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EXECUTIVE SUMMARY
I started my project on 11 June 2012 in National Thermal Power Corporation (NTPC)
and was asked to study the working capital and its different components. I was
asked to collect the information related to finance and accounting system of the
organization, for that purpose, I meet the managers of NTPC who are doing job at
executive level in the organization. I collected data from the financial statements of
NTPC through balance sheets.
The secondary objective was to gather information about the different components of
working capital. I started my survey from bills and stores section of NTPC in
financial department itself. I went through all the eight sections of accounts
department in NTPC.
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INTRODUCTION TO THE TOPIC
What is Working Capital and why working capital is required in the organization?
Answers of the above question are as follow:-
Working capital management is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities, and the interrelationship that exist
between them. Because they are highly liquid and need to manage it in a better way
for its best utilization and meet all short-term finance and repayment of short-term
debt. It manages the required funds to carry the required levels of current assets to
enable the company to carry on its operations at the expected level without any
disruption.
The aim of working capital management is to manage the firms current assets and
current liability in such a way that maintained a satisfactory level of working capital.
This is so because if the firm cannot maintain a satisfactory level of working capital,
it is likely to become insolvent and may even be forced into bankruptcy. The current
assets should be large enough to cover its current liabilities in order to ensure a
reasonable level of safety. The interaction between current
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Assets, current liabilities, and its use in best and possible way is the main theme of
the theory of working capital management.
There are two concepts of working capital: Gross and Net.
Gross working capital: - The term Gross working capital is refers to the total
current assets of the company. In addition, the capital that includes all the
detectable items likes expenses and others.
Net Working Capital:- The term Net working capital can be defined in two
ways:-
(i) The most common definition of net working capital (NWC) is the difference
between current assets and current liabilities.
(ii) Alternative definition of net working capital is that portion of current assets
which is financed with long-term funds. Since current liabilities represent sources of
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short-term funds, as longs as current assets exceed the current liabilities, the excess
must be finance with long-term funds. Ti is more useful for the analysis of the trade-
off between profitability and risk
NEED OF WORKING CAPITAL
The need for working capital (Gross) or current assets cannot be overemphasized. The
objective of financial decision making to maximize the shareholders wealth, it is
necessary to generate sufficient profits.
The amount of such profits largely depends upon the magnitude of sales. However,
sales do not convert into cash instantaneously. There is always a time gap between of
goods and receipt of cash. Working capital is required for this period in order to
sustain the sales activity. In case adequate working capacity is not available for this
period, the company will not be in a position of sustaining the sales, since it may not
be in an opposition to purchase raw materials, pay wages and other expenses required
for manufacturing the good to be sold.
Working capital is required because of the time gap between the sales and their actual
realization in cash. This time gap is technically termed as operating cycle of the
business. In other words, the term cash cycle of operating cycle refers to the length of
time necessary to complete the following cycle of events.
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The operating cycle consists five phases:-
I phase - Cash are converted into raw material.
II phase: - Raw material is converted into work-in-progress.
III phase: - Work-in-Progress is converted into finished goods.
IV phase: - Finished goods are converted into sales.
V phase: - Sales are converted into debtors.
Fig: 1 Operating Cycle
OPERATING CYCLE:-
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If it were possible to complete the sequences instantaneously, there would be n-o need
for current assets (working capital). However, since it is not possible, the firm is
forced to have current assets. If cash inflows and outflows do not match, firm have to
necessarily keep cash or invest in short term liquid securities so that they will be in a
position to meet obligations when they become due.
Therefore, due to above statement it is clear that why the companies are needed
working capital.
There are mainly three part of Working Capital in the company, which is as follow:-
A) Cash
B) Inventory
C) Bills Receivable
CASH:
Cash is the most important component of current assets. All other components such as
debtors and inventories ultimately are converted into cash and this fact further
emphasizes the importance of management of cash.
The goal of cash management is to maintain the minimum cash balance that provides
the firm with sufficient liquidity needed to meet its financial objectives.
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The term cash includes not only currency but also near cash assets such as marketable
securities and demand deposits in bank.
Cash section is an important section of finance and accounts department. It deals with
the employees, contractors and suppliers for their payments.
Corporate office plays a dominant role in cash management. The corporate office
allocates different amount of each to different coalmines as per its requirements.
Corporate office acts as a
linkage between the NTPC and main book. The state bank of India, Corporate office
has determined the credit facility for every units of NTPC. No one unit of NTPC can
get the credit facility more than ones limit. The credit facility is known as rolling cash
limit. This keeps on changing from year to year depending upon companys position
transactions, profitability, and inventory position.
Although corporate office provides credit limit facilities, yet NTPC is not fully
dependent on the corporate office. The sale of scrap materials of defective at plant
level generates the cash. Thus, at a time, plant can also pay liabilities and then the
balance amount is only intimated to the corporate office. NTPC gives priority in cash
payment, which is urgent, and sends the report to corporate office.
In brief, the main uses of the cash in organization are as follow:-
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It required paying for the fuel and coal charges to the supplier.
It also use to making payment for other construction in organization like
building, road, etc. on every day or week or monthly bases.
It use to buying loose tools, spare parts, etc.
In addition, making payment to the employees in the organization.
STRUCTURE OF WORKING CAPITAL
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FIG: 2 CIRCULATION SYSTEM OF WORKING
CAPITAL
The structural study of working capital involves the analysis of composition
of current assets and current liabilities. The current assets consist of inventory,
cash, receivables, and marketable securities. Current liabilities usually
comprise the borrowings, trade credits, assessed tax and unpaid dividend or
any other things.
TYPES OF WORKING CAPITAL
Working capital can be divided into two categories of the basis of time.
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I. Permanent or long-termworking capital
This refers to that minimum amount of investment in all current assets, which is
required at all times to carry out minimum level of business activities. In other
words, it represents the current assets required on a continuing basis over the entire
year. Tondon committee has referred to this type of working capital as CORE
CURRENT ASSETS. The following are the characteristics of this type of working
capital.
Amount of payment working capital remains in the business in one from
another. This is particularly from the point of view of financing. The suppliers of
such working capitals should not accept its return during the lifetime of the firm.
It also grows with the size of the business. In other words greater the size of
the business greater is the amount of such working capital and vice versa.
Permanent working capital is permanently needed for the business and therefore it
should be financed out of long-term funds.
II. Temporary or short-term working capital
The amount of such working capital keeps on fluctuating from time to time
because of business activities. In other words, it represents additional current assets
required at different times during the operating years. For example, extra inventory
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has to be maintained to support cells during peak sales period. Similarly receivable
also increase and must be financed during
period of high sales. On the other hand, investments in inventories, receivable
etc will decrease in period of depreciation.
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ADVANTAGES OF WORKING CAPITAL
I Cash Discount- If proper cash balance is maintained the business can
avail the advantages of cash discount by paying cash for the purchase
of raw materials and the merchandise. It will result in reducing the cost
of production
II. It creates a feeling of security and confidence Adequate working
capital creates a sense of security, confidence, and loyalty not only
throughout the business itself but also among its customers creditors
and business associates.
III. Sound goodwill and debt capacity - The promptness of payment in
business creates goodwill and increases the debt capacity of business.
IV. Easy loans for the banks An adequate working capital helps the
company to borrow insecure loans from the banks because the access
provides a good security to the insecure loans. Banks favor in
generating seasonal loans, if business has a good credit standing and
reputation.
V. Distribution of dividend If company is sort of working capital it
cannot distribute the good dividend to its shareholders in spite of
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sufficient profits. On the contrary, if the working capital is sufficient,
ample dividend can be declared.
VI. Exploitation of good opportunities- In case of adequacy of capital in
a concern, good opportunities can be exploited. Company may make
off-season purchase resulting in substantial savings or it can fetch big
supply orders resulting in good profits.
VII. Meeting unseen contingencies Financial crisis due to heavy losses,
business oscillations etc can easily be overcome if company maintains
adequate working capital.
VIII. It increases fixed assets efficiency Adequate working capital
increases the efficiency of fixed assets of the business because of its
proper maintenance.
IX. High moral- The provision of adequate working capital improves the
moral of the executive because they have an environment of certainty,
security, and confidence, which is a great psychological, factor in
improving the overall efficiency of the business and of the person who
is at helm of affairs in the company.
X. Increased Production efficiency A continuous supply of raw
materials research programme innovations and technical developments
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and expansion programmes can successfully carried out if adequate
working capital is maintained in the business.
XI. Maintaining Solvency and containing production In order to
maintain the solvency of the business, it is necessary that sufficient
amount of funds be available to make all the payments in time and
when they are due. Without ample working capital, productions will
suffer particularly in the era of cutthroat competition and business can
never flourish in the absence of adequate working capital.
FINANCING OF WORKING CAPITAL
Sources of financing of working capital differ as per the classification of working
capital into permanent working capital and variable working capital.
Sources of permanent working capital:
(a) Owners funds- are the main source sale of equity or preference stock
could provide a permanent working capital to the business with no
burden of repayment particularly during short period. These funds can
be retained in the business permanently. Permanent working capital
provides more strength to the business.
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(b) Bond financing-Another source of permanent working capital is bond
financing but it has a fixed maturity period and ultimately repayment
has to be made. For repayment of his source, company provides
sinking funds for retirement of bonds issued for permanent working
capital.
(c) Term loan- from banks of financial institutions has the same
characteristics as the bond financing or permanent working capital.
(d) Short term- Borrowing is also a source of working capital finance on
permanent basis.
Sources of temporary working capital
(a) Trade creditors- Trade creditors provide a quite effective source of financing
variable working capital for the period falling between the point when goods
are purchased and the point when payment is made.
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(b) Bank loan-bank loan is used for variable or temporary working capital such
loans run for 30 days to several months with renewals being very common.
(c) Commercial paper- It can be defined as a short-term money market
instrument issued in the form of promissory notes for a fixed maturity. It will
be much unsecured and will have a maturity period running from 90 days to
180 days. It will meet the short-term finance requirements of the companies
and will be good short-term investment for parking temporary surpluses by
corporate bodies.
(d) Depreciation as a source of working capital- The entire amount deducted
towards depreciation to fixed assets is not invested in the acquisition of fixed
assets and is saved and utilized in business as working capitals.
(e) Tax liabilities- Differed payment of taxes is also a source of working capital.
Taxes are not paid from day to day but estimated liability for taxes is indicated
in balance sheets. Besides it, business organizations collect taxes by way of
income tax payable on salaries, providend fund, staff deducted at source, old
age retirement benefits excise taxes, sales taxes, etc. and retain them for some
period in business to be used as working capital.
(f) Other miscellaneous sources are Dealers Deposits, Customers Advances, etc.
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COMPANY PROFILE
About The NTPC
Fig 3 NATIONAL THERMAL POWER PLANT
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CORE VALUES
(BCOMIT)
Business Ethics
Customer Focus
Organizational Pride
Mutual Respect and trust
Initiative and speed
Total Quality
NTPC VISION
TO BE ONE OF THE WORLDS LARGEST
AND
BEST POWER UTILITIES,
POWERING INDIAS
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GROWTH
CORPORATE MISSION
Make available reliable and quality power in increasingly large quantities at
competitive prices and ensure timely realization of revenues.
Adopt a broad based capacity portfolio including hydropower, LNG, nuclear
power, and non-conventional and eco-friendly fuels.
Plan and speedily implement power project using state-of the art technologies.
Be an integrated utility by implementing strategic diversifications in areas such
as power trading, distribution, transmission, coal mining, coal beneficiation etc.
Develop a strong portfolio of profitable businesses in overseas markets
including technical services, generation assets etc.
Continuously attract and develop competent and committed human resources to
match world standards.
Lead fundamental and applied research for adoption of state of the art
technologies, breakthrough efficiency improvements, and new fuels.
Lead developmental efforts in the Indian power sector including assisting stat
utility reform, policy advocacy etc.
Be a socially responsible corporate entity with thrust on environment protection,
ash utilization, community development, and energy conservation.
Speedily plan and implement power projects, with contemporize technologies.
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Fig- 4. Dadri power project of NTPC
NTPC DADRI POWER STATION
4 X 210MW + 2 X 490MW COAL BASED POWER PLANTS and
817 MW Combined Cycle Gas Turbine Plant
World / India / Uttar Pradesh / Dadri
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NATIONAL THERMAL POWER CORPORAION LTD
The year 1975 witnessed the birth of an organization that went on to achieve great
feats in performance in a sector that was, until then, characterized largely by lack of
investment, severe supply shortage and operational practices that made the
commercial viability of the sector unsustainable. On November 7 1975, NTPC came
into being and with it came a bold way of looking at the power infrastructure that
could support the economy, then reeling under the oil crisis. Since then, NTPC has
led the power sector with the creation of an immensely efficient and reliable power
generation infrastructure, which was until then largely in the hands of state electricity
boards. NTPC was set up in the central sector to build, own, and operate large thermal
power stations which unit size of 200 MW and 500 MW.
Capacity addition by NTPC was meant to supplement the efforts of state electricity
boards (SEBs). The first four projects namely, Singrauli, Korba, Ramagundam,
Farakka, in four different regions of the country, were already on the drawing board
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and were to be set up as pit-head stations. There were challenges aplenty. The
expectations were high and so were the risks. NTPC symbolized hope
of the country suffering from crippling power black-outs, the government of India,
which was trying to put an ailing, economy back on track and the World Bank, which
was supporting the country in many development initiatives. Thus, NTPC was created
not only to redraw the power map of India but also to excel in its performance and set
benchmarks for others to follow. It succeeded on both counts.
In 1978, it was a clean state. Until the first sketches of an idea were scribbled
on it. In addition, them, in no time, it seems, what was a dream became a reality
power. Today, Singrauli stands tall among Indias foremost power plants.
Cleared by the Government of India on eighth Dec.76, the project began to take shape
in early78. An intrepid group of site engineers, supervisors, and workers braved the
elements to lay the foundations of what at the time was thought to be a dream.
By mid 1978, the first T.G raft connecting, a very precise and massive task
was completed. By Nov. 78, the erection of the first steam generator had
commissioned. In Nov.79, the first major milestone in the erection of the main plant
was reached with the boiler drum of unit I being lifted successfully, signaling the
commencement of pressure parts erections. By June80 the turbine installation work
had already begun, and in Sept.81, the boiler was lit up and the cleaning process
completed by Oct.81.
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Finally, on 13 Feb.1982, the turbine was steam rolled and the first unit of
NTPC was successfully synchronized with the Northern Grid at Dadri. The peak load
of 200MW was touched in April82. The fifth and the last one on 20 Feb.84,
bringing the curtain down on stage I of the project.
National Thermal Power Corporation is the largest power generation company in
India. The Forbes Global 2000 ranking for 2005 ranks it as the 5 th leading company in
India and the 486th leading company in the world. It is a public listed (Bombay Stock
Exchange) Indian public sector company, with majority shares owned by the
Government of India. India. At present, Government of India holds 89.5% of the total
equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks,
Public and others. NTPC ranks amongst the top five companies, in terms of market
capitalizations.
NTPCs core business is engineering, construction, and operation of power generating
plants and providing consultancy to power utilities in India and abroad. As on date the
installed capacity of NTPC is 26, 404 MW through its 14 coal based (21,395 MW),
seven gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW).
NTPCs share on 31 Mar 2006 in the total installed capacity of the country was
19.51% and it contributed 27.68% of the total power generation of the country during
2005-06. Thus, every fourth home in India is enlightened by NTPC. A total of 170.88
Bus of electricity was produced across all the stations of the company in the financial
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year 2005-2006. The Net Profit after Tax on March 31, 2006 was INR 58, 202
million. Net Profit after Tax for the quarter ended June 30, 2006 was INR 15528
million, which is 18.65% more than the same quarter in the previous financial year
(2004-2005) where the profit was INR 13087 million.
Pursuant to special resolution passed by the Shareholders at the Companys Annual
General Meeting held on September 23, 2005 and the approval of the Central
Government under section 21 of the Companies Act, 1956, the name of the Company
National Thermal Power Corporation Limited has been changed to NTPC
Limited with effect from October 28, 2005.
The company, which has completed its thirty years of existence on November 7,
2005, has made its foray into hydropower and is planning to go into nuclear too).
Within a span of 31 years, NTPC has emerged as a truly national power company,
with power generating facilities in all the major regions of the country. Based on 1998
data, carried out by Data monitor UK, NTPC is the 6 th largest in terms of thermal
power generation and the second most efficient in terms of capacity utilization
amongst the thermal utilities in the world
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Fig 5
NTPCs core business is engineering, construction, and operation of power generating
plants and providing consultancy to power utilities in India and abroad. As on date the
installed capacity Of NTPC is 24,954 MW through its 14 coal based (20,685MW),
seven gas based (3,955 MW) and 3 Joint Venture Projects (314 MW). NTPC acquired
50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This JV company
operates the captive power plants of Durgapur (120 MW), Rourkela (120 MW) and
Bhilai (74 MW).
NTPCs share on 31 Mar 2006 in the total installed capacity of the country was
19.51% and it contributed 27.68% of the total power generation of the country during
2005-06.NTPC has set new benchmarks for the power industry both in the area of
power plant construction and operations. It is providing power at the cheapest average
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tariff in the country. With its experience and expertise in the power sector, NTPC is
extending consultancy servicesto various organizations in the power business.TPC is
committed to the environment, generating power at minimal environmental cost and
preserving the ecology approximately the plants. NTPC has undertaken massive a
forestation near its plants. Plantations have increased forest area and reduced barren
land. The massive forestation by NTPC in and around its Ramagundam Power station
(2100 MW) has contributed reducing the temperature in the areas by about 3c.
NTPC has also taken proactive steps forash utilization. In 1991, it set up Ash
Utilization Division to manage efficient use of the ash produced at its coal stations.
This quality of ash produced is ideal for use in cement, concrete, cellular concrete,
building material.
A Centre for Power Efficiency and Environment Protection (CENPEEP)has been
established in NTPC with the assistance of United States Agency for International
Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-
nurturing initiative a symbol of NTPCs concern towards environmental protection
and continued commitment to sustainable power development in India.
As a responsible corporate citizen, NTPC is making constant efforts to improve the
socio-economic status of the people affected by the projects. NTPC was among the
first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU)
with the Government in 1987-88. NTPC has been Placed under the Excellent
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category (the best category) every year since the MOU system became operative.
Recognizing its excellent performance and vast potential, Government of the India
has identified NTPC as one of the jewels of Public Sector Navratnas- a potential
global giant.
INSTALLED CAPICITY
Projects No. of Projects
Commissioned
Capacity
(MW)
NTPC OWNED
COAL 14 22,395
GAS/LIQ. FUEL 07 3,955
TOTAL 21 26,350
OWNED BY JVCs
Coal 3 314*Gas/LIQ. FUEL 1 740**
GRAND TOTAL 25 27,404
* Captive Power Plant under JVs with SAIL
** Power Plant under JV with GAIL, & MSEB
Table: 1.1
Coal based State
Commissioned
Capacity
(MW)
1. Singrauli Uttar Pradesh 2,000
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2. Korba Chhattisgarh 2,100
3. Ramagundam Andhra Pradesh 2,600
4. Farakka West Bengal 1,600
5. Vindhyachal Madhya Pradesh 3,260
6. Rihand Uttar Pradesh 2,000
7. Kahalgaon Bihar 1,340
8. NTCPP Uttar Pradesh 840
9. Talcher Kaniha Orissa 3,000
10. Unchahar Uttar Pradesh 1,050
11. Talcher Thermal Orissa 460
12. Simhadri Andhra Pradesh 1,000
13. Tanda Uttar Pradesh 44014. Badarpur Delhi 705
Total (Coal) 22,395
Coal Based Power Stations table 1.2
Gas/Liq. Fuel Based Power Stations
Gas based State
Commissioned
Capacity
(MW)
1 Anta Rajasthan 413
2 Auraiya Uttar Pradesh 652
3 Kawas Gujarat 645
4 Dadri Uttar Pradesh 817
5 Jhanor-Gandhar Gujarat 648
6
Rajiv Gandhi CCPP
Kayamkulam
Kerala 350
7 Faridabad Haryana 430
Total (Gas) 3,955
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Table 1.3
Projects under Implementation
Coal / Hydro State Fuel
Additional
Capacity
Under
Implementatio
n (MW)
1
.
Kahalgaon Stage II
(Phase I) (Phase II)Bihar Coal
500
500
2
.
Sipat (Stage I) (Stage II)
Chhattisgar
h
Coal
1980
1000
3
.
Barh Bihar Coal 1980
4
.
Bhilai (Exp. Power
Project-JV with SAIL)
Chhattisgar
h
Coal 500
5
.
Korba (Stage III)
Chhattisgar
h
Coal 500
6 Farakka (Stage III) West Bengal Coal 500
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.
7
.NCTPP (Stage II)
Uttar
PradeshCoal 980
8
.
Simhadri (Stage II)
Andhra
Pradesh
Coal 1000
9
.
Koldam (HEPP)
Himachal
Pradesh
Hydro 800
1
0
.
Loharinag Pala (HEPP) Uttarakhand Hydro 600
1
1
.
Tapovan Vishnugad
(HEPP)
Uttarakhand Hydro 520
Total (Coal + Hydro) 11,360
Table 1.4
Power Plants with Joint Ventures
Coal
Based
State Fuel
Commissioned
Capacity
(MW)
2
2
.
Durgapu
r
West Bengal Coal 120
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2
3
.
Rourkel
aOrissa Coal 120
2
4
.
Bhilai Chhattisgarh Coal 74
2
5
.
RGPPL Maharastra Naptha/LNG 740
Total(JV) 1054
Grand Total (Coal + Gas + JV) 27,404
Table -1.5
ACHIEVEMENTS
Recognizing its excellent performance and vast potential, Government of the India
has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential
global giant.
NTPC ranked 317th in the 2009, Forbes Global 2000 ranking of the Worlds
biggest companies.
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NTPC has been rated as one of the top most Best Employer of the country
for the year 2003, 2004 & 2005 in a row.
It has also been rated as one of the Best Companies to Work for in India by
Mercer HR Consulting- Business Today Survey 2004, it has developed into a
multi-location and multi-fuel company over the past three decades.
NTPC has been awarded No.1, Best Workplace in India among large
organizations for the year 2008, by the Great Places to Work Institute, India
Chapter in collaboration with The Economic Times.
Leadership Award for CMD, NTPC in the fourth Global Leadership
Summit by Amity University for Sect oral Excellence in Power industry for
his outstanding contribution to the growth of Indian business & bringing
glory to the country through his pioneering leadership.
Ranked #1 independent power producer in Asia in the THIRD ANNUAL
PLANTS TOP 250 GLOBAL ENERGY COMPANY AWARDS 2008 for
outstanding Global financial & Industrial performance at the award ceremony
in Singapore. The corporation has been simultaneously ranked #15, overall in
Asia amongst the energy companies.
NTPCs excellence in executing power projects & its initiative in
Decentralized Distributed Power Generation has been recognized and
awarded at IEEMA Power Awards 2008. NTPC Vindhyachal Stage-III (2x
500MW) has been conferred the IPMA SILVER MEDAL for Project
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Excellence by International Project Management Association, at the IPMA
Congress, held in Rome, Italy, for implementation of project in record time &
achieving excellent environmental, economic performance and giving
outstanding support to the local community.
ORGANIZATION STRUCTURE OF NTPC fig: 6
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L OCATION OF NTPC PLANTS
Fig: 7
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Dry ash collected for productive use
Fig 8
FINANCIAL DEPARTMENTS IN DADRI:-
Dadri is also having their own separate financial department and FAS (Online
Integrated Material and Financial Accounting System). This department does all the
function, which is related to the finance or fund of the company. It use a specific
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language in the computer for manage zing all the work or communicating with other
department and this language is ingress.
DADRI SECTIONS:-
There are various section are working in the NTPC Dadri for managing all the work
in better way this section are divided according to the nature of work . It is organized
into following ways:-
I. Establishments
II. Works and Bills section
III. Store, Bills and PSL (Price Store Ledger) Section
IV. Commercial Section
V. Weighting and Concurrences
VI. Cash and Bank
VII. Books and Budget section
VIII. Miscellaneous
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ESTABLISHMENT SECTION
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Monthly Salary Slip
The establishment Section of F&A is mainly involved into two activities viz. Salary
Preparation or processing & payment of Establishment or Employee Bills like
Medical, LTC, TA etc. The section is processing the salary for the employees of Dadri
Thermal, Dadri Gas and Muradnagar. The monthly Salary is processed based on
inputs provided by Site HR, C&M Department. (Stores) etc. The data can be either
master data or temporary data. The latter is temporary while the former is permanent
in nature. The statutory deductions like PF, Pension are made as per the prevailing
law while the income tax at source is deducted based on estimated Gross
Income/Savings of the employee and as per the prevailing Income tax rules/act. The
TDS certificate in the Form 16 is issued, at the end of each Financial Year, to the
concerned employee. Similarly, employees are issued pension & PF Slips/ statements,
at the year end, based on the deductions made from their salary as per procedure.
Besides, above, the sections also pay/reimburse TA, LTC and medical bill payments
as per the prevailing rules, policies & procedure of the NTPC.
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BOOKS SECTION
The Books Section of Finance Department is mainly involved in the following
activities:-
Preparation of Balance Sheet and P&L A/C, based on available/prevailing
accounting guidelines/policies.
Coordination with other sections of finance for review of Sectional Accounts.
Preparation & review of General Ledger.
Preparation & review of Trial Balance.
Coordination with corporate accounts for preparation of final accounts viz.
B/Sheet and P&L A/c.
Coordination with various Auditors viz. Internal, Statutory and Government
Auditors.
Reconciliation of Inter Unit Accounts with Corporate Centre/Other Units of
NTPC.
Tax Audit
The Books Section at NCPS, Dadri is engaged in preparation of Three Balance
Sheets, namely Dadri Thermal, Dadri Gas & Muradnagar that is a unique
accomplishment by any station of NTPC. Besides, above, it is also maintaining
various documents what are required as per the various prevailing laws & procedures.
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For instance, it is maintaining fixed assets register, which contains all the relevant
details of various fixed assets in the station/projects. The books section also
prepares/controls DCO (Capital) budget and MBOA budget in consultation with site
P&S.
CASH & BANK (TREASURY)
Fund management
Payment of cash transactions
Preparation of cash book
Payment of Cheque/DD transactions
Receipt of cash
Receipt of outstation cheque/DD etc.
Preparation of Bank Book
Preparation of Bank Reconciliation Statements with various banks viz. SBI,
PNB, OBC, ICICI.
WORKS & MISC SECTION
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Payment to various work contractors for capital works, as per LOA/WO
issued by site/corporate contracts deptartment. & measurements recorded in
the Measurement Book by the executing deptartment.
Payment to various O&M contractors for various operation & maintenance
jobs carried out in plant & township. The payment is released based on
LOA/WO issued by contracts Department. & measurements recorded by the
executing Department in the Measurement Book.
Accounting for the payments made to various works & O&M contractors.
Preparation of material reconciliation statement.
Deduction of Income Tax from the payments made to various contractors and
issues of TDS certificate(s) thereon.
Payment of Final Bill and contract closing.
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STORES BILL SECTION
Payment to various suppliers for procurements made, based on SRV/Purchase
order/invoices issued /authenticated by the materials deptartment.
Accounting for the payments made to various suppliers.
Reconciliation & Audit of accounts with various suppliers.
Preparation and filing of sales tax return.
FINANCIAL CONCURRENCE
Vetting of cost estimates for civil, procurements and O&M works as per laid
down guidelines regarding availability of Budget(s), canons of financial
proprietary, delegation of powers etc.
Vetting of deviation statements viz.
- Extra item statement
- Substituted item statement
- Interim deviation statement
- Final deviation statement
- Modification of any terms & conditions in the LOA/P.O/W.O. with
financial implication
Vetting of time extension proposals as per laid down guidelines.
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Interpretation of delegations of powers.
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PRICED STORES LEDGER (PSL) Accounting for material issued by the central stores.
Accounting for material received by the central stores from the suppliers.
Accounting for the material returned to the stores deptartment by the
executing department.
Accounting for material transferred from the station/project to other
projects/stations of NTPC.
Accounting for scrap material
Physical verification of central stores items as per the available/existing
guidelines lay down by the corporation.
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COMMERCIAL SECTION
At the operating stage of a power plant, Commercial, which mainly involves selling
of electricity to various SEBs, is the main activity of the station. The NCPS occupies
a unique position among all the power stations of NTPC. For, it has twin projects of
Gas & Coal based units. The Gas Project has dual fuel capability of using HSD as
well as gas for power generation. The total installed capacity of the twin project is
1669 MW. The sheer size and complexity of operations make it imperative that an
effective system of internal controls is in place to ensure accuracy of record and
reduce the scope for the interests of the corporation being compromised in any
manner. To achieve this end, a comprehensive internal control system has been
devised for all aspects of the corporation working in the Commercial Section. The
system for fuel accounting is summarized below-
1. Coal:-
The supply of coal is linked up with the Piparwar mine at Jharkhand. The
coal is mainly washed coal in nature. Total quantity of coal supplies in a
year/ quarter/month are done based on linkage committee of the ministry
of coal. The price of washed coal and terms & conditions are determined
by the various MOMs between NTPC & CCL, while that of raw coal is
based on various price notifications. The various steps in coal accounting
are enumerated below-
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a) Quantity:-
Coal is dispatched from the mines by railway wagons after weighment
at the loading point with the help of weight meters. The latter are kept
under joint seal and have to be recalibrated in the presence of
representatives of both the parties as and when desired by either party.
For accounting purposes, a Store Receipt Voucher (SRV) is made out
for entry into the Priced Stores Ledger (PSL) for quantity determined
as above. There is adjustment on A/c of moisture content.
b) Grade variances:-
Both supplier & third party conduct chemical analysis of their
respective samples in order to ascertain the actual grade of the coal
received. Credit/Debit adjustments are passed on by the supplier based
on the grade determined.
c) Billing and payment:-
Bills are initially raised by the coal company based on declared grade.
Payment to the coal company is released after making adjustments for
grade difference, moisture content etc.
d) Consumption :-
Coal from the track hopper or the stockyard is passed thru crushers
before being sent to the pulverized mills, which convert it to a fine
powder. The pulverized coal is then loaded into the coalbunkers from
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where it is fed into the boilers thru the Gravimetric feeders. It is at this
point that the weight of coal actually being fed into the
Gravimetric/Merrick feeders is recorded. A Stores Issue Voucher (SIV)
is then prepared and entry made in the Priced Stores Ledger (PSL) as
the quantity consumed.
e) Periodic Stock verification
Stock verification of coal is done on six monthly/ annually basis as per
the guidelines issued by the corporate centre. Actual quantity in stock
is compared with book stocks and adjustments are made in the books
of account after the approval of the Competent Authority.
f) Recovery of Coal Cost Thru Tariff:-
Coal cost is recovered through tariff under two heads: Basic Cost
Recovery and Fuel Price Adjustment. Basic coal recovery is built into
notified tariff based on coal price and Gross Calorific Value (GCV) on
fired basis at the time of calculation of basic tariff. Fuel Price
Adjustments are billed on a monthly basis by taking into account the
weighted average cost of coal and actual GCV in that particular month.
In the computation of weighted average cost of coal for a particular
month, all costs that are attributable to the purchase of coal are taken
into account in the priced stores ledger (PSL). Such costs include basic
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price, royalty, excise duty, surface transportation charges, Sales Tax,
railway freight, debit, credit, note etc.
Gas:-
Similar to the case of coal, gas linkage are also linked up with the source at the time
of project identification itself. Daily availability of gas is intimated in advance. Gas
Price is fixed by the Govt. of India whereas the Commercial terms and conditions of
supplies are laid down in the Gas supply agreement entered into with GAIL.
However, if the actual calorific value of the Gas supplied is less than the specified
GCV in the agreement, a rebate proportionate to the difference between the actual and
standard calorific value is given to NTPC. In the same fashion, a premium
proportionate to the difference between the actual & standard calorific value is
payable by NTPC.
Billing and payment:-
In accordance with the terms of the Gas supply agreement, billing for gas is
fortnightly and payments are to be made within three working days of presentation of
invoice. In case of discrepancy/dispute, a claim is to the lodged with the seller within
fourteen days of receipt of the invoice under question.
Recovery of Gas Cost Through Tariff:-
Gas cost is recovered thru tariff under two heads:
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Basic Gas Recovery and Fuel Price Adjustment. Basic Gas Recovery is built into
notified tariff based on Gas Price and Gross calorific value (GCV) at the time of
computation of basic tariff. Fuel Price Adjustments are billed on a monthly basis by
taking into account the weighted average cost of gas and actual GCV in that particular
month. In the computation of weighted average cost of gas for a particular month all
costs that can be attributed to the purchase of gas are taken into account.
Liquid Fuels:-
In case of gas station while gas is the primary fuel, HSD is the alternate fuel under the
dual fuel provisions. Since liquid firing is a very costly option, it is done only at the
specific instruction of the Regional Board/Ministry. Handling and accounting for all
liquid fuels being procured is done based on purchase order placed on the various oil
companies.
The other activities are being carried out in the commercial section are summarized
below:
Payment and accounting of various kinds of fuel viz. solid; liquid; and gas.
Preparation & control of O&M budget in consultation with respective
deportments, site P&S/MTP; Regional HQ & Corporate Office.
Computation of Fuel Price Adjustment.
Preparation of monthly cost sheet and cost sheet as per cost accounting record
rules.
Interface with suppliers of various fuels viz.
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- IOCL
- BPCL
- HPCL
- GAIL
- CCL
Eastern
Railways: Eastern Central,
Northern Railway
Interface with other departments at NCPS, Dadri
- C&M
- O&M: Thermal & Gas
- P&S
- HR
- TS
- EDP & Communication
- TA
Preparation of various MIS Reports as per the requirement of Site/Regional
HQ/Corporate Office.
Reconciliation of Accounts with Coal Companies/Oil Companies/Railways
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Sales Reconciliation with Regional Office/Corporate Office for Sale of
Electricity to different SEBs.
Interaction with various auditors viz. Internal/Statutory/Government.
JOINT VENTURES
NTPC has identified Joint Ventures, strategic alliances as well as acquisitions &
diversifications as viable and desired options for its business development.
NTPC looks for opportunity to create such joint ventures & strategic alliances, in the
entire value chain of the power business. NTPC as a partner endows the Joint Venture
Alliances with a winning edge. Acquisitions & Diversifications in the areas related to
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the core business not only ensure growth but also add to the robustness of the
company. Diversification is carried out either directly or through subsidiaries/JV.
SUBSIDIARIES OF NTPC
COMPETITORS
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OBJECTIVE
To know about the working capital management in NTPC
To study working capital and its different components.
To study the working capital requirement at NTPC.
To focus on problem areas of working capital management at NTPC.
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RESEARCH METHODOLOGY
Research can also define as a systematic & scientific search for pertinent information
on a specific topic. In fact, it is art of scientific investigation.
Systematic effort to gain new knowledge Redman & Mory
The manipulation of things, concepts or symbols for the purpose of generally to
extend, correct or verify knowledge whether that knowledge aids in constructing of
theory or in the practice of an art
Clifford woody
Types of research: - The basic types are-
Descriptive & Analytical
Applied & Fundamental
Qualitative & Quantitative
Conceptual & empirical
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As such, the term Research refers to the systematic method consisting often
uncrating of the problem, formulating a hypothesis, collecting the facts or data,
analyzing the fact for finding the solution.
Sampling:
There are following steps in my sampling design:-
1. Type of universe: The first step in developing any sample design is to clearly
define the set of objects, technically called the universe, to be studied. It is the
finite universe because the numbers of items is certain.
2. Sampling unit: Decision has to be taken concerning a sampling unit before
selecting sample. Sampling unit is following;-
Financial Department, Township Administration, Finance & Account, Civil/
Electrical Maintenance Department, Control & Instrumentation, Fuel
Management, Human Resources and Electrical Office.
Above all the sampling units that are used by me for study. I do the study through
Questionnaire Method & Interview method.
RESEARCH INSTRUMENTS:-
When I do the research on working capital management, then I use some tools
that are given below -
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ANNOVA
Correlation
Accounting research tools like ratio analysis etc.
Regression
DATA COLLECTION
SECONDARY DATA:-While doing the research on working capital, i collected the following things:
1. I got the knowledge of working capital management, NTPC through reading
the Financial Policy file.
2. Reading of annual reports of NTPC:-
i. 29th Edition
ii. 30th Edition
3- Reading of NTPC Financial Reports.
4- Reading of Journals of NTPC.
5- Reading of NTPC Magazine like
Dakshin Dhwani
Alok Bharti
Uttar Jyoti
Roshni
Damini
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6- Reading of Reports of NTPC.
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WORKING CAPITAL MANAGEMENT IN NTPC
National Thermal Power Corporation is the largest power generation company in
India. TheForbes Global 2000ranking for 2005 ranks it as the 5th leading company
in India and the 486th leading company in the world. It is a public listed ( Bombay
Stock Exchange) Indian public sectorcompany, with majority shares owned by the
Government of India.
Its main business of this company is to generate electricity. Therefore, according to its
nature it is clear that this company required hues Working capital for the fulfillments
of basic need of the company.
The company engage to producing electricity which not having physical existence, so
there are not any types of raw material in term of finished goods for the company are
present, which are use by other company as a raw material. In addition, the company
does not having any types of semi-finished goods in their production cycle.
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CASH MANAGEMENT
Cash management has existed in business since the initial use of money as medium of
exchange. Cash to an organization is what food to human bodies. It is both the means
and ends of an organization. For cash management purposes cash is used broadly to
cash and generally accepted equivalents of cash such as demand and time deposit in
banks, claques, drafts, etc. and also marketable security i.e. short-term investment of
cash.
Cash management is simple terminology means forecasting cash requirement and
marketing arrangements thereof. In other words, it refers to his manageability to
forecast cash problems and to solve them when they arise with help of an expert in
this field. The system of cash management, thus, aims at making the optimum use of
the cash resources. Though, the specific nature of cash management of an
organization depends upon the nature of the business enterprise, the internal
organization structure and the nature of the concerned finance executive, yet he is
expected to carry out certain specific generalized functions in the fields of cash
management which are as enumerated below:-
Collection and Custody of cash and securities.
Control of disbursements e.g. providing sufficient cash at the time
Place required meeting obligations.
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Maintenance of adequate supply of cash to meet projected cash
requirement, cash-budgets, and day-to-day demands.
Investment of surplus cash in marketable security to keep it fully
employed and working towards greater profits.
Maintenance of sound relations and adequate deposits to meet
operating needs and to compensate the banks for their services.
Cash management is equally important of both small concerns and big concerns.
Even a fast growing concern yielding handsome profit may face shortage of cash
posing threat to the interrupter flow of production.
So deducing adequate fund requirement for the operating needs of the organization
happens to be the perennial objective of finance executive.
MOTIVES OF HOLDING CASH
A distinguishing futures of cash as an assets irrespective of the firm in which it is
held, is that it does not earn any substantial return for the business. In spite of this fact
cash in held by the firm and with the following motives.
(1) Transaction Motives
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The transaction motives for holding cash arise to enable the concern to conduct its
business in the normal course. A firm needs cash to make payment for purchases,
wages, operating expense, taxes, dividend etc.
(2) Precautionary Motive
A firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods, presentment of bills of payment earlier
than the expected data, unexpected slowing down of collection of account
receivable, sharp increase in price of raw materials etc.
(3) Speculative Motive
The speculative motive for holding cash is deriving benefits out of changes in
security price, material prices etc.
The concern may postpone the purchase of material when its prices are high or it
may go to more than the required material when its prices fall down.
(4) Compensation Motive
Banks provide certain services to their clients free of charge. They, there for,
usually require clients to keep minimum cash balances with them, which help
them to earn interest, and thus compensate them free services so provided.
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OBJECTIVE OF CASH MANAGEMENT
Cash is the vital component of the working capital of a firm, as every transaction
results in either an inflow or an outflow of cash. The main objectives behind effective
management of cash are:
(a) The precision of cash needed to meet operational requirement.
(b) The provision of reserves liquidity against the forecast outflows and expected
payments of cash and.
(c) Minimum balance of cash to be held to channelizing otherwise used cash into
earning assets. A part of cash required as compensating balance with the
banks.
MANAGEMENT OF CASH AT NTPC
Cash section is an important section of finance and accounts department. It deals with
the employees, contractors and suppliers for their payments.
Corporate office plays a dominant role in cash management. The corporate office
allocates different amount of each to different coalmines as per its requirements.
Corporate office acts as a linkage between the NTPC and main book. The state bank
of India, Corporate office has determined the credit facility for every units of NTPC.
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No one unit of NTPC can get the credit facility more than ones limit. The credit
facility is known as rolling cash limit. This keeps on changing from year to year
depending upon companys position transactions, profitability and inventory position.
Although corporate office provides credit limit facilities, yet NTPC is fully dependent
on the corporate office. The sale of scrap materials of defective at plant level
generates the cash. Thus, at a time, plant can also pay liabilities and then the balance
amount is only intimated to the corporate office. NTPC gives priority in cash
payment, which is urgent, and sends the report to corporate office.
FUND ALLOCATION
Here the initial allocation for funds at NTPC is done by corporate office and all
supplementary requirements are to look by NTPC itself. The corporate office
allocates the funds for all coalmines and particularly about NTPC.
FUND UTILISATION
NTPC operates an annual cash budget and a rolling cash plan drawn up every month.
Although specific forecasting technique is used, funds are deployed to different
departments as per their requirements. A daily report on cash transaction is prepared
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by cash section to keep a track of all payment in the days work. Every month, cash
transaction report is sent to corporate office showing the all transaction of cash, actual
utilization of cash and allocation of fund is compared. If the utilization of cash is
more then, the allocation of funds, then the plant has to justify its more utilization and
if the justifications are not found satisfactory then the corporate office gives the letter
of improvement.
CASH PLANNING AND MANAGEMENT
Cash planning is an important technique of operation. It becomes the prime
responsibility of the financial controller to make adequate arrangements of the
payment of operating expenses, inventories, fixed assets, creditors etc. Even a profit-
earning concern may face shortage of cash with its growing needs. The basic
objective of cash planning is to enable the concern to meet cash disbars committed for
this purpose because holding of cash involves cost in the form of opportunity cost.
Cash planning may be done on daily, weekly or monthly basis depending upon the
size concern and managements Normally, large concern prepare daily or weekly
plan, medium size concern go for weekly or monthly plan and small firms go for
monthly plan. The periodicity of cash planning (i.e. Daily, Weekly, monthly) depends
upon the position of funds i.e. whether funds position is tight, normal, or liberal.
CASH FORECASTING AND BUDGETING
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Cash budget is the more significant device to plan for and control the cash receipts.
Cash budget is a summary of NTPC expected cash inflows and outflows. Again, this
cash budget is broken into month wise budget where allocation of cash done on
month basis with the help of projection of cash on month wise it becomes easier to
allocate the amount. The information of expected cash flows and cash balance helps
to financial managers of NTPC to determine the future cash need of the firm, plan for
the financing of these needs and exercise control over the cash and liquidity of NTPC.
NTPC needs cash to carry out the day-to-day functions of business just as the level of
operations affects working capital requirements; it affects the need for cash. These
days the direct sale of billets and merchant products are increasing cash. Cash has
been receiving from customers and has been providing for adequate cash for their
liabilities.
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Fig: 9 Parties involved in working capital managements
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EVALUATION OF CASH MANAGEMENT
Composition and growth of cash
Cash balance represents the aggregate of cash in hand, cheques in hand, remittances
in transit, and balances with banks in current accounts and in fixed deposits with
others. To bring uniformity on the components of cash, cash balances of the selected
undertakings have been divided into two segments. Cash in hand and cheques on
hand.
Cash management at NTPC includes the discussion on size of each, cash flow
statement, and liquidity position of the firm.
On the bases of above points it is clear that cash is to important term for the
organization, and I clear the importance of cash management with the help of
following graph representation which are based on the formula of ration analysis
I. current ratio:- Current AssetsCurrent Liabilities
II. Acid Test ratio:- Liquid Current Assets
Current liabilities
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3- Cash Turnover Ratio:-
Cash Turnover Ratio are the two known about the relationship between how much
company hold the ideal balance of the cash in the organization.
Cash Turnover Ratios: Interest & Finance Charges
Average Cash Balance
4-Cash Holding Period:-
This ratio show the actually, no. of days on which company holds the cash in the
organization:
Cash Holding Period: - Average Balance of Cash
Interest & Finance Charges
5- Cash to Current Assets:-
This cash to current assets ration show the relationship between cash and current
assets in the organization and show that how much cash affect to the current assets:
Cash to Current Assets: Cash
Current Assets
6- Cash to Receivables Ratio = Cash
Receivables
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INVENTORY MANAGEMENT
Inventory is an integral part of every business origination. The role of inventory has
grown with advances in production technology.
Inventory management is the vital area of management covering the sum total of
activities need for the acquisition, storage, and raw materials. It is a technique of
controlling the purchase, use, and transformation of materials in an optimal manner.
In sample words inventory refers to the stock of products that a concern is offering
for sale and the components that make up the product. The various forms in which
inventory are exists in the company.
MEANING OF INVENTORY MANAGEMENT
Inventory management can be defined that co-coordinated function responsible to
plan for, acquire, store, move and control materials and final products to optimize
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usage of facilities, personnel, capital goods and to provide customer service in line
with corporate goal.
The following arc the important factors affecting inventory management.
Availability of credit in the economy.
Government policy in procurement and distribution of materials.
Complexities of business.
MOTIVES FOR HOLDING INVENTORIES
The transaction motives emphasize the need to maintain inventories to facilitate
smooth production and sales operation.
Precautionary motive which necessities holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
Speculative motives influence the decision to increase or reduce inventory level to
take advantage of price fluctuations.
OBJECTIVES OF INVENTORY MANAGEMENT
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The objective of the inventory management is therefore, to determine and maintain
the optimum level of investment in inventories, which help in achieving the following
objectives.
a. Ensuring a continuous supply of materials of production department
facilitating uninterrupted production.
b. Maintaining sufficient stock of raw material in periods of short supply.
c. Maintaining sufficient stock of finished goods for smooth sales
operations.
d. Minimizing the carrying costs.
e. Investment in Inventories at the optimum level.
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INVENTORY MANAGEMENT AT NTPC
Inventory is stock of a company, which is manufacturing for sale and component that
make up the product. Inventory means, A schedule of items held at a particular point
of time.
In managing inventories, the objective of NATIONAL THERMAL POWER
CORPORATION LTD.is to determine and maintain optimum level of inventory
investment.
The optimum level of inventory lies between two-danger point of excess and
inadequate inventories.
INVENTORY
The inventory of NTPC is unique for not having semi-finished goods, finished goods
or raw materials. Fuel is some way could be considering raw material but by most
definitions it would not qualify to be raw material because the product is intangible.
The inventory of NTPC consist of fuel, spare parts, loose tools and components,
chemicals consumables and some other material. The inventory of NTPC is very large
comprising 73000 material codes. The inventory at Singrauli alone consist of 53000
material codes. Being a large inventory some of which is to be maintained
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permanently for to continuity and security of generation, the inventory is valued by
the monthly weighted moving average method.
The inventory of NTPC is subject to several analysis including ABC, XYZ, VED,
FSN, ICU. The consumption is valued at PSL rate. Whereas at the point of induction
at the store it is valued at the invoice price. The inventory is regularly verified for a
match between the Bin Card balances and the physical stock as with the PSL run.
This inventory in NTPC is also subject to regular checks and control exercises.
RAW MATERIAL
Raw materials are the inputs used by the concern for products of finished goods
through manufacturing process. Raw material inventory are those, which have been
purchased and are stored for future production.
In NATIONAL THERMAL POWER CORPORATION LTD. raw material is purchased by
central procurement and regional procurement unit of central marketing organization
as per the requirement of the individual coal plant.
The bulk purchase are procured and sent to the place of the need.
Basic objectives in holding raw materials inventory is turn separate purchase and
production activities. If raw material inventories were not held, purchase would have
to be made continuously at the usage rate in production.
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Inventory Turnover Ratio
1. Average Holding Period
Average Holding Period: - Average Inventory
Cost of Goods Sold
2. Cash to Inventory Ratio
Cash to Inventory: - Cash
Inventory
RECEIVABLES MANAGEMENT
The term receivable is defined as "Debt own to the firm by customer arising from sale
of goods or services in ordinary course of business.
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Account receivable management is also an important aspect of working capital
management. When a firm sells its products and services and does not receive cash
for it is immediately, the firm is said to have granted trade credit to the customer and
the customer from whom receivables or took debt have to be collected in future are
called trade debtor. Account receivable represents the extension of credit on an open
account by the firm to its customers. In order to keep current customer and attract
new ones, most manufacturing firms find it necessary to offer credit. The practices
give birth to accounts receivables. Receivable constitute a substantial portion of
current assets of several firms.
MANAGEMENT OF RECEIVABLES IN NTPC
Receivables of NTPC are very important because of the nature of a product
and the credit policy followed by NTPC. NTPC produce electricity which have no
any physical existence like other finished goods and it sale their goods to the
customers on the only credit bases. NTPC gives 60 days (two months) time to their
customer for making payment, its means all the sales of the NTPC are on the credit
bases.
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MANAGEMENT OF PAYBLE
Management of account payable is as much important as management of account
receivables. Whereas the underlying objectives in cash accounts receivable is to
maximize the acceleration of the collection process, the objectives in cash of account
payables is to slow down the payment process much as possible. However, it should
be noted the delay in payment of account payable may result in saving of some
interest cost but it can prove costly to the firm in the form of loss of credit in market.
The finance manager has therefore, to insure that the payment to the creditors is made
at the stipulated times after obtaining the best credit terms possible.
MANAGEMENT OF ACCOUNT PAYABLES AT NTPC
The creditors are managed at plant level only. Mostly the creditor comprises of
contractors to whom payment are to be given and the capital works. This is done as
per terms and condition with respective parties. In case of small-scale industries, it is
done within 30 days.
There is also a scheme of earnests money deposits for the registered small-scale
industries. The schemes allow having a security deposits which is refundable at the
end of contract. In case of statutory payment that is the income tax, excise tax one
month due is there.
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When the final payment is to be made to ex-employee, it is only done after the file
reaches the department as per the individual case. Major chunk is from statutory
liabilities, which are rapid as per act that is one month due is given.
1. Cash to Inventory Ratio
Cash to Inventory Ratio: - CashInventory
2. Average Collection Period
Average Collection Period: - Average ReceivablesSales
3. Receivables to Current Assets Ratio
Receivables to Current Assets Ratio: - Receivables
Current Assets
4. Receivables to Current Liability Ratio
Receivables to Current Liability Ratio: - Receivables
Current Liabilities
Loan and Advances Management
Although current assets traditionally comprise inventory, receivables and Cash, in an
organization like NTPC which provides loans to its employees and also advances
both to the employees and supplier as well as contractors, the loan and advances are
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also an important part of the company. The advances given to contractor are mainly
the nature of mobilization advances and to the employees with the purpose of
providing assistant to them by way facilities to help in the discharge of their duties.
Their loans are included in the category of current assets for their regular recovery
from the employees adjust and recovery from supplier within a very short period.
The loan and advances given by the company to its suppliers, contractor, and
its employees are the major part of its current assets. These other mainly on interest or
free of charge advances given to suppliers and contactor are mostly free two of the
advances given to employees are interest free, multipurpose advances and furniture
advance recoverable in 12 and 60 installment respectively. Beside these all other loan
and advances are on interest. The recovery of these interests bearing loan done as
such a way that the principal is recovered first and the interest there after. The interest
is levied on the diminishing balance of principal and there is no interest on interest.
These loan and advances are categorized as current assets because their
recovery is continuous immediately from the after the drawn month and the principal
is first recovered.
Loan and Advances to Current Assets Ratio
Loan and Advances to Current Assets Ratios: Loan & Advances
Current Assets
CURRENT LIABILITIES MANAGEMENT
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Current Liability shows the different combination of liabilities, which includes
various liabilities. It generally shows on the liability side in the balance sheet under
the head of liabilities. Others liabilities represent amount of income tax deducted at
source, redemption amount payable on maturity of bonds, sales tax payable,
development surcharge amount to be transferred to customers etc.
Besides current assets, current liabilities also count in framing the structure of
working capital. Bank over-draft, creditors for goods supplied, unpaid dividend, and
taxes are the main constituents of current liabilities. The share of each constituent to
total current liabilities determines to some extent the availability of current liabilities,
the management remains more concerned with the administration of current assets.
Other liabilities have increased due to transfer of as amount of Rs. 2,426 million from
Development Surcharge Fund. In the previous years as per the regulations of central
electricity regulatory commission (CERC) development surcharge was being charged
from customer and kept invested in instruments as required by the regulations. CERC
vide its order dated 09//11/2008 discontinued the billing and realization of
development surcharge. It further directed that the amount collected earlier from the
state utilities and invested in instruments corresponding to the amount contributed by
each of the state utilities shall be transferred in the name of the concerned utility.
Current Liabilities to Inventory:-
This is a way to show the relationship between Inventory and total Current Liabilities.
Current Liabilities to current Inventory: Current Liability
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Inventory
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EVALUATION OF CASH MANAGEMENT
Composition and growth of cash
Cash balance represents the aggregate of cash in hand, cheques on hand, remittances
in transit, and balances with banks in current accounts and in fixed deposits with
others. To bring uniformity on the components of cash, cash balances of the selected
undertakings have been divided into two segments. Cash in hand and cherubs on
hand.
Cash management at NTPC includes the discussion on size of each, cash flow
statement and liquidity position of the firm.
On the bases of above points it is clear that cash is to important term for the
organization, and I clear the importance of cash management with the help of
following graph representation which are based on the formula of ration analysis
1. Current ratio:- Current AssetsCurrent liabilities
(Current assets includes Inventory, Bills Receivables, Debtors, Cash in hand, Cash at
bank etc.)
(A current asset includes Bills payable, Bank Overdraft, Creditors etc.)
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2. Acid Test ratio:- Liquid Current AssetsCurrent liabilities
3. Cash Turnover Ratio:-
Cash Turnover Ratio is known about the relationship between how much company
hold the ideal balance of the cash in the organization.
Cash Turnover Ratio: - Interest & Finance Charges
Average Cash Balance
4. Cash Holding Period:-
This ratio show the actually, no. of days on which company holds the cash in the
organization:
Cash Holding Period: - Average Balance of CashInterest & Finance Charges
5. Cash to Current Assets:-
This cash to current assets ration show the relationship between cash and current
assets in the organization and show that how much cash affect to the current assets:
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Cash to Current Assets: CashCurrent Assets
6. Cash to Receivables Ratio = CashReceivables
MOTIVES FOR HOLDING INVENTORIES
The transaction motive emphasizes the need to maintain inventories to facilitate
smooth production and sales operation.
Precautionary motive which necessities holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
Speculative motives influence the decision to increase or reduce inventory level to
take advantage of price fluctuations.
OBJECTIVES OF INVENTORY MANAGEMENT
The objective of the inventory management is therefore, to determine and maintain
the optimum level of investment in inventories, which help in achieving the following
objectives.
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4. Ensuring a continuous supply of materials of production department facilitating
uninterrupted production.
5. Maintaining sufficient stock of raw material in periods of short supply.
6. Maintaining sufficient stock of finished goods for smooth sales operations.
7. Minimizing the carrying costs.
8. Investment in Inventories at the optimum level.
INVENTORY MANAGEMENT AT NTPC
Inventory is stock of a company, which is manufacturing for sale and component that
make up the product. Inventory means, A schedule of items held at a particular point
of time.
In managing inventories, the objective of NATIONAL THERMAL POWER
CORPORATION LTD. is to determine and maintain optimum level of inventory
investment.
The optimum level of inventory lies between two-danger point of excess and
inadequate inventories.
INVENTORY
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The inventory of NTPC is unique for not having semi finished
Shed goods, finished goods, or raw materials. Fuel is some way could be considering
raw material but by most definitions it would not qualify to be raw material because
the product is intangible. The inventory of NTPC consist of fuel, spare parts, loose
tools and components, chemicals consumables and some other material. The
inventory of NTPC is very large comprising 73000 material codes. The inventory at
Singrauli alone, consist of 53000 material codes. Being a large inventory some of
those, are to be maintained permanently for continuity and security of generation, the
inventory is valued by the monthly weighted moving average method. The valued
inventory are called priced stores ledger (PSL). PSL is run on monthly basis. This is
regulated by the four instruments.
(1) MRN
(2) MTN
(3) SRV
(4) SIV.
The inventory of NTPC is subject to several analysis including ABC, XYZ, VED,
FSN, ICU. The consumption is valued at PSL rate. At the point of induction at the
store, it is valued at the invoice price. The inventory is regularly verified for a match
between the Bin Card balances and the physical stock is with the PSL run. This
inventory in NTPC is also subject to regular checks and control exercises.
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RAW MATERIAL
Raw materials are the inputs used by the concern for products of finished goods
through manufacturing process. Raw material inventory are those, which have been
purchased and are stored for future production.
In NATIONAL THERMAL POWER CORPORATION LTD. raw material is
purchased by central procurement and regional procurement unit of central marketing
organization as per the requirement of the individual coal plant.
The bulk purchase are procured and sent to the place of the need.
Basic objectives in holding raw materials inventory is turn separate purchase and
production activities. If raw material inventories were not held, purchase would have
to be made continuously at the usage rate in production.
Inventory Turnover Ratio
Average Holding Period:- Average Inventory
Cost of Goods Sold
Cash to Inventory :- Cash
Inventory
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RECEIVABLES MANAGEMENT
The term receivable is defined as "Debt own to the firm by customer arising from sale
of goods or services in ordinary course of business.
Account receivable management is also an important aspect of working capital
management. When a firm sells its products and services and does not receive cash
for it is immediately, the firm is said to have granted trade credit to the