A

WORKING CAPITAL MANAGEMENT IN

ODISHA POWER TRANSMISSION CORPORATION LIMITED

COMPANY GUIDE: FACULTY GUIDE:Sri Samarendra Mohapatra. Sushmita Pradhan.AM (F), Banking. (Asst.Proffesor)

Submitted by:Bibekananda Das MallikRegd.No-1206284062

DEPARTMENT OF MBA ASTHA SCHOOL OF MANAGEMENT

BHUBANESWAR, ODISHA, INDIA SESSION-2012-2014

I am sincerely expressing my gratitude to our Company guide Sri Samaredra Mohapatra & Project guide Asst.Prof.Sushmita Pradhan In Department of Master in Business Administration For his guidance, valuable suggestion and constant help without which theCompletion of the present report was not possible.

I am also grateful to the ASST. prof. SIDDHARTHA GHOSH Head of the Department of Master In Business Administration For kind permission to carry out this Seminar Report proving all kinds of information facilities.

Bibekananda Das Mallik Regd.no-1206284062

This is to certify that Mr. Bibekananda das mallik of Department of MBA ASTHA SCHOOL OF MANAGEMENT doing Master of Business administration (MBA) has successfully completed his project work under the topic: working capital management from 18th, June to 31st July, 2013.

REGARDS Sri SamarendraMohapatra

AM (F), Banking

This is to certify that project Report entitled “working capital management in Odisha power Transmission Corporation limited”Carried out under the direction supervision of Asst.Prof.Sushmita PradhanAnd is accepted as partial fulfillment for the requirement of 2nd semester M.B.A at Astha School OF Management, Bhubaneswar, Odisha.

I am satisfied that He had worked sincerely and with proper care.

Project Guide: H. O. D: Asst.Prof.Sushmita Pradhan ASST. prof. SIDDHARTHA GHOSH

I bibekananda das mallik, a student of Mba, 2nd semester of department of business administration, astha school of management, Bhubaneswar, odisha, session (2012-2013,) hereby declare that the project report entitled “WORKING CAPITAL MANAGEMENT at OPTCL, Bhubaneswar is the outcome of my own work and the same has not been submitted to any university/Institute for the award of any degree or any professional courses.All the data and analytic statement being stated in the project that had been submitted by me may be accepted as fully authentic genuine.

Date:

bibekananda das mallik.

CONTENT

Chapter-1

Introduction

Chapter-2

Research methodology

Purpose of the study

Scope of the study

Objective of the study

Need and importance of the study

Limitation of the Study.

Chapter-3

Company profile

Vision and mission of OPTCL

Objectives of OPTCL

Functional Area

Organisation Structure

Chapter-4

Theoretical Background

Chapter-5

DATA COLLECTION

Instrumental Technique

Collection of data

Chapter-6

Review of the literature

INTRODUCTION

: Whatever may be the organization, working capital plays an important role, as the company needs capital for its day to day expenditure. Thousands of companies fail each year due to poor working capital management practices. Entrepreneurs often don account for short term disruptions to cash flow and are forced to close their operations. In simple term, working capital is an excess of current assets over the current liabilities. Good working capital management reveals higher returns of current assets than the current liabilities to maintain a steady liquidity position of a company. Otherwise, working capital is a requirement of funds to meet the day to day working expenses. So a proper way of management of working capital is highly essential to ensure a dynamic stability of the financial position of an organization.OPTCL is one of the largest power transmission organizations in the country, which plays the role of transmission of electricity in the entire state of Odisha. Seeing the good opportunity to study financial systems and practices of OPTCL, it is relatively important take up internship assignment on „WORKING CAPITAL MANAGEMENT INOPTCL‟. During the project work, it is being analyzed the working capital position of this organization. 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 asset 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. Working capital management deals with maintaining the levels of working capital to optimum, because if a concern has inadequate opportunities and if the working capital isomer than required then the concern will lose money in the form of interest on the blocked funds. Therefore working capital management plays a very important role in the profitability of a company.

RESEARCH METHODOLOGYResearch methodology is a systematic approach in management research to achiever-defined objectives. It helps a researcher to guide during the course of research work. Rules and techniques stated in research methodology save time and labor of the researcher as researcher know how to proceed to conduct the study as per the objective. SELECTION OF TOPIC: The selection of topic is a crucial factor in any research study. There should be newness and it should give maximum scope to explore the ideas from different angles. In present day due to increase in competition, working capital is becoming necessary for the organization. It is that part of capital which is necessary to undertake day to day expenditure of the business organization. Whatever may be the organization, working capital plays an important role, as the company needs capital for its day to day expenditure. Thousands of companies fail each year due to poor working capital management practices. Entrepreneurs often don’t account for short term disruptions to cash flow and are forced to close their operations. Working capital is the fund invested by a firm in current assets. Now in a cut throat competitive era where each firm competes with each other to increase their production and sales, holding of sufficient current assets have become mandatory as current assets include inventories and raw materials which are required for smooth production runs. Holding of sufficient current assets will ensure smooth and uninterrupted production but at the same time, it will consume a lot of working capital. Here creeps the importance and need of efficient working capital management. After due to consultation with the external guide /internal guide, the topic was finalized and titled as-“A STUDY ON WORKING CAPITALMANAGEMENT IN OPTCL, BBSR”SELECTION OF LOCATION FOR THE STUDY: The location for study was selected as the corporate office of OPTCL, Bhubaneswar. RESEARCH DESIGN: “A Research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure”.

PURPOSE OF THE STUDY

The purpose of doing this project is making thorough study of the process

of working capital management followed by OPTCL.

To study the working capital policy followed by OPTCL

To study the factor influencing the purpose of working capital

management at OPTCL and suggest some recommendation.

SCOPE OF THE STUDY

The company will be able to assess the process of working capital management.

It is following and it will give a clear picture to the management about the technicalities

of its adopted process of working capital management.

OBJECTIVE OF THE STUDY

To study all the financial statement of OPTCL to identify operational

performance of working capital management.

To identify the factor influencing the working capital management

operation at OPTCL

To assess the working capital requirements

To find out alternative source.

To know the level of working capital needed for the smooth

functioning of the organisation.

To find out opportunities available to OPTCL for the investments of surplus funds and to examine the various opportunities

NEED AND IMPORTANCE OF THE STUDY

To identify the gap between current working capital and adequate

working capital.

It helps to find out the amount needed for the regular payment of

operating expenses (wages, salaries, repairs and maintenance).

It shows the solvency position of the organisation.

LIMITATIONS OF THE STUDY

This project does have certain limitations and they can be

enumerated below:

Time constraint; - Due to shortage of time a more detailed

and more exhaustive study could not be taken up.

Due to the lack of time, it is difficult to do an extensive

study of working capital management.

There is no enough scope for gathering data.

This is not a stock exchange listed company so its quite difficult to collect all the data

.

PROFILE OF THE INDUSTRY

FORMATION OF GRIDCO

The GRIDCO limited was incorporated on 20th April 1995 under the companies Act 1956 as a wholly owned Government of Orissa undertaking the company obtained the certificate of commencement of business on 6th July 1995. GRIDCO carried on the business of transmission and bulk supply of electricity and other related activities under an exclusive license issued by Orissa Electricity Regulatory Commission.

FORMATION OF GRIDCO

The GRIDCO limited was incorporated on 20 th April 1995 under the companies Act 1956 as a

wholly owned Government of Orissa undertaking the company obtained the certificate of

commencement of business on 6th July 1995. GRIDCO carried on the business of transmission

and bulk supply of electricity and other related activities under an exclusive license issued by

Orissa Electricity Regulatory Commission.

RESTRUCTURING OF GRIDCO AND FORMATION OF OPTCL

GRIDCO has three functioning:

The transmission and bulk supply activities in the State of Odisha.

Sale of energy outside the State of Odisha.

The State load dispatch functions.

Keeping in view, the statutory requirement of the Electricity Act 2003 for separation of trading and transmission functions into two separate entities. The

VISION OF OPTCL

To build up OPTCL as one of the best Transmission utility in the

Country in terms of uninterrupted power supply, minimizing the loss,

contributing to state's Industrial growth.

Development of a well co-ordinated transmission system in the

backdrop of formation of strong National Power Grid as a flagship,

endeavour to steer the development of Power System on Planned path

leading to cost effective fulfilment of the objective of 'Electricity to

All' at affordable price.

MISSION OF OPTCL

Plan & operate the transmission system so as to ensure that

transmission system built, operated and maintained to provide

efficient, economical and co-ordinated system of transmission and

meet the overall performance Standards.

To upgrade the transmission system network so as to handle power to

the tune of 3000 MW by the year 2009 for 100% availability of power

to each family.

To maintain the system losses at par with that of National level.

To impart advanced techno managerial training to the practicing engineers and work force so as to professionalism them with

OPTCL PROFILE

Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a deemed Transmission Licensee under Section 14 of Electricity Act, 2003)

Notified as the State Transmission Utility (STU) by the State Govt. and discharges the state Load Dispatch function.

Number of employees as on (10.05.2010) : 3145Executives-759, Non-Executives - 2836

Number of posts vacant as on 01.05.2009: 1782Executives-845, Non-Executives- 937

Number of Pensioners as on 01.05.2009: 6600 Number of Grid S/S including switching stations – 95 Length of EHT lines – 10,902.479 Ckt-Kms. Number of Bays – 1597(30th Oct 2010)

ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the largest Transmission Utility in the country was incorporated in March 2004 under the Companies Act, 1956 as a company wholly owned by the Government of Odisha to undertake the business of transmission and wheeling of electricityin the State. The registered office of the Company is situated at Bhubaneswar, the capital of the State of Odisha. Its projects and field units are spread all over the State. OPTCL became fully operational with effect from 9th June 2005 consequent upon issue of Odisha Electricity Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the provisions of Electricity Act, 2003 and the Odisha Reforms Act, 1995 by the State Government for transfer and vesting of transmission related activities of GRIDCO with OPTCL. The Company has been designated as the State Transmission Utility in

STRUCTURE OF ELECTRICITY SECTOR IN ORISSA

POWER SECTOR REFORM IN THE STATE - OPTCL.

           The Power Sector Reforms in the State of Odisha was started during November 1993 in an organized manner. The main objective of the reform was to unbundle generation, transmissionand distribution and to establish an independent and transparent Regulatory Commission in orderto promote efficient and accountability in the Power Sector.

           In order to implement the reform, in the first phase, two corporate entities namely Grid Corporation of Odisha Limited (GRIDCO) and Odisha Hydro Power Corporation Limited (OHPC) were established in April 1995. GRIDCO was incorporated under the Companies Act, 1956 in April 1995 to own and operate the transmission and distribution systems in the State. Similarly OHPC was incorporated to own and operate all the hydro generating stations in the State.

           The State Government enacted the Odisha Electricity Reform Act, 1995 which came into force with effect from 1.4.1996. In exercise of power under Section 23 and 24 of the Odisha Electricity Reform Act, 1995, the State Govt. notified the Odisha Electricity Reform (Transfer ofUndertakings, Assets, Liabilities, proceedings and Personnel) Scheme Rules 1996. As per the scheme, the transmission, distribution activities of the erstwhile OSEB along with the related assets, liabilities, personnel and proceedings were vested on GRIDCO. Simultaneously the hydrogeneration activities of OSEB along with related assets, liabilities, personnel and proceedings were vested on OHPC.

           In order to privatize the distribution functions of electricity in the State, four Distribution Companies namely Central Electricity Supply Company of Odisha Limited (CESCO), North Eastern Electricity Supply Company of Odisha Limited (NESCO), southern Electricity Supply Company of Orissa limited (SOUTHCO) & Western Electricity Supply Company of Odisha Limited (WESCO) were incorporated under the Companies Act, 1956 as separate corporate entities. During November 1998 the State Govt. issued the “Odisha Electricity Reform (Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to distribution Companies) Rules 1998” wherein the electricity distribution and retail supply activities along with the related assets, liabilities, personnel and proceedings were transferred from GRIDCO to the four Distribution Companies. Through a process of international Competitive Bidding (ICB), the four Distribution Companies were privatized during 1999.

           After separation of Distribution business, GRIDCO left with electricity Transmission and Bulk Supply/Trading activities. GRIDCO was also declared as the State Transmission Utility andwas discharging the functions of State Load Dispatch Center (SLDC).

           The Government of India enacted the Electricity Act, 2003 which came into effect from

1. LONG TERM OPEN ACCESS CUSTOMERS : CESU,WESCO,NESCO,SOUTHCO,NALCO,ICCL

2. SHORT TERM OPEN ACCESS CUSTOMERS  

2005-06NBSAL,MERAMUNDALIBHUSHAN STEEL,JHARSUGUDA

2006-07 NIL

2007-08 NIL

Installed Capacity (MW) & System DemandHydro 1918.875 MW

Thermal 880.000 MW

Total 2798.875 MW

GRIDCO's Share From Central Sector 690.460 MW

Grand Total 3489.335 MW

Hydro Thermal Mix Ratio 2.18 : 1

GRIDCO's Average Demand 1583 MWDuring OCT-03

Morning Peak 1858 MWAt 09.00 Hr On 27.10.03

Evening Peak 2127 MWAt 20.00Hr On 20.10.03

Peak System Demand 1850MW

STATE SECTOR GENERATION

SL. NAME OF POWER STATION INSTALLED CAPACITY ( MW) FIRM POWER (MW)

1. O.H.P.C.    

HIRAKUD POWER STATION    

(a)BURLA

 

 

(b)CHIPLIMA 

2x49.5  =  99 

*2x24.0  = 48  

3X37.5  = 112.5

3x24  = 72 

331.5

BALIMELA POWER HOUSE 6x60    =                     360

RENGALI POWER HOUSE 5x50    =                     250

UPPER KOLAB POWER HOUSE 4x80    =                     320

INDRAVATI POWER HOUSE 4x150  =                     600

MACHHKUND POWER HOUSE

( Orissa  Share 50%)

3x17     =  51

3x21.25 = 63.75 57..375

TOTAL HYDRO , (A)              =                 1918.875

2. N.T.P.C.(TAKEN OVER)  

TTPS STAGE-I** 4x60      =                  240

TTPS STAGE - II 2x110    =                  220

TOTAL TTPS              =                  460

3. O.P.G.C.  

 NEW PROJECTS Expansion of OPGW networkThis project is intended to extend OPGW to all generating stations and Substations of 220kV and above in first phase(1364kM) and balance 132kV Grid substations in second phase (2071kM). Ultimately the existing data interfacing points for SCADA integration shall be enhanced from existing 12 numbers to 34. This project is aimed to provide broad band connectivity for acquisition of data from new substations of OPTCL as well as upcoming IPP/CGP/CGS .It is estimated for stringing of 3545 kM of OPGW , covering the entire state, which will enable OPTCL to enter into telecom business in future . Permissive Access Control System in OPTCL TowerThe Project is aimed at installation & commissioning of Permissive Access Control System in OPTCL Tower in all floors to restrict the access of unauthorised persons to the building.  SCADA integration of all Grid SubstationsThe project is aimed to install RTU in the remaining sub stations which are excluded in the scope of ULDC project. It will cover 30 existing substations as well as 6 Nos of substations presently under construction through PGCIL . The new RTUs shall be integrated to the existing ULDC SCADA database. Besides this, integration for future 18 substations shallalso be taken up successively. Reframing of Microwave Radio linksAs per the decision taken up by WPC, the allocation of spectrum operating in the frequency band from 2.3 to 2.4 GHz formicrowave radio links in ULDC network, shall be withdrawn. This project is planned for reframing the existing radio links by OPGW at the shortest transition time which is presently under progress  PLCC aided line Protection SchemeThis protection scheme uses an interfacing equipment (coupler) between Protection relay and communication link. The tripping command originating from protection relay at one end gets transferred over PLCC and actuates protection relay at the opposite end of the line section at the shortest time, so that simultaneous tripping of circuit breakers at both ends is possible. So far, 14 Nos of line sections have been provided with protection couplers and presently in operation. Further,action has been initiated for deployment of protection couplers in the balance 220kV line sections. 

REGULATION AND TARIFF WING

OPTCL raises customer-bills on a monthly basis as follows:Intra-state transmission charge bills are raised upon grid co towards transmission of energy for four discos (cues, Ensco, south co and Wasco) who are long-term open access customers.Bills on other long-term open access customers like Nalco and icicle are raised for wheeling of energy from their caps to their industries located at damanjodi and therubali respectively. Inter-state wheeling charge bills are raised upon scab, muse, and mesh, did and den for wheeling of central sector power to their territories through optical network.Inter-state wheeling charge bills are raised upon muse / scab for wheeling of power from harked power station (5 mw share of map.)

Meaning Of Working CapitalBusiness organization require adequate capital to establish business and operate their activities. The total capital of a business can be classified as fixed capital and working capital. Fixed capital is required for the purchase of fixed assets like building, land, machinery, furniture etc. Fixed capital is invested for long period, therefore it is known as long-term capital.Similarly, the capital, which is needed for investing in current assets, is called working capital.The capital which is needed for the regular operation of business is called workingcapital. Working capital is also called circulating capital or revolving capital or short-term capital. Working capital is used for regular business activities like for the purchase of raw materials, for the payment of wages, payment of rent and of other expenses. Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.

Concept Of Working CapitalGenerally, there are two concepts of working capital i.e. gross concept and net concept.1.Gross Concept Of Working CapitalAccording to gross concept, working capital refers to all the current assets and represents the amount of funds invested in current assets. Thus, gross working capital is the capital invested in current assets. Current assets are those assets which can be converted into cash within the short-time period.

Gross Working Capital = Total current assets

In this way, gross working capital refers to the firm's investment in current assets. Gross working capital represents total of current assets which includes cash in hand, cash at bank, inventory, prepaid expenses, bills receivable etc.

2.Net Concept Of Working Capital

CONCEPT

Concept of working capital includes meaning of working capital and its nature. Working capital is the investment in current assets. Without this investment, we can not operate our fixed assets properly. For getting good profits from fixed assets, we need to buy some current assets or pay some expenses or invest our money in current assets. For example, we keep some of cash which is the one of major part of working capital. At any time, our machines may need repair. Repair is revenue expense but without cash, we can not repair our machines and without machines, our production may delay. Like this, we need inventory or to invest in debtors and other short term securities.

On the basis of Concept, we can divide our working capital into two parts:

There are 5 types of working capital. They are as under:

1. Permanent working capital

2. Temporary working capital

3. Gross working capital

4. Net working capital

COMPONENTS OF WORKING CAPITAL

Current assets

i. Liquid assets (cash and bank deposits)

ii. Inventory

iii. receivables Debtors and

Current liabilities

i. Bank overdraft

ii. Creditors and payable

CONSTITUENTS OF CURRENT ASSETS

Cash in hand and bank balance.

Bills receivables.

Sundry Debtors (less provision for bad debt).

Short – term loans and advances.

Inventories of stock, as:

(a) Raw materials

(b) Work- in – progress

(c) Stores and spares,

(d) Finished goods

Temporary Investment of Surplus Funds

Prepaid Expenses

Accrued Incomes

CONSTITUENTS OF CURRENT LIABILITIES

1. Bills Payables

2. Sundry Creditor or Accounts Payable.

3. Accrued or Outstanding

4. Short – term loans, advances and deposit

5. Dividends Payable

PRINCIPLES OF WORKING CAPITAL MANAGEMENT/POLICY

The following are the general principles of a sound working capital management policy:

1. Principal of Risk variation. Risk here refers to the inability of a firm to meet its

obligations as and when they become due for payment. Larger investment in

current assets with less dependence on short-term borrowings increases

liquidity, reduces dependence short-term borrowings increase liquidity, reduces

risk and thereby decreases the opportunity for gain or loss. On the other

investment in current assets with greater dependence on short-term borrowings

increases risk, reduces liquidity and increase profitability. In other words, there is

a definite inverse relationship between the degree of risk and profitability. A

conservative management prefers to minimize risk by maintaining a higher level

of current assets or working capital while a liberal management assumes grater

risk by reducing working capital. However, the goal of the management should

be establish a suitable trade off between profitability and risk.

The various working capital policies indicating the relationship between current

assets and sales are depicted below:

2. Principal of cost capital. The various sources of raising working capital finance

have different cost of capital and the degree of risk involved. Generally, higher

the risk lower is the cost and lower the risk higher cost. A sound working capital

management should always try to achieve a proper balance between there two.

3. Principle of Equity position. This principal is concerned with planning the total

investment in current assets. According to this principal, the amount of working

capital invested in each component should be adequately justified a firm’s equity

FUNCTION

Working capital is needed for the following purposes: (1) replenishment of inventory

IMPOTANTS

Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies.

Maintaining adequate working capital is not just important in the short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as well.

Even a profitable business may fail if it does not have adequate cash flow to meet itsliabilities as they fall due.

Therefore, when businesses make investment decisions they must not only consider the financial outlay involved with acquiring the new machine or the new building, etc, but must also take account of the additional current assets that are usually involved with any expansion of activity.

Increased production tends to engender a need to hold additional stocks of raw materials and work in progress. Increased sales usually means that the level of debtors will increase. A general increase in the firm’s scale of operations tends to

Advantages of adequate working capital

 i) Helps in maintaining goodwill of the firm.

ii) Helps in maintaining solvency of the firm.

iii) Helps the firm in getting regular supply if raw material.

iv) Helps the firm in getting regular return on investment.

v) Helps the firm in getting payment.

vi) Helps the firm to face the crisis.

Vii) Helps the firm in getting loan easily from the banks.

Viii) Helps the firm in getting cash discount.

Disadvantages of inadequate working capital

 i) It leads to excessive debtors.

ii) Spare funds are of no use and earn no profit.

iii) Firm fails to maintain the relationship with the banks due to non requirement of funds.

The various sources for the financing of working capital are as follows:

Sources of Working Capital

Permanent of Fixed Temporary or Variable

1. Shares 1. Commercial Banks2. Debentures 2. Indigenous Bankers3. Public Deposits 3. Trade Creditors4. plugging back of profits 4. Installation Credit5. Loans from Financial 5. Advances

Institutions 6. Accounts Receivable7. Accrued Expenses8. Commercial Paper

FINANCIAL STATEMENT ANALYSIS:

Comparative Analysis: It is a simple method of identifying periodic changes in the financial performance of the company. It helps in highlighting the significant points and facts about the company .Comparative financial statements will contain items at least for two period’s .Changes increases or decreases in income statement and balance sheet over periods can be shown in two ways – aggregate and proportional change.

Ratio Analysis: Mere statistics / data presented in the different financial statements do not reveal the true picture of a financial position of a firm. Properly analyzed and interpreted financial statements can provide valuable insights into a firm’s performance. To extract the information from the financial statements, a number of tools are used to analyze such statements. The most popular tool is the ratio analysis. The analysis is used to provide indicators of performance in terms of critical success factors of a business. This assistance in decision –making reduces reliance on guesswork and intuition and establishes a basis for sound judgment.

SIGNIFICANCE OF USING RATIOS:

The significance of a ratio can only truly be appreciated when: It is compared with other ratios in the same set of financial statements. It is compared with the same ratio in previous financial statements (trend analysis). It is compared with a standard of performance (industry average).Such a standard

may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.

TYPES OF RATIOS :

Following are the main types of ratios are as follows

1. Solvency ratios

2. Activity ratios

3. Profitability

SOLVENCY RATIO:

It can be of two types such as

Short term solvency ratio or liquidity ratio Long term solvency ratio

SHORT TERM SOLVENCY RATIO OR LIQUIDITY RATIO :

Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their short –term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.

Following ways are used to measure the liquidity of a firm;

1. CURRENT RATIO: The current ratio expresses the relationship between the firm’s current assets and its current liabilities. As a convention rule, a current ratio should be 2:1. It is based on the logic that even in the worst situation if the value of current assets becomes half, firm will be able to meet its obligation. Current ratio represents a margin of safety for creditors. But it should be not followed blindly, because it tests the quantity not the quality.

Current Ratio= Current assets

Current liability

2. QUICK RATIO:

It establishes the relationship between liquid assets and current liabilities. An asset is liquid if it is quickly converted into cash immediately without any loss of value. Generally 1:1 ratio is considered to be satisfactory for financial condition of the company.

Quick Ratio = Current assets-Inventories-Prepaid Expenses

Current Liability- Overdraft

3. ABSOLUTE LIQUID RATIO:

There may be down regarding reliability receivables in time. So some authority are of opinion that absolute liquid ratio should be calculated for knowing short term solvency. The absolute liquid ratio, the relationship between Absolute liquid asset and current liabilities. Absolute liquid asset includes cash in hand, cash at bank and marketable securities. A ratio of 1:2 is considered as good ratio.

Absolute liquid ratio = Absolute liquid asset

Current liabilities

LONG TERM SOLVENCY RATIO :

The ratios indicate the degree to which the activities of a firm are supported by creditor’s funds as opposed to owners. The relationship of owners equity to borrowed funds is an important indicator of financial strength . The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicate a surplus which shields creditors against possible losses from default in payment. The following ratios can be used to identify the financial strength and risk of the business.

EQUITY RATIO:

The high equity ratio reflects a strong financial structure of the company. A relatively low equity ratio reflects a more speculative situation because of the effect of high leverage and the greater possibility of financial difficulty arising from excessive debt burden.

Equity Ratio = Share holders Funds X 100%

Total Assets

DEBT RATIO:

This is the measure of financial strength that reflects the proportion of capital which has been funded by debt, including preference shares. This ratio is calculated as follows:

Debt Ratio = Total Debt X 100%

Total Assets

DEBT TO EQUITY RATIO:

This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. The debt to equity ratio is calculated as follows:

Debt Equity Ratio = Total Debt X 100%

Net Worth

ACTIVITY RATIOS:

If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Activity ratios are therefore used to assess how active various assets are in the business.

INVENTORY TURNOVER RATIO:

It indicates the efficiency of the firm in producing and selling its product. This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business.

Inventory Turnover Ratio = cost of Goods sold

Average inventory

Average inventory’ refers to simple average of opening and closing inventory. The inventory turnover ratio tells the efficiency of inventory management. Higher the ratio, more the efficient of inventory management.

INVENTORY HOLDING PERIOD:

It is also known as inventory velocity. It is an average time taken for the clearing the stocks. This period is calculated by dividing the number of days in a year by inventory turnover ratio.

Inventory holding period = 360 days

Inventory turnover ratio

DEBTOR TURNOVER RATIO:

The debtor turnover ratio measures the movement of debtors in corporations. It also indicates the velocity / turnover of debt collection of a firm. The higher the value of debtor turnover the more efficient is the management of debtors/ sales on more liquid cash.

Debtors turnover ratio = Net Credit Sales Average Debtors

DEBTOR COLLECTION PERIOD:

Average collection period represents the number of days worth credit sales that is locked in debtors (accounts receivable). Average collection period and the accounts receivable (debtors) turnover are related as follows;

Average Collection period = 360 days

Debtors turnover ratio

TOTAL ASSETS TURNOVER RATIO:

It helps in measuring how efficiently all types of assets are employed. It gives the information about, for each rupee which company has invested in assets what amount of sales it has generated from that. A high total assets turnover ratio is good for the company.

Total Assets turnover ratio = Net sales

Average total assets

DEFERRAL PERIOD:

It is the average time taken by the firm in paying its suppliers.

Deferral period = Creditors X 360 days credit purchase

WORKING CAPITAL TURNOVER RATIO:

This is the ratio of sales to net working capital. The higher the ratio is better for the company. It indicates the sales generated by the company out of 1 rupee invested in net current assets.

Working Capital Turnover Ratio = Sales

Net Working Capital

PROFITABILITY RATIOS:

Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity , asset management ( activity ) and debt management on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources. It evaluates the efficiency of a company in terms of profit. Profitability and operating / management efficiency of a firm is judged mainly by the following profitability ratios:

GROSS PROFIT MARGIN:

Normally the gross profit has to rise proportionately with sales. It may be calculated by subtracting the cost of goods sold from net sales.

Gross profit margin = Net sales - cost of goods sold X 100

Net sales

It reflects the efficiency with which the company produces each unit of product. Higher the percentage the better it is for the company.

OPERATING PROFIT MARGIN:

This is the ratio of operating profit to sales.

Operating profit margin = Operating profit X 100

Net sales

The term operating profit is the difference between gross profit t and administration and selling overheads. Non operating income and expenses are excluded. Interest expenditure is also excluded because interest is the reward for a particular form of financing and has nothing to do with operating activities. Higher the percentage the better it is for the company.

NET PROFIT MARGIN:

The term net profit refers to the final profit of the company. It takes into account all incomes and all expenses including interest costs. It is also known as profit after tax. Higher the percentage the better it is for the company.

Net profit margin = Net profit X 100

Net sales

RETURN ON TOTAL ASSETS OR RETURN ON INVESTMENT:

Income is earned by using the assets of a business productively. The rate of return on total assets indicates the degree of efficiency with which management has used the assets o f the enterprise during an accounting period. This is an important ratio for all readers of financial statements.

Return on investment = EBIT Total Assets

Particulars 2007-08 ( Audited)

2008-09 (Audited)

2009-10 (Audited)

2010-11 (Audited)

2011-12 (Audited)

INCOMESRevenue from Wheeling of Power 399.75 678.92 305.16 405.19 570.54

- - - Miscllaneous Income 28.21 36.84 136.62 25.50 21.44

- - -

Inter state Wheeling 4.67 0.64 27.21 5.29 5.00

Other Income 23.54 36.20 109.41 20.21 16.44

TOTAL 427.96 715.76 441.78 430.69 591.98 EXPENDITURE

Administration, General & Other Expenses 239.99 527.75 349.84 272.13 399.82

Gross Employee Cost 210.65 500.26 302.70 219.55 286.59

Gross R & M Cost 16.52 16.91 26.14 28.31 45.70

Gross A & G Cost 17.91 18.24 26.69 33.81 83.04

Less: Capitalisation (5.09) (7.66) (5.69) (9.54) (15.51)

Depreciation 108.54 109.82 108.03 122.34 125.68

Total Expenditure 348.53 637.57 457.87 394.47 525.50

Profit/(Loss) before interest & finance Charges 79.43 78.19 (16.09) 36.22 66.48

Interest & Finance Charges 110.65 97.25 54.16 42.44 57.83

Gross Interest Cost 101.21 90.69 49.19 36.42 58.61

Less: Capitalisation (0.58) (4.04) (5.18) (2.58) (8.22)

Finance Charges 10.02 10.60 10.15 8.60 7.44

Net Prior Period Items (Net) 27.58 0.75 (1.11) (6.51) (18.99)

Profit/(Loss) before Tax (3.64) (18.31) (71.36) (12.73) 27.64

Income Tax(MAT) 0 0 0 0 -

Profit/(Loss) after Tax (3.86) (18.54) (71.36) (12.73) 27.64

Balance of P&L c/f to Balance Sheet (49.24) (77.77) (160.06) (184.67) (157.03)

ODISHA POWER TRANSMISSION CORPORATION LTD

Regd. Office: Janpath, Bhubaneswar-751022

Profit & Loss Account for the year ended 31st March (Rs in Cr)

(Rs. In Crores)Particulars FY07-08

(Audited)FY08-09 (Audited)

FY09-10 (Audited)

FY10-11 (Audied)

FY11-12 (Audited)

FY12-13

(Estimated)

Sources of FundsShareholders Fund - - - - - - Share Capital 60.07 83.12 88.12 123.12 158.12 158.12Reserves and surplus 536.84 553.17 568.13 585.16 603.16 622.19

Total Shareholders Fund 596.91 636.29 656.25 708.28 761.28 780.31

Loan FundsTotal Loan Funds 1,415.29 1,311.66 1,240.23 1,200.97 1,431.83 1,515.38

Other Funds

Consumer Security Deposit 0.01 0.01 0.01 0.01 0.01 0.01

Total 2,012.21 1,947.96 1,896.49 1,909.26 2,193.12 2,295.70

Application of FundsASSETSFixed AssetGross Block 2,272.54 2,415.26 2,654.06 2,700.29 2,800.00 3,200.00

Less: Accumulated Depreciation 1,034.01 1,143.75 1,267.93 1,425.02 1,550.02 1,827.97

Net Block 1,238.53 1,271.51 1,386.13 1,275.27 1,249.98 1,372.03

Capital Work in Progress 722.14 671.1 605.22 852.35 962.20 964.98

Total 1,960.67 1,942.60 1,991.35 2,127.62 2,212.18 2,337.01

Investments 27.06 27.06 27.06 39.91 45.61 52.09

Current AssetsStores & Spares 76.69 80.85 76.69 76.69 76.69 76.69

Sundry Debtors 105.25 105.51 89.04 88.44 89.05 88.77

Loans and Advances 14.33 286.87 37.98 20.14 22.55 53.64

Cash and Bank Balances 49.09 90.7 40.38 63.83 29.84 93.1

Other Current Assets 65.26 66.7 65.26 65.26 65.26 65.26

Total Current Assets 310.61 630.63 309.35 314.36 283.39 377.46

Less: Total Current Liabilities 335.97 730.4 518.84 678.99 468 608.8

Short Term Borrowings 0 0 0 0.00 0.00 0.00Net Current Assets (25.36) (99.77) (209.49) (364.63) (184.61) (231.34)

Miscellaneous Expenditure to the extent not written off or adjusted

0.61 0.31 0.01 0 0 0

Profit and Loss Account 49.23 77.76 87.56 106.36 119.94 137.94

Total 2,012.21 1,947.96 1,896.49 1,909.26 2,193.12 2,295.70

Regd. Office: Janpath, Bhubaneswar-751022

Balance Sheet as at 31st March

ANALISIS OF OPTCL ORGANISATION

NET WORKING CAPITAL

= TOTAL CURRENT ASSET-TOTAL CURRENT LIABILITY

PARTICULARS 07-08 Rs.Cr 08-09 Rs.Cr 09-10 Rs.Cr 10-11 Rs.Cr 11-12 Rs.Cr 12-13 Rs.Cr

TOTAL

CURRENT

ASSET (A)

310.61 630.63 309.35 314.36 283.39 377.46

TOTAL

CURRENT

LIABILITY (B)

335.97 730.4 518.84 678.99 468 608.8

NET

WORKING

CAPITAL

(A-B)

-25.36 -99.77 -209.49 -364.63 --184.63 -231.34

REVIEW OF THE LITERATURE:

In analysis of this organization,

OPTCL is the only transmission utility in the state of odisha, there is no competition from any other transmission corporation limited.

The strong transmission network is having 81 grid substations spread throughout the state, is a great asset of optcl.

A strong team of technically skilled work force is another grid asset to the organization.

There is enough scope for creating network for both inter as well as intra state in the absence of any competitors.

Availability of technical persons within the state in a large number is an opportunity in the organization for fresh recruitment.

Continuous operation and maintenance of grid substation and extra high voltage (EHV) transmission lines has become a challenge to the organization, unless properly maintained it will break down of the entire system.

There is a great competition in the international market and also there is a chance of invention of other transmission company in the state.

It helps to transport the power from one state to another state, which also generates revenue.

Use of superior technology in power supply also helps to decrease in cost and increase in revenue.

Lack of computerization system in the organization also decreases the efficiency and increase the cost.

BIBLIOGRAPHY:

Financial Management – Sharma and Gupta ,I.M. Pandey

Financial Management – S.N. Maheshwari

Annual Report of OPTCL

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www.optcl.co.in