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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



Chapter. CONTENTS Page No.

1. Introduction 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 49-50

8. Bibliography 51



ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude to theIntelligence and co-

operation 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



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



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 firm‟s 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 itsoperation 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.



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 it‟s not possible to observe every aspect of working capital management practices.



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 World‟s average per capita consumption is about

10times of that in India.



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 semi-

fabricated 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 semi-fabricated 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.



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.



CHAPTER – 3

NATIONAL ALUMINIUM COMPANY LTD.

National Aluminium Company Ltd. (Nalco) is considered to be a turning point in thehistory 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 Asia‟s 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.



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 outin the Company‟s Memorandum & Articles 0f Association. Thus, employee satisfaction is a

part of the Company‟s 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.



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 withaluminium Pechiney, the world leader in this field forincorporation of technical know-how to

set up Asia‟s largest integrated aluminiumcom plex.



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



NALCO-PRODUCTS

Aluminium Metal

Ingots

Sows

Billets

Wire rods

Alloy wire rods

Cast strips\

Alumina & Hydrate

Calcined Alumina

Alumina Hydrate

EXPANDED CAPACITIES:

2 ND Phase expansion project

You will be pleased to know that with the commissioning of 4 th 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

NO

Project Segment Capacity before 2n

phase Expansion

Capacity after 2n Phase

Expansion

1 Bauxite Mine 48 LakhTPY 63 LakhTPY

2 Alumina Refinery 15.75 LakhTPY 21 LakhTPY

3 Aluminium Smelter 3.45 LakhTPY 4.6 LakhTPY

4 Captive Power Plant 960MW 1,200MW



The Sales break-up is as follows:

Unit 2011-2012 2010-2011

Export

Alumina MT 792,552 855,639

Aluminium including MT 98,399 98,200

Rolled Products

Domestic

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

ORGANIZATIONAL CHART OF NALCO (M&R COMPLEX)

ED (M&R)

GM (AR) GM (MINES) GM (H&A) GM (MATLS)GM

(FINANCE

GM (O&M) FUNCTIONAL

HOD

FUNCTIONAL

HOD

FUNCTIONAL

HOD

FUNCTIONA

L HOD

FUNCTIONAL

HOD



ED(M&R) : Overall in charge of M&R Complex and all Functionallevel GMs are reporting

GM(AR)/ :GM(O&M)

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&RComplex

GM(FINANCE) : In charge of Finance & Accounts of M&R Complex

FUNCTIONAL :

HEAD OFDEPARTMENT

In charge for respective area of operation and i.e.Production, Mechanical, Electrical, Steam GenerationPlant, Electronic & Instrumentation, Civil, Purchase,Stores, Finance, Human Resource Development,Administration, Horticulture, Training, PeripheralDevelopment.



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



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



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 finishedgoods 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.



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



CHAPTER – 5

WORKING CAPITAL MANAGEMENTWorking 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.



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.



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. Supplier’s 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



iii. Promoter’s Fund

It is advisable to finance a portion of current assets from the promoter‟s funds .They are long -

term 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 thatinvestments in inventories should not remain ideal and minimum working capital should be

locked in it.



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.



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. Goodmanagement 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 work-

in-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?



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.



Key Working Capital Ratios

The following, easily calculated, ratios are important measures of workingcapital utilization.

Ratio Formulae Result Interpretation

StockTurnover(in days)

AverageStock * 365/Cost of

Goods Sold

= xdays

On average, you turn over the value ofyour entire stock every x days. You mayneed to break this down into product

groups for effective stock management.Obsolete stock, slow moving lines willextend overall stock turnover days.Faster production, fewer product lines,ust in time ordering will reduce average

days.

Receivables

Ratio(in days)

Debtors *

365/Sales

= xdays

It takes you on average x days to collectmonies due to you. If you‟re official

credit terms are 45 day and it takes you

65 days... why?One or more large or slow debts can dragout the average days. Effective debtormanagement will minimize the days.

PayablesRatio

(in days)

Creditors *365/

Cost of Sales

(orPurchases)

= x

days

On average, you pay your suppliersevery x days. If you negotiate bettercredit terms this will increase. If you payearlier, say, to get a discount this willdecline. If you simply defer paying your

suppliers (without agreement) this willalso increase - but your reputation, thequality of service and any flexibility

provided by your suppliers may suffer.

CurrentRatio

Total CurrentAssets/

Total Current

Liabilities

= xtimes

Current Assets are assets that you canreadily turn in to cash or will do sowithin 12 months in the course of

business. Current Liabilities are amountyou are due to pay within the coming 12

months. For example, 1.5 times meansthat you should be able to lay your hands



on $1.50 for every $1.00 you owe. Lessthan 1 times e.g. 0.75 means that youcould have liquidity problems and beunder pressure to generate sufficient cash

to meet oncoming demands.

QuickRatio

(TotalCurrentAssets -

Inventory)/Total Current

Liabilities

= xtimes

Similar to the Current Ratio but takesaccount of the fact that it may take timeto convert inventory into cash.

Working

CapitalRatio

(Inventory +Receivables -

Payables)/Sales

As %Sales

A high percentage means that working

capital needs are high relative to yoursales.



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 1,288.62 1,288.62 644.31 644.31 644.31

Reserve Surplus 10,426.46 9,875.99 9,751.27 9,125.50 8,230.14

Secured loans 14.88

Defered tax liability 849.11 693.46 660.59 621.35 607.43

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

APPLICATION OF FUNDS

FIXED ASSETS

Gross block 13,658.62 12,076.15 11,017.96 9,899.84 9,137.26

less cdepreciation 7,046.27 6,582.62 6,181.65 5,868.30 5,606.31net block (NET FIXED ASSETS ) 6,612.35 5,493.53 4,836.31 4,031.54 3,530.95

fixed asset awaiting disposal 0.99 0.86

Capital work in progress 684.44 1,743.53 2,243.40 2,867.13 2,334.59

7,296.79 7,237.06 7,079.71 6,899.66 5,866.40

INVESTMENT 754.26 1,331.67 986.75 895.93 115.03

Current assets, loans and advances

Inventory 1,212.70 1,058.47 944.92 841.90 686.65

Sundry Debtors 138.12 112.40 181.78 26.50 60.65Cash and bank balance 4,168.35 3,795.23 3,152.35 2,869.04 3,516.46

other current assets 270.07 163.84 145.00 175.35 236.47

loan and advances 1,680.49 915.23 785.59 616.02 541.10

CURRENT ASSETS 7,469.73 6,045.17 5,209.64 4,528.81 5,041.33

less:current liabilities & provision

current liabilities 2,673.32 2,354.46 1,849.95 1,603.40 1,318.31

Provision 283.27 386.49 369.98 329.84 222.57

CURRENT LIABILITIES 2,956.59 2,740.95 2,219.93 1,933.24 1,540.88

Net current asstes 4,513.14 3,304.22 2,989.71 2,595.57 3,500.45

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



PROFIT & LOSS ACCOUNT

Profit and loss account for 2008 to 2012

PARTICULARS 2011-12 2010-11 2009-10 2008-09 2007-08

INCOME

Sales 7,038.23 6,369.88 5,311.40 5,517.52 5,474.45

less: excise duty 426.66 410.90 255.74 423.00 485.65

Net sales 6,611.57 5,958.98 5,055.66 5,094.52 4,988.80

Finished goods internally consume 5.57 24.20 26.44 31.65

Other income 542.16 452.95 468.75 495.84 554.77

TOTAL 7,153.73 6,417.50 5,548.61 5,616.80 5,575.22

EXPENDITUREDecretion/accretion to stock of finishe -2.93 9.91 21.63 -85.35 -21.85

raw materials 1,030.78 766.12 782.30 696.76 574.36

fuel & power 2,196.68 1,772.64 1,601.14 1,311.55 994.69

repair & maitenance 414.70 296.37 250.52 231.54

Other manufacturing expenses 177.61 210.78 174.98 163.82

employees renumeration benefit 1,034.54 989.02 843.60 771.06 552.97

administrative exp. 121.09 115.29 103.33 106.74

other exp. 1,207.59 138.07 127.55 123.10 113.97

selling distributiom exp. 72.17 89.04 84.33 84.74

interest & financing charge 0.87 0.05 2.28 3.96 1.51provision 0.34 -3.91 -3.23 -0.35

depreciation & impairments 466.55 430.06 319.39 272.44 281.10

TOTAL 5,934.08 4,891.78 4,405.46 3,703.45 3,083.24

PBEIT 1,219.65 1,525.72 1,143.15 1,913.35 2,491.98

Exceptional items 21.90

add/less: prior period adjustment (net) -1.02 11.71 13.81 -25.39

profit before tax 1,197.75 1,524.70 1,154.86 1,927.16 2,466.59

Provision for taxation

Tax exp.

(1) Current tax

(2) MAT creditmin entitlement -39.89

Current 237.94 422.61 315.31 634.92 849.80

Fringe benefit 10.87 10.64

Deffered 155.65 32.87 39.25 13.91 -5.31

Earlier years -5.45 -0.08 -13.92 -4.81 -20.06

Tax Expenses 348.25 455.40 340.64 654.89 835.07

Profit after tax (NET PROFIT ) 849.50 1,069.30 814.22 1,272.27 1,631.52



SCHEDULAE CHANGES IN WORKING CAPITAL AT NALCO

CALCULATION WORKING CAPITAL (Rs. In Crores )

Particular 2011-12 2010-11 2009-10 2008-09 2007-08

current assets

IVENTORIES 1212.7 1058.47 944.92 841.9 686.65

SUNDRY DEBTORS 138.12 112.4 181.78 26.5 60.65

CASH &BANK

BALANCE

4168.35 3795.23 3152.35 2869.04 3516.46

OTHER CURRENT

ASSETS

270.07 163.84 145 175.35 236.47

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

CURRENT

LIBELITIES &

PROVISIONS

CURRENT

LIBELITIES

2673.32 2354.46 1841.34 1603.4 1318.31

PROVISIONS 283.27 386.49 369.98 329.84 222.57

Total current

liabilities

2956.59 2740.95 2211.32 1933.24 1540.88

Net working capital 4513.14 3304.22 2998.32 2595.57 3500.45



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 itsshort 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.

2008 2009 2010 2011 2012

Net Working Capital 3500.45 2595.57 2998.32 3304.22 4513.14

3500.45

2595.57

2998.323304.22

4513.14

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Net Working Capital



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.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

2008 2009 2010 2011 2012Inventory 686.65 841.90 944.92 1,058.47 1,212.70

Sundry Debtors 60.65 26.50 181.78 112.40 138.12

Cash and bank balance 3,516.46 2,869.04 3,152.35 3,795.23 4,168.35

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

CURRENT ASSETS



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.

2008 2009 2010 2011 2012

TOTAL CURRENT ASSETS 5,041.33 4,528.81 5,209.64 6,045.17 7,469.73

5,041.334,528.81

5,209.64

6,045.17

7,469.73

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

TOTAL CURRENT ASSETS



CURRENT LIABILITIES

Current liabilities mean the liabilities which have to pay in current year. It includes sundry

creditor‟s 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

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

2008 2009 2010 2011 2012

Current liabilities 1,318.31 1,603.40 1,849.95 2,354.46 2,673.32Provision 222.57 329.84 369.98 386.49 283.27

1,318.311,603.40

1,849.95

2,354.46

2,673.32

222.57 329.84 369.98 386.49 283.27

CURRENT LIABILITIES

2008 2009 2010 2011 2012

TOTAL CURRENT LIABILITIES 1,540.88 1,933.24 2,219.93 2,740.95 2,956.59

1,540.88

1,933.24

2,219.93

2,740.952,956.59

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

TOTAL CURRENT LIABILITIES



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.



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) Work in process 8) Accrued expenses

9) Prepaid expenses and others whichCan 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.



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

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

0

2000

4000

6000

8000

2008 2009 2010 2011 2012

CURRENT ASSETS 5041.33 4528.81 5209.64 6045.17 7469.73

CURRENT LIABILITIES 1540.88 1933.24 2211.32 2740.95 2956.59

5041.334528.81

5209.64

6045.17

7469.73

1540.881933.24 2211.32

2740.95 2956.59

CURRENT RATIO

2008 2009 2010 2011 2012

CURRENT RATIO 3.27 2.34 2.36 2.21 2.53

3.27

2.34 2.362.21

2.53

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

A x i s T i t l e

CURRENT RATIO



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 liquidassets. 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 company‟s

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.



Quick ratio of Nalco from the year 2008 to 2012are are as follows:-

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.

0

2000

4000

6000

8000

2008 2009 2010 2011 2012

QUICK ASSETS 4354.68 3686.91 4264.72 4986.7 6257.03

TOTAL CURRENT LIABILITIES 1540.88 1933.24 2211.32 2740.95 2956.54

4354.683686.91

4264.724986.7

6257.03

1540.881933.24 2211.32

2740.95 2956.54

QUICK RATIO

2008 2009 2010 2011 2012

QUICK RATIO 2.83 1.91 1.93 1.82 2.12

2.83

1.91 1.931.82

2.12

0.00

0.50

1.00

1.50

2.00

2.50

3.00

QUICK RATIO



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 firm‟s ability of

generating sales from all the financial resources committed to the company. As this ratioincreases 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

0

2000

4000

6000

8000

10000

12000

14000

16000

2008 2009 2010 2011 2012

NET SALES 4988.8 5094.52 5055.66 5958.98 6611.57

TOTAL ASSETS 10907.73 11428.47 12289.35 13282.23 14766.52

4988.8 5094.52 5055.665958.98

6611.57

10907.7311428.47

12289.3513282.23

14766.52

TOTAL ASSETS TURNOVER RATIO



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.

2007-08 2008-09 2009-10 2010-11 2011-12

TOTAL ASSETS TURNOVER

RATIO0.46 0.45 0.41 0.45 0.45

0.38

0.390.4

0.41

0.42

0.43

0.440.45

0.46

0.47

A x i s T i t l e

TOTAL ASSETS TURNOVER RATIO



WORKING CAPITAL TURNOVER RATIO:-

NET SALES

Working Capital Turnover Ratio = ---------------------

NET WORKING CAPITAL

Net working capital = Current Asset – Current Liability

0

1000

2000

3000

4000

5000

6000

7000

2008 2009 2010 2011 2012

NET SALES 4988.8 5094.52 5055.66 5958.98 6611.57

NET WORKING CAPITAL 3500.45 2595.57 2998.32 3304.22 4513.14

4988.8 5094.52 5055.66

5958.98

6611.57

3500.45

2595.572998.32

3304.22

4513.14

WORKING CAPITAL TURNOVER RATIO



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 2008-

09 due to very high cash and bank balance as on 31 st march, 2009 to 2011-12 it is

decreasecompare in last year 2010-11 in 1.80 due to they are no loan in bank .

2008 2009 2010 2011 2012

WORKING CAPITAL

TURNOVER RATIO1.43 1.96 1.69 1.80 1.46

1.43

1.961.69

1.80

1.46

0.00

0.50

1.00

1.50

2.00

2.50

WORKING CAPITAL TURNOVER RATIO



Key Financial Ratios

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

Investment Valuation Ratios

Face Value 5 5 10 10 10

Dividend Per Share 1 1.5 2.5 6 6

Operating Profit Per Share (Rs) 4.44 6.7 18.95 29.34 37.76

Net Operating Profit Per Share (Rs) 25.65 23.51 80.47 81.04 79.84

Free Reserves Per Share (Rs) -- 38.32 151.34 141.62 127.73

Bonus in Equity Capital 50 50 -- -- --

Profitability Ratios

Operating Profit Margin(%) 17.31 28.5 23.54 36.2 47.28

Profit Before Interest And Tax Margin(%) 9.48 20.39 16.43 28.84 38.59

Gross Profit Margin(%) 10.26 21.4 17.38 30.98 41.82

Cash Profit Margin(%) 18.7 23.01 19.58 27.25 34.79

Adjusted Cash Margin(%) 18.7 23.01 19.58 27.25 34.79

Net Profit Margin(%) 11.87 16.8 14.84 22.68 29.27

Adjusted Net Profit Margin(%) 11.87 16.8 14.84 22.68 29.27

Return On Capital Employed(%) 10.41 14.3 11.55 20.51 29.08

Return On Net Worth(%) 7.25 9.57 7.83 13.02 18.38



IMPORTANT RATIOS OF NALCO

1. OPERATING PROFIT MARGIN (%)

2. NET PROFIT MARGIN (%)

2008 2009 2010 2011 2012

47.28

36.2

23.5428.50

17.31

2008 2009 2010 2011 2012

29.27

22.68

14.8416.80

11.87



3. RETURN ON NETWORTH (RONW) (%)

4. RETURN ON CAPITAL EMPLOYED (ROCE)

2008 2009 2010 2011 2012

29.08

20.51

11.5514.53

10.41

2008 2009 2010 2011 2012

19.63

26.29

26.5130.95

18.39



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.



Company‟s current assets were always more than requirement it affect on profitability of the

company.

MAJOR FINDINGS

Statement Showing Difference from Previous year:-

Rs.In Crores

Particular 2011-12 2010-11 2009-10 2008-09 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

Cash & BankBalance 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

Reserve 10,426.46 9,875.99 9,751.27 9,125.50 8,230.14

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.



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. Name of theAuthor

(Year) “Title of the

Books” Name of thePublisher

1. I.M.PANDEY - FinancialManagement

Vikas

Publication 2. PRASSANA

CHANDRA- Financial

ManagementSharma &Gupta

http://www.nalcoindia.com/



http://www.google.co.in/



http://www.moneycontrol.com/





analysis of working capital management on nalco.docx

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