INTRODUCTION

Working capital is the capital need to satisfy the day-to-day operation of the company. It
concerns the short-term funding of the subject or the business, which is a intently related
exchange between productivity and liquidity it enables to full fill the fast time period
liquidity consequently had a look at operating capital control is not always most effective a
crucial a part of financial control but also common management of the commercial
enterprise problem.

Running capital is termed as the investment which is not constant however the more
commonplace usage of the operating capital is to take into account it as the difference
among eBook value of contemporary property and current liabilities.

Finance is one of the vital and crucial resources and without economic no enterprise
activity may be pursed. It’s far manual for regulating funding division and expenditure.
Monetary control research about the procuring of procuring and most advantageous usages
monetary resources a good way to exploit the value of the firm their period of the price of
the proprietors i.e., equity shareholders.

Finance is existence blood of any commercial enterprise and holds the important thing to
all business in addition to human activities the authorities also treats as a sign and healthy
indicator to govern and degree its steps. Finance place a position in each monetary
situation in which there is a gift are future price of cash.

Working capital to an organization is just like the blood to a body. Its miles the maximum
important aspect of a business. Operating capital is important to maintain the clean jogging
of a commercial enterprise. No commercial enterprise can run without an adequate
quantity of operating capital.

An enterprise invests its price range for long – term cause and for brief – time period
operations. That portion of business enterprise’s capital invested in brief - term or a
present day asset to carry out its day- to - day operations smoothly is called the
working capital.

1
Working capital Relates to that element of Corporate Capital Needed to Finance Short term or
Current Assets Along with coins, Security markets Borrowers and stocks. Operating capital is
the Amount of Resources Essential to cowl the Importance of the Employers Operation in
Distinct Sentences. The Efficient Operating Capital Control is Important to Keep a Stability of
Liquidity and Profitability.

Working capital might be viewed as the existence blood of business. Working capital is of real
significance to inside and outside investigation in view of its cozy association with the present
everyday activities of a business. Each business needs assets for two purposes.
Long term assets are required to make creation offices through buy of fixed resources, for
example, plants, apparatuses, lands, structures & etc. Short term assets are required for the
buy of crude materials, installment of wages, and other everyday costs. It is also called rotating
or coursing capital. It is only the contrast between current resources and current liabilities. For
example

Working Capital = Current Assets – Current Liabilities.

Associations use capital for improvement, redesign, furniture, programming, apparatus, or
equipment.
It is moreover consistently used to purchase stock, or to make money. Capital is in like manner
used much of the time by associations to put an underlying portion down on a touch of
business land. Working capital is fundamental for any business to succeed. It is winding up
dynamically basic to approach all the all the more working capital when we need it. In direct
words working capital is the plenitude of current Assets over current liabilities. Working
capital has regularly been portrayed as the excess of current assets over current liabilities.

2
 NEED FOR THE STUDY

The process of the study focuses mainly on Working capital management in GAIL India
limited. The study gives the practical insight into the organization activities and enables to
know the practical problem and solutions in GAIL India limited in the area of financial
management. Good analysis with the help of financial tools to guide the board and
management to pursue objectives that are in the interests of the company and shareholders and
facilitates effective monitoring there by promoting optimal use of financial reserves more
efficiently. The study is also beneficial to employees and offers motivation by sharing how
they are contributing of the company growth. The study is also beneficial to top management
of the company by providing relevant information regarding important aspects like liquidity.
Working capital analysis serves as a tool for the performance of all above financial functions
and decisions so the study helps owners, managers, creditors, potential investors to get an idea
about the financial position of the organization.

3
 SCOPE OF THE STUDY

Scope of the current study is limited to know the working needs and strength of the
organization in meeting and managing working capital of the organization. Tools used for the
study are Statement of changes in working capital and few Ratios. Data used to achieve the
above said purpose is confined to 5 years i.e., 2017-2022.

4
 OBJECTIVES OF THE STUDY

 To study the profile of oil and gas industry.

 To Study the Organization profile of GAIL (INDIA) LIMITED.

 To understand the Theoretical Concepts of Working Capital Management.

 To study the Working Capital trends and it is Utilization in GAIL (INDIA) LIMITED.

 To offer suggestions to management for the improvement of organizations financial

performance.

 To analyze the efficiency of the working capital management in GAIL(INDIA)

LIMITED.

5
 METHODOLOGY

Methodology is the systematic, theoretical analysis of the methods applied to a field of

study.

It comprises the theoretical analysis of the body of methods and principles associated with a
branch of knowledge.

A methodology does not set out to provide solutions-it is therefore, not the same as a
method. Instead, a methodology offers the theoretical underpinning for understanding which
method, set of methods or best practices can be applied to a specific case, for example to
calculate a specific result.

SOURCES OF DATA COLLECTION:

PRIMARY DATA:

The primary sources comprise information obtained from the manager of the finance
department and various subordinates of the departments. The data is collected by discussion
with relevant persons of the company. Officials have explained and provided the necessary
information about the accounting system in GAIL (INDIA) LIMITED.

SECONDARY DATA:

Information which has already been collected by somebody else or some other agency with
definite purpose and which has already been processed is called secondary data.

6
 SAMPLING DESIGN:

Sampling unit : Financial Statements

Sampling size : Last five years’ financial statements.

Tools and techniques used:

• MS-Excel has been used for calculations, graphs and tables.

• Ratios from Ratio Analysis. The ratios used are Current ratio, Quick ratio, Absolute
liquid ratio, Debtors turnover ratio, Debtors collection period, Working capital
turnover ratio, Average Inventory, Inventory turnover ratio.

7
 LIMITATIONS OF THE STUDY

• The study was limited to only five years’ financial data.

• Time is the key limiting factor. 45 days is not sufficient to make an in detail study of
all the aspects.

• As most of the data is from secondary source, the accuracy is also limited.

• Due to busy work schedule of executives in the organization, detailed discussion was
not possible related to the topic (Working capital)

• It is difficult to gather some of the data as it is confidential.

8
Introduction

.
Oil and natural gas are major industries in the energy market and play an influential role in the
global economy as the world's primary fuel sources. The processes and systems involved in
producing and distributing oil and gas are highly complex, capital-intensive, and require state-
of-the-art technology. Historically, natural gas has been linked to oil, mainly because of the
production process or upstream side of the business. For much of the history of the industry,
natural gas was viewed as a nuisance and even today is flared in large quantities in some parts
of the world, including the United States. Natural gas has taken on a more prominent role in
the world's energy supply as a consequence of shale gas development in the United States, as
mentioned above, and its lower greenhouse gas emissions when combusted when compared to
oil and coal.

9
This guide looks at the business of oil and gas and is intended to serve as a research aid to
sources worldwide, with a specific emphasis on the United States. It covers a brief history of
the oil and gas industry, an overview of companies and organizations, statistic and pricing
resources, and regulations. The industry is often divided into three segments:

•
upstream, the business of oil and gas exploration and production;
•
midstream, transportation and storage; and
•
downstream, which includes refining and marketing.

These three areas are reflected in the organization of the guide.

Petroleum has been used for waterproofing, construction, and lighting purposes spanning back
to ancient civilizations. Petroleum and its semi-solid cousin, bitumen (asphalt), could be found
in seepages in Italy, China, Egypt (Gebel Zeit), Cuba, and the Dead Sea. 1 Baku, in present-day
Azerbaijan, was well-known from Antiquity to the modern era for its natural seeps of crude
oil.2 Natural gas deposits were recorded by early societies in ancient India, Greece, Persia,
northern Iraq, and China. Some harvested the energy, like those in the Sichuan Valley to heat
brine for salt production.3 Below are books and articles to explore the gas and oil industries up
to 1800. The following materials link to fuller bibliographic information in the Library of
Congress Online Catalog. Links to additional online content are provided when available.

As techniques for extracting and refining fossil fuels improved, and as technology-driven
demands increased, petroleum and natural gas became sought-after resources. The United
States and Russia become leading countries in the oil industry, joined at times by Canada,
Mexico, Iran, Trinidad, Saudi Arabia, and Venezuela throughout the 19th and 20th centuries.

In 1855, looking for a more efficient replacement for asphalt-based kerosene, George Henry
Bissell and a group of investors formed the Pennsylvania Rock Oil Company. They hired
Edwin Drake who completed the first drilled oil well—often seen as the beginning of the
modern oil era—at Oil Creek near Titusville, Pennsylvania on August

10
27, 1859.4 Their renamed Seneca Oil Company was soon overshadowed by the Standard Oil
Company, which was founded by John D. Rockefeller in 1870 and went on to control close to
80 percent of the oil products market.5 With the introduction of electricity in 1882, natural gas
and oil were no longer needed to fuel light. The natural gas industry shifted to heating and
cooking sautomobile. In 1909, anti-trust laws forced Standard Oil into 34 different companies,
but by the 1940s three of them, along with four other international companies, grew to
dominate the market and were nicknamed the "Seven Sisters."6

Scenario of gas industry:

Natural gas sector has witnessed a number of challenges in the recent past with decline in
domestic production, delay in clearances from different authorities in development of new
blocks and clarity regarding pricing of natural gas

The primary energy demand is expected to increase in future with increasing industrialisation
and urbanisation in the country. Though coal is expected to continue to be the major source of
primary energy in the country, the share of other fuels in the energy mix is expected to
increase. Domestic coal sector has witnessed a lot of challenges in the recent years and has not
been able to meet the demand. This has been mainly on account of insufficient mechanization
in mining, delays in developing new blocks, environmental clearances, transportation issues
and lack of adequate planning to meet the demand.

India’s domestic oil production has not been able to meet the increasing demand, and today
India imports about 80 percent of the total oil demand. Though hydroelectric power has huge
potential in India, the sector has witnessed issues in the recent past related to environmental
concerns, longer gestation periods, etc. which have slowed down the pace of growth of this
sector.

While renewable energy sources like wind and solar have immense potential, they are infirm
in nature and the sector is still in an evolution phase. The flagship discovery of natural gas in

11
KG D-6 fields was expected to be a game changer, however geological challenges in the field
have led to decline in production from about 55 mm in 2010 to 13 mm currently. Natural Gas
Demand Supply Scenario in India
Natural gas sector has witnessed a number of challenges in the recent past with decline in
domestic production, delay in clearances from different authorities in development of new
blocks, clarity regarding pricing of natural gas, delays in development of natural gas pipelines,
etc. Recently BHP Billiton surrendered 10 blocks to the government as it was not able to
proceed with exploration activities due to delay in clearances.
Natural gas consumption in India has increased from 27.6 BCM in
2002 to 54.6 BCM (CAGR of 7 percent) in 2012, due to increased consumption from major
consumer categories and increased supply of gas (both domestic and RLNG) in the Indian
market.

FUTURE FOCUS OF GAS INDUSTRY IN INDIA:

The present is an interesting time for the oil and gas industry. While turmoil is far from being
new to the field, the present brings an unprecedented challenge in the form of sustainability.

While an overwhelming majority of systems in the world continue to be heavily dependent on

oil and gas and their derived products, the growth of alternative and renewable sources of
energy is on the rise. Undoubtedly, the future is much more promising for sustainable sources
of energy than it is for less eco-friendly options such as oil and gas. However, this is not
necessarily true in the short term.

The shift from oil and gas to other sources of energy requires numerous reforms of
fundamental infrastructure and systems across the board. Executing these reforms is extremely
capital-intensive, making this shift a rather gradual one, especially in capital-poor economies
such as India. In the meantime, the oil and gas industry is expected to continue growing. This
article will explore what the industry can expect in India during the coming year.

12
According to data published by the Government of India, India is the world’s third largest
energy and oil consumer after the US and China. Between 2017 and 2040, the projected oil
demand in India is expected to grow at a CAGR of 4.2%, even though the net quantities of oil
demanded will be significantly lower than that of China or the US.

India is among the top 5 importers of oil and gas, respectively, in the world. In 2019, the
country was the world’s second largest importer of net crude oil. However, government plans
and policies in recent times show a concerted effort to focus heavily on reducing India’s oil
and gas import dependency. As a result, although the domestic demand for oil and gas is set to
grow rapidly, the import demand is expected to drop.

India has witnessed a steady increase in the consumption as well as production of oil and gas.
Domestic demand for petroleum products is expected to grow at a CAGR of 10%, reaching
244.960 MT by 2021-22.
During April-October 2020, the cumulative crude oil production stood at 19,110 TMT,
whereas the natural gas production for the same period was 18,646 TMT. The government has
taken serious efforts to ensure a sharp rise in the number of LPG connections, adding 4.64
lakh new LPG connections in December 2020 alone. Currently, approximately 16,788km of
natural gas pipelines are operational, with another 12,672km under development.

Despite the government’s best efforts to reduce import dependency, the nation’s ability to
become energy-independent is heavily threatened by the fact that its oil reserves will prove to
be insufficient to meet its demand. There is, therefore, a three-pronged approach in place to
address India’s energy import dependency. This approach presents the opportunities as well as
challenges that the oil and gas industry is likely to face in the short term in India.

13
Challenges in the Oil and Gas Sector:

The three-pronged approach to reduce India’s import dependency consists of the

following prongs:

Boosting the domestic exploration and refining sector

Increasing the use of gas and building ethanol-blending capacity

Developing alternative energy production and consumption systems

Let us analyse each prong to understand whether it is an opportunity or a challenge to the

growth of the oil and gas industry in India.

Opportunities for Growth

The Cairn – Ravva block in coastal Andhra Pradesh and the CB-OS/2 block in Cambay,
Gujarat, together have the capacity to generate 1.25MT of oil (or equivalent) per year. The
latter by itself can produce up to 2.5% of India’s entire annual domestic production. However,
complications created by vested interests, trust deficits, and disagreements between
stakeholders with regard to revenue sharing are keeping the fields from being actively
harvested.

There are two massive reserves off the shore of Tamil Nadu – the PY1 Gas Field and the PY-3
Oil Field. PY-1 has an estimated potential of producing 12 million standard cubic feet per day
(MMSCFD), while PY-3 has a reserve of 20 million barrels. The latter can contribute an
incremental 1% to domestic production by itself. Complications between stakeholders in both
these fields means that they are also left mostly untouched.

14
All four of these reserves present excellent opportunities for corporations that can now step in
to make the most of these opportunities with the help of the government’s OALP and HELP
policies.

GOVERNMENT INITIATIVES:

Some of the major initiatives taken by the Government of India to promote the oil and gas
sector are:

• On May 21, 2022, the Government announced a reduction in excise duty of Rs. 8 (US$

0.10) per litre on petrol and Rs. 6 (US$ 0.077) per litre on diesel.

• In May 2022, the government approved changes in the Biofuel Policy to bring forward

the target for 20% ethanol blending with petroleum to 2025-26 from 2030.

• In the Union Budget 2022-23, the customs duty on certain critical chemicals such as

methanol, acetic acid and heavy feed stocks for petroleum refining were reduced.

• In February 2022, Minister of Petroleum & Natural Gas, and Housing & Urban

Affairs, Mr. Hardeep Singh Puri, said that

India will more than double its exploration area of oil and gas to 0.5 million sq. km. by

2025 and to 1 million sq. km. by 2030 with a view to increase domestic output.

• In December 2021, the Ministry of Petroleum and Natural Gas launched the seventh

bid round under the OALP. Under this round, around 15,766 sq. km. has been offered

to investors.

15
• In November 2021, India announced that it will release 5 million barrels of crude oil

from its strategic petroleum reserves in a concerted effort to bring down global crude

oil prices. This is roughly equivalent to a day’s consumption in the country.

• In November 2021, the government set up a committee to work out measures needed

to make natural gas available to power plants at reasonably stable prices.

• In October 2021, the Union Ministry of Petroleum & Natural Gas approved a revised

project cost of Rs. 28,026 crores (US$ 3.8 billion) to increase refining capacity for the

ongoing Numaligarh Refinery Expansion Project from 3 to 9 MMTPA.

• In September 2021, the Indian government approved oil and gas projects worth Rs. 1

lakh crore (US$ 13.46 billion) in Northeast India. These projects are expected to be

completed by 2025.

• In September 2021, India and the US agreed to expand their energy collaboration by

focusing on emerging fuels. This was followed by a ministerial conference of the US-

India Strategic Clean Energy Partnership (SCEP).

• In July 2021, the Department for Promotion of Industry and Internal Trade (DPIIT)

approved an order allowing 100% foreign direct investments (FDIs) under automatic

route for oil and gas PSUs.

• The Government is planning to set up around 5,000 compressed biogas (CBG) plants

by 2023.

16
GROWING
DEMAN
D
*Oil demand in India is projected to register a 2x growth to reach 11 million barrels
per
day by
2045.
*Diesel demand in India
expected
is to double to 163 MT
-30
by
, with diesel and
2029
gasoline covering 58% of India’s oil demand by
2045.
*Consumption of natural gas in India is expected to grow by 25 billion cubic
metresregistering an average annual growth
(BCM), 2024.
of 9%
until

RAPID
EXPANSION

*India aims to commercialise 50% of its SPR (strategic petroleum reserves) to raise funds and
build additional storage tanks to offset high oil prices.

*In May 2022, ONGC announced plans to invest US$ 4 billion from FY22-25 to increase its
exploration efforts in India.

17
SUPPORTIVE FDI
GUIDELINE
S
*In July 2021, the Department for Promotion of Industry and Internal Trade (DPIIT)
approved an order allowing 100% foreign direct investments (FDIs) under automatic
route for oil and
PSUs.
gas

*The Government has allowed 100% Foreign Direct Investment (FDI) in upstream and
private sector refining
projects.

POLIC
Y

MARKET SIZE

According to the IEA (India Energy Outlook 2021), primary energy demand is expected to
nearly double to 1,123 million tonnes of oil equivalent, as India's gross domestic product
(GDP) is expected to increase to US$ 8.6 trillion by 2040.

As of September 2021, India’s oil refining capacity stood at 248.9 MMTPA, making it the
second-largest refiner in Asia. Private companies owned about 35% of the total refining
capacity.

India is expected to be one of the largest contributors to non-OECD petroleum consumption

growth globally. India’s consumption of petrol products stood at 72.74 MMT in April-July,
2022. High Speed Diesel was the most consumed oil product in India and accounted for

38.84% of petroleum product consumption in FY22.

India’s oil consumption stood at almost 4.9 million barrels per day (BPD) in 2021, up from
4.65 million BPD in 2020.

18
India’s LNG import stood at 2,451 million metric standard cubic meters (MMSCM) in June
2022. Gross production of LNG was 2,813 MMSCM in the same month. According to the
International Energy Agency (IEA), consumption of natural gas in India is expected to grow
by 25 BCM, registering an average annual growth of 9% until 2024.

MAJOR PLAYERS IN GAS INDUSTRY:

The oil and gas industry plays a vital role throughout the lives of humans. We are dependent
on them in several ways, hence the industry thrives great demand further driving the economy
of the country. It is one of India's eight essential industries, and it has a significant impact on
the economy's ..

Various Indian oil and gas corporations have made significant contributions to the country's
rapid economic expansion. They also provide commercial partnerships with different raw
material suppliers and are one of the foremost sources of employment to many people.

19
According to the IEA (India Energy Outlook 2021), primary energy demand is expected to
nearly double to 1,123 million tonnes of oil equivalent, as India's gross domestic product
(GDP) is expected to increase to US$ 8.6 trillion by 2040.

As of September 2021, India’s oil refining capacity stood at 248.9 MMTPA, making it the
second-largest refiner in Asia. Private companies owned about 35% of the total refining
capacity.

India is expected to be one of the largest contributors to non-OECD petroleum consumption

growth globally. India’s consumption of petrol products stood at 72.74 MMT in April-July,
2022. High Speed Diesel was the most consumed oil product in India and accounted for

38.84% of petroleum product consumption in FY22.

India’s oil consumption stood at almost 4.9 million barrels per day (BPD) in 2021, up from
4.65 million BPD in 2020.

India’s LNG import stood at 2,451 million metric standard cubic meters (MMSCM) in June
2022. Gross production of LNG was 2,813 MMSCM in the same month. According to the
International Energy Agency (IEA), consumption of natural gas in India is expected to grow
by 25 BCM, registering an average annual growth of 9% until 2024.

20
10. Tata Petrodyne

21
Tata Petrodyne is measured as one of the leading Oil and Gas Companies with yearly turnover
of around 200 Billion Dollars. Basically it is a subsidiary company of the great TATA
companies. It is recognized for its implausible customer services apart from its main Gas, Oil,
and Petroleum Products business. This is a privately-owned company with great employee
configuration and has headquartered in Mumbai. This company has interest in two offshore
blocks in UK and Australia respectively as well as seven offshore and onshore blocks in
different states of India.In the tenth position we have Tata Petrodyne.
It is one of the leading groups of the company in the oil and gas sector.
Its head office is located in Mumbai, Maharashtra.

The company’s turnover is 100 Billion Dollar. It is the subsidiary of the TATA group of
companies founded by J.R.N. Tata. The company has joint ventures with various other
international companies and has ties with countries like Amsterdam, Perth, and Jakarta.

9. Oil India Ltd

Oil India Limited (OIL) is placed in the list as it is the second largest hydrocarbon exploration
& production (E&P) Indian public sector Company having its headquarters in Duliajan,
Assam. This company is run under the organizational control of the Ministry of Petroleum and
Natural Gas of the Indian Government. This oil and gas company is active in the business of
development, exploration, and production of crude oil as well as natural gas, conveyance of

22
crude oil and manufacture of liquid petroleum gas. It holds large market capitalisation of Rs.
31,000 crores, serving many employees all over India.

It has more than 11000 employees with a business turnover of 35 Billion Dollar. It is governed
by the Ministry of Oil and Natural gas of the country with Mr Utpal. Bora as the Chairman
and Managing Director. It was started in the year 1889 and is one of the oldest oil companies
of India. The company is a state-owned Navratna and has its corporate offices in Noida.

8. Hindustan Petroleum Corporation

HPCL is an Indian state-owned oil and natural gas company having its headquarters
functioning at Mumbai and has gained Navratna status. This company has been ranked 260th
in the Fortune Global 500 rankings of the biggest corporations of world in year 2013 and
ranked
4th among India’s Companies for year 2012, adding to its popularity. It has nearly 20%
marketing share in the country among PSUs as well as holds a strong marketing infrastructure.

23
This Oil and Gas Company is a Navratna PSU of Indian Government contributing in refining
and marketing of petroleum based products. It holds 3 refineries and possess extensive
network of petrol pumps as well as LPG distributors.

This company is a state owned oil and natural gas company whose head office is located in
Mumbai. The company has more than 18000 employees and a business turnover of 8 Million
Dollar. It was founded in the year 1974. The Government of India owns 51.11% in the
company and was also listed in the Fortune Global 500 list of the world’s biggest corporations
as of 2016. M.K. Suvarna is the managing director and Chairman of the company.

7. Gas Authority of India

GAIL or the Gas Authority of India is another state owned oil and natural gas company. Its
head office is located in New Delhi. It has more than 4000 employees and an 8 Billion Dollar
turnover. This company correctly relates to its names as it has strong influence over all other

24
similar industries in the list of the finest Indian Oil and Gas Company. Its yearly turnover
exceeds 10 Billion Dollars and it is more recognised in India as the most politically-immersed.
It is known to supply quite affordable Oil, Gas and Petroleum Products to entire world with its
headquarters in New Delhi. It is basically a public sector company that employs 4,700+
employees overall.

The company earned its Maharatna status in 2013 by the Government of India. The company
was founded in the year 1984. Sandeep kumar Gupta is the Chairman and the managing
directors of the country. It is one of the country’s most trusted brands.

6. Cairn India

Founded in the year 2007 this company has its head office in Gurgaon, Haryana. The
company’s turnover is 3400 Million Dollar. With more than 2000 employees this is one of the
emerging names in the oil and natural gas sector of the company. The Cairn India Company
highlights in the fifth position in the list of the topmost oil and gas companies with turnover
approximately 3,400 Million Dollars and higher. This Oil and Gas Company stands out from
others because of its exceptionally massive business coverage. It is involved in manufacturing

25
the best Oil, Gas and Petroleum Products for different agencies in India and overseas and it is
incorporated as a public sector company. It employs large number of employees with number
crossing 2000 and it’s headquarter is situated in Gurgaon, Haryana.

The CEO of the company is Mayank Ashar and the chairman Navin Agarwal. The company
serves in India and has its holdings in Sri Lanka and also South Africa. It is one among the
India’s Top 10 Largest Oil and Gas Companies 2017.

5. Essar Oil Limited

Essar Oil is an established name in India since many decades because of its active contribution
in the exploration and production of oil and natural gas, purifying of crude oil, and advertising
of petroleum products. It is basically a share of the Essar Group with headquarters in Mumbai.

Basically it runs a major refinery in Vadinar, in Gujarat state which made it the second
greatest non-state refiner in India in year 2009.This company is engaged in the exploration of
crude oil and marketing of natural gas.

The company’s head office is located in Mumbai. With a turnover of 9 Billion Dollar and
more than 75000 employees this company provides great services to its clients. The Chairman
of the company is Ravi Ruia and Lalit K Gupta is the Managing director and the CEO. The

26
major refinery of this company is located in Vadinar, Gujarat which makes it the largest non-
state refinery of the country.

4. Reliance Petroleum Limited

The Reliance Petroleum Limited Company rules the domain of oil and gas production since
many decades with its headquarters located in Ahmadabad. The company holds the title of
being the most versatile and customer-based company in the country and also in the world. It
also helps clients by sharing possibilities of finding the most practical oil and gas capitals for
business. Apart from supplying oil and other LPG products, it carries out discourses to an
extensive platform of audience all over the world. It belongs to a Government-owned sector,
having employed more than 10,000 employees.A subsidiary to the Reliance Company Limited
was founded in the year 2008.

The company’s head office is located in Ahmadabad, Gujarat and has a turnover of 670
Million Dollar. It has more than 10000 employees. Mukesh Ambani is the key person of this
company. Reliance Petroleum Limited has its benefits from an alliance with Chevron India
Holdings Pte Limited, Singapore. The Jamnagar refinery is the source for the company’s oil
and is the biggest refinery of the country.

27
3. Bharat Petroleum

The Bharat Petroleum Company tops this list at fourth position as it has effectively turned-
over more than 40 Billion Dollars. It is more recommended company as it is quite affordable
compared to its competitors, has its headquarters in Bangalore. The company targets to
provide the finest quality Oil, Gas and Petroleum Products tested after thorough manufacture
process to India and overseas. It belongs to category of a publicly-owned industry with around
14,000+ employees.The head office of Bharath petroleum is located in Mumbai, Maharashtra.

With a turnover of 40 Billion Dollar the company has more than 15000 employees and is well
known in the Oil, gas and Petroleum. The company has two major refineries situated in
Mumbai and Cochin. The company was ranked in the Fortune 500 global list. S. Varadarajan
is the Managing Director and the Chairman of the company. It is also anther undertaking of
the Government of India.

28
2. ONGC

This Oil and Gas Company ranks at third position in the list and secures number eight in the
entire world. It records a large turns-over over 6.50 Billion Dollars a year and is
acknowledged as one of the most reliable industries in India. This Oil and Gas Company
belongs to public sector category and has provided employment opportunities for nearly
33,000+ applicants.

The company is involved in exploiting hydrocarbons in 26 sedimentary basins of the country,

and operates over 11,000 kilometres of pipelines.Oil and Natural Gas Corporation or the
ONGC has its headquarters in Dehradun, Uttarkhand. It was founded in 1956 and has a
turnover of 6.50 Billion Dollar. The company has more than 33000+ employees and is one of

29
the biggest names in the Oil and gas sector of the country. It is the largest among all the
governments undertaking in the oil and natural gas sector. It was ranked in the Fortune Global
500 and is also 17th among the Top 250 Global Energy Companies by
Platts.

1. Indian Oil Corporation

Indian Oil Corporation Limited (briefly identified as IndianOil) is an Indian state-owned oil
and gas firm with its headquarters located in New Delhi. This company is the world’s 88th
largest companies, as per the Fortune Global 500 list, and the largest in category of public
corporation in India when ranked by revenue. It is the Oil and Gas Company that operates the
largest and the extensive network of fuel stations all over India, totalling about 20,575. Other
brands possessed by this are AutoGas – Automotive Natural Gas, Xtra Premium – Automotive
Premium Petrol, Xtra Mile – Automotive Premium Diesel, IndaneGas – Domestic and
Industrial Gas and Servo – Lubricants and Greases.

30
In the first position we have Indian Oil Corporation. This company was started in the year
1959. The company’s headquarters is located in New Delhi, India. It has 28 Billion Dollar
turnover and more than 35000 employees. It is another public sector undertaking and has its
business spread across the globe. It also has its subsidiaries in Sri Lanka, Mauritius and UAE

These are the major players in the oil and natural gas companies of India 2017. It is highly
important to preserve our resource and also make the best use of it.Top Companies involved in
business of the Oil & Gas sector not only funds towards the growth of economy through its
production but also provides great range of employment prospects to the suitable talents. This
sector holds large production process and large base of officials involved for the best outcome
in oil and gas production.

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GENERAL PROFILE:

GAIL (India) Limited (formerly known as Gas Authority of India Ltd.) is a central public
sector undertaking under the ownership of Ministry of Petroleum and Natural Gas,
Government of India. It is headquartered in GAIL Bhawan, New Delhi.[5] Its operations are
overseen by the Ministry of Petroleum and Natural Gas. It has the following business
segments: natural gas, liquid hydrocarbon, liquefied petroleum gas transmission,
petrochemical, city gas distribution, renewable Energy including Solar & Wind, exploration
and production, Petrochemicals, GAILTEL and electricity generation. GAIL was conferred
with the Maharatna status on 1 Feb 2013, by the Government of India.[6] Only 10 other Public
Sector Undertakings (PSUs) enjoy this coveted status amongst all Central PSUs.[7]

GAIL owns and operates a network of around 13,722 km of natural gas pipeline and currently
executing around 6,000 km of pipeline projects of its own and about 2,000 km through two
JVs, as part of the National Gas Grid. PNGRB has authorized the psu to execute a 1,755 km
long Mumbai-Nagpur-Jharsuguda Pipeline

GAIL (India) Limited is India’s leading natural gas company with diversified interests across
the natural gas value chain of trading, transmission, LPG production & transmission, LNG re-
gasification, petrochemicals, city gas, E&P, etc. It owns and operates a network of around
14,488 km of natural gas
pipelines spread across the length and breadth of country. It is also working concurrently on
execution of multiple pipeline projects to further enhance the spread. GAIL commands ~70%
market share in gas transmission and has a Gas trading share of over ~ 50% in India. GAIL
and its Subsidiaries / JVs also have a formidable market share in City Gas Distribution. In the
Liquefied Natural Gas (LNG) market, GAIL has significantly large portfolio. GAIL is also
expanding its presence in renewable energy like Solar, Wind and Biofuel.

MISSION AND VISSION OF THE COMPANY:

Since its inception, GAIL has played a pivotal role in development of Indian energy sector.
Within a very short span of time, we have established ourselves as a Global Maharatna with

32
significant presence in the entire gas value chain. Our fast progression has made us face
resultant business complexities, associated confrontation of global scale competition in all
major business verticals. Besides rising competition, we have also witnessed a pivotal
transformation across energy sector in recent years, driven by various factors such as rising
demand, technological innovation, geopolitical shifts and environmental concerns.
Considering the imminent challenges and sectorial transformation, we have adopted our long
term strategic plan - “Strategy 2030” to overcome business challenges and new areas for
growth and the way forward. Keeping in mind changing times of our industry and our new
strategic objectives, we have revisited our Vision and Mission statements to accurately
describe our purpose of existence, objectives and overarching aspirations. These new vision
and mission statements of GAIL reflect our core value system including why we exist, what
we do and why we do it.

Mission: “Enhancing quality of life through clean energy and beyond”. Vision: “Be the leader
in natural gas value-chain and beyond, with global presence, creating value for stakeholders
with environmental responsibility”.

Key Elements of GAIL's Vision

Quality Of Life

Quality of life

We strive to transform the lives of the people we touch by providing improved and
environment friendly products and services in a sustainable way.

33
HISTORY OF THE COMPANY:

GAIL (India) Limited was incorporated in August 1984 as a Central Public Sector
Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The company
was formerly known as Gas Authority of India Limited. It is India's principal gas transmission
and marketing company. The company was initially given the responsibility of construction,
operation and maintenance of the Hazira – Vijaypur – Jagdishpur (HVJ) pipeline project. It
was one of the largest crosscountry natural gas pipeline projects in the world. This 1750-
kilometre-long pipeline was built at a cost of ₹17 billion (US$210 million) and it laid the
foundation for development of market for natural gas in India. GAIL commissioned the 1,750
kilometres (1,090 mi) Hazira-Vijaipur-Jagdishpur (HVJ) pipeline in 1991. Between 1991 and
1993, three liquefied petroleum gas (LPG) plants were constructed and some regional
pipelines acquired,
enabling GAIL to begin its gas transportation in various parts of India.[citation needed]

GAIL began its city gas distribution in New Delhi in 1997 by setting up nine compressed
natural gas (CNG) stations.[citation needed]

In order to secure gas for its mainstream business, the Exploration and Production department
was created. Today GAIL is a partner in the Daewoo-OVL led consortium in two offshore
blocks in Myanmar which have made a gas discovery. The bulk of its blocks are located in
India in the prolific basins of Cambay, Assam-Arakan, Mahanadi, Krishna Godavary deep
water and onland, Cauvery onland and deep water and western offshore. It is actively scouting
for foreign blocks both exploratory or discovery.[citation needed]

GAIL today has reached new milestones with its strategic diversification into petrochemicals,
telecom and liquid hydrocarbons besides gas infrastructure. The company has also extended its
presence in power, liquefied natural gas regasification, city gas distribution and exploration &
production through participation in equity and joint ventures. Incorporating the new-found
energy into its corporate identity, Gas Authority of India was renamed GAIL (India) Limited
on 22 November 2002.[citation needed]

GAIL (India) Limited has shown organic growth in gas transmission through the years by
building large network of trunk pipelines covering length of around 10,700 kilometres (6,600
mi). Leveraging on the core competencies, GAIL played a key role as gas market developer in

34
India for decades catering to major industrial sectors like power, fertilizers, and city gas
distribution. GAIL transmits more than 160 million cubic metre per day at standard conditions
of gas through its dedicated pipelines and have more than 70% market share in both gas
transmission and marketing.

Infrastructure GAIL owns the country's largest pipeline network, the crosscountry 2300 km
Hazira-Vijaipur-Jagdishpur pipeline with a capacity to handle 33.4 million cubic metre per day
at standard conditions gas. Today the company owns and operates more than 11000 km long
cross country natural Gas Pipeline in India having presence in 22 states in the country. It also
owns and operates more than 2000 km long LPG pipelines in the country and has the pride to
operate one of the world's longest exclusive LPG pipeline in the country from Jamnagar in
Gujarat to Loni in Uttar Pradesh. The company also owns and operates seven mega LPG
recovery plants in the country today and has to its credit almost 20% of domestic LPG
produced and supplied for the domestic usage through its sisters PSUs like IOCL, BPCL and
HPCL. GAIL is one of the major petrochemical conglomerates in the country today with
India's largest gas based petrochemicals in operation since 1999. In petrochemicals it has its
own gas based integrated petrochemical plant and also the ownership of 70% in dual fuel
petrochemicals in Assam, Brahmaputra Cracker and Polymer Limited and one of the major
equity partners in OPal.

The company supplies gas to power plants for generation of over 4,000 MW of power to the
Fertilizer plants for production of 10 million tonnes of urea and to several other industries. The
regional pipelines are in Mumbai, Gujarat, Rajasthan, Andhra Pradesh, Tamil Nadu,
Pondicherry, Assam, Tripura, Madhya Pradesh, Haryana, Uttar Pradesh and Delhi. The
Company has established six gas processing (LPG) plants, four along the HVJ pipeline two at
Vijaipur, MP, one at Vaghodia, Gujarat and Auraiya, UP and one each in Lakwa, Assam and
Usar, Maharashtra. These plants have the capacity to produce nearly 1 million tpa of LPG.
GAIL has also set up several compressor stations for boosting the gas pressure to desired
levels for its customers and internal users.

GAIL also possesses a vast telecommunication network that contributes significantly to the
high level of system reliability of operations, on-line real-time communication and monitoring
higher productivity. GAIL became the first Infrastructure Provider Category II Licensee and

35
signed the country's first Service Level Agreement for leasing bandwidth in the Delhi-Vijaipur
sector in 2001, through its telecom business GAILTEL.

In 2001, GAIL commissioned the world's longest and India's first cross state LPG transmission
pipeline running from Jamnagar in Gujarat to Loni in Uttar Pradesh.
The total length of this LPG pipeline is 1415 km.

GAIL has started working on the Jagdishpur-Haldia/Bokaro-Dhamra Pipeline.

This was earlier planned to constructed between Jagdishpur in Uttar Pradesh to
Haldia in Bengal for a total length of 2050 km. But now it has been reconfigured. The pipeline
will connect Varanasi to the gas grid, to link the Dhamra terminal. The over 2,500-kilometer
line will be constructed in three phases and will also now connect Adani Group's Dhamra
LNG import terminal in Odisha. In the first phase, a trunk pipeline from Phulpur (Allahabad)
will be laid to Dobhi (Gaya) in Bihar with spur lines to Barauni and Patna. The 755-km Phase-
1 project will cost Rs 3,200 crore and will be completed by December 2018. GAIL already as
a line up to Phulpur. It is raising capacity of this pipeline by laying a 672-km parallel line from
Vijaipur in Madhya Pradesh to Phulpur via Auriaya in Uttar Pradesh at the cost of Rs 4,300
crore. In the Phase-II, a 1200-km line would be laid from Dobhi to Bokaro/Ranchi in
Jharkhand and Angul and Dharma in Odisha at the cost of Rs 5,565 crore. Phase-III will
involve laying 583-km line to Haldia at the cost of Rs 3,425 crore.[8]

OBJECTIVES OF THE COMPANY:

In alignment with vision of the company, GAIL, through its CSR initiatives, will continue to
enhance value creation in the society and in the community in which it operates, through its
services, conduct & initiatives, so as to promote sustained growth for the society and
community, in fulfillment its role as a Socially Responsible Corporate, with environmental
concern.

36
The objective of the GAIL CSR Policy is to:

Ensure an increased commitment at all levels in the organisation, to operate its business in an
economically, socially & environmentally sustainable manner, while recognising the interests
of all its stakeholders.
To directly or indirectly take up programmes that benefit the communities in & around its
workentres and results, over a period of time, in enhancing the quality of life & economic
well-being of the local populace.
To generate, through its CSR initiatives, a community goodwill for GAIL and help reinforce a
positive & socially responsible image of GAIL as a corporate entity.

SWOT ANALYSIS OF THE COMPANY:

STRENGTHS:

• Strong Brand Presence: It has a strong brand identification and a significant consumer
base as well as geographical reach.
• Robust Marketing & Business Model: It also features a robust business model and a
market-leading concept. GAIL is always ahead with its marketing campaigns to save
the planet by using natural resources. This in turn has increased the brand reputation in
the public’s eye.
• Successful in its Market: It is the most successful corporation in the natural gas
market and it is one of the top companies in India in the natural gas sector.
• Organic Expansion: Through a broad network of trunk pipelines, GAIL has proven
organic expansion in gas transportation.

37
WEAKNESSES:

• Financial & Technological Resources: The company’s fundamental issue is a lack of

financial and technological resources, which has contributed to India’s economic
slump.
• Government-Owned: Because the Gail firm is controlled by the government, it harms
the company’s operations and may limit its potential.
• A Decline in Monetary Efficiency: It has a lack of experience operating in US
markets, as well as a depreciation of the Mexican peso, which has resulted in a decline
in monetary efficiency.

Opportunities for GAIL:

• Spreading Awareness: GAIL should implement a “Natural Awareness Program” to

educate the public on the various uses of natural gas.
• Increase its Market Share: The strategic purchase of natural gas will help the
company meet the growing demand in the domestic market, thereby maintaining and
increasing its market share.
• Improving R&D: The R&D project will help the company develop new sources of
revenue by introducing new products and services.
• India’s Energy Consumption is Expected to Grow: In recent years, India’s energy
consumption has grown faster and is expected to grow further. So there are more
opportunities for the company.

Threats to GAIL:

• Risk of Production: Drilling natural gas wells involve many risks, including the risk
that the company may not encounter natural gas reservoirs with commercial production
capacity.

38
 • Fierce Competition: The company faces fierce competition in the different market
segments it serves, which is a threat for the company.
Because of fierce competition from both domestic and international competitors, the
company may lose its identity as a powerful brand name.
• Monetary Stability: The rising depreciation of the Mexican peso and the US dollar
may jeopardise the monetary stability of businesses.

ACHIEVEMENTS AND AWARDS OF THE COMPANY:

• Achievement of 100% Safety Index @ GPU–Gandhar(2010–11) was duly recognized

by BSC, UK. GPU–Gandhar was conferred 'International Safety Award' for 4th time.

• GAIL (India) has been ranked no.1 company among gas utilities in Asia in the Platts
Global Ranking of Energy Companies.

• GAIL (India) was conferred 'MOU EXCELLENCE AWARD' by the Department of

Public Enterprises for the year 2008–09 in the petroleum sector.

• GAIL (India) was conferred a Certificate of Recognition for Excellence in Corporate

Governance in the 10th ICSI National Award for
Excellence in Corporate Governance 2010 as one of the Top
Companies adopting Excellent Practices in Corporate Governance.

• National Award for Excellence in Cost Management 2009 GAIL won the
Third Award in the public sector Manufacturing (Large) category

• SCOPE Meritorious Award to GAIL (India) Limited for Corporate Governance for the
year 2007–08.

39
 • India´s Most Customer Responsive Company in Manufacturing sector

• Highest Wealth Creator in Manufacturing sector

• Rajiv Gandhi National Quality Award as the best performer among the Large Scale
Manufacturing Industry

• The PetroFed oil & Gas pipeline Transportation – Company of the Year for 2007–2008
Award honours the leading performance in transporting crude oil, petroleum products
and natural gas through pipelines in India during the year. This award honours GAIL
(India) Limited for their leading performance towards growth of infrastructure, optimal
utilisation during hydrocarbons transportation in India in 2007–08 while meeting the
norms of health, safety and environment protection.

PRODUCTS OF THE COMPANY:

Natural Gas

Natural gas is one of the cleanest modern day fuels for the industrial and domestic use, being
efficient and non-polluting. Due to its characteristic clean burning nature and availability by
pipeline connection which alleviates the need for local storages and other transportation
logistics, natural gas emerged as the fuel of choice, growing steadily in the energy basket of
major nations.

40
 Natural Gas comes in 4 basic forms

Liquefied Natural Gas (LNG) - Natural Gas which has been liquefied at – (Minus) 160
degree Centigrade. Natural Gas is liquefied to facilitate transportation in large volumes in
cryogenic tankers across seas / land.

Regasified Liquefied Natural Gas (RLNG) – LNG Re-gasified at import terminals before
transporting it to consumers through Pipelines.

Natural Gas comes in 4 basic forms

Compressed Natural gas (CNG) - Natural Gas compressed to a pressure of 200-250

kg/cm2 used as fuel for transportation. CNG decreases vehicular pollution on the virtue of
being cleaner fuel than liquid fuels.

Piped Natural gas (PNG) - Natural Gas distributed through a pipeline network that has safety
valves to maintain the pressure, assuring safe, uninterrupted supply to the domestic sector for
cooking and heating / cooling applications.

Sector Natural Gas is used

41
 Power Sector As fuel for base load power plants In combined
cycle/co-generation power plants

Fertilizer Industry As feed stock in the production of ammonia and

urea
Industrial As an under boiler fuel for raising steam As fuel
in furnaces and heating applications

Domestic and commercial It is used as PNG and CPNG for cooking and
fuel respectively.

Automotive It is used as an eco-friendly fuel.

Liquid Hydrocarbons

GAIL is presently operating 5 Gas Processing Units (GPUs) located at Vijaipur

(2 Units), Pata, Gandhar & Vaghodia for production of LPG and other Liquid Hydrocarbon
(LHC) products. Further, GAIL also operates an integrated petrochemical complex at Pata
(U.P.) for production of Polymer along with associated Liquid products. LPG produced in
GAIL plants is sold exclusively to PSU Oil Marketing Companies (OMCs) while other LHC
products (Propane Pentane and Naphtha) are sold directly to industrial customers in Retail
segment. By-products from Gas Cracker Unit (GCU) of Petrochemical plant such as Mixed

42
Fuel Oil (MFO), Propylene & Hydrogenated C4 Mix are also sold directly to customers in
Retail segment.

LPG Transmission
GAIL is the first company in India to own and operate pipelines for LPG transmission. It has
2033 km LPG pipeline network 1,410 km of which connects the western and northern parts of
India and 618 km of networks is in the southern part of the country connecting Eastern Coast.
GAIL has dedicated LPG pipelines from GPU, Gandhar and GPU Vijaipur to OMC Bottling
plants. The LPG transmission system has a capacity to transport 3.83 MMTPA of LPG.

43
44
 Petrochemicals

With ISO 9001:2015, ISO 14001:2015, ISO 45001:2018 and ISO 50001:2018 accreditations,
GAIL is committed towards producing quality products ensuring a safe and clean
environment. GAIL’s polymer products are environmentfriendly and fully recyclable. GAIL
provides a wide choice of grades with consistent and reliable quality to its customers. Its
manufacturing processes and quality systems ensure that the products conform to the technical
specifications, backed by high quality services to provide complete solution to the customers.
GAIL has been granted BIS License as per IS 7328:2020 for Product Quality Certification of
polyethylene grades (Raw Material) used for moulding and extrusion. This establishes our
Product Quality Certification from statutory agency (BIS) and our compliance to DCPC
notification on “Quality control order.
The company’s marketing network is designed to ensure regular supply of material from
PATA Plant and from consignment stockist stock points situated across the country.

GAIL owns and operates a gas based Petrochemical Complex at PATA, District
Auraiya, near Kanpur in UP (around 380 km from Delhi). GAIL has a

“Sclairtech” solution polymerization process licensed from M/s Nova Chemicals,

Canada to produce LLDPE and HDPE, with a nameplate capacity of 2,10,000 MT/annum and
has two slurry based polymerization processes licensed from M/s Mitsui Chemicals, Japan to
produce HDPE, each with a nameplate capacity of 1,00,000 MT/annum and has a gas phase

45
Unipol PE Process of M/s Univation Technology, USA, with a nameplate capacity of 400,000
MT/ annum to produce HDPE/LLDPE.

About Petrochemical plants

GAIL is diversifying its Petrochemical business by entering into Polypropylene business.

GAIL is setting up a 500 KTA PP plant based on PDH technology at Usar, Maharashtra to be
commissioned by 2025 and another 60 KTA PP plant is also being set up at PATA
petrochemical complex to be commissioned by 2024. M/s W R Grace is the technology
Licensor for both the upcoming PP plants and will be utilizing Unipol PP process technology
with latest generation catalyst to produce world class PP products. Homopolymer
Polypropylene grades will be produced at Usar PP plant whereas both Homopolymer as well
as Co-Polymer Polypropylene grades will be produced from Pata PP plant.

Petrochemical Marketing Group (PMG)

GAIL’s marketing network consists of Petrochemical Marketing Group (PMG),

Noida, Marketing Services Group (MSG), Pata, 13 Zonal offices, GAIL Polymer Technology
Centre (GPTC), Noida, SAP Centre, Noida and strategically located network of 45
consignment stockists with 78 stock points located across India which are being augmented to
ensure that the customer needs are met on time and provide efficient pre and post sales
services. GAIL has plans to approximately double the strength of consignment stockists in
near future.

PMG looks after the marketing activities pertaining to Petrochemical products in GAIL. Main
functions of PMG include Product Pricing, Sales & Production
Planning, Sales Policy, Consignment Stockist Appointment & Management, Setting &
Monitoring of Sales Targets, Coordination with Zonal Offices, Budgeting, Exports & Imports,
New Projects & Strategy, MIS etc. GAIL annually caters to more than 1514 customers, spread
throughout the length and breadth of the country, to meet their requirement of LLDPE &
HDPE.

46
Company raw materials

VALUE % OF RM COST
PRODUCT NAME UNIT QUANTITY
RS CRORE TO TOTAL COST

GAS-FOR LPG (IN 0 40348.26 89.34

>CUM
MMSCM)
RAW MATEIRAL 0 4813.16 10.66
>NA
CONSUMED

POLYMERS >MT 0 0.07 0.00

TOTAL 0.00

47
 WORKING CAPITAL MANAGEMENT

MEANING OF WORKING CAPITAL MANAGEMENT

Working capital to a company is like the blood to the body. It is the most vital
ingredient of a business. Working capital management is carried out effectively, efficiently and
consistently, will ensure the health of the organization. A company invest it funds for long-
term purpose and for short-term operations. That portion of company’s capital, invested in
short-term or current assets to carry on its day to day operations smoothly, is called the
‘working capital’.

Working capital refers to a firm’s investment in short-term assets like cash, short-term
securities amounts to all aspects of current assets and current liabilities. The efficient working
capital management is necessary to maintain a balance of liquidity and profitability. If the
funds are tied-up idle current assets represent poor and inefficient working capital management
which affects the firm’s liquidity as well as profitability.

The management of current assets is similar to that of fixed assets in the sense that in
both cases a firm analyses their effects on its return and risk. The management of fixed and
current assets, however, differs in three important ways: First, in managing fixed assets, time is
a very important factor: consequently, discounting and compounding techniques play a
significant role in capital budgeting and a minor one in the management of current assets,
Second, the holding of current assets, especially cash, strengthens the firm’s liquidity position
(and reduces riskiness), but also reduces the overall profitability. Thus, a risk- return tradeoff is
involved in holding current assets. Third, levels of fixed as well as current assets depend upon
expected sales, but it is only current assets which can be adjusted with sales fluctuations, in the
short run. Thus, the firm has a greater degree of flexibility in managing current asset.

The key difference between long-term financial management and working capital
management is in terms of the timing of cash. While long-term financial decisions like buying
capital equipment or issuing debentures involve cash flows over an extended period of time (5
to 15 years or even more,) short-term financial decisions typically involve cash flows within a
year or within the operating cycle.

48
DEFINATION
Working capital is defined as ‘the excess of current assets over current liabilities’. All
elements of working capital are quick moving in nature and therefore, require constant
monitoring for proper management. For management of working capital, it is required that a
proper assessment of its requirement is made. Working capital is also known as circulating
capital, fluctuating capital and revolving capital the magnitude and composition keep on
changing continuously in the course of business. If the working capital level is not properly
maintained and managed, then it may result in unnecessary blockage of scarce resources of the
company. Therefore, the finance Managers should give utmost care in management of working
capital.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The basic objects of working capital management are as follows. By optimizing the
investment in current assets and by reducing the level of current liabilities, the company can
reduce the locking-up of funds in working capital there by, it can improve the return on capital
employed in the business.

The second important objective of working capital management is that the company
should always be in a position to meet its current obligations which should properly be
supported by the current assets available with the firm. But maintaining excess funds in
working capital means locking of funds without return.

The firm should manage its current assets in such a way that the marginal return on
investment in the assets is not less than the cost of capital employed to finance the current
assets.

The firm should maintain proper balance between current assets and current liabilities
to enable the firm to meet its day to day obligations.

49
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital.
a) Gross working capital
b) Net working capital
a) Gross working capital refers to the firm’s investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year.
Current Assets:
1) Cash in hand
2) Cash at bank
3) Bills receivable
4) Sunday debtors
5) Stock
6) Prepaid Expenses
7) Accrued Income
8) Short term Investment.
b) Net working capital refers to the difference between current assets and current liabilities
current liabilities are these claims of outsiders which are expected to manure for
payment with in an accounting year.
Current Liabilities
1) Bills payable
2) Sundry creditors
3) Accrued Expenses
4) Short term loans
5) Dividends payable
6) Bank overdraft
7) Provision for Taxation

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 PROFORMA OF GROSS AND NET WORKING CAPITAL

Particulars Previous Current Working capital

Year Year Increase Decrease
CurrentAssetsCur
rent Investments XXXX XXXX XXXX XXXX

Inventories XXXX XXX XXX XXX

Trade Receivables XXX XXX XXX XXX
Cash and Cash Equivalents XXXX XXXX XXX XXX

Short- XXX XXXX XXX XXX

termLoans&Advances XXXX XXX XXX XXX

Other Current Assets XXXX XXX

Total Current Assets -(CA)

Current Liabilities XX XXX XXX XXX

Short-term X XXX XXX XXX
borrowings XX XXX XXX XXX
TradePayables X XXX XXX XXX
Other Current Liabilities XX XXX XXX XXX
Short term Provisions X XXX XXX XXX
XX
X
XX
X
XX
X

Total Current liabilities -(CL) XXX XXX

51
 Working-capital(CA-CL) XXX XXX
Increase/Decrease in working XXX XXX
capital

OPERATING CYCLE CONCEPT

Working Capital is the life blood of any business, without with the fixed assets are in
operative. Working capital circulates in the business, and the current assets change from one
form to another. Cash is used for procurement of raw materials and stores items and for
payment of operating expenses, then converted into work-in-process, then to finished goods.
When the finished goods are sold on credit terms receivables balances will be formed. When
the receivables are collected, it is again converted into cash.

The need of working capital arises because of time gap between production of goods
and their actual realization after sales. This time gap is called technically called as ‘operating
cycle’ or ‘working capital’.

The operating cycle of a company consists of time period between the procurement of
inventory and the collection of cash from receivables. The operating cycle is the length of time
between three company’s outlay on raw materials, wages and other expenses and inflow of
cash from sale of goods. Operating cycle is an important concept in management of cash and
management of working capital.

The time lag between the purchase of raw material and the sale of finished goods in the
inventory period. The operating cycle is the sum of the inventory period and the accounts

52
receivable period, whereas the cash cycle is equal to the operating cycle less the accounts
payable period.

The working capital requirement can be estimated with the help of duration of operating
cycle. The longer the operating cycle, the larger the working capital requirement. If
depreciation is excluded from expenses in the operating cycle, the net operating cycle
represents ‘cash conversion cycle’. The length of operating cycle is the indicator of efficiency
in management of short-term funds and working capital.

DIAGRAM OF OPERATING CYCLE

Debtors Cash

Raw
Sales
materials

Finished Work in

Goods Process

53
Changes in government policies like taxation, import restrictions, credit policy of central bank
etc. will have impact on the length of operating cycle. It is the task of financial manager to
manage the operating cycle effectively and efficiently.

Based on the length of the operating cycle, operating cycle will improve the cash conversion
cycle and ultimately improve the profitability of the firm.

Sources of working capital:

A large scale manufacturing company may procure funds from various sources to meet
its working capital and they may be classified under two heads.

Sources of long term or regular working capital

Sources of short term or seasonal working capital

Sources of working capital

Long term Sources short term sources

a) Issue of shares
b) Issue of debentures
c) Sale of fixed asset Internal External
a) Depreciation fund a) Normal trade
b) Provision of taxation b) Credit papers
c) Accrued expenses c) Bank credit

Factors of working capital:

54
  Nature of business
 Manufacturing cycle
 Seasonality of operations
 Production policy
 Market conditions
 Conditions of supply
 Credit policy.

Nature of business:
The working capital requirement of a firm is closely needed to the nature of a business a
service firm, like an electricity undertaking transport, like an electricity undertaking transport
corporation, which has a short operating cycle and which sells predominantly on cash basis,
has a modest working requirement on the other hand a manufacturing concern like a machine
tools unit, which has a long operating cycle and which sales largely on credit, has a very
substantial working capital requirement.

Determinants of working capital

 Working capital requirements of a concern rely on a number of factors, each of which
should be carefully considered in determining the right amount of working capital.

 Working capital requirements of a concern are based on a number of factors, each of

which should be carefully considered in determining the right amount of working capital
statement.

Manufacturing cycle:

Time span required for conversion of raw material into finished goods is a block period.
This period, in reality, extends a little before and after the WIP. This cycle determines the need
of working capital. In case of industries with long manufacturing process or production cycle,
more funds are required for working capital.

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Seasonality of operations:

Firms which have marked seasonality in their operations usually have highly
fluctuating working capital requirements.

To illustrate, consider a firm manufacturing ceiling fans reaches a peak during the
summer months drops sharply during the winter period. The working capital requirements of
such a firm are likely to increase considerably in summer months and decrease significantly the
winter period. On the other hand, a firm manufacturing a product like lamps, which have fairly
even sales round the year, tends to have stable working capital requirements.

Production policy: A firm marked by pronounced seasonal fluctuations in its sales may pursue
a production policy which may reduce the sharp variations in working capital requirements.
For example, a manufacturer of ceiling fans may maintain a steady production throughout the
year, rather than intensify the production activity during the peak business season. Such a
production policy may dampen the fluctuations in working capital requirements.

Market conditions: The degree of competition prevailing in the market place has an important
bearing on working capital needs. When competition is keen, a larger inventory of finished
goods is required to promptly serve customers who may not be inclined to wait because other
manufacturers are ready to meet their needs. Further, generous credit terms may have to be
offered to attract customers in a highly competitive market.

If the market is strong and competition weak, a firm can manage with a small inventory of
finished goods because customers can be served with some delay. Further, in such a situation
the firm can insist on cash payment and avoid lock-up funds in accounts receivable-it can even
ask for advance payment, partial or total.

Conditions for supply: The inventory of raw material, spares and stores depends on the
conditions of supply. If the supply is prompt and adequate, the firm can manage with small
inventory. However, if the supply is unpredictable and scant, then the firm, to ensure continuity
of production, would have to acquire stocks as and when they are available and carry large
inventory, on an average. A similar policy may have to be followed when the raw material is
available only seasonally and production operation are carried out round the year.

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Credit policy: The credit policy of the firm affects the working capital by influencing the level
of debtors. The credit terms to grant to customers may depend upon the norms of the industry
to which the firm belongs. But a firm has the flexibility of shaping its credit policy with in the
constraint of industry norms and practices. The firm should use discretion in granting credit
terms to its customers. A high collection period will mean tie-up of large funds in debtors.
Slack collection procedures can increase the chance of bad debts.

In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a
rationalized credit policy based on the credit standing of customers and other relevant factors.
The firm should evaluate the credit standing of new customers and periodically review the
credit-worthiness of the existing customers. The case of delay payments should be thoroughly
investigated.

Advantages of Adequate working capital:

1) Solvency of a business: Adequate working capital helps in maintaining solvency of a

business by providing uninterrupted flow of production.

2)Goodwill: Sufficient working capital enables a business concern to make prompt payments
and hence helps in creating and marinating goodwill.

3)Easy loans: A concern having adequate working capital, high solvency and good credit
standing can arrange loans from banks and other an easy and favorable terms.

4) Cash discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence it reduces costs.

5) Regular Supply of view materials: Sufficient working capital ensures regular supply of
raw materials and continuous production.

6) Regular payment of salaries wages and other day-to-day commitments:

A Company which has ample working capital can make regular payment of salaries, Wages
and other day-to-day commitments which raise the reduces of its employees, increases their
efficiency, reduces wastages and costs and enhances production and profits.

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 7) Exploitation of favourable market conditions: Only concerns with adequate working
capital can exploit favourable market conditions such as purchasing its requirements in bulk
when the prices are lower and by holding its inventories for higher prices.

8) Ability to face crisis: Adequate working capital enables a concern to face business crisis in
emergencies such as depression because during such periods, generally, there is much pressure
on working capital.

Disadvantages of Inadequate working capital:

1. A concern which has inadequate working capital cannot pay its short-term liabilities in
time. Thus it will lose its reputation and shall not be able to get good credit facilities.
2. It cannot buy its requirement in bulk and cannot avail of discounts etc.
3. It becomes difficult for the firm to exploit favourable market conditions and undertake
profitable projects due to lock of working capital.
4. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies,
increases costs and reduces the profits of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of
liquid funds.
6. The rate of return on investments also fall with the shortage of working capital.

Working capital includes the following

1. Cash Management
2. Receivables Management
3. Inventory Management.

CASH MANAGEMENT
INTRODUCTION
Cash is the important current assets for the operations of the business. Cash is the basic
input need to keep the business running on a continuous basis: it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm. The firm

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should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s
manufacturing operations while excessive cash will simply remain idle, without contributing
anything towards the firm’s profitability. Thus, a major function of the financial manager is to
maintain a sound cash position.

FACTS OF CASH MANAGEMENT:

The firm should evolve strategies regarding the following four aspects of cash
management.

 Cash planning Cash flows and outflows should be planned to project cash surplus or
deficit for each period of the planning period. Cash budget should be prepared for this
purpose.
 Managing the cash flows: The flow of cash should be properly managed. The cash
inflows should be accelerated while, as far as possible, the cash out lays should be
decelerated.
 Optimum cash level: The firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of cash.
 Investing surplus cash: The surplus cash balances should be properly invested to earn
profits. The firm should decide about the division of such cash balance between
alternative short-term investment opportunities such as bank deposits, marketable
securities, or inter corporate lending.

MOTIVES FOR HOLDING CASH

The firm’s needs to hold cash may be attributed to following three motives:
1. The transactions motive
2. The precautionary motive
3. The speculative motive
Transaction Motive:
The transaction motive requires a firm to hold cash to conduct its business in the
ordinary course. The firm needs cash primarily to make payments for purchases, wages,
salaries, other operating expenses, taxes dividends etc. the need to hold cash would not arise if

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there were perfect synchronization between cash receipts and cash payments i.e. enough cash is
received when then payment has to be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the firm should
maintain some cash balance to be able to make required payments.

Precautionary Motive:

There may be some uncertainty about the magnitude and timing of cash inflows form sale of
goods and service, sale of assets, and sale of securities. Likewise, there may be uncertainty
about cash outflows on account of purchases and other obligations. To itself against such
uncertainties, a firm may require some cash balance.

Speculative Motive:
The speculative motive relates to the holding of cash for investing in profit –making
opportunities as and when they arise. The opportunity to make profit may arise when the
security prices change. The firm will hold cash, when it is expected that interest rates will rise
and securities will fall. Securities can be purchased when the interest rate is expected to fall:
the firm will benefit by the subsequent fall in the interest rates and increase in securities prices.
The firm may also speculate on materials’ prices. If it is expected that materials’ prices will
fall, the firm can postpone materials’ purchasing and make purchases in future when price
actually falls.

Cash Planning:
Cash planning is a technique to plan and control the use of cash. It helps to anticipate
the further cash flows and needs the firm to reduce the possibility of idle cash balances (which
lowers firm’s profitability) and cash benefits (which can cause the firm’s failure).

Cash forecasting:
To overcome the cash problems, we should have the proper cash forecast. Cash forecast
can be done on short-term or long-term basis. Generally, forecast covering periods of one
year or less are consider short-term: those extending beyond one year are consider as long-
term.

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The important functions of carefully developed short-term
Cash forecast are:
 To determine operating cash requirements
 To anticipate short-term financing
 To manage investment on surplus cash
The important functions of carefully developed long-term cash forecast are:
 It indicates as company’s future financial needs, especially for its working capital
requirements.
 It helps to evaluate proposed capital projects. It pinpoints the cash required to finance
these projects as well the cash to be generated by the company to support them.
 It helps to improve the corporate planning. Long-term cash forecast compels each
division to plan for future and to formulate projects carefully.
Long-term cash forecast may be done for two, three, or five years. As with the short-term
forecast, company’s practices may differ on the duration of long-term forecast to suit their
particular needs.

RECEIVABLES MANAGEMENT
INTRODUCTION
Trade credit arises when a firm sells its products or services on credit and does not
receive cash immediately. It is an essential marketing tool, acting as a bridge for the movement
of goods through production and distribution stages to customers. A firm grants trade credit to
protect its sales from the competitors and to attract the potential customers to buy its products
at favourable terms. Trade credit creates accounts receivable or trade debtors that the firm is
expected to collect in the near future. The customers from whom receivables or book debts
have to be collected in the future are called trade debtors.

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 A credit sale has three characteristics: First, it involves an element of risk that should be
carefully analyzed. Cash sales are totally riskless, but not the credit sales as the cash payment
are yet too received. Second, it is based on economic value. To the buyer, the economic value
in goods or services passes immediately at the time of sale, while the seller expects an
equivalent value to received later on Third, it implies futurity. The buyer will make cash
payment for goods or services received by him in a future period.

CREDIT POLICY VARIABLES

In establish an optimum credit policy, the financial manager must consider the
important decisions variables which influence the level of receivables. The major controllable
decision variables include the following:

 Credit standards and analysis

 Credit terms
 Credit policy and procedures
Financial manager or the credit manager may administer the credit policy of the firm. It
should, however, be appreciated that the credit policy hasimportant implications for the firm’s
production marketing and finance functions.

Credit standards and analysis

Credit standards are the criteria which a firm follows in selecting customers for the purpose
of credit extension. The firm may have tight credit standards; that is, it may sell mostly on cash
basis, and may extend credit only to the most reliable and financially strong customers. Such
standards will result on bad-debt losses, and less cost on credit administration.

Credit analysis Credit standards influence the quality of the firm’s customers. There are two
aspects of the quality of customers: (i) the time taken by the customers to repay credit
obligations and (ii) the default rate. The Average Collection Period (ACP) determines the

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speed of payment by customers. Default rate can be measured in terms of bad-debt losses ratio-
the proportion of uncollected receivable.

Credit terms

The stipulations under which the firm sells on credit to customers are called credit terms. These
stipulations include: (a) the credit period, and (b) the cash discount.

Credit period

The length of timer for which credit is extended to customers is called credit period. A
firm’s credit policy can be governed by the industry norms but depending on the objective, the
firm can lengthen the credit period. On the other hand, the firm may tighten its credit period if
customers are defaulting too frequently and bad-debts losses are building up.

Credit discounts

A cash discount is a reduction in payment offered to customers to induce them to repay

credit obligations within a specified period of time, which will be less than the normal credit
period. It is usually expressed as percentage of sales. Cash discount terms include t6he rat6e of
discount and the period for which it is available. If the customers don’t avail the offer, he must
make payment within the normal credit period. The firm uses discount as a tool to increase
sales and accelerate collections from customers.

Collection policy and procedures

A collection policy is needed because all customers do not pay the firm’s bills in time.
Some customers are slow payers while some are non-payers. A collection policy should ensure
prompt and regular collections. Prompt collection is needed for turnover of working capital,
keeping collection costs and bad-debts within limits and maintaining collection efficiency.
Regularity in collection keeps debtors alert, and they tend to pay their dues properly. The
accounting department maintains the credit records and information. Similarly, the sales

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department must obtain past information about as customers from the accounting department
before granting credit to him.

INVENTORY MANAGEMENT
INTRODUCTION
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 percent of current assets
in public limited companies in India. Because of the large size of inventories maintained by
firms, a considerable amount of funds is required to be committed to them.

It is possible for a company to reduce its levels of inventories to a considerable degree,

e.g., 10 to 20 percent, without any adverse effect of production and sales, by using simple
inventory planning and control techniques. The reduction in ‘excessive’ inventories carries a
favourable impact on a company’s profitability.

NATURE OF INVENTORIES
The various forms in which inventories exist in a manufacturing company are: raw
materials, work-in- process and finished goods.

 Raw materials are those basic inputs that are converted into finished product through
the manufacturing process. Raw materials inventories are those units which have been
purchased and stored for future productions.
 Work-in-process inventories are semi-manufactured products. They represent products
that need more work before they become finished products for sale.
 Finished goods inventories are those completely manufactured products which are
ready for sale. Stocks of raw materials and work-in-process facilitate production, while
stock of finished goods is required for smooth marketing operations. Thus, inventories
serve as a link between the production and consumption of goods.
The levels of three kinds of inventories for a firm depend on the nature of its business.

OBJECTIVES OF INVENTORY MANAGEMENT.

In the context of inventory management, the firm is faced with the problem of meeting two
conflicting needs.

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 • To maintain a large size of inventories of raw materials and work-in-process for
efficient and smooth production and of finished goods for uninterrupted sales operation
 To maintain a minimum investment in inventories to maximize profitability.
The aim of inventory management, thus, should be to avoid excessive and inadequate levels of
inventories and to maintain sufficient inventory for the smooth production and sales operations.
Efforts should be made to place an order at the right time with the right source to acquire the
right quantity at the right price and quality. An effective inventory management should.

 Ensure a continuous supply of raw materials to facilitate uninterrupted production.

 Maintain sufficient stock of raw materials in periods of shot supply and anticipate price
changes.
 Maintain sufficient finished goods inventory for smooth sales operation, and efficient
customer’s service.
 Minimize the carrying cost and time, and
 Control investment in inventories and keep it at an optimum level.

INVENTORY MANAGEMENT TECHNIQUES

In managing inventories, the firm’s objective should be in consonance with the

shareholder wealth maximization principal. To achieve this, the firm determines the optimum
level inventory. Efficient controlled inventories make the firm flexible. Inefficient inventory
control results in unbalanced inventory and inflexibility.

Economic order quantity (EOQ)

One of the major inventory management problems to be solved is how much inventory
should be added when inventory is replenished. If the firm is buying raw materials, it has to
decide lots in which it has to be purchased on replenishment. Determining a optimum
inventory level two type of costs: (a) ordering costs and (b) carrying costs. The economic order
quantity is that inventory level that minimizes the total of ordering and carrying costs.

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Ordering costs: The term ordering costs is used in case of raw materials (or supplies) and
includes the entire costs of acquiring raw materials. They include costs incurred in the
following activities: requisitioning, purchasing order, transporting, receiving, inspecting and
storing (store replacement). Ordering costs increase in proportion to the number of orders
placed.

Ordering costs increase with the number or orders: thus the more frequently inventory
is acquired, the higher the firm’s ordering costs. On the other hand, if the firm maintains larges
inventory levels, there will be few orders placed and ordering costs will be relatively small.
Thus, ordering decreases with increasing size of inventory.

Carrying costs: Cost incurred for maintaining a given level of inventory are called carrying
costs. They include storage, insurance, taxes, deterioration and obsolescence. The carrying
costs vary with inventory size. This behaviour is contrary to that of ordering costs which
decline with increase in inventory size. The economic size of inventory would thus depend on
trade-off between carrying costs and ordering costs.

Ratios to measure the efficiency of working capital.

CURRENT RATIO:

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
and long-term obligations. To gauge this ability, the current ratio considers the current total
assets of a company (both liquid and illiquid) relative to that company’s current total liabilities.
The formula for calculating a company’s current ratio is:

Current Ratio = Current Assets / Current Liabilities

The current ratio is mainly used to give an idea of a company's ability to pay back its
liabilities (debt and accounts payable) with its assets (cash, marketable securities, inventory,
and accounts receivable). As such, current ratio can be used to make a rough estimate of a
company’s financial health. The current ratio can give a sense of the efficiency of a company's
operating cycle or its ability to turn its product into cash. Companies that have trouble getting
paid on their receivables or that have high inventory turnover can run into liquidity problems if
they are unable to alleviate their obligations.

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 A ratio under 1 indicates that a company’s liabilities are greater than its assets and
suggests that the company in question would be unable to pay off its obligations if they came
due at that point. While a current ratio below 1 show that the company is not in good financial
health, it does not necessarily mean that it will go bankrupt. There are many ways for a
company to access financing, and this is particularly so if a company has realistic expectations
of future earnings against which it might borrow. For example, if a company has a reasonable
amount of short-term debt but is expecting substantial returns from a project or other
investment not too long after its debts are due, it will likely be able to stave off its debt.

QUICK RATIO:

The quick ratio is an indicator of a company’s short-term liquidity, and measures a

company’s ability to meet its short-term obligations with its most liquid assets. Because we're
only concerned with the most liquid assets, the ratio excludes inventories from current assets.
Quick ratio is calculated as follows:

Quick ratio = (current assets – inventories) / current liabilities, or

Quick ratio = (cash and equivalents + marketable securities + accounts receivable) /

current liabilities

The quick ratio is also known as the acid-test ratio

The quick liquidity ratio, also known as the acid-test ratio, is a liquidity ratio that
further refines the current ratio by measuring the level of the most liquid current assets
available to cover current liabilities. The quick ratio is more conservative than the current ratio
because it excludes inventory and other current assets, which generally are more difficult to
turn into cash. A higher quick ratio means a more liquid current position.

The quick liquidity ratio is an important measure of an insurance company’s ability to

cover its liabilities with relatively liquid assets. A company with a low quick liquidity ratio that
finds itself with a sudden increase in liabilities may have to sell off long-term assets or borrow
money in order to cover its liabilities. For example, imagine if an insurer that has covered a lot
of property and then there is a hurricane. That insurer is now going to have to find more money

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than it would normally anticipate to pay claims. If such an insurer has high quick liquidity
ratio, they will be in a better position to make payments than an insurer with a lower ratio.

DEBTORS TURNOVER RATIO:

The receivables turnover ratio is an accounting measure used to quantify a firm's

effectiveness in extending credit and in collecting debts on that credit. The receivables turnover
ratio is an activity ratio measuring how efficiently a firm uses its assets.

Receivables turnover ratio can be calculated by dividing the net value of credit sales
during a given period by the average accounts receivable during the same period. Average
accounts receivable can be calculated by adding the value of accounts receivable at the
beginning of the desired period to their value at the end of the period and dividing the sum by
two.

The method for calculating receivables turnover ratio can be represented with the
following formula:

The receivables turnover ratio is most often calculated on an annual basis, though it can
also be calculated on a quarterly or monthly basis.

Receivable turnover ratio is also often called accounts receivable turnover, the accounts
receivable turnover ratio, or the debtors turnover ratio.

AVERAGE COLLECTION PERIOD:

The average collection period is the amount of time it takes for a business to receive
payments owed in terms of accounts receivable. The average collection period is calculated by
dividing the average balance of accounts receivable by total net credit sales for the period and
multiplying the quotient by the number of days in the period.

The average collection period represents the average number of days between the date a
credit sale is made and the date payment is received from the credit sale. The average balance

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of accounts receivable is calculated by adding the beginning balance in accounts receivable
(AR) and ending balance in accounts receivable and dividing the total by 2. When calculating
the average collection period for an entire year, 360 may be used as the number of days in one
year for simplicity.

Debtors divided by annual credit sales and the resulting figure multiplied by 365. This
ratio indicates how many days of credit are being obtained from the suppliers.

Average collection period = 360 days/Debtors Turnover Ratio

WORKING CAPITAL TURNOVER RATIO:

Working capital turnover is a ratio which measures how efficiently a company is using
its working capital to support a given level of sales. Also referred to as net sales to working
capital, it shows the relationship between the funds used to finance a company's operations and
the revenues a company generates as a result.

The working capital turnover ratio is calculated by dividing net annual sales by the
average amount of working capital – current assets minus current liabilities — during the same
12-month period.

A high turnover ratio shows that management is being very efficient in using a
company’s short-term assets and liabilities for supporting sales, i.e., it is generating a higher
amount of sales for every rupee of the working capital used. In contrast, a low ratio may
indicate that a business is investing in too many accounts receivable and inventory to support
its sales – which could lead to an excessive amount of bad debts or obsolete inventory.

AVERAGE PAYMENT PERIOD:

Average payment period (APP) is a solvency ratio that measures the average number of
days it takes a business to pay its vendors for purchases made on credit.

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 Average payment period is the average amount of time it takes a company to pay off
credit accounts payable. Many times, when a business makes a purchase at wholesale or for
basic materials, credit arrangements are used for payment. These are simple payment
arrangements that give the buyer a certain number of days to pay for the purchase.

Oftentimes, discounts for paying in a shorter period of time are given.

The average payment period calculation can reveal insight about a company’s cash flow
and creditworthiness, exposing potential concerns. For example, is the company meeting
current obligations or just skimming by? Or, is the company using its cash flows effectively,
taking advantage of any credit discounts? Therefore, investors, analysts, creditors and the
business management team should all find this information useful.

To calculate, first locate the accounts payable information on the balance sheet, located
under current liabilities section. The average payment period is usually calculated using a
year’s worth of information, but it may also be useful evaluating on a quarterly basis or over
another period of time. So, the desired period of time may dictate which financial statements
are necessary.

Here is how to calculate the average payment period equation.

The average payment period formula is calculated by dividing the period’s average
accounts payable by the derivation of the credit purchases and days in the period.

Average Payment Period = Average Accounts Payable / (Total Credit Purchases / Days)

To calculate, first determine the average accounts payable by dividing the sum of
beginning and ending accounts payable balances by two, as in this equation:

Average Accounts Payable = (Beginning + Ending AP Balance) / 2

Now, use the answer to solve for average payment period:

Average Payment Period = (Beginning + Ending AP Balance) / 2 / (Total Credit

Purchases / Days)

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INVENTORY TURNOVER RATIO:

Inventory turnover is a ratio showing how many times a company has sold and
replaced inventory during a period. The company can then divide the days in the period by the
inventory turnover formula to calculate the days it takes to sell the inventory on hand. It is
calculated as sales divided by average inventory.

Inventory turnover measures how fast a company sells inventory and analysts compare
it to industry averages. Low turnover implies weak sales and, excess inventory. A high ratio
implies either strong sales or large discounts.

The speed with which a company can sell inventory is a critical measure of business
performance. It is also one component in the calculation of return on assets — the other
component is profitability. The return a company makes on its assets is a function of how fast it
sells inventory at a profit. High turnover means nothing unless the company is making a profit
on each sale.

REVIEW OF LITERATURE:

Rao K.V. and RaoChinta (1991) observed that strong and weak point of conventional
techniques of working capital analysis. Outcomes of this study shows that some of the
conventional techniques which could realize the working capital behavior well. And some of
them fail to do so. And thus authors suggest proper working capital management with
conventional method i.e. ratio analysis. Study suggests further inclusive factors which are
decisive yardstick in working capital efficiency

Fazzari Steven M. and Petersen Bruce C. (1993) focused on financial restrain on investment
by giving focus the ignoring role of working capital in both as use and source of funds. As per
the views of author liquidity can be maintain by maintaining working capital on smooth
manner means to be investment in a manner which does not create cash flow constrain.
Through the research found that working capital investment should be ―excessively sensitive‖
with summing up that controlling on smoothing working capital create a long term impact of
finance constraints and reported in many other studies also.

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Siddharth and Das (1994) tried to determine efficient use of working capital in selected
pharmaceutical firms in India. 10 year’s data had concluded that overall turnover ratio was 90.3
time. The finely analysis of the data shows that the selected companies had done well in terms
of employment of working capital. Further study discovered the working capital turnover ratio
cried off staidly over the stage from 1981 – 1990.

Vijayakumar and Venkatachalam (1995) an attempt was made on observed analysis in

working capital and profitability. Study was carried with 13 firms belonging sugar industry for
the 10 year’s period from 1982-1983 to 1991-92. The correlation and regression statistical
method has been used to analyze the impact of working capital ratios on profitability. In this
study total four ratios has been taken in to consideration; Liquidity ratio, inventory turnover
ratio, receivable turnover ratio and cash turnover ratio. The discovery of the study said that
liquid ratio and cash turnover ratio have harmful impact on profitability on the other hand
inventory turnover ratio and receivables have positive impact on profitability.
Ahmed Habib (1998) evaluated that the interest rate of fund reducing money power on output.
For the study rational expectation model is used to find out relation between production
decisions and debt finance. As working capital having immense important factors and its cost,
the rate of interest, affects the supply of goods, this study revealed that this model helps to
identify the alarming situation when interest rate is used. This model also revealed that effects
of monetary policy on the price level and supply side.

Jain P. K. and YadavSurendra S. (2001) tried to understand the relationship of working

capital management and current assets and current liabilities. In other hand, authors have
revealed the analysis liquidities ratios like current assets and current liabilities. Every sample of
study have been pertained these ratios for the management of working capital. In a sum up of
the paper the data of samples of three countries confirm that there were wide inter-industry
variations in liquidity ratios.

ChowdhuryAnup and Amin Md. Muntasir (2007) carried a study on pharmaceutical

companies listed in Dhanka Stock Exchange. Observation of the study based on the financial

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management, according to this major problem found in area of working capital management. It
is true that working capital effects go on business performance and growth. The main objective
of the study is to evaluate working capital practicability and implication of working capital
policy and strategies in the targeted industry. To obtain the goal, evaluation was made
regarding principles, procedures and techniques of stock management, creditors management,
and debtors ‘management.

Kushwah, Mathur&Ball (2009) evaluated the working capital management and direction in
selected five major cement companies i.e. ACC, Grasim, Ambuja, Prism and Ultra- Tech. For
the research purpose secondary data are used like authors collected the financial statement of
selected cements companies for the years from 2007 to 2009. There is liquidity ratios and
activities ratios are used to analyze the condition of working capital of the companies. The
study revealed the truth of study is that, most companies not maintain their working capital in a
systematic way while overall ACC shows appropriate management of working capital

Rao and Rao&Ramachandran (2010) evaluated the trends and parameters of effectiveness of
working capital and its utilization in terms of volume of the firms of cotton textiles industry in
India. For that three parameters are taken i.e. different indices first one performance Index,
utilization index and efficiency Index. For the study industry is divided in three category means
small, medium and large. The output of the study is like that linear growth rate model is used to
find out the significance with working capital and PIUI and EI are significant in respect of
small size companies while in medium size only UI is significant. On an average we can say
that working capital efficiency was not so satisfied despite having PI in growth mode. The
reason behind is that continuous factors are declining.

Rahman Mohammad M. (2011) made an attempt to find out correlation among working
capital and profitability. To analyze the effectiveness of working capital management of the
selected textile companies. Conclusion of the study found that overall good management in

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working capital management of selected textile companies and thus most of the companies are
profitable way going on.

DrArbab Ahmed and DrMatarneh Bashar (2011) carried research with registration
technique which is very powerful statistical tool to forecast the working capital. the area of
working capital management, that is possible to make the projection after starting the average
relationship in the past. For the purpose different components are used and to be finalized
result. And it is presented in diagrammatic way as well mathematical way.

Kaur Harsh V. and Singh Sukhdev (2013) focused on cash conversion efficiency and setting
up the operating cycle days. The study tests the relationship between the working capital attain
and profitability calculated by income to current assets and income to average total assets.
Authors did study with companies listed in BSE 200 that is spread over 19 industries for the
period 2000 to 2010.At the end, the study lay emphasis on that proficient management of
working capital notably affects profitability.

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 5.1. STATEMENT SHOWING THE CHANGES IN THE WORKING CAPITAL
DURING THE YEAR 2017-2018(in Crores)

CHANGE IN WORKING
PARTICULARS AMOUNT (in Crores)
CAPITAL
2017 2018 INCREASE DECREASE
CURRENT ASSETS
INVENTORIES 1,698.38 1,919.53 221.15
TRADE
2,724.54 3,054.59 330.05
RECEIVABLES
CASH AND CASH
451.88 1,076.08 624.2
EQUIVALENTS
CURRENT
- 381.47 381.47
INVESTMENTS
OTHER CURRENT
2,503.02 1,446.13 1,056.89
ASSETS
TOTAL 7,377.82 7,877.8

CURRENT LIABILTIES
SHORT TERM
- - - -
BORROWINGS
TRADE PAYABLES 2,716.01 3,881.55 - 1,165.54
SHORT TERM
700.74 847.88 - 147.14
PROVISIONS
OTHER CURRENT
1,139.78 1,188.20 - 48.42
LIABILITIES
TOTAL 5,556.53 5,917.63
NET WORKING
2,821.29 1,960.17
CAPITAL
INCREASE/DECREASE
861.12 1,861.08
TOTAL 2,821.29 2,821.29 2,917.97 2,917.97
INTERPRETATION:
 During the year 2017 and 2018 the firm current assets like inventories, trade receivables,
current cash and cash equivalents & current investments are increased by Rs.221.15,
Rs.330.05, Rs.624.2, Rs.381.47 crores respectively.
 In the year 2017 and 2018 there is decrease in current liabilities like trade payables by
Rs.1165.54, short term provisions by Rs.147.14 and other current liabilities by Rs.48.42
crores respectively.
 From the above analysis it is observed that there is decrease in Net Working Capital in the
year 2017-2018 amount to Rs.1960.17 crores.
75
 5.2. STATEMENT SHOWING THE CHANGES IN THE WORKING CAPITAL
DURING THE YEAR 2018-2019(in Crores)

CHANGE IN WORKING
PARTICULARS AMOUNT (in Crores)
CAPITAL
2018 2019 INCREASE DECREASE
CURRENT ASSETS
INVENTORIES 1,919.53 2,321.91 402.38
TRADE RECEIVABLES 3,054.59 4,060.19 1,005.6
CASH AND CASH
1,076.08 150.78 925.22
EQUIVALENTS
CURRENT
381.47 - 381.47
INVESTMENTS
OTHER CURRENT
1,446.13 1,583.80 137.67
ASSETS
TOTAL 7,877.8 8,116.68

CURRENT LIABILTIES
SHORT TERM
- -
BORROWINGS
TRADE PAYABLES 3,881.55 3,758.99 122.56
SHORT TERM
847.88 730.79 117.09
PROVISIONS
OTHER CURRENT
1,188.20 1,145.42 42.78
LIABILITIES
TOTAL 5,917.63 5,635.2 282.43
NET WORKING
1,960.17 2,481.48
CAPITAL
INCREASE/DECREASE
521.31 325.9

TOTAL 2,481.48 2,481.48 1,871.55 1,871.55

INTERPRETATION:
 During the year 2018 and 2019 the firm current assets like inventory, trade receivables and
other current assets are increased by Rs. 402.38, Rs.1005.6 and Rs.137.67 crores
respectively.
 In the year 2018 and 2019, there is no decrease in current liabilities.
 From the above analysis it is observed that there is increase in Net Working Capital in the
year 2018-2019 amount to Rs. 2,481.48 crores.

76
 5.3. STATEMENT SHOWING THE CHANGES IN THE WORKING CAPITAL
DURING THE YEAR 2019-2020(in Crores)

CHANGE IN WORKING
PARTICULARS AMOUNT (in Crores)
CAPITAL
2019 2020 INCREASE DECREASE
CURRENT ASSETS
INVENTORIES 2,321.91 2,960.08 638.17
TRADE
4,060.19 4,546.84 486.65
RECEIVABLES
CASH AND CASH
150.78 548.33 397.55
EQUIVALENTS
CURRENT
- - -
INVESTMENTS
OTHER CURRENT
1,583.80 845.70 738.1
ASSETS
TOTAL 8,116.68 8,900.95

CURRENT LIABILTIES
SHORT TERM
- 1,799.70 1,799.70
BORROWINGS
TRADE PAYABLES 3,758.99 3,866.22 107.23
SHORT TERM
730.79 755.04 24.25
PROVISIONS
OTHER CURRENT
1,145.42 1,127.04 18.38
LIABILITIES
TOTAL 5,635.2 7,548
NET WORKING
2,481.48 1,352.95
CAPITAL
INCREASE/DECREASE
1,128.53 2,697.07
TOTAL 2,481.48 2,481.48 3,453.55 3,453.55

INTERPRETATION:
 During the year 2019 and 2020 the firm current assets like inventories, trade receivables and
cash and cash equivalents are increased by Rs. 638.17, Rs.486.65 and Rs.397.55 crores
respectively.
 The current liabilities like short term borrowings, current trade payables, short term
provisions have been decreased by Rs. 1,799.70, Rs. 107.23 and Rs. 24.25crores respectively.
 From the above analysis it is observed that there is decrease in Net Working Capital in the
year 2019-2020 amount to Rs. 1,352.95 crores respectively.
77
 5.4. STATEMENT SHOWING THE CHANGES IN THE WORKING CAPITAL
DURING THE YEAR 2020-2021(in Crores)

CHANGE IN WORKING
PARTICULARS AMOUNT (in Crores)
CAPITAL
2020 2021 INCREASE DECREASE
CURRENT ASSETS
INVENTORIES 2,960.08 2,603.81 356.27
TRADE
4,546.84 3,392.33 1,154.51
RECEIVABLES
CASH AND CASH
548.33 1,212.22 663.89
EQUIVALENTS
CURRENT
- 468.48 468.48
INVESTMENTS
OTHER CURRENT
857.83 659.91 197.92
ASSETS
TOTAL 8,913.08 8,336.75

CURRENT LIABILTIES
SHORT TERM
1,799.70 738.50 1,061.2
BORROWINGS
TRADE PAYABLES 3,866.22 4,095.53 229.31
SHORT TERM
755.04 812.32 57.28
PROVISIONS
OTHER CURRENT
1,127.04 1,125.21 1,011.83
LIABILITIES
TOTAL 7,548 6,771.56
NET WORKING
1,365.08 1,565.19
CAPITAL
INCREASE/DECREASE
200.11 2,362.77
TOTAL 1,565.19 1,565.19 3,781.73 3,781.73
INTERPRETATION:
 During the year 2020 and 2021 the firm current assets like cash and cash equivalents and
current investments are increased by Rs.663.89 and Rs. 468.48 crores respectively.
 The current liabilities like other current liabilities trade payables & short term provisions
have been decreased by Rs.229.31 & Rs. 57.28 crores respectively.
 From the above analysis it is observed that there is increase in Net Working Capital in the
year 2020-2021 amount to Rs.1565.19 crores respectively.

78
 5.5. STATEMENT SHOWING THE CHANGES IN THE WORKING CAPITAL
DURING THE YEAR 2021-2022(in Crores)

CHANGE IN WORKING
PARTICULARS AMOUNT (in Crores)
CAPITAL
2021 2022 INCREASE DECREASE
CURRENT ASSETS
INVENTORIES 2,603.81 3,015.24 411.43
TRADE
3,392.33 7,316.38 3,924.05
RECEIVABLES
CASH AND CASH
1,212.22 1,367.56 155.34
EQUIVALENTS
CURRENT
468.48 - 468.48
INVESTMENTS
OTHER CURRENT
659.91 666.47 6.56
ASSETS
TOTAL 8,336.75 12,365.65

CURRENT LIABILTIES
SHORT TERM
1,163.62 1,522.67 359.05
BORROWINGS
TRADE PAYABLES 4,095.53 5,173.60 1,078.07
SHORT TERM
812.32 843.88 31.56
PROVISIONS
OTHER CURRENT
1,125.21 1,630.94 505.73
LIABILITIES
TOTAL 7,196.68 9,171.09
NET WORKING
1,140.07 3,194.56
CAPITAL
INCREASE/DECREASE
2,054.49 6,003.31
TOTAL 3,194.56 3,194.56 6,471.79 6,471.79
INTERPRETATION:
 During the year 2021 and 2022 the firm current assets like inventories, trade receivables, cash
and cash equivalents & other current assets are increased by Rs.411.43, Rs. 3924.05
Rs.155.34 and Rs. 6.56 crores respectively.
 The current liabilities like short term borrowings, trade payables, short term provision, other
current liabilities have been increased by Rs.359.05, Rs. 1,078.07, Rs. 31.56, Rs.505.73
crores respectively.
 From the analysis it is observed that the Net Working Capital in the year 2021-22 increases.

79
ANALYSIS OF WORKING CAPITAL THROUGH RATIO:
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of the
ratio to interpret the financial statements so that the strengths and weakness of a firm as well as
historical and current financial condition can be determined.

The ratio analysis or ratio technique is one of the tools available to the financial analyst to analyse
the financial statements. A financial analyst can diagnose the financial condition of the enterprise
through ratio analysis.

CURRENT RATIO: -

Current ratio may be defined as the relationship between current assets and current liabilities. This
ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used
to make the analysis of a short-term financial position or liquidity.

Current ratio = Current Assets

Current liabilities

5.61. Current Ratio

Current
Years Current Liabilities Current Ratio
Assets
2017-2018 7,877.8 5,917.63 1.33
2018-2019 8,116.68 5,635.2 1.44
2019-2020 8,900.95 7,548 1.17
2020-2021 8,336.75 6,771.56 1.23
2021-2022 12,365.65 9,171.09 1.34

80
5.61. GRAPHICAL REPRESENTATION

Current Rati o
1.44

1.34
1.33

1.23
1.17

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:
As a conventional rule, ratio of 2:1 (or) more is considered satisfactory. GAIL (INDIA)
LIMITED has current ratio of 1.33 in 2017–18 and 1.44 in 2018–19 and 1.17 in 2019-20 and
1.23 in 2020-21 and 1.34 in 2021-22. Hence the current ratio of GAIL (INDIA) LIMITED is
decreased in the year 2019-2020 and increased year by year.

81
QUICK RATIO: Quick ratio is also known as Liquid Ratio or Acid Test Ratio. The term liquidity
reforms to the ability of a firm to pay its short-term obligation as and when they become due. Quick
ratio may be defined as the relationship between Quick/liquid assets and current or liquid liabilities.

Quick ratio = Quick assets

Current liabilities

Quick assets = current assets – (stock + prepaid expenses)

QUICK RATIO

Years Quick Assets Current Liabilities Quick Ratio

2017-2018 5,958.27 5,917.63 1.0
2018-2019 5,794.77 5,635.2 1.02
2019-2020 5,940.87 7,548 0.78
2020-2021 5,732.94 6,771.56 0.84
2021-2022 9,350.41 9,171.09 1.01

82
5.62. GRAPHICAL REPRESENTATION:

Quick Rati o

1.02

1.01
1

0.84
0.78

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:

This ratio establishes a relationship between quick (or) liquid, assets and current
liabilities. As a common rule, a quick ratio of 1:1 (or) more is considered satisfactory. The quick
ratio of GAIL (INDIA) LIMITED was 1.00 in 2017–18, and 1.02 in 2018–19, 0.78 in 2019-20,
0.84 in 2020-21 and 1.01 in 2020-21. The quick ratio of this company is decreased in the year
2019-2020 and increased year by year.

83
ABSOLUTE LIQUID RATIO:

cash Absolute Liquid

Years Current Liabilities
equivalents Ratio
2017-2018 1,076.08 5,917.63 0.18

2018-2019 150.78 5,635.2 0.02

2019-2020 548.33 7,548 0.07

2020-2021 1,212.22 6,771.56 0.17

2021-2022 1,367.56 9,171.09 0.14

5.63. GRAPHICAL REPRESENTATION

Absolute Liquid Rati o

0.18

0.17

0.14
0.07
0.02

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

84
INTERPRETATION:
As a conventional rule, standard ratio is 1:2 (or) more is considered satisfactory. GAIL (INDIA)
LIMITED has Absolute liquid ratios are 0.18 in 2017 -18, 0.02 in 2018-19, 0.07 in 2019-20, 0.17 in
2020-21 and 0.14 in 2021-22. This shows the absolute liquid ratio is below the standard ratio. In the
year 2018-19, absolute liquid ratio has reduced to 0.16. Hence it shows that the liquid position of the
company is not good.

INVENTORY TURNOVER RATIO: This ratio establishes relationship between costs of goods
sold and average inventory. It indicates the no. of times the stock has been turned over during the
period.

85
 Formula: Inventory turnover ratio = Costs of goods sold

Average inventory

Where, costs of goods sold = sales- gross profit

(Or)

= opening stock+ purchases + direct expenses – closing stock

Where, average inventory = opening stock + closing stock

Inventory turnover ratio

Inventory
Years Net sales Inventory Turnover
Ratio
2017-2018 53,661.58 1,808.95 29.6
2018-2019 75,126.30 2,120.72 35.4
2019-2020 71,880.24 2,640.99 27.2
2020-2021 56,730.15 2,781.94 20.3
2021-2022 91,626.48 2,809.52 32.6

5.64. GRAPICAL REPRESENTATION:

86
 Inventory Turnover Rati o

35.4

32.6
29.6

27.2

20.3
2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:

A higher inventory turnover ratio indicates that more sales are affected i.e., the business is
expending and such there is affective inventory management. This company’s inventory turnover
is fluctuating year by year as it was high in 2018-2019 and comparatively low in 2020-2021 and
again increased in 2021-2022.

87
DEBTORS TURNOVER RATIO: This ratio establishes a relationship between net credit sales and
average trade debtors. Debtors’ turnover ratio indicates the velocity of debt collection of firm.

Formula: Debtors turnover ratio = Net credit sales

Average trade debtors

Where, Trade debtors = Sundry Debtors + Bills Receivables+ Accounts Receivables

Where, average trade debtors = opening trade debtors + closing trade debtors

Shows Debtors Turnover Ratio

Debtors
Years Net sales Debtors Turnover
Ratio
2017-2018 53,661.58 2,889.56 18.5
2018-2019 75,126.30 3,557.39 21.1
2019-2020 71,880.24 4,303.51 16.7
2020-2021 56,730.15 3,969.58 14.2
2021-2022 91,626.48 5,354.35 17.1

88
5.65. GRAPHICAL REPRESENTATION

Debtors Turnover Rati o

21.1
18.5

17.1
16.7

14.2

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:

The debtor ‘s turnover ratios indicate the number of times debt ‘s turnover in each year.
Generally, the higher the value of debt ‘s turnover the more efficient in the management of the
credit actually it depends upon the company’s policies towards credit management. These
company products are having good demand and these are going to GAIL (INDIA) LIMITED.

89
DEBTORS COLLECTION PERIOD: Debtors Collection Period= 365 days
Debtors
Turnover ratio

Debtors Collection Period

Debtors Turnover Debtors

Years Days
Ratio Collection Period
2017-2018 365 18.5 19.7
2018-2019 365 21.1 17.2
2019-2020 365 16.7 21.8
2020-2021 365 14.2 25.7
2021-2022 365 17.1 21.3

90
5.66. GRAPHICAL REPRESENTATION

Debtors Collecti on Period

25.7
21.8

21.3
19.7

17.2

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:
The above graph indicates that there are continue increase in GAIL (INDIA) LIMITED average
accounts receivable period. During the year 2016-17 the average accounts receivable period is
19.7 which indicate increase in average receivable period. During the year 2018-2019 the average
receivable period is 17.2 and in 2019-20 it is 21.8 which indicate increase in average receivable
period, which implies that the debtors were taking too much time to get collected. In the year
2021-22 the average accounts receivable period is 21.3. This indicates the weakness of the
company in collecting debts and there are chances of those debts becoming bad debts.

91
WORKING CAPITAL TURNOVER RATIO: Working capital refers to the capital required by
the firm to run its day to day operations. To run the day to day operations, the company needs certain
type of assets.

Formula: working capital turnover ratio=net sales/ working capital

Where, net working capital = current assets – current liabilities.

Working Capital Turnover Ratio

Working Working Capital

Years Net sales
Capital Turnover Ratio
2017-2018 53,661.58 1,960.17 27.37
2018-2019 75,126.30 2,481.48 30.27
2019-2020 71,880.24 1,352.95 53.1
2020-2021 56,730.15 1,565.19 36.2
2021-2022 91,626.48 3,194.56 28.6

92
5.67. GRAPHICAL REPRESENTATION

Working Capital Turnover Rati o

53.1

36.2
30.27
27.37

28.6
2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:

A higher working capital turnover ratio indicates the efficiency and the lower working capital
turnover ratio indicates the inefficiency of the management for utilization of the working capital.
The working capital turnover ratio of GAIL (INDIA) LIMITED is ranging from 27.37 to 28.6. In
the years 2017-18 and 2021-22, when compared to 2019-2020 the working capital turnover ratio
is lower.

AVERAGE INVENTORY: Average Inventory =

93
Average Inventory

Average
Years Opening stock Closing stock
Inventory
1,698.38 1,919.53
2017-2018 1,808.95
1,919.53 2,321.91
2018-2019 2,120.72
2,321.91 2,960.08
2019-2020 2,640.99
2,960.08 2,603.81
2020-2021 2,781.94
2,603.81 3,015.24
2021-2022 2,809.52

5.68. GRAPHICAL REPRESENTATION

94
 Average Inventory

2,809.52
2,781.94
2,640.99
2,120.72
1,808.95

2 0 1 7 -2 0 1 8 2 0 1 8 -2 0 1 9 2 0 1 9 -2 0 2 0 2 0 2 0 -2 0 2 1 2 0 2 1 -2 0 2 2

INTERPRETATION:

The above graph indicates that there are increase and decrease in GAIL (INDIA)
LIMITED average inventory. During the year 2017-18 the average inventory is 1,808.95 which
indicate increase in average inventory. During the year 2021-22 the average inventory is
2,809.52 which indicate increase in average inventory.

5.7. INDIVIDUAL COMPONENTS OF CURRENT ASSETS AS PERCENTAGE OF

TOTAL CURRENT ASSETS FOR THE PERIOD 2017-18 TO 2021-22 (in Rs. Crores)
95
 Year Current Inventories Trade Cash & Short Other Total
Investments receivable Cash term current Current
s equivalents loans & assets assets
advances
2017-18 - 1,698.38 2,724.54 451.88 - 2,503.02 7,377.82
(0) (23.02) (36.920) (6.12) (0) (33.92) (100)

2018-19 381.47 1,919.53 3,054.59 1,076.08 - 1,446.13 7,877.8

(4.84) (24.36) (38.77) (13.65) (0) (18.35) (100)

2019-20 - 2,321.91 4,060.19 150.78 - 1,583.80 8,116.68

(0) (28.60) (50.02) (1.85) (0) (19.51) (100)

2020-21 - 2,960.08 4,546.84 548.33 - 857.83 8,913.08

(0) (33.21) (51.01) (6.15) (0) (9.62) (100)

2021-22 468.48 2,603.81 3,392.33 1,212.22 - 659.91 8,336.75

(5.61) (31.23) (40.69) (14.54) (0) (7.91) (100)

Minimum 1,698.38 2,724.54 150.78 659.91

0 (23.02) (36.920) (1.85) 0 (7.91)

Maximu 468.48 2,960.08 4,546.84 1,212.22 2,503.02

m (5.61) (33.21) (51.01) (14.54) 0 (33.92)

Mean 475.16 9,420.66 15,064.62 2,469.51 0 6,522.76

Interpretation:
The table 5.6 shows the individual components of each current asset in percentages for 5 years i.e.,
from 2017-18 to 2021-22. Out of 5 years, the average proportion in current investments is 475.16. In
Inventories, it is 9,420.66 and in trade receivables, it is 15,064.62. In cash & cash equivalents, it is
2,469.51. In other current assets, the average investment is 6,522.76. Out of all current assets, the
least proportion of current assets is in current investments. And the highest proportion is in trade
receivables. And in the year 2021-22, the firm’s investment in current assets has been reached to
minimum.

96
 5.8. ZERO WORKING CAPITAL AND ZERO WORKING CAPITAL RATIO OF GAIL
(INDIA) LIMITED FOR THE PERIOD 2017-18 TO 2021-22

Year Inventories Trade Trade payables Zero W.C ZWC Ratio

receivables

2017-18 1,698.38 2,724.54 2,716.01 1,706.91 1,699.38

2018-19 1,919.53 3,054.59 3,881.55 1,092.57 1,920..31

2019-20 2,321.91 4,060.19 3,758.99 2,623.11 2,322.99

2020-21 2,960.08 4,546.84 3,866.22 3,640.7 2,961.25

2021-22 2,603.81 3,392.33 4,095.53 1,900.61 2,604.63

Calculation of Zero Working capital

I. Zero Working capital = (Inventories + receivables) – payables

The calculation of Zero Working Capital Ratio enables us to understand the concept of Zero
Working capital in detail.

Calculation of Zero Working Capital ratio

II. Zero Working Capital ratio = (Inventories + Receivables) / payables

Interpretation:
Zero Working capital is a state in which a company’s current assets do not exceed its current
liabilities. Accounts receivable, inventories, and accounts payable make up the majority of
working capital. Zero working capital should be equal to zero, to improve the firm’s
management of current assets and liabilities.

97
 SUMMARY

The concept of working capital is used in two ways i.e. Gross working capital and Net working
capital. Gross working capital refers to the firm investments in current assets and Net working
capital means the difference between Current assets and Current liabilities. Therefore, it represents
the position of current assets which are financed either by long term funds or by bank borrowings.
Cash is required to meet firm’s day to day and precautionary needs. A firm also needs cash to meet
its creditors for normal conduct of business. Cash is also held to meet unexpected emergency
situations. Some firms hold cash to take advantage of speculation changes in prices of input and
output. Management of cash involves three things.

 Managing Cash Flows in and out of a firm.

 Managing Cash Flows with in the firm.
 Financing deficit or investing surplus cash.
Financial management is important because it has impact on all the activities of a firm. Its primary
responsibility is to discharge the finance function successfully. It touches on all the other business
functions. Financial performance is a managerial activity, which is concerned with the planning and
controlling the financial sources of firm. Financial sources are of the life blood of the business
organization. We cannot imagine a business without finance because it is the central point of all
business activities because of all decisions are financial implications. These finance function of the
management is equally important for profit and non-profit organizations.

GAIL (India) Limited was incorporated in August 1984 as a Central Public Sector Undertaking
(PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The company was formerly
known as Gas Authority of India Limited. It is India's principal gas transmission and marketing
company. The company was initially given the responsibility of construction, operation and
maintenance of the Hazira – Vijaypur – Jagdishpur (HVJ) pipeline project. It was one of the largest
cross-country natural gas pipeline projects in the world. GAIL began its city gas distribution in New
Delhi in 1997 by setting up nine compressed natural gas (CNG) stations. GAIL today has reached
new milestones with its strategic diversification into petrochemicals, telecom and liquid
hydrocarbons besides gas infrastructure. The company has also extended its presence in power,
liquefied natural gas re-gasification, city gas distribution and exploration & production through

98
participation in equity and joint ventures. Incorporating the new-found energy into its corporate
identity, Gas Authority of India was renamed GAIL (India) Limited on 22 November 2002.

GAIL (India) Limited has shown organic growth in gas transmission through the years by building
large network of trunk pipelines covering length of around 10,700 kilometres (6,600 mi). Leveraging
on the core competencies, GAIL played a key role as gas market developer in India for decades
catering to major industrial sectors like power, fertilizers, and city gas distribution. GAIL transmits
more than 160 million cubic metre per day at standard conditions of gas through its dedicated
pipelines and have more than 70% market share in both gas transmission and marketing.

Infrastructure GAIL owns the country's largest pipeline network, the cross-country 2300 km Hazira-
Vijaipur-Jagdishpur pipeline with a capacity to handle 33.4 million cubic metre per day at standard
conditions gas. Today the company owns and operates more than 11000 km of long cross country
natural Gas Pipeline in India having a presence in 22 states in the country. It also owns and operates
more than 2000 km long LPG pipelines in the country and operates one of the world's longest
exclusive LPG pipeline in the country, from Jamnagar in Gujarat to Loni in Uttar Pradesh.

It deals with the theoretical background of working capital management which includes
introduction, definitions, needs, management and process of working capital management, problems
of working capital management. It includes calculation of different ratios and schedule of changes in
working capital for 2016-2017, 2017-2018, 2018-2019, 2019-2020, 2020-2021, 2021-2022. It
contains summary, findings and suggestions. The suggestions were based on the findings. important
for profit and non-profit organizations.

99
 FINDINGS

 The improved performance of GAIL (INDIA) LIMIITED was due to the constant development
work in the areas of production, in plant modification, maintenance and above all the financial
policies.
 The company is maintaining more than satisfactory relation between current assets and current
liabilities.
 Most of working capital in quick assets.
 By observing the current assets total assets, it shows the efficiency in employing working funds.
 By observing cash to current assets abnormally increased in 2021 to 2022
 The current ratio of company is quite fluctuating every year in the organization.
 The quick ratio has also been fluctuated every year and it is not satisfactory.

 Debtor’s ratio decreased due to credit sales in 2020 to 2021 and increased in 2021 to 2022.
 The inventory turnover ratio is increased due to the finished stock is rapid turnover in 2018 to
2019 and decresed in 2020-2021 and again increased in 2021-2022.
 The percentage of inventory to current assets has been increased in 2021 to 2022.

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 SUGGESTIONS

 It is suggested that the fluctuations existed in the net working capital must be controlled by
properly maintaining the ratio of current assets and current liabilities in 2021 to 2022.
 The high working capital turnover ratio is sign of over trading and put the concern in
financial difficulties in 2020 to 2021.
 The high cash velocity is desirable but at the same time it adversely effects the short-term
liquidity position of the business unit.
 By implementation of strict collection policies, the average collection period can be brought
down.
 The company should be stringent regarding is credit policies as receivables comprises most
in current assets.

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Conclusion:
As the study completed with a feeling of satisfaction leaving behind. It can be amicably
concluded that the company’s performance in the period of study is good and overall working
capital position is good. There is always scope of improvement and growth. therefore, with
due consideration to analysis summary and suggestions of the company can achieve greater
success in terms of increase in sales, profitability and continuity of growth and build more
stronger equity .

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 BIBLIOGRAPHY

BOOKS:

I. M. Pandey, Financial Management (Theory and Practice), Vikas Publishing House Pvt Ltd,
2007.

R.K. Sharma, Management Accounting, Kalyani Publishers, New Delhi.

R.M. Srinivatsava, Financial Management (Management and Policy), Himalaya Publishing

House, 2009.

REPORTS:

ANNUAL REPORTS

WEBSITE:

 www.google.com

 www.gailindia.com

 www.moneycontrol.com

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