CHAPTER – I

1.1. INTRODUCTION

Finance is the life blood of a business. Circulation of blood is necessary for

maintaining life in human body. In the same way, finance is absolutely necessary to
promote a business, purchase fixed assets, buy raw materials, produce goods and market
them. Every business activity requires finance. Without finance, the business would
come to a halt. Therefore, finance is the fundamental requirement for any business
enterprise, to carry on operations and achieve the goals. It has been rightly stated that
business needs to make money.

MEANING OF WORKING CAPITAL

Capital required for a business can be classified under two main categories.
They are:

 Fixed capital

 Working capital

Fixed capital:

Capital required for purchase of fixed assets like land, building, plant, machinery,
office equipment and furniture is called Fixed capital.

Working capital:

Capital required for purchase of raw materials and for meeting the day to
day expenditure on salaries, wages, rent, advertising etc is called working capital.

1
CONCEPT OF WORKING CAPITAL:

There are two concepts of working capital. They are:

 Gross working capital

 Net working capital

Gross working capital:

In a broad sense, the working capital refers to the gross working capital. This
represents amount of funds invested in current assets. Under the gross concept, working
capital is equal to total current assets.

Net working capital:

In a narrow sense, working capital refers to net working capital. Net working
capital is the excess of current assets over current liabilities. Current liabilities are those
claims which are expected to mature for payment with in an accounting year.

2
1.2. COMPANY PROFILE

It is long history with lots of efforts behind the birth of baby of Coal family, the
fossil fuel, “LIGNITE” arrival in the coal starved Southern region of India. Today NLC
is India’s energy bridge to the 21th century and a fulfilment of Pundit Jawaharlal Nehru
vision.

On 14th November, 1956 NLC limited was registered as a company.

NLC has achieved the objectives it has set for itself fulfilling its corporate vision
to emerge as a leading mining and power company. Presently NLC has three open cast
mines with an annual capacity of 24 million tons of lignite and three pit-head thermal
power station with 2490 MW capacity. NLC’s growth is sustained and its contribution to
India’s social and economic development is significant.

3
VISION -

To encourage to become a leading mining and power company, continue to be

socially responsible and strive for operative excellence in mining and exploration.

MISSION –

1. Strive toward greater cost competitiveness and work towards continue

financial strength. Continually imbibe best practices form the best Indian and
international organization engaged in Power Generation and Mining.

2. Be a preferred employer offering attractive avenues of career growth and

excellent work environment by developing human resources to match
international standards.

3. Play an active role in society and be sensitive to emerging environment

issues.

PRODUCTION UNITS

MINE–I

Demarcated over an area of 26.69 sq.kms, with a reserve of 365 million tones. Mine-I is
situated on the northern part of the field adjacent to the Neyveli Township

The lignite seam was first exposed in August 1961 and regular mining of lignite
commenced in May 1962. The continuous mining technology in open cast mining with
German Bucket Wheel Excavators, Conveyors and Spreaders were put to use for the first
time in India.

4
 The Neyveli Lignite mines have unique characteristics features. Some of them are
listed below.

 Lignite deposit in Neyveli.

 Occurrence of ground water aquifer below lignite bed.
 Hard over-burden strata.
 Cyclonic area.

MINE – IA

To meet the fuel needs of the 250 MW Independent Power Project put up at
Neyveli, and additional requirements of NLC's Thermal Power Stations, NLC has
developed a new mine, Mine-IA with a capacity of 3 million tones of lignite per annum.
The tiny mine with a reserve of 120 million tones is spread over an area of 11.6 sq.kms.
The excavation of overburden commenced on 30th July 2001 and the lignite production

5
commenced on 30th March 2003. The Mine-IA project is one of the mega projects of
NLC that has been completed without cost and time over run.

MINE – II

In February, 1978 Government of India sanctioned the Second Lignite Mine of

capacity 4.7 MT of lignite per annum and in February 1983, Government of India
sanctioned the expansion of Second Mine capacity from 4.7 Million Tones to 10.5
Million Tones. Further capacity expansion to 15 MT/A was sanctioned by Government
of India in October 2004 and is presently under implementation. Unlike Mine-I, Mine-II
had to face problems in the excavation of sticky clayey soil during initial stage. The
method of mining and equipment used are Similar to that of Mine-I.

This Mine is located 5 km south of Mine - I, spread over an area of 26sq.km with
390 million tones reserves. The initial mine cut was started in April 1981. The lignite
seam was first exposed in September 1984 and regular lignite mining commenced from
March 1985. The overburden thickness varies from 50-100 m and the lignite thickness
varies from 8 to 22m. The average overburden to lignite Ratio is 53 to tone. The lignite
production in this mine meets the fuel requirements of Thermal Power Station-II. The
method of mining and equipment used are similar to that of Mine-I

6
 The seam is the same as of Mine-I and is contiguous to it. The lignite seam in
Mine-II was first exposed in September 1984 and the excavation of lignite commenced
in March, 1985. The Last overburden system (surface bench system) under the expansion
scheme was commissioned on 15.12.1991. The lignite excavated from Mine-II meets the
fuel requirements of Thermal Power Station-II.

FUTURE PLAN

Mine-III (CAapacity-8.0MTPA)

 Feasibility Report (FR) prepared earlier with SME technology has been kept in
abeyance as the cost of lignite is more.
 Alternate mining technology options are being explored to bring down the price
of lignite. The US Trade and Development Agency (USTDA) have come forward
with a grant of US $ 360,000 for the preparation of Feasibility Report (FR) with
Alternate Mining Technology.MOU has been addressed seeking approval for
availing the grant.

7
THERMAL PLANTS

TPS – I

Neyveli Thermal Power Stations are South Asia's first and the only lignite fired
Thermal Power Stations and also the first pit-head power stations in India. Today NLC
Power Stations are generating about 2490 MW of Power. NLC's Power Stations are
maintaining very high level Plant Load Factor (PLF) when compared to the National
average.

The epitome of Indo-Soviet Collaboration, the 600MW Neyveli Thermal Power

Station-1 was commissioned with one Unit of 50 MW in May 1962. Presently this Power
Station consists of six units of 50 MW each and three units of 100 MW each. The last
unit of this Power Station was synchronized in February 1970.

Some of the special features of this power station are

 First Lignite Power Station in south East Asia.

 First pit head Power Station in India.
 First Power Station in India with Soviet Collaboration.

8
  First largest Thermal Power Station in South India.

The Power generated from this Thermal Station is fed to the Grid of Tamil Nadu
Electricity Board, the sole beneficiary.

For all the Units, Life Extension Programs (LEP) was carried out between 1992
and 1999 thereby extending the life of the Units by another 15 years.

This Thermal Power Station-1 achieved over 70% Plant Load Factor (PLF) for
most of the years during its life. Maximum PLF achieved is 83.49% during the year
2003-04 and maximum Gross Generation achieved is 4400 MW during the year 2003-
2004. The meritorious productivity award instituted by Department of Power was won
by Thermal Power Station-1 for many years.

This Thermal Power Station is certified with Quality (ISO 90012000),

Environmental (ISO 140012004) Occupational Health & Safety (OHSAS 180012007)
Management Systems.

From 01.01.2007, Intra state ABT (Availability Based Tariff) system was
introduced in Thermal Power Station -1.

All the nine units have now registered more than 2.5lakh hours of operation and
in particular, Unit (3) has crossed 3lakh hours of operation during the year 2008-2009.
Gross Power Generation during the year 2008-2009 is 3577 MW.

Since the Units 1 & 9 are completing their extended life of 15 years of operation
during the year 2009-10, they will be undergoing RLA (Residual Life Assessment) study
for further continuing their safe operation.

A tremendous Achievement by TPS-1 Expansion Unit

9
  The Station Plant Load Factor (PLF) for the Year 2008-2009 is 84.96 % which is
the highest for any Lignite Fired Power Station.

 The operating PLF for the year 2008-2009 is 96.69 %

 100 % Fly Ash conveyed to Silo for the Month of March 2005 by Dense Phase
Conveying Technology and Slurry Disposed to Ash Pond was NIL.

TPS – II

Thermal power station - II has been a major source of power to all southern states
of India. The 1470MW capacity power station consists of 7 units of 210MW each. The
power station was constructed in two stages in 630MW and 840MW.The first 210MW
unit was synchronized in March 1986 and the last unit in June 1993.

This power station has seen a series of technological innovations such as

 Largest lignite fired thermal power station in Asia,

 First and tallest tower type boiler in the country (92.7m height),

 First software based burner management system

 First hydrogen/hydrogen cooled generator of this size.

 First boiler to be cleaned by hydro fluoric acid.

 Steel structures used for powerhouse building

 124 meters natural drought cooling towers

 220 meters tall chimney for wide dispersal of gases

 Distributed digital control system (DDC) and data acquisition system (DAS) for
control in instrumentation.

10
  The power generated from Second Thermal Power Station after meeting the
needs of Second Mine is shared by the Southern States viz., Tamil Nadu, Kerala,
Karnataka, Andhra Pradesh and Pondicherry.

FUTURE PLAN

TPS-III (Capacity-2x500 MW)

 Estimated Cost-Rs.3969 Cr.

 Draft Feasibility Report (FR) has been made ready. The FR will be finalized only
after finalizing the linked mining FR.

In-principle approval received from (Ministry of Coal) MOC in 10/2003 for

a Refinery Residue based Thermal Power Plant of 500 MW at Chennai along with
M/s. Chennai Petroleum Corporation Limited. The Advance Action proposal was
sanctioned by (Government of India) GOI in February 2004 and action has been taken to
engage a consultant for preparation of detailed Feasibility Report.

HUMAN RESOURCES

The numbers of employees in various categories behind the success of the company are

Executives 4031

Non-executives 7899

Labor 6504

Total 18434

The Company gives high priority towards training of executives, supervisors and
workers. Apart from utilizing the training facilities available in the Training Complex of
the Company, the employees are also deputed to other training centers within India.

11
Training facilities provided by the equipment manufacturers within the country/abroad
are also utilized.

Quality Circle activities co-ordinate Training Complex activities which has given
many benefits to the organization. Case Study presentation of Neyveli Quality Circles
brought good name by demonstrating their contribution outside Neyveli in many
conferences.

INDUSTRIAL RELATIONS

NLC continues to maintain cordial industrial relations. The Joint Council of

Unions and Associations of Engineers and Officers are functioning in NLC effectively.
The Management has a regular system of discussions on common matters which help to
maintain good industrial relations and to create mutual trust and belief among the
employees.

WELFARE

The Company as a model employer lays great stress on the welfare of its
employees and peripheral villages. Some of the salient features are

Welfare to Employees

 Township with over 21000 houses.

 Subsidized transport.
 Medicare with 369 bed hospital (being expanded to 500) supported by 5
peripheral dispensaries.
 Canteens - 8 Industrial Canteens
 Family welfare
 Special Incentive Schemes for small family norm.
 Education - 34 schools and 1 college in Neyveli Campus.

12
  Recreation facilities - 3 clubs
 Sports with all infrastructural facilities.
 Post retirement medical assistance.
 A creche for children.
 Health care programs for school children.

Welfare - Peripheral Development

 Drinking water to surrounding villages
 Irrigation water to 20,000 acres in nearby villages

 Facilities for mentally handicapped children,

 A Centre for making Jaipur type artificial limb for handicapped

 Free Medical Camps for surrounding villages; Sterilizations.

 A school for the speech and hearing impaired "Shravanee".

RESEARCH DEVELOPMENTS

Centre for Applied Research and Development (CARD) is the In-house

Research and Development Centre of Neyveli Lignite Corporation Limited and
recognized by the Department of Science and Technology since 1975, it is continuously
pursuing research and development programs in the area of diversified use of lignite,
waste utilization, soil reclamation and much more. Primarily R & D Unit CARD has
service facilities with facilities for monitoring of air, water, materiality and soil and also
caters to various testing and analytical needs of various industrial units of Neyveli
Lignite Corporation. Ambient and quality management is done throughout the year at
eight different locations in and around Neyveli. Effluents from thermal power stations
and mine outlets are regularly analyzed. Periodical survey of repairable dust,
illumination, noise and vibration are also being carried out in mines and thermal power
stations.

13
 M/s. UNIDO has funded a project to establish Lignite Energy Research Institute
(LERI) at Neyveli which will be capable of providing technical support to ensure the
latest and most appropriate technologies for minimizing negative environmental effects.

CARD is carrying out various R&D works on Waste Land Reclamation, Solid
Waste Utilization, By-Products Utilization of various industrial units, Diversification in
product development etc.

CARD has also taken up various joint projects in association with CSIR
Laboratories, Universities, other Educational Institutions and other Public Sectors. The
joint projects submitted were funded by Ministry of Coal.

Awards

1."Mini Ratna" Award to NLC

2. National Award For Best Enterprise

3. WIPS Award to NLC

4. National Awards for NLC Thermal Power Stations

5. Coal India Trophy for NLC

6. Certification for Neyveli Thermal Power Stations

7. NLC Bags 'FICCI' Award.

8. Best Concept and Design Award.

9. Rashtriya Samman Puraskar Award.

10. NLC has been adjudged 56th among the India's top 500 companies.

11. Meritorious Award for Corporate Social Responsibility and responsiveness

2004-2005 .

12. Prestigious Business World-FICCI-SEDF CSR Award to NLC for the year
2006.

13. NLC bags SCOPE Award for Environmental Excellence and sustainable
development.

14
 CHAPTER - II

REVIEW OF LITERATURE

2.1. INTRODUCTION:

A financial statement (or financial report) is a formal record of the financial

activities of a business, person, or other entity. In British English—including United
Kingdom company law—a financial statement is often referred to as account, although
the term financial statement is also used, particularly by accountants.

For a business enterprise, all the relevant financial information, presented in a

structured manner and in a form easy to understand, are called the financial statements.
They typically include four basic financial statements:

1. Balance sheet: also referred to as statement of financial position or condition,

reports on a company's assets, liabilities, and Ownership equity at a given point
in time.
2. Income statement: also referred to as Profit and Loss statement (or a "P&L"),
reports on a company's income, expenses, and profits over a period of time.
Profit & Loss account provide information on the operation of the enterprise.
These include sale and the various expenses incurred during the processing state.

3. Statement of retained earnings: explains the changes in a company's retained

earnings over the reporting period.

4. Statement of cash flows: reports on a company's cash flow activities,

particularly its operating, investing and financing activities.

For large corporations, these statements are often complex and may include an
extensive set of notes to the financial statements and management discussion and
analysis. The notes typically describe each item on the balance sheet, income
statement and cash flow statement in further detail. Notes to financial statements
are considered an integral part of the financial statements.

2.2. SPECIAL CONCEPTS

15
WORKING CAPITAL MANAGEMENT:

Working capital management is an integral part of overall corporate management.

Working capital management has been looked upon as the driving seat of a financial
manager. Moves and actions in the operating fields of production, procurement,
marketing and services are ultimately interpreted and viewed in management.

Working capital may be regarded as the lifeblood of a business. Its effective

provision can do much to ensure the success of a business. In other words, working
capital management refers to that part of the firm’s capital which is required for
financing short term on current assets such as cash, marketable securities, debtors,
inventories, bills receivables, etc.,

In other words of shubin, “working capital is the amount of funds necessary to

cover the cost of operating enterprise”. In other words of Louis Brandt,”we need to
know, when to look for working capital funds, how to use them and how to measure plan
and control them”

ADVANTAGES OF WORKING CAPITAL:

 It helps the business concern in maintaining the goodwill.

 It can arrange loans from banks and others on easy and favourable terms.

 It enables a concern to face business crisis in emergencies such as depression.

 It creates an environment of security, confidence, and over all efficiency in a

business.

 It helps in maintaining solvency of the business.

16
DISADVANTAGES OF ADVERSE WORKING CAPITAL:

 Rate of return on investments also fall with the shortage of working capital.

 Excess working capital may result into over all inefficiency in organization.

 Excess working capital means idle funds which earn no profits.

 Inadequate working capital can not pay its short term liabilities in time.

Net working capital:

The term Net working capital Represent the difference between current assets and
current liabilities are those claims of outsiders which are expected to mature for payment
within one year and include creditors, bills payable, and bank over draft and expense
outstanding. The net working capital can be positive or negative. When current assets
exceed the liabilities, the net working capital becomes positive. When current liabilities
exceed current assets, the net working capital becomes negative.

Net working capital = Current Assets – Current Liabilities

KINDS OF WORKING CAPITAL:

On the basis of time, there are two types of working capital. They are as
follows:

 Fixed or permanent working capital.

 Variable or temporary working capital.

17
Fixed or permanent working capital:

The component represents the value of the current asses required on a continuing
basis over the entire year and for several years. Permanent working capital is the
minimum amount of current assets which is needed to conduct a business.

Variable or temporary working capital:

This component represents a certain amount of fluctuations in current assets

during a short period. These fluctuations are increases or decreases and are general
cyclical in nature. Additional current assets are required at different times during the
operating year. Variable working capital is the amount of additional currents assets is
required for a short period. The capital required to meet the seasonal needs of a firm is
called seasonal working capital.

Operating cycle

This is the chronological sequence of the events in a manufacturing company in

regard to working capital. This concepts tells how bank/cash flows as payment to
creditors and hence procurement of Raw materials. After the finished goods being sold to
debtors on incurring selling / distributing expenses the sales rises is realizing in the form
of cash/bank.

Adequacy of working capital

Working capital management is concerned with the problems that arises in

attempting to manage the firm’s current assets, current liabilities and interrelationship
that exists between them.

The basic objectives of working capital management are to manage the firms
current assets and current liabilities in such a way that the satisfactory level of working
capital is maintained.

18
 The current assets should be sufficient enough to meet the current liabilities in
order to maintain the reasonable safety margin the proper balance among different
components of working capital is very essential.

In the absence of such a situation, financial position in respect of the firm’s

liquidity may not be satisfactory. The firm’s profitability, liquidity and its situational
health are greatly affected by working capital management, policies, in respect of the
components of working capital as sure ensure high profitability, proper liquidity and
sound structural health of the organisation. The financial manager has to perform the
following functions to attain these objectives.

 Estimating the amount of working capital

 Sources of working capital

Estimating the amount of working capital;

In order to deter mine the working capital required by a firm, numbers factors are
to be consider by finance manager they are ;

 Nature of business
 Manufacturing cycles
 Production policies
 Business fluctuation
 Credit availability
 Competitive conditions

Source of working capital:

The source of working capital has two types they are:

 Long term source

 Short term source

Long term has classified into three types they are:

 Issue of shares

19
  Issue of debentures
 Retention

Short term has classified into five types they are:

 Bank loan
 Public deposits
 Trade credit and other payables
 Provision for taxation
 Depreciation provisions

20
 CHAPTER - III

RESEARCH METHODOLOGY

3.1. Definition of research

According to Clifford woody “ defining & redefining problems, formulating

hypothesis or suggested solutions, collecting, organising &evaluating data, making
deductions and reaching conclusions, and at last carefully testing the conclusions to
determine whether they fit formulating hypothesis.”

Research design

A Research design is the arrangement of conditions for collection and analyse of

data in a manner that aims to combine relevance to the research purpose with economy in
procedure.

Research type

The type of research is descriptive type. The descriptive deals to depict the
present state of affairs as it exist without having any control over change of variables.

3.2. Methods of data collection

Primary Data

Data collected through personal discussion held with the finance management

Secondary data

Data collected through the company’s published source like balance sheet Profit
and Loss Account company manuals, journals and company records.

21
3.3 Objectives of the study:

 To study the liquidity position of the concern.

 To study the long term solvency of the concern.
 To analysis whether the ratios related to working capital of the company
properly maintained.
 To examine a proper utilization of current asset & current liability.
 To know the trend value of working capital in forth come five year.
 To know the relationship between current assets and liabilities values.

3.4 Need for the study:

 To purchase raw materials, spares & component parts.

 To pay wages &salaries.
 To incur day to day expenses.
 To maintain inventories of raw materials, work -in –progress &finished
goods.
 To meet selling costs such as packing, advertising.
 To provide credit facilities to customers.

3.5 Scope of the study:

 To find out the optimum level of working capital.

 The company can know its performance in working capital management.
 To analysis the data.

 NLC can identify the current performance levels.

22
3.6 Tools used for study:

 Ratio analysis,
 Schedule of changes in working capital ,
 Trend analysis
 Correlation analysis

3.7 Period of the study

The period of the study is five years 2005 to 2010.

3.8 Limitations of the study

 The limitations of study are used to various tools and techniques.

 The study uses secondary data and annual report.
 Five years data only used for this study.
 The financial performance evaluated with the selective ratio only.

23
 CHAPTER - IV

DATA ANALYSIS & INTERPRETATION

4.1. RATIO ANALYSIS:

A ratio is a mathematical relationship between two items expressed in a

quantitative form. Ratio can be defined as “Relationship expressed in quantitative terms
between figures which have cause and effect relationship which are connected with each
other in some manner or the other.

1). CURRENT RATIO:

The ratio of current assets to current liabilities is called current ratio. In order to
measure the short-term liquidity or solvency of a concern, comparison of current assets
and current liabilities is inevitable. Current ratio indicates the ability of a concern to meet
its current obligations as and when they are due for payment.

Current Ratio = Current Assets/Current Liabilities

TABLE-1

Current assets Current liabilities

Year Ratio
(in cr) (in cr)

2005 to 2006 3616.40 721.91 5.0

2006 to 2007 5398.09 1653.28 3.2
2007 to 2008 5883.78 1834.04 3.2
2008 to 2009 7557.07 2851.56 2.6
2009 to 2010 7684.36 3003.19 2.5
CHART-1

24
INTERPRETATION:
The standard expected current ratio is 2:1. i.e. current assets shall be 2 times to
current liabilities.

The company’s current assets position from 2005 - 2009 is 3.5 and in the year
2009 – 2010 the current position has decreased to 2.5.

25
2) QUICK RATIO:

A measure of company’s liquidity and ability to meet its obligations. Quick ratio,
often referred to as acid-test ratio, is obtained by subtracting inventories from current
assets and then dividing by current liabilities. Quick ratio is viewed as a sign of
company’s financial strength or weakness (higher number means stronger, lower number
means weaker).

Quick Asset Ratio = Quick Assets /Current Liabilities

TABLE -2

Quick assets Current liabilities

Year Quick ratio
(in cr) (in cr)

2005to 2006 3257.95 721.91 4.5

2006to 2007 4942.60 1653.28 2.9

2007to 2008 5435.70 1834.04 2.9

2008to 2009 7021.22 2851.56 2.4

2009to 2010 7181.40 3003.19 2.4

26
 CHART-2

INTERPRETATION:
A measure of a company’s liquidity and ability to meet its obligations. The
Satisfactory level is considered as 1:1.

The company's quick assets position for 2009 – 2010 is 2.4%. It satisfies the level
of 1:1. It shows upward and downward in ratio.

27
3) CASH RATIO

This ratio indicates the relationship between cash and bank balance to current
liability for the study period. It is calculated for comparing the cash with current
liability. The higher proportion denotes idleness of cash, which affects the profitability
position of the firm, and a low proportion of cash means shortage of cash poor liquidity

Cash Ratio = Cash and Bank / Current Liabilities

TABLE-3

Cash & bank Current liability

Year Cash ratio
(in cr) (in cr)

2005 to 2006 2549.12 721.91 3.53

2006 to 2007 4253.06 1653.28 2.57
2007 to 2008 4749.56 1834.04 2.59
2008 to 2009 5452.20 2851.56 1.91
2009 to 2010 4823.63 3003.19 1.61

CHART-3

28
INTERPRETATION:

It shows the cash or absolute ratio. It is calculated for comparing cash and current
liabilities. The higher proportion denotes idleness of cash, which affects the profitability
position of the firm, and a low proportion of cash means shortage of cash poor liquidity.
It satisfies the proportion of ‘0.75’

29
4) WORKING CAPITAL TURNOVER RATIO:

A measure comparing the depletion of working capital to the generation of sales

over a given period. This provides some useful information as to how effectively a
company is using its working capital to generate sales.

Working Capital Turnover Ratio = Sales/Networking Capital

TABLE-4

Sales Net Working Working capital

Year
(in cr) Capital(in cr) turnover ratio

2005 to 2006 2201.41 2876.25 0.7

2006 to 2007 2108.11 3744.81 0.5

2007 to 2008 2981.65 4049.71 0.7

2008 to 2009 3354.91 4705.51 0.7

2009 to 2010 4121.03 4681.17 0.8

CHART-4

30
INTERPRETATION:

Here the working capital ratio shows a decreasing trend in 2006-07, this is due to
holding high current assets in the form of inventories, cash, bank balances and
receivable. The higher ratio indicates efficient Utilization of working capital and lower
ratio indicates otherwise.

5) NET PROFIT RATIO:

31
 This ratio is also called net profit to sales ratio. It is a measure of management
efficiency in operating the business successfully from the owner’s point of view. It
indicates the return on shareholder’s investment. Higher the ratio better is the operational
efficiency of business concern.

Net Profit Ratio = Net Profit after Tax /Sales*100

TABLE-5

Net profit Net sales

Year Ratio (%)
(in cr) (in cr)
2005 to 2006 702.35 2201.41 31.90

2006 to 2007 566.78 2108.01 26.88

2007 to 2008 1101.57 2981.65 36.94

2008 to 2009 821.09 3354.91 24.47

2009 to 2010 1247.46 4121.03 30.27

32
 CHART-5

INTERPRETATION:

The table shows the net profit ratio of the company. In this company, the net
profit is least in the year 2006 - 07 with 26.88%. The net profit has increased due to the
sales, which has increased in the year 2007 – 08. But in the year 2008 - 09 it came down
to 24.47%. in recent year 2009 to 2010 gradually increased to 30.27%

33
6) NET WORKING CAPITAL:

Net working capital is the excess of current assets over current liabilities. the
working capital is positive or negative working capital results when the current liabilities
more that the current assets.

Current assets are resources, which are in cash or will soon be converted into
cash in the ordinary course of business. current liabilities are commitments, which will
soon require cash settlement “the ordinary course at business”.

Net Working Capital = Current Assets – Current Liabilities.

TABLE-6

Current assets Current Liabilities Networking

Year
(in cr) (in cr) Capital

2005 to 2006 3616.40 721.91 2894.49

2006 to 2007 5398.09 1653.28 3744.81
2007 to 2008 5883.75 1834.04 4049.71
2008 to 2009 7557.07 2851.56 4705.51
2009 to 2010 7684.36 3003.19 4681.17

34
 CHART-6

INTERPRETATION:

From the above table the net working capital shows gradually increase from 2005
to 2006 by 2894.49. From 2008 to 2009 it increases up to 4705.51. But in recent year
2009 to 2010 slight decrease compare to last year.

35
7) FIXED ASSET TURNOVER RATIO:

The ratio establishes the relationship between fixed assets and long-term funds.
The objective of calculating this ration is to ascertain the proportion of long-term funds
invested in fixed assets. The ratio is calculated as given below:

Fixed Turnover Ratio = Sales/Fixed Assets

TABLE-7

Net Sales Fixed Assets

Year Ratio
(in cr) (in cr)

2005 to 2006 2201.41 4040.49 0.54

2006 to 2007 2108.11 3850.43 0.54
2007 to 2008 2981.65 3743.67 0.79
2008 to 2009 3354.91 4502.96 0.74
2009 to 2010 4121.03 5238.80 0.78

36
 CHART-7

INTERPRETATION:

Fixed assets are generally taken at written down value at the end of the year. It
gives increase when investment on fixed assets is in good position. For the year
2007 – 08 gradually increase and it shows the good utilization of fixed assets. For the
year 2008 – 2009 it decreased by 0.74%. And the year 2009 – 2010 it slowly increased
to 0.78% this shows fixed assets are gradually increased.

37
WORKING CAPITAL MANAGEMENT PRACTICES

4.2. SCHEDULE OF CHANGES IN WORKING CAPITAL

The schedule of changes in working capital can be prepared by comparing the

current assets and the current liabilities of two periods. Working capital is the difference
between current assets and current liabilities. The schedule of changes in working capital
is prepared to find out the increase or decrease in working capital during the year.

Current assets and current liabilities are taken to the schedule. Working capital at
the end of the current year is compared with that of the previous year. The difference is
either increase or decrease in working capital.

Then, individual current items are compared to find out the effect of changes in
them on working capital. Increase in current asset will lead to increase in working capital
and vice versa. On the other hand, increase in current liabilities will lead to decrease in
working capital. And vice versa. Increase in working capital will appear on the
application side of fund flow statement. Decrease in working capital will appear on the
‘sources’ side of funds flow statement.

Rules for preparing the schedule

 Increase in a current asset, results in increase (+) in “Working capital”.

 Decrease in a current assets, results in decrease (-) in “Working capital”.
 Increase in a current liability, results in decrease (-) in “Working capital”.
 Decrease in a current liability, results in increase (+) in “Working
capital”.

38
SCHEDULE OF WORKING CAPITAL FOR THE YEAR 2005 to 2006
(Rs. in Crore)
PARTICULARS 2005 2006 Increase Decrease
CURRENT
ASSETS:

Inventories Sundry 355.06 358.45 3.39 _

Debtors 705.65 168.34 _ 537.31
Cash and Bank
balance 1968.69 2549.12 580.43 _
Other Current 285.99 2.85 _ 83.14
Assets 206.69 337.64 130.95 _
Loans and Advance
CURRENT
LIABILITIES:
Current Liabilities 510.55 593.82 _ 83.27
Provisions 394.37 146.33 248.04 _

INCREASE IN
WORKING _ _ _ 259.09
CAPITAL
962.81 962.81

INTERPRETATION:

From the above table, it is inferred that the schedule has shown an increase in the
working capital is Rs. 259.09 crore for the year 2005 to 2006.

39
SCHEDULE OF WORKING CAPITAL FOR THE YEAR 2006 to 2007
(Rs. in Crore)
Particulars 2006 2007 Increase Decrease
CURRENT
ASSETS:

Inventories Sundry 358.45 455.49 97.04 _

Debtors 168.34 89.41 _ 78.93
Cash and Bank
balance 2549.12 4253.06 1703.94 _
Other Current 2.85 232.52 29.67 _
Assets 337.64 367.61 29.97 _
Loans and
Advance
CURRENT
LIABILITIES:
Current Liabilities 593.82 1236.66 _ 642.84
Provisions 146.33 416.62 _ 270.29

INCREASE IN
WORKING _ _ 868.56
CAPITAL

1860.62 1860.62

INTERPRETATION:

From the above table, it is inferred that the schedule has shown an increase in the
working capital is Rs. 868.56 crore for the year 2006 to 2007.

40
SCHEDULE OF WORKING CAPITAL FOR THE YEAR 2007to 2008
(Rs. in Crore)
Particulars 2007 2008 Increase Decrease
CURRENT
ASSETS:

Inventories 455.49 448.05 7.44 _

Sundry Debtors 89.41 218.83 129.42 _
Cash and Bank
balance 4253.06 4749.56 496.50 _
Other Current 232.52 159.67 _ 72.85
Assets 367.61 307.64 _ 59.97
Loans and Advance

CURRENT
LIABILITIES:
Current Liabilities 1236.66 1465.96 _ 229.30
Provisions 416.62 368.08 48.54 _
INCREASE IN
WORKING _ _ _ 319.78
CAPITAL
681.90 681.90

INTERPRETATION:

From the above table, it is inferred that the schedule has shown an increase in the
working capital is Rs. 319.78 crore for the year 2007 to 2008.

41
SCHEDULE OF WORKING CAPITAL FOR THE YEAR 2008 to 2009
(Rs. in Crore)
Particulars 2008 2009 Increase Decrease
CURRENT
ASSETS:
448.05 535.85 87.8 _
Inventories 218.83 781.44 562.61 _
Sundry Debtors
Cash and Bank 4749.56 5452.20 702.64 _
balance 159.67 189.47 29.8 _
Other Current Assets
Loans and 307.64 598.11 290.47 _
Advance

CURRENT
LIABILITIES:
Current Liabilities 1465.96 2058.90 _ 92.94
Provisions 368.08 792.66 _ 424.58
INCREASE IN
WORKING _ _ _ 655.80
CAPITAL
1673.32 1673.32

INTERPRETATION:

From the above table, it is inferred that the schedule has shown an increase in the
working capital is Rs. 655.80 crore for the year 2008 to 2009.

42
SCHEDULE OF WORKING CAPITAL FOR THE YEAR 2009 to 2010
(Rs. in Crore)
Particulars 2009 2010 Increase Decrease
CURRENT ASSETS:

Inventories 535.85 502.96 _ 32.89

Sundry Debtors 781.44 1611.62 830.18 _
Cash and Bank balance 5452.20 4823.63 _ 628.57
Other Current Assets 189.47 164.56 _ 24.91
Loans and Advance 598.11 581.59 _ 16.52

CURRENT
LIABILITIES:
Current Liabilities 2058.90 2389.91 _ 331.01
Provisions 792.66 613.28 179.38 _
DECREASE IN
WORKING CAPITAL _ _ 24.34 _
1033.90 1033.90

INTERPRETATION:

From the above table, it is inferred that the schedule has shown an decrease in the
working capital is Rs. 24.34 crore for the year 2009 to 2010.

43
4.3. TREND ANALYSIS

Trend analysis is an important statistical tool for forecasting or predicting is an

essential tools in any decision making process. Trend analysis is helpful for forecasting
what is happening in future.

TREND ANALYSIS OF WORKING CAPITAL

Under trend analysis, find out next five years (2010-2011to2015to2016) trend
value of working capital. The following are the calculation of trend analysis.

TABLE: TREND ANALYSIS OF WORKING CAPITAL

Working
(x-2008) x
2
Year Capital (in cr) XY
(X)
(y)

2005-2006 28.94 -2 4 -57.88

2006-2007 37.44 -1 1 -37.44

2007-2008 40.49 0 0 0

2008-2009 47.05 1 1 47.05

2009-2010 46.81 2 4 93.62

TOTAL ∑Y=200.73 ∑x=0 ∑x2=10 ∑XY=45.35

Y=a+ bx

a=∑y/n

a=200.73/5=40.14

b=∑xy/∑x2

b=45.35/10=4.53

44
TREND ANALYSIS OF WORKING CAPITAL OF NEXT FIVE YEAR

Y2011= 40.14+4.53*(11) = 89.97

Y2012 = 40.14+4.53*(12) = 94.5

Y2013 = 40.14+4.53*(13) = 99.03

Y2014= 40.14+4.53*(14) = 103.56

Y2015= 40.14+4.53*(15) = 108.09

INTERPRETATION

As the working capital value of last years 2005-2006 to 2009-2010 is properly

increased year by year. At the same time forthcoming five years also increased annually.

45
4.4. CORRELATION ANALYSIS

Correlation is a statistical tool which studies the relationship between two values
and correlation analysis involves various methods and techniques used for studying and
measuring the extent of the relationship between two values. To know the relationship
between the current assets and liabilities of N.L.C. Ltd.,

TABLE

CORRELATION ANALYSIS

Current
Current
Liability( dx dy
Year Assets (X) dx2 dy2 dxdy
Y)
(x-60.27) (y-33.10)
(in cr)
(in cr)

2006 36.16 72.10 -24.11 581.29 39 1521 -940.29

2007 53.98 16.53 -6.29 39.56 -16.57 274.56 104.22

2008 58.83 18.34 -1.44 2.07 -14.76 217.85 21.25

2009 75.57 28.51 15.3 234.09 -4.59 21.06 70.22

2010 76.84 30.03 16.57 274.56 -3.07 9.42 50.86

∑dx2= ∑dy2=
∑y=165.5 ∑dxdy=
∑x=301.35 1131.5 2043.8
1 -693.74
7 9

X=∑x/n

X = 301.35/5 = 60.27

Y=∑y/n

Y=165.51/5=33.10

Karls Pearsons Method

46
R=∑dxdy/√∑dx2.∑dy2

∑dxdy=-693.74

∑dx2=1131.57

∑dy2=2043.89

R=-693.74/√1131.57*2043.89

= -693.74/√23128043.60

= -693.74/1520.79

= -0.45

INTERPRETATION

There is negative correlation earnings between current assets and liabilities.

Hence current assets and current liabilities are indirectly proportional.

CHAPTER - V

47
 FINDINGS, SUGGESTIONS AND CONCLUSION

5.1. FINDINGS:

 Liquidity position of the company is safe. Current ratio of ‘2.5’ is accepted

norms of ‘2:1’. Liquid ratio ‘2.4’ nearly two times to the standard of ‘1:1’.
Absolute liquidity ratio of ‘1.61’ is more than the norms of ‘0.75’.
 Net profit ratio shows 30.27%
 Working capital turnover ratio shows 0.8%
 The schedule of changes in working capital has shows in decrease in working
capital after four years
 The trend value of working capital is increase in future.

5.2. SUGGESTION

 The company should maintain its safe liquidity position

 In order to improve net profit, the company should decrease operating and
production cost.
 The company should continuously maintain its proper planning and control
techniques in order to regularize and optimize the consumption of raw
material and purchase.
 The companies fixed assets are more, so company must try to utilize the fixed
assets at optimum level.

5.3. CONCLUSION:

On studying the working capital management through Ratio Analysis, schedule

of changes in working capital ,trend analysis and correlation analysis of Neyveli Lignite

48
Corporation Ltd , for a period of 5 years from 2005 – 2006 to 2009 – 2010, the study
reveals that the financial performance of the company is in good level.

The turnover ratios were found to be comfortable with loans and advances being
the most dominant factor, hence, influencing the working capital. From the foregoing
analysis working capital management in Neyveli Lignite Corporation Ltd, has been
effectively and properly maintained with the help of current assets and current liabilities.

49
 BIBLIOGRAPHY

Books Referred

1. I.M. Pandy Essence of Financial Management. Vikas Publishing House Pvt.,

Ltd.,

2. Research Methodology collected from C.R.Kothari – Second Edition, Reprinted

(2004). New Age International (P) Limited Publications, New Delhi-110 002.

3. Review of Literature collected from FINANCE INDIA JOURNAL – Indian

Institute of Finance,

4. ‘Brown Coal’ – house Journal of Neyveli Lignite Corporation Limited. Neyveli-

607 801.

Websites References

1. Annual Report (2005-2006 to 2009-2010) collected from the Website

www.nlcindia.com

2. www.wikipedia.com

3. www.financcindia.org

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