Professional Documents
Culture Documents
Working Capital Management of NTC
Working Capital Management of NTC
Working Capital Management of NTC
Sovit Subedi
Campus Roll No.: 153/070
T.U. Regd. No.: 7-2-0039-0852-2013
4th year exam symbol No.:390606
Shanker Dev Campus
Proposal No.: 339
Group: Finance
Submitted To
The Faculty of Management
Tribhuvan University
Kathmandu
Kathmandu, Nepal
May, 2017
DECLARATION
I hereby declare that the project work entitled “WORKING CAPITAL MANAGEMENT
OF NEPAL DOORSANCHAR COMPANY LIMITED” submitted to the Faculty of
Management, Tribhuvan University, Kathmandu is an original peace of work under the
supervision of Mr. Sashi Kant Mainali, faculty member, Shanker Dev Campus,
Putalisadak, Kathmandu and is submitted in partial fulfillment of the requirements for
the award of the degree of Bachelor of Business Studies (BBS). This project work report
has not been submitted to any other university or institution for the award of any degree
or diploma.
………………
Signature
Sovit Subedi
Shanker Dev Campus
Date:
i
SUPERVISOR’S RECCOMANDATION
partial fulfillment of the requirements for the award of the degree of Bachelor of Business
Studies (BBS). I, therefore, recommend the project work report for evaluation.
………………..
Signature
Date:
ii
ENDORSEMENT
We hereby endorse the project work report entitled “Working Capital Management of
Nepal Doorsanchar Company Limited” submitted by Sovit Subedi of Shanker Dev
Campus, Putalisadak, Kathmandu, in partial fulfillment of the requirements for award of
the Bachelor of Business Studies (BBS) for external evaluation.
……………….. …………………
Prof. Dr. Kamal Deep Dhakal Asso. Prof. Krishna Prasad Acharya
Head of Research Committee Campus Chief
Date: Date:
iii
ABSTRACT
The financial tool used for the study is ratio analysis. Tables are used for better
understanding. Through ratio analysis the bank could understand the working position
and profitability of the company.
iv
ACKNOWLEDGEMENT
I express my sincere honor and special sense of gratitude to my academic supervisor, Mr.
Sashi Kant Mainali for their generous guidance, thoughtful encouragement and brilliant
insight throughout this research work.
v
TABLE OF CONTENTS
Declaration i
Supervisor’s Recommendation ii
Endorsement iii
Abstract iv
Acknowledgement v
Abbreviations ix
1.1 Background 1
1.3 Objectives 3
vi
3.3 Population and Sample 15
3.8 Limitations 23
5.1 Discussion 35
5.2 Conclusion 36
5.3 Recommendation 37
REFERENCE 39
vii
LIST OF TABLES
viii
ABBREVIATIONS
Co. = Company
FY = Fiscal Year
Ltd. = Limited
OR = Operating Ratio
PE = Probable Error
WC = Working Capital
NT = Nepal Telecom
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CHAPTER I
INTRODUCTION
1.1 Background
The term working capital implies a company’s investment in short term assets cash, short
term securities, accounts receivables and inventories. Precisely, these assets are financed by
short-term liabilities, thus net working capital is current assets less current liabilities.
Working capital management is the decision relating to working capital and short term
financing, and this includes managing the relationship between the company’s short-term assets
and its short-term liabilities. This enables the company to continue operations and to have enough
cash flow at its disposal to satisfy both maturing short-term debt and upcoming operational
The efficient management of working capital is very vital for an organization. This is
premised on the fact having too much working capital signifies inefficiency, whereas too little
The concept of working capital management is all about the commercial and financial
parts of credit, inventory, marketing, purchasing, royalty and investment policy. The greater the
profit margin, the lesser is likely to be the level of working capital tied up in creating and selling
titles.
The difference between current assets and current liabilities is known as working capital.
The main current assets are stock, debtors and cash, while current liabilities are creditors and
accrued expenses. The main issue in the word "Current" is that it is anticipated to change into
cash, or perhaps be paid from cash, within the period of twelve calendar months. As a rule of
thumb, an organization wishes to tie up little money as much as possible in working capital.
Nevertheless, there are always trade-offs. One peculiar problem for business is running out of
1
cash, which consequently leads to failure to make employees’ payrolls, or business might be
In Nepal, operating any form of telecommunication service dates back to 94 years in B.S.
1970. But formally telecom service was provided mainly after the establishment of MOHAN
AKASHWANI in B.S. 2005.Later as per the plan formulated in First National Five year plan
telecommunications services and to expand the services, during third five-year plan (2023-2028),
B.S.2026. After the enactment of Communications Corporation Act 2028, it was formally
Corporation in B.S. 2032 for the purpose of providing telecommunications services to Nepalese
People. After serving the nation for 29 years with great pride and a sense of accomplishment,
Limited from Baisakh 1, 2061. Nepal Doorsanchar Company Limited is company registered
under the companies Act 2053. However the company is known to the general public by the
Nepal which provides various kinds of services. Service ranges from basic telephone to mobile
and internet services. Pace of technological changes in tele-communication service is very rapid.
Telecom operator like Nepal Telecom should be with these technological advancement in order to
stay competitive in the market. Working capital management decision is very important for Nepal
enterprises the management of working capital has been misunderstood as the management of
money and the managers are found over conscious about the burdening of money rather than its
2
efficient utilization. Regarding the management of working capital sources most of the public
enterprises have never been through seriously. They are usually found to depend upon Nepal
government even for overcoming the shortages of Working Capital in spite of trying to manage
Working Capital needs form depreciation fund and utilized surplus to overcome of working
capital.
As working capital management is important instrument for every organization for their
success. They should invest available funds adequately in current assets otherwise it will
seriously erode their liquidity base. They must select the type of current assets suitable for
required to ascertain turnover of current assets that greatly determine the prodigality of the
organization. A firm must have sufficient finished products. The efficient management of
working capital is useful for every organization over investment, unpredictability affirms,
whereas mismanagement of current liabilities will have a negative impact on both cost of capital
Nowadays most of the companies have recognized the importance of working capital
management. Even then they are not able to obtain full advantages of working capital
management. This company is also facing problem considered with working capital management.
The working capital of the company is not satisfactory and encouraging. They are maintaining
high level of current assets. Most specifically, this study deals with following issues:
2. What is the relationship between working capital management and profitability of the
company?
1.3 Objectives
failure of any organization depends on its investment in current assets. They should invest in right
percentage so that there will not be excess liquidity. The main objective of this study is to
3
examine the working capital management of Nepal Telecom. The specific objectives are as
follows:
2. To analyze the relationship between working capital management and profitability of the
company.
Working capital is related with the short term assets, i.e. current asset. Significant amount of total
assets are invested in current assets. So, it is necessary to study about the working capital
reasons:
management.
3. The relation between sales, growth and invest in current assets is close and direct.
4. This study will attempt to measure the efficiency on working capital of the Company and
there by anyone can easily know how far it has been successful in this area.
5. This study will provide relevant and pertinent literature for the future research on the area of
1. Introduction
The first chapter will describe shortly of different topic. This chapter will include
4
2. Review of the Literature
This chapter will include the conceptual framework of the related topic and writers and
deal the general concept of the write and thesis towards the working capital management.
3. Research Methods
This chapter will deal with research design, nature and source of data and data processing
In this chapter the collected data will be analyzed to greats the final result of the working
capital management.
This chapter will include the summary, conclusion drawn from the study of the thesis.
5
CHAPTER II
Proposition in related area of the study so that all the past studies, their conclusions and
deficiencies may be known and further research can be conducted. Under this section of
the study the conceptual review related to the working capital management, the review of
Journals and articles and the review of the thesis have been presented.
Every business needs capital basically for two purposes. The first requires for
long term purpose which is called Fixed Capital. Such funds are required to create
production facility. Investment in plants, machinery, land, building etc. comes under
production activity. Investment in these assets represents that part of firm’s capital which
is block on a permanent or fixed basis. Such assets are not purchased with the objective
of resale.
To operate business, a firm also needs another type of capital which is known as
Short Term Capital or Working Capital. The funds required for purchased of raw
material, payment of wages and another day to day expenses etc. is called as Working
Capital. Similarly, the investment required for work-in-progress, raw material, finished
goods, sundry debtors, bills receivable etc. also comes under working capital.
assets and current liabilities. It is concerned with the all decisions and acts that influence
the determination of the appropriate level of current assets and their efficient use as well
6
as the choice of the methods of financing them, keeping in view of liquidity. It is needed
to run the organizations, day to day in efficient manner. Thus, working and total current
assets are synonymous. It is also called circulating capital, since it keeps on circulation,
the course of business operation. Business starts with cash, which is converted into
inventory after sometimes. Inventory may be of raw materials, semi-finished goods and
finished goods. The inventory is converted into receivables and receivables into cash
again. Thus the cycle becomes complete. This kind of cycle keeps on operating the
organization. The length of cycle would differ depending upon the nature of business.
capital of trend is used to refer the firm's current assets (primarily cash, marketable
securities, account receivable, and inventories). Working capital refers to the fact that
most of its components very closely related with the label of production and sales
working capital referred to as short term finance. Gross working capital refers to firm's
total current assets where as Net working capital is current assets minus current liabilities.
Working capital may be defined as assets held for current use within a business less then
among due to those await settlement in short term in whatever form. This idea embraces
the recurring transaction from cash to inventories to receivables to cash that form the
conventional chain of business operations. Funds employed for short term are mainly for
working Capital or operational business. Towards the day to day operation, a firm will
have to provide money towards, the purchase of raw materials, payments of wages and
salaries to extend credit to buyers of goods and services as well as to meet other day
operations.
7
Working capital management is concerned with the problems that arise in
attempting to manage the current assets, current liabilities and inter relationship that exist
between them. The current assets refers to those assets which in the ordinary course of
value and without disrupting the operation of the company. The major current liabilities
are those liabilities which are intended at their inception to be paid in the ordinary course
of business within a year, out of current assets or earnings of the concern. The basic
current liabilities are bills payable, capital overdraft outstanding expenses. The goal of
working capital management is to manage the firm's current assets and current liabilities
capital to add input in this study. In this regard the review has been arranged by
To review about the previous works, some local studies are reviewed in this study
Enterprise," states that manager often lacks basic knowledge of working capital and its
overall impact on the operative efficiency and financial viability of public enterprises.
The study has been based on sample of ten public enterprise i.e. Birgunj Sugar factory.
8
Janakapur Cigarette factory, Roghupati Jute Mills, Development Corporation, National
Trading Ltd, Royal Drugs Ltd, National Construction Company of Nepal, Harisiddhi
Bride and Tile Factory Nepal, Cheery Ghee Industry Ltd, and Chandesowori Textile
Factory Ltd. The study has pointed at certain policy flows such as deficient financial
turnover etc. He has suggested some measure for their effective funds, determination of
Enterprises the management of money and managers are found over conscious about
receiving of money rather than its efficient utilization. Thus, the existing problems in the
finance are mostly directed towards the management o WC rather than in any area. In his
number of studies it has been repeatedly found that the gross in efficiency exist in the
operation of public Enterprises. He has stressed on high cost of production which have
left these EPs in less secured position. Thus, he farther added the cost reduction is the
only possible measure for smooth operation and long-term existence of the public
enterprises in Nepal. The cost reduction program is highly associated with the
problems of Nepalese PE not following traditional worm 2:1 between CA and CL, low
rate of inventory turnover, change in WC in relation to fixed capital has very low impacts
over the profitability not following conventional of debt equity as 1:1; than transmutation
9
evaluation tools and techniques and WC management has never been considered a
managerial job.
Similarly, he has suggested that PEs finance staff must be acquainted with the
modern scientific tools used for the presentation and analysis of data. He further suggests
avoiding the system of crisis decision, which prevailed frequently in their operation. They
have to follow system and method for decision making. Lastly he has given emphasis to
optimize its level of investment at a point of time. Neither over nor under investment in
WCs is desired by the management of enterprises. Both of these situations will erode the
manufacturing PEs of Nepal". The Specific objectives under taken in his study are:
iv) To estimate the transactions demand function of working capital and it’s
variation
i) It has found that most of the selected enterprises have been activating a
ii) It has showed a poor liquidity of most of the enterprises. This poor
10
negative cash flows or negative earnings before tax or they have
iii) The Nepalese manufacturing PEs have on a average half of their total
assets in the form of CAs, of all the different components of CAs the
iv) The economics of scale have been highest for inventories followed by
v) The regression results also shown that the level of WC and its
His study is concerned with interrelationships that exist between managing CAs
and CLs. The study manages to focus on Networking Capital Concept. The study has
employed ratio analysis discriminate analysis and econometric models for its analysis.
This study does not cover all the PEs in manufacturing sector. Each selected
enterprises does not represent the entire industry in which it falls. The manufacturing PEs
selected for the study differs in its working and nature. These studies show that WC
management is the weakest or neglected part of financial management in most of the PEs
in Neal. It seems that Nepalese firms are fallowing conservative approach in financing as
Gyawali (2013) in this study entitled "Working capital management of Sumi Distillery
PVT LTD." has focused his study on the appropriateness of investment in current assets
11
to its total assets liquidity position management of WC needs and utilization of current
assets in SDL. And the major finding of this study area as follow:-
i. The company has used the conservative financing polices, where the WC
analyzed by taking the position of the current assets. The CAs consists of the
inventories, sundry Debtors, cash and bank balances, loan and advances & other
ii. The company has used maximum amount of the cash and bank balance in the F/Y
2071/72 during the study period. The investment pattern with respect to CAs to
TAs slows the average figure of 76.96% and 71.02% respectively. The lower ratio
iii. The company has faced greater problem of CAs than CLs in every year i.e. from
the study period of the thesis writing. The average percentage of net profit is 1.66.
Similarly, the company has earned less net profit then the average net profit.
iv. During the study period the company's current ratio is enough to meet the
The above studies are concerned with the research title “Working Capital
Management”. Also considering other researchers being carried out on the topic, some
researchers have adopted comparative study on more than one Service Company but this
Limited Statistical and financial tools are used to interpret the data available. The study
12
Most of the studies have used some financial and statistical tools they have included only
summary, findings and conclusion in their study report but no concrete to solve the
problems.
As stated above, there is very limited study being carried out on working capital
management of service companies. Thus to fill this gap, the researchers has aimed to
attempts to throw light on working capital position of this company and also suggest the
possible measures for the improvement and stepping up the service sector.
13
CHAPTER III
RESEARCH METHODS
that needs a solution. In simple, research is a process for searching knowledge and
methodology is concerned with the method which is used for research. As a whole,
the basis of secondary data. The proper analysis of this study can be meaningful only on
the right choice of research tools that helps in coming meaningful conclusion. The data is
analyzed with the help of financial tools. In this Chapter, we study the various steps that
are generally adopted by a researcher in studying his research problem along with the
logic behind them. The main objectives of this study are to analyze the working capital
In common parlance research design is the conceptual structure within which the
and analysis of data in a manner that aims to compare relevance to the research purpose
with economy in procedure. Research design constitutes the blue print for collection,
efficiencies and performance to use research design based on description and analytical
study. This study attempts to make composition and establish the relationship between
14
3.2 Type of Research
Nepal Doorsanchar Company Limited (NDCL). Through basic research we can generate
The total numbers of Telecom operator companies in Nepal are the population of this
February, 2004 under the existing Companies Act, 2053 and the then Nepal
player in telecommunications sector in the country while also extending reliable and cost
regional directorates and district offices under these directorates. Total working
15
manpower of Nepal Telecom is 7185 as of February, 2013. It sales wide ranges of service
technology. Voice call services it provides are PSTN, NTC GSM postpaid service,
Namaste GSM Prepaid service, CDMA fixed C-phone prepaid, CDMA fixed C-phone
postpaid, CDMA Sky-Phone prepaid, and CDMA Sky-Phone Postpaid. Data services are
GSM (GPRS, EDGE, 3G and 4G), CDMA (2G, 3G), PSTN/ISDN dialup, ADSL, WiMax
(4G) services. It has launching 10 million project of GSM 2G, 3G and 4G countrywide
with the demand of coverage and high speed wireless mobile internet.
This study is mainly based on the secondary data. Not only this, other information
has been collected from internet, published and unpublished materials. The secondary
data has been collected from the annual report of NT. In this, data of five different fiscal
Since the data used in this study are mainly based on the secondary in nature.
These secondary data has been collected from the annual report of NT. The annual report
includes balance sheet, profit and loss statement, and financial statement. All the
available data has been grouped in tables and charts according to their nature and
16
3.6 Presentation and Analysis of Data
The collected data are systematically grouped in table and charts according to
their nature, so that it would be easily calculated. Various financial tools and statistical
tools are used for calculating the ratios, correlation, co-efficient, probable error, etc. of
Generally, there are two methods for data analysis, they are: Quantitative and
Qualitative method. But in this study, Only one types of analytical tools is used, which is
Financial Tools.
The ratio analysis is the main tool for analyzing data under financial tools which
help to interpret the financial statement of a Company to know its strength and weakness
as well as its historical performance so that the current financial condition can be
determined. This also helps to conclude how far financial expression is meaningful and to
grab the suitable result. Financial ratio analysis is most useful tool which helps us to
In order to make rational decisions in keeping with the objectives of the company
and its financial viability, an analysis is undertaken by every interested party such as
creditors, investors and also by the company itself. Such, analysis varies according to the
specific interests of party involved; this analysis is called financial analysis. There are
organization.
17
A. Composition of Working Capital
The ratio of current assets to total assets indicates what percentages of the
company’s total assets are invested in the form of current assets. It is calculated as:
Current Assets
CATA = Total Assets
As the ratio increases, the risk and profitability of the company would decrease.
This ratio shows the relationship between the current assets and fixed Assets and
Current Assets
CAFA= Fixed Assets
It is calculated as:
The small ratio indicates the sound management and large ratio vice versa. The working
18
iv) Cash and Bank Balance to Total Assets (CBBTA):
This ratio is calculated as under and indicates what percentage of total assets is invested
Inventories
ITA = Total Assets
This ratio indicates the percentage of total assets invested in form of invest in the form of
inventories. Inventory is a part of working capital so, if the percentage increased the
working capital automatically increased. The increase also indicates liberal inventory
This ratio implies the percentage of current assets in form of inventory and
derived as:
Inventory
ICA = Current Assets
The increase in the ratio is an indication of liberal inventory policy followed by company.
19
vii) Ratio of Receivables to Total Assets (RTA):
Receivables
RTA = Total Assets
This ratio indicates the percentage of total assets invested in the form of receivables. The
increase in the ratio indicates the liberal credit policy followed by the company.
This ratio indicates the share of receivables on current assets and is defined as:
Receivables
RCA = Current Assets
The low percentage indicates the greater working capital and vice-versa. If the percentage
B. Profitability Ratio:
The main objective of the company is to earn maximum profit. It is necessary to have
enough profit to meet different obligation of the firm. The position of the profitability of
The gross profit margin ratio expresses the relationship between gross profit and sales.
Gross profit is obtained by deducting cost of goods sold from net sales.
Gross Profit
GPM = ∗ 100
Sales
20
The gross profit margin ratio reflects the efficiency with which company produces each
unit of product. The higher percentage indicates the better efficiency of the company.
Net profit margin is calculated by dividing net profit by sales. Net profit is
obtained after deducting operating expenses and income tax from gross profit.
This ratio is the overall measurement of the company’s ability to earn net profit.
A higher ratio is an indication of the higher overall efficiency of the business and better
utilization of total resources. Poor financial planning and low efficiency is the indication
of lower ratio.
The operating ratio is an important ratio that explains the changes in the net profit
margin ratio. It shows the relationship between operating expenses and sales. It is
Higher ratio indicates the lower efficiency of the company and vice versa. Higher
operation ratio means small amount of operating income to meet interest, dividends, etc.
21
iv) Return on Assets (ROA):
Return on assets is expressed as the relationship between net profit after taxes plus
interest and total assets. It measures the profitability of total fund of investment of the
firm. But it is not sufficient for the analysis as profitability of different sources of fund
for financing the total assets. It is computed by dividing net profit after tax by total assets.
RONW is computed by dividing net profit after tax by net worth. It is also known as
capital employed.
It indicates the return to the shareholders, how well the firm has used the resources of the
owners. It judges whether the firm has earned of satisfactory return for its shareholders or
not. Higher the ratio higher the return to the shareholder will be and vice-versa.
It is computed by dividing net profit after tax by current assets working capital. It
Higher the ratio, higher will be the utilization of current assets to earn profit and vice-
versa.
22
3.8 Limitation
Every field of activity has their own limitation. No one can perform their activity by
ignoring this limitation. This study has attempted to evaluate the working capital of the
Nepal Doorsanchar Company Limited. Data collection of related field is very difficult in
Nepal. In order to make a study on such topic more fruitful, it is essential that it should be
collected in frequent time intervals. So, this study will face many difficulties. This study
is also not an exception. No study can be free from its own limitations. So, the present
study has also some limitations. Reliability of financial tools used and lack of research
experience are the major limitations. The following are the limitation of the study:
This study will be limited to the working capital management of the company
which is sample to study about the working capital. These published documents
The study has been focused on the working capital of Nepal Doorsanchar
Company Limited with the help of financial tools to analyze the working capital
23
CHAPTER IV
This is the main chapter of the study. This is the most important sensitive part of
this study because it consists of analysis and presentation of empirical data focus in how
far the NT is position to manage their working capital. In order to examine the working
capital management of this telecom operator, the necessary financial facts and figures as
well as descriptive information has been gathered through the financial statement
(annual). These collected data has been calculated using financial tools. This chapter will
present the analysis of various components of working capital of this Company, which
includes size, structure and utilization of current assets and profitability position, relation
between current assets and total assets as well as fixed assets, sources and application of
Presentation and analysis of data means to show the accurate data and perform its
presentation clearly or informatively. The main aim of this chapter is presentation and
analysis of data according to research method to attain the objective of this study. In this
chapter, an attempt has been made to analyze the working capital position of NDCL for
its operational period of five years that is 2068/69 to 2072/73. The data for this study are
presented in tabular form and are analyzed with the help of financial tool.
24
4.2 Position of Current Assets:
As current assets are the main parts which are required to run day to day business
activities and total of this is known as working capital as the gross concept. Its position
has become needful to study. Most of the business organizations require some amount of
working capital and its requirement differ according to the size of the organization. A
service firm needs cash to purchase equipments, spare parts and pay expenses this is
because of not perfect matching between cash inflow and outflow. Cash is also needed to
meet the future expenses. The timely procurement of equipments of the project, spare
parts are kept in order to ensure smooth service delivery and to protect the risk of non-
availability of demand based quality service and benefit to competitor. To meet this
obligation also cash is needed. Any business organization aims to maximize return on
should earn sufficient return for its operations. Earning a steady amount of profit requires
successful sales. So, the firm has to invest enough funds in current assets for the success
of sale. As the sale do not converted into cash instantly the extra amount of working
capital is needed.
of owner’s capital in this context, it is necessary to have proper analysis for current assets
management. The proper analysis of current assets of industrial concern reflects the
nature and operation of its management. So, the overall current assets are firstly analyzed.
25
Table 4.1
Cash & Bank Sundry Debtors Inventory Advance Deposits Investments Total C.A.
2068/69 16134.52 64.54 3318.46 13.27 416.42 1.67 5131.07 20.52 0.00 0.00 25000.47
2069/70 18191.06 63.08 3593.21 12.46 180.13 0.62 6872.90 23.83 0.00 0.00 28837.30
2070/71 21611.54 61.72 4296.00 12.27 172.27 0.49 8935.56 25.52 0.00 0.00 35015.36
2071/72 16769.20 43.57 3904.74 10.14 958.05 2.49 16857.54 43.80 0.00 0.00 38489.55
2072/73 25220.62 47.36 4339.42 8.15 1049.69 1.97 22421.60 42.10 224.82 0.42 53256.15
The above table represents current asset’s position of NT. It also represents
investment pattern of this company in current assets and their fluctuations in years. In
FY 2068/69 NT current assets is Rs. 25000.47 millions and next year it is increase in
2072/73 which are Rs. 38489.55 and Rs. 53256.15 millions accordingly.
26
4.3 Composition of Working Capital (Financial Ratio) Analysis:
The compositions of working capital are analyzed with the following ratios:
The necessity of current assets depends upon the nature of the business. It is required
to meet the working capital, which is required to run the organization’s day to day
activities. The table given below represents the percentage of current assets to total
assets.
Table 4.2
r=0.98 P.E.=0.01
27
This ratio represents the proportion of current assets investment to total assets
investment of NT for the selected years of study period. The overall proportion of
current assets on total assets is fluctuating year after year. In the fiscal year 2068/69,
current assets absorb 64.64 % of total assets, which has slightly decreased in 2069/70
by 2.33% i.e. 62.31%. But in fiscal year 2070/71, the percentage of current assets to
total assets has increased to 66.69%. This is the highest absorption of C.A. to T.A.
during study period. This is due to increase in all types of current assets except
inventory. In next fiscal year 2071/72, it has drastically decreased by 16.06% being
50.63%. In last study period, in fiscal year 2072/73 it has decreased to 50.28%. So, we
can say that the proportion of current assets to total assets is fluctuating in first three
year and then decreasing; this is due to fluctuation in current assets. The above
calculation shows that there is positive correlation between current assets and total
assets of the company during the five study period. Further, the value of ‘r’ is far
For the purpose of success of any service concerns, firm should invest in current
assets as well as fixed assets to supports a particular level of return. Therefore, the
company should determine the proper position of current assets with fixed and total
assets. The level of current assets can be measured by relationship between current assets
to fixed assets, which can help to find the current assets investment policy. Assuming a
constant level of fixed assets, higher current assets to fixed assets ratio indicates an
aggression. Current assets policy conversely lower ratio indicates the conservative
current assets policy. If the company increase the proportion of current assets there is the
28
high probability of return as well as risk, vice-versa if decrease than it may be low risk
and return.
Table 4.3
r=0.94 P.E.=0.04
In the above table, ratio of current assets to fixed assets of NDCL of five
different fiscal years has been presented. During the five study year, the current assets
to fixed assets are being fluctuated. The investment in fixed assets is less than that in
current assets in fiscal year 2070/71 and 2072/73. In fiscal year 2070/71, the ratio is
29
1.12 and in 2072/73, it is 1.01. The ratio is 0.99 in fiscal year 2068/69 and decrease to
0.97 in fiscal year 2069/70. It is lowest in fiscal year 2071/72 and is 0.84. Overall this
shows that the company has adopted the more aggressive current assets investment
policy. In the above table, the correlation coefficient (r) between current assets and
fixed assets during the study period of the NDCL has shown which is positive and
high. This shows that positive correlation between current assets and fixed assets.
Since, ‘r’ is more than six times greater than P.E.; the relationship is considered to be
more significant.
The main reason of holding the cash is for transaction motive, precautionary motive
and speculative motive. So, to fulfill the daily business requirement such as payment of
bills, payment of debt, optimum cash balance or bank balance has to be maintained.
Table 4.4
r=0.82 P.E.=0.10
30
The above table shows that the proportion of cash to current assets is
continuously decreasing due to more increase in Current assets then cash and
bank balance in later years. It is 64.54% in the fiscal year 2068/69. The cash
hold by the Company in this fiscal year is Rs. 16,135 Millions. Likewise, the
cash hold by the company in fiscal year 2069/70 is Rs. 18,191 Million which is
63.08 percent of its total current assets. The proportion in the fiscal year
2070/71 is 61.72% which has decreased to 43.57% in the next fiscal year
positive correlation between cash and current assets during the study year. But,
the calculated value of ‘r’ is more than six times greater than P.E., it is
measure the profitability position of the NDCL, the researcher has tried to analyze the
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profitability ratio, such as: gross profit margin, net profit margin, operating ratio, return
It is the profit of excluding the deduction of operating expenses and income tax.
It is obtained by deducting cost of services sold from net sales revenue. The ratio is the
relationship between gross profits to net Revenue which explains that percentage
return of gross profit out of total assets. The ratio measure the efficiency of company
and soundness of management. Higher percentage indicates the better efficiency. The
below table shows the gross profit earned by the company during period of study and
Table 4.5
r=0.85 P.E.=0.08
Source: Annual Report of NT
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In the above table gross profit margin of the firm during the five study years are
shown which is quite fluctuating. The firm has gross profit during all five studies. In
fiscal year 2068/69, it has gross profit margin of 64.14% i.e. gross profit. It is increases
to 66.09% in fiscal year 2069/70 which is the highest gross profit among the study
year. In next fiscal year 2070/71, it has fallen to 57.63% and increases to 62.07% in
The above calculation shows the positive relationship between gross profit and
Revenue because the correlation coefficient between them is positive. Hence, ‘r’ is six
The major findings of the study during the period of five years in NDCL from the
i) The major components of current assets of NDCL are cash and bank, sundry
debtors, inventory and advance deposits. During the study years inventory
holds the minor portions of NDCL’s current assets i.e. 1.45% average. The
average percentage of cash and bank, sundry debtors and advance deposits
are 56.05%, 11.26% and 31.16%. Because in many company not any terms
ii) The proportion of current assets to total assets is fluctuating during the study
period. It has been fluctuated from 50.28% to 66.69%. The fiscal year
2070/71 has the highest proportion of current assets to total asset of 66.69%
during the fine study period. And fiscal year 2072/73 has the lowest
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iii) Higher the proportion of current assets to fixed assets higher the risk and
return will be. So, in fiscal year 2070/71, the proportion of current assets to
fixed assets is highest with 3.34 times, it means that during this year, risk and
return is more than in other study years. And in fiscal year 2071/72, it has
proportion of 0.84 times which is lowest with low risk and return than in
iv) The proportion of cash and bank balance to current assets is decreasing
during the study period except in 2072/73. It has 64.54%, 63.08%, 61.72%,
43.57% and 47.36% proportion of cash and bank balance to current assets
fluctuating over study period. The highest gross profit margin of 66.09% in
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CHAPTER V
5.1 Discussion
The first chapter describes the brief introduction of the study, history of
significances of the study and organization of the study as a whole. The second chapter is
review of literature. This chapter deals with the general concept of the writer and thesis
towards the working capital management. This includes the opinion of different writers
regarding with the thesis topic. It also includes review of pervious related research studies
and previous student. The third chapter is research methodology. It has included the
research design. It present the nature and sources of data, data collection and processing
technique and financial and statistical tools used. This chapter gives the knowledge about
various ratios. The fourth chapter is result and finding. An attempt to analyze the working
capital policy and trade off between working capital and profitability of NDCL during
five fiscal years (2068/69 to 2072/73) has been done. For the purpose of the analysis of
composition of current assets and current liabilities, proportion of current assets to total
assets and fixed assets, proportion of cash and bank balance to current assets have been
analyzed. And in the last chapter an attempt has been made to present summary, some
suggestion for NDCL as recommendation and lastly conclusions about the study.
The basic objective of this study is to examine the management of working capital
of NDCL. To accomplish these objectives set earlier in first chapter, the necessary data as
from secondary source are collected from financial statements of the NDCL.
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The secondary data has been analyzed through ratio analysis as a financial tools.
The major ratio analysis consists of composition of working capital position and
profitability position.
5.2 Conclusion
In conclusion, it can be said safely that the working capital management cannot be
neglected by NDCL Otherwise; it can seriously erode its financial viability in long run.
Thus, managers must understand the factors determining working capital needs because
surplus of working capital has no earning and do not increase the value of the company.
The proportion of current assets with respect to total assets and net fixed assets in NDCL
shows that current assets absorb high percentage of those total assets, as the higher ratio
indicates the greater amount of working capital which will decrease risk and profitability.
It is due to higher proportion of cash and cash equivalent and receivables. There is
positive correlation between current assets and total assets as well as statically significant
and there is significant difference between two variables which could adversely affect in
Cash constitute an important part of assets of the firm. The profitability position
of the NDCL during the study period is satisfactory. Although it followed conservative
working capital which reduces risk but hamper in profitability in long run. So, the firm
can improve it by following appropriate working capital policy which could maximize its
profitability.
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5.3 Recommendation
Based on the finding of the study the following recommendations are forwarded for the
Financial situation is sound. But they must follow appropriate working capital
policy not only conservative. Beside this, there should be policy to prevent the
holding of excessive and inadequate current assets in the firm. In NDCL the most
important current assets are cash and cash equivalent, loan, advance and others.
day to day business, to provide a reserve of liquidity for major schedule outflows
There are many ways to effective management of excess cash in NDCL such as:
appears more than requirement, the company showed invests such ideal fund in
different service area such as hydropower plant, software develop company, spare
In NDCL there is lower investment in receivable. But there should be neither over
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receivable management involves trade-off between risk and return. The main
determinants of the size of investment are terms of sale, the selection of customers
bill of customer who left the service and take new number or line should be cross
checked.
equipment, service equipment although in low portion are important for service
organization should be kept properly according to sales plans. For this company
should make effective sales plan which helps for immediate marketability. The
management must minimize the wastage, scarps, there should be good store-
keeping system better material handling system and timely inspection system.
Moreover the useful, the non-moving and absolute items should be discarded to
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REFERENCES
Books:
Acharya, K. (2008). Problems and Impediment in the Management of Working Capital in Nepalese Enterprises,
Pradhan, R. S. (2006). Management of Working Capital, New Delhi: National Book Organization.
Journals:
Acharya, K., (1985). The Management of Working Capital in the Public Enterprises of Nepal, Nepalese
Development Studies.
Pradhan, R. S. (1986). The Demand for Working Capital by Nepalese Corporation, The Nepalese Management
Review, Vol. 8.
Shrestha, M. K. (1983). Working Capital Management: A Case Study on Financial Results and Constraints,
Gyawali, K. (2013). Working Capital Management of Sumi Distillery Private Limited, An Unpublished
Dissertation, MBS, T.U.
https://www.ntc.net.np/pages/view/annual-reports
https://www.ntc.net.np/pages/view/nepal-telecom
https://books.google.com/
https://en.wikipedia.org/wiki/Nepal_Telecom
https://en.wikipedia.org/wiki/Telecommunications_in_Nepal
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