*$ /() +&!$(1&5$( ;*/3'&8 /++*!/(%$ /%&'-'&'$+ !$3/&'(1
&" N*%3$/! P"4$! P!"1!/0, 4'&5'( &5$ "!1/('?/&'"( /() &5"+$ /++"%'/&$) 4'&5
'&.
T" )$-$3"2 2$!+"(($3 /& /33 3$-$3+ &5!"*15 /( /22!"2!'/&$
H*0/( R$+"*!%$+ D$-$3"20$(& 2!"1!/0 '( &5$ "!1/('?/&'"( 4'&5 / -'$4 ".
.*!&5$! '02!"-'(1 &5$ +:'33+ /() 2$!."!0/(%$ %"(+'+&$(& 4'&5 &5$ 5'15
&$%5("3"18 "2$!/&'"(+.
T" %"(&'(*$ /() +&!$(1&5$( &5$ $(-'!"(0$(& 2!"&$%&'"(
0$/+*!$+ /() P*,3'% A4/!$($++ A%&'-'&'$+ !$3/&'(1 &" N*%3$/! P"4$!
G$($!/&'"(.
T" +5/!$ /22!"2!'/&$ &$%5("3"1'%/3 +:'33+ /() $<2$!&'+$ /&
(/&'"(/3 /() '(&$!(/&'"(/3 3$-$3+.
T" ,!'(1 /,"*& 0")$!('?/&'"( /() &$%5("3"1'%/3 '(("-/&'"( '(
'&+ /%&'-'&'$+.
T" +*22"!& %/2/%'&8 /))'&'"( 2!"1!/0 '( :$$2'(1 4'&5 &5$
1!"4&5 ". $($!18 )$0/() '( &5$ %"*(&!8.


PAST PERFORMANCE
PERFORMANCE OF OPERATING STATIONS
The compay has poste# the hi!hest e*er pro$it) a$ter ta7) o$ Rs% >B>/%?B Crores $or the
year 'pre*ious year Rs% >B4G%0A Crores(% This $i!ure iclu#es oe time paymet o$
#elaye# paymet char!es o$ Rs% @3B Crores a# >A moths arrears o$ iterestH a-out Rs%
330 Crores o the -o#s recei*e# -y the compay a# a-out Rs% /40 Crores #ue to
retrospecti*e icrease i tari$$ o$ NAP, a# TAP,% The pro$it $i!ure $or the perio# /44G2
/440 $or the purpose o$ e*aluati! the per$ormace shoul# -e ta.e as Rs% >B4G%0A
Crores%
5uri! the year) the compay !eerate# >B3/G millio KWh o$ electricity as a!aist
>@B4? millio KWh i the pre*ious year% The +ei!hte# a*aila-ility $actor o$ the
compayCs plats +as ?>1% A o*erall capacity $actor o$ A>%>1 +as achie*e#%
The compay has -ee payi! #i*i#e# to the Go*ermet $or the past si7 years a# this
year) the &oar# has recomme#e# a #i*i#e# o$ Rs% G44 Crores% The !eeratio +as
>B@G M;s hi!her tha tar!et o$ the year%

DIVIDEND
The compay has -ee payi! #i*i#e# to the Go*ermet $or the past si7 years a# this
year) the &oar# has recomme#e# a #i*i#e# o$ Rs% G44 Crores%
SOURCES OF FUNDS
NPCIL !ets $iacial support $rom Go*ermet o$ I#ia $or its e7pasio pro!ram%
5uri! the year /4442/44>) NPCIL recei*e# a -u#!etary support to the e7tet o$ Rs%0A@
Crores to+ar#s capital e7pe#iture% I a##itio) Russia cre#it amouts to Rs% >3G
Crores ha*e -ee recei*e# to+ar#s the #etaile# pro9ect report +or. $or K;5ANK;LAM
pro9ect%
NPCIL issue# II$rastructure &o#sC u#er sectio >4'/3( 'G( o$ The Icome Ta7 Act to
the e7tet o$ Rs%>G0 Crores at a a*era!e coupo rate o$ >4%4A 1) +hich is "uite
reasoa-le i the preset capital mar.et situatio%
,tate Electricity &oar# tras$er $u#s to NPCIL i e7cha!e o$ electricity tras$erre#%
ONGOING PROJECTS
UNITS LOCATIONS TYPE CAPACITY (MW$(
TAP,2> TARAP;R) MA8ARA,8TRA &WR >@4
TAP,2/ TARAP;R) MA8ARA,8TRA &WR >@4
RAP,2> RAWAT&8ATA) RA:A,T8AN P8WR >44
RAP,2/ RAWAT&8ATA) RA:A,T8AN P8WR /44
MAP,2> KALPAKKAM) TAMILNA5; P8WR //4
MAP,2/ KALPAKKAM) TAMILNA5; P8WR //4
NAP,2> NARORA) ;TTAR PRA5E,8 P8WR //4
NAP,2/ NARORA) ;TTAR PRA5E,8 P8WR //4
KAP,2> KAKRAPAR) G;:RAT P8WR //4
KAP,2/ KAKRAPAR) G;:RAT P8WR //4
KAIGA2> KAIGA) KARNATAKA P8WR //4
KAIGA2/ KAIGA) KARNATAKA P8WR //4
RAP,23 RAWAT&8ATA) RA:A,T8AN P8WR //4
RAP,2G RAWAT&8ATA) RA:A,T8AN P8WR //4
TAP,2G TARAP;R) MA8ARA,8TRA P8WR 0G4
TAP,23 TARAP;R) MA8ARA,8TRA P8WR 0G4
KAIGA23 KAIGA) KARNATAKA P8WR //4
KAIGA2G KAIGA) KARNATAKA P8WR //4
PROJECTS UNDER CONSTRUCTIONF
T5$ C"02/(8 '+ 2!$+$(&38 +$&&'(1 *2 $'15& N*%3$/! P"4$! R$/%&"!+, (/0$38F
NPP@A&B (B > ACCC MW$) AT UDANULAM, TAMIL
NADU
RAPP@ D&E (B > BBC MW$) AT RAWATBHATA,
RAJASTHAN.

HEALTH, SAFTEY & ENVIRONMENT
MEASURES
The compay is committe# to its motto o$ sa$ety $irst +ith its policy o$ maitaii! the
hi!hest sta#ar#s o$ sa$ety +ithi the plats as +ell as i the surrou#i!s areas% The
release o$ ra#ioacti*ity a# e$$luet to the e*iromet -y the NPCIL uits is .ept much
-elo+ the limits speci$ie# -y the Atomic Eer!y Re!ulatory &oar# 'AER&( as +ell as
the Iteratioal ,peci$icatios%
,e*eral sa$ety relate# milestoes +ere achie*e# #uri! /44024@% Worl# Associatio o$
Nuclear Operators 'WANO( co#ucte# the peer re*ie+ o$ TAPP23 #uri! iitial
commissioi! sta!e%
I#epe#et Deri$icatio a# Dali#atio 'ID6D( o$ all sa$ety a# sa$ety relate# computer
-ase# system $or TAPP236G +as carrie# out a# the re*ie+ reports su-mitte# to ARE&%
ID 6 D acti*ates $or computer -ase# Cotrol 6 Istrumetatio systems o$ KNPP2 >6/)
KAIGA 236G a# RAPP 206@ pro9ects +ere iitiate#% ,imilarly %ID6 D o$ EMTR $or
TAP,2>6/ +as carrie# out%
NUCLEAR POWER CORPORATION OF INDIA
LIMITED FINANCIAL PERFORMANCE
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Operating !ro%it
Operating $5penditure
Interest 6 depreciation
Net!ro%it be%ore Ta5
THE GRAPH SHOWS THE OPERATING FINANCIAL PERFORMANCE OF THE
NUCLEAR POWER CORPORATION OF INDIA LIMITED

ROLE OF NUCLEAR POWER IN THE
PRESENT SCENARIO
The preset total istalle# po+er capacity i the coutry is >/G/AB MWe a# capacity
a##itio o a a*era!e o$ a-out >4)444 MWe per year ee#s to -e a##e# i the coutry to
ma.e the !ro+i! #ema# o$ electricity% No si!le source is a-le to meet this #ema#%
The I#ia Po+er ,ector comprises a ,tate) Cetral a# Pri*ate sector% The cotri-utio
o$ Cetral sector i all I#ia Istalle# capacity is a-out 3/1 +ith share o$ G/1 i
!eeratio% Nuclear Po+er Pro9ects are Cetral sector pro9ects a# the share o$ Nuclear
Po+er i Cetral sector !eeratio a# capacity are a-out B1%
Nuclear po+er is E*iromet $rie#ly 'A I,O >G44> certi$ie#() techolo!ically
pro*e) ecoomically competiti*e a# associate# +ith the a#*ata!e o$ eer!y security
a# #i*ersity% Nuclear po+er is) thus) a importat compoet to complemet !eeratio
$rom other sources i ear terms%
Distribution Of Revenue - 2! - "
017
.87 97
.7
-7
.07
/,7
Profit for t#e $e%r
De&re'i%tion
Interest
Ot#er o&t. E(&enses
Re&%ir ) M%inten%n'e
*e%v$ +%ter '#%r,es
Fue- '#%r,es
INDUSTRY STRUCTURE AND DEVELOPMENT
Eer!y is essetial $or !ro+th o$ ci*ili<atio) a# $or ay su-statial rise i the sta#ar#
o$ li*i! o$ people i a coutry) ot ha*i! pleti$ul $uel resources) it is ecessary to
e7ploit all other resources iclu#i! uclear eer!y $or the !eeratio o$ electricity%
Reali<i! the importace o$ uclear eer!y i I#ia) A Three2,ta!e Nuclear Po+er
Pro!ram +as $ormulate# -y the 5epartmet o$ Atomic Eer!y '5AE(%
NPCIL has attaie# maturity i the $irst sta!e pro!ram% The uit si<e o$ P8WRs has -ee
up#ate# to 0G4 MWe $or TAPP236G% NPCIL has u#erta.e #esi! o$ B44 MWe P8WR
-y permitti! partial -oili! i the reactor core% Thus) +ith oly mar!ial cha!es i the
har#+are) the po+er output o$ reactor is -ei! icrease# -y a-out 341% Other measures
li.e compact #esi!) a#*ace# systems) ease o$ costructio etc% -ei! u#erta.e $or
B44 MWe uits +oul# result spee#y costructio) re#uctio i cost a# ehace# sa$ety
o$ the plat%
Future P8WRs i the coutry +ill -e o$ B44MWe uitCs si<e !i*i! cosi#era-le -ee$it
o$ the ecoomies o$ scale%
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NPCIL CAPACIT. ADDITION
#We
SOURCES OF FUNDS OF NPCIL
E/uit$
012
Russi%n
Cre3it
1!2
4on3s
152
Reserves)
Sur&-us
062
S OCIAL CCST & BENEFITS
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(*0,$! ". )'!$%& /() '()'!$%& $023"80$(&+ 5/-$ ,$$( 1$($!/&$) ,8 '& '( &5$
/!$/.
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+*!!"*()'(1 /!$/ '+ &5$ 1!$/& %"(&!',*&'"( &" &5$ +"%'$&8.
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%!$/&'(1 / 5$/3&58 & %"@"2$!/&'-$ /&0"+25$!$ /0"(1 &5$ 3"%/3 2"2*3/&'"(
&"4/!)+ &5$ %"02/(8.

NARORA ATOMIC POWER STATION
AN INTRODUCTION

Narora Atomic Po+er ,tatio 'NAP,( is the $irst Nuclear Po+er ,tatio) a uit o$
NPCIL 'A Go*t% o$ I#ia Eterprise() +hich is i#i!eously #esi!e#) costructe# a#
commissioe#% The Narora Atomic Po+er ,tatio is a uit o$ Nuclear Po+er
Corporatio o$ I#ia Limite# 'NPCIL(%
T+o uits ha*i! the capacity o$ //4 MWe each +ere -rou!ht to e7istece i the year
o$ >?A? a# >??> respecti*ely% The -asic #esi!e# o$ these uits is CAN5; type i%e%
Pressuri<e# 8ea*y Water Reactor 'P8WR(%
Narora is a small aciet *illa!e) +hich is situate# o the -a. o$ 8oly Ri*er Ga! i
the #istrict o$ &ula#shahr i the state o$ ;ttar Pra#esh a# appro7imately >04 Kms
$rom the Natioal Capital) 5elhi o the 5elhi2 &a#au route%
%
The !eerate# Electricity is -ei! supplie# to the Nie '4?( ei!h-ori! states i
+hich ;P is the mai state) throu!h Norther Re!ioal Electricity Gri#% Aother
importat milestoe i the I#ia uclear pro!ram has achie*e#) as NAP, is a e$$ort
to+ar#s sta#ar#i<atio o$ P8WR uits a# a steppi!2stoe to the 044 M+e uits%
The Reactors use Natural ;raium a*aila-le i I#ia as a $uel) a# hea*y +ater
pro#uce# i the coutry as mo#erator a# coolat%
The I#ia E!ieers a# ,cietists ha*e #oe iclu#i! #esi!) e!ieeri!) erectio)
commissioi! a# operatio the e7ecutio o$ the pro9ect cost o$ Rs% B/3 crores E
mostly $or the import o$ special materials a# e"uipmets%
NAP, is the Fourth Nuclear Po+er ,tatio i the coutry a$ter the Tarapur i
Maharashtra) Ra+at-hata i Ra9astha 6 Kalpa..am i Tamil Na#u a# First
I#i!eous Nuclear Po+er plat o$ I#ia% Narora Atomic Po+er ,tatio) a
i#i!eously #esi!e#) costructe# a# commissioe# uit is $ourth Nuclear Po+er
statio o$ NPCIL%
NAP, is certi$ie# $or E*iromet Maa!emet ,ystem 'I,O >G44>( o
>?
th
Au!ust >???%
The total stre!th o$ mapo+er at NAP, is a-out >G44 Employees%
IMPORTANT DATES OF NAPS
PARAMETERS UNIT@I UNIT@II
Fou#atio stoe
G
th
:a% >?BG
G
th
:a% >?BG
E7ca*atio starte#
>0
th
Fe-% >?B@ >0
th
Fe-% >?B@
Fuel loa#i!
>>
th
Oct% >?AA
?
th
Au!% >??>
>
st
criticality
>/
th
Mar% >?A?
/G
th
Oct% >??>
>
st
sychroi<atio
/?
th
:uly >?A?
0
th
:a% >??/
Commerciali<atio
>
st
:a% >??>
34
th
:ue >??/
I,O2>G44>
Certi$icatio

>?
th
A;G;,T >???
Total M;s
!eerate#) sice
Last
,ychroi<atio)
'up to Apr I/44G(
>@@/@%3?? >0?/>%34G
NAP,J> has set a e+ recor# o$ cotiuous ru o$ /0> #ays surpassi!
its earlier recor# o$ >BG #ays -e$ore it +as ta.e u#er aual shut
#o+ o 34K4@K4G%
NAP,J/ has set a e+ recor# o$ cotiuous ru o$ /B/ #ays o$ lo!est
cotiuous operatio +hich is the hi!hest amo! all I#ia Nuclear
reactors%
NAP, complete# lo!est Acci#et Free perio# o$ >@0A #ays as o
3>K>/K/44G
NAP, complete# lo!est Reporta-le Fire Free perio# o$ //A4 #ays as
o 3>K>/K/44G
DISTINCTION BETWEEN
NUCLEAR POWER PLANT AND THERMAL POWER
PLANT
Nuclear Po+er Plat !eerates Electricity throu!h ;raium% O the other ha#) the
Thermal Po+er Plat -urs coal to pro#uce heat% The heat co*erts +ater ito steam)
+hich i turs #ri*es the Tur-ie a# !eerator to pro#uce the heat a# electricity% The
mai #i$$erece i Thermal Po+er Plat a# i a Nuclear Po+er Plat is that the Thermal
Po+er plat !ets heat eer!y -y -uri! o$ coal +hereas Nuclear Po+er Plat !et heat
-y a process calle# LFissio o$ ;raium2 /30 Nuclei% The heat pro#uce is use# to
co*ert +ater ito steam% The pro#uce# steam rus the tur-ie a# !eerates the
electricity%
A 1 ". U!/('*0 2!"-')$+ $;*'-/3$(& $($!18 &5/& ". BDCCC 1 ". %"/3.
Whe ;raium2 /30 Atom struc. -y a slo+ eer!y Neutro it splits ito t+o $ra!mets
a# releases treme#ous amout o$ eer!y +ith t+o or three eutros% This eer!y is
use# to pro#uce steam) +hich i turs rotates Tur-o !eerator to pro#uce electricity%
MISSION OF NARORA ATOMIC POWER STATION
The missio o$ Nuclear Po+er Corporatio o$ I#ia is also the missio o$ NAP,% The
missio o$ -oth o$ them is to #e*elop Nuclear Po+er Techolo!y i sel$2reliat maer%
Nuclear Po+er as a sa$e) e*irometally a# ecoomically -ei! a# a ecoomically
*ia-le source o$ electrical eer!y to meet the !ro+i! electricity ee#s o$ the coutry%
OBJECTIVES OF NARORA ATOMIC POWER STATION
T5$ ."33"4'(1 /!$ &5$ 0/'( ",#$%&'-$+ ". NAPS:
>% To ma7imi<e !eeratio '/A?> M;s or More( a# capacity utili<atio 'B01 or
more( i a sa$e maer%
/% To miimi<e the um-er o$ $orce# outa!es to as lo+ as resposi-le achie*a-le%
3% To miimi<e outa!e perio# $or plae# maiteace a# at the same time achie*i!
the maiteace o-9ecti*es%
G% Plae# Implemetatio o$ co#itios moitori! i ser*ice ispectio)
mo#i$icatio a# up!ra#i! pro!ram i a optimum maer #uri! plae#
maiteace outa!es%
0% To miimi<e ra#ioacti*ity release to as lo+ as reasoa-ly achie*a-le%
@% To miimi<e ra#iatio e7posures to as lo+ as reasoa-ly achie*a-le%
B% To miimi<e hea*y +ater losses to as lo+ as reasoa-ly achie*a-le%
A% To pro!ressi*ely achie*i! eer!y coser*atio i a e$$iciet maer%
?% To impro*e "uality i all acti*ities -y esuri! a#herece to proce#ures pre29o-
-rie$i!s a# traii! K re2traii! o$ persoel%
>4% To treasure huma resources -y cotiuous e7posure to traii!%
>>% To esure huma resources #e*elopmet "uatitati*ely a# "ualitati*ely a# i a
sou# a# cor#ial i#ustrial relatios e*iromet%
PROSPECTS OF NUCLEAR POWER IN INDIA
8o+ coul# I#ia a$$or# to la! -ehi# i this a#*ace# techolo!ical $iel#M Ispire# -y
*isioary ,cietists li.e 5r% &ha-ha) +ho ha# starte# +or.i! i the $iel# o$ Nuclear
Po+er +ell -e$ore I#epe#eceM I a letter i >?GG to ,ir 5ora-9i Tata Trust) 5r%
&ha-ha ha# ur!e# him to $ou# a a#*ace# school $or stu#ies i this $iel#% As a result
Tata Istitute o$ Fu#ametal Research 'TIFR( +as esta-lishe# i >?G0% ,oo a$ter
I#epe#ece the Atomic Eer!y Act came ito $orce +ith e$$ect $rom April >0) >?GA%
Four moths later the Atomic Eer!y Commissio 'AEC +as costitute# o Au!ust >4)
>?GA% The 5epartmet o$ Atomic Eer!y '5AE( +as $orme# su-se"uetly o Au!ust 3)
>?G0% At a co$erece hel# i 5elhi i No*em-er the su-9ect L5e*elopmet o$ Nuclear
Po+er For Peace$ul Purposes%
Our $irst Prime Miister Pt% :a+aharlal Nehru sai#)
L I$ you +at to e*aluate the pro!ress ma#e -y Natio) you shoul# oly $i# out the
amout o$ electricity !eerate# a# use# -y the Natio 8e also sai#)
LWe +at to utili<e atomic eer!y $or !eerati! electricity) -ecause electricity is
most essetial $or the #e*elopmet o$ the atioC%
I the same year 5r% &ha-ha su-mitte# a Three2sta!e pla to pro#uce electricity $rom
atomic eer!y% Accor#i! to this pla i the $irst sta!e) Natural ;raium reactor +oul#
-e costructe# +hich +oul# ot oly !eerate electricity -ut also pro#uce Plutoium% I
the ,eco# ,ta!e) The reactors costructe# +oul# use Thorium) a*aila-le a-u#atly i
the coutry) to pro#uce ;raium a# Plutoium -esi#es !eerati! electricity% I the
coutry) to pro#uce electricity a# a##itioal ;2//3 $uel a# Thorium +oul# -e use# i a
&ree#er Reactor so as to pro#uce electricity a# a##itioal ;2//3% The pla prepare# -y
5r% &ha-ha) +as *ery si!i$icat a# $oresi!hte#% &ecause) he chal.e# it o*er .eepi! i
*ie+ the a*aila-ility i I#ia o$ atural resources li.e ;raium as $uel) the cosumptio
o$ ;raium +as comparati*ely less% Moreo*er) such reactors coul# -e -uil#s
i#i!eously%
I >?G0) ;K o$$ere# eriche# ;raium $or the s+immi! pool type reactor% Thus
AP,RA) the $irst uclear reactor i I#ia a# Asia) -ecome critical i Au!ust >?0@% ,ice
5r% &ha-ha a# Pt% Nehru +ere o the same +a*ele!th) Atomic Eer!y Commissio
recei*e# ma7imum ecoura!emet $or the Go*ermet o$ I#ia%
I April >?00) Caa#aCs o$$ere# help to I#ia) u#er the Colom-o pla) to -uil# a uclear
reactor% 8o+ $a*ora-le Pt% Nehru +as iclie# to+ar#s AEC ca -e u#erstoo# $rom the
$act that the tele!ram set -y 5r% &ha-ha +as replie# -y a retur tele!ram a#
Go*ermet o$ I#ia sactioe# Rupees B Crores CIR;, pro9ect +ith i 9ust three #ays%
The CIR;, 'CANA5A2I#ia reactor( -ecome critical o :uly >4) >?@4% 8al$ o$ the $uel
$or this reactor +as pro#uce i I#ia itsel$ +hile other hal$ +as -y Caa#a%
5r% &ha-ha too. se*eral other si!i$icat steps to ma.e I#iaCs Nuclear Pro!ram sel$2
reliat% Pt% Nehru iau!urate# the Atomic Eer!y esta-lishmet) Tram+ay i >?0B) i
hoor o$$ late 5r% &ha-haCs memory% 5r% &ha-ha +as su##ely #ie# i tra!ic plae crashH
the esta-lishmet +as reame# i >?@B as L&8A&8A ATOMIC RE,EARC8
CENTRE%
I Au!ust >?@B) &ARC Traii! ,chool +as iau!urate#% Arou# 0)444 scietists a#
E!ieers ha*e so $ar u#er!oe traii! at this Istitute% They are ot oly $uctioi!
at importat positios i I#ia Atomic Eer!y pro!ramme) -ut are also ser*i! at
#i$$eret posts i other #epartmets o$ the Go*ermet a# cotri-uti! si!i$icatly to
the atioCs scieti$ic pro!ress%
ATOMIC POWER STATIONS IN INDIA
Follo+i! are the I#iaCs Atomic Po+er ,tatios operati! as o to#ayF
TAP, Tarapur Atomic Po+er ,tatio G uits
RAP, Ra9astha Atomic Po+er ,tatio at
Ra+at-hata) Kota%
G uits
MAP, Ma#ras Atomic Po+er ,tatio at
Kalpa..am) Ma#ras%
/ uits
NAP, Narora Atomic Po+er ,tatio at Narora)
&ula#shahr ';%P%(
/ uits
KAP, Ka.rapar Atomic Po+er ,tatio at
.a.rapar) Gu9arat
/ uits
KG, Kai!a Geerati! ,tatio at Kai!a) Kar+ar
'Karata.a(
3 uits

STATES TO WHOM THE ELECTRICITY IS GIVEN
OR
DEBTORS OF NARORA ATOMIC POWER STATION
> CSEB F C8AN5IGAR8 ,TATE ELECTRICIT= &OAR5%
/% DTCL F 5EL8I TRAN,CO LIMITE5
3% HVPNL F 8AR=ANA DI5=;T PARI,8A5 NIGAM LT5%
G% HPSEB F 8IMAC8AL PRA5E,8 ,TATE ELECTRICIT=
&OAR5%
0% J& SEB F :AMM; AN5 KA,8MIR ,TATE ELECTRICIT= &OAR5%
@% PSEB F P;N:A& ,TATE ELECTRICIT= &OAR5%
B% RRVPNL F RA:A,T8AN RA:=A DI5=;T PARI,8A5 NIGAM LT5
%
A% AVVNL F A:MER DI5=;T DITRAN NIGAM LIMITE5
?% JVVNL F :AIP;R DI5=;T DITRAN NIGAM LIMITE5
>4% JDVVNL F :O58P;R DI5=;T DITRAN NIGAM LIMITE5
>>% UPPCL : ;TTAR PRA5E,8 POWER CORPORATION LT5%
>/% UPCL F ;TTARANC8AL POWER CORPORATION LT5
The a-o*e metioe# are the states to +hom the Narora Atomic Po+er ,tatio
supply the electricity% The these states may #istri-ute the po+er to the territorial
commercial sectors%
RESEARCH
METHODOLOGY



RESEARCH METHODOLOGY
Research is a art o$ scieti$ic i*esti!atio% It is -asically a care$ul i*esti!atio $or search o$
e+ $acts i ay -rach o$ .o+le#!e% Research is a ,cieti$ic Techi"ue) +hich pro*i#es
precise tools) speci$ic proce#ure 6 techical rather tha philosophical meas $or !etti! a#
or#eri! the #ata prior to their lo!ical aalysis 6 maipulatio%
The ma.e coclusio a# !i*e recomme#atio it is ecessary to research a-out the !i*e topic%
As my topic is relate# to the +or.i! capital) the seco#ary #ata has -ee *ery use$ul $or this
purpose% The cost au#it reports o$ *arious years ha*e -ee use# i aaly<i! the #ata% Maily
seco#ary #ata has -ee use#% To .o+ a-out the +or.i! capital maa!emet) I ha*e tal.e# to
*arious cocers i accouts #epartmets%

TYPE OF RESEARCH
ANALYTICAL RESEARCH: I aalytical research +e ha*e to use $acts a# i$ormatio
alrea#y a*aila-le a# aaly<e these to ma.e a e*aluatio $or pro9ect%

OBJECTIVES OF THE STUDY
Wor.i! capital is syoymous +ith curret assets% There is o #eyi! the $act that +or.i!
capital is oe o$ the most importat tool i the ha#s o$ the compay $or the success$ul operatio
o$ the -usiess% It is imperati*e $or the $iace maa!er to properly assess the $uture re"uiremet
o$ +or.i! capital i the compay% Keepi! i the *ie+ this o-9ecti*e i mi#) the compay
assi!e# me this challe!i! pro9ect o$ estimati! the $uture ee#s o$ +or.i! capital o$ the
compay% The pro9ect itsel$ spea.s $or the importace o$ the stu#y%
T" /%%$++ &5$ 4"!:'(1 %/2'&/3 !$;*'!$0$(&.
T" :("4 /,"*& &5$ 3$(1&5 ". "2$!/&'(1 %8%3$.
T" :("4 %*!!$(& /++$&+ /() %*!!$(& 3'/,'3'&'$+ ". NAPS
T" +&*)8 &5$ 1!"4&5 /() 2$!."!0/(%$ ". NAPS.
T" 3"%/&$ 4$/:($++ /() +*11$+& -/!'"*+ +*11$+&'"(.

RESEARCH DESIGN

R$+$/!%5 )$+'1( '+ / ,/+'% .!/0$4"!:, 45'%5 2!"-')$+

1*')$3'($+ ."! &5$ !$+& ". &5$ !$+$/!%5 2!"%$++. I& '+ / 0/2 "! ,3*$2!'(&
/%%"!)'(1 &" 45'%5 &5$ !$+$/!%5 '+ %"()*%&$). T5$ !$+$/!%5 )$+'1( '+ )$+%!'2&'-$
'( (/&*!$. T5$ !$+$/!%5 )$+'1( +2$%'.'$+ &5$ 0$&5")+ ."! )/&/ %"33$%&'"( /()
)/&/ /(/38+'+.

DATA COLLECTION METHOD

S$%"()/!8 )/&/ '+ !$;*'!$) ."! &5$ 2*!2"+$ ". A(/38&'%/3

R$+$/!%5.
S$%"()/!8 )/&/ 2!"-')$+ / 3"& ". '(."!0/&'"( ."!
*()$!+&/()'(1 &5$ ./%&"!+ *()$!38'(1 &5$ +&*)8. S$%"()/!8 )/&/ '+ /3+" 5$32.*3
'( &5$ ."!0*3/&'"( ". 582"&5$+'+ & &$+&'(1 &5$ !$+*3&+ ". &5$ !$+$/!%5. F"! &5$
2*!2"+$ ". %"33$%&'(1 +$%"()/!8 )/&/, / 2$!*+/3 ". +$%"()/!8 +"*!%$+ ".
'(."!0/&'"( 5/) ,$$( %"()*%&$). T5$ +"*!%$+ ". +$%"()/!8 )/&/ %"02!'+$) ".
J"*!(/3+, S&*)'$+ %"()*%&$) '( &5$ 2/+&, !$2"!&+, %"(%$!($) 4$,+'&$+ $&%.

WORING
CAPITAL
MANAGEMENT
MANAGEMENT OF WORING CAPITAL
Wor.i! Capital maa!emet is a importat aspect o$ $iacial maa!emet% I -usiess)
moey is re"uire# $or $i7e# a# +or.i! capital% Fi7e# assets iclu#e -uil#i!) plat a#
machiery) $uriture 6 $i7tures etc% Fi7e# assets are re"uire# to -e retaie# i the -usiess
$or a lo! perio# a# yiel# returs o*er the li$e o$ such assets% Wor.i! capital) o the other
ha# is re"uire# $or the e$$iciet a# e$$ecti*e use o$ $i7e# assets% The mai o-9ecti*e o$
Wor.i! Capital Maa!emet is to #etermie the optimum amout o$ +or.i! capital
re"uire#.

T5$ -/!'"*+ &"2'%+ )'+%*++$) '( 0/(/1$0$(& ". 4"!:'(1 %/2'&/3 /!$:
I% 5e$iitio o$ Wor.i! Capital
II% Type# o$ Wor.i! Capital
III% Nee# $or Wor.i! Capital
ID% Fiaci! o$ Wor.i! Capital
D% Factors #etermii! Wor.i! Capital
DI% A#e"uacy o$ Wor.i! Capital
DII% A#*ata!e o$ a#e"uacy o$ Wor.i! Capital
DEFINITION OF WORING CAPITAL
T5$!$ /!$ &4" %"(%$2& ". W"!:'(1 C/2'&/3:
A. G!"++ W"!:'(1 C/2'&/3
B. N$& W"!:'(1 C/2'&/3
(I) G!"++ W"!:'(1 C/2'&/3 C"(%$2&:
Accor#i! to this cocept Wor.i! Capital meas !ross Wor.i! Capital) +hich is the total
o$ all the curret assets o$ the -usiess%
Gross Wor.i! Capital N Total Curret Assets
D$.'('&'"( ./-"!'(1 &5'+ %"(%$2& '+:
>% LWor.i! capital meas total o$ curret assets%
@@@M$/), M/33"&& /() F'$3)
/% LAy ac"uisitios o$ $u#s +hich icrease the curret assets icrease +or.i! capital)
$or they are oe a# the same%
@@@B"(($-'33$ /() D$4$8
P$!+"(+ /%:("43$)1'(1 &5$ &"&/3 ". %*!!$(& /++$&+ /+ W"!:'(1 C/2'&/3
1'-$ &5$ ."33"4'(1 /!1*0$(&+ '( &5$'! ./-"!:
>% :ust as $i7e# assets are cosi#ere# as the sym-ol o$ $i7e# capital) curret assets must
also -e cosi#ere# as sym-ol o$ Wor.i! Capital%
/% Ay ac"uisitio o$ $u#s icreases the Wor.i! Capital% This statemet pro*es true
accor#i! to this cocept +hereas it #oes ot hol# true accor#i! to the seco# cocept%
3% Most o$ the maa!ers pla their -usiess operatios accor#i! to the curret assets
cocept -ecause these are the assets use# i #ay2to2#ay -usiess operatios%
G% ;tility o$ curret assets remais the same +hether $iace# $rom lo!2term loas or
short2term loas% 8ece the total amout o$ curret assets must -e treate# as Wor.i!
Capital%
(II) N$& W"!:'(1 C/2'&/3 %"(%$2&:
Accor#i! to this cocept) Wor.i! Capital meas et Wor.i! Capital) +hich is the
e7cess o$ curret assets o*er curret lia-ilities%
Net +or.i! capital N curret assets 2 curret lia-ilities
D$.'('&'"(+ ./-"!'(1 &5'+ %"(%$2& /!$F
>% LIt has or#iarily -ee #e$ie# as the e7cess o$ curret assets o*er curret lia-ilities%
/% LThe most commo #e$iitio o$ et +or.i! capital is the #i$$ereces o$ $irmCs
curret Assets a# curret lia-ilities%
P$!+"(+ ./-"!'(1 &5'+ %"(%$2& 1'-$ &5$ ."33"4'(1 /!1*0$(& '( &5$'! ./-"!:
>% This cocept !i*es the true i$ormatio a-out the li"ui#ity o$ a cocer% Accor#i! to
$irst cocept) the Wor.i! Capital appears to -e icrease# merely -y ta.i! a short2term
loa +hereas i the seco# cocept Wor.i! Capital remais ucha!e# -y #oi! so%
Thus the seco# cocept loo.s more lo!ical% I actual sese) Wor.i! Capital icreases
oly -y plou!hi! -ac. o$ pro$its or +he a lo!2term loa is o-taie#%
/% E7cess o$ curret assets o*er curret lia-ilities +ill i#icate +hether or ot the cocer
+ill -e a-le to meet its curret lia-ilities +he they $all #ue% First cocer #oes ot
#isclose this $act%
3% It is o the -asis o$ this cocept that the short2term le#ers -a.ers etc% calculate the
sa$ety mar!i re!ar#i! the timely paymet o$ their #e-t%
G% E7cess o$ curret assets o*er curret lia-ilities +ill #etermie +hether or ot the
cocer +ill -e a-le to $ace the #epressio or ay other coti!et ee# o$ the -usiess%
0% Accor#i! to this cocept a comparisos ca -e ma#e -et+ee the $iacial positios
o$ t+o $irms +hose curret assets are e"ual%
As #iscusse# et Wor.i! Capital is the e7cess o$ curret assets o*er curret lia-ilities%
I$ curret assets are e"ual to curret lia-ilities) et +or.i! capital +ill -e <ero a# i$
curret lia-ilities are more tha curret assets) et +or.i! capital +ill -e e!ati*e%
Curret assets mea those assets) +hich are co*erte# ito cash +ithi a short perio# o$
time ot e7cee#i! oe year) e%!% cash) -a. -alace) #e-tors) -ills) recei*a-le)
stoc.) accrue# icome etc%
Curret lia-ilities meas those lia-ilities +hich ha*e to -e pai# +ithi a short perio# o$
time i o case e7cee#i! oe year) e%!% cre#itors) -ills paya-le) outsta#i! e7peses)
short term loas etc%
TYPES OF WORING CAPITAL
Wor.i! Capital ca -e classi$ie# i t+o +ays) $irstly o the -ases o$ cocept a# seco#ly
o the -asis o$ its ee#%
>% O( &5$ ,/+'+ ". %"(%$2&: O this -asis Wor.i! Capital may -e o$ t+o typesF
Gross Wor.i! Capital
Net Wor.i! Capital
/% O( T5$ B/+'+ ". N$$): O the -asis also Wor.i! Capital may -e o$ t+o types%
Permaet Wor.i! Capital
Temporary Wor.i! Capital
NEED FOR WORING CAPITAL
Alo! +ith the $i7e# capital almost e*ery -usiess re"uiri! Wor.i! Capital thou!h the
e7tet o$ Wor.i! Capital re"uiremet #i$$ers i #i$$eret -usiesses% Wor.i! Capital is
ee#e# $or purchasi! ra+ materials% The ra+ material is the co*erte# ito $iishe#
!oo#s -y icurri! some a##itioal costs o it% No+ !oo#s are sol#% ,ales #o ot co*ert
ito cash istatly -ecause there is i*aria-ly some cre#it sales% Thus) there e7ists a time
la! -et+ee sales o$ !oo#s a# receipt o$ cash% 5uri! this perio#) e7peses are to -e
icurre# $or cotiui! the -usiess operatios% For this purpose Wor.i! Capital is ee#e#
+hich shall -e i*ol*e# $rom the purchase o$ ra+ materials to the reali<atio o$ cash% The
time perio#) +hich is re"uire# to co*ert ra+ materials to the reali<atio o$ cashM The time
perio#) +hich is re"uire# to co*ert ra+ materials ito $iishe# !oo#s a# the ito cash is
.o+ as operati! cycle or cash cycle% The time ee# $or Wor.i! Capital ca also -e
e7plaie# +ith the help o$ operati! cycle%
O2$!/&'(1 %8%3$ ". / 0/(*./%&*!'(1 %"(%$!( '(-"3-$+ .'-$ 25/+$+:
C"(-$!+'"( ". %/+5 '(&" !/4 0/&$!'/3
C"(-$!+'"( ". !/4 0/&$!'/3 '(&" 4"!: '( 2!"1!$++
C"(-$!+'"( ". 4"!: '( 2!"1!$++ '(&" .'('+5$) 1"")+
C"(-$!+'"( ". .'('+5$) 1"")+ '(&" )$,&"!+ ,8 %!$)'& +/3$+
C"(-$!+'"( ". .'('+5$) 1"")+ '(&" %/+5 ,8 !$/3'?'(1 %/+5 .!"0
&5$0.
OPERATING CYCLE
Thus the operati! cycle starts $rom cash) $iishes at cash a# the a!ai restarts $rom
cash% Net $or Wor.i! Capital #epe#s upo perio# o$ operati! cycle% Greater the perio#
more +ill -e the ee# $or Wor.i! Capital% Perio# o$ operati! cycle i a mau$acturi!
cocer is !reater tha perio# o$ operati! cycle i a tra#i! cocer -ecause i traii!
uits cash is #irectly co*erte# ito $iishe# !oo#s%
&ecause o$ the time i*ol*e# i a operati! cycle there is a ee# o$ Wor.i! Capital i the
$orm o$ curret assets% Firms ha*e to .eep a#e"uate stoc. o$ ra+ materials to a*oi# ris. o$
o2a*aila-ility o$ ra+ materials% ,imilarly) cocers must ha*e a#e"uate stoc. o$ $iishe#
!oo#s to meet the #ema# i mar.et o cotiuous -asis a# to a*oi# -ei! out o$ stoc.%
I a##itio to all these) cocers ha*e to ecessarily .eep cash to pay the mau$acturi!
e7peses etc% a# to meet the coti!ecies%
5e-tors a# &ills
Recei*a-les
Fiishe# Goo#s Wor.2 I 2 Pro!ress
CA,8
Ra+ Materials
P$!0/($(& /() &$02"!/!8 W"!:'(1 C/2'&/3
Wor.i! Capital i a -usiess is ee#e# -ecause o$ operati! cycle% &ut the ee# $or
Wor.i! Capital #oes ot comes to a e# a$ter the cycle is complete#% ,ice the operati!
cycle is a cotiuous process there remais a ee# $or cotiuous supply o$ Wor.i! Capital%
8o+e*er) the amout o$ +or.i! capita re"uire# is ot costat throu!hout the year -ut
.eeps $luctuati!% O the -asis o$ this cocept) Wor.i! Capital is classi$ie# ito t+o typesF

(A) P$!0/($(& W"!:'(1 C/2'&/3F
The ee# $or Wor.i! Capital or curret assets $luctuates $rom time to time% 8o+e*er) to
carry o #ay2to2#ay operatios o$ the -usiess +ithout ay o-stacles) a certai miimum
le*el o$ ra+ materials) +or. i pro!ress) $iishe# !oo#s a# cash must -e maitaie# o a
cotiuous -asis% The amout ee#e# to maitai curret assets o their miimum le*el is
calle# permaet or re!ular Wor.i! Capital% The amout i*ol*e# as permaet Wor.i!
Capital has to -e meet $rom lo! term sources o$ $iace e%!%) #e-etures lo!2term loas etc%
(B) T$02"!/!8 "! -/!'/,3$ W"!:'(1 C/2'&/3:
Ay amout o*er a# a-o*e the permaet le*el o$ Wor.i! Capital is calle# temporary)
$luctuatio or *aria-le +or.i! capital% 5ue to seasoal cha!es) le*el o$ -usiess acti*ities
is hi!her tha ormal #uri! some moths o$ year a# there$ore a##itioal Wor.i! Capital
+ill -e re"uiri! alo! +ith the permaet Wor.i! Capital% It is so -ecause #uri! pea.
seaso) #ema# rise a# more #ue to e7cessi*e sales% A##itioal Wor.i! Capital thus
ee#e# is .o+ as temporary capital -ecause oce the seaso is o*erH the a##itioal #ema#
+ill -e o more% Nee# $or temporary Wor.i! Capital shoul# -e met $rom short term sources
o$ $iace e%!%) short term loas etc% that ca -e re$u#e# +he it is ot re"uire#%


FINANCING OF WORING CAPITAL
A$ter #etermii! the re"uiremet o$ Wor.i! Capital) the e7t importat tas. -e$ore the
$iacial maa!er is to select the appropriate sources o$ +or.i! capital% There are maily
t+o sources iclu#e e"uity shares) pre$erece shares) #e-etures) retaie# eari!s)
#epreciatio a# lo! term $iacial istitutios% A short2term source iclu#es short2term
loas) tra#e cre#itors) commercial paper) $actori! a# pu-lic #eposits etc% there are
-asically three approaches to #etermie a appropriate $iaci! mi7 o$ *arious sources%
These are as $ollo+sF
A. MATCHING APPROACH OR HEDGING APPROACH
Accor#i! to this approach) a $irm shoul# a#opt a $iacial pla) +hich i*ol*es the
matchi! o$ e7pecte# li$e o$ the sources o$ $u#s raise# to $iacial assets% ;si! lo!2
term $u#s $or short term assets are e7pesi*e) as $u#s +ill ot -e utili<e# $or the $ull
perio#% ,imilarly $iaci! lo!2term assets +ith short2term sources is costly a#
cum-ersome) as arra!emets $or the e+ short term sources +ill ha*e to -e ma#e o a
cotiui! -asis% Thus) matchi! approach su!!ests that lo!2term $u#s shoul# -e
use# to $iace the permaet portio o$ curret assets re"uiremets i a maer
similar to the $iaci! o$ $i7e# assets% The temporary re"uiremets o the other ha#
shoul# -e $iace# +ith short2term $u#s% The $irm $i7e# assets are permaet% Curret
assets are $iace# +ith lo! term $u#s a# as the le*el o$ these assets icreases) the
lo! term $iaci! le*el also icrease% The curret assets $iace# +ith short2term
$u#s a# as their le*el icrease the le*el o$ short term $iaci! also icreases%
TEMPORAR= C;RRENT
A,,ET,
B. CONSERVATIVE APPROACH
Coser*ati*e approach su!!ests that the $irm shoul# #epe# more o lo!2term $u#s
$or its ee#s% ;#er a coser*ati*e pla its permaet curret assets a# a past o$
temporary curret assets +ith lo!2term sources o$ $iace% Thus) #uri! the perio#s
+he the $irm has o temporary curret assets) it preser*es li"ui#ity -y i*esti!
surplus $u#s ito mar.eta-le securities% ,ice coser*ati*e pla relies hea*ily o lo!
term $iaci!%
LONG TERM
FINANCING
SHORT TERM
FINANCING
A
S
S
E
T
S
TIME
PERMANENT
C;RRENT A,,ET,
FIOE5 A,,ET,
F. AGGRESSIVE APPROACH
I cotrast to coser*ati*e approach) ho+e*er the $irm may -e a!!ressi*e i
$iaci! its assets% A $irm is sai# to $ollo+ a a!!ressi*e policy) +he it uses more
short2term $u#s% The $irm $iaces a part o$ its permaet curret assets +ith short
term $iaci!% This ma.es the $irm more ris.y% The #ia!ram o$ a!!ressi*e
$iaci! approach is !i*e -elo+%



A
S
S
E
T
S
TEMPORAR= C;RRENT
A,,ET,
SHORT TERM
FINANCING
LONG TERM
FINANCING
PERMANENT C;RRENT A,,ET,
FIOE5 A,,ET,
TIME
FACTORS DETERMINING WORING CAPITAL RE9UIREMENT
>% NATURE OF BUSINESSF
Wor.i! Capital re"uiremets o$ a $irm are -asically relaye# to ature o$ -usiess% For)
istace pu-lic utilities ha*e a *ery limite# ee# $or Wor.i! Capital a# ha*e to lar!ely
i*et i $i7e# assets% Their Wor.i! Capital re"uiremets are miimal -ecause they ha*e
cash sales oly a# supply ser*ices a# ot pro#ucts% O the other e7treme) tra#i! a#
$iacial $irms ha*e a *ery less i*estmet i$i7e# assets a# a lar!e i*estmet i
Wor.i! Capital% This so they ha*e to maitai a su$$iciet amout o$ cash) i*etories a#
TEMPORAR= C;RRENT A,,ET,
PERMANENT C;RRENT A,,ET,
FIOE5 A,,ET,
A
M
O
U
N
T
TIME
SHORT TERM
FINANCING
LONG TERM
FINANCING
-oo. #e-ts% Wor.i! Capital re"uiremets o$ a mau$acturi! $irm% 8o+e*er these +oul#
*ary $rom i#ustry $alls -et+ee these t+o e7tremes) that is) pu-lic utility a# $irms%
8o+e*er these +oul# *ary $rom i#ustry to i#ustry #epe#i! o their asset structure%
/% SIGE OF BUSINESSF
The si<e o$ -usiess also has a importat i$luece o its Wor.i! Capital re"uiremets%
,i<e measure the scale o$ operatios o-*iously) lar!er the si<e !reater +oul# -e the ee# o$
Wor.i! Capital% O the other ha#) smaller $irms +oul# re"uire lesser amout o$ Wor.i!
Capital%
3% LENGTH OF MANUFACTURING CYCLEF
The mau$acturi! cycle re$ers to the time i*ol*e# i mau$acturi! o$ !oo#s% It starts
+ith the purchase a# use o$ ra+ materials a# complete +ith the pro#uctio o$ the
$iishe# !oo#s% Thus) the lar!er the time spa o$ the mau$acturi! cycle) lar!er +ill -e the
Wor.i! Capital re"uiremets o$ the $irms a# *ice2*ersa% No2mau$acturi! $irms)
ser*ices a# $iacial eterprises #o ot ha*e mau$acturi! cycle%
G% BUSINESS CYCLE:
Most $irms e7periece cyclical $luctuatios i #ema# $or their pro#ucts a# ser*ices%
These $luctuatios a$$ect the Wor.i! Capital re"uiremets) particularly the temporary
Wor.i! Capital re"uiremet% 5uri! the ups+i! i the -usiess acti*ity) the sales +ill
icrease% Correspo#i!ly) the $irmCs i*estmet i i*etories a# -oo. #e-ts +ill also
icrease% A##itioal $u#s may -e re"uire# to i*est i $i7e# assets a# the resultat
icrease i Wor.i! Capital to meet the icrease# #ema#% O the other ha#) #uri!
#o+s+i!) sale +ill $all a# cose"uetly) the le*el o$ i*etories a# -oo.2#e-t +ill also
$all% Thus) -usiess $luctuatio i$lueces the si<e o$ Wor.i! Capital maily throu!h the
e$$ect o i*etories%
0% PRODUCTION POLICYF
I the case o$ seasoal #ema# $or certai pro#ucts) the pro#uctio may either -e co$ie#
oly to the perio#s +he !oo#s are purchase# or pro#uctio may -e carrie# o stea#ily
throu!hout the year% I the $ormer case there may -e serious pro#uctio pro-lems% 5uri!
the slac. seaso it +ill ha*e to maitai its la-or $orce physical $acilities +ithout a#e"uate
pro#uctio a# sale% 5uri! pea. perio# the $irm +ill ha*e to operate at its $ull capacity to
meet the #ema#) +hich -e +ill *ery ico*eiet a# e7pesi*e% O the other ha# the
stea#ily pro#uctio policy +ill result i accumulatio o$ i*etories #uri! the o$$ seasos
perio#s re"uiri! a icreasi! amout o$ Wor.i! Capital a# the $irm +ill -e e7pose# to
!reater i*etory costs a# ris.% Thus) i$ costs a# ris.s o$ maitaii! a costat
pro#uctio sche#ule are hi!h) the $irm may cha!e the policy o$ *aryi! its pro#uctio
sche#ule i accor#ace +ith cha!i! #ema#%
E. CREDIT POLICY OF THE FIRM:
The cre#it policy o$ the $irm has -eari! o the ma!itu#e o$ Wor.i! Capital -y
#etermii! the le*el o$ -oo. #e-ts% Lar!er cre#it sales +ill result i hi!her -oo. #e-ts a#
more Wor.i! Capital% Cre#it terms e7te#e# -y a eterprise is a$$ecti! -y the pre*aili!
tra#e practices as +ell as cha!i! ecoomic co#itios% ;#er the situatio o$ acute
competitio) there +oul# -e a pressure to !rat !eerous cre#it terms% The $irm shoul#
e*aluate the cre#it sta#i! o$ e+ customers a# perio#ic re*ie+ o$ e+ customers%
,imilarly) collectio o$ #e-ts shoul# moitor properly $or timely paymet -y them% This
+ill a*oi# pro-lem o$ ha*i! e7cess Wor.i! Capital%
B% DEMAND CONDITIONSF
Most o$ the $irm e7periece seasoal a# cyclical $luctuatios i the #ema# $or their
pro#ucts a# ser*ices% These *ariatios a$$ect the Wor.i! Capital o$ the -usiess% Whe
there is a up+ar# a$$ect s+i! i the ecoomy) sales +ill icrease correspo#i!ly) the
$irmCs i*estmet i i*etories a# -oo. #e-ts +ill also icrease% ;#er -oom) some
$irms may ma.e a##itioal i*estmet i $i7e# assets% Whe there is a #epressio i
ecoomy) sales +ill $all cose"uetly the le*el o$ i*etories a# -oo. #e-ts +ill also $all%
,easoal *ariatios ot oly a$$ect the Wor.i! Capital) -ut also create pro#uctio
pro-lems% 5uri! perio# o$ pea. #ema#) icreasi! pro#uctio may -e e7pesi*e $or the
$irm% ,imilarly it +ill -e more e7pesi*e #uri! slac. perio#s +he the $irm has to sustai
its Wor.i! Capital $orce a# physical $acilities +ithout a#e"uate pro#uctio a# sales% The
icreasi! le*el o$ i*etories #uri! the slac. seaso +ill re"uire icreasi! $u#s to -e
tie# up i the Wor.i! Capital $or the same moth% There$ore) $iacial arra!emets $or
seasoal Wor.i! Capital re"uiremets must -e ma#e i a#*ace% 8o+e*er the $iacial
plas shoul# -e $le7i-le eou!h to ta.e care o$ some a-rupt seasoal *ariatio%
A% PROFIT MARGINS AND PROFIT APPORTIONF
A hi!h pro$it mar!i +oul# !eerate more iteral $u#s there-y cotri-uti! to the
Wor.i! Capital Pool% The et pro$it is the source o$ Wor.i! Capital to the e7tet it has
-ee eare# i cash% &ut) i practice the et cash i$lo+s $rom operatios caot -e
cosi#ere# as cash a*aila-le $or use at the e# o$ cash cycle% E*e as the compayCs
operatios are i pro!ress) cash is use# $or au!mete# stoc.) -oo. #e-ts a# $i7e# assets% It
is importat to see that cash has -ee use# $or ri!ht$ul purpose%
The a*aila-ility o$ iteral $u#s $or Wor.i! Capital re"uiremets is #etermie# ot
merely -y the pro$it mar!i -ut also o the maer o$ appropriati! pro$its% The
a*aila-ility o$ such $u#s $or the Wor.i! Capital #epe#s o the pro$it appropriatios $or
ta7atio) #i*i#e# a# #epreciatio a# reser*es% 8i!her the amout o$ the #i*i#e#s) less
+ill -e the cotri-utio to+ar#s Wor.i! Capital $u#s) a icrease i ta7 lia-ility +ill lea#
to a icrease i Wor.i! Capital re"uiremets a# *ice *ersa% 8o+e*er ta7 lia-ility ca -e
re#uce# throu!h proper ta7 plai!% 5epreciatio as allo+e# u#er icome ta7 rules helps
to sa*e ta7%
?% PRICE LEVEL CHANGESF
Cha!es i the price le*el also i$luece the re"uiremets o$ Wor.i! Capital% Risi!
prices +oul# ecessitate the ee# o$ more $u#s $or maitaii! the e7isti! le*el o$
acti*ity% Thus more Wor.i! Capital +ill -e re"uire#% 8o+e*er the $irm ca re*ise the
process +ith risi! price le*el% The price rise #oes ot ui$ormly a$$ect all the
commo#ities% Thus the implicatio o$ price le*el cha!es +ill *ary $rom compay to
compay%
>4%OPERATING EFFICIENCYF
The operati! e$$iciecy o$ the $irm relate# to the optimum utili<atio o$ the resources at
the miimum costs% E$$iciecy o$ operatios accelerates the pace o$ the cash cycle a#
impro*es the Wor.i! Capital turo*er% &etter utili<atio o$ resources impro*es
pro$ita-ility a#) thus) helps i releasi! the pressure o Wor.i! Capital%
ADE9UACY OF WORING CAPITAL
The $irm shoul# maitai a sou# Wor.i! Capital positio% It shoul# ha*e a#e"uate
Wor.i! Capital to ru its -usiess operatios% &oth e7cessi*e as +ell as ia#e"uate
Wor.i! Capital Positios are #a!erous $rom $irmCs poit o$ *ie+%

T5$ )/(1$! ". $<%$++'-$ W"!:'(1 C/2'&/3 '+ /+ ."33"4+:
>% It results i uecessary accumulatio o$ i*etories% Thus chace o$ i*etory
misha#li!) +aste) the$t a# losses icreases%
/% It is the i#icatio o$ #e$ecti*e cre#it policy a# slac. collectio perio#% Cose"uetly)
hi!her ici#ece o$ -a# #e-ts results) +hich a#*ersely a$$ects pro$its%
3% E7cessi*e +or.i! capital ma.es maa!emet complacet) +hich #e!eerates ito
material ie$$iciecy%
G% Te#ecies o$ accumulati! i*etories speculati*e pro$its !ro+% This +ay te# to ma.e
#i*i#e# li-eral a# #i$$icult to cope +ith i $uture +he the $irm is ua-le to ma.e
speculati*e pro$its%
I(/)$;*/&$ W"!:'(1 C/2'&/3 '+ /3+" ,/) /() 5/+ ."33"4'(1 )/(1$!+F
>% It sta!ates !ro+th% It -ecomes #i$$icult $or the $irm to u#erta.e pro$ita-le pro9ects $or
No2a*aila-ility o$ Wor.i! Capital $u#s%
/%It -ecomes #i$$icult to implemet operati! pla a# achie*e the $irmCs pro$it tar!et%
Operati! ie$$iciecies creep i +he it -ecomes #i$$icult e*e to meet #ay2to2#ay
Commitmets%
3 % Fi7e# assets are ot e$$icietly utili<e# $or the lac. o$ the Wor.i! Capital $u#s%
Thus) the FirmCs pro$ita-ility +oul# #eteriorate%
G% Lac. o$ Wor.i! Capital $u#s re#ers the $irm ua-le to a*ail attracti*e cre#it
Opportuities%
0% The $irm loses its reputatio +he it is ot i positio to hoor its short2term o-li!atios%

As a result the $irm $aces the ti!ht cre#it terms% A eli!htee# maa!emet shoul#)
there$ore) maitai a ri!ht amout o$ Wor.i! Capital% Oly the proper $uctioi! o$
&usiess operatios +ill -e esure#% ,ou# $iacial a# statistical techi"ues)
,upporte# -y 9u#!met shoul# pre#ict the "uatum o$ +or.i! capital ee#e# at #i$$eret
time perio#s% A $irm et +or.i! capital is ot oly importat as a i#e7 o$ li"ui#ity) -ut
it also use# as the measure o$ the $irmCs ris.% Le#ers cosi#er a positi*e +or.i! capital
as
A measure o$ sa$ety% All other thi!s -ei! e"ual) the more the et +or.i! capital a $irm
has) the less ris.y that it +ill #e$ault i meeti! its curret $iacial o-li!atios% Le#ers
such as commercial -a.s isist that the $irm shoul# maitai a miimum et +or.i!
capital%

ADVANTAGES OF ADE9UATE WORING CAPITAL
S"3-$(%8 ". &5$ ,*+'($++F A#e"uate +or.i! capital helps i maitai sol*ecy o$ the
&usiess -y pro*i#i! uiterrupte# $lo+ o$ pro#uctio%
G"")4'33: ,u$$iciet +or.i! capital ea-les a -usiess cocer to ma.e prompt
Paymet a# helps i creati! a# maitaii! !oo#+ill%
E/+8 3"/(F A cocer ha*i! a#e"uate +or.i! capital ca arra!e loa $rom -a.s a#
other sources o easy a# $a*ora-le terms%
C/+5 )'+%"*(&F A#e"uate +or.i! capital also ea-les a cocer a*ail cash #iscouts
O the purchase a# hece i re#uces cost%
R$1*3/! +*2238 ". !/4 0/&$!'/3F ,u$$iciet +or.i! capital esures re!ular supply
o$ ra+ material a# cotiuous pro#uctio%
R$1*3/! 2/80$(& ". +/3/!'$+, W/1$+ /() "&5$! )/8@&"@)/8 %"00'&0$(&F
A compay +hich has a#e"uate +or.i! capital ca ma.e re!ular paymets o$
,alaries) +a!es a# other #ay to #ay commitmets) +hich raises the morale o$ its
Employees) icreases their e$$iciecy) re#uces sta!es a# costs%
A,'3'&8 &" ./%$ %!'+'+F A#e"uate +or.i! capital ea-les a compay to $ace -usiess
Crises i emer!ecies such as #epressio -ecause #uri! such Perio#) !eerally there is
much pressure o +or.i! capital%
,o .eepi! i *ie+s all these poit +e ca say that a -usiess shoul# ha*e a#e"uate
+or.i! capital%


INVENTORY
MANAGEMENT
INVENTORY THEORY
WHAT IS INVENTORY
'a( LA i*etory is a i#le resource o$ ay .i# pro*i#e# that such resource
has ecoomic *alue
'-( LMaterials are procure# '-uy or mau$acture( to meet iteral #ema#Kcustomer
#ema#s% Whe such materials are recei*e# a# accoute# $or they are
i*etories o$ that esta-lishmet

WHY TO HAVE INVENTORIES
The importace o$ i*etory lies i the ur!ecy o$ re"uiremets% I$ me a#
Machies i a $actory coul# +ait a# so coul# customers) materials +oul# ot lies i
Wait For them a# o i*etories +oul# -e carrie#% ,ice such co#itio #oes ot e7ist) it
has -ecome ecessary to .eep material stoc. o ha#%
T5$!$ /!$ ."*! !$/+"(+ ."! %/!!8'(1 '(-$(&"!'$+:
T" 1/'( $%"("0'$+ '( 2*!%5/+'(1 ,8 ,*8'(1 ;*/(&'&'$+ ,$8"()
%*!!$(& !$;*'!$0$(&+.
T" 0/'(&/'( +$!-'%$ +&"%:+ 45'3$ !$23/%$0$(& +&"%: /!$ '(
&!/(+'&.
T" 3$-$3 "*& 2!")*%&'"( %8%3$+ ,8 2!")*%'(1 &" '(-$(&"!8.
T" %/!!8 / !$+$!-$ '( "!)$! &" 2!$-$(& +&"%: "*&+ "! 3"+& +/3$+.
TO GAIN ECONOMIES:
There is a cost i placemet o$ e*ery purchases or#er say Rs%>0%44 'appro7( $or
ay material a# it may) there$ore -e more e$$iciet to or#er -eyo# the imme#iate ee#s o$
the compay% For e7ample) i$ oe or#er is place# $or a -ul. "uatity o$ material istea# o$
more or#ers) the purchaser sa*es or#eri! cost% The purchases may also !et su-statial
#iscout $rom the seller -y or#eri! -ul. "uatity% Further) the purchaser may sa*es i
shippi! a# trasportatio costs i trasporti! the -ul. "uatity% Purchasi! i -ul.
"uatity $rom the $orei! suppliers is ormally resorte# to -ecause o$ #i$$iculties i
o-taii! import licese a# other $ormalities%

TO MAINTAIN SERVICE STOCSF
To supply a!aist a or#er may ot reach the purchaser i time #ue to time la! -et+ee
shipmet a# #eli*ery% A mau$acturer caot a$$or# to e7haust his materials i ha# a#
the a+ait the e+ arri*al% I or#er to cushi! the trasit #elay) he maitais the ser*ice
stoc. so that his pro#uctio sche#ule ee# ot come to a !ri#i! halt%
TO LEVEL OUT PRODUCTION CYCLEF
There are seasoal $luctuatios i #ema#s $or certai mau$acture# !oo#s% For
e7ample) air co#itioers ha*e !ot more #ema# i summer seaso% &ut mau$actures must
maitai their pro#uctio sche#ule throu!h out% 8e caot s+itch o$$ this pro#uctio
#uri! lea seaso a# start a $resh #uri! par. seaso% 8is i*etory o$ air co#itioers)
there$ore icrease #uri! lea seaso.
TO PREVENT STOCOUTS OR LOST SALES:
,toc. outs meas to e7haust the stoc. o$ ay item to o le*el) coul# mea losses o$
thousa#s o$ rupees per #ay a# i e7treme cases i$ coul# cause shut #o+ o$ the etire
operatio% I selli! $iishe# !oo#s) the $ailure to ha*e the pro#uct a*aila-le $or the
customers may result i the loss o$ the sale) the loss o$ the customer%
T5$ ",+$!-/&'"( ". J"+$25 B*%5/( /() E!($+& "$('1+2$!1$ '( &5$'! ,"": 6S%'$(&'.'%
I(-$(&"!8 M/(/1$0$(&7 '+ ;*"&$) ,$3"4:
LI attempti! to e7plai the ecessity $or i*etory a# the role it plays i -usiess
eterprises) ay cursory e7amiatio lea#s to a si!le as+erF pro$its E a# this is simply
co$irme# -y more throu!h aalysis% A -usiessma hol#s i*etory -ecause the
alterati*es are more costly or less pro$ita-le% I*etory is use# +here*er it assures hi!her
pro$ita-ility tha such alterati*es as a##itioal e"uipmet to meet pea. #ema#s) hi!her
la-or costs) the costs associate# +ith shorta!es a# ia-ility to meet customer #ema#s)
lo+er pro#ucti*ity #ue to #elays cause# -y lac. o$ ra+ or i process materials%
I military a# !o*ermet operatios) it is #i$$icult or impossi-le to use the measure o$
pro$ita-ility% Istea#) oe is cocere# +ith ris.) e$$ecti*eess) costs) a# umerous other
$actors +hich must -e -alace# to pro#uce a policy sice the #omiat moti*e is ot pro$it)
the mai o-9ecti*e must -e clearly state# $or each pro-lem%
Althou!h most o$ the #iscussios a# e7amples that $ollo+ are cocere# +ith -usiess
or!ai<atio) they also apply to !o*ermet a# military operatios i$ Lpro$it is !i*e a#
their iterpretatio% The L!oal o$ !o*ermet a# military operatios is o$te "uite
#i$$eret $rom the pro$its) +hich are the !oal o$ -usiess eterprises% Pro*i#e# ho+e*er)
that +e replace pro$its -y some measura-le o-9ecti*e +hich these or!ai<atios attempt to
achie*e or some pare meter +hich they ite# to optimi<e) may o$ the ar!umets +e ha*e
presete# coceri! i*etory +ill still apply%
The -usiessma +ill hol# stoc.s o$ !oo#s $or oe or more o$ these reasos
>% Trasactio moti*eH
/% Precautioary moti*eH
3% ,peculati*e moti*e%
I its simplest $orm) the trasactio moti*e assumes that a !i*e *olume o$ sales re"uires a
miimum amout o$ cash -alaces or i*etories% The $orm caot maitai a !i*e
*olume o$ sales +ith smaller i*etories or cash -alaces a# #ri*es o -ee$its $rom
ha*i! !reater oce%
IMPORTANCE OF INVENTORY
I*etory costitutes the lar!e stoc. compoet o$ curret assets i ay or!ai<atios%
Poor maa!emet o$ i*etories there$ore may result i -usiess $ailures% A pro#uctio
$uctio #epe#s to a lar!e e7tet upo i*etory maa!emet%
I*etory is a usa-le resource) +hich is physical a# ta!i-le such as materials%
I*etory coul# -e ra+ material) +or. i pro!ress '+ip() $iishe# !oo# or the spare parts
a# other i#irect materials%
E$$ecti*eess o$ the material pro#uctio $uctio #epe#s to a lar!e e7tet upo
i*etory maa!emet%
FUNCTIONS OF INVENTORY MANAGEMENT
>% Re!ulari<i! #ema# a# supply%
/% Ecoomi<i! purchases or pro#uctio -y lot -uyi! or -atch pro#uctio%
3% Allo+i! or!ai<atios to cope +ith perisha-le materials%
H
METHODS OF CONTROLLING INVENTORY
ABC ANALYSIS
A&C aalysis is a -asic aalytical maa!emet tool) +hich ea-les top maa!emet to place the
e$$orts +here the results +ill -e !reatest% This techi"ue popularly .o+ as LAl+ays &etter
Cotrol has ui*ersal applicatios i may areas o$ huma e#ea*or% The techi"ue tries to
aaly<e the #istri-utio o$ characteristic -y moey *alue o$ importace i or#er to #etermie
priority% Remem-eri! this simple /4KA4 la+) popularly .o+ as ParetoCs La+ o$ LCA;,E AN5
EFFECT) ca success$ully sol*e "uite a um-er o$ maa!emet pro-lems%
The la+ states) Loly /41 o$ the acti*ity causes A41 o$ e$$ect%
E</023$:
>% /41 o$ the machies are resposi-le $or A41 o$ the total #o+ time%
/% /41 o$ the e# pro#uct !eerally accout $or A41 o$ total re*eue%
3% /41 o$ the cler.s ma.e A41 o$ the clerical errors%
G% /41 o$ the employees create A41 o$ the pro-lems%
0% /41 o$ the customers are resposi-le $or A41 o$ the -a# #e-ts%
@% /41 o$ the total items i the stoc. accout $or A41 o$ the total e7pe#iture o the materials%
This /4KA4 ratio is *ery use$ul cocept i -usiess +here it ca -e use# to sol*e some pro#uctio
cotrol) i*etory cotrol a# similar other maa!emet pro-lems% The e7act perceta!e may
$luctuate o either si#e -ut the priciple stays% ,o) the !ol#e rule is to .eep o this /41 a# you
+ill co*er A41 o$ the e$$ect%
This cocept +he applie# to stoc. items is calle# LA&C Aalysis%
A223'%/&'"( ". ABC A(/38+'+
This approach helps the material maa!er to e7ercise selecti*e cotrol a# $ocus his attetio oly
o a $e+ items +he he co$rote# +ith lacs o$ stores items% Ay sou# stoc. cotrol system
shoul# esure that e*ery item !ets ri!ht amout o$ attetio at the ri!ht time% A&C aalysis ma.es
it possi-le +ith cosi#era-ly less e$$ort -y its selecti*e approach%
D$1!$$ ". C"(&!"3
IAC class items $orm a su-statial part o$ total cosumptio i rupees a# so it must #ra+ out
attetio% ;p2to2#ate a# accurate recor#s shoul# -e maitaie# $or these items% The i*etory
shoul# -e .ept at a miimum -y putti! -la.et or#ers co*eri! aual re"uiremet a# the
arra!i! $re"uet #eli*eries $rom *e#ors%
I&C class items shoul# ha*e ormal or mo#erate cotrol ma#e possi-le -y !oo# recor#s a# re!ular
attetio%
ICC class items ha*e re"uire# little or o cotrol%
For aalysis purpose at NAP, the MAI, system support is ta.e $or e7tracti! reports% Throu!h
a-o*e system the *alue2+ise report o$ closi! stoc. ca -e ta.e% The closi! stoc. report is
classi$ie# three classes represeti! items a-o*e >4) 44)444 item -et+ee 04)444 to >4) 44)444 a#
less tha 04)444% The items classi$ie# i the Group are aaly<e# -y the Maa!er 'CMM( a#
cocere# e!ieer to #etermie +hether the items are o$ re!ular ature a# shoul# -e classi$ie#
either as L& or LC% There are 3>444 thousa# item are a*aila-le i the stoc. a# *alue is G4
crores% The curret status o$ stoc. remais a*aila-le i MAI, stream%
S!. N". T82$ ". I(-$(&"!8 N". O. I&$0+ V/3*$
('( %!"!$+)
A. 6A7 BB,CCC

AI
B. 6B7 AC,CCC AB
F. 6C7 AJ,CCC AA
A& NAPS ."33"4'(1 0$&5") ". '(-$(&"!8 %"(&!"3 /!$ ."33"4$)F
M/<'0*0 L$-$3
It is calculate# -y cosi#eri! these elemetsF
>% Normal cosumptio or > year cosumptio
/% ,che#ule# acti*ities
3% ,u##ely K ue7pecte# re"uiremet o$ material
G% Re*ie+s
M'('0*0 L$-$3
>% &asis $or setti! a miimum le*el o$ material
/% Lea# time
/
3% Lea# time N 5i$$erece -et+ee placi! o$ or#er a# receipt o$ material%

G% Reor#er Le*el time cosumptio
0% Re2or#er le*el #epe#s o the Miimum le*el a# lea#2time%
R$@O!)$! L$-$3
&asis $or setti! reor#er le*elF
L$/)@&'0$
Lea#2time is o$ / typesF
A)0'('+&!/&'-$ 3$/)@&'0$
S*223'$! 3$/)@&'0$
,upplier may -e local) East) West) North) ,outh re!io o$ I#ia
,upplier may -e $rom outsi#e o$ I#ia
ORDERING PROCEDURE
At NAP, LA classes items iclu#es the spares part use# i the Reactor) Tur-ie or
!eerator) +hich is maily relate# to operatio% These items are less i um-ers -ut ha*e
*ery hi!h *alue% IAC class items re"uire care$ul a# accurate #etermiatio o$ or#er "uatities
a# or#er poits -ase# o e7act re"uiremets% They shoul# -e su-9ecte# to $re"uet re*ie+s
to re#uce possi-ility o$ o*erstoc.i!% The time2to2time aalysis is #oe i$ ay material is
surplus it ca -e set to other uits +here these are re"uire#%
A reasoa-ly !oo# aalysis $or or#er "uatities a# other +or#s poits is re"uire# $or I&C
items -ut the stoc. may -e re*ie+e# less $re"uetly or oly +he ma9or cha!es occur%
No such computatio is re"uire# $or C items%
These items shoul# -e -rou!ht i -ul.) may -e $or $ull year%
>% DIP treatmet may -e accor#e# to IAC items i all acti*ities such as processi! o$
purchase or#ers) recei*i!) ispectio) mo*emet o the shop $loor) etc +ith a o-9ect to
re#uce lea#2time a# a*era!e i*etory%
/% No such treatmet is ecessary $or I&C items% Normal plats proce#ures shoul# ta.e care
o$ i+ar# a# out+ar# $lo+ o$ these items%
3% No priority is assi!e# to ICC items%
SAFETY STOC
IAC class item stoc. shoul# -e .ept less%
I&C cotrary to IAC class items%
I CC class items a mo#erate policy is re"uire#%
The $ollo+i! ca -e sa$ety stoc. $or 3 cate!ories o$ itemsF
6A7 %3/++ '&$0+ K 0"(&5 +&"%:
6B7 %3/++ '&$0+ A 0"(&5 +&"%:
6C7 %3/++ '&$0+ B 0"(&5 +&"%:
LAC items merit a ti!htly cotrolle# i*etory system +ith costat attetio -y the Purchase
Maa!er a# stores maa!emet%
I&C items re"uire a $ormali<e# i*etory system +ith perio#ic attetio -y purchase a#
,tores maa!emet%
ICC items use a simpler system #esi!e# to cause the least trou-le $or the purchase a# stores
5epartmet%
VED ANALYSIS
The possi-le cose"ueces o$ material stoc.2outs +he #ema# arises $rom the -asis o$ DE5
aalysis% The cost o$ shorta!e #epe#s upo the seriousess o$ the situatio% I&$0+ /!$ 1!"*2$) /+
V (V'&/3), E (E++$(&'/3) /() D (D$+'!/,3$).
I&$0+ R$0/!:+ S&!/&$18
D
E
5
Most critical hi!h opportuity cost o$
shorta!e% Must -e a*aila-le i stoc.
+hee*er #ema#e#%
Puite critical% ,u-statial opportuity cost
o$ shorta!e shoul# -e a*aila-le i stoc. -y
a# lar!e%
No serious cose"ueces o$ o2a*aila-ility
o$ stoc.%
Perceta!e o$ ris. shoul# -e "uite small%
8i!h le*el o$ ser*ice is calle# $or%
Ca ta.e a relati*ely hi!her ris. o$
shorta!e
Ris.s that ca -e ta.e are e*e hi!her%
May -e) C Class items are *ital) a# A class items are 5esira-le% Cross2classi$icatio is there$ore
ee#e# !i*i! us #istict !roupsF $irst A2D) A2E) A25) the &2D) &2E) &25) a# last C2D) C2E) a#
C25% For these !roups) +e ca #etermie the ser*ice le*el a# pla i*etories accor#i!ly%
ECONOMIC ORDER 9UANTITY ANALYSIS
I*etory cotrol $u#ametally #eals +ith the t+o -asic issuesF
>% Whe to or#er
/% 8o+ much to or#er
The pro-lem o$ I+he to or#erC is #eci#e# -y prescri-i! the reor#er le*el o$ each o$ the
i*etory item% The other ici#etal issue is Iho+ much to or#erC i%e%) that shoul# -e the si<e o$
each or#er% The issue o$ Iho+ much to or#erC is #eci#e# o the -asis o$ LEcoomic Or#er
Puatity 'EOP(%
EOP prescri-es the si<e o$ the or#er a# at +hich the or#eri! cost a# the i*etory carryi!
cost +ill -e miimi<e%
The or#eri! cost cosist o$ cost o$ paper $or placi! a or#er li.e use o$ paper) typi!) posti!)
$ili!) etc% the cost o$ sta$$ i*ol*e i this +or.) the costs ici#etal to or#er li.e $ollo+2up)
recei*i!) ispectio etc% Or#eri! cost is more or less $i7e# a# ascertaie# o per or#er -asis% I$
the aual re"uiremet is met -y placi! more or#er o$ small "uatity istea# o$ si!le lar!e
or#er) the um-er o$ or#er place# #uri! the year +ill icrease resulti! ito hi!her total or#eri!
cost%
The other si#e o$ the scee is the i*etory carryi! costs% Whe the i*etories are store#)
It i*ol*e $ollo+i! costsF
>% Iterest cost #ue to loc.i! up o$ $u#s%
/% Cost o$ stora!e space
3% Cost o$ isurace a# ta7es%
As all these costs are #irectly relate# +ith the certai perceta!e o$ materials store#H e%!% say
Carryi! cost is >01 o$ the *alue o$ the material store#% The or#eri! cost a# the carryi!
Cost is mutually e7clusi*e% I$ the aual re"uiremet is met -y placi! a si!le or#er) the
Or#eri! cost +ill -e less #ue to si!le or#er% &ut as the si!le or#er +ill -e $or a hu!e Puatity
'i%e% $or the etire aual re"uiremets() the a*era!e stoc.hol#i! +oul# -e *ery hi!h Ito !reater
carryi! cost% The relatioship o$ or#eri! cost a# carryi! cost as u#erF

N*0,$! /() +'?$ ". "!)$! O!)$!'(1 %"+& C/!!8'(1 %"+&
>% Fe+ or#ers) each or#er o$ lar!e si<e Lo+ 8i!h
/% More or#ers each or#er o$ small si<e 8i!h Lo+
CA,8
MANAGEMENT

INTRODUCTION
Cash is the importat curret asset $or the operatios o$ the -usiess% Cash is the -asic iput
ee#e# to .eep the -usiess rui! o a cotiuous -asisH it is also the ultimate output
e7pecte# to -e reali<e# -y selli! the ser*ice or pro#uct mau$acture# -y the $irm% The $irm
shoul# .eep su$$iciet cash) either more or less% Cash shorta!e +ill #isrupt the $irmCs
mau$acturi! operatios +hile e7cessi*e cash +ill simply remai i#le) +ithout cotri-uti!
aythi! to+ar#s the $irmCs pro$ita-ility% Thus) a ma9or $uctio o$ the $iacial maa!er is
to maitai a sou# cash positio%
Cash is the moey) +hich a $irm ca #is-urse imme#iately +ithout ay restrictio% The term
cash iclu#es cois% Currecy a# che"ues hel# -y the $irm) a# -alaces i its -a.
accouts% ,ometimes ear cash items) such as mar.eta-le securities or -a. times #eposits
are also iclu#e# i cash% The -asic characteristic o$ ear cash assets is that they ca rea#ily
-e co*erte# ito cash% Geerally) +he a $irm has e7cess cash) it i*ests it i mar.eta-le
securities% This .i# o$ i*estmet cotri-utes come pro$it to the $irm%
FACTS OF CASH MANAGEMENT
The -ul. po+er -ee$iciaries shall pay all -ills to NPCIL $or eer!y supplie# to them -y
the po+er statios as +ell as the -ills $or the iterest char!es) i$ ay) le*ie# throu!h letter o$
cre#it 'LC( as per the clauses o presetatio o$ such -ills -y the po+er statios) i
accor#ace +ith *arious pro*isios o$ this a!reemet%
The proce#ure $or assessmet o$ supply o$ eer!y shall -e lai# #o+ i the memora#um o$
istructios%
There is o i$lo+ o$ cash $rom -ul. po+er -ee$iciaries iclu#i! 5TLto NAP,) it shall -e
#irectly reim-urse to NPCIL%
Cash maa!emet is cocere# +ith the maa!i! o$H '>( cash $lo+s ito a# out o$ the $irm)
'/( cash $lo+ +ithi the $irm) a# '3( cash -alaces hel# -y the $irm at a poit o$ time -y
$iaci! #e$icit or i*esti! surplus cash% It ca -e represete# -y a cash maa!emet cycle
as sho+ $ollo+i!% ,ales !eerate# cash) +hich has to -e #is-urse# out% The surplus cash
has to -e i*este# +hile #e$icit has to -e -orro+e#% Cash maa!emet see.s to accomplish
this cycle at a miimum cost% At the same time) it also see. o achie*e li"ui#ity a# cotrol%
Cash maa!emet assumes more importace tha other curret assets -ecause cash is the
most si!i$icat a# the least pro#ucti*e asset the a $irm hol#s% It is si!i$icat -ecause it is
use# to pay the $irmCs o-li!atios% 8o+e*er) cash is upro#ucti*e% ;li.e $i7e# assets or
i*etories) it #oes ot pro#uce $oo#s $or sale% There$ore) the aim o$ cash maa!emet is to
maitai a#e"uate cotrol o*er cash positio to .eep the $irm su$$icietly li"ui# a# to use
e7cess cash i some pro$ita-le +ay%
MANAGEMENT CYCLE
Cash maa!emet is also importat -ecause it is #i$$icult to pre#ict cash $lo+s accurately)
particularly the i$lo+s) a# there is o per$ect coici#ece -et+ee the i$lo+s a#
out$lo+s o$ cash% 5uri! some perio#s cash out$lo+s +ill e7cess cash i$lo+s) -ecause
paymets $or ta7es) #i*i#e#s) or seasoal i*etory -uil# up% At other times) cash i$lo+
+ill -e more tha cash paymets -ecause there may -e lar!e cash sales a# #e-tors may -e
reali<e# i lar!e sums promptly% Further) cash maa!emet is
si!i$icat -ecause cash costitutes the smallest portio o$ the total curret assets%) yet
maa!emetCs cosi#era-le time is #e*ote# i maa!i! it% I recet past) a um-er o$
io*atios ha*e -ee #oe i cash maa!emet techi"ues% A o-*ious aim o$ the $irm
these #ays is to maa!e its cash a$$airs i such a +ay as to .eep cash -alace at a miimum
le*el a# to i*est the surplus cash i pro$ita-le i*estmet opportuities%
I or#er to resol*e the ucertaity a-out cash $lo+s pre#ictio a# lac. o$ sychroi<atio
-et+ee cash receipts a# paymets) the $irm shoul# #e*elop appropriate strate!ies $or cash
maa!emet%
T5$ .'!0 +5"*3) $-"3-$ +&!/&$1'$+ !$1/!)'(1 &5$ ."33"4'(1 ."*! ./%$&+ ".
%/+5 0/(/1$0$(&F
C/+5 23/(('(1: C/+5 '(.3"4+ /() "*&.3"4+ +5"*3) ,$ 23/(($) &"
2!"#$%& %/+5 +*!23*+ "! )$.'%'& ."! $/%5 2$!'") ". &5$ 23/(('(1 2$!'"). C/+5
,*)1$& +5"*3) ,$ 2!$2/!$) ."! &5'+ 2*!2"+$.

M/(/1'(1 &5$ %/+5 .3"4+: T5$ .3"4 ". %/+5 +5"*3) ,$ 2!"2$!38
0/(/1$). T5$ %/+5 '(.3"4+ +5"*3) ,$ /%%$3$!/&$) 45'3$, /+ ./! /+ 2"++',3$, &5$
%/+5 "*&.3"4 +5"*3) ,$ )$%$3$!/&$).
O2&'0*0 %/+5 3$-$3: T5$ .'!0 +5"*3) )$%')$ /,"*& &5$
/22!"2!'/&$ 3$-$3 ". %/+5 ,/3/(%$+. T5$ %"+& ". $<%$++ %/+5 /() )/(1$! ". %/+5
)$.'%'$(%8 +5"*3) ,$ 0/&%5$) &" )$&$!0$(& &5$ "2&'0*0 3$-$3 ". %/+5 ,/3/(%$+.

I(-$+&'(1 +*!23*+ %/+5: T5$ +*!23*+ %/+5 ,/3/(%$+ +5"*3) ,$

2!"2$!38 '(-$+&$) &" $/!( 5$ .'!0 +5"*3) )$%')$ /,"*& &5$ )'-'+'"( ". +*%5 %/+5
,/3/(%$ ,$&4$$( /3&$!(/&'-$ +5"*&@&$!0 '(-$+&0$(& "22"!&*('&'$+ +*%5 /+ ,/(:
)$2"+'&+, 0/!:$&/,3$ +$%*!'&'$+, "! '(&$!@%"!2"!/&$ 3$()'(1

MOTIVES FOR HOLDING CASH
The moti*es are the aspects o$ hea#"uarters le*elH this is applica-le o the NPCIL ot o
the NAP, -ecause NAP, #oes ot hol# cash%
As the paymet is ma#e #irectly to NPCIL -y -ul. po+er -ee$iciaries o sale o$
electricity -y all po+er statios so there is o treasury o$ $u#s as such $or meeti! the
e7pe#iture% This is #oe o +ee.ly re"uiremets prepare# -y purchase #epartmet) +or.s
#epartmet) a# PPP, #epartmet% The NAP, se#s the cash re"uiremet o +ee.ly -asis
to NPCIL the cash is remitte# to these po+er statios to meet out paymets%
T5$ .'!0M+ ($$) &" 5"3) %/+5 0/8 ,$ /&&!',*&$) &" &5$ ."33"4'(1 ."*! 0"&'-$+:
T5$ &!/(+/%&'"(+ 0"&'-$
T5$ 2!$%/*&'"(/!8 0"&'-$
T5$ +2$%*3/&'-$ 0"&'-$
T5$ %"02$(+/&'"( 0"&'-$
TRANSACTION MOTIVE
The trasactios moti*e re"uires a $irm to hol# cash to co#uct its -usiess i the or#iary
course% The $irm ee#s cash primarily to ma.e paymets $or purchases) +a!es a# salaries)
other operati! e7peses) ta7es) #i*i#e#s etc% The ee# to hol# cash +oul# ot arise i$
there +ere per$ect sychroi<atio -et+ee cash receipts a# cash paymets) i%e% eou!h
cash is recei*e# +he the paymet has to -e ma#e% &ut cash receipts a# paymets are ot
per$ectly sychroi<e#% For those perio#s) +he cash paymets e7cee# cash receipts) the
$irm shoul# maitai some aQcash -alace to -e a-le to ma.e re"uire# paymets% For
trasactios purpose) a $irm may i*est its cash i mar.eta-le securities% ;sually) the $irm
+ill purchase securities +hose maturity correspo#s +ith some aticipate# paymets) such
as #i*i#e#s) or ta7 i the $uture% Notice that the trasactios moti*e maily re$ers to
hol#i! cash to meet aticipate# paymets +hose timi! is ot per$ectly matche# +ith cash
receipts%
PRECAUTIONARY MOTIVE
The precautioary moti*e is the ee# to hol# cash to meet coti!ecies i the $uture% It
pro*i#es a cushio put -u$$er to +ithsta# some ue7pecte# emer!ecy% The precautioary
amout o$ cash #epe#s upo the pre#icta-ility o$ cash $lo+s% I$ cash $lo+s ca -e
pre#icte# +ith accuracy) less cash +ill -e maitaie# $or a emer!ecy% The amout o$
precautioary cash is also i$luece# -y the $irmCs a-ility to -orro+ at shout otice +he
the ee# arises% ,tro!er the a-ility o$ the $irm to -orro+ at short otice) less the ee# $or
precautioary -alace% The precautioary -alace may -e .ept i cash a# mar.eta-le
securities% Mar.eta-le securities play a importat role here% The amout o$ cash set asi#e
$or precautioary reasos is ot e7pecte# to ear aythi!% There$ore) the $irm shoul#
attempt to ear some pro$it o it% ,uch $u#s shoul# -e i*este# i hi!h2li"ui# a# lo+2ris.
mar.eta-le securities% Precautioary -alace shoul#) thus) -e hel# more i mar.eta-le
securities a# relati*ely less i cash%
SPECULATIVE MOTIVE
The speculati*e moti*e relates to the hol#i! o$ cash $or i*esti! i pro$it2ma.i!
opportuities as a# +he they arise% The opportuity to ma.e pro$it may arise +he it is
e7pecte# that iterest rate# +ill rise a# security prices +ill $all% ,ecurities ca -e
purchase# +he the iterest rate is e7pecte# to $all% The $irm +ill -ee$it -y the su-se"uet
$all i iterest rates a# icrease i security prices% The $irm may also speculate o
materialsC prices% I$ it e7pecte# that materialCs price +ill $all) the $irm ca postpoe
materialsC purchasi! a# ma.e purchases i $uture +he price actually $alls% ,ome $irms
may hol# cash $or speculatios% Thus) the primary moti*es to hol# cash a# mar.eta-le
securities are the trasactios a# the precautioary moti*es%

COMPENSATION MOTIVE
=et aother moti*e to hol# cash -alaces is to compesate -a.s $or pro*i#i! certai
ser*ices a# loas% &a.s pro*i#e a *ariety o$ ser*ices to -usiess $irms) such as
clearace o$ che"ues) supply o$ cre#it i$ormatio) tras$er o$ $u#s) etc% +hile $or some
o$ the ser*ices -a.s char!e a commissio or $ree) $or others they see. i#irect
compesatio% ;sually cliets are re"uire# to maitai a miimum -alace o$ cash at the
-a.% ,ice the $irms $or trasactio purpose caot utili<e this -alace) the -a.s
themsel*es ca use the amout to ear a retur% To -e compesate# $or their ser*ices
i#irectly i this $orm) they re"uire the cliet to al+ays .eep a -a. -alace su$$iciet to
ear a retur e"ual to the cost o$ ser*ices% ,uch -alaces are compesati! -alaces%
Compesati! -alaces are also re"uire# -y some loa a!reemets -et+ee a -a. a#
its customers% 5uri! perio#s +he the supply o$ cre#it is restricte# a# iterest rates are
risi!) -a.s re"uire a -orro+er to maitai a miimum -alace i his accout as a
co#itio prece#et to the !rat o$ loa% This is presuma-ly to Lcompesate the -a. $or
a rise i the iterest rate #uri! the perio# +he the loa +ill -e pe#i!%


T5$ %"02$(+/&'(1 %/+5 ,/3/(%$+ %/( $'&5$! ". &4" ."!0+:
'>( A a-solute miimum% ,ay) Rs% 0 la.hs) -elo+ +hich the actual -a. -alace +ill
e*er) $all%
'/( A miimum a*era!e -alace) say) Rs% 0 la.hs o*er the moth%
The $irst alterati*e is more restricti*e as the a*era!e amout o$ cash hel# #uri! the
moth must -e a-o*e Rs% 0 la.hs -y the amout o$ trasactio -alace% From the $irmCs
*ie+poit this is o-*iously #ea# moey%
;#er the seco# alterati*e) the -alace coul# $all to <ero oe #ay pro*i#e# it +as Rs%
>4 la.hs some other #ay +ith a*era!e +or.i! to Rs% 0 la.hs%
O$ the $our primary moti*es o$ hol#i! cash -alaces) the t+o most importat are the
trasactios moti*e a# the compesatio moti*e% &usiess $irms ormally #o ot
speculate a# ee# ot ha*e speculati*e -alaces% The re"uiremet o$ precautioary
-alaces ca -e met out o$ short2term -orro+i!s%
OBJECTIVES OF CASH MANAGEMENT
T5$ ,/+'% ",#$%&'-$+ ". %/+5 0/(/1$0$(& /!$ &4" ."3):
> To meet the cash #is-ursemet ee#s 'paymet sche#ule(
/% To miimi<e $u#s committe# to cash -alaces%
These are) co$licti! a# mutually cotra#ictory a# the tas. o$ cash
maa!emet is to recocile them%
MEETING THE PAYMENT SCHEDULE
I the ormal curse o$ -usiess $irms ha*e to ma.e paymets o$ cash a# a cotiuous
a# re!ular -asis to suppliers o$ !oo#s) employees a# so o% At the same time) there is a
costat i$lo+ o$ cash throu!h collectios $rom #e-tors% Cash is there$ore aptly
#escri-e# as the Loil to lu-ricate the e*er2turi! +heels o$ -usiessF +ithout it the
process !ri#s to a stop% A -asic o-9ecti*e o$ maa!emet is to meet the paymets
sche#ule) i%e% to ha*e su$$iciet cash to meet the cash #is-ursemet ee#s o$ a $irm% The
importace o$ su$$iciet cash to meet the paymet sche#ule ca har#ly -e o*er2
emphasi<e#% The a#*ata!es o$ a#e"uate cash areF '>( it pre*ets isol*ecy or
-a.ruptcy arisi! out o$ the ia-ility o$ a $irm to meet its o-li!atiosH '/( the
relatioships +ith the -a. is ot straie#H '3( it helps i $osteri! !oo# relatios +ith
tra#e cre#itors a# suppliers o$ ra+ materials) as prompt paymet may help their o+
cash maa!emetH 'G( a tra#e #iscout ca -e a*aile# o$ i$ paymet is ma#e +ithi the
#ue #ate% For e7ample) let us suppose that a $irm is etitle# to a /1 #iscout $or a
paymet ma#e +ithi te #ays +he the etire paymet is to ma.e +ithi 34 #ays% ,ice
the et amout is #ue i 34 #ays) $ailure to ta.e the #iscout meas payi! a e7tra /1
$or e*ery /4 #ays perio# o*er a year) there +oul# -e >A such perio#s '3@4 #aysK/4 #ays(%
MINIMISING FUNDS COMMITTED TO CASH BALANCES
The seco# O-9ecti*e o$ cash maa!emet is to miimi<e cash -alaces% I miimi<i!
the cash -alaces t+o co$licti! aspects ha*e to -e recocile#% A hi!h le*el o$ cash
-alaces +ill) as sho+ a-o*e) esure recocile# a# esure prompt paymet to!ether
+ith all the a#*ata!es% &ut it also implies that lar!e $u#s +ill remai i#le) as cash is a
o2eari! asset a# the $irm has to $ore!o pro$its% A le*el o$ cash -alaces) o the other
ha#) may mea $ailure to meet the paymet sche#ule% The aim o$ cash maa!emet
shoul# -e to ha*e a optimal amout o$ cash -alaces%
Keepi! i *ie+ these co$licti! aspects o$ cash maa!emet) +e propose to #iscuss the
plai!Q #etermiatio o$ the ee# $or cash -alaces% There are t+o aspects i*ol*e# i
cash plai!%
First) a e7amiatio o$ those $actors) +hich ha*e a -eari! o) the $irmCs re"uire# cash
-alaces%
,eco#) a re*ie+ o$ the approaches to reach optimum cash -alace%
CASH MANAGEMENT
FACTORS DETERMINING CASH NEEDS
T5$ ./%&"!+ &5/& )$&$!0'($ &5$ !$;*'!$) %/+5 ,/3/(%$+ /!$F
SYNCHRONIGATION OF CASH FLOWS
The ee# $or maitaii! cash -alaces arises $rom the o2sychroi<atio o$ the i$lo+s
a# out$lo+s o$ cashF i$ the receipts a# paymets o$ cash per$ectly% Coici#e or -alace
each other) there +oul# -e o ee# $or cash -alaces% The $irst cosi#eratio i #etermii!
the cash ee#s) there$ore) the e7tet o$ o2sychroi<atio o$ cash receipts a#
#is-ursemets% For this purpose) the i$lo+s a# out$lo+s ha*e to -e $orecast o*er a perio#
o$ time) #epe#i! upo the plai! hori<o) +hich is typically a oe2year perio# +ith each
o$ the >/ moths -ei! a su-2perio#% The techi"ues a#opte# are a cash -u#!et% The
preparatio o$ a cash -u#!et is #iscusse# i the e7t sectio o$ this chapter% A properly
prepare# -u#!et +ill pipoit the moths +he the $irm +ill ha*e e7cess or a shorta!e o$
cash%
SHORT COSTS
Aother !eeral $actor to -e cosi#ere# i #etermii! cash ee#s is the cost associate# +ith
a short$all i the $irmCs cash ee#s% The cash $orecast presete# i the cash -u#!et +oul#
re*eal perio#s o$ cash shorta!es% I a##itio) there may -e some ue7pecte# short$alls% E*ery
shorta!e o$ cashR+hether e7pecte# or ue7pecte#Ri*ol*es a cost L#epe#i! upo the
se*erity) #uratio a# $re"uecy o$ the short$all a# ho+ the shorta!e is co*ere#% E7peses
icurre# as a result o$ short$all are ca.e# short costs%
I(%3*)$) '( &5$ +5"!& %"+&+ /!$:
T!/(+/%&'"( %"+&+
Associate# +ith raisi! cash to ti#e o*er the shorta!e% This is usually the -ro.era!e icurre#
i relatio to the sale o$ some short2term ear cash assets such as mar.eta-le securities%
B"!!"4'(1 %"+&+
Associate# +ith -orro+i! to co*er the shorta!e% These iclu#e items such as iterest o
loa) commitmet char!es a# other e7peses relati! to the loa%
L"++ "( &!/)$ )'+%"*(&
A su-statial loss -ecause o$ a temporary shorta!e o$ cash%
C"+& /++"%'/&$)
With #eterioratio o$ the $irmCs cre#it rati!) +hich is e!lecte# i hi!her -a. char!es o
loas) stoppa!e o$ supply) #ema#s $or cash paymet) re$usal to sell) loss o$ $irmCs ima!e a#
the atte#at #eclie i sales a# pro$its%
P$(/3&8 !/&$+
&y -a.s to meet a short$all i compesati! -alaces%
E>CESS CASH BALANCE COSTS
Aother cosi#eratio i #etermii! cash ee#s is the cost associate# +ith maitaii!
e7cessKi#le cash% The cost o$ ha*i! e7cessi*ely lar!e cash -alaces is .o+ as e7cess cash
-alace cost% I$ lar!e $u#s are i#le) the implicatio is that the $irm has misse# opportuities
to i*est those $u#s a# has there-y lost iterest) +hich it +oul# other+ise ha*e eare#%
This loss o$ iterest is primary the e7cess cost%
PROCUREMENT AND MANAGEMENT
These are the costs associate# +ith esta-lishi! a# operati! cash maa!emet sta$$ a#
acti*ities% They are !eerally $i7e# a# are maily accoute# $or -y salary) stora!e) ha#li!
o$ securities) etc%
UNCERTAINTY AND CASH MANAGEMENT
Fially) the impact o$ ucertaity o cash maa!emet strate!y is also rele*at) as cash $lo+s
caot -e pre#icte# +ith complete accuracy% The $irst re"uiremet is a precautioary cushio
to cope +ith irre!ularities i cash $lo+s) ue7pecte# #elays I collectios a# #is-ursemets)
#e$aults a# ue7pecte# cash ee#s%
The impact o$ ucertaity o cash maa!emet ca) ho+e*er) -e miti!ate# throu!hF
'>( Impro*e# $orecasti! o$ ta7 paymets) capital e7pe#iture) #i*i#e#s) etc%
'/( Icrease# a-ility to -orro+ throu!h o*er#ra$t $acility%
DETERMINING CASH NEED @ CASH BUDGET
A$ter the e7amiatio o$ the pertiet cosi#eratios a# cost that #etermie cash ee#s)
the e7t "uestio #eals +ith #etermiatio o$ a $irm cash ee#s%
There are t+o approaches to #eri*e a optimal cash -alace) amely)
i% Miimi<i! cost mo#el
ii% Cash -u#!et
CASH BUDGET: A CASH MANAGEMENT TOOL
It has -ee sho+ i the prece#i! sectios that a $irm is +ill2a#*ise# to hol# a#e"uate cash
-alaces -ut shoul# a*oi# e7cessi*e -alace% The $irm has) there$ore) to assess its ee# $or
cash properly% The cash -u#!et is pro-a-ly the most importat tool i cash maa!emet% It is
a #e*ice to help a $irm to pla a# cotrol the use o$ cash% It is a statemet sho+i! the
estimate# cash) icome 'cash i$lo+( a# cash e7pe#iture 'cash out$lo+( o*er the $irmCs
plai! hori<o% I other +or#s) the et cash positio 'surplus or #e$iciecy( o$ a $irm as it
mo*es $rom oe -u#!eti! su-2perio# to aother is hi!hli!hte# -y the cash -u#!et%
T5$ 2*!2"+$+ ". %/+5 ,*)1$& /!$:
a% To co2or#iate the timi!s o$ cash ee#s% It i#eti$ies the perio#s +he there mi!ht
Either is a shorta!e o$ cash or a a-ormally lar!e cash re"uiremet%
-% It pipoits the perio# +he there is li.ely to -e e7cess cash%
c% It ea-les a $irm +hich has su$$iciet cash to ta.e a#*ata!e o$ cash #iscouts o
Its accouts paya-le) to pay o-li!atios +he #ue) to $ormulate #i*i#e# policy) to
Pla $iaci! o$ capital e7pasio a# to help ui$y the pro#uctio sche#ule #uri!
The year so that the $irm ca smooth out costly seasoal $luctuatios%
#% Fially) it helps to arra!e ee#s $u#s o the most $a*ora-le terms a# pre*ets the
Accumulatio o$ e7cess $u#s% With a#e"uate time to stu$$y his $irmCs ee#s) the
Maa!er ca select the -est alterati*e% I Cotrast) a $irm) +hich #oes ot -u#!et its
Cash re"uiremets) may su##ely $i# itsel$ short o$ $u#s% With pressi! ee#s a#
Little time to e7plore alterati*e a*eues o$ $iaci!) the maa!emet is $orces to
accept the -est terms o$$ere# i a #i$$icult situatio% LThese terms +ill mot -e as
Fa*ora-le) sice the lac. o$ plai! i#icate# to the le#er that there is a
Or!ai<atioal #e$iciecy% The $irms) there$ore) represets a hi!her ris.%
PREPARATION OF CASH BUDGET
Thus) the pricipal aim o$ the cash -u#!et as a till to pre#ict cash $lo+s o*er a !i*e
perio# o$ time is to ascertai +hether at ay poit o$ time there is li.ely to -e a e7cess
or shorta!e o$ cash% The preparatio o$ a cash -u#!et i*ol*es *arious steps% These may
-e #escri-e# as the elemets o$ the cash -u#!eti! system%
The $irst elemet o$ a cash -u#!et is the selectio o$ the perio# o$ time to -e co*ere# -y
the -u#!et% Alterati*ely) it is re$erre# to as the plai! hori<o)% The plai! hori<o
meas the time spa a# the su- perio#s +ithi that time spa o*er +hich the cash
$lo+s are to -e protecte#% There is o $i7e# real% The co*era!e o$ a cash -u#!et +ill
#i$$er $rom $irm to $irm #epe#i! upo its ature a# the #e!ree o$ accuracy +ith
+hich the estimates ca -e ma#e% As a !eeral rule) the perio# selecte# shoul# -e
either too lo! or too short% I$ it is too lar!e) it is li.ely that the estimates +ill
iaccurate% I$ o the other ha#) the time spa is too small) may importat e*ets)
+hich lie huts -eyo# the perio#) caot -e accoute# $or a# the +or. associate# +ith
the preparatio o$ the -u#!et -ecomes e7cessi*e%
The plai! hori<o o$ a cash -u#!et shoul# -e #etermie# i the li!ht o$ the
circumstaces a# re"uiremets o$ a particular case% For istace) i$ the $lo+s are
e7pecte# to -e sta-le a# #epe#a-le such a $irm may prepare a cash -u#!et co*eri!
aH lo! perio#) say) a year a# #eci#e it ito "uarterly iter*als% I the case o$ a $irm
+hose $lo+s are ucertai) a "uarterly -u#!et) #i*i#e# ito mothly iter*als) may -e
appropriate% Where $lo+s are a$$ecte# -y seasoal *ariatios) mothly -u#!et) su-2
#i*i#e# o a +ee.ly or e*e a #aily -asis) may -e ecessary% I$ the $lo+s are su-9ect to
e7treme $luctuatios e*e a #aily -u#!et may -e calle# $or% The i#ea -ehi# su-2
#i*i#i! the -u#!eti! perio# ito smaller iter*als is to hi!hli!ht the mo*emet o$
cash $rom oe su-2perio# to aother% The su-2#i*isio +ill pro*i#e i$ormatio o the
$luctuatios i the cash reser*oir le*el #uri! the time spa co*ere# -y the -u#!et%
The seco# elemet o$ the cash -u#!et is the selectio o$ the $actors that ha*e a -eari!
o cash $lo+s% The items iclu#e# i the cash -u#!et are oly cash itemsH o2cash
items such as #epreciatio are e7clu#e#% The $actors that !eerate cash $lo+ are
!eerally #i*i#e#K $or purposes o$ the costructio o$ a cash -u#!et) ito t+o -roa#
cate!oriesF
'a( Operati!
'-( Fiacial%
This t+o2$ol# classi$icatio o$ cash -u#!et items is -ase# o their ature% While the
$ormer cate!ory iclu#es cash $lo+s !eerate# -y the operatios o$ the $irms a# are
.o+ as operati! cash $lo+s) the latter cosists o$ $iacial cash $lo+s% The ma9or
compoets o$ the t+o types o$ cash $lo+s are outlie# -elo+%
OPERATING CASH FLOWS
The mai operati! $actorsKitems) +hich !eerate cash out$lo+s a# i$lo+s o*er the
time spa o$ a cash -u#!et) are ta-ulate# i $ollo+i! ta-le%
Amo! the operati! $actors a$$ecti! cash $lo+s are) the collectio o$ accouts
recei*a-le 'i$lo+s( a# accouts paya-le% The terms o$ cre#it a# the spee# +ith
+hich the customers pay +oul# #etermie the la! -et+ee the creatio o$ the accouts
recei*a-le a# their collectio% Also) #iscouts a# allo+aces $or early paymets)
returs $rom customers a# -a# #e-ts a$$ect cash i$lo+s% ,imilarly) i the case o$
accouts paya-le relati! to cre#it) $lo+s are a$$ecte# -y the purchase terms%
The calculatio o$ the collectios o cre#it sales a# paymets) o cre#it purchases) is
!eerally #oe i the $orm o$ a statemet .o+ as the +or.sheet% The results are
su-se"uetly icorporate# i the cash -u#!et%
INFLOWS=CASH RECEIPTS OUTFLOWS=DISBURSEMENTS
>% Cash sales >% Accouts paya-leKpaya-le paymets
/% Collectio o$ accouts
Recei*a-le /% Purchase o$ ra+ materials
3% 5isposal o$ $i7e# assets 3% Wa!es a# salary 'payroll(
G% Factory e7peses
0% A#miistrati*e a# selli! e7peses
@% Maiteace e7peses
B% Purchases o$ $i7e# assets
CASH PLANNING
Cash $lo+s are isepara-le parts o$ the -usiess operatios o$ $irms% A $irm ee#s cash to i*est i
i*etory) recei*a-le a# $o7e# assets a# to ma.e paymets $or operati! e7peses i or#er to
maitai !ro+th i sales a# eari!s% It is possi-le that $irm may -e ma.i! a#e"uate pro$its) -ut
may su$$er $rom the shorta!e o$ cash as its !ro+i! ee#s may -e cosumi! cash *ary $ast%
The cash poor positio o$ the $irm ca -e correcte# i$ its cash ee#s are plae# i a#*ace% At
times) a $irm ca ha*e e7cess cash +ith its cash i$lo+s e7cee# cash out$lo+s% ,uch e7cess cash
may remai i#le% A!ai) such e7cess cash $lo+s ca -e aticipate# ay properly i*este# i$ cash
plai! is resorte# to% Cash plai! is a techi"ue to pla a# cotrol the use o$ cash% It helps to
aticipate the $uture cash $lo+s a# ee#s o$ the $irmCs pro$ita-ility a# cash #e$icits) +hich ca
cause the $irmCs $ailure%

CASH FORECASTING AND BUDGETING
Cash -u#!et is the most si!i$icat #e*ice to pla $or a# cotrol cash receipts a# paymets% A
cash -u#!et is a summary statemet o$ the $irmCs e7pecte# cash i$lo+s a# out$lo+s o*er a
pro9ecte# time perio#% It !i*es i$ormatio o the timi! a# ma!itu#e o$ e7pecte# cash $lo+s
a# cash -alaces o*er the pro9ecte# perio#% This i$ormatio helps the $iacial ma!er to
#etermie the $uture cash ee#s o$ the $irm) pla $or the $iaci! o$ these ee#s a# e7ercise
cotrol o*er the cash a# li"ui#ity o$ the $irm%
The time hori<o o$ a cash -u#!et may #i$$er $rom $irm to $irm% A $irm +hose -usiess is a$$ecte#
-y seasoal *ariatios may prepare mothly cash -u#!ets% 5aily or +ee.ly cash -u#!ets shoul# -y
prepare $or #etermii! cash re"uiremet i$ cash $lo+s sho+ e7treme $luctuatios% Cash -u#!et $or
a lo!er iter*als may -e prepare# i$ cash $lo+s are relati*ely sta-le%
Cash $orecasts are ee#e# to prepare cash -u#!ets% Cash $orecasts may -e #oe o short or lo!2
term -asis% Geerally) $orecasts co*eri! perio#s o$ oe year or less are cosi#ere# short2termH
those e7te#i! -eyo# oe year are cosi#ere# short2termH those e7te#i! -eyo# oe year are
cosi#ere# lo!2term%
SHORT@TERM CASH FORECASTINGF
It is comparati*ely easy to ma.e short2term cash $orecasts% The importat $uctios o$
Care$ully #e*elope# short2term cash $orecasts areF
T" )$&$!0'($ "2$!/&'(1 %/+5 !$;*'!$0$(&+.
T" /(&'%'2/&$ +5"!&@&$!0 .'(/(%'(1
T" 0/(/1$ '(-$+&0$(& ". +*!23*+ %/+5
LONG@TERM CASH FORECASTING:
Lo!2term cash $orecasts are prepare# to $i# a i#ea o$ the compayCs $iacial re"uiremets
i the #istat $uture% They are ot as #etaile# as the short2term $orecasts are% Oce a compay
has #e*elope# lo!2term cash $orecast) it ca -e use# to e*aluate the impact o$) say) e+
pro#uct #e*elope# or plat ac"uisitio o the $irmCs $iacial co#itio three) $i*e) or more
years i the $uture% The ma9or uses o$ the lo!2term cash $orecasts areF
I& '()'%/&$+ /+ %"02/(8M+ .*&*!$ .'(/(%'/3 ($$)+, $+2$%'/338 ."!
'&+ 4"!:'(1 %/2'&/3 !$;*'!$0$(&+.
I& 5$32+ &" $-/3*/&$ 2!"2"+$) %/2'&/3 2!"#$%&+. I& 2'(2"'(&+ &5$
%/+5 !$;*'!$) &" .'(/(%$ &5$+$ 2!"#$%&+ /+ 4$33 /+ &5$ %/+5 &" ,$ 1$($!/&$) ,8 &5$
%"02/(8 &" +*22"!& &5$0.
I& 5$32+ &" '02!"-$ %"!2"!/&$ 23/(('(1. L"(1@ &$!0 %/+5
."!$%/+&+ %"02$3 $/%5 )'-'+'"( &" 23/( ."! .*&*!$ /() &" ."!0*3/&$ 2!"#$%&+
%/!$.*338.
RECEIVABLE
MANAGEMENT

RECEIVABLE MANAGEMENT
Tra#e cre#it arises +he a $irm sells its pro#ucts or ser*ices o cre#it a# #oes ot
recei*e cash imme#iately% It is a essetial mar.eti! tool) acti! as a -ri#!e $or the
mo*emet o$ !oo#s throu!h pro#uctio a# #istri-utio sta!es to customers% A $irm
!rats tra#e cre#it to protect its sales $rom the competitors a# to attract the potetial
customers to -uy its pro#uct at $a*ora-le terms% Tra#e cre#it creates accouts
Recei*a-le or tra#e #e-tors that the $irm is e7pecte# to collect i the ear $uture% The
customers $rom +hom recei*a-le or -oo. #e-ts ha*e to -e collecte# i the $uture are
calle# tra#e #e-tors or simply as #e-tors a# represet the $irmCs claim or asset% A cre#it
sale has three characteristicsF $irst it i*ol*es a elemet o$ ris. that shoul# -e care$ully
aaly<e#% Cash sales are totally ris. less) -ut ot the cre#it as the cash
Paymet is yet to -e recei*e#% ,eco#) it is -ase# o ecoomic *alue% To the -uyer) the
ecoomic *alue i !oo#s a# ser*ices passes imme#iately at the time o$ sale) +hile the
seller e7pects a e"ui*alet *alue to -e recei*e# later o% Thir# it implies $uturity% The
-uyer +ill ma.e the cash paymet $or !oo#s a# ser*ices recei*e# -y him i a $uture
perio#% 5e-tors costitute a su-statial portio o$ curret assets o$ se*eral $irms%
CREDIT POLICY
ESTABLISHMENT OF LETTER OF CREDIT (LC) AND PAYMENT OF
BILLS: 5TL shall ope a irre*oca-le re*ol*i! LC) i $a*or o$ NPCIL 6 maitaie#
-y 5TL at a -rach o$ The ,tate &a. o$ I#ia or ay other atioali<e# -a.) as may -e
mutually a!ree#% The LC shall -e esta-lishe# prior to the commecemet o$ po+er
supply $rom the po+er statios% The LC shall -e esta-lishe# $oe a amout e"ual to
>401 o$ the a*era!e o$ mothly eer!y -ills o$ the imme#iately prece#i! si7 mothly
e7clu#i! the perio#s o$ plae# shut #o+% The po+er statio +ill i$orm to the 5TL
the amout o$ LC) +hich is re"uire# to -e opee# as per the a-o*e !ui#elies%
REBATE ON PAYMENT THROUGH LCF
NPCIL shall allo+ a re-ate o$ /%01 oly 'e7clu#i! #uties) le*is) etc%(o the amout o$
the -ill e!otiate# throu!h the LC o presetatio o$ the -ills -y NPCIL to -a. +ithi
the last #ay o$ the cale#ar moth i +hich #ate o$ issue o$ the -ills is recor#e# as per the
clause% NPCIL shall ot allo+ ay re-ate ) +here the paymets are ma#e su-se"uetly
throu!h LC or other+ise) $rom the $ollo+i! moth to the moth i +hich the #ate o$
issue o$ the -ills is recor#e#) as metioe# u#er clause%
The re-ate shall -e limite# to the amout o$ NPC -ills a$ter e7clu#i! +heeli! char!es
'i$ ay() ta7es) #uties) etc) -ille# therei%
SURCHARGE DUE ON LATE PAYMENT:
I$ LC is opee# $or ay amout lo+er tha calculate# as a-o*e or throu!h the LC is
opee# a# the paymet is ot recei*e#) the -ill amout ot recei*e# +oul# -e paya-le
+ith a iterest S 4%4G>1 per #ay 'i%e%>01 per aum compou#e# "uarterly( $rom the
last #ay o$ the moth $ollo+i! the moth i +hich -ill is raise# -y NPCIL% Also o
re-ate +ill -e a#missi-le o such amout%
A $irmCs i*estmet i accouts recei*a-le #epe#s oF 'a( the *olume o$ cre#it sale) a#
'-( the collectio perio#% For e7ample a $irmCs cre#it sales are Rs%34 la.hs per #ay a#
customers) o a a*era!e) ta.e G0 #ays to ma.e paymet) the the $irmCs a*era!e
i*estmet i accouts recei*a-le isF
5aily cre#it sales O a*era!e collectio perio#
Rs% 34 la.hs O G0 #ays N Rs>) 304 la.hs
The i*estmet i recei*a-le may -e e7presse# i terms o$ costs o$ sales istea# o$
,ales *alue%
The *olume o$ cre#it sales is a $uctio o$ the $irmCs total sales a# the perceta!e o$
cre#it sales to total sales% Total sales #epe# o mar.et si<e) $irmCs mar.et share) pro#uct
"uality) itesity o$ competitio) ecoomic co#itios etc% the $iacial maa!er har#ly
has ay cotrol o*er these *aria-les% The perceta!e o$ cre#it sales to cash sales is mostly
i$luece# -y the ature o$ -usiess a# i#ustry orms% For e7ample) car mau$acturers
i I#ia) util recetly) +ere ot selli! cars o cre#it% They re"uire# the customers to
ma.e paymet at the time o$ #eli*eryH some o$ them e*e as.e# $or the paymet to -e
ma#e i a#*ace% This +as so -ecause o$ the a-sece o$ !euie competitio a# a +i#e
!ap -et+ee #ema# $or a# supply o$ cars i I#ia% This positio cha!e# $or ecoomic
li-erali<atio) +hich le# to itese
competitio% I cotrast) the te7tile mau$acturers sol# t+o2thir#s o$ their total sales o
cre#it to the +holesale #ealers% The te7tile i#ustry is still !oi! throu!h a #i$$icult phase%
There is oe +ay i +hich the $iacial maa!er ca a$$ect the *olume o$ cre#it sales a#
collectio perio# a# cose"uetly) i*estmet i accouts recei*a-le% That is throu!h
the cha!es i cre#it policy% The term cre#it policy is use# to re$er to the com-iatio o$
three #ecisio *aria-lesF 'i( cre#it sta#ar#s) 'ii( cre#it terms) a# 'iii( collectio e$$orts)
o +hich the $iacial maa!er has i$luece%
GOALS OF CREDIT POLICY
A $irm may $ollo+ a leiet or a stri!et cre#it policy% The $irm $ollo+i! a leiet
cre#it policy te#s to sell o cre#it to customers o *ery li-eral terms a# sta#ar#sH
cre#its are !rate# $or lo!er perio#s e*e to those customers +hose cre#it+orthiess is
ot $ully .o+ or +hose $iacial positio is #ou-t$ul% I cotrast) a $irm $ollo+i! a
stri!et cre#it policy sells o cre#it o a hi!hly selecti*e -asis oly to those customers
+ho ha*e pro*e cre#it+orthiess a# +ho are $iacially stro!% I practice) $irms
$ollo+ cre#it policies ra!i! -et+ee stri!et to leiet%
MARETING TOOL
Why at all #o $irms sell o cre#itM Firms use cre#it policy as a mar.eti! tool $or
e7pa#i! sales% I a #eclii! mar.et) it may -e use# to maitai the mar.et share%
Cre#it policy helps to retai ol# customers a# create e+ customers -y +eai! them
a+ay $rom competitors% I a !ro+i! mar.et) it is use# to icrease the $irmCs mar.et
share% ;#er a hi!hly competiti*e situatio or recessioary ecoomic co#itios) a $irm
may loose its cre#it policy to maitai sales or to miimi<e erosio o$ sales%
I practice) compaies may !rat cre#it $or se*eral other reasos such as the compay
positio) -uyerCs status a# re"uiremet) #ealer relatioship) trasit #elays) i#ustrial
practice etc%
OPTIMUM CREDIT POLICY
The $irmCs operati! pro$it is ma7imi<e# +he total cost is miimi<e# $or a !i*e le*el
o$ re*eue% Cre#it policy at poit A i $i!ure -elo+ represets the ma7imum operati!
pro$it 'sice total cost is miimum(% &ut it is ot ecessarily the optimum cre#it policy%
Optimum cre#it policy is oe) +hich ma7imi<es the $irmCs *alue% The *alue o$ the $irm is
ma7imi<e# +he the icremetal or mar!ial rate o$ retur o$ a i*estmet is e"ual to
the icremetal or mar!ial cost o$ $u#s use# to $iace the i*estmet% The
Icremetal rate o$ retur ca -e calculate# as icremetal operati! pro$it #i*i#e# -y
the icremetal i*estmet i recei*a-le% The icremetal cost o$ $u#s is the rate o$
retur re"uire# -y the supplier o$ $u#s) !i*e the ris. o$ i*estmet i accout
recei*a-le%
Note that the re"uire# rate o$ retur is ot e"ual to the -orro+i! rate% 8i!her the ris. o$
i*estmet) hi!her the re"uire# rate o$ retur% As the $irm looses its cre#it policy) its
i*estmet i accout recei*a-le -ecomes more ris.y -ecause o$ icrease i slo+ payi!
a# #e$aulti! accouts% Thus the re"uire# rate o$ retur is a up+ar# slopi! cur*e%
I sum) +e may state that the !oal o$ the $irmCs cre#it policy is to ma7imi<e the *alue o$
the $irm% To achie*e this !oal) the e*aluatio o$ i*estmet i accouts recei*a-le shoul#
i*ol*e the $ollo+i! $our stepsF
E+&'0/&'"( ". '(%!$0$(&/3 "2$!/&'(1 2!".'&
E+&'0/&'"( ". '(%!$0$(&/3 '(-$+&0$(& '( /%%"*(&+ !$%$'-/,3$
E+&'0/&'"( ". &5$ '(%!$0$(&/3 !/&$ ". !$&*!( ". '(-$+&0$(&
C"02/!'+"( ". &5$ '(%!$0$(&/3 !/&$ ". !$&*!( 4'&5 &5$ !$;*'!$)
!/&$ ". !$&*!(.
FIG: COSTS OF CREDIT POLICY
CREDIT POLICY VARIABLES
I esta-lishi! a optimum cre#it policy) the $iacial maa!er must cosi#er the
importat #ecisio *aria-les) +hich i$luece the le*el o$ recei*a-les% As state# i the
prece#i! sectio) the ma9or cotrolla-le #ecisio *aria-les iclu#e the $ollo+i!F
C!$)'& +&/()/!)+ /() /(/38+'+.
C!$)'& &$!0+.
C"33$%&'"( 2"3'%8 /() 2!"%$)*!$+.
Cost o$ a#miistratio a#
-a# 2#e-it loss

A
Opportuity
Cost
T'15& C!$)'& 2"3'%8 L""+$
COSTS &
BENEFIT
S
CREDIT STANDARDS
Cre#it sta#ar#s are the criteria) +hich a $irm $ollo+s i selecti! customers $or the
purpose o$ cre#it e7tesio% The $irm may ha*e ti!ht cre#it sta#ar#sH that is) it may sell
mostly o cash -asis) a# e7te# cre#it oly to the most relia-le a# $iacially stro!
customers% ,uch results +ill result i o -a#2#e-t losses) a# less cost o$ cre#it
a#miistratio% &ut the $irm may ot -e a-le to e7pa# sales% The pro$it sacri$ice# o lost
sales may -e more tha the costs sa*e# -y the $irm% O the cotrary) i$ cre#it
sta#ar#s are loose) the $irm may ha*e lar!er sales% &ut the $irm +ill ha*e to carry lar!er
recei*a-le% The costs o$ a#miisteri! cre#it a# -a# #e-ts losses +ill also icrease%
Thus) the choice o$ optimum cre#it sta#ar#s i*ol*es a tra#e o$$ -et+ee icremetal
retur a# icremetal costs%
Cre#it aalysis cre#it sta#ar#s i$luece the "uality o$ the $irmCs customers% There are
t+o aspects o$ the "uality o$ customersF 'i( the time ta.e -y customers to repay cre#it
o-li!atio a# 'ii( the #e$ault rate% The a*era!e collectio perio# 'ACP( #etermies the
spee# o$ paymet -y customers% It measures the um-er o$ #ays $or +hich cre#it sales
remai outsta#i!% The lo!er the a*era!e collectio perio#) the hi!her the $irmCs
i*estmet i accout recei*a-le% 5e$ault rate ca -e measure# i terms o$ -a# #e-ts
losses ratio2 the proportio o$ ucollecte# recei*a-le% &a#2#e-t losses ratio i#icates
#e$ault ris.% 5e$ault ris. is the li.elihoo# that a customer +ill $ail to repay the cre#it
o-li!atio% O the -asis o$ past practice a# e7periece) the $iacial or cre#it maa!er
shoul# -e a-le to $orm a reasoa-le 9u#!met re!ar#i! the chaces o$ #e$ault% To
estimate the pro-a-ility o$ #e$ault) the $iacial or cre#it maa!er shoul# cosi#er three
cCsF
'a( Character '-( capacity 'c( co#itio%
NUMERICAL CREDIT SCORING
A *ariety o$ $actors i$luece a customerCs cre#it+orthiess% This ma.es cre#it
i*esti!atio a #i$$icult tas.% A $irm ca use umerical cre#it scori! to appraise cre#it
applicatios +he it is #eali! +ith a lar!e um-er o$ small customers% The $irm) -ase#
o its past e7periece or empirical stu#y) may i#eti$y -oth $iacial a# o2$iacial
attri-utes that measure the cre#it sta#i! o$ a customer% The umerical cre#it scori!
mo#els may iclu#eF
A)5"% /22!"/%5
S'023$ )'+%!'0'($(& /(/38+'+
M*3&'23$ )'+%!'0'($(& /(/38+'+
CREDIT TERMS
The stipulatios u#er +hich the $irm sells o cre#it to customers are calle# cre#it terms%
These stipulatios iclu#eF 'a( the cre#it perio#) a# '-( the cash #iscout%
Cre#it perio# the le!th o$ time $or +hich cre#it is e7te#e# to customers is calle# the
cre#it perio#% It is !eerally state# i terms o$ et #ate% For e7ample) i$ the $irmCs cre#it
terms are Iet 30C) it is e7pecte# that customers +ill pay cre#it o-li!atio ot later tha
30 #ays% A $irmCs cre#it perio# may -e !o*ere# -y the i#ustry orms% &ut #epe#i!
upo its o-9ecti*e) the $irm cas le!th the cre#it perio#% O the other ha#) the $irm may
ti!hte its cre#it perio# i$ customers are #e$aulti! too $re"uetly a# -a# #e-ts losses
are -uil#i! up%
A $irm le!thes cre#it perio# to icrease its operati! pro$it throu!h sales% 8o+e*er)
there +ill -e et icrease i operati! pro$it oly +he the cost o$ e7te#e# cre#it perio#
is less tha the icremetalH operati! pro$it% With icrease sales a# e7te#e# cre#it
perio#) i*estmet i recei*a-le +oul# icrease% T+o $actors cause this icreaseF
'a( Icremetal sales result i icremetal recei*a-le a#
'-( E7isti! customers +ill ta.e more time to repay cre#it o-li!atio 'i%e%) the a*era!e
collectio perio# +ill icrease() thus icreasi! the le*el o$ recei*a-le%
CASH DISCOUNT
A cash #iscout is a re#uctio i paymet o$$ere# to i#uce them to repay cre#it
o-li!atios +ithi a speci$ie# perio# o$ time) +hich +ill -e less tha the ormal cre#it
perio#% It is usually e7presse# as a perceta!e o$ sales% Cash #iscout terms i#icate the
rate o$ #iscout a# the perio# $or +hich it is a*aila-le% I$ the customer #oes ot a*ail the
o$$er) he must ma.e paymet +ithi the ormal cre#it perio#%
CREDIT POLICY
A collectio policy is ee#e# -ecause all customers #o ot pay the $irmCs -ill i time%
,ome customers are slo+ payers +hile some are o2payers% The collectio e$$orts
shoul#) there$ore) aim at accelerati! collectios $rom slo+ payers a# re#uci! -a#2#e-t
losses% A collectio policy shoul# esure prompt a# re!ular collectio% Prompt
collectio is ee#e# $or $ast turo*er o$ +or.i! capital) .eepi! collectio costs a# -a#
#e-ts +ithi limits a# maitaii! collectio e$$iciecy% Re!ularity i collectios .eeps
#e-tors alert) a# they te# to pay their #ues promptly%
I practice) compaies may ta.e certai precautios *is2T2*is collectios% ,ome
compaies re"uire their customers to !i*e pre2si!e# che"ues%
&ill #iscouti! is aother practice i I#ia% ;$ortuately) it is ot *ery popular +ith a
um-er o$ compaies% ,ome compaies pro*i#e $or peal rate o$ iterest $or #e-tors +ho
$ail to pay i time%
CREDIT EVALUATION OF INDIVIDUAL ACCOUNTS
For e$$ecti*e maa!emet o$ cre#it) the $irm shoul# lay #o+ clear2cut !ui#elies a#
proce#ures $or !rati! cre#it to i#i*i#ual accouts% The $irm ee# ot $ollo+ the policy
o$ treati! all customers e"ual $or the purpose o$ e7te#i! cre#it% Each case may -e
$ully e7amie# -e$ore o$$eri! ay cre#it terms% ,imilarly) collectio proce#ure +ill
#i$$er $rom customer to customer% With the permaet) -ut temporarily #e$aulti!)
customers) the $irm may ot -e *ery strict i $ollo+i! the collectio proce#ures%
The cre#it e*aluatio proce#ure o$ the i#i*i#ual accouts shoul# i*ol*e the $ollo+i!
stepsF
'>( Cre#it i$ormatio
'/( Cre#it i*esti!atio
'3( Cre#it limits
'G( Collectio proce#ures%
CREDIT INFORMATION
I e7te#i! cre#it to customers) the $irm +oul# esure that recei*a-les +ill -e collecte#
i $ull a# o #ue #ate% Cre#it shoul# -e !rate# to those customers +ho ha*e the a-ility
to ma.e the paymet o time% To esure this) the $irm shoul# ha*e cre#it i$ormatio
coceri! each customer to +hom the cre#it +ill -e !rate#%
CREDIT INVESTIGATION AND ANALYSIS
A$ter ha*i! o-taie# the cre#it i$ormatio) the $irm +ill !et a i#ea re!ar#i! the
matters) +hich shoul# -e $urther i*esti!ate#% The $actors that a$$ect the e7tet a#
ature o$ cre#it i*esti!atio o$ a i#i*i#ual customer areF
T5$ &82$ ". %*+&"0$!, 45$&5$! ($4 "! $<'+&'(1.
T5$ %*+&"0$!M+ ,*+'($++ 3'($, ,/%:1!"*() /() &5$ !$3/&$) &!/)$
!'+:+
T5$ (/&*!$ ". &5$ 2!")*%&@2$!'+5/,3$ "! +$/+"(/3.
S'?$ ". %*+&"0$!+ "!)$! /() $<2$%&$) .*!&5$! -"3*0$+ ".
,*+'($++ 4'&5 5'0.
C"02/(8M+ %!$)'& 2"3'%'$+ /() 2!/%&'%$+.
CREDIT LIMIT
A cre#it limit is a ma7imum amout o$ cre#it) +hich the $irm +ill e7te# at a poit o$
time% It i#icates the poit o$ ris. ta.e -y the $irm -y supplyi! !oo#s o cre#it to a
customer% Oce the $irm has ta.e a #ecisio to e7te# cre#it to the applicat) the amout
a# #uratio o$ the cre#it ha*e to -e #eci#e#% The #ecisio o the ma!itu#e o$ cre#it
+ill #epe# upo the amout o$ cotemplate# sale a# the customerCs $iacial stre!th%
I case o$ customers +ho are $re"uet -uyers o$ the $irmCs !oo#s) a cre#it limit ca -e
esta-lishe#% This +oul# a*oi# the ee# to i*esti!ate each or#er $rom the customers%
5epe#i! o the re!ularity o$ paymet) the lie o$ cre#it $or a customer ca -e $i7e# o
the -asis o$ his ormal -uyi! patter% For e7ample) i$ a customer ormally -uys !oo#s
o$ Rs /0444 per moth o a a*era!e) $or him the lie o$ cre#it ca -e $i7e# at this le*el%
I case o$ a customer +ho is ot $airly re!ular i setti! the #ues) the cre#it limit may -e
$i7e# +ith re$erece to the outsta#i! amout%
MONITORING RECEIVABLE
A $irm ee#s to cotiuously moitor a# cotrol its recei*a-le to esure the success o$
collectio e$$orts% T+o tra#itioal metho#s o$ e*aluati! the maa!emet o$ recei*a-le
areF '>( a*era!e collectio perio# 'ACP( a# '/( a!i! sche#ule% These metho#s ha*e
certai limitatios to -e use$ul i moitori! recei*a-le% A -etter approach is the
collectio e7periece matri7%
A-$!/1$ %"33$%&'"( 2$!'")
ACPN 5e-tors O 3@4
Cre#it sale
COLLECTION E>PERIENCE MATRI>
The ma9or limitatios o$ the tra#itioal metho#s are that they are -ase# o a!!re!ate#
#ata a# $ail to relate outsta#i! recei*a-les o$ a perio# +ith the cre#it sale o$ the same
perio#% Thus) usi! the tra#itioal metho#s) t+o aalysts ca come up +ith etirely
#i$$eret si!als a-out the status o$ recei*a-les i$ they a!!re!ate sales a# recei*a-les
#ata #i$$eretly% ;si! #isa!!re!ate# #ata $or aaly<i! collectio e7periece ca
elimiate this pro-lem% The .ey is to relate recei*a-les to sales o$ the same perio#% Whe
sales o*er a perio# o$ time are sho+ hori<otally a# associate# recei*a-les *ertically
i a ta-ular $orm) a matri7 is costructe#% There$ore) this metho# o$ e*aluati!
recei*a-les is calle# collectio e7periece matri7%
RATIO
ANALYSIS
RATIO ANALYSIS
Ratio aalysis is a mea o$ -etter u#ersta#i! o$ $iacial stre!th a# +ea.ess o$
ay compay% A# hece my stu#y is -ase# o the #ata relate# to last t+o years i%e%
$rom /440 to /44B a# the $iacial Aalyses are ma#e o the -asis o$ these ratios%
LI9UIDITY RATIO
Li"ui#ity re$ers to the a-ility o$ cocer to meet its curret o-li!atios as a# +he
these -ecome #ue% The short term o-li!atios are met -y reali<i! amout assets shoul#
either -e li"ui# or ear li"ui#ity% These shoul# -e co*erte# ito cash $or payi!
o-li!atios o$ short2term lia-ilities) i$ curret assets ca pay o$$ curret lia-ilities) the
li"ui#ity positio +ill -e satis$actory% O the other ha#) i$ curret lia-ilities may ot -e
easily met out o$ curret assets the li"ui#ity positio +ill -e -a#% To measure the
li"ui#ity o$ a $irm) the $ollo+i! ratio ca -e calculate#F
Current ratio
:uic' or acid test or li;uid ratio
bsolute li;uidity ratio
CURRENT RATIO
This ratio e7plais the relatioship -et+ee curret assets a# curret lia-ilities o$ -usiess%
The $ormula $or calculati! the ratio isF
Curret ratioN Curret Assets
Curret lia-ilities
C*!!$(& !/&'" ". NAPSF
(ALL AMOUNT IN LAHS)
=EAR /44@24B /44024@
C;RRENT A,,ET, >/00A%G >G/04%4A
C;RRENT
LIA&ILITIE,
30/0%G@ //0>%G/
C;RRENT RATIO 3%0@ @%33



INTERPRETATION
As a-o*e #ia!ram a# ratio states that the last year curret ratio o$ NAP, is more tha /F>% I
the year /44024@ it is *ery hi!h hece it sho+s i#leess o$ $u#s% &ut i the year /44@24B short
term $iacial positio o$ the eterprise is *ery sou# -ecause its curret assets are more tha
t+ice o$ curret lia-ilities%
9UIC RATIO OF NAPS
Puic. ratio i#icates +hether the $irm is i a positio to pay its curret lia-ilities +ith i a
moth or imme#iately% As such the "uic. ratio calculate# -y #i*i#i! li"ui# assets -y curret
lia-ilities%
9*'%: !/&'"N Puic. assets
Curret lia-ilities
Puic. assets N curret assets 2 i*etories
Li"ui# assets mea those assets) +hich +ill yiel# cash *ary shortly% A i#eal "uic. ratio is
sai# to -e >F>% I$ it is more) it is cosi#ere# to -e -etter% The i#ea is that $or e*ery rupee o$
curret lia-ilities) there shoul# -e at2least oe rupee o$ li"ui# assets%

9*'%: !/&'" ". NAPS
(ALL AMOUNT IN LAHS)
=EAR /44@24B /44024@
P;ICK A,,ET, ?3>@%B3 >>0?3%G
C;RRENT LIA&ILITIE, 30/0%G@ //0>%G/
P;ICK RATIO /%@G 0%>0
INTERPRETATION
As a-o*e #ia!ram a# calculatio sho+s that "uic. ratio o$ NAP, is more tha >F>%
,o it is satis$actory% It meas that curret assets are more tha curret lia-ilities) the short
term $iacial positio is *ery !oo#%
ABSOLUTE LI9UIDITY RATIO OF NAPS
Althou!h recei*a-le) #e-tors a# -ills recei*a-le are !eerally more li"ui# tha
i*etories) yet there may -e #ou-ts re!ar#i! their reali<atio ito cash imme#iately or i
time% 8ece) some authorities are o$ the opiio that the a-solute li"ui# ratio shoul# also -e
calculate# to!ether +ith curret ratio a# aci# test ratio so as to e7clu#e e*e recei*a-les
$rom the curret assets a# $i# out the a-solute li"ui# assets%
A,+"3*&$ 3';*') !/&'" N a-solute li"ui# assets
Curret lia-ilities
A-solute li"ui#s assets iclu#e cash 6 -a.) short2term securities% The accepta-le orm $or
this ratio is li"ui# assets are cosi#ere# a#e"uate to pay Rs%/ +orth curret lia-ilities i
time as all the cre#itors a# the cash may also -e reali<e# $rom #e-tor a# i*etories%

A,+"3*&$ 3';*') /++$&+ ". NAPSN cash 6 -a. -alace U loas a# a#*aces


(ALL AMOUNT IN LAHS)

INTERPRETATION:
As a-o*e calculatio a# #ia!ram sho+s that a-solute li"ui#ity ratio o$ /44@24B is less
tha 4%0F>% ,o it sho+s that there is ia#e"uacy o$ cash a# short2term securities% &ut i
/44024@ it is more tha 4%0F>) +hich is satis$actory%
=EAR /44@24B /44024@
A&,OL;TE LIP;I5
A,,ET,
>G@?%30 >33/%4?
C;RRENT
LIA&ILITIE,
30/0%G@ //0>%G/
A&,OL;TE LIP;I5
RATIO
4%G/ 4%0?/
ACTIVITY RATIO
This ratio measures ho+ may times the a*era!e stoc. is sol# #uri! the year% Promptess
o$ sale i#icates the -etter per$ormace o$ the -usiess% 8i!her turo*er ratio is al+ays
-ee$icial to the cocer% Lo+er i*etory turo*er ratio sho+s that the stoc. is -loc.e#
a# ot imme#iately sol#% It is al+ays a#*isa-le to .eep the re"uire# "uatity o$ stoc.% I
the other +or#s these ratios measure the e$$iciecy a# rapi#ity o$ the resources o$ the
compay) li.e stoc.) #e-tors) $i7e# assets) +or.i! capital etc% These ratios are !eerally
calculate# o the -asis o$ sales or cost o$ sales% ,ome o$ the importat acti*ity ratio NAP,
are as $ollo+F
>%I(-$(&"!8 T*!("-$! R/&'"F This ratio i#icates the relatioship -et+ee the cost o$
!oo#s sol# #uri! the tear a# a*era!e stoc. .ept #uri! that year%
I(-$(&"!8 &*!("-$! !/&'" N cost o$ !oo#s sol#
A*era!e stoc. or i*etory
H$!$ %"+& ". 1"")+ +"3) N $uel char!es U hea*y +ater char!es U stores a# spares
Cosume#
A-$!/1$ +&"%: "! '(-$(&"!8 N stoc. o$ pre*ious year U stoc. o$ curret year
/

INVENTORY TURNOVER RATIO OF NAPSF
(ALL AMOUNT IN LAHS)

=EAR /44@24B /44024@
CO,T OF GOO5,
,OL5
>>0@3 >@/B>
ADERAGE
INDENTOR=
/?G?%>B0 /3/G%0>
INDENTOR=
T;RNODER RATIO
3%?/ @%??
CO7S8Av,. inventor$

9
1
19
2
29-! 2!-"
.e%r
C
O
7
S
8
A
v
,
.

i
n
v
e
n
t
o
r
$
COST OF
7OODS SOLD
A:ERA7E
IN:ENTOR.
Inventor$ turnover r%tio

2
6
!
;
29-! 2!-"
.e%r
I
n
v
e
n
t
o
r
$

t
u
r
n
o
v
e
r

r
%
t
i
o
Inventor$
turnover
r%tio
INTERPRETATION:
As a-o*e calculatio a# #ia!ram sho+s the i*etory turo*er ratio o$ aps is ot satis$actory
i /44@24B as compare# to /44024@% It meas $u#s are -loc.e# i i*etory) +hich create
pro-lem o$ cash i$lo+% ,o) maa!emet shoul# ta.e some importat #ecisio re!ar#i!
i*etory maa!emet%

DEBTORS TURNOVER RATIO
D$,&"!+ &*!("-$! !/&'" N Net cre#it sales
A*era!e #e-tors
Where et cre#it sales i case o$ NAP, N sales o$ respecti*e year
A-$!/1$ )$,&"! N opei! #e-tors U closi! #e-tors
/
This ratio i#icates the spee# +ith +hich the amout is collecte# $rom #e-tors% The hi!her
the ratio) the -etter it is) sice it i#icates that amout $rom #e-tors is -ei! collecte# more
"uic.ly% A lo+er #e-tors turo*er ratio +ill i#icate the ie$$iciet cre#it sales policy o$ the
maa!emet% It meas that cre#it sales ha*e -ee ma#e to customers +ho #o ot #eser*e
much cre#it%
DEBTOR TURNOVER RATIO OF NAPS:
(ALL AMOUNT IN LAHS)
=EAR /44@24B /44024@
NET CRE5IT ,ALE, >@0G@%BG 3B//@%@/
ADERAGE 5E&TOR AABB%A? >>334%3?
5E&TOR T;RNODER
RATIO
>%A@ 3%/A
Net 're3it s%-es8%v,.3ebtor

1
2
0
6
29-! 2!-"
.e%r
D
e
b
t
o
r

t
u
r
n
o
v
e
r

r
%
t
i
o
Net 're3it s%-es
Aver%,e
3ebtors
Debtor turnover r%tio

.9
1
1.9
2
2.9
0
0.9
29-! 2!-"
.e%r
3
e
b
t
o
r

t
u
r
n
o
v
e
r

r
%
t
i
o
Debtor turnover
r%tio

DEBTOR COLLECTION PERIOD
D$,&"! %"33$%&'"( 2$!'") N 3@0
D$,&"! &*!("-$! !/&'"

This ratio sho+s the time i +hich the customer is payi! $or cre#it sale% Icrease i this
ratio i#icates the e7cessi*e -loc.a!e o$ $u#s +ith #e-tors) +hich icrease the chaces o$
-a# #e-ts% O the other ha#) i$ there is #ecrease i #e-t collectio perio#) it i#icates prompt
paymet -y #e-tors) +hich re#uces the chaces o$ -a# #e-ts%
5e-tor collectio perio# 'i um-er o$ #ays(
=EAR /44@24B /44024@
5E&TOR
COLLECTION
PERIO5
>?@ >>>

Debtor 'o--e'tion &erio3<in no. of 3%$s=

9
1
19
2
29
29-! 2!-"
.e%r
D
e
b
t
o
r

'
o
-
-
e
'
t
i
o
n

&
e
r
i
o
3
Debtor 'o--e'tion
&erio3 <in no. of 3%$s=
INTERPRETATION
As the calculatio a# #ia!ram sho+s that #e-tor collectio perio# o$ curret year is more tha
that o$ the pre*ious year) +hich is ot satis$actory +hich i#icates #e$erre# paymet -y #e-tors
a# hece icreases the chaces o$ -a# #e-ts% &ut i$ you cosi#er the collectio perio# o$
curret year i%e%H /44024@ it is satis$actory%

WORING CAPITAL TURNOVER RATIO
W"!:'(1 %/2'&/3 &*!("-$! !/&'" N cost o$ !oo#s sol#
Wor.i! capital
Where +or.i! capital N curret assets E curret lia-ilities

This ratio re*eals ho+ e$$icietly +or.i! capital has -ee utili<e# i pro#uci! sales% A hi!h
Wor.i! capital turo*er ratio sho+s e$$iciet use o$ +or.i! capital a# "uic. turo*er o$
Curret assets li.e stoc. a# #e-tors%
WORING CAPITAL TURNOVER RATIO
(ALL AMOUNT IN LAHS)
=EAR /44@24B /44024@
COG, >>0@3 >@/B>
WORKING CAPITAL ?43/%?0 >>??A%@0
WORKING CAPITAL
T;RNODER RATIO
>%/A >%3@
CO7S8Wor>in, '%&it%-

9
1
19
2
29-! 2!-"
.e%r
C
O
7
S
8
W
o
r
>
i
n
,

'
%
&
i
t
%
-
CO7S
Wor>in, '%&it%-
Wor>in, '%&it%- r%tio
1.26
1.2!
1.2;
1.0
1.02
1.06
1.0!
1.0;
29-! 2!-"
.e%r
W
o
r
>
i
n
,

'
%
&
i
t
%
-

r
%
t
i
o
Wor>in, '%&it%-
r%tio

INTERPRETATION
This ratio i#icates the +ea. positio o$ or!ai<atio as compare# to pre*ious year%
,o)this ratio i#icates the u#er utili<atio o$ +or.i! capital%
FI>ED ASSETS TURNOVER RATIO
Fi7e# assets are use# i the -usiess $or pro#uci! !oo#s to -e sol#% The e$$ecti*e
utili<atio o$ $i7e# assets +ill result i icrease# pro#uctio a# re#uce# cost% It also esures
+hether I*estmet i the assets has -ee 9u#icious or ot% 8i!her ratio i#icates -etter
per$ormace%
F'<$) /++$&+ &*!("-$! !/&'" N Net ,ales
Fi7e# assets 'et -loc.(
(ALL AMOUNT IN LAHS)
Net s%-e8Fi(e3 %sset

1
2
0
6
29-! 2!-"
.e%r
N
e
t

s
%
-
e
8
F
i
(
e
3

%
s
s
e
t
Net s%-e
Fi(e3 %sset
=EAR /44@24B /44024@
NET ,ALE >@0G@%BG 3B//@%@/
FIOE5 A,,ET, >0GG/%// >@B4/%00
FIOE5 A,,ET,
T;RNODER RATIO
>%4B /%//
Fi(e3 %ssets turnover r%tio

.9
1
1.9
2
2.9
29-! 2!-"
.e%r
F
i
(
e
3

%
s
s
e
t
s

r
%
t
i
o
Fi(e3
%ssets
r%tio
INTERPRETATIONF
This ratio re*eals ho+ e$$icietly the $i7e# assets are -ei! utili<e#% Compare# +ith the pre*ious
year there is a #ecrease i the ratio) +hich sho+s that assets ha*e ot -ee use# e$$icietly as
they ha# -ee use# i the pre*ious year%
NET PROFIT=LOSS RATIO OF NAPS
This ratio esta-lishes the relatioship -et+ee the et pro$it a# et sales%
N$& 2!".'&= 3"++ !/&'" N Net pro$it 7 >44
Net sales
Where et pro$it N !ross pro$it
O O2$!/&'(1 /() ("( "2$!/&'(1 '(%"0$
'2( Operati! a# o2operati! e7peses%


(ALL AMOUNT IN LAHS)
P ) L8Net s%-es

1
2
0
6
29-! 2!-"
.e%r
P

)

L
8
N
e
t

s
%
-
e
s
Net &rofit
Net s%-es
=EAR /44@24B /44024@
NET PROFIT 0?BB%/3 >//AA%0@
NET ,ALE, >@0G@%BG 3B//@%@/
NET PROFITKLO,,
RATIO 'IN 1(
3@ 1 33 1
Net &rofit8-oss r%tio <in 2=
01
02
00
06
09
0!
0"
29-! 2!-"
.e%r
N
e
t

&
r
o
f
i
t
8
-
o
s
s

r
%
t
i
o
Net &rofit8-oss
r%tio <in 2=

INTERPRETATION:
A-o*e #ia!ram a# calculatio sho+s that NAP, is eari! a !oo# amout o$ pro$it%

INTRODUCTION OF FINANCE AND ACCOUNTS
FINANCE AND ACCOUNTS SECTION
F'(/(%$ & A%%"*(&+ 4'(1 '+ )'-')$) '(&" &5!$$ 1!"*2+F
IBAF
;#er I&A) &alace ,heet) Pro$it 6 Loss AKc) Geeral Le#!er) ,u-si#iary Le#!er) &a.
&oo.) Cash &oo. a# all paymets relate# i$ormatio is prepare#) iclu#es Cash
IBA
Ite!rate# &usiess
Applicatio
MAIS
Material Accouti!
I$ormatio ,ystem%
PPPS
Persoel) Payroll a#
Pro*i#et Fu# ,ystem%
Group) &a. Group) Wor.s Group) Pro*i#et Fu# 'PF( Group) Tra*eli! Allo+ace
'TA( Group) Purchase Group a# &u#!et 6 Compilatio '&6C( Group maitaie#%
MAIS:
MAI, is sai# to -e the supporti! ha# o$ I&A) +here all material relate# i$ormatio
are a*aila-le *i<% Cost o$ Goo#s) Issue o$ !oo#s) ,toc. *aluatio etc% a# prepares MRD)
MID 6 MAD to the I&A $or paymets to the suppliers%
PPPS:
PPP, is the system +here all the persoel relate# i$ormatio is .ept%
Maily the $ollo+i! i$ormatio is !eerate# throu!h PPP,F ,alary) Icome ta7
Calculatio) PF Calculatio) Loa recor#s) Reco*ery recor#s a# Lea*e recor#s etc%
IBA '(%3*)$+ &5$ 4"!:'(1 ". &5$ ."33"4'(1 +$%&'"(+:
CASH AND BAN SECTION:
Cash !roup receipt the paymet $rom employees) cotractors a# others throu!h CRD
'Cash Receipt Doucher( a# ma.es paymets o$ salaries a# other allo+aces to all the
employees -y CPD 'Cash Paymet Douchers() +hose accouts are ot opee# i the
-a.%
While &a. !roup receipts a# ma.es paymet -y che"ue a# 5ema# #ra$t throu!h
&ill Recei*a-les Doucher '&RD( a# &ill paya-le Doucher '&PD( respecti*ely throu!h
-a.%

WORS SECTIONF
;#er Wor.s ,ectio it passes the -ills o$ cotractors -ase# o the Measuremets
recor#e# i Measuremet &oo. 'M&( -y the e!ieer a# as per rates !i*e i te#er
A$ter chec.i! a# passi! the -ills CA& 'Cotractor Accouts &ill( is to -e prepare#
a# other coti!ecies claim passes throu!h E7peses Douchers 'EDR(%
TA=PENSION=ADVANCES SECTIONF
I this sectio Tra*eli! Allo+ace claims are to -e pai# throu!h Tra*eli! E7peses
Doucher 'TED( a# a#*aces throu!h Cash Paymet Doucher K &a. Paymet Doucher
'CPDK&PD(% Pesio is to -e calculate# a# arrears are to -e pai# to the retire#
employees throu!h this sectio a# a$ter that &a. pays as per P%P%O set -y this sectio%
PURCHASE SECTIONF
I this sectio paymets are to -e pai# as per Material Receipt Doucher recei*e# $rom
CMM a$ter recei*i! the material i ,tores) ,uppliers Accout -ill ',A&( is prepare# as
per the material receipt *oucher%
BUDGET AND COMPILATION (B & C) SECTION:
&u#!et a# Compilatio ,ectio ma.es the &u#!et a# compile# all the accouts% Iter
;it A#*ices 'I;A(K -alaces a!aist the tras$erre# Employees are to -e set to other
;its -y this !roup% Pro$it 6 Loss) Trial &alaces) a# &alace ,heet are to -e prepare#
-y this sectio%
ACCOUNTING POLICIES
The &alace ,heet a# Pro$it a# Loss Accout #epict a true a# $air *ie+ o$ the
-usiess o$ a or!ai<atio% The -asis o +hich these statemets are prepare# is calle#
accouti! policies%
NATURE OF ACCOUNTING POLICIESF
'i( The Accouti! Policies re$er to the speci$ic accouti! priciples a# the metho#s o$
applyi! those priciples a#opte# -y the eterprise i the preparatio a# presetatio o$
$iacial statemets%
'ii( There is o si!le list o$ accouti! policies) +hich are applica-le to all circumstaces%
The #i$$eri! circumstaces i +hich eterprises operate i a situatio o$ #i*erse a#
Comple7 ecoomic acti*ity ma.e alterati*e accouti! priciples a# metho#s o$
Applyi! those priciples accepta-le% The choice o$ the appropriate accouti! priciple
A# the metho#s o$ applyi! those priciples is the speci$ic circumstaces o$ each
Eterprise a# calls $or cosi#era-le a#9ustmet -y the maa!emet o$ the eterprise%%

'iii( The LIstitute o$ Chartere# Accoutats o$ I#ia +ith the cosultatios o$ Cetral
Go*ermet ma.es accepta-le accouti! sta#ar#s) +hich a eterprise has to $ollo+%
(C) AREA OF DIFFERING ACCOUNTING POLICIES:
The $ollo+i! are the e7amples o$ the areas i +hich #i$$eret accouti! policies
May -e a#opte# -y #i$$eret eterprises are as $ollo+sF
>% Accouti! assumptioF

'a( Goi! cocer
'-( Cosistecy
'c( Accrual
/% Daluatio o$ $i7e# assets
3% Metho#s o$ 5epreciatio
G% Treatmet o$ e7pe#iture #uri! costructio
0% Daluatio o$ i*etories
@% Forei! e7cha!e trasactio
B% Retiremet -ee$its
A% Goo#+ill
?% I*estmet
>4% Miscellaeous e7pe#iture
>>% E7tra2or#iary items
>/% Re*eue reco!itio
>3% Coti!et lia-ilities etc%
SALIENT FEATURES OF IBA, MAIS AND PPPS
(A) IBA:
It is sai# to -e the heart o$ accouti!% Where the $ollo+i! sets o$ accouti! statemets
are prepare#F
'>( &alace ,heet
'/( Pro$it 6 Loss
'3( Geeral Le#!ers

'G( ,u-si#iary Le#!ers
'>( &a. &oo.
'/( Cash &oo.
'0( All Paymets relate# toF
'a( Employees
'-( Cotractors
'c( Fa-ricators
'#( Cosultats
'e( ,uppliers
'$( Others
(B) MAIS:
It is sai# to -e the supporti! ha# o$ I&A +here all material relate#
i$ormatio are a*aila-le *i<%
'>( Purchase o$ materials
'/( Issue o$ materials
'3( ,toc. *aluatio etc%
(C) PPPS:
It is the system +here persoel relate# i$ormatio is .ept% All employeesC relate#
i$ormatio is a*aila-le +ith this system% Primarily the $ollo+i! i$ormatio are
!eerate# throu!h PPP,F
'a( ,alary
'-( Icome ta7 calculatio
'c( PF calculatio
'#( Loa recor#s
'e( Reco*ery recor#s
'$( Lea*e recor#s etc%
VARIOUS DOCUMENTS
INDS OF IBA DOCUMENTS
There are *arious streams throu!h +hich #i$$eret *ouchers are ma#e a# i$ormatio is
compile#% These are as $ollo+sF
'A( CA,8 DO;C8ER,

'&( &ANK DO;C8ER,

'C( CONTRACTOR, ACCO;NT, &ILL
'5( ,;PPLIER, ACCO;NT, &ILL
'E( EOPEN,E, DO;C8ER,
'F( TRADELLING DO;C8ER,
'G( :O;RNAL DO;C8ER,
'8( INTER ;NIT A5DICE
'I( CAPITALI,ATION DO;C8ER,
':( IMPRE,T DO;C8ER, ETC%
INDS OF MAIS DOCUMENTS
MAI, #ocumet ca -e classi$ie# ito three -roa# hea#sF
'>( RECEIPT, DO;C8ER,
'/( I,,;E, DO;C8ER,
'3( A5:;,TMENT DO;C8ER,
6SWOT7 ANALYSIS OF NAPS
STRENGTHF
S&!"(1 &$%5("3"1'%/3 ,/+$.
H'1538 +:'33$) 2!".$++'"(/338 ;*/3'.'$) 4"!:."!%$.
U('&+ /%%!$)'&$) 4'&5 ISO@APCCA, IS@AJCCA.
A)"2&'"( ". '(("-/&'-$ .*$3 "2&'0'?/&'"(.
O*&/1$ 0/(/1$0$(&.
W"( 0/(8 +/.$&8 /4/!)+ .!"0 GOVERNMENT OF INDIA,
!$+*3&+ '( 1/'('(1 &5$ %"(.')$(%$ ". &5$ +"%'$&8 /+ / 45"3$Q /%&+ /+ / 1!$/&
+&!$(1&5.
WEANESSES:
T5$ 0/(2"4$! /& NAPS '+ '( $<%$++ &5/& '+ / ,*!)$( "( / PSU.
I( 2!")*%&'"( )$2/!&0$(& +"0$ 0/%5'($+ /!$ &"" "3).

OPPORTUNITIES:
NAPS 5/+ ,$%"0$ / 1$($!'% (/0$ '( &5$ 2"4$! 1$($!/&'"(. S",
%"02/(8 5/+ 1!$/& "22"!&*('&'$+ '( +*%5 0/!:$& '. +*2238 4'33 ,$ !$1*3/! 4'&5
!$/+"(/,3$ 2!'%$+.
D'-$!+'.'%/&'"( '( &5$ /!$/+ ". %"(-$(&'"(/3 /() ("(@
%"(-$(&'"(/3 2"4$! 1$($!/&'"(.

THREATSF
I. %"02$&'&"! '+ 2!"-')'(1 $3$%&!'%'&8 /& 0"!$ !$/+"(/,3$ 2!'%$+
&5/( NAPS, &5$( &5$ %*+&"0$!+ ". &5$ %"02/(8 /!$ /&&!/%&$) &"4/!)+ &5$0.
E<2/(+'"( ". &5$!0/3 2"4$! 23/(&+ /() 58)!" 2"4$! 23/(&+.
LIMITATIONS OF THE STUDY
I( +2'&$ ". ,$+& $.."!&+ ". &5$ '(-$+&'1/&"! &5$ +&*)8 4/+ +*,#$%&$) &"
."33"4'(1 3'0'&/&'"(+:
>% ,ome o$$icers +ere too -usy to !i*e a sicere respose to i*esti!ators a# hece
their respose may ot relate to real picture%
/% Maa!er sometime #eie# #isclosi! some importat $iacial matters) +hich ca -e
help$ul i this stu#y%
3% ,ome i$ormatio relate# to the stu#y) +hich ha# -ee collecte# $rom the compay
+as rou#e# o$$ -ecause o$ some i$luece%
G% At some place appro7imate $i!ures ha# -ee ta.e as per istructio o$ compay
o$$icer%
0% ,ome i$ormatio i NAP, +as hi!hly co$i#etial #ue to +hich some calculatios
are ot ma#e%
CONCLUSION

,toc. tur o*er ratio is #ecreasi!) it sho+s that capital is -loc.e# i to the i*etory
5ue to icrease i the time perio# $or the reali<atio o$ #e-tors) cash a# -a. -alace has
#ecrease#%
The NAP, is #epe#et o NPCIL $or their cash re"uiremets%
Wor.i! capital tur o*er ratio has also #ecrease# this year +hich sho+s u#erutili<atio
o$ +or.i! capital or ot e$$iciet or optimum utili<atio o$ +or.i! capital%
,ales are #ecreasi! #uri! the year /44@24B% 8ece pro$ita-ility has #eclie# o*er this
perio#%
FINDINGS
>% I the year /44024@ curret ratio '+or.i! capital ratio( is *ery hi!h hece it sho+s
the i#leess o$ $u#s -ut i the year /44@24B short2term $iacial positio o$ the
compay is satis$actory%
/% I*etory turo*er ratio o$ NAP, i /44@24B is ot satis$actory as compare# to
/44024@H it meas that the $u#s are -loc.e# ito the i*etory) +hich ca create the
pro-lem o$ cash i$lo+%
3% 5e-tor collectio perio# o$ curret year is more tha that o$ the pre*ious year)
+hich is ot satis$actory) +hich i#icates #e$erre# paymet -y #e-tors a# hece
icreases the chaces o$ -a# #e-ts% &ut i$ you cosi#er the collectio perio# o$
pre*ious year it is satis$actory%
G% The +or.i! capital turo*er ratio i#icates the +ea. positio o$ or!ai<atio as
compare# to pre*ious year) +hich sho+s the u#erutili<atio o$ +or.i! capital%
0% The $i7e# assets turo*er ratio re*eals that ho+ e$$icietly the $i7e# assets are
-ei! utili<e#) compare# to the pre*ious there is a #ecrease i the ratio) +hich sho+s
that assets ha*e ot -ee use# e$$icietly as they ha# -ee use# i the pre*ious year%
@% Calculatio sho+s that the NAP, is eari! a !oo# amout o$ pro$it%
SUGGESTIONS AND RECOMMENDATIONS
O the -asis o$ my #etaile# #iscussio a# o-ser*atio +ith the hea# o$
#epartmet o$ NAP,) I am pro*i#i! the $ollo+i! su!!estio a# recomme#atio to
impro*e the $ollo+i! ratioF
>% Gross pro$it) et pro$it) et +orth ratio is *ery lo+ i /44B) +hich re"uire the #ue
attetio o$ the maa!emet% Possi-le reasos shoul# -e i#eti$ie#) thorou!hly
i*esti!ate a# reme#ial measures shoul# -e ta.e to impro*e the situatio i$ the same
re"uire actio%
/% The +or.i! capital) $i7e# asset) ,o the corporatio ma.es certai policy to utili<e the
capital employe#) its +or.i! capital a# $i7e# assets to its a-ility% %
3% The curret ratio is much hi!her tha /F> i -oth the year) +hich sho+s that the $u# i
corporatio is i#eal) it is ot e$$ecti*ely utili<e#% The maa!emet o$ the corporatio
shoul# ma.e the policy to i*est the $u#s i other pro$ita-le opportuities li.e%
G% I NAP, collectio perio# is *ery hi!h +hich may result i -a# #e-ts $or compay so it
shoul# -e cotrolle#%
0% No purchases shoul# -e ma#e till the stoc. is #ispose# o$$%
@% I NAP, there is o #irect i$lo+ o$ cash -y -ul. po+er -ee$iciariesF sice the
#is-ursemet is #irectly ma#e to NPCIL so $or the cash re"uiremets NAP, has to rely
o the 8ea#"uarter 'NPCIL(%

BIBLIOGRAPHY

FINANCIAL MANAGEMENT
L Pa#ey I%M%
COMPREHENSIVE ACCOUNTING
L ,i##i"ui ,%A%
ANNUAL REPORT OF NPCIL
ANNUAL REPORT OF NAPS
NAPS WEB SITE

ANNE>URES
!RO<IT N= "O>> CCO(NT O<
NROR TO#IC !OW$R >TTION
<OR T?$ @$R $N=$= ON
#RC? 0.,/,,4
ARs+ in "a'hsB
<or the year <or the @ear
/,,32/,,4 /,,-2/,,3
INCOME
>alesC
$lectrical $nergy .3-13+40 04//3+3/
.3-13+40

Other Income -,00+19 .43+80
TOT" INCO#$ /.-8,+// 041,0+1-

E?PENDITURE
Generation, dministration 6 Other
$5penses .14.1+./ /08-3+/4
=e%erred Re)enue $5penditure 2
$5tra Ordinary Item Written o%% 2
=elayed !ayment Charges Wai)er 2
Interest
On &onds /0+9 09+-9
On Go)ernment "oans 2 2
On %oreign "oans 2 2
/0+9 09+-9
"essC Trans%erred to $5penditure
during 2 2
Construction
/0+9 09+-9
=epreciation 831+98 ./.9+,0
TOT" $D!$N=IT(R$ .-3,0 /-..1+9

PROFIT FOR T*E .EAR -944+// .//88+--
!rior !eriod djustments ANetB ///+83 ..,,+04
PROFIT 4EFORE TA? -4-1+03 ...88+.8
!ro)ision %or Ta5ation 2 2 2
PROFIT AFTER TA? -4-1+03 ...88+.8
&alance brought %or*ard %rom
pre)ious year 2 2
PROFIT FOR APPROPRIATIONS -4-1+03 ...88+.8
!!RO!RRITION>C
!roposed di)idend %or the @ear 2 2
Ta5 on !roposed =i)idend 2 2
&ond Redemption Reser)e 2 2
&alance carried to &alance >heet 2 2
TOTAL -4-1+03 ...88+.8
N%ror% Ato@i' Po+er St%tion
4ALANCE S*EET AS ON MARC* 01A2" ARs+ In "a'hsB
s at s at
0.
st
#arch /,,4 0.
st
#arch /,,3
I.SOURCES OF FUNDS
1.s#%re#o-3erBs fun3s
aB >hare Capital 2
bB >ubscription %rom Go)t+ o% India to*ards 2
>hare Capital pending allotment 2
cB Reser)es 6 >urplus -4-1+03 ...88+.8

2.Lo%n Fun3s
aB >ecured "oans 2 2
bB (nsecured "oans 2 2
2

0.Inter Unit 4%-%n'e 1.,8.+,. /,43/+1/

TOTAL 1380-+08 0.9-,+3

II.APPLICATION OF FUNDS
1.Fi(e3 Assets
aB Gross &loc' 9,.-.+93 9,.3-+88
"essC =epreciation 414,9+41 40130+01

Net &loc' .-11/+/. .34,/+-1
bB Capital Wor' in !rogress //0-9+- 0/18+4
048,.+4/ .99-.+/1

2. Invest@ents ,+4.,/. ,+4.,/.

0. Current AssetsA Lo%ns ) A3v%n'es
aB In)entories 0/1.+34 /3-3+38
bB >undry =ebtors 4331+1- .,,9.+00
cB Cash 6 &an' &alances /34+/9 /18+3
dB Other Current ssets .8/+9. .39+93
eB "oans 6 d)ances ./,/+,3 .,80+19
./--8+1 .1/-,+,8

"essC Current "iabilities 6 !ro)isions
aB "iabilities 0-/-+13 //-.+1/
bB !ro)isions 2 2
0-/-+13 //-.+1/
Net Current ssets 9,0/+91 ..998+3-

6. Mis'e--%neous E(&en3iture <to t#e 2 2
E(tent not +ritten off or %3Custe3=

TOTAL 1380-+08 0.9-,+3
!ro%it %or the year ./9. 01+04.34
=epreciation 330 .4+3-.43
Interest 010 9+.0/,--
Other opt+ $5penses 11 .+.4.1-9
Repair6maintenance .9, -+,-8-40
?ea)y *ater charges 143 ./+340,3
<uel charges 419 .9+91.10
04-3
3istribution of revenue
017
.87 97
.7
-7
.07
/,7