Professional Documents
Culture Documents
It describes about how the company manages its working capital and the various steps
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's
ability to fund operations, reinvest and meet capital requirements and payments.
decisions. A good way to judge a company's cash flow prospects is to look at its
Working capital refers to the cash a business requires for day-to-day operations or,
more specifically, for financing the conversion of raw materials into finished goods,
which the company sells for payment. Among the most important items of working
capital are levels of inventory, accounts receivable, and accounts payable. Analysts
look at these items for signs of a company's efficiency and financial strength.
and financial efficiency. Any company should have a right amount of cash and lines of
This project describes how the management of working capital takes place at NTPC .
COMPANY PROFILE
NTPC Limited is the largest thermal power generating company of India. A public
sector company, it was incorporated in the year 1975 to accelerate power development
Government of India holds 89.5% of the total equity shares of the company and the
balance 10.5% is held by FIIs, Domestic Banks, Public and others. Within a span of 31
years, NTPC has emerged as a truly national power company, with power generating
India. The Forbes Global 2000 ranking for 2005 ranks it as the 5th leading company in
India and the 486th leading company in the world. It is a public listed (Bombay Stock
Exchange) Indian public sector company, with majority shares owned by the
Government of India. At present, Government of India holds 89.5% of the total equity
shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public
and others. NTPC ranks amongst the top five companies, in terms of market
capitalisation.
generating plants and also providing consultancy to power utilities in India and
abroad. As on date the installed capacity of NTPC is 26, 404 MW through its 14
coal based (21,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects
(1,054 MW).
From the above graph it’s been clear that NTPC is creating that leading benchmark
in all over the country, like above graph is dictating that the intensive and
remarkable growth covered by NTPC was started in year 1986-87 from 3000MW
with 20000BU and goes to inconsistent growth in year 2006-07 by 30000MW with
generation of power.
NTPC’s core business is engineering, construction and operation of power
the installed capacity of NTPC is 27,904 MW through its 15 coal based (22,895
MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW). NTPC
acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This
JV company operates the captive power plants of Durgapur (120 MW), Rourkela
(120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in Ratnagiri Gas &
Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL,
Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present
NTPC’s share on 31 Mar 2007 in the total installed capacity of the country was
20.18% and it contributed 28.50% of the total power generation of the country
during 2006-07.
NTPC has set new benchmarks for the power industry both in the area of power
tariff in the country. With its experience and expertise in the power sector, NTPC
environmental cost and preserving the ecology in the vicinity of the plants. NTPC
has undertaken massive afforestation in the vicinity of its plants. Plantations have
increased forest area and reduced barren land. The massive afforestation by NTPC
in and around its Ramagundam Power station (2600 MW) have contributed
reducing the temperature in the areas by about 3°c. NTPC has also taken proactive
steps for ash utilisation. In 1991, it set up Ash Utilisation Division to manage
efficient use of the ash produced at its coal stations. This quality of ash produced is
been established in NTPC with the assistance of United States Agency for
NTPC was among the first Public Sector Enterprises to enter into a Memorandum
of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed
under the 'Excellent category' (the best category) every year since the MOU system
Government of the India has identified NTPC as one of the jewels of Public Sector
‘Navratnas’- a potential global giant. Inspired by its glorious past and vibrant
present, NTPC is well on its way to realise its vision of being “A world class
receivable at NTPC Ltd., but there are some more and they are –
Ltd.
ratios.
To suggest ways for better management and control of working capital at the
concern.
DATA SOURCES:
The following sources have been sought for the prep of this report:
www.studyfinance.com .
This data was gathered through the company’s websites, its corporate
A detailed study on the actual working processes of the company is also done
through direct interaction with the employees and by timely studying the
firm’s working capital consists of its investment in current assets, which include short-
Inventories,
Marketable securities.
It refers to firm's investment in current assets. Current assets are the assets, which
can be converted into cash with in a financial year. The gross working capital points
It refers to the difference between current assets and current liabilities. Net working
capital can be positive or negative. A positive net working capital will arise when
current assets exceed current liabilities. And vice-versa for negative net working
capital. Net working capital is a qualitative concept. It indicates the liquidity position
of the firm and suggests the extent to which working capital needs may be financed
by permanent sources of funds. Net working capital also covers the question of
judicious mix of long-term and short-term funds for financing current assets.
For one thing, the current assets of a typical manufacturing firm account for half
of its total assets. For a distribution company, they account for even more.
Working capital requires continuous day to day supervision. Working capital has
There is an inevitable relationship between sales growth and the level of current
assets. The target sales level can be achieved only if supported by adequate
sufficient liquidity to the firm. Like the most corporate financial decisions, the
decision on how much working capital be maintained involves a trade off- having
a large net working capital may reduce the liquidity risk faced by a firm, but it can
have a negative effect on the cash flows. Therefore, the net effect on the value of
the firm should be used to determine the optimal amount of working capital.
Sound working capital involves two fundamental decisions for the firm. They are
The appropriate mix of short-term and long-term financing used to support this
investment in current assets, a firm should decide whether or not it should use
Flexibility
But short-term financing is more risky than long-term financing. Following table
needs (Box 1) and long- term financing for long term or permanent assets needs
(Box 3) would comprise a set of moderate risk –profitability strategies. But what
KINDS OF WORKING
CAPITAL
ON THE ON THE
BASIS OF BASIS OF
CONCEPT TIME
PERMANENT TEMPORARY/
GROSS NET
/FIXED VARIABLE
WORKING WORKING
WORKING WORKING
CAPITAL CAPITAL CAPITAL CAPITAL
working capital needs of the firm in order to find out the permanent and temporary
working capital. Working capital is required because of existence of operating
cycle. The lengthier the operating cycle, greater would be the need for working
capital. The operating cycle is a continuous process and therefore, the working
capital is needed constantly and regularly. However, the magnitude and quantum
of working capital required will not be same all the times, rather it will fluctuate.
The need for current assets tends to shift over time. Some of these changes reflect
permanent changes in the firm as is the case when the inventory and receivables
increases as the firm grows and the sales become higher and higher. Other changes
are seasonal, as is the case with increased inventory required for a particular
festival season. Still others are random reflecting the uncertainty associated
required by a firm in order to maintain its activities. Every firm must have a
minimum of cash, stock and other current assets, this minimum level of current
assets, which must be maintained by any firm all the times, is known as
permanent working capital for that firm. This amount of working capital is
constantly and regularly required in the same way as fixed assets are required. So,
Any amount over and above the permanent level of working capital is temporary,
The permanent level is constant while the temporary working capital is fluctuating
figure.
They are:
There are many factors that determine working capital needs of an enterprise.
transport corporation, which has a short operating cycle and which sells
which has a long operating cycle and which sells largely on credit, has a
consumer segment notably in the last four years. This they have
achieved through retail expansion. The scale of operations and the size it
holds in the Indian IT market makes it a must for them to hold their
The rate of growth of sales indicates a need for increase in the working
from Operations
Changes in the price level also affect the working capital requirements.
It was the reduced margins in the price of the raw materials that had
their net current assets. They might have gone for this large-scale
which would have meant that more funds are required to maintain the