Summer Internship Project Report

On
“WORKING CAPITAL CYCLE AND RATIO ANALYSIS OF
NALCO”

A Navaratna Company

Submitted For the Partial Fulfillment of the Requirement for the Degree
Of

Master in Business Administration

INTERNAL GUIDE: SUBMITTED BY:

Mr. Goutam Tanty Samaresh Nath

Lecturer (Finance) Regd. No; 0806804045

IIPM-School of Management MBA 2008-2010

Biju Patnaik University of Technology,

Rourkela, Orissa
 DECLARATION:

I do hereby declare that the project study entitled” STUDY ON

WORKING CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO” is
submitted to IIPM SCHOOL OF MANAGEMENT for award of MASTER IN
BUSINESS ADMINISTRATION is based on the study undertaken by me, 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. The information used in the study report is collected from
published financial statement, Annual report, various articles and in house
journal of the NATIONAL ALUMINIUM COMPANY LTD.This report shall
be used for academic purpose only.

SAMARESH NATH

Place: MBA (FINANCE)

Date: IIPM-School of Management

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 CERTIFICATE FROM CORPORATE GUIDE

This is to certify that Samaresh Nath, student of IIPM School of

Management, pursuing Master in Business Administration has worked under
my guidance and supervision on his project entitled “A STUDY ON WORKING

CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO”. To the best of my

knowledge, this is an original piece of work.

Mr. C.Padhiary

Chief.Manager (Finance)

NALCO, SMELTER PLANT, ANGUL, ORISSA

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 CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the project work entitled “A STUDY ON WORKING

CAPITAL CYCLE AND RATIO ANALYSIS OF NALCO” is a piece of
work done by Samaresh Nath(MBA/08-10), student of IIIPM School Of
Management, under my guidance and supervision for the partial fulfillment of
the course Master in Business Administration, Biju Pattnaik University of
Technology, Rourkela.

To the best of my knowledge and belief, the thesis embodies the work of the
candidate himself and has been duly completed. Simultaneously, the thesis
fulfills the requirements of the rules and regulations related to the summer
internship of the institute and I am assured that the project is up- to the standard
both in respect to the contents and language for being referred to the examiner.

Mr. Goutam
Tanty

Lecturer (Finance)

IIPM School
of Management

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 ACKNOWLEDGEMENT:

I am extremely thankful to Mr. C.padhiary for his guidance and support and
it has been a wonderful learning experience for which I feel indebted to him and
keenly look forward to such a value adding opportunity again, He provided
immense support, encouragement and confidence during the course of the
project. I express my heartfelt gratitude to the IIPM SCHOOL OF
MANAGEMENT for giving me this opportunity to do the project.

I am thankful to Mr. PEEYUSH SHARMA for his cooperation to complete my

project and giving me the best of his job experience. I am also thankful to my
faculty guide Mr. Goutam Tanty for guiding me and giving the suggestions
and guidelines about my project. I also want to say my sincere thanks to my
team members for their co-operation and co-ordination during the training.

Last but not the least I am thankful to almighty God, my family and my friends
for their love and moral support.

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 CONTENTS

CHAPTER NO PARTICULAR PAGE NO

Chapter 1 Executive Summary 07-08

Chapter 2 Company profile 09-17

Chapter 3 Introduction to the study 18-19

Chapter 4 Literature Review 20-46

Chapter 5 Objective and Scope of the study 47-48

Chapter 6 Research Methodology 49-50

Chapter 7 Analysis & Interpretation 51-62

Chapter 8 Limitation 63-64

Chapter 9 Recommendations 65-66

Chapter 10 Conclusion 67-68

Chapter 11 Bibliography 69-70

Chapter 12 Annexure 71-73

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 EXECUTIVE
SUMMARY

The major objectives of the study is

1. To give an insight into the concept and process of working capital management.
2. To study working capital management of National Aluminium Company Ltd.
3. To study the ratio analysis or liquidity position of NALCO

And finally to suggest measures to overcome the hurdles & ways of better management of
working capital

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PLACE OF STUDY

Study is based on the secondary data collected from SMELTER PLANT of NALCO located
at Angul, Orissa

STUDY PERIOD:-
The period is covered in the study, which extends from the financial year 2003 – 2004 to
2007-2008. These five years data were collected for the study.

LIMITATION OF THE STUDY

The company is yet to finalize accounts for the financial year 2008-09.The study is strictly
based on mathematical interpretation of the figures and ignores the factors such as
management style, motivation, leadership etc.

The entire study is based upon the secondary data available at the office. All financial decision
taken at corporate office and time being the constraint; it was not possible for collection of
primary data, and an extensive study on the topic.

Ratios used for financial performance analysis are not necessarily the true indicators of the
future results. Firms may adopt changes in accounting policies, procedures, due to change in
accounting standards from time to time. The ratio analysis may be misleading.

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 COMPANY PROFILE

COMPANY BRIEF

THE NALCO STORY

National Aluminum Company Limited (NALCO) is considered to be a turning point in the

history of Indian Aluminum Industry. In a major leap forward, Nalco has not only addressed
the need for the self – sufficiency in aluminum but also given the country a technological
edge in producing this strategic metal as per world standards.

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Incorporated in 1981 as a public sector enterprise, NALCO was set up to exploit a part of the
large bauxite deposits discovered in the east coast, in technological collaboration with
Aluminum Pechinery of France.

With consistent track record in capacity utilization, technology absorption, quality assurance,
exports performance and posting of profits, NALCO is a bright example of India’s industrial
capability. Today as an ISO-9001: 2000 and 14001 company, with its products registered in
London Mental Exchange, NALCO has emerged as the greatest integrated bauxite-alumna-
aluminum complex in ASIA.

COMPANY BACKGROUND

The discovery of large reserves of Bauxite ore in the east coast and the preliminary Project
work done by Bharat Aluminum Company Limited, the Company was set up by the
Government of India in 1981 to implement one of the largest multi-locational integrated
Aluminum projects of the world with its own Captive Power Plant and Port Facilities.

The technical collaboration of Aluminum Pechinery of France, the support of Euro-dollar

loans from a consortium of international Banks and the special dispensations of the
Government of India and the Govt. of Orissa helped the Company to implement the project
expeditiously within the budgeted cost of Re.2408 crore, under very difficult logistics of
project management.Different segments of the Company went into production in a phased
manner starting from November 1985. Within a short span of time, the company has emerged
as a leader in the field of Aluminum production in the country to make a 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 five main segments:

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 SEGMENT CAPACITY LOCATION

Bauxite mine 2,400,000 tpy Panchpatmali in Koraput

Alumina Refinery 800,000 tpy Damanjodi in Koraput

Aluminium Smelter 218,000 tpy Angul

Captive Power Plant 720 MW Angul

Port Facilities 375,000 tpy Visakhapatanam

(Alumina Export) (Andhra Pradesh)

.THE MANAGEMENT:

The Company is a Government of India Enterprise under the Administrative control of the
Ministry of Mines. The Company is managed by a Board of Directors appointed by the
President of India. The Board consists of 10 Directors including the Chairman-cum-Managing
Director of the Company. Apart from CMD, there are 4 functional & full time Directors
heading Production, Finance, Project & Technical and Personnel & Administration
disciplines. There are 2 senior Govt. officials nominated to the Board as Directors by the
Government of India. Besides, there are non official Directors in the Board.

The Management’s Control system is based on delegation of authority and individual

accountability for results. The responsibility and authority to take decisions on various
matters are delegated by the Chairman-cum-Managing Director to different levels in the
Management hierarchy. For personnel matters such as appointments, confirmations,
promotions, discipline, transfer, and grant of various benefits, leave etc., and powers have
been delegated to different levels of executives, in conformity with the principles and policies
of the management. The schedule of delegation of powers is a published document available
for reference, which is subjected to review, from time to time, to incorporate necessary
changes.

PLANT LOCATIONS

The Corporate headquarters of the Company is located at Bhubaneswar, the capital city of
Orissa, its mining operation and the manufacturing units are located at Damanjodi and Angul.

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Damanjodi, in Koraput district of Orissa, in 550 km. by road to south of Bhubaneswar. Angul
is 150 km. from Bhubaneswar on the north. It may be useful for you to get some general
information on Damanjodi and Angul which are the main centers of the Company’s activities.

DAMANJODI PLANT

Introducing Koraput, the Gazetteer of India writes: “Koraput with the rolling mountains,
undulating meadows, roaring rapids, enchanting waterfalls and terraced valleys leading up to
verdant hills, feast the eye as few other districts can. Koraput with her golden eye autumn and
misty morning of the monsoon months, her painted spring and slumbering summer and her
winter ranging from fierce to mild, provide varieties of living in different season, which is
rare elsewhere. Hear in spring, nature and men with each other to make living joyous”.

Damanjodi, Nalco has established its Alumina Refinery and a township, is one of the
picturesque valley of this beautiful district, on the foot hills of Panchapatamali hills. The
plateau of Panchapatamali, where the bauxite mine of Nalco is located is connected by a 16
km. long up hill road.. The Sunabeda Township is of Hindustan Aeronautics limited is 18km
from Damanjodi. Koraput town the head quarter of district is 36km from Damanjodi.

NALCO NAGAR, ANGUL PLANT

Nanco Nagar is situated within 5km. of Angul town. Angul was once a feudal state with a
chequered history of palace intrigues and wars with neighboring states. In 1847 the state was
confiscated on account of the revel ion against the British by the then ruling Chief Somanath
Singh. Thus, Angul passed under the British rule earlier to many other parts of Orissa. Angul
became a district heard quarter in 1994.

Nalco has established its smelter plant, the captive power plant and its township close to the
national highway. The place is easily accessible from Cuttack & Bhubaneswar by road and
rail.The Nalco Township known as NALCO Nagar is modern and well planned. In addition
to 2947 dwelling units and trainees’ hostel with 300 rooms, Nalco Nagar has many civic
facilities like community center, clubs, stadiums, Swimming pool, Market Complex etc. The
company has established here a 50 bedded hospital with ultra modern facilities.

COMPANY PROFILE
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VISION:-
To be a Company of Global repute in aluminium.

MISSION:-
To achieve growth in business with global competitive edge providing satisfaction to the
customers, employees, share holders and community at large.

COMPANY PROFILE

Modern updated technology.

 Captive recourses in raw materials.
 Integrated operation.
 Pithead location of the power plant.
 9th largest producer of Aluminum in the world.
 Efficient logistics in transportation.
 Dedicated port facilities on the Bay of Bengal.
 International Linkages in technology and markets.
 Environment friendly operations.

OBJECTIVES
To maximize capacity utilization.
 To optimize operational efficiency and productivity.
 To maintain highest international standards of excellence in product quality, cost
efficiency and customer service.
 To provide a steady growth in business by technology up gradation, expansion and
diversification.
 To have Global presence and earn foreign exchange.
COMPANY PROFILE

National Aluminum Company Limited (NALCO) is the only Public Sector Undertaking in
India producing alumina, primary aluminum and semi-finished products. NALCO is a Star

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Trading House and has received highest Capelin awards many times for excellent export
performance. NALCO is the largest integrated Aluminum Complex with operations spanning
from mining, refining, power generation, smelting and production of value added products
such as strips, billets, sheets etc. Since inception of the company NALCO has produced high
purity aluminium, alumina and established itself in both domestic and international market.
The products are registered in London Metal Exchange (LME). NALCO is one the profit
making PSUs and Mini Ratnas which has always strived to produce high quality metal and
alumina with state-of-the-art technology. NALCO is an early adopter of best of technology
and has always believed in continuous up gradation and renovation which have resulted in
minimizing cost of production and better quality products.

UNIT PROFILE

Smelter unit is located in Angul district of Orissa. The Smelter unit has increased its
production capacity from 2,30,000 MT to 3,45,000 MT with the commissioning of 3rd Pot
Line consisting of 240 electrolytic pots. Smelter unit has adopted technology from
Aluminium Pechiney, France.

NALCO’s smelter unit has received ISO 9001, 2000 certificate from RWTUV, Germany. It
has made constant efforts to implement Quality Management System by employee
involvement through Quality Circles and Quality Improvement Projects. Smelter unit’s
quality circles have participated in various national and international level competitions and
received many awards. Smelter unit is also certified for ISO 14001 from RWTUV and it is
also going for OHSAS 18001 certification.

NALCO smelter unit is also the recipient of many more awards such as:

 National award on Excellence in Energy Management, from CII, 2004.

 Best Energy Conservation Project Implemented for the year 2004, from CII.
 FIMI environment award 2000 -01
 Indira Gandhi Paryavaran Award, 2000
 State Pollution control award – 2002.
 FICCI Award for pollution control and environment, 1996–1997

ENERGY CONSERVATION COMMITMENT, POLICY AND ORGANIZATIONAL

SET UP

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Smelter unit has constituted an Energy Conservation Cell (ECC) under the Chairmanship of
General Manager (O&M). A senior DGM (Electrical) has been nominated as Energy Manager
and he is also the convener of Energy Cell. Members of ECC have also been nominated from
various cross functional departments e.g. Production, Maintenance, R&D etc. The ECC
members meet regularly to discuss various strategies and action plans to implement energy
conservation measures in line with NALCO’s energy conservation policy and objectives.
Apart from that small group activity (SGA) involving employees from various functions and
levels and Quality Circle teams are encouraged to work on energy saving projects.

CAPTIVE POWER PLANT (CPP)

1 FEATURES

Close to the Aluminum Smelter at Angul, a Captive Power Plant of 960 MW capacity,
comprising 8 x 120 MW clusters, has been established for firm supply of power to the
Smelter. Presently, the capacity is being expanded to 1200 MW.

The water for the Plant is drawn from River Brahmani through a 7 km long double circuit
pipeline. The coal demand is met from a mine of 3.5 million tpa capacity opened up for Nalco
at Bharatpur in Talc her by Mahanadi Coalfields Limited.

PORT FACILITIES

On the Northern Arm of the Inner Harbour of Visakhapatnam Port on the Bay of Bengal,
Nalco has established mechanized storage and ship handling facilities for exporting Alumina
in bulk and importing Caustic Soda.

ROLLED PRODUCTS

Nalco has set up a 50,000 MT per annum Rolled Products Unit, integrated with the Smelter
Plant at Angul, for production of aluminium cold rolled sheets and coils from continuous

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caster route, based on the advanced technology of FATA Hunter, Italy. After acquisition and
merger of international Aluminum products Ltd. NALCO has started production from the
50,000 tpa plant. This 100% export –oriented Rolled Product Units has facilities to produce
foil stock, cable wraps, standard sheets and coils for a variety of end uses. Set up in technical
collaboration with Fata Hunter, Italy, the plant incorporates high precision equipments and on
line quality monitoring systems

PLANT'S SPECIAL FEATURES TO ENSURE WORLD CLASS QUALITY

Sidewell type Melting Furnace Ensures better temperature control, composition uniformity,
higher melt rate and higher yields when melting light scrap.Tilting type Holding Furnace
Excellent level control of metal in the launder which results in better quality.On-line
Degassing Facility Removes hydrogen and alkali metal impurities from molten
aluminium.Ceramic Foam Filter Eliminates inclusions and suspended impurities.Four
separate Casting lines,individually complete with its own Furnaces,Casters etc. To ensure
casting of four different grades of aluminium products simultaneously, thus reducing lead
time drastically.Cold Rolling Mill with automatic gauge control and automatic flatness
control Reduction in thickness upto 0.12 mm with gauge accuracy and flatness to
International Standards.Annealing Furnace with Nitrogen Controlled atmosphere Ensures
brighter surface with no brown stain.Precision Slitters & Cut-to-Length equipment Ensure
close tolerance on width, length and diagonal, straight build-up and smooth, tear-free
edge.Special Roll Grinder with Millitron System Computerized numerical control cambering
maintains stringent tolerance while recording actual profile of the roll in the form of a chart

Along with the above, the plant has facilities for analysis through Optical Emission
Spectrometer, fully computerized Tensile Testing Machine, Hydrogen Analyzer, combined
with an overall close vigil on process and an all-round in-line Quality System Standard from
input to finished product conforming to World Class Standards

COMMUNITY CARE.

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PRODUCT ALUMINA

 Calcined Alumina
 Alumina Hydrate
 Cast strips
 Detergent Grade Zeolite
 Billets
 Wire rods
 Alumina Chemicals

ENVIRONMENT

Nalco assigns high importance to promotion and maintained of pollution-free environment in

all its activities. The Environment management Systems in all production units conforms to
the ISO 14001 norms. Indira Priyadarshini Vrikshamitra Award, conferred on the company,
bears further testimony of Nalco commitment for the environment. Nalco has also won the
pollution control Excellence Award of Orissa State Pollution Control Board.

ALUMINIUM METAL

 Standard ingots (in 20kg &22 kg)

 Sow ingots(each max.750 kgs)
 Wire Rods (in coil form,9.5 mm dia weight approx.2mt)
 Alloy ingots(each approx.10kgs)
 Billets(in four sizes:127mm/152mm/178mm/203mm)
 Cold Rolled Sheets

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 Introduction to the study

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Working Capital Management means managing current assets of business firm. Current
assets are those assets, which can be converted into cash within a short period of time, i.e. 1
year. It is the outcome of a need for proper management of funds in a business.

Inventories management at NALCO:

NALCO is a large scale manufacturing company involved in mining of Bauxite and

production of Aluminum. Therefore, it has to maintain large quantity of inventories at
production units for its smooth running and functioning.

Cash management at NALCO:

NALCO has been accumulating huge cash surpluses over last several years, which enables the
organization to maintain adequate cash reserves and to generate required amount of cash.

Receivables management at NALCO:

NALCO has set up its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New
Delhi, Chennai, Bangalore, and Pondicherry. This marketing office obtains sales order from
Aluminum users in India as well as globally. On the basis of order received for different
products it marks production planning of different i.e. Ingot sow ingot, Billets, Wire etc.

Working capital cycle at NALCO

It starts with the purchase of raw materials and ends with realization of cash from the sale of
finished goods. The cycle involves the purchase of raw materials and ends with the realization
of cash from the sale of finished products.

Ratio Analysis at NALCO

The ratio is used as a benchmark for evaluating the financial position and performance of
NALCO. The absolute accounting figures reported in financial statements do not provide a
meaningful understating of performance and financial position of a firm. An accounting
figure conveys meaning when it is related to some other information.

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 LITERATURE REVIEW

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The theoretical analysis of Working Capital Management & Ratio Analysis is collected from
the various books of Management Accounting. Dr. S.P. Gupta, R.K. Sharma & Shashi K.
Gupta’s and I. M. Pandey management accounting books are best for the study of working
capital management.

4.1. WORKING CAPITAL MANAGEMENT

Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.
Business also needs funds for short-term purposes to finance current operations. Investment in
short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working
Capital’. The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-
day operations of the business smoothly. The management of the working capital is equally
important as the management of long-term financial investment

Finance required for a business can be classified under two main categories:

1. Long-Term Finance
2. Short-Term Finance

Every business needs funds for two purposed – For it establishments and to carry out its day-
to-day operations. Long-term funds are required to created production facilities, through
purchase of fixed assets, such as, plant, machinery, land, building, furniture etc. Investments
in these assets represent that part of firm’s capital which is blocked on a permanent or fixed
basis and is called fixed capital or long-term finance. Funds are also needed for short-term
purposes for the purchase of raw materials, payment of wages and other day-to-day expenses
etc. The se funds are known as working capital. In simple words, working capital refers to
that part of the firm’s capital, which is required for financing short-term or current assets such
as cash, marketable securities, debtors & inventories.
In the other words of Shubin. “Working Capital is the amount of funds necessary to cover the
cost of operation the enterprise.”
According to Genestenberg, “Circulating capital means current assets of a company that are
changed in the ordinary course of business from one form to another, as for example, from
cash to inventories, inventories to receivables, receivables in to cash.”

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4.2 Concepts of Working Capital:-

There are two concepts of Working Capital.

a. Gross Working Capital

b. Net Working Capital.

• GROSS CONCEPT OF 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.

• NET CONCEPT OF WORKING CAPITAL refers to the difference between current

assets and current liabilities. Current liabilities are those claim of outsiders which are
expected to mature for payment within an accounting year

Net working capital can be positive or negative. A positive net working capital arises when
current assets exceed current liabilities. A negative working capital occurs when current
liabilities are in excess of current assets.

4.3 IMPORTANCE OF WORKING CAPITAL:-

Working Capital is the lifeblood & nerve center of a business. Just as circulation of blood is
essential for maintaining life in the human body, working capital is very essential to maintain
the smooth running of a business. No business can run successfully without an adequate
amount of working capital. The main advantages of maintaining adequate amount of working
capital are:

1. Solvency of the business: Adequate working capital helps in maintaining solvency of

the business by providing uninterrupted flow of production.

2. Goodwill: Sufficient working capital enables a business concern to make prompt

payments & hence helps in creating & maintaining goodwill.

3. Easy loans: A concern having adequate working capital, high solvency and good
credit standing can arrange loans from banks & other on 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 cost.

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5. Regular supply of raw 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 adequate working capital can make regular payment of salaries, wages
and other day to day commitments which raises the morale of its employees, increases their
efficiency, reduces wastages & costs and enhances production and profit.

7. Exploitation of favorable market conditions: Only concerns with adequate working

capital can exploit favorable 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 crises: 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.

9. Quick and Regular return on Investment: Every investor wants a quick and regular
return on his investments. Sufficiency of working capital enables a concern to pay quick and
regular dividends to its investors, as there may not be much pressure to plough back profits.
This gains the confidence of its investors and creates a favorable market to raise additional
funds in the future.

10. High Morale: Adequacy of working capital creates an environment of security,

confidence, high morale and creates overall efficiency in a business.

4.4 EXCESS OR INADEQUATE WORKING CAPITAL:-

Every businessman should have adequate working capital to run its business operations. It
should have neither redundant or excess working capital nor inadequate nor shortage of
working capital. Both excess as well as short working capital positions are bad for any
business. However, out of the two, it is the inadequacy of working capital, which is more
dangerous from the point of view of the firm.

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Disadvantages of Redundant or Excessive Working Capital:

1. Excessive Working Capital means idle funds, which earn no profit for the
business, and hence the business cannot earn a proper rate of return on its investments.
2. When there is an excessive working capital, it may lead to unnecessary purchasing
and accumulation of inventories causing more chances of theft, waste and losses.
3. Excessive Working Capital implies excessive debtors and defective credit policy,
which may cause higher incidence of bad debts.
4. It may result into overall inefficiency in the organization.
5. When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may also fall.
7.
Disadvantages of Inadequate or Shortage Working Capital:

1. A Concern, which has inadequate working capital, cannot pay its short-term credit
liabilities in time. Thus, it will lose its reputation and shall not be able to get good
credit facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts etc.
3. It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack 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 falls with the shortage of working capital.

4.5 NEED OR OBJECTS OF WORKING CAPITAL:-

The need for working capital cannot be over emphasized. 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. There is an operating cycle involved in the sales
& realization of cash. There are time gaps in purchase of raw materials & production;
production and sales and sales and realization of cash. Thus, working capital is needed for the
following purposes.

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

4.6 ESTIMATE OF WORKING CAPITAL REQUIREMENTS:-

“Working capital is the life-blood and controlling nerve center of a business.” No business
can be successfully run without an adequate amount of working capital. To avoid the shortage
of working capital at once, an estimate of working capital requirements should be made in
advance so that arrangements can be made to procure adequate working capital. But
estimation of working capital requirements is not an easy task and a large number of factors
have to be considered before starting this exercise. For a manufacturing organization, the
following factors have to be taken into consideration while making an estimate of working
capital requirements:

1. Total Costs incurred on material, wages and overheads.

2. The length of time for which raw materials are to remain in stores before they are
issued for production.
3. The length of the production cycle or work-in-progress, i.e. the time taken for
conversion of raw material into finished goods.
4. The length of sales cycle during which finished goods are to be kept waiting for
sales.
5. The average period of credit allowed to customers.
6. The amount of cash required to pay day-to-day expenses of the business.
7. The average amount of cash required to make advance payments, if any.
8. The average credit period expected to be allowed by suppliers.
From the total amount blocked in current assets estimated on the basis of the first seven items
given above, the total of the current liabilities, i.e. the last two items, is deducted to find out
the requirements of working capital.

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4.7 OPERATING CYCLE

Operating cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash. The operating cycle of a manufacturing company like
NALCO involves three phases:

1. Acquisition of resources such as raw material, labour, power and fuel etc.
2. Manufacture of the product which involves conversion of raw material into work-in-
progress into finished goods.
3. Sale of the product either for cash or on credit. Credit sales create amount receivable for
collection.

Working Capital Cycle

Cash Raw

Debtor
s
Work-in-progress

Sale
Finished Goods
s

CALCULATION OF LENGTH OF OPERATING CYCLE:

The gross operating cycle of a firm is the sum of: Inventory conversion period (ICP) and
debtor’s conversion period (DCP).

Gross Operating Cycle = RMCP + W-I-P CP + FGCP +DCP

RMCP = Raw Material conversion Period

WIPCP = Work In Progress conversion Period

FGCP = Finished Goods conversion Period

DCP = debtor’s conversion period

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Net Operating Cycle Period = Gross Operating Cycle – Payable deferral Period

Following formula can be used to determine the conversion periods.

Raw Material conversion Period= Average stock of Raw Materal* 360/ Raw material
consumption per day

Work In Progress conversion Period = Average stock of WIP* 360/ Total Cost of production
per day

Finished Goods conversion Period = Average stock of Finished goods* 360/ Total Cost of
goods sold per day

Debtor’s conversion period = Average Accounts Receivables*360/Net Credit Sales Per Day

Payables Deferral Period = Average Payables*360/Net Credit Purchases Per Day

4.8 POLICIES OF NALCO

In Nalco the working capital is financed from internal sources. The financial statement shows
that it is a cash rich company having large funds available in general reserve and surplus, and
retained earnings. There are also sources like “sycar overseas loans” for financing working
capital and short-term bank loans as external sources of financing for working capital.
The utilisation of long-term internal sources is a major source of financing
for Nalco. For the last7 to8 years in between Nalco has not used any long-term external
sources for financing as it has large amount of unutilised internally generated funds. The
internally generated funds come from the sources like large amount of depreciation charged to
the profit and loss account of the company every year, allocation of funds towards reserves,
every year. Regarding short-term financing, the main source is internal source i.e., current
liabilities and provisions and is within 35% of total funds.

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 CASH MANAGEMENT

4.2.1 INTRODUCTION:

Cash is the important current assets for the operation of business. Cash is the basic input
needed to keep the business running on a continuous basis. It is the ultimate output expected
to be realized by selling the service or product manufactured by the company.The company
should keep sufficient cash neither more or less. Cash shortage will disrupt the company’s
manufacturing operation while excessive cash will simple remain idle without contributing
anything towards the company’s profitability. Thus, a major function to the financial manager
is to maintain a sound cash position. Cash is the money, which a company can disabuse
immediately without any restriction .The term cash includes coins, currency, and cheques
held by the company and balance in term deposits are also included in cash. The basic
characteristics of near cash assets are that they can readily be converted into cash .generally,
when a company has excess cash; it invests it in marketable securities. This kind of
investment contributes some profit to the company.

4.2.2 CASH MANAGEMENT IN NALCO:

Nalco has been accumulating huge cash surpluses over last several years, which enables the
organization to maintain adequate cash reserves and to generate required funds from within
the organization.

The key areas of effective cash management in NALCO are

o Identifying the requirements of funds at various units.

o Investment of surplus funds productively.
o Repayment of loans.
o Proper capital expenditure.
o Standardized reporting system.
CONTROL ON CASH FLOWS:

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NALCO, a multi core organization, excises good control over cash flows by adopting
centralized cash management system and strict reporting system.

4.2.3 CENTRALIZED CASH MANAMENT SYSTEM:

For centralized cash management system ,NALCO has chosen STATE BANK OF INDIA as
its sole banker and control cash account of the company is maintained at SBI ,main branch
,Bhubaneswar under direct control of NALCO’s corporate office .About ten branches of the
company including manufacturing units, spread across the country are covered under the
centralized cash management system .No cash is maintained at the branches and all the
branches have been authorized to honor the cheques presented by the company without any
upper limit. All the transactions are transmitted to the central cash account at corporate office
on a day-to-day basis.

Similar account is also maintained by NALCO’s corporate office for proper reconciliation.
The information regarding daily cash flows from different branches is monitored
simultaneously by the SBI as well as by NALCO’s corporate office .Be and sides NALCO
also has cash collection centers at different branches and realization of sales are credited and
transferred to the central cash account daily. This ensures timely and quick realization of cash.
Moreover, optimums levels of funds are readily of funds are readily available with the
company by not maintaining any balances at different branches of SBI. Similarly NALCO is
exercising strict control over the authorized to issue cheques, they are required to obtain
clearance from corporate office for all payments exceeding a prescribed limit before the
actual realization of routine basis and intimate the same to corporate office to ensure prompt
availability of funds.

The cash flow projection by different branches to the corporate office consolidated
.Accordingly the corporate office checks out effective cash flow strategy to ensure minimum
holding of cash flows as well as avoiding deficit at the same.

NALCO being a cash rich company by nature the extent of success lies in how quick the
company has identified its surplus funds and invested the same in short terms investment for
optimization of wealth.

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4.2.4 THE REPORTING SYSTEM OF NALCO:

Proper reporting or management information system is one of the key factors for the

Success of an organization. NALCO has introduced strict management information

System to ensure proper functioning of control mechanism and fulfillment of objectives.

The reporting system of NALCO mainly includes.

1. Forecasting of monthly cash flows.

2. Reporting of actual vis-à-vis forecasted cash flow on weekly basis.

3. Reporting of receipts and payments at different units on daily basis.

The monthly forecast of cash flows is flexible in nature. While reporting the weekly cash
flows, the units have a scope to revise the forecasts are submitting them to corporate office
before the beginning of every month. Based on these, the corporate office prepares a
consolidated cash flow statements. This consolidated cash flow statement forms the main
basis for planning the funds flow for the coming month, and this is a continuous process. On
the other hand, the daily reports enables the company to know the latest surplus cash balance
available and thus helps the company in taking various investment decisions. In case of any
crises, the special efforts are made to identify the resources where the funds can be realized
NALCO even, has a cash credit arrangement with SBI, through there has never been any
excess withdrawal during the last five years. This clearly indicates the effective and efficient
cash management in NALCO.

ACCOUNTS RECEIVABLE MANAGEMENT

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4.3.1 INTRODUCTION :

A sound managerial control requires proper management of liquid assets and inventory. These
assets are a part of working capital of the business. An efficient use of financial resources is
necessary to avoid financial distress. Receivables result from credit sales. A concern is require
to allow credit sales in order to expand its sales volume. It is not always possible to sell goods
on cash basis only. Sometimes, other concerns in that line might have established a practice of
selling goods on credit basis. Under these circumstances, it is not possible to avoid credit
sales without adversely affection sales. The increase in sales is also essential to increase
profitability. After a certain level of sales the increase in sales will not proportionately
increase production costs. The increase in sales will bring in more profits.

4.3.2 MANAGEMENT OF RECEIVABLES:

Accounts receivables is an important component of working capital, and for many

Companies, it is the measure component; this represents the extension of open account Credit
by one company to other company and individuals. From the marketing point of View, the
extension of credit is an important facility to boost sales. The credit and Collection policies of
the company as a whole and the collection producers for individual accounts are closely
related. The credit policies involve a trade-off between the profits on sales that gives rise to
the receivables plus the potential bad debts losses on the other.

4.3.3 FACTORS INFLUENCING THE SIZE OF RECEIVABLES:

Besides sales, a number of other factors also influence the size of receivables. The
Following factors directly and indirectly affect the sizes of receivables.
1. Size of credit sales.
2. Credit policies.
3. Terms of trade.
4. Expansion plans.
5. Credit collection efforts.

4.3.4 RECEIVABLES MANAGEMENT IN NALCO :

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NALCO has setup its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New
Delhi, Chennai, Bangalore and Pondicherry. These marketing offices obtain sale order from
Aluminium users in India as well as globally. On the basis of order received for different
products it marks production planning of different products i.e. Ingot, Sow Ingot, Billets, and
Wire etc. and accordingly advice production planning at production Units. Marketing offices
also sends dispatch instruction to dispatch section, which indicates various commercial terms
i.e. product requirement, mode of dispatch, payment terms etc.

The function of dispatch department is to receive finished product from production

department and segregate it on the basis of its laboratory analysis and grade. As per the sale
order/ dispatch instructions received from marketing office for export/ domestic sale the
dispatch departments steerages and prepares the materials for dispatching the same by
Rail/Road/Trucks. The materials are handed over to the transporter. On completion of
dispatch of the consignment as per dispatch advice, the dispatch department sent all the
dispatch documents with delivery invoice and a copy of L.R. to finance department. On the
basis of this, finance department makes commercial invoice which takes care of taxes and
other duties over and above the cost of the product and sends it to the marketing office in the
form of banker’s cheques, bank draft or in the form of Letter of Credit opened by the buyer
opens a Letter of credit with its banker. On completion of dispatch, on the basis of
commercial invoice and proof of dispatch, the money is realized by the Nalco’s banker from
the buyer’s bank.

4.3.5 DEBT MANAGEMENT IN NALCO

NALCO has become a zero-debt company, following the repayment of 3rd and final
installment on 14.5% non-convertible, redeemable secured debentures, amounting to Rs.
214.39 cr. on March 25, 2005. At the beginning of 2004-05, NALCO had loans amounting to
Rs. 654.39 cr. However, the company has been able to repay the entire loan amount with
prudent financial management, coupled with increased production and realization. NALCO
had also achieved the zero debt status in September 1999, when the company had successfully
discharged the last foreign currency loan of 20 billion Japanese yen plus interest, which in
Indian currency worked out to Rs. 627.64 cr. (principal) and Rs. 11.86 cr. (interest). The
company had borrowed a consortium of international banks to finance its initial project costs.

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 INVENTORY MANAGEMENT

4.4.1 INTRODUCTION
Inventories constitute the most significant part of the current assets of a large majority of the
companies in India. On average inventories are 60% of current assets in public limited
companies in India. Because of the large size of the inventories maintained by firms, a
considerable amount of funds is required to be committed to them. It is, therefore, absolutely
imperative to manage inventories efficiently and effectively in order to avoid unnecessary
investment.

4.4.2 NATURE OF INVENTORIES

Inventories are the stock of the product a firm is manufacturing for sale and components that
make up the product, The various forms in which inventories exist in manufacturing company
are: raw material, work-in-process and finished goods.

● Raw materials are those basic inputs that are converted into finished product through the
manufacturing process. Raw material 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 operation. Thus, inventories serve as a link
between the production and consumption of goods.

4.4.3 OBJECTIVE OF INVENTORY MANAGEMENT

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In the context of inventory management, the firm is faced with the problem of meeting two
conflicting needs.
• To maintain large size of inventory for efficient and smooth production and sales
operation.
• To maintain a minimum investment in inventories to maximise profitability.
Both excessive and inadequate inventories are undesirable. These are two danger points
within which the firm should operate. The objective of inventory management should be to
determine and maintain optimum level of inventory investment. The optimum level of
inventory will lie between the two danger points of excessive and inadequate inventories.

The excessive level of inventories consumes funds of the firm, which can not be used for any
other purpose, and thus it involves an opportunity cost. The carrying costs, such as cost of
shortage, handling, insurance, recording and inspection, also increase in proportion to the
volume of inventory. These costs will impair the firm’s profitability further. Excessive
inventories carried for a long period increase chances of loss of liquidity. Another danger of
carrying excessive inventory is the physical deterioration of inventories while in storage.

Maintaining an inadequate inventory is also dangerous. 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 operation. An effective inventory
management should

• Ensure a continuous supply of raw materials to facilitate uninterrupted production,

• Maintain sufficient stocks of raw materials in periods of short supply and anticipate price
changes,
• Maintain sufficient goods inventory for smooth sales operation, and efficient customer
service,
• Minimise the carrying cost and time, and
• Control investment in inventories and keep it an optimum level.

4.4.4 INVENTORY MANAGEMENT IN NALCO:

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NALCO is a large scale manufacturing company involved in mining of bauxite and
production of Alumina and Aluminium. Therefore, it has to maintain large quantity of
inventories at production units for its smooth running and functioning.
During the year 2003-04, the company bettered its own records of previous years in many a
key field and has exceeded the target set for the year. In the mine sector, Bauxite
transportation of 48,16,762 MT have been the highest since inception exceeding the previous
best 47,77,003 MT during the 2002-03. Alumina production is 15,50,100 MT are the highest
since inception exceeding the previous best of 14,80,600 MT achieved during the year 2002-
03.
The Major Inventory Items in NALCO are composed of:
1. Raw Materials:
These consists C.P. Coke, C.T. Pitch, Aluminium Fluoride, Pig iron, HFO (Heavy Furnace
Oil), Alumina and anodes for Smelter and Coal, HFO, LDO (Light Diesel Oil) for CPP and
Caustic Soda, Alam, Lime, CGM etc. for Alumina Plant and it has not faced a situation like
out of stock of raw materials during the recent year.
2. Stores and Spares:
At the time of procurement of machinery, generally some spares are procured for immediate
maintenance which is directly linked to different equipments. These spares are known as
instance spares and most of these items are of High value.
Besides for day-to-day maintenance some spares, tools, consumables etc. are procured from
the near by available market. This also requires involvement of High value and these items
are consumed on regular basis for observation and maintenance.
Some items required on regular basis are also procured as AP items, i.e. automatic
procurement basis, once this stock is reduced below minimum level.
Attempt is being made to depravities and gets the same from indigenous sources for some
reputed spares.
3. Intermediary Goods:
Which consists of Green Anodes, Baked Anodes, Rodded Anode, Anode stem etc. for which
NALCO has installed its own plant for producing the Green & Baked anodes & imports them
only when there is a shortage?

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 RATIO ANALYSIS

4.5.1 INTRODUCTION

It is a powerful tool of financial analysis A Ratio is defined as “the indicated quotient of two
mathematical expressions”. In financial analysis, a ratio is used as a benchmark for evaluating
the financial position and performance of a firm.

The absolute accounting figures reported in financial statements do not provide a meaningful
understating of performance and financial position of a firm. An accounting figure conveys
meaning when it is related to some other information.

The relationship between two account figures, expressed mathematically, is known as a

FINANCIAL RATIO. Financial ratio helps to summarize large quantities of financial data
and to make qualitative judgment about company’s financial performance.

4.5.2 TYPES OF RATIOS:

Several ratios, calculated from accounting data, can be grouped into various classes according
to financial activity or function to be evaluated. The parties interested in financial analysis are
short- and long-term creditors, owners and management. Short-term creditor’s main interest is
in the liquidity position or short-term solvency of firm. Long-term creditors are interested in
the long-term solvency and profitability of the firm. Similarly, owners concentrate on the
company’s profitability and performance. They have to protect the interest of all parties and
see the firm grows profitably.

There are generally four types of financial rations. There are as follows.
1. LIQUIDITY RATIOS.
2. LEVERAGE RATIOS.
3. ACTIVITY RATIOS.
.4. PROFITABILITY RATIOS.

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1. LIQUIDITY RATIOS:

• CURRENT RATIO
• QUICK RATIO or ACID TEST RATIO .

2. LEVERAGE RATIO:

• DEBT RATIO
• DEBT-EQUITY RATIO.
.
3. ACTIVITY RATIO:

COVERAGE RATIO.

• INTEREST COVERAGE RATIO.

• FIXED-CHARGE COVERAGE RATIO
TURNOVER RATIO
• INVENTORY TURNOVER RATIO
• DEBTORS TURNOVER RATIO.
ASSET TURNOVER RATIO
• NET ASSET TURNOVER RATIO
• FIXED ASSET TURNOVER RATIO.
• CURRENT ASSET TURNOVER RATIO.
• WORKING CAPITAL TURNOVER RATIO.
4. PROFITABILITY RATIO.

• GROSS PROFIT MARGIN.

• NET PROFIT MARGIN.
• RETURN ON INVESTMENT (ROI).
• RETURN ON TOTAL ASSET (ROTA).
• RETURN ON EQUITY (ROE).
• EARNING PER SHARE (EPS).

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4.5.3 LIQUIDITY RATIOS.

1. This measure the ability of the company to meet its current its obligations. (Liabilities)

2. Analysis of liquidity needs the preparation of cash budgets and cash and fund flow
statement; but liquidity ratios, by establishing a relation between cash and other assets to
current obligations, provide a quick measure of liquidity.

3. The failure of a company to meet its obligations due to lack of sufficient liquidity, will
result in a poor worthiness, loss of creditor’s confidence resulting in closure of the company.

CURRENT RATIO:

1. A liquidity ratio that measure a company‘s ability to pay short- term obligations.

CURRENT ASSETS
CURRENT RATIO = ----------------------------------------------------------------
CURRENT LIABILITIES

2. Current assets include cash and those assets that can converted into cash within a year, such
marketable securities, sundry debtors, prepaid expense, bills receivables etc. Current liabilities
include bills payables, sundry creditors, accrued expenses, short-term bank loan, income tax
liability and long-term debt maturing in the current year.

3. A current ratio of 2: l or more is considered satisfactory. However, the current ratio is a

crude-and –quick measure of firm’s liquidity.

QUICK RATIO:

1. Quick ratio establishes relationships between quick or liquid, assets and current liabilities.

QUICK/LIQUID ASSETS
QUICK RATIO = ----------------------------------------------------------------
CURRENT LIABILITIES

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2. An assets is liquid if it can be converted into cash immediately without a loss of value.The
liquid assets include cash, sundry debtor’s, bills receivables and marketable securities. 3.
Generally, a quick ratio of 1:1 is considered satisfactory current financial condition.

3. This ratio is also called acid-test ratio.

CASH-RATIO:

1.Since cash is most liquid assets, a financial analyst may examine cash ratio and its
equivalent to current liabilities.

2.Trade investment or marketable securities are equivalent of cash;therefore,it may be

included in computation of cash ratio.

CASH+ MARKETABLE SECURITIES

CASH RATIO = ----------------------------------------------------------------
CURRENT LIABILITIES

INTERVAL MEASURE:

1. This assesses a firm’s ability to meet its regular expenses. This relates liquid assets to
average daily operating cash outflows.

CURRENT ASSETS-INVENTORY
INTERVAL MEASURE = ---------------------------------------------------------------------
AVERAGE DAILY CASH OPERATING EXPENSES

2.Daily operating expenses will be equal to cost of goods sold plus selling, administrative
and general expenses less depreciation(other non-cash expenditures) divided by number of
days in year(say 360).

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4.5.4 LEVERAGE RATIOS:

1. There are two types of leverage named as (a) operating leverage, (b) financial leverage. The
process of the magnifying the shareholder’s return through the use of debt is called
“FINANCIAL LEVERAGE”.

2. Thus, leverage ratios are calculated the measure financial risk and the firm’s ability of
using debt to shareholder’s advantage.

DEBT EQUITY RATIO:

1. A measure of a company’s financial leverage calculated by dividing long-term debt by

stockholder equity. It indicates what proportion of debt and equity the company is using to
finance its assets.

TOTAL DEBT TOTAL DEBT

DEBT-EQUITY RATIO= ------------------------------- = ----------------------------------
NET WORTH SHAREHOLDER’S EQUITY

2. If a lot of debt is used to finance increased operations the company could generate more
earning than it would have without this outside financing. If this were to increase earnings by
a greater amount than debt cost than the shareholders benefit as more earnings are being
spread around to the same amount of shareholders

INTEREST COVERAGE RATIO:

1. The interest coverage ratio shows the number of times the interest charges are covered by
funds that are ordinarily available for their payment.

EBIT
INTEREST COVERAGE RATIO = -------------------------------------
INTEREST

2. A high is desirable, but too high a ratio indicates that the firm is very conservative in
using debt and it is not using credit to advantages of shareholders. A low ratio indicates that
excessive use of debt, or inefficient operations.

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4.5.5 ACTIVITY RATIO:

1. Activity ratio are employed to evaluate the efficiency with which firm manages and
utilizes its assets. These ratios are also called Turnover ratio, they indicate the speed with
which assets are being converted or turned over into assets.

2. Activity ratios, involve a relationship between sales and assets. A proper balance
between sales and assets generally reflects that assets are managed well.

INVENTORY TURNOVER RATIO:

1. A ratio indicates the efficiency of the company in producing and selling its product. Or
a ratio showing how many times a company’s inventory is sold and replaced over a period.

2. The cost of goods sold figure may not be available to an outside analyst from the
published annual accounts. Hence, computation of inventory turns over as follows.

NET SALES
INVENTORY TURNOVER RATIO = --------------------------------------------
AVERAGE INVENTORY

1. The inventory used for computation purpose may net average inventory or the year end
inventory.
2. Days of inventory holding=360/inventory turn over
3. The manufacturing company ‘s inventory consists of two components
o Raw material
o Work in progress

4. This ratio should be compared against industry averages. A low turnover implies poor
sales and therefore, excess inventory .A high ratio implies either strong sales or in
effective buying .High inventory levels are un healthy they represent an investment with a
rate of return of zero.

CAPITAL TURNOVER RATIO:

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1. Assets are used to generate sales. Therefore, a company should manage its assets efficiency
to maximize sales. The relationship between sales and assets is called CAPITAL
TURNOVER RATIO.

2. Several Capital Turnover Ratios are as follows.

NET SALES
CAPITAL TURNOVER RATIO = --------------------------------------------
CAPITAL EMPLOYED

3. Net asset (NA) include net fixed assets (NFA) and net current assets (NCA=CA-CL),
where CA present current assets and CL represent current liabilities. Since net assets equal
capital employed.

NET SALES
FIXED ASSETS TURNOVER RATIO = ---------------------------------------
FIXED ASSETS

WORKING CAPITAL TURNOVER RATIO:

1. A measurement comparing the depletion of working capital to the generation of sales over
a given period. This provides some useful information as to how effectively a is using its
working capital to generate sales.

NET SALES
WORKING CAPITAL TURNOVER = ----------------------------------------
WORKING CAPITAL

2. The working capital turnover ratio is used to analyze the relationship between the money
used to fund operations and the sales generated from these operations. In general, sense, the
higher the working capital turnover, the better because it means that the company is
generating many sales compared to the money it used to fund the sales.

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4.5.6 PROFITABILITY RATIOS:

1. A company should earn profits to survive and grow for a long period. Profits are essential.
Profit is the difference between revenue and expenses over a period (usually one year). It is
the ultimate output of a company and it will have no future if it fails to make sufficient profit.
Therefore, financial manager should continuously evaluate the efficiency of the company in
items of profit. The PROFITABILITY RATIO is calculated to measure the operating
efficiency of the company.

Besides management of the company, creditors and owners of the company are also interested
in the profitability of the company. Creditors want to get interest and repayment of principal
regularly. Owners want to get a required rate of return on their investment. All these are
possible only when the company earn enough profit.

2. Generally, two types of profitability ratios are calculated.

(a)Profitability in relation sales.

(b)Profitability in relation to investment.

GROSS PROFIT MARGIN:

1. Gross profit is the difference between sales and the manufacturing cost of goods sold. A
number of Multinational Companies call this profit as EBITDA (Earnings before Interest, Tax
depreciation and Amortization)Operating profit is equivalent of EBIIT. This measure of profit
shows earnings arising directly from the commercial operation of business without the effect
of financing. This also includes non-operating income if they exist. On after tax rate. This
profit measure is called net operating profit tax or NOPAT.

SALES - COST OF GOODS SOLD EBIT

GROSS PROFIT MARGIN= -------------------------------------------------= -----------------------------

SALES NET SALES

2. A high gross profit margin is a sign of good management .A gross profit margin ratio may
be increase due to

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 o Higher sales price and cost of goods sold remain constant.
o Lower cost of goods sold and sales price remain constant.
o A combination of variation in sales price and costs , the margin is widening.
o An increase in proportionate volume of higher margin items.
1. A gross profit margin may reflect higher cost of goods sold due to the company’s
inability to purchase raw material at favorable terms, inefficient utilization of plant
and machinery or over investment, resulting in higher cost of production .This ratio
will also be low due to fall in prices in market, marked reduction in selling price by
the firm in an attempt to obtain large sales volume, the cost of goods sold remain
unchanged

NET PROFIT MARGIN:

PROFIT AFTER TAX

NET PROFIT MARGIN =-------------------------------------------- * 100
NET SALES

1. Net profit margin establishes a relationship between sales and net profit and indicates the
management’s efficiency in manufacturing, administering and selling the products. This is the
overall measure of company’s ability to turn each rupee of sales into net profit. If the net
profit in adequate the company will fail to achieve satisfactory return on shareholder’s
funds.A high net profit margin would be in an advantageous position to survive in the face of
falling selling prices, rising cost of production or declining demand for the product.Thus, net
profit margin (for evaluating operating performance) may be computed in the following way

OPERATING EXPENSES RATIO:

OPERATING EXPENSES
OPERATING EXPENSES RATIO = -------------------------------------------------
NET SALES

Operating expenses include cost of goods sold plus selling expenses and general
administrative expenses (excluding depreciation).

RETURN ON INVESTMENT:

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1. A performance measure used to evaluate the efficiency of an investment or to compare the
efficiency of a number of different investments.

2. Return on investment is calculated on the basis of

o Total asset
o Net asset
EBIT
RETURN ON TOTAL ASSET = ----------------------------------------
AVERAGE TOAL ASSETS

3. RONA is equivalent of Return on capital employed (ROCE).

Thus, ROI is a popular metric because of its versatility and simplicity.i.e if an investment
does not have high or positive ROI, then the investment should be not undertaken.

RETURN ON EQUITY (ROE):

1. A measure of corporation’s profitability. ROE reveals how much profit a company

generates with the money shareholder is invested in it. This is useful for comparing the
profitability of a company to that of other company in the same industryThe return on
owner’s equity of the company should be compared with the ratios of other similar companies
and the industry average. This will reveal the relative performance and strength of the
company in attracting the future investment.

2. Thus, ROE indicates how well the firm has used the resources of owners.

NET PROFIT AFTER TAX DIVIDEND

RETURN ON EQUITY CAPITAL = ---------------------------------------------------------
EQUITY SHARE CAPITAL

EARNING PER SHARE (EPS):

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 1. The portion of a company’s profit allocated to each outstanding share of common stock.
EPS serves as a indicator’s of company’s profitability.

PROFIT AFTER TAX

EPS = ---------------------------------------------------------------
NUMBER OF EQUITY SHARE

EPS indicates the company’s earning power on per-share basis has changed over that period.
The EPS of the company should be compared with the industry average and the EPS of the
other firms. It shows only the profitability of the firm on a per share basis: it does not reflect
how much is retained in the business.

4.5.7 UTILITY OF RATIO ANALYSIS:

The RATIO ANALYSIS is the powerful tool of Financial Analysis. This helps to indicate the
operating, financial efficiency and growth of the firm. With the help of ratio, one can
determine:

o The ability of the company to meets its current obligations.

o The extent to which the company has used its long-term solvency by
borrowing funds.
o The efficiency with which the company is utilizing its assets in generating
sales revenue.
o The overall operating and performance of the company.

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 Objective and Scope of the study

5.1 OBJECTIVE OF THE STUDY:-

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The objective of working capital is to maintain the optimum balance of each of
the working capital components. The need for working capital cannot be over
emphasized. The need for working capital arises due to the time gap between
production and realization of cash from sales. Thus the objectives of working
capital are as follows::

(a) To study the Working Capital Management Policy & Ratio

analysis that is being pursued at present in NALCO.
(b) To suggest steps that should be taken to increase the
efficiency in management of working capital.

5.2 SCOPE:

This is the study on Working Capital Cycle & Ratio Analysis of NALCO. NALCO is a large
public sector company engaged in production of various grades of Alumina and Aluminum
Products. The different components of Working Capital management like Cash Management,
Inventory Management, working capital cycle, receivable Management and Ratio Analysis
are discussed in this study.

Every business concern should have adequate working capital to run its business operations. It
should have neither excess working capital nor shortage of working capital. Both excess as
well as short working capital positions are bad for any business.

A new concern requires a lot of liquid funds to meet initial expenses like promotion,
formation etc. These expenses are called preliminary expenses and are capitalized. The
amount needed as working capital in a new concern depends primarily upon its size and the
ambitions of its promoters. Greater the size of the business unit, generally, larger will be the
requirements of working capital. The amount of working capital needed goes on increasing
with the growth and expansion of business till it attains maturity. At the time of maturity the
amount of working capital needed is called normal working capital.

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 RESEARCH METHODOLOGY

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This study is basically done with the collection of data from the secondary sources. Studies
previously made by others for their own purposes represent secondary data. Secondary data
are an integral part of a larger research study or of a research report to justify having by
passed the costs and benefits of doing primary research. Secondary data may be used as the
sole basis for a research study, since in many situations one cannot conduct primary research
because of physical, legal or cost influences. Secondary sources can usually be found more
quickly and cheaply than primary data. Most research on past events also has to rely on
secondary data sources. Similarly, data about distant places often can be collected more
cheaply through secondary sources.

Sources of secondary data which is used for the study are as follows:

• Internal sources - These include employees of the company, company’s database,

accounting and management information system (MIS), departmental reports,
production summaries, financial and accounting reports, and marketing and sales
studies.

• External sources – These sources are created outside the organization and more varied
than internal sources. These include worldwide network called Internet, Online public
access catalogs (OPAC) and other computerized files, reference books etc.

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 Analysis & Interpretation

CALCULATION OF GROSS OPERATING CYCLE PERIOD FOR

(2002-03, 2003-04, 2004-05, 2005-06, 2006-07)

The following formula is used to express the framework for the operating cycle:

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 Gross Operating Cycle = RMCP + W-I-P CP + FGCP +DCP

RMCP = Raw Material conversion Period

WIPCP = Work In Progress conversion Period

FGCP = Finished Goods conversion Period

DCP = debtor’s conversion period

Raw Materials = Average raw materials used per year * 365

Raw material consumed

RMCP = Average raw materials used per year * 365

YEAR RMCP
Raw material consumed

(82.45+62.72)/2 *365
2007-08 46 days
574.36

(50.48+82.45)/2 *365
2006-07 43 days
557.59

(56.17 + 50.48) / 2 *365

2005-06 37 days
521.05

(48.08 + 56.17) / 2 *365 43 days

2004-05
444.24

(71.61 + 48.08) / 2 *365 53 days

2003-04
409.04

Work-in-progress = Average work-in-progress * 365

Total cost of production

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Total cost of production = Opening WIP + Raw material consumed + Power &
Fuel +Repairs & Maintenance + Manufacturing Expenses + Administrative
Expenses – Closing WIP.

Work-in-progress = Average work-in-progress * 365

YEAR WIPCP
Total cost of production

(70.33 + 71.70) / 2 * 365

2007-08 12 days
2069.78

(60.10 + 70.33) / 2 * 365

2006-07 12 days
1012.37

(53.22 + 60.10) / 2 * 365

2005-06 11 days
1384.77

(60.10 + 53.22) / 2 * 365 13 days

2004-05
1565.38

(52.34 + 53.22) / 2 * 365

2003-04 14 days
1384.77

Total Cost of Production:

In 2003-04 = 52.34 + 409.04 + 648.29 + 165.73 + 95.09 + 67.50 – 53.22 =

1384.77

In 2004-05 = 60.10 + 444.24 + 758.34 + 164.37 + 112.45 + 79.10 – 53.22 =

1565.38

In 2005-06 = 53.22 + 521.05 + 937.84 + 191.93 + 139.96 + 78.56 – 60.10 =

1869.74

In 2006-07 =60.10 +557.59 +851.02 +230.34 +152 .66 + 85.37 − 70.33 =

2007.44

In 2007-08 =70.33 +574.36 +994.69 +231.54 +163.82 + 106.74 − 71.70 =

2069.78

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 Finished Goods = Average Stock * 365
Total cost of goods sold

Total cost of good sold = Opening stock of finished goods + Total cost of
Production – Administrative Expenses – Closing stock of finished goods.

Finished Goods = Average Stock * 365

YEAR FGCP
Total cost of goods sold

(101.57 +120.22)/2 *365

2007-08 20 days
2052.58

(100.82 +101.57)/2 *365

2006-07 21 days
1790.86

(115.31 + 100.82) / 2 * 365

2005-06 22 days
1805.27

(95.63 + 115.31) / 2 * 365

2004-05 26 days
1459.72

(85.26 + 95.63) / 2 * 365

2003-04 25 days
1307.78

Total cost of goods sold:

In 2003-04 = 85.26 + 409.04 + 648.29 + 165.73 + 95.09 - 95.63 = 1307.78

In 2004-05 = 95.63 + 444.24 + 758.34 + 164.37 + 112.45 – 115.31 = 1459.72

In 2005-06 = 115.31 + 521.05 + 937.84 + 191.93 + 139.96 – 100.82 = 1805.27

In 2006-07= 100.82 +557.59 +851.02 +230.34 +152.66 −101.57=1790.86

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In 2007-08 =101.57 +574.36 +994.69 +231.54 +163.82 + 106.74 − 120.22=
2052.58

Debtors = Average Debtors * 365

Credit Sales

Debtors = Average Debtors * 365

YEAR DCP
Credit Sales

(34.34+24.43)/2 *365
2007-08 2 days
6240.19

(29.42 +34.34)/2 *365

2006-07 2 days
5940.19

(92.81 + 29.42) / 2 * 365

2005-06 5 days
4860.42

(102.24 +92.81) / 2 * 365

2004-05 9 days
4123.96

(101.83 + 102.24) / 2 * 365

2003-04 15 days
2564.30

GROSS OPERATING CYCLE PERIOD:-

2003-04: 53 + 14 + 25 + 15 = 107 days

2004-05: 43 + 13 + 26 + 9 = 91 days

2005-06: 37 + 11 + 22+ 5 = 75 days

2006-07: 43 + 12 +21 +2 = 78 days

2007-08: 46 + 12 +20 +2 = 80 days

Interpretation:-The gross operating cycle period in the year 2007-08 is comparatively

shorter than the previous three years. It implies that locking up of funds in current assets is for
a relatively shorter duration and NALCO can obtain greater mileage for each rupee invested
in current assets. The shorter the duration of operating cycle period, faster is the
transformation of current assets into cash. The decrease in the raw material storage period,

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work-in-progress period and debtor’s collection period reflects the efficiency in management
of the Gross working capital cycle.

FINANCIAL RATIO ANALYSIS OF

NALCO

1.PROFITABILITY RATIO

NET PROFIT RATIO

FORMULA:(Net profit /Net sales)*100 (Rupees in crore)

YEAR NET PROFIT NET SALES NP RATIO (%)

2007-08 1631.52 4988.80 32.70

2006-07 2381.38 5940.19 40.08

2005-06 1562.2 4888.7 31.96

2004-05 1234.84 4104.11 30.09

2003-04 737.37 3124.07 23.60

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NET PROFIT RATIO:

Net profit margin is obtained when operating expenses , interest and taxes are subtracted from
gross profit .This ratio is used to see profitability arising directly from sales. In NALCO the
net profit margin is 40.08% and 32.70% in the year 2007 and year 2008 respectively.

GROSS PROFIT RATIO

FORMULA :( Gross profit/Net sales)*100 (Rupees in crore)

YEAR GROSS PROFIT NET SALES GP RATIO (%)

2007-08 2491.98 4988.80 49.95

2006-07 3626.43 5940.19 61.04

2005-06 2682.64 4888.7 54.87

2004-05 2384.92 4104.11 60.54

2003-04 1513.99 3124.07 48.46

GROSS PROFIT MARGIN RATIO:

The gross profit margin reflects the efficiency with which management produces each unit of
product. This ratio indicates the average spread between the cost of goods sold and the sales

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revenue. In NALCO the gross profit margin is 61% and 50%in the year 2007 and the year
2008 respectively.

RETURN ON CAPITAL EMPLOYED

FORMULA: PAT/TOTAL CAPITAL EMPLOYED * 100 (Rupees in crore)

YEAR PAT TCE ROCE RATIO(%)

2007-08 1631.52 7031.00 23.21

2006-07 2381.38 7466.00 32.89

2005-06 1562.20 6302.24 24.79

2004-05 1234.84 5143.65 24.01

2003-04 737.37 4029.71 18.30

TOTAL CAPITAL EMPLOYED = FIXED ASSET + CURRENT ASSET

RETURN ON SHAREHOLDER'S EQUIT

FORMULA: PAT/NET WORTH * 100 (Rupees in crore)

YEAR PAT NET WORTH ROSE RATIO (%)

2007-08 1631.52 8874.45 18.3

2006-07 2381.38 7695.22 30.9

2005-06 1562.2 5892.67 26.5

2004-05 1234.84 4697.81 26.2

2003-04 737.37 3756.67 19.6

NET WORTH = SHAREHOLDER’S FUND

The ROI used for measuring the overall efficiency of a firm. As this ratio reveals how well
the resources of a firm are being used, higher the ratio ,better are the result . In NALCO the
ROI is found to be 30% and 18% in the year 2007 and year 2008 respectively..

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EARNING PER SHARE

FORMULA: Net profit available to shareholder/no. of ordinary shares (Rupees in crore)

YEAR NP NO.OF SHARE EPS (RS)

2007-08 1632.00 64.431 25.32

2006-07 2380.70 64.431 36.94

2005-06 1562.20 64.431 24.25

2004-05 1234.84 64.431 19.16

2003-04 737.37 64.431 11.44

The EPS of the company should be compared with the industry average and the earning per
share of other firms.EPS simply shows the profitability of the firm on a per share basis. In
NALCO the EPS is found to be Rs 37 crore and Rs25 crore in the year 2007 and year 2008
respectively

2. LIQUIDITY RATIO

CURRENT RATIO

FORMULA: Current Asset/Current Liabilities (Rupees in crore)

YEAR CA CL CURRENT RATIO(%)

2007-08 5041.33 1318.33 3.82

2006-07 4974.08 872.02 5.70

2005-06 3297.88 607.33 5.43

2004-05 1811.04 616.20 2.93

2003-04 990.51 547.88 1.80

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CURRENT RATIO ANALYSIS:-

• A current ratio of 2 to 1 more is considered satisfactory. The NALCO has a current

ratio of 5.7 in Year 2007 and 3.82 in years 2008 respectively.

• An increase in current ratio represents improvement in liquidity position of the

company while a decrease in current ratio indicates that there has been deterioration in
the liquidity position of the company.

• The current ratio represents the margin of safety for creditors .The higher the current
ratio, greater the margin of safety , the larger the amount of current assets in relation
to current liabilities , the more the company’s ability to meet its current obligations .

• The current ratio is a test of quantity not quality. Liabilities are not subject to any fall
in value ;they have to be paid .But current assets can decline in value .

QUICK RATIO

FORMULA: Quick assets/current Liabilities (Rupees in crore)

YEAR Quick Assets Current Liabilities QUICK RATIO(%)

2007-08 4354.68 1318.33 3.30

2006-07 4339.12 872.02 4.97

2005-06 2706.32 607.33 4.45

2004-05 1281.98 616.20 2.08

2003-04 510.03 547.88 0.93

QUICK RATIO-ANALYSIS:-
Generally, a ratio of 1 to 1 is considered to represent a satisfactory financial condition. All
debtors may not be liquid and cash may be immediately needed to pay operating expenses In
NALCO, the quick ratio is 3.57 in the year 2007 and the quick ratio is 2.13 in the year 2008

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respectively .A high quick ratio indicates that the firm is liquid and has the ability to meet it’s
current or liquid liabilities in time.

INVENTORY TURN OVER RATIO

FORMULA: Cost of Goods Sold/Average Inventory (Rupees in crore)

YEAR COGS AVG. Inventory ITO RATIO(times)

2007-08 4988.80 660.80 7.54

2006-07 5940.19 613.27 9.68

2005-06 4888.70 560.32 8.72

2004-05 4104.11 504.77 8.13

2003-04 3124.07 969.73 3.22

INVENTORY TURN OVER RATIO ANALYSIS; Inventory turnover ratio measures the
velocity of conversion of stock into sales. Usually, a high Inventory turnover indicates
efficient management of inventory because more frequently the stocks are sold. In NALCO,
the Inventory turnover ratio is 9.68 in the year 2007 and 7.54 in the year 2008 respectively

CAPITAL TURN OVER RATIO

1 FIXED ASSET TURN OVER RATIO

FORMULA: NETSALES/ FIXED ASSETS (Rupees in crore)

YEAR NET SALES FIXED ASSETS FAT RATIO(times)

2007-08 4988.80 3531.00 1.41

2006-07 5940.19 3711.00 1.60

2005-06 4888.7 3944.51 1.23

2004-05 4104.11 4139.00 0.99

2003-04 3124.07 3903.48 0.80

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2 WORKING CAPITAL TURNOVER RATIO

FORMULA: NET SALES/WORKING CAPITAL (Rupees in crore)

WORKING
YEAR NET SALES CAPITAL NET RATIO(times)

2007-08 4988.80 3500 1.42

2006-07 5940.19 3755 1.57

2005-06 4888.7 2357 2.07

2004-05 4104.11 1005 4.08

WORKING CAPITAL TURNOVER RATIO ANALYSIS:

A company should manage its assets efficiently to maximize its sales because assets are used
to generate sales. In NALCO, the working capital turnover ratio is 1.57 in the year 2007 and
the is 1.42 in the year 2008 respectively .This shows that NALCO is in liquid position and has
the ability to meet its current or liquid liabilities in time.

3. LEVERAGE OR CAPITAL STRUCTURE RATIO

DEBT EQUITY RATIO

FORMULA: TOTAL DEBT/TOTAL EQUITY (Rupees in crore)

YEAR TOTAL DEBT TOTAL EQUITY RATIO

2007-08 0 8874.00 0

2006-07 0 7695.00 0

2005-06 0 5892.67 0

2004-05 0 4697.81 0

2003-04 654.39 3756.67 0.174

DEBT EQUITY RATIO-ANALYSIS:-

The debt equity ratio is determined to assertion the soundness of the long-term financial
policies of the company. This is calculated to measure the extent to which debt financing used

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in business. Generally, a high ratio means that claims of creditors are greater than those of
owner’s.In NALCO the company is debt free in the year 2008.

INTEREST COVERAGE RATIO

FORMULA: EBIT/INTEREST (Rupees in crore)

YEAR EBIT INTEREST RATIO(times)

2007-08 2754.00 1.51 1823

2006-07 3942.00 1.12 3519

2005-06 2811.24 - 2811

2004-05 2389.59 60.61 3943

2003-04 1583.6 NA NA

INTEREST COVERAGE RATIO-ANALYSIS:-Interest coverage ratio is used to test the

company’s debt servicing capacity i.e. to show the number of times the interest charges are
covered by funds that are ordinarily available for the payment. A high ratio is desirable and a
low ratio indicates excessive use of debt or inefficient operation. In NALCO, this ratio is at
3519 times in the year 2007 while in the year 2008 is 1823 times respectively.

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 MAJOR FINDINGS

MAJOR FINDINGS:

o In the year 2008, quick ratio decreases to 3.30 as compared to 4.97 in the
YEAR 2007 Quick ratio shows that NALCO is in liquid position and has the ability to
meet its current or liquid liabilities in time.

o In the YEAR 2008, current ratio decreases to 3.82 as compared to 5.70 in the
YEAR 2007. Decrease in current assets represents that there has been deterioration in the
liquidity position of the company

o Debt-Equity ratio shows that the company is debt free in the YEAR 2008 .

o Inventory turnover ratio indicates NALCO has high inventory turnover i.e.
indicative of good inventory management.

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o In the YEAR 2008, interest coverage ratio decreases 1823 times as compared
to 3519 times in the YEAR 2007.this shows indicates low use of debt and efficient
operation.

o In the YEAR 2008, Earning Per Share decreases to 25.32 as compared to 36.94
in the YEAR 2007

o Fixed Asset Turnover ratio shows in the year 2008, NALCO has managed its
assets efficiently to maximize its sales.

o Gross profit Margin ratio and Net Profit Margin ratio are decreases in the year
2008 as compared to the year 2007.

o Return on Investment is decreases in the year 2008 as compared to the year

2007.

o Since, Return on Capital Employed of NALCO In 2008 is decreases than of

the year 2007, this shows NALCO has not satisfied the owners, that that their money has
not profitably utilized.

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 RECOMMENDATION

RECOMMENDATIONS:

1) NALCO should control over current assets, which should be consistently proportional
to forecasted sales.

2) Since, NALCO produces different varieties of products, their profit margin should be
evenly balance, so as to give a sound Gross and Net Profit Margin.

3) The management of NALCO needs to have counter check and provide additional
control. Over the cost of producing goods. This may improve the operating efficiency.

4) Proper monitoring of accumulation of goods may improve to yield good return on

investment.

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5) Enhancement of asset turnover may also yield better Return on Investment.

6) NALCO seems to be upgrading its technology obsolescence from time to time;

NALCO requires strategy of expansion and diversification to be evolved as a major
competitor in Aluminum Industry. Since NALCO is a cash rich company, borrowing
of loans may not be compulsory for further expansion and diversification. As Interest
Coverage Ratio is sufficiently high, the analyst for NALCO recommends borrowing of
funds in case fund is required in expansion period. This may increase the Working
Capital of NALCO to match with the foreseeing future prospects.

7) Since NALCO is a centralized cash management company as it showed better

performance? In overall Liquidity position, it should open up its avenues in new
emerging technology indifferent products it produces. NALCO settles the payments in
e-banking mode.

8) The Export can be improved in cachinnated Alumina and Alumina standards and show
ingots better than the earlier.

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 CONCLUSION

NALCO has not only addressed itself to the country’s need for self sufficiency in Aluminium,
but has also given the country, the technology edge in producing strategic material. Besides
being the leader in the domestic primary Aluminium market excluding the semi-finished
products, NALCO has also earned a good name in the global market in export of Alumina and
Aluminium metal earning valuable foreign exchange for the country. With its consistent track
record in capacity utilization, technology absorption, quality assurance export performance,
servicing of loans, internal source generation and posting of profits, NALCO has chartered a
course of international confidence.

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NALCO is a well known public sector company in the Aluminium sector in the world. It
shows how a well managed company achieves the mission of the company and gives much
more profit. Just as circulation of blood is essential in human body for maintaining life like
that working capital is also an important aspect and can be a main contributor to a company’s
profit if managed efficiently.

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 BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS

Financial Management - I.M. PANDEY

Management Accounting - R.K. SHARMA & S.K. GUPTA

Advanced Accountancy - S.P. JAIN & K.L. NARANG

Essentials of business finance - R.M. SRIVASTAVA

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Websites

♦ www.google.com
♦ www.indiainfoline.com
♦ www.nalcoindia.com
♦ www.aluminumworld.com

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 ANNEXURE

Financial Performance

Particulars 2007-08 2006-07 2005-06 2004-05 2003-04

Income Statement :

1. Exports 2,134 2,586 2,306 2,200 1,717

2. Domestic Sales 3,340 3,929 3,018 2,220 1,632

3. Gross Sales (1+2) 5,474 6,515 5,324 4,420 3,349

4. Less : Excise Duty 485 575 435 316 225

5. Net Sales (3 - 4) 4,989 5,940 4,889 4,104 3,124

6. Other Income :

7. Operating 146 103 101 174 131

8. Non-operating 441 311 132 77 70

9. Operating expenses 2,822 2,412 2,311 1,965 1,741

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10. Operating Profit (5+7-9) 2,313 3,631 2,679 2,313 1,514

11. Earning before interest, 2,754 3,942 2,811 2,390 1,584

dep. & taxes (EBIDT)(10+8)

12. Interest & Financing 2 - - 61 85

charges

13. Earning before dep. & 2,752 3,942 2,811 2,329 1,499
taxes (EBDT) (11-12)

14. Depreciation and 285 322 381 459 446

Amortisation

15. Profit before Tax (PBT) 2,467 3,620 2,430 1,870 1,053
(13-14)

16. Provision for Tax 835 1,239 868 635 316

17. Net Profit (PAT) (15 - 1,632 2,381 1,562 1,235 737
16)

Balance Sheet :

18. Equity Capital 644 644 644 644 644

19. Reserves & Surplus 8,230 7,051 5,249 4,054 3,113

20. Networth (18+19) 8,874 7,695 5,893 4,698 3,757

21. Loans Outstanding - - - - 654

22. Net Fixed Assets 3,531 3,711 3,944 4,139 3,904

23. Net Current Assets 3,500 3,755 2,357 1,005 126

24. Capital Employed 7,031 7,466 6,301 5,144 4,030

(22+23)

Ratios :

25. Operating Profit Margin 46.36 61.12 54.81 56.36 48.46

(OPM) (%) (10 / 5*100)

26. Net Profit Margin (%) 32.71 40.09 31.96 30.09 23.60
(17 / 5 *100 )

27. Return on Capital 23.21 31.89 24.79 24.01 18.30

Employed (ROCE) (%)
(17/24*100)

28. Return on Networth 18.39 30.95 26.51 26.29 19.63

(RONW)(%) (17/20*100)

29. Debt Equity ( 21 / 20 ) - - - - 17.00

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Others :

30. Book value per share of 137.73 119.43 91.46 72.91 58.31
Rs.10 each(in Rs.)

31. Earnings per share (in 25.33 36.96 24.25 19.17 11.44
Rs.)

32. Dividend declared ( % ) 60 75 50 40 40

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