A STUDY ON

AT

, DAMANJODI, ODISHA

NATIONAL ALUMINIUM COMPANY LIMITED

(A Govt. of India Enterprise)
A NAVARTNA COMPANY
MINES & REFINERY COMPLEX
DAMANJODI, KORAPUT, ODISHA

UNDER THE GUIDANCE OF:

Mr. Alok Tripathy
Asst. Manager (Finance)
Mine Division
NALCO
And
Dr. G.V.K. Kasthuri
Gitam Institute of Management
Gitam University
GITAM INSTITUTE OF MANAGEMENT
GITAM DEEMED TO BE UNIVERSITY

Prepared by: - MANISHA CHOUDHURY

Discipline: - BBA(MA)
Regd. no: - 121713701015
 ACKNOWLEDGEMENT

I Acknowledge my sincere and heartiest gratitude to my Project

Guide Mr. Alok Tripathy, Asst. Manager (Finance), NALCO (M&R
Complex), for his kind consent to prepare this project report at NALCO,
M&R Complex, Damanjodi. I am also grateful to my project guide in our
institute Dr. G.V.K. Kasthuri for her constant support and guidance.

I am also grateful to Mr. Saranand Choudhury (GM) MINES

Division, NALCO, Damanjodi for his kind permission to carry out project
work in the organization.

I would like to express my gratitude to the employees

(executives) and all other office staffs of NALCO for their kind co-operation
for collecting the required information for the project.

Again I avail this opportunity to express my deep sense of

gratitude to all the faculty members of noble school of business for their
valuable suggestions and advices for this project.

MANISHA CHOUDHURY

BBM (MA)
 DECLARATION

I do hereby declare that the project report is entitled on “WORKING

CAPITAL MANAGEMENT” under the guidance of Mr. Alok Tripathy Asst.

Manager (Finance), NALCO.

This project is prepared basing on the information collected during the

months of MAY 2ND to MAY 30TH for partial fulfilment of the award of BBA(MA)

under GITAM Institute of Management, GITAM University.

It is an original work done by me and to the best of my knowledge and

belief, it has not been published earlier elsewhere or presented to any University

/ Institution for award of any degree, diploma or other similar title.

SIGNATURE:

MANISHA CHOUDHURY

BBA(MA)

REGD NO.121713701015

GITAM INSTITUTE OF MANAGEMENT

GITAM UNIVERSITY
 CONTENT

CHAPTER
Page No.

CHAPTER-1 INTRODUCTION

CHAPTER-2 COMPANY PROFILE

CHAPTER-3 FINANCIAL AND ACCOUNTING FUNCTION OF NALCO

CHAPTER-4 CONCEPTUAL PROFILE

CHAPTER-5 ANALYSIS AND INTERPRETATION

CHAPTER-6 SUMMARY, SUGGESTION AND CONCLUSION

CHAPTER-7 ANNEXURE AND BIBLIOGRAPHY

CHAPTER-ONE

INTRODUCTION
WHY THE STUDY ?

Since inception, NALCO is a profit making Company and has

outperformed in all the areas of activities earning a major foreign currency,
which is a must for the industrial development of a country like INDIA. Nalco
has serviced its foreign loan with highest effectiveness resulting into huge
savings on account of interest and foreign exchange fluctuations. It became
the only zero debt company in the history of public sectors in INDIA.

In this context there is a need to study the efficient financial

management by which NALCO is contributing its part towards the economic
development. For this purpose the study of major financial activities will help
in a long way in understanding the efficiency of NALCO.

MOTTO OF THE STUDY:-

The main objectives of the study are: -

 To study the theory and practices of Financial Management practiced in

NALCO.
 To get an insight of proficient & dexterous project management, which
NALCO has achieved.
 To study the company’s financial position over a period of time.
 To study the past performances, and to evaluate its present financial
potentiality.
 To analyze the Financial Ratios and Funds Flow and Cash Flow
Statement of NALCO.
 To get an insight into various sources available for financing the Working
Capital and its utilization.

METHODOLOGY FOR STUDY:-

The data for the present study is drawn both from primary and
secondary sources. The primary data is collected from discussions with the
Executives of NALCO and few employees. The Secondary data is collected
from the Company's Annual Reports, Internal Magazines, Internet etc. The
basic understanding of the subject is referred from different publications from
Professional Institutes like ICAI, ICWAI, ICSI and valuable guidance of the
guide. Interpretation of the various statistics is done through analysis wherever
necessary.

EXPECTED CONTRIBUTION FROM THE STUDY:-

 To provide a handy reference in understanding the Nalco’s financial

policies and procedures.
 To provide an insight into various sources available for financing working
capital and its utilization.
 To provide an idea of optimum utilization of material resources through
a well designed budgetary control system.
 To provide economic information to the Investors and to judge the
management on its stewardship towards utilization of the resources of
the enterprises and achievement of corporate objectives.
 To provide an idea of achieving optimum utilization of capacity with
lowest possible cost through cost reduction and cost control techniques.
 To provide the sources of raising funds for the new projects.
 To provide value for money to all share holders.
 To comply with the various statutory requirements in a manner
prescribed under the statute.

LIMITATION:-

1. As usual most of the information is collected from the secondary sources.

2. There is a gap between the theoretical analysis & its practical and real life
application.

3. Detailed information about certain parameters could not be obtained due to

confidentiality.
CHAPTER-TWO

COMPANY PROFILE
INTRODUCTION:-

In the wake of a major challenge from the global competitors and ever
increasing demand of aluminum in domestic sector as well as in international
market, the National Aluminium Company Limited (Nalco) was incorporated in
1981, as a public sector enterprise, under Ministry of Mines, Govt. of India,
NALCO is Asia’s largest integrated aluminium complex, comprising bauxite
mining, alumina refining, aluminium smelting and casting, power generation,
rail and port facilities.

AN OVERVIEW

NALCO is considered to be turning point in the history of Indian

Aluminium Industry. In a major leap forward NALCO has not only addressed
the need for self sufficiency in aluminium but also given the country a
technological edge in producing this strategic metal as per the best world
standards.

NALCO was set up to exploit a part of the large bauxite deposits

discovered in the East Coast, in technological collaboration with Aluminium
Pechiney of France, which is a world leader in the field, provided the
technology and basic engineering for bauxite mine, Alumina Refinery and
Smelter. (Now Rio Tinto-Alcan)

In the history of Indian Aluminium Industry, Nalco has been the

greatest revolution. With its consistent track record in capacity utilization,
technology absorption, quality assurance, export performance, resource
management posted good profit over the years.

Today as an ISO 9001, ISO 14001, OHSAS 18001, SA 8000 & ISO
50001 Company, with its products registered at London Metal Exchange,
Nalco has emerged as the largest integrated Bauxite-Alumina-Aluminium
complex in Asia. Now, NALCO enjoys the status of a Navratna Company.
Brief History of the Company:-

The discovery of large reserves of Bauxite are in the east coast

and the preliminary project work done by Bharat Aluminium Company Limited.
National Aluminum Company Ltd. (Nalco) was incorporated in 1981by the
Govt. of India to implement one of the largest multi-locational integrated
Aluminium projects of the world with its own Captive Power Plant and Port
Facilities.

The technical collaboration of Aluminum Pechiney of France, the

support of Euro Dollar loan from a Consortium of International Banks and the
special dispensation of the Government of India and the Government of Orissa
helped the Company to implement the project expeditiously with-in the
budgeted cost of Rs. 2,408/- Crore under very difficult logistics of Project
Management.

Different segments of the company went into the production in a phased

manner starting from Nov, 1985. Within a short span of time, the company has
emerged as a leader in the field of Aluminum Production in the country and
also made significant impact abroad. The company has helped the country to
make quantum jump in production of aluminum and has also been earning
substantial foreign exchange through creditable export performances year
after year.
 THE INTEGRATED COMPLEX HAS 5 MAIN SEGMENTS:-

SEGMENT CAPACITY LOCATION

Bauxite Mine 63,00,000 tpy Panchpatmali in

koraput

Alumina Refinery 21,00,000 tpy Damanjodi in koraput

Alumina Smelter 4,60,000 tpy Angul

Captive Power plant 1200 mw Angul

Port Facilities 912000 tpy (Alumina Visakhapatnam (AP)

Export)
 VARIOUS UNITS OF NALCO:-

BAUXITE MINES OVERVIEW

A fully mechanized open-cast mine of 63,00,000 tpa, on panchapatmali hills of

Koraput district in Orissa, serves feed-stock to the Alumina Refinery at
Damanjodi, located 16 km downhill. The transportation is done through a 14.6
km long single flight, multi-curve , cable belt conveyor of 1800 tph capacity.

Area of Deposit : 16 sq. km (21 km. length x 0.8 km. width)

Resource : 310 million tonnes

Mineralogy : Over 90% gibbsitic

Over burden : 3mtr (avg)

Ore quality : Alumina 45%, Silica 2%

Ore thickness : 14 mtr (avg)

 ALUMINA PLANT OVERVIEW

The 21,00,000 tpa energy- efficient Alumina Refinery, having four

parallel streams of equal capacity, is located in the picturesque valley of
Damanjodi. The Refinery provides alumina to the Company’s Smelter at
Angul and exports the balance alumina to overseas markets through
Visakhapatnam Port.
Special Technological Features:-
 Atmospheric pressure digestion Process.
 Pre – desilication and inter stage cooling for higher productivity.
 Energy efficient fluidised bed calciners.
 Co-generation of 3 x 18.5MW powers by use of back pressure turbine in
steam generation plant.
ALUMINIUM SMELTER PLANT
 A 4,60,000 tpy capacity Aluminium smelter, located at Angul in Orissa, is
Based on advanced technology of smelting and pollution control. The smelter
plant is in operation since early 1987.

Special Technological Features:-

 180 KA amperage being upgraded to 220 KA.

 Fume Treatment with dry-scrubbing system.

 Manufacturing of carbon anodes, bus bars, anode stems etc.

 Integrated facility for manufacturing Ingots, Sows, Billets, Wire Rods,

strips and rolled products, besides T. Ingot & Chequered Sheets added
recently.

 4x35 tonne and 4x45 tone furnaces and 2x15 tph and 2x20 tph ingot
casting machines

 4x45 tonne furnaces and 2x9.5 tph Wire rod mills

 2x45 tonne furnaces and 60/42 per drop billet casting

 2x1.5 tonne induction furnace with a 4 tph alloy ingot casting machine

 26,000 tpa strip casting machines

 CAPTIVE POWER PLANT

Close to the Aluminium smelter at Angul, a captive power plant of

1200 MW capacity has been established for firm supply of power to the
smelter. The coal demand of the plant is met from the Bharatpur Collieary of
Mahanadi coalfields Limited. The Plant is also connected with the State Grid
for sale of surplus power.

Special Technological Features:-

 Micro-processor based burner management system for optimum thermal

efficiency.

 Computer controlled data acquisition system for online monitoring.

 Automatic turbine run-up system.

 Specially designed barrel type high pressure turbine.

 Electrostatic precipitators with advanced intelligent controllers.

 Wet disposal of ash.

 PORT FACILITY

On the inner harbour of Visakhapatnam port on the Bay of Bengal, Nalco has
mechanized storage and ship handling facilities for export of alumina in bulk
and import of caustic soda. This facility can handle ships up to 35,000 DWT.
(Dead Weight Tonnage)

DWT: - As weight is added to a ship, it submerges. Maximum DWT is the

amount of weight a ship can carry without riding dangerously low in the water.

NALCO also exports from the ports of Paradeep and Kolkata.

Special Technological Features:-

 Maximum ship size- 35000 DWT

 Alumina reception- 48 x 53 tonne pay-load wagons
 Alumina storage- 3 x 25000 ton RCC (Reinforce Cement concrete ) silos
 Ship loading rate-2200 tph
 COAL BLOCK:-

Keeping the expansion projects of the company in view, Utkal-E Coal

Block at Chhendipada near Angul has been allotted to Nalco. The company
has plans to feed 2 million tonnes to the CPP per annum.

WIND POWER:-

The company is setting up an Rs.274 crore Wind Power of 50.4 MW

capacity at Gandikota in Andhra Pradesh.

NUCLER POWER:-

The company is developing Kakarpar -3 & 4 Nuclear Power Project in

Gujarat jointly with Nuclear Power Corporation of India Ltd. (NPCIL). The
estimated project cost is Rs.11,450 crore.

NALCO CORPORATE OFFICE OVER VIEW-

BHUBANESWAR
 The Corporate headquarters of the company is located at Bhubaneswar, the
capital city of Odisha.

FINISHED PRODUCT OF NALCO:

 Alumina
o Calcined Alumina
o Alumina Hydrate
o Speciality Aluminas & Hydrates
o Detergent Grade Zeolite-A
 Aluminium Metal

(High Purity, CG, EC & LME grades)

o Standard Ingots
(Each approx.20/18.5/22.5 kg)
o Show ingots
(Each max. 750 kg)
o T-Ingots
(In coil form, 9.5/11.95 mm dia,
Weight approx.2 mt)
o Billets
In aix sizes: 127+1.5 mm/
125+4.5 mm/
178+1.5 mm/
203+1.5 mm/
229+4.5 mm/
254+1.5 mm/
o Flat Rolled Products
(Coils & sheets)
o Chequered Sheets
MOU Target for FY-2013-2014

1 BAUXITE 6300000

2 ALUMINA HYDRATE 2160000

3 ALUMINIUM 460000

4 POWER 1200

EXPORT OF ALUMINA & ALUMINIUM:-

NALCO is the largest producer of Alumina and Aluminium in India,

which has now put it in the big league of its spectacular achievements on
export fronts against stiff competition. NALCO's Alumina has sailed to
Switzerland, Egypt, China, South Korea, USSR, Indonesia, Brazil, Norway,
France and Finland and at the same time NALCO metal is exported to various
countries including USA, UK, Belgium, Hong Kong, Singapore, Italy, Germany
and North Korea.

LOCATION OF THE ORGANISATION

The Mines and Alumina Refinery Complex has located at Damanjodi

in Koraput District. This is a picturesque valleys of this beautiful district at
the foothills of Panchpatmali Hills. A 16 km long uphill road connects the
plateau of Panchapatmali, where the bauxite Mines of Nalco is located.
Damanjodi is 12 Km. from Semiliguda, a small town located on the NH-43
that connects Vizianagarm of Andhra Pradesh with Raipur of Madhya
Pradesh. Damanjodi is 550 km. By road to south of Bhubaneswar.

Damanjodi is also connected by Rail Transport from Bhubaneswar,

Rayagada, Visakhapatnam, Sambalpur, Rourkela & Kolkata. It is also
connected by bus service from Berhampur, Cuttack, Bhubaneswar, Angul
& Samabalpur.

Its Smelter Plant and CPP are located at Angul, while the corporate
head quarter is located at Bhubaneswar, the capital city of Orissa.
 NALCO'S VISION AND MISSION

THE VISION:

TO BE A REPUTED GLOBAL COMPANY IN THE METALS AND ENERGY

SECTORS

THE MISSION:

To achieve growth in business with global competitive edge providing

satisfaction to the customers, employees, shareholders and community at
large.

To continuously developed human resources, create safe working

conditions, improve productivity and quality and reduce cost and waste.

To be a good corporate citizen, protecting and enhancing the

environment as well as discharging social responsibility in order to ensure
sustainable growth.
To intensify R&D for technology development.

COMPANY’S OBJECTIVES:-

1. To maximize capacity utilization.

2. To optimize operational efficiency and productivity.
3. To maintain highest international standards of excellence in product quality,
cost efficiency and customer service.
4. To provide a balanced growth in business by technology up-gradation,
expansion and diversification.
5. To have global presence and earn foreign exchange.
6. To maintain leadership in domestic market.
7. To install financial discipline at all levels for achieving cost and budgetary
controls, optimize utilization of working capital and effective cash flow
management.
8. To maximize return on investment.
9. To develop a strong R & D base and increase business development
activities.
10. To promote a result oriented organizational ethos and work culture that
empowers employees and helps realization of individual and organizational
goals.
11. To maximize internal customer satisfaction.
12. To foster high standards of health, safety, and environment friendly
products.
Corporate Environment Policy:-

In recognition of the interests of the society in securing sustainable

industrial growth compatible with a wholesome environment, NALCO affirms
that it assigns high importance to promotion and maintenance of a pollution
free environment in all its activities.

OBJECTIVES:-

 To use non-polluting and environment friendly technology.

 To monitor regularly air, water, land, noise and other environmental
management.
 To constantly improve upon the standards of pollution control and
provide a leadership in environment management.
 To develop employees awareness on environmental responsibilities and
encourage adherence to sound environmental practices.
 To work closely with government & local authorities to prevent or
minimise adverse consequences of the industrial activities on the
environment.
 To comply with all applicable laws governing environment protection
through appropriate mechanisms.
 To actively participate in social, welfare and environmental development
activities of the locality around its units.

OCCUPATIONAL HEALTH & SAFETY POLICY:-

NALCO assigns high importance to safety as an essential component in

every sphere of its activities in order to improve well-being of employees,
performance and growth of the Company.

OBJECTIVES:-

 To give highest priority to safety, in selection of plants & equipment’s,

erection and commissioning activities.
  To develop operating manuals for each process with safety provisions
duly highlighted.
 To provide safety training to employees and contract workers and to
ensure use of PPE and safe work practices.
 To inculcate safety culture in the organization where safety is manifested
in each employee’s mind, thought and expression.
 To strictly adhere to the safety related laws, rules, procedures framed by
the Government and to take appropriate action in case of violation.
 To identify and eliminate risk related process by carrying out safety
audits.
 To ensure, prepare and update. Disaster Management strategies and
organize mock drills to keep the concerned personnel in preparedness.
 To give priority on occupational health of its employees.
 To continuously strive for improvement in safety performance.

MAJOR BAUXITE DEPOSITS OF THE WORLD

COUNTRY RESERVES (in '000 tonnes)

World : Total (rounded) 29,00,000
Australia 6200000
Brazil 3600000
China 830000
Greece 600000
Guinea 7400000
Guyana 850000
India 900000
Jamaica 2000000
 Kazakhstan 160000
Russia 200000
Suriname 580000
USA 20000
Venezuela 320000
Vietnam 2100000
Other Countries 3300000
 Landmark Events

1 Discovery of Bauxite in the East Coast 1975

2 Preparation of NALCO’s feasibility report Jul-79

3 Investment decision by the Govt. Jan-80

4 Indo-French Collaboration Agreement Jan-82

5 Formation of the Company Jan-81

6 Foundation Stone Laid by Late Smt. Indira Gandhi Mar-81

7 Signing of Major Euro-Dollar Loan Agreement Feb-82

8 Civil Work Started Feb-82

9 Commissioning dates:

Port Facilities Sep-85

Bauxite mines Nov-85

Alumina Refinery Sep-86

Captive Power Plant Sep-86

Smelter Plant Mar-87

10 Commencement of Sale of Aluminium May-87

11 Commencement of Alumina export Jan-88

12 Commencement of Aluminium export Sep-88

13 First mines safety awards 1988

14 First CAPE XIL Export Awards 1988

15 London Metal Exchange Registration May-89

16 Dedicated to the Nation by Late Shri Rajiv Gandhi Jun-89

17 Star Trading house status Jan-92

18 Indira Gandhi Rajbhawa Award 1993,

1995

19 ISO 9002 Certificate :

Alumina Refinery Nov-94

Smelter Plant Feb. 1995

Captive Power Plant Dec. 1995

Bauxite Mines Jan-96

20 Indira Priyadarshini Vikashmitra Award 1994

21 ISO-14001 Certificate for environment Management 1996

system of Bauxite Mines

22 ISO-14001 Certificate for environment Management 1997

system of Alumina Refinery

23 FICCI Award for population control and Environment 1996-97

24 Excellent Public Sector Enterprise Award 1996-97

25 Environment Protection Award by IIEE 1997

26 Best Occupational Health Award by Govt. of Orissa 1998

27 Gem Granite Environment Award 1997-

1998

28 First EEPC Export Award 1998-

1999

29 Indira Gandhi Paryavaran Puraskar by Govt. of India 2000

30 Rajbhasa Shield by Ministry of Mines 2001

31 FIMI Environment Award 2000-

2001

32 Dedication of Mines & Refinery Expansion April,

2002
33 FIEO Niryat Shree Award 2002-
2003

34 Completion of 1st Phase Expansion 2004

35 Five Star Expert House Status 2005

36 Top Expert Award of CAPEXIL for 2oth year in 2007

succession

37 NALCO achieves Nava Ratna Status April,

2008
CHAPTER - THREE

FINANCIAL AND ACCOUNTING

FUNCTION OF
NALCO (MINES)
INTRODUCTION:-

As of the late 1970's the financial manager had transcended the

traditional role in preparing reports and raising external funds. As business
became larger and more complex, finance assumed the responsibilities of
dealing with the problems and decisions associated with managing the firms'
assets. The Financial Manager is presently involved with the allocation of funds
to different projects and activities with the measurement of results of each
allocation.

Today's financial manager deals with variety of development that effect

the company’s liquidity and profitability including:

 High finance cost identified with risk bearing investment in a capital-

intensive environment.
 Diversification by firms into different business, markets and product lines.
 High rate of inflation that significantly effect planning and forecasting of
the firms operation.
 Emphasis on growth, with its requirement for new sources of fund and
improve use of existing funds.
 High rate of change in technology with an accompany need for
expenditure on resources and development.
 Speedy dissemination of information, employing high speed computers
and nation wide and world wide net work for transmitting financial and
operating data.
FINANCE FUNCTION:-

There are four important Managerial Financial Functions:

i. Investment or long-term asset mixed decisions.

ii. Financing or capital mixed decision.

iii. Dividend or profit allocation decisions.

iv. Liquidity or short-term asset mixed decisions.

FINANCIAL GOAL:-

The starting point for developing goal oriented financial structure is the
defining of workable goals for the company as a whole. Two primary goals are
commonly encounter i.e., maximization of profit and maximization of wealth.
MAXIMISATION OF PROFITS:-

Profit maximization has the benefit of being simple and straightforward

statement of purpose. It is easily understood as a rational goal for a business
and it focuses the firm’s efforts towards making money. But, the precise
meaning of the profit maximization objective is unclear. The definition of the
profit is ambiguous.

MAXIMISATION OF WEALTH:-

The second frequently encountered objective of the company is to

maximize the value of the firm over the long run. This goal may also be stated
as the maximization of wealth with wealth defined as the net present worth of
the firm. Maximization of wealth implies other factors in addition to profit. As
a general guideline the firm that is maximizing wealth must do the following:

1. Avoid high levels of risk.

2. Pay dividends.
3. Seek growth.
4. Maintain market price of stock.
Maximization of wealth is more useful than maximization of profits as it
balances the profit factor with related goals such as growth, stability, risk
avoidance and the market price of the company’s stock.

FUNCTIONS OF FINANCIAL MANAGEMENT:-

In the context of achieving the goals, the Financial Manager performs

tasks in several areas. Each task is linked with the goal of liquidity, profitability
or both. The second classification method focuses on what is being managed
- Assets or funds.

FUNCTIONS LEADING TO LIQUIDITY:-

In seeking sufficient liquidity to carry out the company’s activities the

Financial Manager performs tasks such as:

a. Forecasting Cash Flow.

b. Raising Funds.
c. Managing the flow of internal funds.
FUNCTIONS LEADING TO PROFITABILITY:-
 In seeking profit for the company the Financial Manager will provide
specific input into the division making process based on his financial training
and actions with respect to profitability. Some of the specific functions are:

a. Cost Control

b. Pricing

c. Forecasting future profits

d. Measuring cost of capital

FINANCIAL MANAGEMENT OF NALCO (MINES):-

Under extremely difficult logistics of implementing a Multi-National Green

Field Project, NALCO successfully constructed and commissioned each of its
units on schedule, within estimated cost, a feat, which has few parallels in
Indian Public Sector.

A significant achievement in the Financial Management of NALCO

has been the prepayment of overseas loans. This proactive measure has not
only brought down the interest liability but also helped to achieve saving on
adverse exchange rate variations. Now Nalco is zero debt company. This
could be possible because of NALCO's efficient financial Management, strict
fiscal discipline endeavour to increase targeted production, which are the
essential ingredients for the success of NALCO.

EVERY DAY FUNCTIONS OF FINANCE DEPARTMENT OF NALCO

(MINES):-

The section in Finance Department consists of Cash Management,

Tenders and Contract, Internal Audit, Inventory Management, Raw Materials
Section, Establishment Section, Bills Section.

CASH MANAGEMENT IN NALCO:-

Cash is the most liquid asset and is of the vital importance to do daily
operation of business firms. While the proportion of corporate asset held in
the form of Cash is very small, its efficient management is crucial to the
solvency of the business because in a very important sense cash is the focal
point of funds flow in a business. It is referred to as the lifeblood of the business
firm.
There are 2 primary reasons to hold cash:-

1. To meet the needs of day-to-day transactions.

2. To protect the company against uncertainties characterizing its cash

flows.

While cash serves these functions, it is an ideal resource which has an

opportunity cost. Hence, it should be carefully planned and controlled. Cash
reports provides a comparison of actual developments with forecast figures,
which are helpful in controlling and revising cash forecasts on a continual
basis.

The important cash reports are:

A. The Daily Cash Report.

B. The Monthly Cash Report.

To enhance the efficiency of cash management collection and

disbursements must be properly maintained. In this context the following are
helpful:

Prompt billing, expeditious collection of the cheques, control of payables

and playing the float.

NALCO is following the centralized banking system in which there is a

centralized bank at Bhubaneswar. Each unit has the SBI branches at the
respective sites.

The net effect of payments and receipts through bank (either debit
balance or credit balance) are transferred to centralize State Bank at
Bhubaneswar on day-to-day basis. Thereby the closing balance at the end of
each day of the unit SBI is always zero. NALCO maintains the current account
at the SBI branches at units with an understanding that all the cheques issued
by the units has to be honoured by the bank.

WORKS SECTION:-

At times situations may arise when the company requires the assistance
of outside agencies to perform certain tasks for which it may require the
technical competence and the requisite skilled manpower. There may be
overhauling of various machines in the plant to ensure their smooth functioning
and longevity, carrying out civil works, disposal of by-products generated
during the production process in the plant etc. Considering the vast amount of
money spent on these jobs and to ensure quality work the company through
the tenders and contracts department undertakes a rigorous task to ascertain
technical competency and solvency of various parties willing to carry out the
job before awarding the contract to any of them.

The process is initiated with the user department making a thorough

check of the scope of the job to be performed and also determining an
approximate cost of the project.

This may be evaluated by:

1. If similar work had been undertaken previously then cost of project-executed

forms the basis of estimating cost of present project after taking into account
cost escalation. Cost escalation may be due to increased wages, increased
cost of raw materials and additional taxes.

Call for tenders are now made by the Tender & Contracts Dept. either
through fresh advertisements or through direct contract to the list of
prospective contractors as suggested by user department. The tender
documents are usually in two (2) parts.

1. Technical bid, 2. Price bid.

The tender committee is constituted comprising of the following

members.

1. Representative of User department.

2. Representative of Finance department.

3. Representative of Tenders & Contracts department.

The Techno-Commercial bid is opened in presence of Tender

Committee and representatives of the contractors. Clarification and
confirmation if any are obtained with regard to technical specifications. After
technical specifications are formed or if a contractor revises its price bid, is
required to submit justification in support of revisions made. The price bid is
opened thereafter. After due negotiation with various parties the Tender
Committee awards the contract to the contractor with the lowest price quotation
comparable to be estimated cost having satisfactory technical competency.
Thereafter Tender Committee submits entire detail of the contact along with
agreed upon price, justifying any changes from the approximate project cost
previously submitted by the user department and concurred by Finance Dept.
for approval.

An agreement is signed with the contractor wherein the contractor

agrees to abide by the general rule stipulated by the company along with any
specific obligations pertaining to the particular project. If however, the
technical competency of the contract is doubtful even though all Techno-
Commercial needs are satisfied the contractor is required to do the part of the
job on trial basis.

In case the party is unsuccessful in completing it then it stands to lose

its earnest money deposit and the contract is terminated and awarded to
another contractor. However, in case of unsuccessful completion they are
allowed to do the balance work.

DIVISION OF WORK:-

Depending on the recommendation of user department, the tender

committee may deem it necessary to distribute between two or more
contractors instead of awarding to any one of them. This may be due to:

1. Urgency of work and restricted time schedule.

2. Scope and magnitude of work.

3. Technical requirements of the work.

FAILURE OF CONTRACTORS TO COMPLY WITH THE CONTRACT:-

If the contractor refuses or fails to execute the job or any part of it with
such diligence so as to ensure its completion within the time frame specified
by the contract or fails to perform any of its obligations as specified under the
contract or in any manner commits a breach of the provisions of the contract.
It shall be opened to the owner at its option by return notice to the contractor
to:

a) Termination of the Contract:

b) Without terminating the Contract:

C) In other cases the owner’s decision is binding on the contracts.

TIME OF PERFORMANCE:-

The work covered by the contract is commenced within 21 days of issue

of letter of acceptance of contracts. This period is included in the overall
completion schedule and not over and above it. The contractor cannot claim
any compensation whatsoever on account of delay attributable to anyone. In
case the contractors fails to complete the work in the stipulated work period is
liable to pay to the owner compensation of an amount of 1% of value per week
of delay subject to a maximum of 10% of the value of the contract.

Passing of bills in work section:-

It is mentioned in the Work Order as per G.C.C (General Condition of

contract) that the contractor to submit Running A/c Bills periodically for
payment and is convenient in nature. The bill submitted to Finance Dept. after
scrutiny by Engineer in-charge about measurement, rate per items and other
terms and conditions with due signature of authorized Engineer–in-charge /
officer through HRD for labour payment clearance. Then the bills are checked
by finance keeping in view the following points:

a. Measurement in respect of arithmetical accuracy.

b. Unit Rate of items
c. Date and amount of payment in regard to total work order value.
d. Royalty payment to Government / certificate in case the job is of the
nature.
e. Statutory Recovery / deduction like
1. Security Deposit 10% of value of bill including initial security deposit
of 2.5%.
2. Income Tax @ 2% OR 1%as per prevailing rate.
3. Sales Tax 4%
f. Retention value for damage or HR / Electricity.
g. In addition of a new contract in the existing contract or subtraction of any
work from the contract, the “Amendment” contract has been made by
the authority.
h. The Amendment contract has been made by the departments, DGM,
Directors and higher authorities, according to quality and condition of
contract.
 After checking the bill by the civil department, training & center
department, mechanical department, legal department and finance
department of mines, the bill is paid / sent to cash section for payment with an
intimation sheet to the contractor about gross amount of bill and its deductions.

INTERNAL AUDIT SECTION:-

As required under the provisions of the companies act 1956, the statutory
auditors of the company who are appointed by the government of India, shall
have to comment upon the adequacy of “Internal Control” and Internal Audit in
the company.

Internal Auditors are being appointed on 1-year contract basis to audit

the internal affairs of NALCO. The audit teams audits the site units and submit
a consolidated report to corporate office on month-to- month basis.

The nature of Internal Audit has been defined by the Institute of Internal
Auditors as “an independent appraisal activity within an organization for the
review of operations as a service to the management.” It is a managerial
control, which functions by measuring and evaluating the effectiveness of other
departments.

BROAD AUDIT PROGRAMME:-

The following is the detailed broad audit program of the internal auditors.

1. Check the total residual mineable reserves as per the records with the
initial exploration data of Department of Mines, Govt. of Orissa, minus the
minerals extracted till date as well as fresh survey of balance mineable
reserves by an expert if any, to ensure the efficacy of measures and
ground work to estimate mineable reserves.

2. Check that the extraction of bauxite is optimum keeping in view the

installed capacity of mining equipments and also the Alumina plant.
Ascertain the instances of the under utilization of the mining equipments
and also the under utilization of Alumina Plant due to less mining. Are
there satisfactory reasons of circumstances beyond control for such under
utilizations?

3. Check that the quality reports of materials extracted after lab test are
satisfactory.

4. Check the production achieved with targeted / budgeted figures to

ascertain the instances of abnormal declines in achievement and reasons
thereof.
 5. Check the production achieved with the actual consumption of raw
materials and input – output norms to ensure that there are no abnormal
differences.

6. Check the production achieved with MOU between company and

Government of India and obtains the reasons for the variations.

7. Crosscheck the receipts of one production departments with the transfers

by the other department and standard burning / production loss of transit
loss, if any, to ascertain the instances of the abnormal variations and
reasons thereof.

8. Ascertain the instances of habitual absenteeism of the employees, lack of

proper training and discipline, engineering problem of the equipment and
poor equipment availability contributing to decline in production efficiency.

9. Check all the statutory payments are made in time to time or not and
vouching of all financial records are recorded in time or not.
10. Ascertain the bill has been passed accordingly norms rules and regulation
or not.

BILLS SECTION:-

The indenting and user department who is in need of items for running
and maintenance of plant like spares; consumables, tools and tackles etc.
raise an indent to support to their requirement. That indent will be approved
by the competent authority after obtaining NOC from stores and concurred by
finance. Once it is approved, Purchase Dept. float enquiry to the parties basing
on past statistics and experience with a request to party to submit offer within
a stipulated period. After receipt of the offers, necessary scrutiny is done to
find out lowest offer bidder. Then with due concurrence of comparative
statement, the purchase order is placed on the L-1 bidder. The purchase order
contains the following:

a. Order No. and Date.

b. Offer Reference and indent reference with name of indenter.

c. Name of the supplier with address.

d. Description of the items with their material code.

e. Unit of Measurement.
 f. Quantity / Quality of materials / items required.

g. Rate per unit.

h. Taxes and duties, if any and also discount.

i. Authorized Transporter / mode of dispatch / Insurance.

j. Date of delivery / price basis.

k. Payment terms.

l. Standard terms and conditions.

m. Special instructions if any.

PAYMENT MODE:-

Basing on the offer of the party and their past experience the payment
terms may be divided into three categories.

1. Proforma Invoice:-

100% advance along with PO / Performa invoice which is raised by the party
will be paid accordingly. For cases specifically where the items are
proprietary for example Petrol, Diesel etc. the Perform invoice mode of
payment is done.

2. Through Bank:-

Once purchase order is given, the party dispatches the materials through
transporter and sends the relevant documents to Bank with an instruction to
collect the stated amount from purchaser and handovers the documents.
Original document sent to the bank for negotiation mainly consists of original
invoice, consignee copy of LR and other relevant document as envisaged in
the PO. Basing on these documents bank will prepare intimation for the
purchaser indicating the amount to be paid.

This document is known as LSC (Local Short Credit). While sending the
original set of document to bank, one copy of set of document is being sent to
Finance, Stores and Purchase and to User Dept. for scrutiny. After scrutiny of
the same the document is verified from bank. After retirement, the original
documents are collected and handed over to stores for regularization. In turn,
stores after collecting the material from transporter, and making necessary DB
entry calls the user for inspection and acceptance. If the indenter is satisfied
with the material, SRV is raised and sent to Finance for adjustment of advance
and the cost of the material is stock charged.

OTHER POINTS:-

1. ACCOUNTING OF OSRD :-

During inspection by the user department, if any excess, shortage,

rejection or damage is found the same is communicated to finance for
necessary accounting. If there is any loss during transit claims on insurance
is accounted and otherwise party is asked to rectify / replace materials. On
realization of claim from insurance and replacement of the material from the
party, the items get regularized by transferring the same to stock.

2. ACCOUNTING OF EXCISE DUTY:-

The materials supplied by the supplier, on acceptance is stock charged
with net of Cenvat (Central Value Added Taxes) credit whenever applicable.

RAW MATERIAL SECTION:

Raw Material Section deals with accounting of procurement,

consumption and stock of various input materials like Caustic Soda, Wheat
Bran, Crystal Growth Modifier, Cytec and Synthetic flocculent, Grinding Media,
Filter Cloth, Altar, Heavy Furnace Oil, Light Diesel Oil, Coal, etc.

Out of the above material stated above, the Cytec is from imported
source only where as Caustic Soda is mixture of imported as well as
indigenous procurement since difficult to meet the whole requirement of
Caustic Soda from any single source. The rest of the material stated above
is procured indigenously from the Indian parties. The Price Stores Ledger for
these materials is maintained monthly with monthly weighted average method
basis. This section also deals with Convent accountable on various input
materials that are available as per Excise Rule and periodically reconciling the
figures as per finance book with that of excise record like RG23 part – A and
Part – C to ensure that both the accounting is reflected correctly.

The various schedules that are required as per company’s act for the
purpose of finalization of annual accounts is also prepared with due clearance
by Statutory Auditors.
ESTABLISHMENT SECTION:-

It deals mainly with the employee’s salary, Provident Fund, Traveling

Allowance, House Building Loan, Vehicle Loan, Medical Facilities, Pension
Schemes, etc. The salary slip for each employee is prepared every month.

1. PAY ROLL PROCESSING:-

The pay roll processing is done with the generation of monthly

attendance done by time office. The Employee Name, Personal No.
Designation, Grade, Bank Account, Pay particulars, DA, Special Pay, etc are
obtained from HRD Dept. The incentive information is being provided by
Industrial Engineering Dept. After obtaining all the information pay roll
processing is started. The following statutory deductions are made:

a. Provident Fund
b. Income Tax
c. Professional Tax
d. House Rent, Electricity, & Water charges
e. Any loan recoveries i.e. House Building Loan, Vehicle Advance Loan,
Medical Advances, Tour Advance, Miscellaneous Advances etc.

HOUSE BUILDING ADVANCE: -

It is payable to a confirmed employee who completes a 3 year services in the

company. An illustration for working out weighted average interest is given
below:-

Total amount of HBA sanctioned is Rs.20,00,000 /-.

There are 3 slabs of interest rates for HBA.

a) Up to Rs.5,00,000/- 5% on Rs.5 lakhs

b) Above Rs.5,00,000/- up to Rs.8,00,000/- 8% on Rs.3 lakhs

c) Above Rs.8,00,000/- up to Rs.20,00,000- 10.75% on Rs. 12

lakhs

Weighted Index:- 5x5 = 25.00

8x3 = 24.00

10.75 x 12 = 129.00

178.00
Average:- 178 / 20 = 8.9

Interest Rate = 8.9 %

The HBA of Rs.20 lakhs will therefore carry interest @ 8.9 % p.a which
will be recovered as per the provisions of HBA rules.
Family planning: - 0.5%
 VEHICLE ADVANCE: -

2ND
ENGINE ADVAN
CAPACITY 1ST ADVANCE CE

NON- 100 CC &

EXECUTIVE 2 WHELLER MORE 65000 50000

3,50,000 (For Cost of

Car) + 50,000 (Road
_
Tax, insurance,
4 WHELLER Registration)

100 CC &
EXECUTIVE 2 WHELLER MORE 75,000 50,000

3,60,00
0 (For
Cost of
Car) +
50,000
(Road
Tax,
4,50,000 (For Cost of insuran
4 WHELLER Car) + 50,000 (Road ce,
(Up to Tax, insurance, Registr
Managers) Registration) ation)

4,40,00
0 (For
Cost of
Car) +
50,000
4 WHELLER 5,50,000 (For Cost of
(Road
(Sr. Car) + 50,000 (Road
Tax,
Manager Tax, insurance,
insuran
and above) Registration)
ce,
 Registr
ation)

Rate of interest for two wheeler 6% and for 4 wheeler 10 %

INCOME TAX:

Establishment Section calculates total income of the employees and

works out of the total tax payment, basing on salary savings and direct savings
declaration of the employees at the end of the year Establishment Section
submits the tax deducted from the employee’s salary to the Income Tax Dept.

New Income Tax Slabs Ay 14-15 for Resident Senior

Citizens above 60 Years (FY 2013-14)
Sl No Income Range Tax Percentage
1 Up to Rs 2,50,000 No Tax / exempt
2 2,50,001 to 5,00,000 10%
3 5,00,001 to 10,00,000 20%
4 Above 10,00,000 30%
New Income Tax Slabs Ay 14-15 for Resident Senior
Citizens above 80 Years (FY 2013-14)
Sl No Income Range Tax Percentage
1 Up to Rs 5,00,000 No Tax / exempt
2 5,00,001 to 10,00,000 20%
3 Above 10,00,000 30%
New Income Tax Slabs Ay 14-15 for Resident Women
( below 60 Years) (FY 2013-14)
Sl No Income Range Tax Percentage
1 Up to Rs 2,00,000 No Tax / exempt
2 2,00,001 to 5,00,000 10%
3 5,00,001 to 10,00,000 20%
 4 Above 10,00,000 30%
New Income Tax Slabs for AY 14-15 for other & Men (FY
2013-14)
Sl No Income Range Tax Percentage
1 Up to Rs 2,00,000 No Tax / exempt
2 2,00,001 to 5,00,000 10%
3 5,00,001 to 10,00,000 20%
4 Above 10,00,000 30%

For normal category the simple calculation is as follows.

 Taxable Income In 10% slab maximum tax will be Rs 28000 (taking 2000
tax credit into consideration)
 Taxable Income in 20% slab maximum tax will be Rs 30000 + Rs
1,00,000 total Rs 1,30,000 ( no tax credit for income above Rs 5,00,000)
 Taxable Income in 30% slab minimum tax will be Rs 1, 30,000.

COMPOSITE PERSONAL ADVNACE:-

Composite personal advance eligible for all regular employees. The

advance will be settled on self satisfaction basis.

Amounts:-

The amount of composite personal advance will be limited to 5 months.

Salary (Basic + DA)or subject to maximum ceiling of Rs. 3,00,000 & minimum
ceiling of Rs.1,00,000.

Rate of interest: - 8% p.a.

If loan amount below 1, 50,000 the instalment will be limited to 60 months

and above 1,50,000 of loan amount the instalment will be extend to 75 months.

 CURRENT YEARS PROFIT & LOSS ACCOUNT (Rs. in Crore)

FIGURES FOR THE
CURRENT REPORTING
PARTICULARS PERIOD

Revenue from operation 6,780.85

Other income 557.71
Total Revenue 7,338.56

Expenses:

Cost of material consumed 1,063.16

Power & Fuel 2,017.67

Changes in Inventories of Finished Goods

intermediaries and work-in-progress 58.55

Employee benefits Expense 1,245.33

Finance costs ------

Depreciation and amortization 524.73

Other Expenses 1,461.94
Total expenses 6,371.38

Profit before exceptional items and tax 967.18

Exceptional items 49.37
Profit before tax 917.81
Tax Expense:
1. Current tax 264.65
2. MAT Credit Entitlement
3. Deferred Tax 7.15
4. Earlier Years 3.66
Profit/(Loss) for the period 642.35

Earnings per equity share of face value of

Rs.5/- each
(a) Profit after tax 642.35
 (b) Average no. of equity shares (face value
Rs.5/- each) 2,577,238,512
1. Basic 2.49
2. Diluted 2.49

BALANCE SHEET: - A balance sheet is a statement prepared with a view to

measure the financial position of the business on a certain fixed date. It
consists of asset list and liability list.

5-YEARS BALANCE SHEET (Rs. in crores):-

Particular 2013-2014 2012- 2011- 2010- 2009-

s 2013 2012 2011 2010
Assets
Current
assets
Investment 1244.00 1329.02 753.24 1331.67 986.75
Sundry 243.57 142.99 138.12 112.4 181.78
debtors
Inventories 1173.66 1380.64 1212.7 1058.47 944.92
Loan & 481.38 525 515.34 915.23 785.59
advance
Cash & 4048.29 3504.38 4168.35 3795.23 3152.35
bank
balance
Other 235.3 193.78 234.58 163.84 145
current
asset
Total 7426.20 7075.81 7022.33 7376.84 6196.39
current
assets
Fixed
assets
Gross 14858.13 14174.97 13658.62 12076.15 11017.9
block 6
Less: (8066.19) (7546.08) (7046.27) (6582.62) (6181.6
depreciatio 5)
n
Net block 6791.94 6628.89 6612.35 5493.53 4836.31
Fixed NIL NIL 0.86 NIL NIL
asset
awaiting
disposal
Capital 768.74 1001.92 684.44 1743.53 2243.4
work-in –
progress
Non 1.04 161.04 1.02
Current
Investment
Long term 1517.27 1422.08 1165.15
Loans &
advances
Other Non 43.32 36.49 35.49
Current
Assets
Total 9122.31 9250.42 8498.45 7237.06 7079.71
fixed
assets
Liabilities
Current 3095.5 3049.26 2631.91 2354.46 1849.95
liabilities
Provision 147.25 162.67 44.98 386.49 369.98
Net 4183.45 3863.88 4345.44 4635.89 3976.46
current
assets(cu
rrent
asset-
current
liabilities)
Total 16548.51 16326.23 15520.78 11872.95 11056.1
asset 7
Share 1288.62 1288.62 1288.62 1288.62 644.31
capital
Reserve 10833.83 10643.83 10426.46 9875.99 9751.27
and
surplus
Secured 14.88
loans
Deferred 910.13 903.13 849.11 693.46 660.59
tax
liability(net
)
Other long 54.96 70.82 41.41
term
liabilities
Long term 218.22 208.62 238.29
Provisions
Total 16548.51 16326.95 15520.78 11872.95 11056.1
liabilities: 7
CURRENT YEAR BALANCE SHEET:

Figures as at the end of current

PARTICULARS reporting period (in Crore )
LIABILITIES
Shareholder's funds
Share Capital 1,289
Reserves and surplus 10,834
Non-current liabilities
Deferred tax liabilities (Net) 910.13
Other long term liabilities 54.96
Long term provisions 218.22
Current liabilities
Short term borrowings _
Trade payables 531.12
Other current liabilities 2.564.38
Short term provisions 147.25
TOTAL 16,549
ASSETS
Non-current assets
Fixed assets
Tangible assets 6,689
Intangible assets 103.14
Capital work-in-progress 768.74
Non-current investment 1.04
Long-term loans and advance 11,517
Other non-current assets 43.32
Current assets
Current investments 1,244.00
Inventories 1,174
Trade receivables 243.57
Cash and Bank Balance 4,048
Short-term loans and advances 481.38
Other current assets 235.3
TOTAL 16,549
CHAPTER-FOUR

CONCEPTUAL PROFILE
The main objectives of this study are:-

 Ascertain the requirement and efficiency of the Working capital

management at NALCO
 To calculate the gross operating cycle period for 2008-09,2009-
10,2010-11,
2011-12.
 The working capital management system in NALCO encompasses:
 Cash Management
 Inventory Management
 Receivable Management
 To analyzed the financial ratio of NALCO.
 To give an insight into the concept and process of working capital
management.
 To study working capital management of National Aluminium Company
Ltd.
 To suggests measures to overcome the hurdles in determining working
capital requirements and to show a better way of managing working
capital in an organization.

INTRODUCTION TO THE STUDY

Working capital management is required for the day-to-day activities of the
organization. Every business organization has two common objectives such
as,

a. To maximize the return on investment

b. To maximize the wealth of its share holders
Working capital management is important because, maintaining a proper
balance between incomes to debt can be difficult and owners must be diligent
to assure that it is kept. If working capital dips too low, a business risks running
out of cash. Even very profitable businesses can run into trouble if they lose
the ability to meet their short-term obligations. Working capital financing can
be used as a fast cash option to cushion the periods when the flow is not ideal
or readily available.
RESEARCH METHODOLOGY AND SCOPE OF STUDY

A. Sources of data

The study is mostly confined to secondary data, which is collected from the
Annual reports published by NALCO. Some information is collected from the
office records through the concerned officials of NALCO.

Information has been collected from secondary sources like books,

periodicals, journals and websites

B. Tools and techniques used for the study

For the determination of Working Capital Cash flow statement also prepared.
It emphasizes the critical nature of cash flow to the operation of the firm. The
primary sections of the statement of cash flows are:

 Cash flows from operating activities

 Cash flows from investing activities
 Cash flow from financing activities

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of

working capital are reported under the following headings:

Current Assets of NALCO

- Inventories
- Sundry debtors
- Cash & Bank Balances
- Other current assets
- Loans & Advances
Current Liabilities of NALCO

- Sundry Creditors
- Other liabilities
- Provision
LIMITATIONS OF THE STUDY

 The Balance Sheet & P/L accounts are not available due to non-
finalization of the account for the year 2012-13.
The entire finance department works in synchronization where tasks are
interchangeable and everyone is accountable for their tasks. The Corporate
Office performs centralized function where all regional offices act as collection
centers. All units are decentralized. Apart from performing routine tasks the
corporate office also performs specific tasks like:

 Financial policy making for entire organization.

 Sales realization and debtors account.
 Corporate budgeting.
 Corporate financial planning.
 Corporate centralized accounts.
 For ex transactions

THEORITICAL APPROACH TO WORKING CAPITAL MANAGEMENT

A) Concept of working capital

B) Objective of working capital

C) Determinants of working capital

D) Kinds of working capital

E) Operating cycle

F) Sources of working capital

A) CONCEPT OF WORKING CAPITAL

CONCEPTS OF WORKING CAPITAL :-

There are two concepts of working capital :

(i) Gross Working Capital

(ii) Net Working Capital
GROSS WORKING CAPITAL :

It refers to the firm’s investment in total current assets which can be

converted into cash within an accounting year. It includes Cash-in-hand & bank
balances, Short-term Securities, Sundry Debtors (less provision for bad debts),
Bill Receivables, Inventories of Stock (Raw materials, Work in process, Stores
and Spares, Finished goods) , Prepaid Expenses and Accrued Incomes.

So in the broad sense, the term working capital refers to the Gross
Working Capital and represents the amount of fund invested in current assets.

 The Gross Working Capital focuses attention on two aspects of

current assets management :
(a) How to optimize investment in current assets ?

The level of investment in current assets should avoid 2 danger points

–Excessive or Inadequate investment in current assets. Thus investment in
current assets should be just adequate to the needs of the business firm.
Excessive investment in current assets should be avoided because it impairs
the firm’s profitability, as an idle investment earns nothing. On the other hand
inadequate amount of Working Capital can threaten solvency of the firm
because of its in ability to meet its current obligations.

(b) How should current assets be financed?

Another aspect of the Gross Working Capital is the need of arranging

funds to finance current assets. Due to increasing level of business activities,
financing arrangement should be made quickly. If some surplus fund arises,
they should not be allowed to remain idle, but should be invested in short-term
securities. So the Finance Manager should have sufficient knowledge about
the sources of working capital funds as well as investment avenues where idle
funds can be temporarily invested.

NET WORKING CAPITAL:

In a narrow sense, the term working capital refers to the Net Working Capital .

NET WORKING CAPITAL is the excess of current assets over current

liabilities, or say:

Net Working Capital = Current Assets – Current Liabilities

Current Liabilities are those claim of outsiders which are expected to mature
for payment within an accounting year and it includes Bills Payable ,Sundry
Creditors or Accounts Payable , Outstanding Expenses ,Short-term Loans,
advances & deposits , Dividends Payable, Bank Overdraft ,Provision for
taxation. Current Asset > Current Liabilities (+ve Net Working Capital) Current
Liabilities > Current Assets (-ve Net Working Capital)

 The Net Working Capital focuses attention on liquidity position of firm and
suggests the extent to which the working capital needs may be financed
by permanent sources of funds. Net working capital is a qualitative
concept. It indicates the current assets of a firm should be sufficiently in
excess of current liabilities to constitute a margin or buffer for maturing
obligations within the ordinary operating cycle of a business unit.

B) OBJECTIVE OF WORKING CAPITAL

Every business needs some amount of working capital. The need

for working capital arises due to the time gap between production and
realization of cash from sales. Thus, working capital is needed for the
following purposes:

1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.
3. To incur day-to-day expenses and overhead costs such as fuel, power
and office expenses, etc.
4. To meet the selling costs as packing, advertising, etc.
5. To provide credit facilities to the customers.
6. To maintain inventories of raw material, work-in-progress, stores and
spares and finished stocks.

C) DETERMINANTS OF WORKING CAPITAL

 Length of the operating cycle

 Accounts payable period
 Inventory & receivable period
  The size of the firm’s investment in current assets(restrictive short-term
financial policy)
 The financing of current assets

D) KINDS OF WORKING CAPITAL

The working capital in certain enterprise may be classified into the following
kinds.
(1) Initial working capital
(2) Regular working capital
(3) Fluctuating working capital
(4) Reserve margin working capital
1. Initial working capital:

The capital, which is required at the time of the commencement of business,

is called initial working capital. These are the promotion expenses incurred at
the earliest stage of formation of the enterprise which include the incorporation
fees. Attorney's fees, office expenses and other preliminary expenses.

2. Regular working capital:

This type of working capital remains always in the enterprise for the successful
operation. It supplies the funds necessary to meet the current working
expenses i.e. for purchasing raw material and supplies, payment of wages,
salaries and other sundry expenses.

3. Fluctuating working capital:

This capital is needed to meet the seasonal requirements of the business. It is

used to raise the volume of production by improvement or extension of
machinery. It may be secured from any financial institution which can, of
course, be met with short term capital. It is also called variable working capital.

4. Reserve margin working capital:

It represents the amount utilized at the time of contingencies. These

unpleasant events may occur at any time in the running life of the business
such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and
unavoidable competition etc. In this case greater amount of capital is required
for maintenance of the business.

In Fig. 2, permanent working capital is also increasing with the passage of

time due to expansion of business but even then it does not fluctuate as
variable working capital which sometimes increases and sometimes
decreases.
 STATEMENT OF WORKING CAPITAL REQUIREMENT

Year 20013-14 2012-13 2011-12 2010-11 2009-

2010
PARTICULARS AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
(in crore) (in crore) (in crore) (in crore) (in crore)
CURRENT
ASSETS:
Current 1,244.00 1,329.02 753.24 1215.65 986.75
Investment
Inventories 1,173.66 1,380.64 1212.70 1058.47 944.92
Trade 243.57 142.99 138.12 112.40 181.78
Receivable
Cash and bank 4,048.29 3,504.38 4,168.35 3,795.23 3,152.35
balance
Short term loan 481.38 525.00 515.34 785.59
and advances 915.23

Other current 235.30 193.78 234.58 163.84 145

assets
TOTAL(A) 7,426.20 7,022.33 7,260.82 6,196.39
7,075.81
CURRENT
LIABILITIES:
Trade payable 531.12 503.56 693.98 396.79 317.20
Other current 2,564.38 1,937.93 1,957.67 1,524.14
liability 2,545.70
short term 147.25 162.67 44.98 386.49 369.98
provision
TOTAL(B) 3,242.75 3,211.93 2,676.89 2,740.95 2,211.32
Networking 4183.45 3863.88 4345.44 4519.87 3985.07
Capital
(C. Asset - C.
Liability)
(A) - (B)
E) OPERATING CYCLE:

The period between the acquisition of inventory and the collection of cash
from receivables is known as operating cycle. The operating cycle is the length
of the time it takes to acquire inventory, sell it, and collect for it. This cycle has
two distinct components.

The first part is the time it takes to acquire and sell the inventory.

The second part is the time taken to collect on the sale which is called
accounts receivable period (the time between sale of inventory & collection
of receivables)

Operating cycle = Inventory period + Accounts receivable period

What operating cycle describes is how a product moves through the current
asset accounts. The product begins life as inventory, it is converted to a
receivable when it is sold, and it is finally converted to cash when we collect
from sale. At each step the asset is moving closer to cash.

DETERMINATION OF LENGTH OF OPERATING CYCLE:-

The length of operating cycle of a manufacturing firm is the sum of

Inventory Conversion Period (ICP) +Debtor/receivable Conversion Period
(DCP).

1. The Inventory Conversion Period is the total time needed for producing and
selling the product. It includes

(a) Raw material conversion period(RMCP)

(b) Work-in- process conversion period (WIPCP)

(c) Finished goods conversion period (FGCP)

2. The debtor conversion period is the time required to collect the outstanding
amount from the customers.
 The total of inventory conversion period and debtors conversion period is
referred to as Gross Operating Cycle (GOC), which can be expressed
mathematically as below :

Gross Operating Cycle = Inventory Conversion Period + Debtors

Conversion Period

(OR)

GOC = ICP + DCP

ICP = RMCP + WIPCP + FGCP

WHAT DETERMINES THE INVENTORY CONVERSION PERIOD :-

(a) The raw material conversion period depends upon:-

(i)Raw material consumption per day, and

(ii)Raw material inventory

RAW MATERIAL CONVERSION PERIOD

Raw material inventory

Raw material consumption/365

(b) Work-in-process conversion period :-

WIPCP is the average time taken to complete the semi finished or work-in-
process. It is given by the following formula.

WORK-IN-PROGRESS CONVERSION PERIOD

Work – in – process Inventory

Cost of production /360

(c) Finished goods conversion period:-

FGCP is the average time taken to sell the finished goods. FGCP can be
calculated as follows :
FINISHED GOODS CONVERSION PERIOD
Finished goods inventory
Cost of goods sold/365

F) SOURCES OF WORKING CAPITAL:

Sources of working capital are

 Net Income
 Increase In Noncurrent Liabilities
 Increase In Stockholders' Equity
 Decrease In Non-Current Assets

Sources of Financing Working Capital

Reflects the liquidity of a company and its ability to meet its short term
obligations. Working Capital is determined by subtracting total current liabilities
from total current assets.

Current assets are cash and other company assets that can be readily turned
into cash within one year.

Current liabilities are the liabilities of a company due and payable within one
year.

For a company to remain solvent, it must be able to meet its current liabilities
and thus have an adequate amount of working capital.
 7. WORKING CAPITAL MANAGEMENT ANALYSIS IN NALCO

A) CASH MANAGEMENT IN NALCO

Cash is money, which a firm can disburse immediately without any

restriction.” The term cash includes coins, currency and cheques held by the
firm and balances in its bank accounts. Sometimes cash equivalents, such as
marketable securities or banks’ time deposits are also included in cash. The
basic characteristic of near-cash assets is that they can be readily converted
into cash. Generally when a firm has excess cash, it invests in marketable
securities. This kind of investment contributes some profit to the firm.

Cash management of NALCO, focuses on the following aspects:

Cash Budgeting

I) Long-term cash forecasting

II) Monitoring collections & receivables

III) Optimal cash balance
 IV) Option for investing surplus of funds

The key areas of effective cash management of NALCO are:

1. Identifying the requirements of funds at various units

2. Investment of surplus funds productively

3. Repayment of Loans

4. Proper capital expenditure

5. Standardized reporting system

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing of

(i) Cash flows of the firm,

(ii) Cash flows within the firm, and
(iii) Cash balances held by the firm at a point of time by financing deficit or
investing surplus cash.
In order to resolve the uncertainty regarding cash flow a firm should develop
appropriate strategies for better cash management by taking following aspects
into consideration.

(a) Cash Planning: Cash inflows and outflows should be planned to project
cash surplus or deficit for each planning period. Cash budget should be
prepared for this purpose.
(b) Managing the Cash Flows: The flow of cash should be properly
managed. The cash inflows should be accelerated while the outflows
should be decelerated as far as possible.
(c) Optimum Cash Level: The firm should decide about the appropriate
level of cash balance. The cost of excess cash and danger of cash
deficiency should be matched to determine its optimum level.
(d) Investing Surplus Cash: The surplus cash balances should be properly
invested to earn profits. The firm should allocate such balance among
 different short-term investment opportunities such as bank deposits,
marketable securities or inter-corporate lending or any other.
The ideal cash management system depends on the nature of the
product, organization structure, level of competition, organization culture and
options available. The task is complex and decisions taken can affect important
areas of the firm. For example, if the credit period is reduced to improve
collections, it may affect sales. However, in certain cases, even without
fundamental changes, it is possible to reduce cost of cash management
significantly by choosing a right bank and controlling the collections properly.

B) INVENTORY MANAGEMENT IN NALCO

Inventory constitutes the most significant part of the current assets of

large majority of companies in India. On an average, inventories are
approximately 20% of current asset in public limited companies in India.
Because of the large size of the inventories maintained by firms, a
considerable amount of funds are required to be committed to them. It is,
therefore very necessary to manage inventories efficiently & effectively in order
to avoid unnecessary investments.

A firm neglecting the management of inventories will be jeopardizing its

long run profitability & may fail ultimately. The purpose of inventory
management is to ensure availability of materials in sufficient quantity as and
when required and also to minimize investment in inventories. It is possible for
a company to reduce its level of inventories of a considerable degree, without
any adverse effect on production & sales, by using simple inventory planning
& control techniques.

Types of Inventories:
1. Raw Materials
2. Work in progress
3. Finished Goods
4. Cash and marketable securities.
Need to hold Inventories:

There are four general motives for holding inventory:

Transaction Motive
Precautionary Motive
Speculative Motive
Contractual Requirement

Objectives of Inventory Management in NALCO

- To ensure continuous supply of materials, spares & finished goods.

- To avoid both over-stocking & under-stocking of inventory.
- To maintain investments in inventories & the optimal level as required by
the operational & sales activities.
- To keep material cost under control so that they contribute in reducing
cost of production & overall costs.
- To eliminate duplications in order or replenishing stocks. This is possible
with the help of centralizing purchases.
- To minimize losses through deterioration, pilferage wastage and
damages.
- A clear cut accountability should be fixed at various level of organization.

Effective Inventory Management:-

- A system to keep track of inventory

- A reliable forecast of demand
- Knowledge of lead times
- Reasonable estimates of
. Holding cost
. Ordering costs
. Shortage costs
- A classification system
TOOLS &TECHNIQUES OF INVENTORY MANAGEMENT-
 1. Determination of stock levels
2. Determination of safety stocks
3. Selecting a proper system of ordering for inventory.
4. Determination of economic order quantity.
5. A.B.C. Analysis
6. V.E.D Analysis
7. Inventory Turnover ratio
8. Aging schedule of inventories
9. Classification & codification of inventories
10. Preparation of inventory report
11. Lead time
12. Perpetual inventory system
13. JIT control system

INVENTORY MANAGEMENT TECHNIQUES ADOPTED BY NALCO

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

wealth maximization principle. To achieve this firm should determine the
optimum level of inventory. A proper invention control not only serves the acute
problem of liquidity but also increases profits & cause substantial reduction in
the working capital of the concern. Following are the tools & techniques of
inventory management adopted by NALCO:

Economic order quantity

ABC Analysis
XYZ Analysis
FSN Analysis
Perpetual Inventory system

08. FINANCIAL ANALYSIS

A. CALCULATION OF GROSS OPERATING CYCLE

The length of operating cycle of a manufacturing firm is the sum of Inventory

Conversion Period (ICP) +Debtor/receivable Conversion Period (DCP).

The Inventory Conversion Period is the total time needed for producing and
selling the product. It includes
 (a) Raw material conversion period(RMCP)

(b) Work-in-process conversion period(WIPCP)

(c) Finished goods conversion period (FGCP)

The debtor conversion period is the time required to collect the outstanding
amount from the customers.

WHAT DETERMINES THE INVENTORY CONVERSION PERIOD :-

(a) The raw material conversion period depends upon :--

(i) Raw material consumption per day, and

(ii) Raw material inventory (RMI)

Raw materials conversion period = Raw material inventory

[Raw material consumption]
/365

(b) Work-in-process conversion period :-

WIPCP is the average time taken to complete the semi finished or work-in-
process. It is given by the following formula

Work –in- process conversion period = Work-in-process

inventory
[Cost of
production] / 360
(c) Finished goods conversion period:-

FGCP is the average time taken to sell the finished goods. FGCP can be
calculated as follows

Finished goods inventory

Finished goods conversion period =
[Cost of goods sold] / 360

(d) Debtors conversion period (DCP) = Debtors

Credit Sales /365

CALCULATION OF NET OPERATING CYCLE:-

1. A firm may acquire resources (such as raw material) on credit and
temporarily postpone payment of certain expenses, payables, which the firm
can differ, are “spontaneous sources of capital” to finance investment in current
assets.

The creditors (payables) deferral period (CDP) is the length of time the
firm is able to defer payments on various resource purchases.

Net Operating Cycle (NOC) is the difference between Gross Operating

Cycle and payables deferral period.

Symbolically, NOC = GOC CDP

Where,

NOC=Net Operating Cycle.

GOC=Gross Operating Cycle.

CDP= Credit Deferral Period.

Creditors (payable) deferral period (CDP) is the average time taken

by the firm in paying its suppliers (creditors). CDP is given as follow ;
Creditors
CDP =
Credit purchases /365
1.Calculation of Net operating cycle period for the 5 year :-

NET FORMULA 2013-14 2012-13

OPERATING
CYCLE
1. Factory op.WIP+RMC+Po 301.87+1063.16+201 270.83+1167.83
cost wer & fuel +repair& 7.67+170.58+122.26- +2432.27+172.9
maintenance+man 316.68 = 3358.86 9+134.39-
ufacturing 301.87= 3876.44
expenses-cl.WIP
2.Cost of op.F.G+factory 202.84+3358.86+93.2 169.63+3876.44
production cost+Adm.exp- 7-133.35 = 3521.62 +93.47-202.84=
cl.F.G 3936.7
3. W.I.P inventory/ 316.68/3521.62/365= 301.87/3936.7/3
Work-in- cost of 32.823 =33days 65= 27.989=
progress(W. production/365 28days
I.P)
4. Finished FG inventory/cost COGS = COGS=
goods of goods 3521.62+21.61= 3936.7+20.58=
conversion sold[COGS]/365 3543.23 FGCP= 3957.28 FGCP=
period(FGC [COGS= cost of 133.35/3543.23/365 = 202.84/3957.28/
P) production+ selling 13.73= 14days 365 =18.712=
& distribution] 19days
5. Creditors Creditors / credit CDP= CDP=
deferral purchase /365 531012/1103.94/ 503.56/1160.19/
period(CDP) [credit purchases= 365= 175.8= 176days 365= 158.45=
op.RM+RMC - 158days
cl.R.M]
6. ICP = ICP = ICP=
Inventory RMCP+WIPCP+F 31.71+32.82+13.73 = 29.5+27.989+18.
conversion GCP [RMCP =RM 78.26= 78days 712= 76.201
period(ICP) inventory/RMC/36 =77days
5]
 NET FORMULA 2011-12 2010-11 2009-
OPERATIN 10
G CYCLE
1. Factory op.WIP+RMC+Pow 219.71+1030.78+ 208.94+766 230.99
cost er &fuel +repair& 2196.68+158.64+ .12+1772.6 +782.3
maintenance+manu 131.34-270.83= 4+414.70+ 0+1601
facturing expenses- 3466.32 177.61- .14+29
cl.WIP 220.32 6.37+2
=3119.69 10.78-
208.94
=
2912.6
4
2.Cost of op.F.G+factory 214.72+3466.32+ 142.06+311 131.91
production cost+Adm.exp- 100.34-169.63 = 9.69+121.0 +2912.
cl.F.G 3611.75 9-214.72= 64+115
3168.12 .29-
142.06
=
3017.7
8
3. W.I.P inventory/ 270.83/3611.75/3 220.32/316 208.94/
Work-in- cost of 65= 27.38 = 8.12/365= 3017.7
progress(W production/365 27days 25.41= 8/365 =
.I.P) 25days 25.295
=
25days
4. Finished FG inventory/cost COGS= COGS= COGS
goods of goods 3611.75+15.34 3168.12+72 =3017.
conversion sold[COGS]/365 =3627.09 FGCP= .17= 78+89.
period(FGC [COGS= cost of 169.63/3627.09/3 3240.29 04=310
P) production+ selling 65 = 17.08 = FGCP=214. 6.82=
& distribution] 17days 72/3240.29/ 142.06/
365 = 3106.8
24.20= 2/365=
24days 16.69 =
17days
5. Creditors Creditors / credit CDP=693.98/101 CDP=1878. CDP=
deferral purchase /365 0.66/365 =251.44 76/738.53/3 1495.5
period(CDP [credit purchases= =251days 65 = 930.07 8/782.6
) op.RM+RMC - =930days 9/365
cl.R.M] =698.8
6
=699da
ys
 6. ICP = ICP= ICP=44.09 ICP=30
Inventory RMCP+WIPCP+FG 44.47+27.38+17. +25.41+24. .17+25.
conversion CP [RMCP =RM 08= 88.93 20= 93.7= 295+16
period(ICP) inventory/RMC/365] =89days 93days .69 =
72.155
=
72days
 CHAPTER-FIVE

ANALYSIS AND INTERPRETATION

 RATIO ANALYSIS

INTRODUCTION:-

The ratio analysis is the most important method or device of financial

statement analysis. It is the process of establishing & interpreting various
ratios. It is with the help of ratio that financial statements can be analyzed more
clearly & decisions made from such analyzed. It gives a quantitative
relationship between figures between figures & group of figures.

MEANING:-

A ratio is a simple arithmetical expression of the relationship of one

number to another.

It is an expression of the quantitative relationship between two numbers.

NUMBERS:-

● Selection of relevant data from the financial statement.

● Calculation of appropriate ratio from the above data.

● Comparison of past & present ratio.

● Interpretation of the ratio.

GUIDELINES FOR USE OF RATIO:-

● Accuracy of financial statements.

● Objective or purpose of analysis.

● Selection of ratio.

● Use of standards.

● Calder of the analyst.

● Ratio provides only a base.

USE & SIGNIFICANCE OF RATIO ANALYSIS:-

A ratio is very much useful for financial statement analysis. The use of
ratio is not only for financial manager, but there are different parties interested
in the ratio analysis for knowing the financial position of a firm for different
purposes. The suppliers of goods or creditor, banks, financial institution,
investors, shareholders, & management all make use of ratio analysis as a tool
in evaluating the financial position & performance of a firm for granting credit,
providing loan or making investment in the firm.

● Managers

Decision making

Financial forecasting & planning

Communication

Coordinating

Controlling

● Shareholders

● Employees

● Government

● Tax audit requirement

LIMITATIONS OF RATIO ANALYSIS:-

● Limited use of single ratio

● Lack of adequate standards

● Inherent limitations of accounting

● Change of accounting procedure

● Window dressing

● Personal bias

● Incomparable

● Absolute figures distortive

● Price level changes

● Ratios no substitutes
 RECEIVABLES MANAGEMENT

MEANING OF RECEIVABLES:

 It is amount /debt which is receivable for the goods and services provided
on credit.
 It is also known as trade debtors, sundry debtor, trade receivables, book
debts.

CHARACTERISTICS OF RECEIVABLES:

 It involves an element of risk.

 It is based on economy value.
OBJECTIVES OF RECEIVABLES:
 Cash payment will be made in future.
 Increases sales
 Increase in profit(volume increase and margin increase)
 Strategy to face competition.

COST OF MAINTAINING RECEIVABLES:

 Cost of financing
 Administrative cost
 Collection cost
 Defaulting cost

MEANING OF RECEIVABLE MANAGEMENT:

 Maintain receivable at a level at which there is a trade off between

profitability and cost.
 This is called optimum level or receivable
 Three aspects of managing account receivable.

ESTABLISHING CREDIT POLICY:

 Determine the level of credit sales

 Determining of the credit standards
 Determining of the credit terms

ESTABLISHING COLLECTION POLICY OF CONCERN

 Determining policy and procedures to be followed for the collection of the

account receivables.
 WORKING CAPITAL TURNOVER RATIO:-

Working capital is directly related with sales. Working capital is excess

of current assets over current liabilities.

WORKING CAPITAL =

TOTAL CURRENT ASSETS - TOTAL CURRENT LIABILITIES

Working capital turnover ratio indicates the turnover of the utilization of

net working capital. Sales in respect of working capital should be norm. The
working capital turnover ratio indicates the number of times the working capital
is turned over in the course of a year.

This ratio measures the efficiency with which the working capital is being
used by a firm. This ratio can at best be making of comparative & trend analysis
for different firms in the some industry & for various periods.
 WORKING CAPITAL TURNOVER RATIO =
NET SALES / NET WORKING CAPITAL
YEAR CURRENT CURRENT WORKING
ASSETS (RS IN LIABILITIES(RS CAPITAL(RS IN
CRORES) IN CRORES) CRORES)
2009-10 7426.20 3242.75 4183.45
2010-11 7075.81 3211.93 3863.88
2011-12 7022.33 2676.89 4345.44
2012-13 7376.84 2740.95 4635.89
2013-14 6196.39 2219.93 3976.46
The working capital turnover ratio can be calculated as dividing the net
sales by net working capital.

CHART OF WORKING CAPITAL TURNOVER RATIO:-

YEAR SALES(RS NET RATIO

IN WORKING
CRORES) CAPITAL(RS
IN CRORES)
2009-10 5055.66 4183.45 1.20
2010-11 5958.98 3863.88 1.54
2011-12 6500 4345.44 1.49
2012-13 6809.45 4635.89 1.46
2013 -14 6648.80 3976.46 1.67

INTERPRETATION OF WORKING CAPITAL TURNOVER RATIO:-

1.8
1.6 Total
1.4
1.2
1
0.8
0.6
Total
0.4
0.2
0
 By analysing working capital turnover ratio, we can see
all the working capital & working capital ratio both are good.
Increase in current asset increase in working capital or it
knows as a positive working capital which is good for
business. But on the above chart we can see that the
NALCO’S working capital is shows good figure because the
current assets are increases from current liability. The
company is increasing the working capital as compare to last
years. It is good sign for the company.
CHAPTER –SIX
SUMMARY
SUGGESTION
CONCLUSION
SUMMARY:-

Financial statement analysis is the process of identifying the

financial strengths & weakness of a concern by properly analyzing the
interrelationship between various items of the balance sheet & profit & loss
account. As the primary objective of such analysis is to ascertain the
profitability & soundness of a concern, this study has been undertaken in order
to get an insight of the financial strengths & weakness of the company.

The ratio analysis is the most important method of financial statement

analysis which is required for knowing financial position of a firm for different
purposes. The suppliers of goods on credit, banks, financial institutions,
investors, shareholders & management all make use of ratio analysis as a tool
in evaluating the financial position & performance of a firm for granting credit,
providing loan or making investments in the firm.

CONCLUSION

 After analyzing the entire situation of Nalco regarding the working

capital, it should be suggested to it that according to Chakravarty
Committee report, penal interest for delayed payments clause in their
contracts for payments delayed beyond a specified period. The penal
interest may be fixed at 2% higher than the minimum lending rate of
the supplier’s bank.
 As working capital budget is a financial and quantitative expression of
business plans and policies to be pursued in the future period of time.
So, it is suggested to Nalco, on behalf of this project report, to prepare
estimating future long term and short term working capital needs and
the sources to finance them, and then comparing the budgeted figures
with the actual performance for calculating variances. If any variation
occurred, then necessary precautionary steps should be taken into
consideration.
 5YEARS PROFIT & LOSS ACCOUNT (Rs. in Crore)

2013- 2012- 2011- 2009-

Particulars 2014 2013 2012 2010-2011 2010
INCOME :-
Gross Sales 7024 7247 6927 6369.88 5311.4
Less: Excise -375 -438 -427 -410.9 -255.74
Duty
Net Sales 6649 6809 6500 5958.98 5055.66
Export 125.61 103.72 104.68 - -
Incentives
Finished goods 6.44 3.31 6.62 5.57 24.2
internally
consumed /
capitalized
Other Income 557.71 511.05 542.16 452.95 468.75
TOTAL INCOME 7338.76 7427.08 7153.46 6417.5 5548.61

EXPENDITURE :-

Work-in-process 58.55 -64.25 -2.93 9.91 21.63

Raw Material 1063.16 1167.83 1030.78 766.12 782.3
Power & Fuel 2017.67 2432.27 2196.88 1772.64 1601.14
Repairs & 643.96 554.98 563.13 414.7 296.37
Maintenances
Other 122.26 134.39 131.34 177.61 210.78
Manufacturing
Expenses
Employees 1245.33 1153.93 1034.54 989.02 843.6
Remuneration &
benefits
Administrative 405.34 388.7 335.93 121.09 115.29
Expenses
Other Expenses 254.41 196.19 160.55 138.07 127.55
Selling & 21.61 20.58 15.34 72.17 89.04
Distribution
Expenses
 Interest & _ 7.45 0.87 0.05 2.28
Financing
Charges
Provisions 14.36 24.99 1.29 0.34 -3.91
Depreciation 524.73 505.43 466.55 430.06 319.39
TOTAL 6371.44 6522.49 5934.27 4891.78 4405.46
Profit before 967.32 904.59 1219.19 1525.72 1143.15
exceptional item
& tax
-49.37 -21.9 _
Exceptional _ _
items
Profit before tax 917.95 904.59 1197.29 1525.72 1143.15
(PBT)

5 YEARS PERFORMANCE –FINANCIAL (Rs.in Crores)

2011- 2009-
Particulars 2013-14 2012-13 12 2010-11 10
Income Statement :
1. Exports 3,719 3,410 2,569 2,065 2,209
2. Domestic Sales 3,305 3,837 4,358 4,305 3,101
3. Gross Sales (1+2) 7,024 7,247 6,927 6,370 5,310
4. Less : Excise Duty 375 438 427 411 256
5. Net Sales (3 - 4) 6,649 6,809 6,500 5,959 5,054
6. Other Income :
7. Operating 132 107 112 98 119
8. Non-operating 558 511 542 353 374
9. Operating
expenses 5,847 6,010 5,467 4,464 4,071
10. Operating Profit
(5+7-9) 934 906 1,145 1,593 1,102

11. Earning before

interest, dep. & taxes
(EBIDT)(10+8) 1,443 1,417 1,665 1,946 1,476
12. Interest &
Financing charges 0 7 1 _ 2
13. Earning before
dep. & taxes (EBDT)
(11-
12) 1,443 1,410 1,664 1,946 1,474
14. Depreciation and
Amortisation 525 505 467 422 319
15. Profit before Tax
(PBT) (14-15) 918 905 1,198 1,524 1,155
16. Provision for Tax 276 312 348 455 341
17. Net Profit (PAT)
(15 - 16) 642 593 850 1069 814
Balance Sheet :
18. Equity Capital 1,289 1,289 1,289 1,289 644
19. Reserves &
Surplus 10,834 10,644 10,426 9,876 9,751
20. Net worth (19+20) 12,122 11,933 11,715 11,165 10,395
21. Loans
Outstanding 0 _ - 15 9
22. Net Fixed Assets 6,792 6,629 6,612 5,494 4,836
23. Net Current
Assets 3,949 3,411 4,193 3,304 2,998
24. Capital Employed
(22+23) 10,741 10,040 10,805 8,798 7,834
Ratios :
25. Operating Profit
Margin (OPM) (%)
(10 / 5*100) 14.05 13.31 17.62 26.73 21.8
26. Net Profit Margin
(%) (17 / 5 *100 ) 9.66 8.71 13.07 17.94 16.11
27. Return on Capital
Employed (ROCE)(%)

(18/25*100) 5.98 5.91 7.86 12.15 10.39

28. Return on Net
worth (RONW)(%)
(18/21*100) 5.3 4.97 7.25 9.57 7.83
29. Debt Equity ( 21 /
20 ) - - - -
Others :
 30. Book value per
share of Rs.10 each

(in Rs.) 47.04 46.3 45.46 43.32 40.34

31. Earnings per
share (in Rs.) 2.49 2.3 3.3 4.15 3.16
32. Dividend declared
(%) 1.5 1.25 1 2.5 2.5

5 YEARS PERFFORMANCE – PHYSICAL(Rs. in Crores) :-

2010- 2009-
S.I Particulars Unit 2013-14 2012-13 2011-12 11 10

1
4,823, 4,878,
Bauxite MT 6,292,677 5,419,391 5,002,626 908 888
Alumina 1,556, 1,591,
Hydrate MT 1,925,000 1,802,000 1,687,000 000 500
Aluminium
for Internal 44359 431,48
Consumption MT 316,492 403 413,089 7 8

Power (net) MU 4,989 6,076 6,200 6,608 6,293

2
639,85 702,55
Alumina MT 1,309,473 944,117 792,552 5 4
146,94
Aluminium MT 101,243 144.161 98,399 98,200 7

3
Alumina /
Hydrate MT 33,288 40,605 50,253 45,916 44,420
340,75 289,03
Aluminium MT 218,420 258,941 317,517 2 2

Power MU 27 26 16 56 15
CHAPTER – SEVEN

ANNEXTURE
BIBLIOGRAPHY
 BIBLIOGRAPHY: -

1. Financial management : I. M. Pandey

2. Management accounting : Sharma & Gupta.

3. Financial analysis reporting: k. Gupta& Arun Mehera.

4. Financial management : M.Y.Khan & P.K. Jain.

5. Annual Report of NALCO.

WEBSITES-

www.nalcoindia.com

www.managementparadise.com

www.nalcomines.com