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Problem/Objective: Analysing the differences in capital investment decisions in PSUs and

Private companies.

Discussion Questions: Different questions that we would be covering are as follows:

 What are the corporate objectives?
 How long is the planning period?
 Type of organisational approach followed (Bottom-up/Top-down)
 What are the evaluation techniques followed?
 What is the project risk?
 How the companies control their capital expenditure?

A. Investment decisions in private sector
Corporate Objectives:

The following four objectives are playing significant role for which capital expenditure

decisions are taken in Indian industries.

They are:

(i) To maximise percent return on investments;

(ii) To maximise aggregate earnings;

(iii) To achieve a desired growth rate in earnings; and

(iv) To maximise ordinary share prices.

Out of the above four objectives, (i), and (ii) are the most favoured objectives. There are

reasons to believe that, for the most part, business executives favour objectives that can be

translated into explicitly measurable goals in India.

Planning Period:

In most cases, the period of planning is usually short, i.e., two to five years. But there are

cases where a period of ten years are covered. The short-duration of the Planning Period is

probably due to many uncertainties caused by peculiar business environment, viz. rise in

price level, power shortage, scarcity of materials etc.


The organisation and first screening are done at the plant level where there are existing

lines of product. But in case of new lines of product, it is done at the central or top level. The

process is ‘top-down’ instead of ‘bottom-up’. In other words, in 80% cases the Board of

Directors takes the final decision about the capital expenditure, whereas, in 20% cases, the

chairman takes the final decision for the capital expenditure proposals.

Evaluation Techniques:

It has been highlighted above that different methods are considered for evaluating

investment decisions:

(1) Accounting Rate of Return (ARR);

(2) Pay Back Period (PB);

(3) Net Present Value (NPV);

(4) Internal Rate of Return (IRR);

(5) (Net) Terminal Value (TV).

Now the question arises which of these techniques are being used in India.

The following information are available from the empirical evidence made so far:

(a) Most of the private sector companies, particularly those in new product lines, depend on

more than one technique, i.e., they use a combination of different techniques stated above.

(b) There are some large corporate undertakings who are not using the DCF techniques due

to (i) too much sophistication, (ii) existence of a seller’s market.

(c) The most widely accepted method is the ARR technique for appraising capital investment

decisions and PB is considered a supporting one.

Cut-off Rate:
The earlier part of the present study has already been highlighted that the basic financial

criterion which is universally accepted on financial management is the cut-off rate which is

also known as cost of capital.

The cut-off rate can be calculated with the help of methods:

(i) Cost of Funds;

(ii) Weighted Average Cost of Capital;

(iii) Historical Rate of Return;

(iv) Arbitrary Cut-off Rate.

In India, the method applied for determining Cost of Capital actually varies from company to

company. The ‘weighted average cost of capital’, a theoretically correct method is gradually

being realised. Moreover, a large number of companies use cut-off rate arbitrarily

established by the management. A group of high-profitability companies use ‘cost of funds’

to finance expenditure simply because it is relatively easy for them to arrange funds to

finance capital expenditure proposals as and when the need arises.

Other Aspects:

Capital Rationing:

From empirical evidence it is found that, in most cases, existing product lines are financed

from internal sources whereas new product lines are financed from internal as well as

external sources, particularly the term loan which is the cheapest one. That is why capital

rationing does not seem to be a problem in capital budgeting in Indian industry. According

to the executives of those companies, to collect funds is not a constraint, the only constraint

is government policy.

Project Risk:

Risk and uncertainty analysis in capital budgeting have already been explained earlier.

The risk aspect of capital management has the following dimensions:

(a) Management concept of project risk;

(b) Approaches for incorporating project risk into the decisions;

(c) Method to reduce risk.

According to the industrial enterprises, the main factors are:

(1) Uncertainty in the availability of inputs;

(2) Uncertainty in Govt. Policy;

(3) Uncertainty of Pay-back period;

(4) Uncertainty about market potential;

(5) Inability to predict key factors.

(1) and (2) are not important risk factors in India.

At present, most of the Indian companies are following one or more methods against risk


(1) Shorter pay-pack (for risky projects);

(2) Higher cut-off rate;

(3) Sensitivity Analysis.

The first two are widely used in India.


About two-thirds of the companies use post-completion audit in order to control capital

expenditures in India although there is a great variation in the quality and contents of post-

completion audit. The remaining one-third companies control their capital expenditures

with the help of periodical reports and performance appraisal.

An attempt was made to analyse the relationship between profitability and liquidity in

Larsen & Toubro (L&T), a reputed Indian MNC

1. Introduction:

Larsen & Toubro Limited, commonly known as L&T  is an

Indian multinational conglomerate company which is headquartered

in Mumbai, Maharashtra, India. It was founded by two Danish engineers taking refuge in

India. The company has business interests in basic and heavy engineering, construction,

realty, manufacturing of capital goods, information technology, and financial services. As

at March 31, 2018, L&T Group comprises 93 subsidiaries, 8 associates, 34 joint-venture

and 33 joint operations companies.

2. Objectives of the Study:

 To critically evaluate the various financial ratios of L&T.

 To understand the working capital management of the company.

 To provide an insight about the financial soundness of the company.

 To provide suggestions on better working capital management based on the


3. Data Collection Method:

Secondary data has been used for the research. The annual reports of LARSEN &

TOUBRO Limited and company websites, financial websites, and company’s reports

available in periodicals, journals and books are used to obtain secondary data. The

research undertaken is mainly based on secondary data. The relevant financial

details were collected from the accounting and finance wing of the company. The

data collected is measured in crores of rupees.

4. Data Analysis and Interpretation:

A- Financial Ratios

1. Current Ratio Current Ratio=Current assets/Current liabilities

Analysis: From the above table it can be seen that the current ratio is 1.26, 1.40, and

1.47 for the years 2012, 2013 and 2014 respectively, where 2014 has the highest

ratio of 1.47 The Higher the current ratio, the more capable the company is of paying

its current obligation.

Interpretation: This ratio measures the short term solvency of the firm. The ideal

current ratio of a company is 2:1, it implies that for every one rupee of current

liability, current assets of two rupees are available to meet them. The current ratio is

lower in 2014, when compared to the previous year. The current assets are more

than current liabilities in 2014, which is a good sign for company.

2. Quick Ratio (Acid Test Ratio) Quick ratio=Quick assets/Current liabilities

Analysis: It can be seen that the quick ratio of the firm is 1.22, 1.29 & 1.33, where

year 2014 has the highest ratio. Higher the Ratio, easier it is for the firm to meet its

financial demand. Rule of thumb for quick ratio is 1:1.

Interpretation: This ratio measures for every rupee of current liability, how much

quick assets is available to meet them. It is an important indicator of firm’s liquidity

position. A quick ratio of 1:1 is an ideal one. The ratio of the company has been

above 1.0 in the 3 years. This implies that the company does not depend on

inventory to pay its short term liability. In 2012, the company’s quick ratio is

comparatively less owing to increased sundry creditors.

3. Cash/Absolute Liquid Ratio Absolute liquid ratio=Cash & Cash equivalents/Current


Analysis: It can be observed that the absolute liquid ratio is 0.046, 0.036, and 0.042

for the year 2012, 2013 and 2014 respectively, where it explains the relationship

between liquid assets and current liabilities. Rule of thumb for this ratio is 0.5:1.

Interpretation: The ratio is low in the 3 years compared to the standard ratio which

is 0.5:1. This indicates that the L&T does not have enough cash available to satisfy its
short-term liability. This low ratio indicates immediate problem with paying the bills

of the company.

B- Turnover Ratios
1. Inventory Turnover Ratio: Inventory turnover ratio=Net sales/Average inventory

Analysis: From the above table it can be seen that the inventory turnover ratio of the

firm are 28.55, 29.49 & 29.93 for the years 2012, 2013 and 2014 respectively. This

ratio indicates the number of times the stock has been turned over during the

period. Higher the Ratio better efficient management of inventory

Interpretation: This ratio indicates how fast the inventory of the company is sold.

The ratio is high, which signifies more profit to the firm and efficient management of

inventory, indicating that stocks have been sold frequently. The ratio is low in the

year 2012 which shows that the inventory has not been fast moving

2. Net Working Capital Turnover Ratio Net working capital turnover ratio=Total

sales/working capital

Analysis: It can be seen that the firm has 5.47, 3.61 and 4.43 ratios for the year 2012,

2013 & 2014 respectively. It indicates the velocity of utilization of net working

capital, and measures the efficiency with which the working capital is being used by

the firm. Higher the ratio better utilization of working capital.

Interpretation: It measures how effective the working capital is being used by the

firm. As the ratio has increased drastically in the recent year it shows that they are

effectively using their working capital in the day to day business operations.

C- Solvency/Leverage Ratios

1. Proprietary Ratio Proprietary ratio=Shareholders’ fund/ Total asset

Analysis: It can be seen that the firm has 0.54, 0.40 and 0.42 ratios for the year 2011,

2013 & 2014 respectively. It indicates the long term solvency of the finance. Higher

the Ratio better is the long term solvency position of the company.

Interpretation: It indicates what portion of the total assets is financed by the owner’s

capital. This helps the creditors to know whether the capital or loans given them to

the company are safe or not. Since the ratio of the company is very low in the three

years, it shows poor long term solvency position of the company because of too

much usage of debt or trade payables rather than equity to manage their daily

operations. Thus it is a great risk to the creditors.

D- Profitability Ratios

1. Gross Profit Ratio Gross Profit ratio=Gross profit/Net sales

Analysis: It can be inferred that the firm has a gross profit of 1.010, 1.011 and 1.009

for the year 2012, 2013 & 2014 respectively. This ratio shows the relationship of

gross profit to net sales and is represented as a percentage. Higher the ratio better is

the result.

Interpretation: Gross profit margin measures the percentage of each sales rupee

remaining after the firm has paid for his goods. The ratio of the company is not good

which indicates the efficiency with which the company is producing its products. L&T

is unable to maintain good distribution and manufacturing efficiency during its

production process. This shows that the company has a poor profitability position,

probably due to the fact that the industry is facing major problems due to high input

cost, changing government policies and other political conditions in the economy.

2. Net Profit Ratio Net Profit Ratio=Net Profit/Net sales

Analysis: It is seen that the firm has a net profit ratio of 0.083, 0.084 and 0.097 for

the year 2012, 2013 and 2014 respectively. It establishes a relationship between net

profits and indicates the efficiency of management. Higher the ratio better is the


Interpretation: The net profit margin measures the percentage of sales rupee

remaining after all the costs and expenses including interest and taxes have been

deducted. It is an indication of how effective the company is at cost control. Since

the ratio is low, the company’s performance has come down. Hence it shows that

the company was less efficient in converting sales into actual profits.
5. Recommendations:

• The company should try and increase its liquidity position so that it will be able to meet

short term- debt obligations and has enough resources to pay its debt over next 12 months.

• The Operating cash flow should generate sufficient positive cash flow to maintain its

operations and also to be able to meet its interest expenses.

• The company has good earning capacity by reducing cost of sales and should try to

increase its Sales at a greater pace.

• The company has higher net income, to attract more investors and also to grow its

operations the company needs to generate more EPS.

• As the company has performed very well in the year 2012 overall, the company needs to

focus on future as the results of 2013 and 2014 are not good when compared to 2012.

• The company needs to focus and watch on its competitor’s activities and strategies which

help to make new strategies for the better and overall performance of the firm throughout

the year.

• The company should follow a strict procedure in the sales and ratios techniques which

would ensure a proper control on the funds.

• Overall the company is performing well and consistently on an average.


It is interesting to note that there is a wide gap between the theory of investment appraisals

and the actual industry practices in the private sector enterprises in India. Most of the large
Private Sector undertakings need a well-founded capital expenditure planning. During the

late 1960s and early 1970s, application of DCF techniques (particularly the NPV and IRR

methods) were introduced. But India is always lagging behind.

The significant reasons are:

(i) The existence of seller’s market; and

(ii) Government policy restricting expansion.

That is why the government should provide better scope for investment opportunities in

private sector/enterprises about the review of licensing, control and other restrictive


B. Investment decisions in public sector

The present study highlights the capital expenditure decisions in the public Sector under-

takings. Capital budgeting decisions of the public sector are public industrial investment

decisions of the government where a number of government agencies are involved in the

process of decision-making.

At the same time, the decisions are governed by guidelines and directives issued by the


We deal with only two aspects:

(a) Guidelines for Investment Decisions, and

(b) Industry Practices

(a) Guidelines for Investment Decisions:

Till 1965, no guidelines for investment decisions by public enterprises were issued by the

Government of India. As such, the ministries in charge of the different public undertakings

prepared project reports for different industrial undertakings by a ‘Trial and Error Method’.
As a result, attention was drawn by various consulting agencies and individuals to the

deficiencies in economic analysis, wide variation in approaches etc.

In 1965 a Project of Feasibility Studies for Public Sector Projects was prepared jointly by an

American consulting firm and the Committee on Plan Projects of the Planning Commission,

Govt., of India. The said Project was published by the Planning Commission and issued to

public sector undertakings. These guidelines are to be followed for investment decisions by

public sector enterprises in India.


The significant objectives of the project are:

(1) To develop a systematic and comprehensive method of project planning and appraisal;


(2) To suggest a correct and systematic procedure for making investment decisions.

The project is divided into two parts:

Part I:

It gives an outline and definition of major approval phases leading to the commencement of

the construction. It also expresses the objectives to be kept in mind in preparing a feasibility

study. It claims to examine the present capital budgeting practices in public sector


Part II:

This project is devoted to the management and elaboration of the techniques of conduction

of a feasibility study.

Stages in Project Formulation:

According to the Project, the systematic development of a project, before the actual

construction period, should consist of three formal stages:

(a) Preliminary Project Formulation;

(b) Feasibility Study; and

(c) Project Report.

(a) Preliminary Project Formulation:

This is nothing but the stage of initiating a project proposal. It has two objectives (i) to

determine the number and size of products which are needed in order to satisfy plan targets

in any one industrial sector; (ii) to indicate the feasibility of each of the projects


The task should be done by the concerned administrative ministries or some other

responsible group. This report is prepared to be a discussion document for the

consideration of the Planning Commission and the Administrative ministries. A decision

whether a feasibility study should be taken into consideration or not is simply taken on the

basis of the preliminary analysis.

The principal elements of the preliminary estimate of feasibility are:

(a) Demand for the product and its position in the economic development;

(b) Preliminary technical feasibility;

(c) Alternative location;

(d) Total cost (capital) and commercial profitability; and

(e) National benefits from the projects.

(b) Feasibility Study:

The feasibility study, the next stage in project formulation, is the most important part of the

project analysis since approval of the projects and allotment of foreign exchange for the

purpose depend on it. This study is prepared in order to gauge the most economic size,

location, product-pattern, and processes to be chosen for the project.

At this analysis level, the technical development of the project is carried out to the extent

necessary for evaluating the commercial and national economic aspects. At this level, all

alternatives are properly examined and one project clearly emerges as the most economic


The Project suggests a detailed and comprehensive analysis of the following aspects and

recommends techniques for the said purpose:

(i) Demand analysis;

(ii) Pricing;

(iii) Technical development of the project;

(iv) Location of the project;

(v) Project cost estimates;

(vi) Profitability analysis; and

(vii) National economic benefits.

The impact of the above techniques are not discussed here in details. Only no.(vi), i.e.

profitability analysis, since it has a direct bearing, is discussed next.

Profitability Analysis:

The most important aspect of the feasibility study suggested by the Project is the analysis of

its commercial profitability.

The Project has listed the following methods as indices of profitability:

1. Return on Investment Criteria:

(a) Average Return on Original Investment;

(b) Average Return on Average Investment;

(c) Return on Full Production on Original Investment.

2. Pay Back Period.

3. Discounted Cash Flow Indices:

(a) Present worth Method;

(b) Internal Rate of Return Method.

The Project has recommended that the commercial profitability should be calculated by

adopting two methods simultaneously.

They are:

(i) Average Return on Original Investment Method from the first category of indices; and

(ii) Present worth Method from the second category indices.

The Project also suggests that the cost of capital should be on the basis of a ‘desired rate or

return’ established by the Reserve Bank of India and the Planning Commission in the

estimates. These indicate that 12% is a desirable rate of return for public sector industries.

But the Project admits that there should be different rates for different industries.

(c) Project Report:

The project report is drafted as prepared by the ‘project authorities’ after the approval of

the feasibility study by the government although it does not require any approval from the


However, the need for such a report is explained in the Project:

Although such technical development has taken place in the feasibility study, generally

insufficient information has been developed for making detailed technical plan and
estimates and forwarding contracts.’ It is the work that is carried out after the feasibility

study is approved and is documented in the project report.

There are two elements in project planning:

(i) Overall Project Planning, and

(ii) Detailed Contract Planning.

(i) Overall Project Planning:

It includes preparation of work schedules for construction of projects, decision about the

type of equipment’s that are used, detailed plant layout and initial construction drawing etc.

(ii) Detailed Contract Planning:

It reveals the scope and objectives of each contract, detailed schedules about them and

interrelation between them.

(B) The Industry Practices in the Public Sector:

The capital budgeting practices in public enterprises in India do not conform to the

guidelines framed in the Project on Feasibility Studies. This study is actually based on the

study conducted by Raj and other. The feasibility report is not prepared according to the

manner suggested by the Project.

This is expressed from:

(1) All the elements are not incorporated in the feasibility report which are prepared by the

public enterprises. For instance, NEBA (National Economic Benefit Analysis) is not included

in any feasibility report. Even organisations like the BPE (Bureau of Public Enterprises) and

PC (Planning Commission), who have prepared it, have not any clear idea about it.

(2) Discounted Cash Flow (DCF) techniques are very rarely followed. Those who are actually

following it are doing it at the instance of the Bureau of Public Enterprises (BPE) and not at

their own initiative.

(3) Demand analysis is very rarely done by the enterprises themselves or by the

Administrative Ministries. They depend on, however, the projections made by external

agencies, (viz. the Planning Commission and the Directorate-General of Technical

Development (DGTD).

(4) The determination of the selling price, the effect of price on demand, location etc. and

time-phasing of demand suggested in the project are not followed.

(5) In most of the cases, the analysis of ‘national economic benefits’ is not included in the

feasibility report.

However, the area which has received good coverage in the feasibility report states the

technical aspect of the’ project. But, at the same time, financial, commercial and economic

aspects are neglected or are not given proper importance according to the guidelines

prescribed by the Project. The national cost-benefit is totally ignored.

The divergence between the guidelines prescribed by the Project and current practices of

capital budgeting by public enterprises are primarily due to the following factors:

(a) Many executives in the public sector enterprises are not aware of the existence of such a

Project for preparing feasibility report, i.e., they have not even heard about its existence.

Although a large number of copies have been issued by the Planning Commission to the

various public enterprises, it is interesting to note that neither the existence of the Project

nor its contents are known by the executives of the public sector enterprises. The Project

has not been put to use by the Administrative Ministries over a long period of time simply

due to personality conflicts among high government officials.

(b) While preparing the feasibility reports and detailed project reports, the engineers and

the technical staff play a most significant role, i.e. a major role displayed by the financial

executives. Due to the imbalance in participation, there is inadequate coverage of

commercial, financial and economic aspects in the feasibility report. As such, in the absence

of a good teamwork, desired result cannot be expected.

(c) The incongruence between the guidelines and the practice among public enterprises may

be the proficiency, called for in a wide range of subjects, viz. economics, marketing, finance,

engineering etc., for obtaining the feasibility study reports. At the enterprise level or at any

other decision-making process, such expertise hardly exists. It is needless to mention that, in

the financial analysis, capital investment decisions of public sector enterprises are the public

industrial investment decisions of the Government.

As a result, some agencies of the Government are related with the decision-making process.

We all know that most of the executives including decision-makers are Government

employees and they do not have adequate knowledge, training or experience about capital


As such, the Project which is prepared by a sophisticated group of management consultants

may not be understood by those inexperienced employees. Because, they are either

engineers or accountants taken from the Audit and Accounts Service of the Govt., of India

who are actually familiar only with Government procedures and accounting systems. Some

senior Government officials and a few politicians are appointed in the Board of Directors of

the public enterprises.

As a result, at the level of the Administrative Ministries, the Finance Ministry, the Industry

Ministry, and the Planning Commission, the senior executives are drawn from the Central

Administrative Services. The Cabinet of the Government of India which analyses the major

investment projects, and the Parliament which approves the project, do not consist of

experts whose services may be effectively utilised but, on the contrary, consist of politicians

only. Therefore, it is difficult to get expert services which are required by the guidelines

presented in the Project for-the purpose of preparing feasibility reports.

An attempt was made to analyse the relationship between profitability and liquidity in

ONGC, a reputed PSU

5. Introduction:

1.1 Oil & Natural Gas Corporation of India (ONGC): ONGC is among the leading

crude oil and natural gas company in India founded on 14TH August 1956. ONGC

owns maharatna status. It is estimated that around 70% of Indian domestic

production is contributed by ONGC. Many similar business related organizations like

IOCL, HPCL, BPCL use crude oil as raw material to produce different petroleum

products as finished products. It has its operation in many different countries and

ONGC worked internationally through its subsidiary ONGC videsh limited. ONGC is an

public sector undertaking of govt of India. Under ministry of petroleum and natural

gas the organisation is controlled. Among all oil and natural gas companies, ONGC

hold first position in the energy sector of India and also awarded with many

prestigious awards and also holds good position in ranking for their corporate social

responsibilities work.

1.2 Financial ratio analysis: Financial ratio analysis gives a clear picture about the
profitability position of a company or business such as debt paying capability, fund

management and other business-related areas. Ratio analysis allow us to compare

the performance of company or industry over a period of time, or to compare the

performance of various industries with one another likewise in many context.

Financial Management deals with taking various decisions for the welfare of business

such as capital budgeting decisions, fund management decisions, dividend decisions,

managing working capital etc all the decisions are equally important for the

organization for its welfare. Working capital management is a very important factor

to be taken in consideration for the operation of day to day business activities. It

includes management of short term liabilities and current assets. To maintain

liquidity of organization a sound working capital position is must. To maintain

smooth flow of business activities managers look after all business activities and

make decisions accordingly because excess working capital may lead to excess use of

scarce resources and insufficient WC may cause an hindrance in the flow of business.

so it is mandate to keep sufficient liquid assets and debtors management. Thus for

the growth, survival and expansion of business it is required to keep an eye on the

working capital decisions as it involves current assets that are of short term in nature

and required for day to day survival of business. to maintain the worthiness and

soundness of company it is considered that liquid assets must be adequate to cope

up with short term issues. Overall, working capital is defined as the excess of current

assets to that of current liabilities. So measurement of WC takes both current assets

as well as current liabilities in consideration. Ratio analysis is done to evaluate the

performance of the organization over a long period of time it is referred as trend

analysis or time series. Ratios reflect liquid, profitability, or turnover position of

company at a point of time. For the large, medium or small scale organizations,

enormous research work has been done on the working capital management

practices. Research work has been carried using survey or by empirical approach to

establish relationship between working capital and profitability of organization. This

domain is still understudied in Indian context so to explore this area of study and fill

this research gap this study is attempted.

2. Hypothesis:

This case will test the hypothesis related to two components i.e. working capital

ratios & profitability ratio. Null Hypothesis (Ho): There is no relationship between

working capital ratios and profitability ratio. Alternative Hypothesis (H1): There is a

relationship between working capital ratios and Profitability ratio

6. Methodology:
The financial data for ONGC ltd. over the past 11 years from 2008 to 2018 period for

ONGC has been collected from secondary sources of data such as ONGC annual

reports, articles, websites & journals. Financial Ratios like liquidity ratios, some

turnover ratios & profitability ratios for the 11 years has been calculated. Liquid

ratios are related to working capital management So to analyse working capital

management ratios like current ratio(CR), quick ratio(QR), inventory turnover

ratios(ITR), cash to sales ratio(CTS), current assets to sale ratio(CASR), current asset

to total asset ratio (CATAR), debtors turnover ratio(DTR), working capital turnover

ratio(WCTR) and absolute cash ratio has been calculated and for profitability

measurement return on investment has been calculated . Correlation test has been

applied to test the degree of relationship among working capital ratios & profitability

ratios. Thus further to analyse the combined impact of working capital ratios on

profitability ratio multiple regression test has been employed. The data has been

analyse using SPSS.

7. Data Analysis:
As the research study is done to find the impact of working capital ratios on

profitability ratio. The data of ONGC ltd. for 11 years from 2008 to 2018 has been

collected from the annual reports and futher by using the data various useful ratios

has been calculated. Table 1 shows ratio analysis for ONGC ltd. from 2008 to 2018.

Further the data analysis part of the paper covers correlation test, and multiple

regression analysis.

8. Correlation Results:

Table 2 represent the correlation matrix for ONGC ltd. From 2008 to 2018.
Correlation analysis resulted in weak relationship among return on investment and
measures of working capital ratios like ROI shows (0.401) quite weak but positive
relationship with current assets like wise there is negligible relationship found
between ROI and quick assets (0.015) & working capital turnover ratio(0.027) and for
all other working capital ratios like inventory turnover ratios(0.743), current assets to
total asset ratio(0.669), cash to sales ratio(0.859), absolute cash ratio(0.777) and
debtors turnover ratio(0.740) the correlation is found to be significant with return on
investment. Overall there is no significant relationship found to be among QR, WCTR,
CR with ROI. There is also negative relationship found among variables such as ITR&
QR(- 0.169), CATAR & WCTR(-0.388) and DTR & WCTR(-0.085). Due to
multicollinearity, some variables are also found to be strongly related to one another
ACR & CATAR(0.938), CASR& CATAR(0.974), ACR & CTS(0.935). thus correlation
results display a weak positive relation between working capital ratios & profitability
ratio which is depicting a different picture from literature review. the reasons behind
the reverse effect may be the increased working capital requirements, changing
consumption, changing market trends, govt policies etc. The correlation results
shows similarity with Vieria(2010) study. That study also state the positive
relationship of working capital ratios & profitability of the firm.

9. Regression Analysis:

Multiple regression analysis has been performed to analyse the combined effect of
working capital measures which showed slight weak correlation with return on
investment that are current assets to sales ratio(CASR), quick ratio(QR), Debtor
turnover ratio(DTR), working capital turnover ratio(WCTR) and cash to sales
ratio(CTS) & profitability ratio return on investment (ROI) for ONGC ltd

In conclusion, the present organisational set-up for investment decisions suffer because


(a) The non-availability of an adequate-equipped organisational structure—either in the

enterprise or in the outside agencies;

(b) The personnel who take capital budgeting decisions have neither the training nor the

requisite experience for the job which they undertake;

(c) The decision-making process consists of innumerable committees consisting of identical

personnel, but having different chairmen;

(d) The organization set-up is highly complex and involves inordinate delays in decision-


(e) The organisational set-up is one in which various units of the government are involved

and, consequently, ideally suited for conflicts;

(f) At the level of decision-making, enormous outside pressure, particularly from State

Governments and politicians, are brought to bear on decision-makers who are mainly civil

servants; and

(g) The senior civil servants of the government who are predominantly involved in decision-

making, also occupy very influential positions within the organisation at the board level as

well as in the various Ministries which control these enterprises.

Moreover, since the public sector enterprises have been playing a very significant role in the

economic development of our country, the role of correct capital budgeting decisions

cannot be over-emphasised. The studies which were made in the early 1970s—upon which

the conclusions were drawn about the industry practice—are very old. At present, a

considerable improvement has been made in our country about the activities of the public

sector enterprises. Until there is an improvement in the internal affairs and/or environment

of the enterprise, these improvements cannot be achieved.

Moreover, throughout the country, there appears to be a growing awareness among the

decision-makers at all levels in order to select the right projects. Besides,

modifications/changes may be made in the guidelines of the Project on the basis of past

results and experiences, for better improvement and results. At least, the managers in the

public sector enterprises have, in the meantime, acquired some knowledge and experience

—and they may be converted into a good team of decision-makers after some training or

development programmes.

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