A STUDY ON WORKING CAPITAL

MANAGEMENT

AT

NEYVELI LIGNITE CORPORATION LIMITED (NLC)

R.VIGNESWARAN

ROLL NO :12C1/015

In partial fulfillment of the Course – Industry Internship Programme (IIP)

in Term – IV of the Post Graduate Programme in Management

at SMOT School of Business

(Batch: July 2012 – Jan 2014)

 A STUDY ON WORKING CAPITAL

MANAGEMENT

AT

NEYVELI LIGNITE CORPORATION LIMITED (NLC)

R.VIGNESWARAN

ROLL NO :12C1/015

Under the Guidance of

N.RAJENDIRAN ,M.com,MBA,M.Phill

Dy. Chief Manager(FINANCE)ACCOUNTS CENTRE , T/A

NEYVELI LIGNITE CORPORATION (NLC)

In partial fulfillment of the Course – Industry Internship Programme (IIP)

in Term – IV of the Post Graduate Programme in Management

at SMOT School of Business

(Batch: July 2012 – Jan2014)

ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals. I would like to extend my sincere thanks to all of
them.

I would like to thank Prof. V.G.SARANGAN, P.G.D.B.A Chairperson SMOT School of

Business, for being a point of Project Ideation. I would also like to thank him for having
provided me with the opportunity to conduct this research.

My sincere thanks to,Shri.T.S SIVASUBRAMANIAN, GM/ED & Shri.A.MOHAMED

DAWOOD CM/ED,EDCfor providing me the opportunity to carry out the project in NLC
Ltd.

I am highly indebted to N.RAJENDIRAN ,Dy. Chief Manager(FINANCE) ACCOUNTS

CENTRE , T/Afor his guidance and constant supervision aswell as for providing necessary
information regarding the project & also for the support in completing the project.

I would like to express my gratitude towards my parents & members of SMOT School of
Business for their kind co-operation and encouragement which helped me in completion of
this project.

I would like to express my special gratitude and thanks to all the respondents of the survey
without whom the project would not have been possible.

My thanks and appreciations also go to my colleague in developing the project and people
who have willingly helped me out with their abilities.

Last but not the least; I would like to thank the Almighty for having bestowed wisdom and
knowledge upon me.
DECLARATION

I R.VIGNESWARAN, hereby declare that this project report entitled “ A STUDY ON

WORKING CAPITAL MANAGEMENT” , submitted by me, under the guidance of
N.RAJENDIRAN ,Dy. Chief Manager(FINANCE) ACCOUNTS CENTRE , T/A is my
own and has not been submitted to any other University or Institute or published earlier.

Signature of the Student

Name of Student :

Roll No :

Date :

Place : SMOT School of Business, Chennai

Approved by :
 NEYVELI LIGNITE CORPORATION LIMITED

(“NAVRATNA”- A Government of India Enterprise)

Neyveli Tamilnadu

CERTIFICATE

This is to certify that the report entitled “ A STUDY ON WORKING CAPITAL

MANAGEMENT” is the bonafide project work done by VIGNESWARAN.R of SMOT
School of Business, Chennai.

In partial fulfillment of the requirement of the award of the degree of POST

GRADUATE DIPLOMA IN BUSINESS ADMINISTRATIONfrom
BHARATHIDHASAN UNIVERSITY, Trichy, done during the period from 02-07-2013 to
15-08-2013 at Township Administration office, NLC Ltd, Neyveli.

Shri.N.RAJENDIRAN M.Com,MBA,M.Phill.
External Guide
Dy.Cheif Manager (Finance)
Accounts Centre, NLC Ltd, Neyveli.
Permitted to submit the project report to the university/college authority.

DATE:

PLACE:

GENERAL MANAGER/EDC

EMPLOYMENT DEVELOPMENT CENTRE

NLC.Ltd.,Neyveli
 CONTENTS

CHAPTER TITLE PAGE NO

ABSTRACT I
LIST OF TABLES II
LIST OF CHARTS III
1.1 Introduction to the study 1
1.2 Industry profile 2
1.
1.3 Company profile 6
1.4 Need for the study 13
1.5 Objectives of the study 13
1.6 Scope of the study 14
1.7 Limitations of the study 14
15
2. Review of Literature
20
3. Research Methodology
23
4. Data Analysis & Interpretation

5. 5.1 Findings 61

5.2 Suggestions 62

5.3 Conclusions 63

Bibliography 64

LIST OF TABLES

TABLE TITLE PAGE NO.

NO.
1. Price of electricity 8
2. Sales revenue 9
3. Features of Neyveli Lignite Mines 9
4. Allocation of Power to State EB’s 12
5. Net Working Capital 23
6. Components of Current Assets 2008-2009 24
7. Components of Current Assets 2009-2010 25
8. Components of Current Assets 2010-2011 26
9. Components of Current Assets 2011-2012 27
10. Components of Current Liabilities 2007-2008 28
11. Components of Current Liabilities 2008-2009 29
12. Components of Current Liabilities 2009-2010 30
13. Components of Current Liabilities 2010-2011 31
14. Components of Current liabilities 2011-2012 32
15. Current Ratio 34
16. Quick Ratio 36
17. Cash Position Ratio 38
18. Debt Equity Ratio 40
19. Interest Coverage Ratio 42
20. Debtor’s Turn Over Ratio 44
21. Fixed Assets Turn Over Ratio 46
22. Net Profit Ratio 48
23. Earnings Per Share 50
24. Schedule of change in Working Capital 52
25. Schedule of change in Working Capital 54
26. Schedule of change in Working Capital 56
27. Schedule of change in Working Capital 58
28. Balance sheet as at 31st December 2012 60

LIST OF CHARTS

CHART
NO TITLE PAGE NO.
1. Components of Current Assets 2008 - 2009 24
2. Components of Current Assets 2009 – 2010 25
3. Components of Current Assets 2010 – 2011 26
4. Components of Current Assets 2011 – 2012 27
5. Components of Current Liabilities 2007 – 2008 28
6. Components of Current Liabilities 2008 – 2009 29
7. Components of Current Liabilities 2009 – 2010 30
8. Components of Current Liabilities 2010 – 2011 31
9. Components of Current Liabilities 2011 – 2012 32
10. Current Ratio 35
11. Quick Ratio 37
12. Cash Position Ratio 39
13. Debt Equity Ratio 41
14. Interest Coverage Ratio 43
15. Debtor’s Turn Over Ratio 45
16. Fixed Assets Turn Over Ratio 47
17. Net Profit Ratio 49
18. Earnings Per Share 51

ABSTRACT:

Analysis of Working Capital Management is the process of identifying the

Operational Efficiency and measure the firm establishing relationship between balance sheet
and profit and loss account. The study was undertaken in the NLC Limited with the view to
have an insight in the Working Capital Management, Ratio analysis of NLC.

In the present study, efforts have been taken to determine the financial condition and
performance of NLC. The present study throws a major concentration on Working Capital
Management from the 4 years financial statement of NLC. The study throws a light on
various aspects such as efficiency in utilizing its assets and the overall financial performance
of NLC. The objective of study is the Change in Working Capital, level of current asset and
current liability, profitability, liquidity position of NLC and to study the composition in the
capital structure and servicing the capacity of NLC limited.

The data was collected from secondary source an interaction with the senior executive
of the firm. Based on the analysis, suitable suggestions /recommendations have been
specified to thr firm.
 1.1 INTRODUCTION TO THE STUDY

“Finance is the life blood of a business”. Hence the financial requirement of a company
is a vital factor to be faced by all companies. The companies must be financially sound to
meet its short term and long term obligations.

Every company should know the financial strength of its operations. It points out the
problems faced or likely to be faced by the companies. The financial information of a
company is available in the financial statements or accounting reports.

Finance is the major source for investment of funds in the business of production,
process of service so as to maximize the wealth position of any business entity. Finance is the
life blood of economic activity. A well-Knit financial system directly contributes to the
growth of the economy. An efficient financial system calls for the effective performances of
the financial institutions, financial instruments and financial markets.
 1.2 INDUSTRY PROFILE

History

The initially developed reciprocating steam engine has been used to produce
mechanical power since the 18th Century, with notable improvements being made by James
Watt. When the first commercially developed central electrical power stations were
established in 1882 at Pearl Street Station in New York and Holborn Viaduct power station in
London, reciprocating steam engines were used. The development of the steam turbine in
1884 provided larger and more efficient machine designs for central generating stations. By
1892 the turbine was considered a better alternative to reciprocating engines; turbines offered
higher speeds, more compact machinery, and stable speed regulation allowing for parallel
synchronous operation of generators on a common bus. After about 1905, turbines entirely
replaced reciprocating engines in large central power stations.

The largest reciprocating engine-generator sets ever built were completed in 1901 for
the Manhattan Elevated Railway. Each of seventeen units weighed about 500 tons and was
rated 6000 kilowatts; a contemporary turbine-set of similar rating would have weighed about
20% as much.

Overview
Almost all coal, nuclear, geothermal, solar thermal electric, and waste incineration
plants, as well as many natural gas power plants are thermal. Natural Gas is frequently
Combusted in Gas turbines as well as boilers. The Waste heat from a gas turbine can be used
to raise steam, in a combined cycle plant that improves overall efficiency. Power plants
burning coal, fuel oil, or natural gas are often called fossil-fuel power plants. Some biomass-
fueled thermal power plants have appeared also. Non-nuclear thermal power plants,
particularly fossil-fueled plants, which do not use co-generation, are sometimes referred to as
conventional powerplants.

Commercial electric utility power stations are usually constructed on a large scale and
designed for continuous operation. Electric power plants typically use three-phase electrical
generators to produce alternating current (AC) electric power at a frequency of 50 Hz or 60
Hz. Large companies or institutions may have their own power plants to supply heating or
electricity to their facilities, especially if steam is created anyway for other purposes. Steam-
driven power plants have been used in various large ships, but are now usually used in large
naval ships. Shipboard power plants usually directly couple the turbine to the ship's
propellers through gearboxes. Power plants in such ships also provide steam to smaller
turbines driving electric generators to supply electricity. Shipboard steam power plants can be
either fossil fuel or nuclear. Nuclear marine propulsion is, with few exceptions, used only in
naval vessels. There have been perhaps about a dozen turbo-electric ships in which a steam-
driven turbine drives an electric generator which powers an electric motor for propulsion.

Combined heat and power plants (CH&P plants), often called co-generation plants,
produce both electric power and heat for process heat or space heating. Steam and hot water
lose energy when piped over substantial distance, so carrying heat energy by steam or hot
water is often only worthwhile within a local area, such as a ship, industrial plant, or district
heating of nearby buildings.

Efficiency

The energy efficiency of a conventional thermal power station, considered salable

energy produced as a percent of the heating value of the fuel consumed, is typically 33% to
48%. As with all heat engines, their efficiency is limited, and governed by the laws of
thermodynamics. By comparison, most hydropower stations in the United States are about 90
percent efficient in converting the energy of falling water into electricity.

The energy of a thermal not utilized in power production must leave the plant in the
form of heat to the environment. This waste heat can go through a condenser and be disposed
of with cooling water or in cooling towers. If the waste heat is instead utilized for district
heating, it is called co-generation. An important class of thermal power station is associated
with desalination facilities; these are typically found in desert countries with large supplies of
natural gas and in these plants, freshwater production and electricity are equally important co-
products.

The Carnot efficiency dictates that higher efficiencies can be attained by increasing
the temperature of the steam. Sub-critical fossil fuel power plants can achieve 36–40%
efficiency. Super critical designs have efficiencies in the low to mid 40% range, with new
"ultra critical" designs using pressures of 4400 psi (30.3 MPa) and multiple stage
reheatingreaching about 48% efficiency. Above the critical point for water of 705 °F (374 °C)
and 3212 psi (22.06 MPa), there is no phase transition from water to steam, but only a
gradual decrease in density.

Current nuclear power plants must operate below the temperatures and pressures that
coal-fired plants do, since the pressurized vessel is very large and contains the entire bundle
of nuclear fuel rods. The size of the reactor limits the pressure that can be reached. This, in
turn, limits their thermodynamic efficiency to 30–32%. Some advanced reactor designs being
studied, such as the Very high temperature reactor, advanced gas-cooledreactor and Super
critical water reactor, would operate at temperatures and pressures similar to current coal
plants, producing comparable thermodynamic efficiency.

Stack gas path and cleanup

As the combustion flue gas exits the boiler it is routed through a rotating flat basket of
metal mesh which picks up heat and returns it to incoming fresh air as the basket rotates, This
is called the air preheater. The gas exiting the boiler is laden with fly ash, which are tiny
spherical ash particles. The flue gas contains nitrogen along with combustion products carbon
dioxide, sulfur dioxide, and nitrogen oxides. The fly ash is removed by fabric bag filters or
electrostatic precipitators. Once removed, the fly ash byproduct can sometimes be used in the
manufacturing of concrete. This cleaning up of flue gases, however, only occurs in plants that
are fitted with the appropriate technology. Still, the majority of coal-fired power plants in the
world do not have these facilities.] Legislation in Europe has been efficient to reduce flue gas
pollution. Japan has been using flue gas cleaning technology for over 30 years and the US has
been doing the same for over 25 years. China is now beginning to grapple with the pollution
caused by coal-fired power plants.
 Where required by law, the sulphur and nitrogen oxide pollutants are removed by
stack gas scrubbers which use a pulverized limestone or other alkaline wet slurry to remove
those pollutants from the exit stack gas. Other devices use catalysts to remove Nitrous Oxide
compounds from the flue gas stream. The gas travelling up the flue gas stack may by this
time have dropped to about 50 °C (120 °F). A typical flue gas stack may be 150–180 metres
(490–590 ft) tall to disperse the remaining flue gas components in the atmosphere. The tallest
flue gas stack in the world is 419.7 metres (1,377 ft) tall at the GRES-2 power plant in
Ekibastuz, Kazakhstan.

In the United States and a number of other countries, atmospheric dispersion

modeling studies are required to determine the flue gas stack height needed to comply with
the local air pollution regulations. The United States also requires the height of a flue gas
stack to comply with what is known as the "Good Engineering Practice (GEP)" stack height.
In the case of existing flue gas stacks that exceed the GEP stack height, any air pollution
dispersion modeling studies for such stacks must use the GEP stack height rather than the
actual stack height.

Fly ash collection

Fly ash is captured and removed from the flue gas by electrostatic precipitators or
fabric bag filters (or sometimes both) located at the outlet of the furnace and before the
induced draft fan. The fly ash is periodically removed from the collection hoppers below the
precipitators or bag filters. Generally, the fly ash is pneumatically transported to storage silos
for subsequent transport by trucks or railroad cars .

Bottom ash collection and disposal

At the bottom of the furnace, there is a hopper for collection of bottom ash. This
hopper is always filled with water to quench the ash and clinkers falling down from the
furnace. Some arrangement is included to crush the clinkers and for conveying the crushed
clinkers and bottom ash to a storage site . Ash extractor is used to discharge ash from
Municipal solid waste fired boilers.
1.2COMPANY PROFILE

Neyveli Lignite Corporation Limited (NLC) was registered as a company on 14 th

November, 1956. The mining operations in Mine-I began in May 1957.The authorized share
capital is Rs.2000 crores against which the pain up share capital is
Rs.1677.71crores.President of India holds 93.56% of the shares whereas institutional
investors and public hold 4.53% and 1.91% respectively. NLC is a NAVRATNA public sector
undertaking.

NLC is the biggest power station in India and the whole of Asia in using lignite as
fuel. The lignite deposits in Tamil Nadu, Gujarat, and Rajasthan have already been exploited
by NLC for generation of power. It has future plans to mine lignite as well coal in the other
parts of the country.

VISION

To emerge as a leading Mining and Power company, continue to be a socially

responsible company and strive for operational excellence in mining and Exploration.

MISSION

Strive towards greater cost competitiveness and work towards continued financial
strength. Continually imbibe the best practices from the best India and International
Organizations engaged in power generation and mining.

Be a preferred employer by offering attractive avenue of career growth and excellent

work environment and by developing human resources to much international standards. Play
an active role in society and be sensitive to emerging environmental issues.
Characteristics of the lignite mined at NLC

Lignite contains 65-70% of carbon, 20-25% of oxygen, about 5% of hydrogen and

small amounts of nitrogen and sulphur. The average calorific value of lignite is K.cal/Kg. it
cannot be compared favorably with the high calorific value of pure coal. Yet lignite has an
advantage of being free burning (non cooking), of having low ash and of giving rapid and
complete combustion. Since the volatile matter is usually high, lignite burns readily. Air dried
lignite is quite suitable for direct burning. For high capacity boilers lignite can be burnt in the
pulverized form.

Over burden removal

The highly consolidated strata consist mainly of Cuddalore strand stone which is
hard and abrasive in nature. The Bucket wheel used for handling large volume of overburdens
faced problems due to the hard strata and uses overcome by carrying out suitable
modification in the bucket wheel teeth and by instituting a systematic drilling and shatter
blasting program. The occurrence of clay makes the movement of the huge bucket wheel
excavator difficult. It reduces the operational performance.

Over burden removal takes almost 3 to 4 months. Usually the over burden thickness
varies from 50 to 95 meters. But the lignite bed thickness happens to around 10 to 23 meters.
Lignite to overburden ratio is approximately 1: 5.

Storm water management

Neyveli mines are located in predominantly high rain fall and cyclonic area where the
average rain fall in a year is about 1200mm and the wind velocity goes up to 160km per hour.
Heavy rains flood the open pit bottoms and these difficulties are met by evacuating the flood
water through float pump mounted on floating pontoons. Intermediate booster stations pump
out the storm water to the surface level.

Handling of Ground water below lignite Bed

Underground water occurs below the entire lignite bed, exerting an upward pressure
of 6 to 8Kg\cm .Unless this water pressure is reduced before mining it will burst the lignite
seam and flood the Mains.
Inventory Management

Raw material handling in NLC is very straight forward. The production of lignite
through mining activities is fully utilized for producing electricity in the thermal power
stations. It is very much obvious that NLC cannot have any work in progress or finished
goods as inventory. Because electricity is the finished product and it cannot be stored for
future use. Raw material (lignite) management is very simple. All the lignite that is mined
isimmediately burned to produce electricity in the respective thermal power stations.
Maximum inventory period is just 2 days.

In NLC, mining out lignite and generation of electricity takes place simultaneously in
the same area. Therefore the required raw material for generation of electricity is obtained
from within. The dependence on outside dealers for raw material is almost nil in NLC. It
actually reduces the problems related to purchase of raw materials such as stock out. One of
the problems that NLC faces is the seasonal changes, like flooding, which disturbs the mining
operations adversely. So the mining operation will be reduced during this period.

Price of Electricity produced

The following table shows the calculation to find the price of one unit of electricity
which was sold by NLC in the year 2010-11.

Price of one unit electricity sold by NLC =

(Total revenues from the electricity sold/ Total units of electricity sold)

NLC is mainly into the business of generation electricity. Therefore the selling of
lignite to outside buyers is very minimal. Lignite sales take place only when the production is
higher than demand for lignite within NLC. We could see that the sale of lignite to outside
buyers is less than 10% of the total lignite mined in a particular year.

To produce this amount of electricity NLC consumed around 16% of the total
electricity produced in the year 2010-11. NLC uses 1.18kg of lignite to produce one unit of
electricity. The price of one unit of electricity sold is around Rs.2.44.
The following table shows the calculation of price of 1unit of electricity.

TABLE NO-1

Total lignite mined (LT) 231.44

Lignite sold (LT) 21.68

Lignite used to produce electricity (LT) 209.76

Total electricity produced (MU) 17881.08

Total electricity sold (MU) 14971.26

Percentage of electricity consumed 16%

Total revenues from electricity sold outside (Cr) 3655.72

Price of one unit of electricity in 2011 (Rs) 2.44

Units of electricity produced from 1kg of lignite \ 0.85

The following table shows the movement of the price of one unit of electricity sold by NLC
in the period from 2008-09 till 2011-12. The price of electricity has been increasing during
these years except in the year 2011-12. It was because the price of electricity has been
increased in the year 2009-10 by 31% when compared to the previous year. And this price
would be increasing in the future due to rising costs of mining, admin and selling expenses,
capital goods, and employee costs.

TABLE NO-2

Year 2011 2010 2009 2008

Sales revenue
(Rs in crores) 3655 3813 2578 2771.6

Units of electricity sold

(Units in crores) 1497.10 1482.80 1320.40 1477.6

Price of 1 unit electricity 2.44 2.57 1.95 1.88

% change -5.06 31.71 4.09 5.07

Features of Neyveli Lignite Mines

TABLE NO-3

Lignite Power

Unit Capacity Unit Capacity

Mine 1 10.5 MTPA TPS1 600 MW

Mine 1A 3.0 MTPA TPS2 1470 MW

Mine-2 including expansion 15.0 MTPA TPS-1expansion 420 MW

 Barsingsar Mine 2.1 MTPA BTPS 250 MW

Total 30.6 MTPA Total 2740 MW

PROJECTS UNDER CONSIDERATION

1.Jayamkondam project in Tamilnadu.

NLC proposed to exploit the lignite reserves of 1150 million tonnes occurring in
Jayamkondam block which is adjacent to Neyveli Lignite field. NLC has planned to open a
lignite mine of capacity 9.0MTPA and linked power plant of capacity 1000MW initially.
Preparation of Feasibility study and EIA\EMP report are under progress. GOI has approved
the advance action proposal (AAP) for this project in Dec-2005.

2. Riri project in Rajasthan.

NLC proposes to develop the Riri lignite deposit in Rajasthan for putting up a Thermal power
station of capacity 500MW. Exploration work is going on to confirm the quality & quantity
of lignite and to ascertain refined reserve.GOI has approved the Advance Action Proposal
(AAP) for this project in Dec.2005.

3. Barsingsar Project Expansion in Rajasthan.

NLC has planned to expand the BTPP by 250MW to be able to use the additional lignite
available. It has proposed to develop Bithnok, Gurha (east) and Hadla deposits in Rajasthan.
Preparation of Feasibility report and EIA/EMP report are under progress.

4. Mine-3 of 8MTPA and the linked TPS—3 (1000MW)

M/s. No west Corporation had been appointed as consultant technical assistance for the
Alternate Mining Technology and FR for Mine-III project. M|s. Norwest has submitted the
draft final report on 23.05.2005 and the same is under scrutiny. On finalization of the
feasibility report of the mining project, the feasibility report of the power project will be
finalized.
5. Project in Orissa.

NLC proposes to set up a 2000MW coal based Thermal Power Station in Orissa. A joint
venture company with MCL is proposed to be formed for supplying coal to this power plant.

6. Project in Gujarat.

A Lignite Mine cum Power Project at valid in Gujarat (8MTPA Lignite Mine with linked
1000MW power paint) is proposed by NLC. In this regard an MOU was signed between
Government of Gujarat and NLC at Chennai on 28 th July, 2006 in the presence of the
Honorable Chief Minister of Gujarat. Preparation of feasibility report and EIA\EMP report
are under progress.
 TABLE NO-4

Allocation power to state EBs

TPS I TPS I Exp TPS II

(600MW) (420MW) (1470MW)

79% 46% 30%

TAMIL NADU
NIL 22% 14%
KARNATAKA
NIL 14% 10%
KERALA
NIL 3% 5%
PONDY
NIL NIL 19%
ANDHRA PRADESH
STATION
12% NIL NIL
CONSUMPTION
9% NIL 7%
NLC SCHEMES
UNALLOCATED
NIL 15% 15%
POWER
100% 100% 100%
TOTAL

Awards and Recognitions

 CSR Award 2009-10 from Govt. of Tamil Nadu in appreciation of NLC’s yeoman service
through socio economic welfare activities.
 ‘National Award for Innovative Training Practices 2009-10’.
 ‘Change Agent and Leadership Award’ by world HRD congress for innovative strategies
and approaches implemented by the company.
 ‘Best Enterprise Award-2010’ at the 21st National Meet of the Forum of Women in Public
Sector.
 NLC is a Navratna Public Sector.

1.3 NEED FOR THE STUDY

1. To know the company’s working capital.

2. To pay wages and salaries.
3. To incur day to day expenses.
4. To maintain inventories of raw materials, work in progress and finished goods.
5. To meet selling costs such as packing and advertising.

1.4 OBJECTIVES OF THE STUDY

Primary objective
To study about the Working capital management and Ratio Analsys in Neyveli Lignite
Corporation Limited.

Secondary objectives
1. To analyze the working capital requirement of Neyveli Lignite Corporation
Limited for the period 2008-09 to 2011-12.
2. To analyze the changes in working capital.
3. To study about the liquidity position of the company.
4. To judge the financial (both liquidity and solvency) position and financial
performance of the company.
5. To examine a proper utilization of current asset and current liability.
 1.5 SCOPE OF THE STUDY

A detailed analysis is done to know about the financial performance of Neyveli Lignite
Corporation.

The study has been conducted with special reference to get a clear picture of
liquidity, Leverage, and Profitability to assess efficiency level.

1. This study helps to calculate the value of different ratios to be carried out for Ratio
Analysis and also to calculate the value of different Assets and Liabilities.
2. This Study helps to find out the resources for further development of the company.
3. An attempt can be made during this study to understand the efficiency of the company in
other aspects of Financial Management.
4. This Study will be useful for the Comparison of Financial Position of NLC Ltd., with any
other Public Sector Organization.
5. This Study can be utilized to find out the Current Financial position of NLC Ltd.

The present study aims at assessing the working capital management of Neyveli
Lignite Corporation Limited for the period 2008-09 to 2011-12.

1,6 LIMITATION OF THE STUDY

1. The working capital analysis is based on the annual reports published by the
organization. Thus the reliability of the analysis is depending on the data provided in the
balance sheets.
2. The study on working capital management is confined to a period of 4 years,
i.e., from 2008-2009 to 2011-2012 due to time constraints.
3. The study is based on secondary data and not on the basis of primary data.

4. The study is based on the accounting standards and not based on the economic
condition.

2. REVIEW OF LITERATURE

1. Banerjee study on corporate liquidity and profitability

Banerjee (1982) conducted a study on the corporate liquidity and profitability. The
study related to the period 1970-71 to 1977-78. The purpose of the study was to analyse the
trend in the liquidity position and their relationship with the profitability in the medium and
large public limited companies in India. The study concluded that for some industry group
risk in liquidity will lead to risk in profitability and vice versa, there are other factors where
increase in liquidity is associated with a decline in profitability.

Link:http://library.binus.ac.id/eColls/eThesis/Bab2/Bab%202__10-52.pdf

2. Hampton view on adequacy on current assets and risk posed by current liabilities

According to Hampton (1983) the working capital management is the functional area
of finance that covers all the current accounts of the firm. It is concerned with the adequacy
of current assets as well as the level of risk posed by current liabilities. He also viewed that
the firm’s policies for managing its working capital should be designed to achieve three goals
such as adequate liquidity minimization of risk and contribute to minimizing firm value.

Link:http://www.slideshare.net/ChandraMohanty/project-on-working-capital-management

3.Akthar study on nominal interest rates

 Akthar (1983) noticed that nominal interest rates had significant effects on the
behavior of inventories.

Link:http://seminarprojects.com/Thread-literature-review-on-working-capital-management-
2012

4.Know , Scoh , Martin and Petty view on managing the investments

According to Know, Scoh, Martin and Petty (1983) working capital management
involves managing the firm’s liquidity, managing the firm’s investments in current assets and
its use of current assets was found to reduce the firm’s risk of liquidity at the expenses of
lowering its overall rate of return on its investment in assets. Furthermore the use of long
term sources of financing was found to enhance the firm’s liquidity, which reduces the rate of
return on assets.

Link:http://shodhganga.inflibnet.ac.in/bitstream/10603/703/8/08_chapter2.pdf

5. Sarma and Reddy study on liquidity position of Nizam Sugar Factories limited

Sarma and Reddy (1985) made a study on the liquidity position of Nizam Sugar
Factories Limited (NSF) during the year 1972-73 and 1981-82 to identify the factors
influencing the liquidity position of the firm with respect to input and output as well.

Link:http://www.studymode.com/subjects/review-of-literature-for-working-capital-
management-page1.html

6. Pradhan study on describing the demand for working capital and its various
components

Pradhan (1986) in his work on working capital management of Nepal Enterprise used
econometric models to describe the demand for working capital and its various components.
Using regression and coefficient of variation, it is used to find holding costs also.
Link:http://seminarprojects.com/s/review-of-literature-on-working-capital-management-in-
india

7.Reddy study on maintaining the liquidity and sufficient amount of net woking capital

Reddy (1988) in his study stressed that the co-operative sugar mills did not manage
working capital properly. The study concludes that sustained efforts have to be made to
maintain liquidity and sufficient amount of net working capital in order to avoid the potential
danger of technical insolvency. The problem of management of working capital was also
traced to be seasonal character of raw material.

Link:http://www.thefreelibrary.com/Working+capital+management+and+firm
%27s+performance--a+study+of+Indian...-a0233291552

8.Hampton and Wagner study on using the techniques of financial analysis

Hampton and Wagner (1989) in their study used the techniques of financial analysis to
address issues of working capital adequacy. They developed guidelines on method of
evaluating cash, current assets, quick assets, current liabilities and overall adequacy. Their
study developed an electronic spread sheet model to bring all the measures together to
compare the firm’s rations with norms taken from other similar firms.

Link:http://www.studymode.com/subjects/review-of-literature-of-working-capital-
management-author-publisher-year-contents-page2.html

9.Verma study on management of working capital in iron and steel in India

Verma (1989) made a study on the management of working capital in respect of iron
and steel in India. The sample of this study covered both the public sector and private sector.
The study related to the period from 1978-79 to 1985-86 and Verma observed that the
problem of working capital was related more to surplus investment than to inadequacy in the
investment and receivables. But as far as cash was concerned almost all the units have
experienced inadequacies during the period. He also suggests that this can be tackled through
improved coordination in the functioning of some strategic department such as purchase,
production marketing and finance.

Since 1990 his study states that there are certain areas in which substantial efforts are
urgently required to keep the company on an even scale. The company can improve its
financial health, if it adopts a technique of more scientific control raw material, stores and
spares and strives to reduce the unprofitable investment blocked in loans and advanced and
other current weekly cash flow statement and also a cash budget be prepared on a regular.

Link:http://www.studymode.com/subjects/literature-review-of-working-capital-management-
indian-rare-earth-limited-page1.html

10.Agarwal view on goal programming model

Agarwal (1991) has developed a multi objective criterion to the problem of working
capital decisions by making use of the potential of goal programming which allows a
simultaneous situation of complementary and conflicting objectives rather than a single
objective only. The goal programming model may be used for different profit targets with
varying level of current assets in order to obtain a satisfying level of the various components
of working capital and the profitability and liquidity goals. It may be concluded that the goal
programming model formulated for the management of working capital to illustrate the need
for solution where conflicting objective defined.

Link:http://seminarprojects.com/Thread-literature-review-on-working-capital-management-
2012

11.Gupta argument in favor of working capital control thorough variance analysis

 Gupta has argued in favor of working capital control through variance analysis. He
was of the option that variance analysis may provide useful and relevant information to the
management enabling it to exercise timely and effective control over working capital.

Link:http://www.slideshare.net/ChandraMohanty/project-on-working-capital-management

12.Rao and Rao study on traditional liquidity ratios

Rao and Rao (1991) in their study state that the traditional liquidity ratios could not
help to find out the real position regarding the adequacy of the working capital involved. But
simple regression model is powerful enough to identify the exact working capital position
and in highlighting the ineffective planning and control of working capital.

Link:http://seminarprojects.com/s/review-of-literature-on-working-capital-management-in-
india
 3.RESEARCH METHODOLOGY

The term “Research” refers to the systematic method consisting of enunciating the
problem, formulating a hypothesis, collecting the data, analyzing the facts and reaching
certain conclusions either in the form of solutions towards the concerned problem or in
certain generalized form of some theoretical formulation.

This is an empirical study based on the financial information contained in the annual
reports of NLC. The study adopts descriptive methodology for evaluating the financial
performance of the organization.

A study on financial performance of Neyveli Lignite Corporation Limited has been

made by calculating various ratios. The data for such analysis have been extracted from the
financial statements. These ratios have been interpreted and conclusions have been drawn.
Based on which, suggestion have been made to improve the financial performance of Neyveli
Lignite Corporation Limited.

PERIOD OF STUDY:

The present study covers the period of eight years from 2008-09 to 2011-12

CONCEPT OF WORKING CAPITAL

There are 2 concepts of working capital

 Gross Concept
  Net Concept.

GROSS WORKING CAPITAL:

It refers to the firm’s investment in total current or circulating assets. According to this
concept, the working capital refers to the firm’s total investment in current assets. Current
assets mean assets which can be converted into cash within an accounting year. Current assets
include cash and bank balance, bills receivable, sundry debtors, inventory, prepaid expenses.

NET WORKING CAPITAL:

According to this concept the working capital refers to the difference between current
assets and current liabilities. Current liabilities refer to the claims of outsiders which are
expected to mature for payment within an accounting year. Net working capital can be
positive or negative. Positive Networking capital arises when current assets exceed current
liabilities. Negative net working capital occurs when current liabilities are in excess of
current assets.

DATA COLLECTION
SECONDARY DATA:

. The analysis of working capital management of the organization necessitates

accurate and reliable data. Therefore the sources for collecting the data include secondary
data.

Note: This Study is limited to Secondary data available from various records of Annual
Reports of Neyveli Lignite Corporation Limited.
 SIGNIFICANCE OF THE STUDY

The working capital of an organization is the lifeblood, which flows through the veins
and arteries. It gives courage and moral to the brain (management) and the muscles
(personnel). It digests to the best degree, the raw material used, by its constant and regular
flow and returns to the heart (cash flow) for another journey. Hence when working capital is
lacking or slow, the financial bodies have value only as a junk.

Funds are needed for short term purposes, viz., for purchases of raw material
payments of wages and other day to day business expenses. Many a times, in the event of
failure of a business concern, the shortage of working capital is given out as its main cause.
But in ultimate analysis, it may be the mismanagement of resources of the firm that could
have converted the otherwise successful business, an unsuccessful one. A firm can exist and
survive without making profit but cannot survive without working capital funds.

Working capital has acquired a great significance and a sound position for the twin
objects of “Profitability and Liquidity”. It consumes a great deal of time to increase
profitability as well as to maintain proper liquidity at minimum risk. So the effective
management of working capital is the primary means of achieving the firm’s goal of adequate
liquidity, which helps to measure the degree of protection against problems that might cause a
shortage of funds. Essentially, the efficient management of working capital minimizes risk in
the repayment of its sources of finance, thereby contributing to the maximization of firm’s
value.

The present study on working capital management of Neyveli Lignite Corporation Ltd
enables the organization to efficiently manage its working capital components and achieve
the goal of maximizing the value of the organization.
 4. DATA ANALYSIS AND INTERPRETATION

Before we analyse different ratios, we shall look into the net working capital of NLC LTD.
We could see from the following table that the net working capital of NLC LTD is showing
an increasing trend from 2008-09 till 2011-12.

Net Working Capital

TABLE NO-5

CURRENT NET WORKING

CURRENT ASSETS
YEAR LIABILITIES CAPITAL
(In Crores)
(In Crores) (In Crores)

2008-09 7557.07 2851.56 4705.51

2009-10 7684.36 3003.19 4681.17

2010-11 7852.12 2584.05 5268.07

2011-12 8148.56 2760.95 5387.61

 TABLE -6

COMPONENTS OF CURRENT ASSETS 2008-09 (Rs. In Crores)

COMPONENTS OF
CURRENT ASSETS 2008-09 PERCENTAGE

Inventories 535.85 7.06

Sundry Debtors 781.44 10.3

Cash and Bank balance 5482.19 72.26

Other current Assets 189.48 2.49

Loans and Advances 597.22 7.87

TOTAL CURRENT ASSETS 7586.18 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART - 1

COMPONENTS OF CURRENT ASSETS 2008-09

 7.9 7.1
2.5
10.3
Inventories
Sundry Debtors
Cash and Bank balance
Other current Assets
Loans and Advances

72.2

TABLE -7

COMPONENTS OF CURRENT ASSETS 2009-10 (Rs. In Crores)

COMPONENTS OF
CURRENT ASSETS 2009-10 PERCENTAGE

Inventories 502.96 6.55

Sundry Debtors 1611.62 20.97

Cash and Bank balance 4823.63 62.77

Other current Assets 164.56 2.14

Loans and Advances 581.59 7.57

TOTAL CURRENT ASSETS 7684.36 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART - 2

COMPONENTS OF CURRENT ASSETS 2009-10

 7.576.55
2.14

20.97 Inventories
Sundry Debtors
Cash and Bank balance
Other current Assets
Loans and Advances
62.77

TABLE -8

COMPONENTS OF CURRENT ASSETS 2010-11 (Rs. In Crores)

COMPONENTS OF
CURRENT ASSETS 2010-11 PERCENTAGE

Inventories 491.71 6

Sundry Debtors 2202.39 28

Cash and Bank balance 4423.99 57

Other current Assets 177.49 2

Loans and Advances 560.05 7

TOTAL CURRENT ASSETS 7855.63 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART NO-3

COMPONENTS OF CURRENT ASSETS 2010-11

COMPONENTS OF CURRENT ASSETS 2010-11

Inventories
Sundry Debtors
Cash and Bank balance
Other current Assets
Loans and Advances

TABLE NO-9

COMPONENTS OF CURRENT ASSETS 2011-12 (Rs. In Crores)

COMPONENTS OF 2011-12 PERCENTAGE

CURRENT ASSETS

Inventories 506.19 6.21

Sundry Debtors 3647.03 44.75

Cash and Bank balance 3329.10 40.85

Other current Assets 259.44 3.18

Loans and Advances 406.80 4.99

TOTAL CURRENT ASSETS 8148.56 100

CHART NO-4

COMPONENTS OF CURRENT ASSETS 2011-12

 3.18 4.99 6.21

inventories
sundry debtors
cash and bank balance
40.85 44.75 other current assets
loans and advances

TABLE – 10

COMPONENTS OF CURRENT LIABILITIES 2007-08 (Rs. In Crores)

COMPONENTS OF
CURRENT LIABILITIES Rs. In Crs PERCENTAGE
2007-08

Sundry Creditors 439.68 23.97

Capital Works & Purchases 486.65 26.53

Other Liabilities 539.63 29.42

Provisions 368.08 20.06

Total Current Liabilities 1834.04 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART – 5

COMPONENTS OF CURRENT LIABILITIES 2007-08

 20 24
Sundry Creditors
Capital Works & Purchases
Other Liabilities
29 Provisions
27

TABLE – 11

COMPONENTS OF CURRENT LIABILITIES 2008-09 (Rs. In Crores)

COMPONENTS OF
CURRENT LIABILITIES Rs. In Crs PERCENTAGE
2008-09

Sundry Creditors 734.16 25.69

Capital Works & Purchases 471.41 16.5

Mine Closure 399.20 13.97

Other Liabilities 459.32 16.07

Provisions 792.66 27.74

Total Current Liabilities 2856.75 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART – 6

COMPONENTS OF CURRENT LIABILITIES 2008-09

 27.8 25.7 Sundry Creditors
Capital Works & Purchases
Mine Closure
Other Liabilities
16 16.5
Provisions
14

TABLE – 12

COMPONENTS OF CURRENT LIABILITIES 2009-10 (Rs. In Crores)

COMPONENTS OF
CURRENT LIABILITIES Rs. In Crs PERCENTAGE
2009-10

Sundry Creditors 1175.70 39

Capital Works & Purchases 426.60 14

Mine Closure 491.40 17

Other Liabilities 276.87 9

Provisions 613.28 21

Total Current Liabilities 2983.85 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART – 7

COMPONENTS OF CURRENT LIABILITIES 2009-10

COMPONENTS OF CURRENT LIABILITIES 2009-10 Rs. In Crs

Sundry Creditors
Capital Works & Purchases
21%
Mine Closure
39%
Other Liabilities
9%
Provisions
16%
14%

TABLE – 13

COMPONENTS OF CURRENT LIABILITIES 2010-11 (Rs. In Crores)

COMPONENTS OF
CURRENT LIABILITIES Rs. In Crs PERCENTAGE
2010-11

Sundry Creditors 1108.80 39

Capital Works & Purchases 721.47 26

Mine Closure 108.94 4

Other Liabilities 225.15 8

Provisions 649.94 23

Total Current Liabilities 2814.3 100

Source: Compiled from the Annual Reports of NLC Ltd.

CHART – 8

COMPONENTS OF CURRENT LIABILITIES 2010-11

 COMPONENTS OF
CURRENT LIABILITIES Rs. In Crs PERCENTAGE
2011-12

Trade payables 1315.06 47.59

Other current liabilities 647.40 23.43

Provisions 798.49 28.89

Total Current Liabilities 2762.95 100

COMPONENTS OF CURRENT LIABILITIES 2010-11 Rs. In Crs

Sundry Creditors
Capital Works & Purchases
23%
Mine Closure
39%
Other Liabilities
8%
Provisions
4%
26%

TABLE NO-14

COMPONENTS OF CURRENT LIABILITIES 2011-12 (Rs In Crs )

CHART NO-9
 COMPONENTS OF CURRENT LIABILITIES 2011-12

28.89
trade payables
47.59 other current liabilities
provisions

23.43

RATIO ANALYSIS

Ratios can be classified into four different groups of ratios. They are,

Liquidity ratios: they measure the firm’s ability to meet current obligations.
Leverage ratios: they show the proportions of debt and equity in the firm’s assets.
Activity ratios: they reflect the firm’s efficiency in utilizing its assets.
Profitability ratios: they measure overall performance and effectiveness of the firm.

The parties interested in financial analysis are short term and long term creditors, owners, and
management.
Short term creditors’ main focus is on the liquidity position or the short term solvency of the
firm. Long term creditors, on the other hand, are more interested in the long term solvency
and profitability of the firm.
Similarly owners concentrate on the firm’s profitability and financial condition. Management
is interested in evaluating every aspect of the firm’s performance. They have to protect the
interests of all parties. And see that the firm grows profitably.

LIQUIDITY RATIOS
CURRENT RATIO:

Current ratio is a measure of the firm’s short-term solvency. It indicates the

availability of current assets in rupees for every one rupee of current liability. A ratio of
greater than one means that the firm has more current assets than current claims against them.

Current Ratio = (current assets/ current liabilities)

CURRENT RATIO

TABLE NO-15

CURRENT
CURRENT ASSETS
YEAR LIABILITIES CURRENT RATIO
(In Crores)
(In Crores)

2008-09 7557.07 2851.56 2.65

2009-10 7684.36 3003.19 2.56

2010-11 7852.12 2584.05 3.04

2011-12 8148.56 2760.95 2.95

 CURRENT RATIO

CHART NO-10

3.1

2.9

2.8

2.7

2.6

2.5

2.4

2.3
2008-09 2009-10 2010-11 2011-12

Interpretation:
As a conventional rule, a current ratio of 2 is considered to be optimal. The current ratio
represents a margin of safety for the creditors. In the case of NLC LTD., this ratio is found to
be always in the range of 2.5 to 3.3 which means that the entity is having more than a safe
liquidity position. Because, if a firm is having the current ratio to be less than 2, it does not
mean that the firm may not have a good liquidity position. Therefore the current ratio is only
a crude and quick measure of the firm’s liquidity.

QUICK RATIO

Quick ratio which is also called as acid-test ratio, establishes a relationship between
quick assets and current liabilities. An asset is liquid if it can be converted into cash
immediately or reasonably soon without a loss of value. Cash is the most liquid asset. Other
assets that are considered to be relatively liquid and included in quick assets are debtors, bills
receivables, and marketable securities. Inventories are considered to be less liquid. Therefore
quick ratio can be found out in the following manner.

Quick Ratio = {(current assets-inventory)/current liabilities}

QUICK RATIO

TABLE NO-16

CURRENT
QUICK ASSETS
YEAR LIABILITIES QUICK RATIO
(In Crores)
(In Crores)

2008-09 7021.22 2851.56 2.46

 2009-10 7181.4 3003.19 2.39

2010-11 7360.41 2584.05 2.85

2011-12 7771.53 2559.79 3.04

QUICK RATIO

CHART NO-11

3.5

2.5

1.5

0.5

0
2008-09 2009-10 2010-11 2011-12

Interpretation
Since the inventories have been subtracted from the current assets, quick ratio gives the
lenders even more correct idea regarding the liquidity position of the firm.. In the case of
NLC LTD., this ratio is between 2.35 and 3. A quick ratio of 1 to 1 does not necessarily
imply sound liquidity position. It is because not all debtors can be liquid. And not all
inventories are absolutely non-liquid. But in the case of NLC LTD, it can rely on its debtors
because the debtors are all state governments. There is least possibility that these debtors will
fail to make the payments.

CASH POSITION RATIO

Cash is the most liquid asset, so a financial analyst will be more apprehensive about
the cash that is available in the hand and at bank. Marketable securities can also be included
as part of most liquid asset. The trade investment or marketable securities are equivalent of
cash. That is why, they can be included as part of liquid assets.

Cash Ratio = {(cash + marketable securities) / current liabilities}

TABLE NO-17

CURRENT
CASH AT HAND & BANK
YEAR LIABILITIES CASH RATIO
(In Crores)
(In Crores)

2008-09 5452.20 2851.56 1.91

2009-10 4823.63 3003.19 1.61

2010-11 4420.73 2584.05 1.71

4415.55 2559.79 1.72

 2011-12

CASH POSITION RATIO

CHARTNO-12

1.95

1.9

1.85

1.8

1.75

1.7

1.65

1.6

1.55

1.5

1.45
2008-09 2009-10 2010-11 2011-12

Interpretation

The cash ratio gives the extent to which cash at hand and bank can be used to manage the
current liabilities. In the case of NLC LTD, it has very high cash reserves. And in India, firms
have credit limits sanctioned from banks, and they can easily draw cash. Since we have this
sort of credit facility, NLC can try to invest this amount in newer projects. Or else it can try to
pay back its creditors with that cash.
 LEVERAGE RATIOS

Debt-Equity ratio

This is a relationship between the lender’s contribution and that of the owners’. Debt-
equity ratio is computed as follows,

Debt-Equity ratio = (Total Debt/Total Equity)

TABLE NO-18

Total Debt Total Equity

YEAR Debt-Equity ratio
(In Crores) (In Crores)

2008-09 4057.70 9412.78 0.43

2009-10 4077.36 10225.60 0.40

2010-11 4004.04 11121.40 0.36

2011-12 4957.76 12609.96 0.39

DEBT-EQUITY RATIO
 CHART NO-13

0.44

0.42

0.4

0.38

0.36

0.34

0.32
2008-09 2009-10 2010-11 2011-12

Interpretation

Debt-Equity ratio shows the relationship between the debt and owners’ funds in the company.
In the years 2006-07, the D-E ratio was quite low. Debt was 0.16 times that of owners’ funds.
But from the financial year 2007-08 onwards the D-E ratio is between 0.3 and 0.43. There
was no infusion of funds from the government or any new issue of shares in the market.

Interest coverage ratio

 The interest coverage ratio is used to test the firm’s debt servicing capacity. The
interest coverage ratio is computed by dividing earnings before the interest and taxes by
interest charges.

Interest coverage ratio = (EBIT/Interest)

TABLE NO-19

EBIT Interest Interest Coverage

YEAR
(In Crores) (In Crores) ratio

2008-09 1281.21 231.79 5.53

2009-10 1884.89 288.06 6.54

2010-11 1680.24 348.04 4.83

2011-12 2050.76 376.47 5.45

INTEREST COVERAGE RATIO

 CHART NO-14

0
2008-09 2009-10 2010-11 2011-12

Interpretation

This ratio is very crucial because of its significance to the lenders or creditors. The term loan
lenders will be interested in collecting interest for the money they have lent. Therefore every
lender will analyze whether the borrower will be able to pay interest for the principal
regularly. In NLC LTD, we could see that the ratio is always above one. In the year 2007-08,
we could see that ratio increased sharply. It is due to the sizable reduction in raw material
costs. In the years from 2006-07 till2007-08, the ratio had been quite high. But the ratio got
reduced to around 5 or 6 in the period from 2008-09 till 2011-12. Even in the projected
period, the ratio is around 5 to 6. It is due to the change in the capital structure.

Debtors Turnover ratio

 When a firm extends credits to its customers, debtors are created in the firm’s
accounts. Debtors are convertible into cash over a short period and, therefore, are included in
current assets. The liquidity position of the firm depends on the quality of debtors to a great
extent.

Debtors Turnover ratio = (Credit sales/Average debtors)

TABLE NO-20

Credit Sales Average Debtors Debtors Turnover

YEAR
(In Crores) (In Crores) ratio

2008-09 3354.91 781.44 4.29

2009-10 4121.02 1611.62 2.56

2010-11 3949.08 2202.39 1.79

2011-12 4489.46 2503.45 1.79

DEBTORS TURNOVER RATIO

 CHART NO-15

4.5

3.5

2.5

1.5

0.5

0
2008-09 2009-10 2010-11 2011-12

Interpretation

This ratio shows the number of times the debtors turnover each year. In the year 2006-07 it
was 23 times. But in the year2010-11, it was just 2 times. It is because NLC allowed its
customers to have longer payable periods. Meanwhile NLC had obtained securities for the
accounts receivables from its customers. This means the NLC has introduced customer
friendly policies that help the customers make their payment over a prolonged time period.
But extending collection period may impact the working capital of NLC adversely.

ACTIVITY RATIOS

FIXED ASSET TURNOVER RATIO

 A firm may wants to know its efficiency of utilizing fixed assets and current assets
separately. This ratio shows the ability of the firm’s fixed assets in generating revenue for the
firm.

Fixed Asset Turnover ratio = (Sales/Net fixed assets)

TABLE NO-21

NET SALES FIXED ASSETS FIXED ASSET

YEAR
(In Crores) (In Crores) TURNOVER RATIO

2008-09 3354.91 4502.96 0.75

2009-10 4121.02 5238.80 0.79

2010-11 3949.08 6795.82 0.58

2011-12 4488.91 8515.84 0.53

FIXED ASSET TURNOVER RATIO

CHART NO-16
 0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2008-09 2009-10 2010-11 2011-12

Interpretation

Assets are used to create revenues from operations. Therefore every organization should
make it a point to manage its assets efficiently to maximize sales. In NLC, the ratio is around
0.5 to 0.8. Even though the fixed assets have been utilized to the fullest extent possible, the
ratio appears to be less than 0.8. It is because of the new projects that are coming up in the
various locations.

PROFITABILITY RATIOS

NET PROFIT RATIO

 This is a ratio which shows the relationship between the net profit and net sales in a
particular year. Net profit is obtained when operating expenses, interest, and taxes are
subtracted from the gross profit.

Net Profit margin = (Net profit/ Net sales)

TABLE NO-22

NET SALES NET PROFIT NET PROFIT

YEAR
(In Crores) (In Crores) RATIO

2008-09 3354.91 821.09 0.24

2009-10 4121.02 1247.46 0.30

2010-11 3949.08 1298.33 0.33

4488.91 1295.90 0.29

2011-12

NET PROFIT RATIO

CHART NO-17
 0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2008-09 2009-10 2010-11 2011-12

Interpretation

This ratio indicates the cost effectiveness of the operations of NLC. When a company is
creating very large sales, but only a small percentage of profits, then that company is said to
be not having cost effectiveness or it may be following very poor cost management practices.
But NLC follows very good cost management policies that can be clearly seen in the average
net profit ratio of 0.32 for the period from 2006-05 till 2011-12. These earnings, which get
added up in the Reserves and Surpluses of the firm, are being used as investment for purchase
of fixed assets year on year.

EARNING PER SHARE

 The profitability of the shareholders’ investment can also be measured in many ways.
One such measure is to calculate the earnings per share. The earnings per share is calculated
by dividing the profit after taxes by the total number of ordinary shares outstanding.

EPS = (PAT/No. of shares outstanding)

TABLE NO-23

NO. OF EQUITY
NET PROFIT
YEAR SHARES EPS
(In Crores)
(In Crores)

2008-09 821.09 167.77 4.89

2009-10 1247.46 167.77 7.44

2010-11 1298.33 167.77 7.74

2011-12 1295.90 167.77 7.72

EARNING PER SHARE

 CHART NO-18

0
2008-09 2009-10 2010-11 2011-12

Interpretation

EPS is one of the most important measures that any investor in the stock market will
look into. Average EPS of NLC appears to be Rs.5.70 during period from 2006-07 to 2011-
12. One can see that EPS in the projected period increases to around Rs.9. NLC pays
dividends to its shareholders year on year. It gives a very good positive picture about the
company to its investors. The increase or decrease in dividends given was exactly matching
the increase or decrease in net profit for that particular year. The dividends given by NLC are
well above the industry average. Among its competitors and other players only NTPC and
TATA POWER give higher EPS than NLC. Since the EPS keeps increasing in the projected
period, it is likely that the share price may increase from the today’s level.

TABLE NO-24
 SCHEDULE OF CHANGES IN WORKING CAPITAL
CURRENT ASSETS 2008-09 2009-10 INCREASE DECREASE

INVENTORIES 535.85 502.96 32.89

SUNDRY DEBTORS 781.44 1611.62 830.18

CASH & BANK BALANCES 5452.2 4823.63 628.57

OTHER CURRENT ASSETS 189.47 164.56 24.91

LOANS & ADVANCES 598.11 581.59 16.52

TOTAL (A) 7557.07 7684.36 830.18 702.89

CURRENT LIABILITIES 2008-09 2009-10

CURRENT LIABILITIES 2058.9 2389.91 331.01

PROVISIONS 792.66 613.28 179.38

TOTAL (B) 2851.56 3003.19 331.01 179.38

WORKING CAPITAL (A-B) 4705.51 4681.17 499.17 523.51

INCREASE IN WORKING CAPITAL 24.34

INTERPRETATION

Schedule of changes in working capital, when compared between 2008-09 and 2009-
10. It is stated that,
IN CURRENT ASSETS:

 Inventories Decreases by Rs. 32.89 Crores.

 Debtors increases by Rs. 830.18 Crores.
 Cash and Bank Balance Decreases by Rs.628.57 Crores.
 Other Current Assets Decreases by Rs. 24.91 Crores.
 Loans and Advances Decreases by Rs. 16.52 Crores.

IN CURRENT LIABILITIES & PROVISIONS:

 Current Liabilities increases by Rs. 331.01Crores.

 Provisions Decreases by Rs. 179.38 Crores.

SCHEDULE OF CHANGES IN WORKING CAPITAL

Increase in working capital Rs. 24.34 Crores.

TABLE NO-25

SCHEDULE OF CHANGES IN WORKING CAPITAL

CURRENT ASSETS 2009- 2010- INCREAS DECREAS
 10 11 E E

INVENTORIES 502.96 491.71 11.25

SUNDRY DEBTORS 1611.62 2202.39 590.77

CASH & BANK BALANCES 4823.63 4420.73 402.9

OTHER CURRENT ASSETS 164.56 177.48 12.92

LOANS & ADVANCES 581.59 559.81 21.78

TOTAL (A) 7684.36 7852.12 603.69 435.93

2009- 2010-
CURRENT LIABILITIES
10 11

CURRENT LIABILITIES 2389.91 1934.11 455.8

PROVISIONS 613.28 649.94 36.66

TOTAL (B) 3003.19 2584.05 36.66 455.8

WORKING CAPITAL (A-B) 4681.17 5268.07 567.03 19.87

INCREASE IN WORKING
547.16
CAPITAL

INTERPRETATION

Schedule of changes in working capital, when compared between 2009-10 and 2010-11. It is
stated that,
IN CURRENT ASSETS:

 Inventories decreases by Rs. 11.25 Crores.

 Debtors increases by Rs. 590.77 Crores.
 Cash and Bank Balance decreases by Rs.402.9 Crores.
 Other Current Assets increases by Rs. 12.92 Crores.
 Loans and Advances decreases by Rs. 21.78 Crores.

IN CURRENT LIABILITIES & PROVISIONS:

 Current Liabilities decreases by Rs. 455.8Crores.

 Provisions increases by Rs. 36.66 Crores.

SCHEDULE OF CHANGES IN WORKING CAPITAL

Increase in working capital Rs. 547.16Crores.

TABLE NO-26

SCHEDULE OF CHANGES IN WORKING CAPITAL

CURRENT ASSETS 2010-11 2011-12 INCREASE DECREASE
 INVENTORIES 491.71 506.19 14.48

SUNDRY DEBTORS 2202.39 3647.03 1444.64

CASH & BANK BALANCES 4420.73 3329.10 1091.63

OTHER CURRENT ASSETS 177.48 259.44 81.96

LOANS & ADVANCES 559.81 406.80 153.01

TOTAL (A) 7852.12 8148.56 1541.08 1265.88

CURRENT LIABILITIES 2010-11 2011-12

CURRENT LIABILITIES 1934.11 1962.46 28.35

PROVISIONS 649.94 798.49 148.55

TOTAL (B) 2584.05 2760.95 176.9

WORKING CAPITAL (A-B) 5268.07 5387.61 1364.18 1265.88

INCREASE IN WORKING
98.3
CAPITAL

INTERPRETATION

Schedule of changes in working capital, when compared between 2009-10 and 2010-
11. It is stated that,

IN CURRENT ASSETS:
  Inventories increases by Rs. 14.48 Crores.
 Debtors increases by Rs. 1444.64 Crores.
 Cash and Bank Balance Decreases by Rs.1091.63 Crores.
 Other Current Assets increases by Rs. 81.96 Crores.
 Loans and Advances Decreases by Rs. 153.01Crores.

IN CURRENT LIABILITIES & PROVISIONS:

 Current Liabilities increases by Rs. 28.35Crores.

 Provisions increases by Rs. 148.55 Crores.

SCHEDULE OF CHANGES IN WORKING CAPITAL

Increase in working capital Rs. 98.3 crores

BALANCE SHEET AS AT 31ST MARCH 2012

PARTICULARS AS AT 31.3.2012 AS AT 31.3.2011

EQUITY AND LIABILITIES

1.Shareholders Fund 12039.89 11174.53

2.Non-Current Liabilities 4235.13 4155.56

3.Current Liabilities 2762.95 3000.91

TOTAL 19035.97 1342.00

ASSETS

1.Non-Current Assets 10887.41 10471.41

2.Current Assets 8148.56 7870.59

TOTAL 19035.97 18342.00

5.1FINDINGS

1. Current ratio of 2 or more is considered to be good. And NLC has current ratio to
be always 2.5 or more.
2. Quick ratio of 1:1 is considered to be good. In NLC, it is always above 2.35.
3. NLC has its cash ratio to be always 1.5 or more. So it is possible for it to fund its
current liabilities through the cash itself. And it need not think of selling any other
current assets to pay back its current liabilities in any possible situation.
4. Debt-Equity ratio happened to be less in the period from 2004-05 to 2006-07. It
was around 0.16 in that period. But it is rose to around 0.3 to 0.4 in the period
from 2007-08 to 2011-12.
 5. Debtor’s turnover ratio had been very high in the beginning, but reduced to almost
2 in the recent years.
6. Net profit ratio, on an average, is around 0.32. That is, NLC is having around 32%
of its earnings as its net profit.
7. NLC has very good working capital management policies; it never uses its short
term sources of funds for long term uses. But it has a policy of using a small
amount of its long term sources to fund its short term uses.
8. NLC does not have high stocks of inventories. It uses the lignite that is produced
from the mines within span of 48 hours. It need not have very good inventory
management policy as far as lignite is concerned. Simple and effective policies are
being followed.
9. Management of tools and spares, fixed assets is also good. Mines have some very
big machines still working even after their useful lifetime.

5.2SUGGESTIONS

1. To earn more profit the amount invested in current assets can be reduced by way of
reducing the quantum of inventories and debtors.
2. Asset utilization is good more efforts can be taken to achieve efficient utilization of
assets to earn more profit.
3. We could see that the sundry creditors have increased from less than Rs.100 crores in
2006-07 to around Rs.2200 crores in 2010-11. Therefore NLC can make sure that its
creditors do not default.
4. By looking at the gigantic size of NLC in terms of its revenues and the area, it can
very well look at the possibilities of acquiring the smaller profitable companies in the
other countries. This will help the company to manage its dwindling resources in
these times. It can import its raw materials at relatively lower costs. And there is
always very good demand for power through these sources at least for 2 decades in
the future.
 5.3CONCLUSION

The analysis of working capital of Neyveli Lignite Corporation Limited, Neyveli

reveals effective position also of the company’s working capital policy. Financial position of
the company is well and good for the past eight years. Liquidity position of the company is
excellent. The company can still improve its working capital position by implementing the
suggestion made in this report.

Schedule of changes in working capital i.e. Increase or Decrease in Working Capital

during the period of study shows increases in working capital.

Hence, it is concluded that the company’s financial position is excellent and Working
capital is being managed effectively.

BIBLIOGRAPHY

1. Annual reports of Neyveli Lignite Corporation Ltd.

2. www.nlcindia.com
3. www.moneycontrol.com
4. Dr. S.N. Maheswari (2010), A Text book of Management Accounting, published by
Sultan CHAND & Sons.