INTRODUCTION

Working capital management is vital fraction in firm financial management decision. Management of working capital has profitability and liquidity implications. That is why working capital proposes a familiar front for profitability and liquidity management. To reach optimal working capital management firm manager should control the trade off between profitability and liquidity accurately. An optimal working capital management is expected to contribute positively to the creation of firm value. The crucial part in managing working capital is required maintaining its liquidity in day-to-day operation to ensure its smooth running and meets its obligation Liquidity plays a significant role in the successful functioning of a business firm. A firm should ensure that it does not suffer from lack-of or excess liquidity to meet its short-term compulsions. A study of liquidity is of major importance to both the internal and the external analysts because of its close relationship with day-to-day operations of a business Dilemma in liquidity management is to achieve desired trade off between liquidity and profitability. Referring to theory of risk and return, investment with more risk will result to more return. Thus, firms with high liquidity of working capital may have low risk then low profitability. Conversely, firm that has low liquidity of working capital, facing high risk results to high profitability. The issue here is in managing working capital, firm must take into consideration all the items in both accounts and try to balance the risk and return. Since electricity sector investment in India has increased rapidly. But the production capacity and growth rate in the this sector did not increase promptly due to under-utilisation and poor financial management in terms of liquidity, solvency, operating efficiency and profitability. In the present study, therefore; an attempt has been made to examine and evaluate the management of working capital at the largest thermal power station of NTPC which is a 3260 MW power station at Vindhyachal.

REVIEW OF LITERATURE
Sur (2006) studied the efficiency of the working capital management in the National Thermal Power Corporation (NTPC), and showed that the company achieved a higher level of efficiency in managing its working capital during the post-liberalization era by adapting itself to the new environment which had emanated from liberalization, globalization and competitiveness. They pointed out that, while many of the public enterprises are learning to survive and grow by adapting themselves to the new situation, a large group of public sector undertakings, significant both in number and investment, have been beset with serious problems like slow growth, low productivity, inadequate emphasis on research and development, inefficient working capital management, and so on.

Garcia-Teruel and Martinez-Solano (2007) studied the effects of working capital management on the profitability of a sample of small and medium-sized Spanish firms. They found that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firm's profitability. Chakraborty (2008) evaluated the relationship between working capital and profitability of Indian pharmaceutical companies. He pointed out that there were two distinct schools of thought on this issue: according to one school of thought, working capital is not a factor of improving profitability and there may be a negative relationship between them, while according to the other school of thought, investment in working capital plays a vital role to improve corporate profitability, and unless there is a minimum level of investment of working capital, output and sales cannot be maintained - in fact, the inadequacy of working capital would keep fixed asset inoperative. Singh (2008) found that the size of inventory directly affects working capital and its management. He suggested that inventory was the major component of working capital, and needed to be carefully controlled.

Singh and Pandey (2008) suggested that, for the successful working of any business organization, fixed and current assets play a vital role, and that the management of working capital is essential as it has a direct impact on profitability and liquidity. They studied the working capital components and found a significant impact of working capital management on profitability for Hindalco Industries Limited. The conclusive sum of this retrospective review of relevant literature produced till date on the offered subject reveals wide room for the validity and originates of this work and reflects some decisive evidences that affirm its viability, as may be marked here it.

OBJECTIVES OF THE STUDY

The main object of the present study is to examine the overall efficiency of the management of capital working at NTPC VINDHYACHAL. More specifically it seeks to dwells upon mainly the following issues:

(i) To observe the liquidity position on the basis of financial ratio and area of weaknesses, if any, for NTPC Vindhyachal (ii) To explore the liquidity-profitability association; (iii) To make some suggestions and specific recommendations for improvement of the Working capital management.

RATIONALS
NTPC is having a turnover of CR and one of the leading organizations of the country and is planning to expand as global power leader. For the company huge investment plan has been made. The company has to grow @ 25% in coming five years. NTPC Vindhyachal being the largest power station operating with a generation of 78.24 million units of electricity daily and feeding to western grid including states of MP, CG, Maharashtra, Gujrat and Goa. VINDHYACHAL SUPER THERMAL POWER STATION The largest thermal power station of the NTPC and Nation is the serving the country with the installed capacity of 3260 MW. It has 6 units of 210MW each commissioned between 1987 to 1992 as stage-1 with Russian collaboration. In stage-2 1000 MW (2x500MW) was added in 1999-2000. In 2006-07 2 more units of 500MW each was commissioned in stage-3 thus making the largest thermal power station of the country.This glorious power station is situated in the Singrauli District with daily coal consumption of 55000 MW. The coal linkage for this station is from the Nigahi Coal Mines of NCL. From there, the coal is transported by Merry Go Round (MGR) transportation system (22 Kms length with double track) owned and operated by NTPC. NTPC Vindhyachal has always shown an encouraging trend and the station has recorded more than 92% Plant load factor from last 4 years.

NTPC VINDHYACHAL was awarded IPMA AWARD FOR EXCELLENCE IN PROJECT EXECUTION OF STAGE-III in the year 2008. VSTPS has been awarded prestigious IEEMA award for Fast track project execution in Year 2009.

NTPC VINDHYACHAL will retain its largest status with further capacity addition of 1000 MW (2 X500MW) in stage-4. The construction is in its full swing and units are expected to be commissioned in 11th Five Year Plan. As the requirement of working capital is very huge because of cash and carry scheme of coal companies (Northern coalfield limited). Its revenue collection from state electricity boards takes around 40-50 days. The study of working capital management strategy will be very useful.

THE STUDY OF PROCESS

When the coal is burned, it gives up that energy as heat. The coal's heat energy can then be turned into electrical energy. This happens at a power plant. 1. First the coal is mined and taken to a power plant. 2. Then the coal is burned in a boiler which causes the water in the boiler pipes to become steam. 3. The steam travels through the pipes to the turbine. 4. The steam spins the turbine blades. 5. The spinning blades turn a shaft connected to the generator. 6. In the generator, big magnets spin close to coils of wire. 7. When this happens, electrical current is produced in the wires. 8. Then the electricity goes out through wires from switch yard to consumer.

The Raw material is coal and oil .coal is supplied through nearby NCL Nigahi mines and oil is used only for start up and stabilization. The typical coal consumption is around 52000MT per day. Oil consumption on yearly basis is around 3000KL.The final product is electricity which is metered at switchyard end. Around 75 million unit of electricity is sold per day. The station keep an inventory of coal stock of around 7.5 lakh MT and oil of 3000 KL. The spare inventory is of around 155 CR.

METHODOLOGY
The Study Researcher has under taken the study on explorative basis. Various analysis are explored to find the fact about working capital management of NTPC Vindhyachal. The data utilized in this study is extracted from the income statements, balance sheets and cash flow statements taken from station management.

DATA COLLECTION For NTPC LTD as a whole the cash flow statement for last five years is as follow

NTPC

Source : Asian CERC

Cash Flow

------------------- in Rs. Cr. ------------------Mar '06 12 mths Mar '07 12 mths Mar '08 12 mths Mar '09 12 mths Mar '10 12 mths

Net Profit Before Tax

6271.2

8896.5

10529.4

9467.8

10807.6

Net Cash From Operating Activities

6206.4

8065.3

10171.1

9688.1

10594.2 10497.7

Net Cash (used in)/from Investing Activities

-2713.6

-3145.8

-6203.8

-7500.4

Net Cash (used in)/from Financing Activities

-1099.7

-76.3

-2348.7

-849.3

-1908.6

Net (decrease)/increase In Cash and Cash Equivalents

2393.1

4843.2

1618.6

1338.4

-1812.1

Opening Cash & Cash Equivalents

6078.3

8471.4

13314.6

14933.2

16271.6

Closing Cash & Cash Equivalents

8471.4

13314.6

14933.2

16271.6

14459.5

The P&L account for NTPC for last 5 years

NTPC
------------------in Rs. Cr. -----------------Mar '06 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 25 16,497.10 1,137.50 705.1 353.2 247.2 -256.4 18,708.70 Mar '06 12 mths Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax 7,434.20 10,332.10 2,004.60 8,327.50 2,047.70 1.3 6,278.50 633.7 6,912.20 1,082.40 23.7 19,947.60 1,362.60 842.9 410.8 292.4 -418.4 22,461.60 Mar '07 12 mths 10,170.10 13,045.70 2,055.70 10,990.00 2,075.40 9.9 8,904.70 134.2 9,038.90 2,163.70 26.8 22,160.70 2,229.30 920 389.8 368.2 -544.7 25,550.10 Mar '08 12 mths 11,540.90 14,660.60 1,982.20 12,678.40 2,138.50 3.1 10,536.80 -114 10,422.80 2,994.20 31 27,292.30 2,897.60 940 473.2 394.9 -637.4 31,391.60 Mar '09 12 mths 10,583.60 13,596.40 1,737.00 11,859.40 2,364.50 3.6 9,491.30 1,305.20 10,796.50 2,554.70 31.1 29,689.10 2,946.80 1,096.60 578.5 436.4 -866.9 33,911.60 Mar '10 12 mths 12,466.10 15,338.90 1,861.90 13,477.00 2,650.10 4.3 10,822.60 616.1 11,438.70 2,682.70 26,318.60 175.7 26,142.90 2,897.90 0 29,040.80 32,817.30 185.6 32,631.70 2,875.60 0 35,507.30 37,302.40 211.4 37,091.00 3,119.70 0 40,210.70 42,196.80 221.6 41,975.20 3,012.80 0 44,988.00 46,623.60 245.9 46,377.70 2,872.80 0 49,250.50 Mar '07 12 mths Mar '08 12 mths Mar '09 12 mths Mar '10 12 mths

Profit & Loss account

Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax

5,820.20 18,683.70 0 2,308.70 323.8

6,864.70 22,437.90 0 2,638.50 389.6

7,414.80 25,523.30 0 2,885.90 490.5

8,201.30 31,360.60 0 2,968.30 501.7

8,728.20 33,880.50 0 3,133.20 527.6

Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 82,454.64 7.06 28 54.53 82,454.64 8.33 32 58.94 82,454.64 8.99 35 65.81 82,454.64 9.95 36 71.55 82,454.64 10.59 38 77.28

NTPC BALANCE SHEET

NTPC
------------------in Rs. Cr. -----------------Mar '06 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt 8,245.50 8,245.50 0 0 36,713.20 0 44,958.70 6,173.50 14,464.60 20,638.10 8,245.50 8,245.50 0 0 40,351.30 0 48,596.80 7,479.60 17,661.50 25,141.10 8,245.50 8,245.50 0 0 46,021.90 0 54,267.40 7,314.70 19,875.90 27,190.60 8,245.50 8,245.50 0 0 50,749.40 0 58,994.90 8,969.60 25,598.20 34,567.80 8,245.50 8,245.50 0 0 55,478.60 0 63,724.10 9,079.90 28,717.10 37,797.00 101,521.10 Mar '07 12 mths Mar '08 12 mths Mar '09 12 mths Mar '10 12 mths

Balance Sheet

Total Liabilities

65,596.80

73,737.90

81,458.00

93,562.70

Mar '06 12 mths Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 45,917.60 22,950.10 22,967.50 13,756.00 19,289.10 2,340.50 867.8 176.8 3,385.10 6,555.10 8,294.60 18,234.80 0 4,910.30 3,740.30 8,650.60 9,584.20 0 65,596.80 16,429.80 54.53

Mar '07 12 mths 50,604.20 25,079.20 25,525.00 16,962.30 16,094.30 2,510.20 1,252.30 750.1 4,512.60 8,781.70 12,564.50 25,858.80 0 5,422.20 5,280.30 10,702.50 15,156.30 0 73,737.90 25,218.80 58.94

Mar '08 12 mths 53,368.00 27,274.30 26,093.70 22,478.30 15,267.20 2,675.70 2,982.70 473 6,131.40 9,936.20 14,460.20 30,527.80 0 5,548.40 7,360.60 12,909.00 17,618.80 0 81,458.00 29,361.80 65.81

Mar '09 12 mths 62,353.00 29,415.30 32,937.70 26,404.90 13,983.50 3,243.40 3,584.20 271.8 7,099.40 7,826.10 15,999.80 30,925.30 0 7,439.20 3,249.50 10,688.70 20,236.60 0 93,562.70 66,083.20 71.55

Mar '10 12 mths 66,663.80 32,088.80 34,575.00 32,290.60 14,807.10 3,347.70 6,651.40 634 10,633.10 6,357.10 13,825.50 30,815.70 0 7,896.80 3,070.50 10,967.30 19,848.40 0 101,521.10 40,044.00 77.28

The Sample
.NTPC Vindhyachal case is dealt as sample. Tools (a)Information collection and table form presentation made for analysis. Following ratios will be used to evaluate the firms working capital management strategy y y y y y Current ratio Liquid ratio Absolute Liquid ratio Short-term Debt-Equity ratio Age of inventory

y y

Age of Debtors Age of Creditors

(b) Operating Cycle analysis will provide information about efficiency of working capital management of the organization. The Operating cycle of the firm begins with the acquisition of raw materials and ends with the collection of receivables. It may be divided into four stages a) raw material and stores storage stage b) work-in-progress stage c) finished goods inventory stage and d) debtors collection stage .

Duration of operating cycle : The duration of operating cycle is equal to the sum of the duration of each of these stages less the credit period allowed by the suppliers to the firms . It can be given as O=R+W+F+DC Where O = Duration of operating cycle R = Raw material and stores storage period W = Work-in-progress period F = Finished goods storage period

10

D = debtors collection period C = Creditors payment period The components of Operating cycle will be calculated as follows ; R = (Average stock of raw materials and stores)

Average raw material and stores consumption per day W = Average Work-in-progress inventory
Average cost of production per day F = Average Finished Goods Inventory Average cost of goods sold per day D = Average books debts Average credit sales pert day C = Average trade creditors Average credit purchase per day

REFERENCES:
Agarwal, J.D. (1988). A goal programming model for working capital management, Finance India, Vol. 2, Issue 2. Bhunia, a (2010). A trend analysis of liquidity management efficiency in selected private sector Indian steel industry, International Journal of Research in Commerce and Management, Volume1 Issue-5 (Sep, 2010).
11

Chakraborty, K. (2008). Working Capital and Profitability: An Empirical Analysis of Their Relationship with Reference to Selected Companies in the Indian Pharmaceutical Industry, The Icfai Journal of Management Research, Vol. 34. Eljelly, A. (2004). Liquidity-Profitability Tradeoff: An empirical Investigation in An Emerging Market, International Journal of Commerce & Management, 14(2). 48 61. Garcia-Teruel, P.J. and Martinez-Solano, P. (2007). Effects of working capital management on SME profitability, International Journal of Managerial Finance, Vol.3, Issue 2. Rafuse, M.E. (1996). Working capital management: an urgent need to refocus, Management Decision, Vol. 34, Issue 2. Raheman, A. & Nasr, M. (2007). Working capital management and profitability case of Pakistani firms. International Review of Business Research Papers, 3 (1). 279-300. Singh, P. (2008). Inventory and Working Capital Management: An Empirical Analysis, The Icfai University Journal of Accounting Research, Vol. 35. Singh, J.P. and Pandey, S. (2008). Impact of Working Capital Management in the Profitability of Hindalco Industries Limited, The Icfai University Journal of Financial Economics, Vol. 36. Sur, D. (2006). Efficiency of Working Capital Management in Indian Public Enterprises during the Post-liberalization Era: A Case Study of NTPC, The Icfai Journal of Management Research, Vol. 34.

12