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A PROJECT REPORT ON

ANALYSIS OF WORKING CAPITAL MANAGEMENT ON


NALCO

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT


OF DEGREE OF MASTERS OF FINANCIAL MANAGEMENT (MFM)
FROM THE UNIVERSITY OF MUMBAI

SUBMITTED BY
SURESH GEMARAM RATHOD
MFM (2012-2015)

UNDER THE GUDENCE OF


PROF. SHAILESH PRAJAPATI

N.L.DALMIA INSTITUTE OF MANAGEMENT


STUDIES AND RESEARCH, MIRA ROAD (E).
MUMBAI-401104

Page 1

Chapter.
1.

CONTENTS
Introduction

Page No.
6

1.1 Objective Of The Study


1.2 Research Methodology and Scope Of Study
1.3 Limitation Of The Study
2.

Industry sceniro and Company Profile

7-9

2.1 Aluminium Structure, Inputs and Products


3.

Introduction NALCO

10-16

3.1 Brief History


3.2 Nalco- products
4.

Introduction-Working Capital

17-20

5.

Working Capital Management

21-29

5.1 Consequences of under and over assessment of W.C


5.2 Financing W.C
5.3 Objective of Inventory Management
5.4 Components of working capital
5.5 Important Terms of working capital & Key W.C Ratios
6.

Data Collection And Representations

30-48

6.1 Balance sheet & Profit/Loss A/c and Ratios (graphical


presentation)
7.

Conclusion, Major Findings, Recommendation

8.

Bibliography

49-50
51

Page 2

ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude to theIntelligence and cooperation of those people who had been so easy to let me understand what I needed from time
to time for completion of this exclusive project.
I am greatly indebted to my internal guides and Mr.G.B.PRADHAN , Assistance Manager ,
Finance Department ,corporate office , NALCO , DAMOJUDI for their constant guidance
,advice and help which enabled me to finish this project report properly in time .
And deepest thanks to PROF. SHAILESH PRAJAPATI the guide of the project for guiding
and correcting various documents of mine with attention and care.
Last but not the least, I would like to express my gratitude to my friends & other faculty
members who always endured me and stood with me and without whom I could not have
completed the project.

Thanks & Regards,

SURESH RATHOD

Page 3

DECLARATION
I do hereby declare that this piece of project report entitled Analysis of Workingcapital
Management on NALCO for partial fulfilment of therequirements for the award of the
degree of Master of Financial Management is a record of original work done by me
under the supervisionand guidance of Prof SHAILESHPRAJAPATI, fromN.L.INSTITUTE
OF MANAGEMENT STUDIES & RESEARCH .This project work is my own and has
neither been submitted nor published elsewhere.

PLACE:

SIGNATURE OF THE STUDENT

DATE:

SURESH RATHOD

CERTIFICATE

This is to certify that the Project report titled Analysis


of Working capital Management on NALCO submitted by Mr. Suresh
Gemaram

Rathod

student

of

MFM

Program

(Batch

2012-2015)

N.L.INSTITUTE OF MANAGEMENT STUDIES & RESEARCH. The


information submitted is true and original to the best of my knowledge work
done by him.

Signature of the Project Guide

Signature of the Director

Name: Prof.Shailesh Prajapati

Name: Poof.A.N.Khedkar

Page 4

EXECUTIVE SUMMARY

The major objective of the study is too proper understanding the working capital of NALCO
& to suggest measures to overcome the shortfalls if any. Funds needed for short term needs
for the purpose like raw materials, payment of wages and other day to day expenses are
known as working capital. Decisions relating to working capital (Current assets-Current
liabilities) and short term financing are known as working capital management. It involves
the relationship between a firms short-term assets and its short term liabilities. By definition,
working capital management entails short-term definitions, generally relating to the next one
year period.
The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Working capital is primarily concerned with inventories management, Receivable
management, cash management & Payable management.

Page 5

CHAPTER 1
INTRODUCTION:-

The life blood of business, as is evident, signified funds required for day-to-day operations of
the firm. The management of working capital assumes great importance because shortage of
working capital funds is perhaps the biggest possible cause of failure of many business units
in recent times. There it is of great importance on the part of management to pay particular
attention to the planning and control for working capital. An attempt has been made to make
critical study of the various dimensions of the working capital management of NALCO, a
Star Trading House with NAVRATNA Status.
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-term
assets and its short-term liabilities. The goal of Working capital management is to ensure that
the firm is able to continue its operations and that it has sufficient money flow to satisfy both
maturing short-term debt and upcoming operational expenses.

OBJECTIVE OF THE STUDY:The following are the main objectives of the present study:
1. To determine the amount of working capital requirement by NALCO
2. To calculate various ratios relating to working capital and compare with

standard.

3. To make an item wise study of the components of the working capital.


4. To suggest the steps to be taken to increase the efficiency in management of working
capital.

STUDY DESIGN AND METHODOLOGY:Two types of data are collected, one is primary data and second one is secondary data. The
primary data were collected from the Department of finance, NALCO.
The secondary data were collected from the Annual Report of NALCO, NALCO website, etc.
LIMITATIONS:There may be limitations to this study because the study duration (summer placement) is very
short and its not possible to observe every aspect of working capital management practices.

Page 6

CHAPTER 2
INDUSTRY SCENARIO AND COMPANY PROFILE
INDIAN ALUMINIUM INDUSTRY:

Aluminium Industries in India is one of the leading industries in the Indian economy. The
growth of the aluminium Metal industry in India would be sustained by the diversification
and exploration of new horizons for the industry. India has huge deposits of natural resources
in form of minerals like copper, chromite, iron ore, manganese, bauxite, gold, etc. The India
aluminium industry falls under the category of non-iron based which include the production
of copper, tin, brass, lead, Zinc,aluminium, and manganese.

The main operations of the of the India aluminium industry is mining of ores, refining of the
ore, casting, alloying, sheet, and rolling into foils. At present, Hindalco and Nalco are one of
the most economical in the production of aluminium in the world. For the sustenance of the
growth the aluminium industry in India has to develop research and development units to
assist the production and improve on the quality measures to keep a stringent quality control.

The India aluminium Metal Industries sector in the previous decade experienced substantial
success among the other industries. The India aluminium industry is developing fast and the
advancement in its technologies is boosting the growth even faster. The utilization of both
international and domestic resources was significant in the rapid development of the India
aluminium industry. This rapid development has made the India aluminium industry
prominent among the investors. The India aluminium industry has a bright future as it can
become one of the largest players in the global aluminium market as in India the consumption
is fairly low, the industry may use the surplus production to cater the international need for
aluminium which is used all over the world for several applications such as aircraft
manufacturing, automobile manufacturing, utensils, etc.
The per capita consumption of aluminium in India is only 0.5 kg as against 25 kg. In USA, 19
kg. In Japan and 10 kg. In Europe, Even the Worlds average per capita consumption is about
10times of that in India.

Page 7

ALUMINIUM-STRUCTURE
The aluminium industry in India can be classified as:
(a) The primary producers who produce ingots and billets (primary form of aluminium) using
bauxite.
(b) The secondary producers who add value to the ingots and billets to produce semifabricated products.
At present there are only five companies in the primary aluminium market viz. Hindalco,
Indian Aluminium (Indal), Madras Aluminium (Malco), National Aluminium (Nalco) and
Bharat Aluminium (Balco). The former three are private sector companies while the latter
two are government owned.
All the primary producers have integrated forward into the manufacture of high value semifabricated products like rods, rolled products, extrusions and foils.
Aluminium Inputs

The aluminium industry in India can be classified as: Captive power, ample bauxite
reserves, coupled with cheap labour costs makes Indian companies amongst the most
competitive aluminium producers globally.

The main raw material for the manufacture of aluminium includes bauxite, caustic
soda, calcined petroleum coke, coal tar pitch, and LS/FS furnace oil. The production
process for manufacture of aluminium is briefly outlined below.

The mined bauxite ore is mixed with caustic liquor and is refined to produce alumina.
This is then smelted (through electrolysis in a smelter) to obtain aluminium.
Depending on the quality of bauxite, 2.5 3 tonnes are required for manufacture of 1
tonne of alumina. In turn, 2 tonnes of alumina are required for manufacture of 1 tonne
of aluminium.

Page 8

Bauxite

Indian bauxite reserves at 3 bn tonnes, are the 5th largest in the world, and account for
6% of total world reserves. Most alumina refineries are designed around the bauxite
reserves to reduce transportation costs. Cost per tonne of bauxite varies for players
depending on the location of the refinery and bauxite mines.

KEY POINTS
Supply - Supply of aluminium is in excess and any deficit can be imported at low rates of
duty. Currently, domestic production comfortably meets domestic requirements.
Demand- Demand for aluminium is estimated to grow at 6%-8% per annum in view of the
low per capita consumption in India. Also, demand for the metal is expected to pick up as the
scenario improves for user industries, like power, infrastructure and transportation.
Barriers to entry- Large economies of scale. Consequently, high capital costs.
Bargaining power of suppliers- Most domestic players operate integrated plants. Bargaining
power is limited in case of power purchase, as Government is the only supplier. However,
increasing usage of captive power plants (CPP) will help to rationalise power costs to a
certain extent in the long-term.
Bargaining power of customers- Being a commodity, customers enjoy relatively high
bargaining power, as prices are determined on demand and supply.

Page 9

CHAPTER 3
NATIONAL ALUMINIUM COMPANY LTD.
National Aluminium Company Ltd. (Nalco) is considered to be a turning point in the
history of Indian Aluminium Industry. In a major leap forward, Nalco has not only addressed
the need for self-sufficiency in aluminium, but also given the country a technological edge in
producing this strategic metal to the best of world standards. Nalco was incorporated in 1981
in the Public Sector, to exploit a part of the large deposits of bauxite discovered in the East
Coast. The CaptivePower Plant (CPP) & Smelter Plant are situated near Angul.
Nalco is one of the biggest and Asias largest integrated complex, encompassing Bauxite
mining, Alumina refining, Aluminium smelting and casting power generation, rail and port
operations. NALCO was established in 1981 as a public sector enterprise of the Govt.of India.
It is considered a truing point in the 50-yearold history of the Indian aluminium industry. In
Orissa, for setting up Asia's largest integrated alumina-aluminium complex in 1981, National
Aluminium Company Limited (Nalco) acquired 7263 acres of land at Damanjodi in Koraput
district and 4057 acres at Angul.
During the inception of the company, 635 families in 51 villages were

displaced - 600

families in Damanjodi sector and 35 families in Angul sector. From these 635 displaced
families, employment has been provided to 625 nominees. Confusion regarding educational
background and nomination status of balance 10 families has beent0aken up at appropriate
level. Besides, 1495 families were substantially affected i.e. parting with one third or more
land) in Angul sector. Even from these, jobshave been provided to 1060 persons. Nalco has
also been sponsoring ITI training to such persons and 543 have been technically trained so
far. Apart from financial compensation, employment and rehabilitation packages, Nalco has
also spent more thanRs. 100 crore towards various social sector development activities.
Creation of infrastructure in the surrounding villages for communication, education, health
careand drinking water gets priority in the periphery development plans of the company.
Community participation in innovative farming, pisciculture, social forestry and sanitation
programmes apart, encouragement to sports, art, culture and literature are all a part of Nalco's
deep involvement with the life of the community. Successful operations of the company have
led to employment and incomegeneration for the local people in many significant ways.

Page 10

ALUMINIUM SMELTER PLANT


The 2, 30,000 tpa capacity Aluminium Smelter is located at Angul in Orissa. Based on energy
efficient state-of-the-art technology of smelting and pollution control, the Smelter Plant is in
operation since early 1987.
Presently, the capacity is being expanded to 3, 45,000 tpa.

MISSION OF NALCO
The broad mission of the company is:
To achieve growth in business with global competitive edge providing satisfaction to the
customers, employees, shareholders and community at large. This has been clearly spelt out
in the Companys Memorandum & Articles 0f Association. Thus, employee satisfaction is a
part of the Companys broad mission and is a thrust area.
OBJECTIVES

To maximize capacity utilization.

To optimize operational efficiency and productivity.

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


efficiency and customer service.

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


and diversification.

To have global presence and earn foreign exchange.

To maintain leadership in domestic market.

To maximize return on investment.

To develop a strong R&D base and increase business development activities.

To maximize internal customer satisfaction.

To foster high standards of health, safety and environment friendly products.

To in still financial discipline at all level for achieving cost and budgetary
controls, optimize utilization of working capital and effective cash flow
management.

To promote a result oriented organizational ethos and work culture that empowers
employees and helps realization of individual and organizational goals.

Page 11

The salient features:

Advanced 180 KA cell technology

Micro-processor based pot regulation system

Fume treatment plant with dry-scrubbing system for pollution controland fluoride salt
recoveryIntegrated facility for manufacturing carbon anodes, bus bars, anodetems etc.

4 x 35 tone and 4 x 45 tone furnaces and 2 x 15 tph and 2 x 20 tphingot casting


machines

4 x 45 tonne furnaces and 2 x 9.5 tph wire rod mills

2 x 45 tonne furnaces and 60/42 per drop billet casting machine

2 x 1.5 tonne induction furnace with a 4 tph alloy ingot casting machine

26,000 tpa strip casting machines

With the acquisition and subsequent merger of International Aluminium


Products Limited (IAPL) with Nalco, the 50,000 tpa export-oriented Rolled Products Unit is
all set to produce foil stock, fin stock, can stock, circles, coil stock, cable wraps, standard
sheets and coils
atBharatpur in Talcher by Mahanadi CoalfieldsLimited. The Power Plant is inter-connected
with the State Grid.
Brief History:
After the discovery of 1000 million tons of Bauxite reserves in the Eastern Ghats,the govt. of
India on the 28th March, 1978, authorized Aluminium Pechiney ofFrance to prepare a
feasibility report on the industrial exploration of bauxite for theestablishment of an
integratedAluminium complex. The result of this study led to sifting of focus of attention
toPanchpattermali, 30km.East of Koraput District of Orissa. Nalco was incorporatedin 1981as
a public sector Unit. The newly founded NALCO signed an agreement ofcollaboration with
aluminium Pechiney, the world leader in this field forincorporation of technical know-how to
set up Asias largest integrated aluminiumcomplex.

Page 12

LOCATION OF THE ORGANISATIONS


Nalco projects mostly located in backward districts of Orissa were expeditiously completed
on schedule on the very difficult logistics of project management. The Mines and Alumina
Refinery Complex has located at Damanjodi in Koraput District. This is a picture sque valley
of this beautiful district at the foot of Panchpatmali Hills. A 16 km long uphill road connects
the plateau of Panchapatmali, where the bauxite Mines of Nalco is located. Damanjodi is 12
Km. from Semiliguda, a small town located on the NH-43 that connects Vizianagarm of
Andhra Pradesh with Jagdalpur of Chhattisgarh. The Vizianagaramis a distance of 135 Km..
There is of course a passenger rail service from Koraput to Visakhapatnam through the most
enchanting hilly terrains of Aruku Valley and Anantagiri. Damanjodi is also connected by
Rail Transport from Bhubaneswar, Rayagada, Visakhapatnam, and Sambalpur& Kolkata. It is
also

connected

by

bus

service

from

Berhampur,

Cuttack,

Bhubaneswar,

and

Angul&Samabalpur. Its Smelter Plant and CPP are located at Angul, while the corporate head
quarter is located at Bhubaneswar, the capital city of Orissa.
Registered office...Bhubaneswar
Bauxite mine.Panchpatmali
Aluminium refinery..............................Damanjodi
Captive power plant.Angul
Aluminium smelter..Angul
Port facilities..Visakhapatnam
Rolled product unit.Angul

Page 13

NALCO-PRODUCTS
Aluminium Metal

Ingots

Sows

Billets

Wire rods

Alloy wire rods

Cast strips\

Alumina & Hydrate

Calcined Alumina

Alumina Hydrate

EXPANDED CAPACITIES:

2ND Phase expansion project

You will be pleased to know that with the commissioning of 4th Stream of
Alumina Refinery during the year, the2nd phase Expansion Project of your
Company stands completed. The details of earlier capacity and present capacity
after 2nd phase expansion of your company are as under.

SI

Project Segment

NO

Capacity

before

2nd Capacity after 2nd Phase

phase Expansion

Expansion

Bauxite Mine

48 LakhTPY

63 LakhTPY

Alumina Refinery

15.75 LakhTPY

21 LakhTPY

Aluminium Smelter

3.45 LakhTPY

4.6 LakhTPY

Captive Power Plant

960MW

1,200MW

Page 14

The Sales break-up is as follows:


Unit

2011-2012

2010-2011

Alumina

MT

792,552

855,639

Aluminium including

MT

98,399

98,200

Alumina and Hydrate

MT

49,844

42,062

Zeolite-A

MT

409

3,854

Aluminium

MT

317,517

340,752

Total Metal Sale

MT

415,916

438,952

Total Chemical Sale

MT

842,396

681,919

Export

Rolled Products
Domestic

ORGANIZATIONAL CHART OF NALCO (M&R COMPLEX)


ED (M&R)

GM (AR)

GM (O&M)

GM (MINES)

FUNCTIONAL
HOD

GM (H&A)

GM (MATLS)

FUNCTIONAL
HOD

FUNCTIONAL
HOD

FUNCTIONAL
HOD

GM
(FINANCE
)

FUNCTIONA
L HOD

Page 15

ED(M&R)

GM(AR)/
GM(O&M)

Overall in charge of M&R Complex and all Functional


level GMs are reporting
: In charge of Alumina Plant operation & maintenance

GM(Mines)

In charge of Mines operation & maintenance

GM(H&A)

In charge of HRD &Admin. of M&R Complex

GM (MATLS.)

In charge of Purchase & stores Functions of M&R


Complex

GM(FINANCE) :

In charge of Finance & Accounts of M&R Complex

FUNCTIONAL :

In charge for respective area of operation and i.e.


Production, Mechanical, Electrical, Steam Generation
Plant, Electronic & Instrumentation, Civil, Purchase,
Stores, Finance, Human Resource Development,
Administration, Horticulture, Training, Peripheral
Development.

HEAD OF
DEPARTMENT

Page 16

CHAPTER 4
WORKING CAPITAL
Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called Long term Funds or Fixed Capital.
Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called Long-term Funds or Fixed Capital.
Every running business needs working capital. Even a business which is fully equipped with
all types of fixed assets required is bound to collapse without

adequate supply of raw materials for processing;

cash to pay for wages, power and other costs;

creating a stock of finished goods to feed the market demand regularly; and,

The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.
Working capital cycle involves conversions and rotation of various constituents Components
of the working capital. Initially cash is converted into raw materials.
Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get
converted into work in process and then into finished goods. When sold on credit, the finished
goods assume the form of debtors who give the business cash on due date. Thus cash
assumes its original form again at the end of one such working capital cycle but in the course
it passes through various other forms of current assets too. This is how various components of
current assets keep on changing their forms due to value addition. As a result, they rotate and
business operations continue. Thus, the working capital cycle involves rotation of various
constituents of the working capital.
While managing the working capital, two characteristics of current assets should be kept in
mind viz. (i) short life span, and (ii) swift transformation into other form of current asset.
Each constituent of current asset has comparatively very short life span. Investment remains
in a particular form of current asset for a short period. The life span of current assets depends
upon the time required in the activities of procurement; production, sales and collection and

Page 17

degree of synchronization among them. A very short life span of current assets results into
swift transformation into other form of current assets for a running business.
These characteristics have certain implications:

Decision regarding management of the working capital has to be taken

frequently and on a repeat basis.

The various components of the working capital are closely related and

mismanagement of any one component adversely affects the other components too.

The difference between the present value and the book value of profit is not

significant.
The working capital has the following components, which are in several forms of current
assets:
Stock of Cash

Stock of Raw Material

Stock of Finished Goods

Value of Debtors

Miscellaneous current assets like short term investment loans & Advances

A number of definitions have been formulated: perhaps the most widely acceptable
would be;
WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT
LIABILITIES
The same may be designated in the following equation:
WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES:
Funds thus invested in current assets keep revolving fast and are being constantly converted
in to cash and this cash flows out again in exchange for other current assets. Thus it is known
as revolving or circulating capital or short term capital.
These are two concepts of working capital:a. Gross Working Capital.
b. Net Working Capital.
Gross working capital is the total of all current assets. Net working capital is the difference
between current assets and current liabilities. Though the later concept of working capital is
commonly used it is an accounting concept with little sense to say that a firm manages its net
working capital. What a firm really does is to take decisions with respect to various current
Page 18

assets and current liabilities. The constituents of current assets and current liabilities are
shown in table A.

Constituents of Current Assets and Current Liabilities


Current Assets

Inventories Raw materials and components, Work in progress, Finished

goods, other.

Trade Debtors.

Loans and Advances.

Investments.

Cash and Bank balance.

Current Liabilities

Sundry Creditors.

Trade Advances.

Borrowings.

Provisions.

Working Capital Cycle


In manufacturing concern, working capital cycle starts with the purchase of raw materials and
ends with realization of cash from the sale of finished goods. The cycle involves the purchase
of raw materials and ends with the realization of cash from the sale of finished products. The
cycle involves purchase of raw materials and stores, its conversion in to stock of finished
goods through work in progress with progressive increment of labour and service cost,
conversion of finished stick into sales and receivables and ultimately realization of cash and
this cycle continuous again from cash to purchase of raw materials and so on.

Page 19

Operations
The requirement of working capital fluctuates for seasonal business. The working capital
needs of such businesses may increase considerably during the busy season and decrease
during the slack season. Ice creams and cold drinks have a great demand during summers,
while in winters the sales are negligible.
Other Factors
Certain other factors such as operating efficiency, management ability, irregularities a supply,
import policy, asset structure, importance of labour, banking facilities etc. also influences the
requirement of working capital.

Component of Working Capital Basis of Valuation

Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is lower

Stock of finished goods Cost of production

Debtors Cost of sales or sales value

Cash Working expenses

Page 20

CHAPTER 5
WORKING CAPITAL MANAGEMENT
Working Capital Management refers to management of current assets and current liabilities.
The major thrust of course is on the management of current assets .This is understandable
because current liabilities arise in the context of current assets. Working Capital Management
is a significant fact of financial management. Its importance stems from two reasons:1. Investment in current assets represents a substantial portion of total investment.
2. Investment in current assets and the level of current liabilities have to be geared
quickly to change in sales. To be sure, fixed asset investment and long term financing
are responsive to variation in sales. However, this relationship is not as close and
direct as it is in the case of working capital components.
The importance of working capital management is affected in the fact that financialmanages
spend a great deal of time in managing current assets and currentliabilities. Arranging short
term financing, negotiating favourable credit terms,controlling the movement of cash,
administering the accounts receivable, andmonitoring the inventories consume a great deal of
time of financial managers.
The problem of working capital management is one of the best utilization of a scarce
resource.
Thus the job of efficient working capital management is a formidable one, since it depends
upon several variables such as character of the business, the lengths of the merchandising
cycle, rapidity of turnover, scale of operations, volume and terms of purchase & sales and
seasonal and other variations.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Growth may be stunted. It may become difficult for the enterprise to undertake

profitable projects due to non-availability of working capital.

Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.

Cash crisis may emerge due to paucity of working funds.

Page 21

Optimum capacity utilization of fixed assets may not be achieved due to non-

availability of the working capital.

The business may fail to honour its commitment in time, thereby adversely

affecting its credibility. This situation may lead to business closure.

The business may be compelled to buy raw materials on credit and sell

finished goods on cash. In the process it may end up with increasing cost of purchases
and reducing selling prices by offering discounts. Both these situations would affect
profitability adversely.

Non-availability of stocks due to non-availability of funds may result in

production stoppage.

While underassessment of working capital has disastrous implications on

business, over assessment of working capital also has its own dangers

CONSEQUENCES OF OVER ASSESSMENT OF WORKINGCAPITAL

Excess of working capital may result in unnecessary accumulation of

inventories.

It may lead to offer too liberal credit terms to buyers and very poor recovery

system and cash management.

It may make management complacent leading to its inefficiency.

Over-investment in working capital makes capital less productive and may

reduce return on investment. Working capital is very essential for success of a


business and, therefore, needs efficient management and control. Each of the
components of the working capital needs proper management to optimize profit.

The working capital in certain enterprise may be classified into the following kinds.
1. Initial working capital. The capital, which is required at the time of the commencement of
business, is called initial working capital. These are the promotion expenses incurred at the
earliest stage of formation of the enterprise which include the incorporation fees. Attorney's
fees, office expenses and other expenses.
2. Regular working capital. This type of working capital remains always in the enterprise
for the successful operation. It supplies the funds necessary to meet the current working
expenses i.e. for purchasing raw material and supplies, payment of wages, salaries and other
sundry expenses.
Page 22

3. Fluctuating working capital. This capital is needed to meet the seasonal requirements of
the business. It is used to raise the volume of production by improvement or extension of
machinery. It may be secured from any financial institution which can, of course, be met with
short term capital. It is also called variable working capital.
4. Reserve margin working capital. It represents the amount utilized at the time of
contingencies. These unpleasant events may occur at any time in the running life of the
business such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and
unavoidable competition etc. In this case greater amount of capital is required for
maintenance of the business.

Financing Working Capital

Now let us understand the means to finance the working capital. Working capital or current
assets are those assets, which unlike fixed assets change their forms rapidly. Due to this
nature, they need to be financed through short-term funds. Short-term funds are also called
current liabilities. The following are the major sources of raising short-term funds:
I. Suppliers Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material is
paid after some time, i.e. upon completion of the credit period. Thus, without having an
outflow of cash the business is in a position to use raw material and continue the activities.
The credit given by the suppliers of raw materials is for a short period and is considered
current liabilities. These funds should be used for creating current assets like stock of raw
material, work in process, finished goods, etc.
ii. Bank Loan for Working Capital
This is a major source for raising short-term funds. Banks extend loans to businesses to help
them create necessary current assets so as to achieve the Required business level. The loans
are available for creating the following current Assets:

Stock of Raw Materials

Stock of Work in Process

Stock of Finished Goods

Debtors

Page 23

iii. Promoters Fund


It is advisable to finance a portion of current assets from the promoters funds .They are longterm funds and, therefore do not require immediate repayment. These funds increase the
liquidity of the business.

Objective of Inventory Management:The main objectives of inventory management are operational and financial. The operational
mean that means that the materials and spares should be available in sufficient quantity so
that work is not disrupted for want of inventory. The financial objective means that
investments in inventories should not remain ideal and minimum working capital should be
locked in it.

Page 24

COMPONENTS OF WORKING CAPITAL ARE CALCULATED AS FOLLOWS:


1) Raw Materials Storage Period=
Average stock of raw materials/Average cost of raw material consumption per day.

2.) W-I-P holding period=


Average w-i-p in inventory/Average cost of production per day

3.) Stores and spares conversion period=


Average stock of Stores and spares/Average consumption per day.

4.) Finished goods conversion period=


Average stock of finished goods/Average cost of goods sold per day.

5.) Debtors collection period=


Average book debts/Average credit sales per day.

6.) Credit period availed=


Average trade creditors/Average credit purchase per day.

Management of Receivables
A sound managerial control requires proper management of liquid assets and inventory.
These assets are a part of working capital of the business. An efficient use of financial
resources is necessary to avoid financial distress. Receivables result from credit sales.

A concern is required to allow credit sales in order to expand its sales volume. It is not
always possible to sell goods on cash basis only. Sometimes other concern in that line might
have established a practice of selling goods on credit basis. Under these circumstances, it is
not possible to avoid credit sales without adversely affecting sales.
The increase in sales is also essential to increases profitability. After a certain level of sales
the increase in sales will not proportionately increase production costs. The increase in sales
will bring in more profits. Thus, receivables constitute a significant portion of current assets
of a firm.
Page 25

IMPORTANT TERMS

WORKING CAPITAL CYCLE


Cash flows in a cycle into, around and out of a business. It is the business's life blood and
every manager's primary task is to help keep it flowing and to use the cash flow to generate
profits. If a business is operating profitably, then it should, in theory, generate cash surpluses.
If it doesn't generate surpluses, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment.
The cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks and workin-progress) and Receivables (debtors owing you money). The main sources of cash are
Payables (your creditors) and Equity and Loans.

Sources of Additional Working Capital

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Long-term loans

Are you in a position to pass on cost increases quickly through price increases to your
customers?

If a supplier of goods or services lets you down can you charge back the cost of the
delay?

Page 26

Can you arrange (with confidence!) to have delivery of supplies staggered or on a


just-in-time basis.

METHODS OF CASH MANAGEMENT:


The following methods of cash management will help:
A) Methods of accelerating cash inflows:
1) Prompt Payment by customers.
2) Quick conversion of payment into cash.
3) Decentralized collections.
4) Lock box system.
B) Methods of slowing the cash outflows:
1) Paying on last Date.
2) Payment through Draft.
3) Adjust Payroll funds.
4) Centralization of payments.
5) 1nter13ank transfer.
6) Making use of Float.

Page 27

Key Working Capital Ratios

The following, easily calculated, ratios are important measures of working


capital utilization.

Ratio

Stock
Turnover
(in days)

Receivables
Ratio
(in days)

Formulae Result

Average
Stock * 365/ = x
Cost of
days
Goods Sold

Debtors *
365/
Sales

=x
days

Payables
Ratio
(in days)

Creditors *
365/
=x
Cost of Sales
days
(or
Purchases)

Current
Ratio

Total Current
Assets/
=x
Total Current times
Liabilities

Interpretation
On average, you turn over the value of
your entire stock every x days. You may
need to break this down into product
groups for effective stock management.
Obsolete stock, slow moving lines will
extend overall stock turnover days.
Faster production, fewer product lines,
just in time ordering will reduce average
days.
It takes you on average x days to collect
monies due to you. If youre official
credit terms are 45 day and it takes you
65 days... why?
One or more large or slow debts can drag
out the average days. Effective debtor
management will minimize the days.
On average, you pay your suppliers
every x days. If you negotiate better
credit terms this will increase. If you pay
earlier, say, to get a discount this will
decline. If you simply defer paying your
suppliers (without agreement) this will
also increase - but your reputation, the
quality of service and any flexibility
provided by your suppliers may suffer.
Current Assets are assets that you can
readily turn in to cash or will do so
within 12 months in the course of
business. Current Liabilities are amount
you are due to pay within the coming 12
months. For example, 1.5 times means
that you should be able to lay your hands

Page 28

on $1.50 for every $1.00 you owe. Less


than 1 times e.g. 0.75 means that you
could have liquidity problems and be
under pressure to generate sufficient cash
to meet oncoming demands.

Quick
Ratio

Working
Capital
Ratio

(Total
Current
Similar to the Current Ratio but takes
Assets =x
account of the fact that it may take time
Inventory)/ times
to convert inventory into cash.
Total Current
Liabilities
(Inventory +
A high percentage means that working
Receivables - As %
capital needs are high relative to your
Payables)/ Sales
sales.
Sales

Page 29

CHAPTER 6
DATA COLLECTION AND REPRESENTATIONS

Nalco
Balance sheet as on .
(Rs in Crs.)

PARTICULARS

2011-12

2010-11

2009-10

2008-09

2007-08

Sources of funds
Shareholders Fund
Share Capital
Reserve Surplus

1,288.62
10,426.46

1,288.62
9,875.99

644.31
9,751.27

644.31
9,125.50

644.31
8,230.14

Secured loans
Defered tax liability

849.11

14.88
693.46

660.59

621.35

607.43

TOTAL
APPLICATION OF FUNDS
FIXED ASSETS
Gross block
less cdepreciation
net block (NET FIXED ASSETS )
fixed asset awaiting disposal
Capital work in progress

INVESTMENT

12,564.19 11,872.95 11,056.17 10,391.16 9,481.88

13,658.62 12,076.15 11,017.96


7,046.27 6,582.62 6,181.65
6,612.35 5,493.53 4,836.31
684.44
7,296.79

1,743.53
7,237.06

2,243.40
7,079.71

9,899.84
5,868.30
4,031.54
0.99
2,867.13
6,899.66

754.26

1,331.67

986.75

895.93

1,058.47
112.40
3,795.23
163.84
915.23
6,045.17

944.92
181.78
3,152.35
145.00
785.59
5,209.64

841.90
686.65
26.50
60.65
2,869.04 3,516.46
175.35
236.47
616.02
541.10
4,528.81 5,041.33

2,354.46
386.49
2,740.95
3,304.22

1,849.95
369.98
2,219.93
2,989.71

1,603.40 1,318.31
329.84
222.57
1,933.24 1,540.88
2,595.57 3,500.45

Current assets, loans and advances


Inventory
1,212.70
Sundry Debtors
138.12
Cash and bank balance
4,168.35
other current assets
270.07
loan and advances
1,680.49
CURRENT ASSETS
7,469.73
less:current liabilities & provision
current liabilities
2,673.32
Provision
283.27
CURRENT LIABILITIES
2,956.59
Net current asstes
4,513.14
TOTAL

9,137.26
5,606.31
3,530.95
0.86
2,334.59
5,866.40
115.03

12,564.19 11,872.95 11,056.17 10,391.16 9,481.88

Page 30

PROFIT & LOSS ACCOUNT


Profit and loss account for 2008 to 2012

PARTICULARS

2011-12

2010-11

INCOME
Sales
7,038.23
less: excise duty
426.66
Net sales
6,611.57
Finished goods internally consume
Other income
542.16
TOTAL
7,153.73
EXPENDITURE
Decretion/accretion to stock of finished/ intermediary
-2.93
raw materials
1,030.78
fuel & power
2,196.68
repair & maitenance
Other manufacturing expenses
employees renumeration benefit
1,034.54
administrative exp.
other exp.
1,207.59
selling distributiom exp.
interest & financing charge
0.87
provision
depreciation & impairments
466.55
TOTAL
5,934.08
PBEIT
1,219.65
Exceptional items
21.90
add/less: prior period adjustment (net)
profit before tax
1,197.75
Provision for taxation
Tax exp.
(1) Current tax
(2) MAT creditmin entitlement
-39.89
Current
237.94
Fringe benefit
Deffered
155.65
Earlier years
-5.45
Tax Expenses
348.25
Profit after tax (NET PROFIT )
849.50

Page 31

2009-10

2008-09

2007-08

6,369.88
410.90
5,958.98
5.57
452.95
6,417.50

5,311.40
255.74
5,055.66
24.20
468.75
5,548.61

5,517.52
423.00
5,094.52
26.44
495.84
5,616.80

5,474.45
485.65
4,988.80
31.65
554.77
5,575.22

9.91
766.12
1,772.64
414.70
177.61
989.02
121.09
138.07
72.17
0.05
0.34
430.06
4,891.78
1,525.72

21.63
782.30
1,601.14
296.37
210.78
843.60
115.29
127.55
89.04
2.28
-3.91
319.39
4,405.46
1,143.15

-85.35
696.76
1,311.55
250.52
174.98
771.06
103.33
123.10
84.33
3.96
-3.23
272.44
3,703.45
1,913.35

-21.85
574.36
994.69
231.54
163.82
552.97
106.74
113.97
84.74
1.51
-0.35
281.10
3,083.24
2,491.98

-1.02
1,524.70

11.71
1,154.86

13.81
1,927.16

-25.39
2,466.59

422.61

315.31

32.87
-0.08
455.40
1,069.30

39.25
-13.92
340.64
814.22

634.92
10.87
13.91
-4.81
654.89
1,272.27

849.80
10.64
-5.31
-20.06
835.07
1,631.52

SCHEDULAE CHANGES IN WORKING CAPITAL AT NALCO


CALCULATION WORKING CAPITAL

Particular

(Rs. In Crores )

2011-12

2010-11

2009-10

2008-09

2007-08

IVENTORIES

1212.7

1058.47

944.92

841.9

686.65

SUNDRY DEBTORS

138.12

112.4

181.78

26.5

60.65

3795.23

3152.35

2869.04

3516.46

163.84

145

175.35

236.47

LOAN & ADVANCES 1680.49

915.23

785.59

616.02

541.1

Total current assets

7469.73

6045.17

5209.64

4528.81

5041.33

2673.32

2354.46

1841.34

1603.4

1318.31

283.27

386.49

369.98

329.84

222.57

2740.95

2211.32

1933.24

1540.88

3304.22

2998.32

2595.57

3500.45

current assets

CASH

&BANK 4168.35

BALANCE
OTHER

CURRENT 270.07

ASSETS

CURRENT
LIBELITIES

&

PROVISIONS
CURRENT
LIBELITIES
PROVISIONS
Total

current 2956.59

liabilities
Net working capital

4513.14

Page 32

Net Working Capital


5000
4500

4513.14

4000
3500

3500.45

3000

3304.22

2998.32
2595.57

2500
2000
1500
1000
500
0
Net Working Capital

2008

2009

2010

2011

2012

3500.45

2595.57

2998.32

3304.22

4513.14

It was observed that major source of liquidity problem is not the mismatch between current
payments and current receipts from the Comparison of funds flow statements of AIL for five
years. This company net working capital is continue increase and to the present level is good.
The growth in working capital is a clear indication that the company does not utilizing its
short term resources with efficiency. In year 2008-09 the company net working capital was
Rs. 2595.57and after 3 years it increasing and 2011-12 the company net working capital was
4513.14.

Page 33

CURRENT ASSET
Total assets are basically classified in two parts as fixed assets and current assets.
Fixed assets are in the nature of long term or life time for the organization. Current assets
convert in the cash in the period of one year. It means that current assets are liquid assets or
assets which can convert in to cash within a year.

CURRENT ASSETS
4,500.00
4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
Inventory

2008
686.65

2009
841.90

2010
944.92

2011
1,058.47

2012
1,212.70

Sundry Debtors

60.65

26.50

181.78

112.40

138.12
4,168.35

Cash and bank balance

3,516.46

2,869.04

3,152.35

3,795.23

other current assets

236.47

175.35

145.00

163.84

270.07

loan and advances

541.10

616.02

785.59

915.23

1,680.49

Page 34

TOTAL CURRENT ASSETS


8,000.00

7,469.73

7,000.00
6,045.17

6,000.00
5,209.64

5,041.33

5,000.00

4,528.81

4,000.00
3,000.00
2,000.00
1,000.00
0.00
TOTAL CURRENT ASSETS

2008

2009

2010

2011

2012

5,041.33

4,528.81

5,209.64

6,045.17

7,469.73

It was observed that the size of current assets is increasing with increases in the sales. The
excess of current assets is showing positive liquidity position of the firm but it is not always
good because excess current assets then required, it may adversely affects on profitability.
Current assets include some funds investments for which company pay interest.

Page 35

CURRENT LIABILITIES

Current liabilities mean the liabilities which have to pay in current year. It includes sundry
creditors means supplier whose payment is due but not paid yet, thus creditors called as
current liabilities. Current liabilities also include short term loan and provision as tax
provision. Current liabilities also includes bank overdraft. For some current assets like bank
overdrafts and short term loan, company has to pay interest thus the management of current
liabilities has importance

CURRENT LIABILITIES
2,673.32

3,000.00

2,354.46

2,500.00
2,000.00
1,500.00

1,318.31

1,000.00
500.00
0.00
Current liabilities
Provision

1,849.95

1,603.40

386.49

369.98

329.84

222.57

283.27

2008
1,318.31

2009
1,603.40

2010
1,849.95

2011
2,354.46

2012
2,673.32

222.57

329.84

369.98

386.49

283.27

TOTAL CURRENT LIABILITIES


3,500.00
3,000.00
2,740.95

2,500.00

2,956.59

2,219.93

2,000.00

1,933.24
1,540.88

1,500.00
1,000.00
500.00
0.00
TOTAL CURRENT LIABILITIES

2008

2009

2010

2011

2012

1,540.88

1,933.24

2,219.93

2,740.95

2,956.59

Page 36

Observations:Current liabilities show continues growth each year because company creates the credit in the
market by good transaction.To get maximum credit from supplier which is profitable to the
company it reduces the need of working capital of firm. As a current liability increase in the
year 2011-12 by 2956.59. It increases the working capital size in the same year. And
company enjoyed over creditors which may include indirect cost of credit terms.

CURRENT RATIO:
The current ratio is calculated by dividing the total current assets by total current liabilities.

Current Assets
Current ratio

=
Current Liabilities

Current ratio may be defined as the relationship between current assets and current
liabilities .This ratio also known as working capital ratio is a measure of general liquidity &
most widely used to make the analysis of a short-term financial position or liquidity position
of the firm.

Current assets include cash and those assets, which can be converted into cash within
a year such as marketable securities, debtors and inventories, bills receivable and prepaid
expenses. All obligations maturing within a year are included in current liabilities. Current
liabilities include creditors, Bills payable accrued expenses, short-term bank loans. Income
tax liabilities and long-term debt maturing in the current year.

Page 37

CURRENT ASSETS

CURRENT LIABILITIES

1) Cash in hand

1)

Outstanding Expenses

2) Cash at Bank

2)

Bills payable

3) Marketable Securities

3)

Sundry creditors

4) Short term investments

4)

Short term advances

5) Bills receivable

5)

Income tax payable

6) Sundry Debtors

6)

Dividends payable

7) Inventories

7)

Bank overdraft

8)

Accrued expenses

8) Work in process
9) Prepaid expenses and others which
Can be converted into Cash within a year

As a conventional rule a current ratio of 2:1 or more is considered to be satisfactory it


represents the margin of safety for creditors. An extremely high ratio of current asset to
current liability is an indication of slack management, poor credit management and excessive
inventories for the current requirement.

Page 38

The current ratios of NALCO from the year 20112008 to 2012are as follows:

CURRENT RATIO
7469.73

8000
6045.17
5041.33

6000

4528.81

5209.64

4000
1933.24

1540.88

2000
0

2211.32

2740.95

2956.59

CURRENT ASSETS

2008
5041.33

2009
4528.81

2010
5209.64

2011
6045.17

2012
7469.73

CURRENT LIABILITIES

1540.88

1933.24

2211.32

2740.95

2956.59

CURRENT RATIO
3.50

3.27

3.00

Axis Title

2.50

2.53

2.36

2.34

2.21

2.00
1.50
1.00
0.50
0.00
CURRENT RATIO

2008

2009

2010

2011

2012

3.27

2.34

2.36

2.21

2.53

Observations:
The current ratio indicates the availability of funds to payment of current liabilities in the
form of current assets. A higher ratio indicates that there were sufficient assets available with
the organization which can be converted in cash, without any reduction in the value.
It is very high 3.27 in 2007-08, but regularly decreases. In 2010-11 it comes at 2.21

Page 39

Acid Test or Quick Ratios: This ratio is calculated by dividing Total liquid assets by Total current liabilities.
Quick Assets
Quick Ratio =

------------------------Current Liabilities

Acid test or quick ratio is a more rigorous test of liquidity than the current ratio. The term
Liquidity refers to the ability of a firm to pay its short-term obligations as and when they
become due. Quick ratio may be defined as the relationship between quick liquid assets and
current or liquid liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Cash in hand and cash at bank are the most liquid
assets. The other assets, which can be included in the liquid assets, are bills receivable,
sundry debtors, marketable securities and short-term or temporary investments.

Quick Assets are those assets which are converted into cash immediately for example cash,
debtors, bills receivables, and marketable securities.

Generally a quick ratio of 1:1 is considered satisfactory. Usually a high acid test
ratio is an indication that the company is liquid and has the ability to meet its current
liabilities in time and on the other hand, a low quick ratio represents that the companys
liquidity position is not good. A company with a high value of quick ratio can suffer from the
shortage of funds if it has slow paying, doubtful and long duration outstanding book debts
(receivable) and it can really prospering with a low value of quick ratio if it is realizing cash
efficiently from inventories and paying its current obligations in time.

Page 40

Quick

ratio

of

Nalco

from

the

year

2008

to

2012are

are

as

follows:-

QUICK RATIO
8000
6000

6257.03
4354.68

3686.91

4000
2000
0

4264.72
2211.32

1933.24

1540.88

4986.7
2740.95

2956.54

QUICK ASSETS

2008
4354.68

2009
3686.91

2010
4264.72

2011
4986.7

2012
6257.03

TOTAL CURRENT LIABILITIES

1540.88

1933.24

2211.32

2740.95

2956.54

QUICK RATIO
3.00

2.83

2.50
2.00

2.12

1.93

1.91

1.82

1.50
1.00
0.50
0.00
QUICK RATIO

2008

2009

2010

2011

2012

2.83

1.91

1.93

1.82

2.12

Observations:Quick ratio indicates that the company has sufficient liquid balance for the payment of
current liabilities. The liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is
more than 1:1 over the period of time, it indicates that the firm maintains the over liquid
assets than actual requirement of such assets.

Page 41

TOTAL ASSETS TURNOVER RATIO:


The total assets turnover ratio is calculated by dividing Net sales by total assets.
Net Sales
Total assets turnover ratio =
Total Assets
The total assets turnover ratio is a significant ratio since it shows the firms ability of
generating sales from all the financial resources committed to the company. As this ratio
increases there is more revenue generated per rupee of total investment in assets.

The total assets turnover ratios of NALCO from the year 2008 to 2012 are as
follows:
Rs in corers

TOTAL ASSETS TURNOVER RATIO


14766.52

16000
14000
12000

10907.73

11428.47

12289.35

13282.23

10000
8000
6000

4988.8

5094.52

5055.66

5958.98

6611.57

4000
2000
0
NET SALES
TOTAL ASSETS

2008
4988.8

2009
5094.52

2010
5055.66

2011
5958.98

2012
6611.57

10907.73

11428.47

12289.35

13282.23

14766.52

Page 42

Axis Title

TOTAL ASSETS TURNOVER RATIO


0.47
0.46
0.45
0.44
0.43
0.42
0.41
0.4
0.39
0.38
TOTAL ASSETS TURNOVER
RATIO

2007-08

2008-09

2009-10

2010-11

2011-12

0.46

0.45

0.41

0.45

0.45

ANALYSIS:- The total asset turnover ratio in 2007-08 was 0.46 which has reduced to 0.45 in
2008-09 ,further reduced to 0.41 in 2009-10,then the 2011 to 2012 increase 0.45 . The
reduction in ratio is mainly due to lower realization and increase in asset of the company due
to expansion activities.Higher ratios are indicative of efficient management and utilisation of
resources. It is good for the company.

Page 43

WORKING CAPITAL TURNOVER RATIO:-

NET SALES
Working Capital Turnover Ratio =

---------------------

NET WORKING CAPITAL

Net working capital = Current Asset Current Liability

WORKING CAPITAL TURNOVER RATIO


6611.57

7000
6000

5958.98
5094.52

4988.8

5055.66
4513.14

5000
4000

3500.45
2595.57

3000

2998.32

3304.22

2000
1000
0
NET SALES

2008
4988.8

2009
5094.52

2010
5055.66

2011
5958.98

2012
6611.57

NET WORKING CAPITAL

3500.45

2595.57

2998.32

3304.22

4513.14

Page 44

WORKING CAPITAL TURNOVER RATIO


2.50
2.00

1.96

1.80

1.69

1.50

1.46

1.43

1.00
0.50
0.00
WORKING CAPITAL
TURNOVER RATIO

2008

2009

2010

2011

2012

1.43

1.96

1.69

1.80

1.46

ANALYSIS:-High working capital ratio indicates the capability of the organization to


achieve maximum sales with the minimum investment in working capital.. The
working capital turnover ratio in 2008-09 has gone up from 1.45 in 2007-08 to 1.96 in 200809 due to very high cash and bank balance as on 31st march, 2009 to 2011-12 it is
decreasecompare in last year 2010-11 in 1.80 due to they are no loan in bank .

Page 45

Key Financial Ratios


Mar '12
Investment Valuation Ratios
Face Value
Dividend Per Share
Operating Profit Per Share (Rs)
Net Operating Profit Per Share (Rs)
Free Reserves Per Share (Rs)
Bonus in Equity Capital
Profitability Ratios
Operating Profit Margin(%)
Profit Before Interest And Tax Margin(%)
Gross Profit Margin(%)
Cash Profit Margin(%)
Adjusted Cash Margin(%)
Net Profit Margin(%)
Adjusted Net Profit Margin(%)
Return On Capital Employed(%)
Return On Net Worth(%)

5
1
4.44
25.65
-50
17.31
9.48
10.26
18.7
18.7
11.87
11.87
10.41
7.25

Page 46

Mar '11

Mar '10

Mar '09

Mar '08

5
10
10
10
1.5
2.5
6
6
6.7
18.95
29.34
37.76
23.51
80.47
81.04
79.84
38.32
151.34
141.62
127.73
50 ---28.5
20.39
21.4
23.01
23.01
16.8
16.8
14.3
9.57

23.54
16.43
17.38
19.58
19.58
14.84
14.84
11.55
7.83

36.2
28.84
30.98
27.25
27.25
22.68
22.68
20.51
13.02

47.28
38.59
41.82
34.79
34.79
29.27
29.27
29.08
18.38

IMPORTANT RATIOS OF NALCO

1. OPERATING PROFIT MARGIN (%)

47.28
36.2
28.50
23.54
17.31

2008

2009

2010

2011

2012

2. NET PROFIT MARGIN (%)

29.27
22.68
14.84

16.80
11.87

2008

2009

2010

Page 47

2011

2012

3. RETURN ON NETWORTH (RONW) (%)

19.63

26.29
30.95
26.51

2008

2009

2010

18.39

2011

2012

4. RETURN ON CAPITAL EMPLOYED (ROCE)

29.08
20.51
14.53
11.55

2008

2009

2010

Page 48

10.41

2011

2012

CHAPTER 7

CONCLUSION:

After studying the components of working capital management system of NALCO. It is


found that the company has a sound and effective policy and its performance is very good
even in this bad recessionsituation company has managed to post good profit. Company
iscompeting well at the domestic as well as the international level and it isamong the low cost
producers of aluminium in the world only because ofits proper management of finance,
specially the short term financeknown as the working capital.The company is a matured one
and it has contributed well in thecountries growth and development and will also continue to
perform andcontribute to the whole nation.In conclusion, we can say that the companies
management is an effectiveone and knows well the management of finance, its working
capitalmanagement system is very good because of which only the companyhas got the status
of NAVRATNA company.
Working capital management is important aspect of financial management. The study
of working capital management of NALCO has revealed that the Net Working Capital was
improving regularly from 3500.45 in 2007-08 and 4513.14in 2011-12 which is as per
standard industrial practice. The current Assets of the company showed an increasing Rs.
5041.33 Cr. in year 2007-08 from 2009-10, but in 2011-12 it stable at Rs. 7469.73cr. The
study has been conducted on working capital ratio analysis, current ratio, and Change the
working capital components which helped the company to manage its working capital
efficiency and affectively.
1. Working capital of the company was decreasing from year 904.88cr. From
2007-08 to 2008-09, Rs.305.9 cr. increases form 2009-10 to 2010-11
Rs. 4513.14 cr. in 2011-12 it increase to Rs. 1208.92 cr. All calculation is showing positive
working capital per year. It shows good liquidity position.
2. Positive working capital indicates that company has the ability of payments of short terms
liabilities.
3. Working capital increased because of increment in the current assets.

Page 49

Companys current assets were always more than requirement it affect on profitability of the
company.
MAJOR FINDINGS
Statement Showing Difference from Previous year:-

Particular

2011-12

2010-11

2009-10

2008-09

Rs.In Crores
2007-08

Investments

754.26

1,331.67

986.75

895.93

115.03

Inventories

1,212.70

1,058.47

944.92

841.90

686.65

Sundry Debtors

138.12

112.40

181.78

26.50

60.65

4,168.35

3,795.23

3,152.35

2,869.04

3,516.46

Current Liabilities 2,673.32

2,354.46

1,849.95

1,603.40

1,318.31

10,426.46 9,875.99

9,751.27

9,125.50

8,230.14

Cash

&

Bank

Balance

Reserve

RECOMMENDATION:Recommendation can be use by the firm for the betterment increased of the firm after study
and analysis of project report on study and analysis of working capital. I would like to
recommend.
1. Company should increase the inventory holding period. It is the major part of working
capital of company.
2. Company has to take control on cash balance because cash is non earning assets and
increase cost of funds.
3. Company should raise it fund through short term sources for short term requirement of
funds.
4. Nalco must try to maintain a low working capital by lowering the investment in current assets
as the working capital is too high.
5. It should not keep its current assets idle which makes the current ratio too high.
6. The inventory turnover ratio is too long which must improve by maintaining low stock.
7. The Company must try to increase its profitability ratios by increasing investment which will
improve the capacity of the firm to face adverse economic conditions like low demand, price
competition, etc.

Page 50

CHAPTER 8

BIBLIOGRAPHY:

Published annual reports from 2007-08 to 2011-12.


Nalco Website = www.nalcoindia.com
Search Engine = www.google.co.in
www.moneycontrol.com

Reno.
1.
2.

Name of the
Author
I.M.PANDEY

(Year)

PRASSANA
CHANDRA

Title of the
Books
Financial
Management
Financial
Management

Page 51

Name of the
Publisher

Vikas
Publication
Sharma &
Gupta