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EXECUTIVE

SUMMARY

I started my project on 11 June 2012 in National Thermal Power Corporation (NTPC) and was asked to study the working capital and its different components. I was asked to collect the information related to finance and accounting system of the organization, for that purpose, I meet the managers of NTPC who are doing job at executive level in the organization. I collected data from the financial statements of NTPC through balance sheets. The secondary objective was to gather information about the different components of working capital. I started my survey from bills and stores section of NTPC in financial department itself. I went through all the eight sections of accounts department in NTPC.

INTRODUCTION TO THE TOPIC


What is Working Capital and why working capital is required in the organization? Answers of the above question are as follow:Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities, and the interrelationship that exist between them. Because they are highly liquid and need to manage it in a better way for its best utilization and meet all short-term finance and repayment of short-term debt. It manages the required funds to carry the required levels of current assets to enable the company to carry on its operations at the expected level without any disruption. The aim of working capital management is to manage the firms current assets and current liability in such a way that maintained a satisfactory level of working capital. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable level of safety. The interaction between current 2

Assets, current liabilities, and its use in best and possible way is the main theme of the theory of working capital management. There are two concepts of working capital: Gross and Net.

Gross working capital: - The term Gross working capital is refers to the total current assets of the company. In addition, the capital that includes all the detectable items likes expenses and others.

Net Working Capital:- The term Net working capital can be defined in two ways:(i) The most common definition of net working capital (NWC) is the difference

between current assets and current liabilities.

(ii)

Alternative definition of net working capital is that portion of current assets

which is financed with long-term funds. Since current liabilities represent sources of 3

short-term funds, as longs as current assets exceed the current liabilities, the excess must be finance with long-term funds. Ti is more useful for the analysis of the tradeoff between profitability and risk

NEED OF WORKING CAPITAL


The need for working capital (Gross) or current assets cannot be overemphasized. The objective of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. The amount of such profits largely depends upon the magnitude of sales. However, sales do not convert into cash instantaneously. There is always a time gap between of goods and receipt of cash. Working capital is required for this period in order to sustain the sales activity. In case adequate working capacity is not available for this period, the company will not be in a position of sustaining the sales, since it may not be in an opposition to purchase raw materials, pay wages and other expenses required for manufacturing the good to be sold. Working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically termed as operating cycle of the business. In other words, the term cash cycle of operating cycle refers to the length of time necessary to complete the following cycle of events. 4

The operating cycle consists five phases:I phase - Cash are converted into raw material. II phase: - Raw material is converted into work-in-progress. III phase: - Work-in-Progress is converted into finished goods. IV phase: - Finished goods are converted into sales. V phase: - Sales are converted into debtors.

Fig: 1 Operating Cycle

OPERATING CYCLE:-

If it were possible to complete the sequences instantaneously, there would be n-o need for current assets (working capital). However, since it is not possible, the firm is forced to have current assets. If cash inflows and outflows do not match, firm have to necessarily keep cash or invest in short term liquid securities so that they will be in a position to meet obligations when they become due. Therefore, due to above statement it is clear that why the companies are needed working capital. There are mainly three part of Working Capital in the company, which is as follow:A) Cash B) Inventory C) Bills Receivable

CASH: Cash is the most important component of current assets. All other components such as debtors and inventories ultimately are converted into cash and this fact further emphasizes the importance of management of cash. The goal of cash management is to maintain the minimum cash balance that provides the firm with sufficient liquidity needed to meet its financial objectives. 6

The term cash includes not only currency but also near cash assets such as marketable securities and demand deposits in bank. Cash section is an important section of finance and accounts department. It deals with the employees, contractors and suppliers for their payments. Corporate office plays a dominant role in cash management. The corporate office allocates different amount of each to different coalmines as per its requirements. Corporate office acts as a linkage between the NTPC and main book. The state bank of India, Corporate office has determined the credit facility for every units of NTPC. No one unit of NTPC can get the credit facility more than ones limit. The credit facility is known as rolling cash limit. This keeps on changing from year to year depending upon companys position transactions, profitability, and inventory position. Although corporate office provides credit limit facilities, yet NTPC is not fully dependent on the corporate office. The sale of scrap materials of defective at plant level generates the cash. Thus, at a time, plant can also pay liabilities and then the balance amount is only intimated to the corporate office. NTPC gives priority in cash payment, which is urgent, and sends the report to corporate office. In brief, the main uses of the cash in organization are as follow:-

It required paying for the fuel and coal charges to the supplier. It also use to making payment for other construction in organization like building, road, etc. on every day or week or monthly bases. It use to buying loose tools, spare parts, etc. In addition, making payment to the employees in the organization.

STRUCTURE OF WORKING CAPITAL

FIG: 2 CIRCULATION SYSTEM OF WORKING CAPITAL The structural study of working capital involves the analysis of composition of current assets and current liabilities. The current assets consist of inventory, cash, receivables, and marketable securities. Current liabilities usually comprise the borrowings, trade credits, assessed tax and unpaid dividend or any other things. TYPES OF WORKING CAPITAL Working capital can be divided into two categories of the basis of time. 9

I.

Permanent or long-term working capital

This refers to that minimum amount of investment in all current assets, which is required at all times to carry out minimum level of business activities. In other words, it represents the current assets required on a continuing basis over the entire year. Tondon committee has referred to this type of working capital as CORE CURRENT ASSETS. The following are the characteristics of this type of working capital. Amount of payment working capital remains in the business in one from

another. This is particularly from the point of view of financing. The suppliers of such working capitals should not accept its return during the lifetime of the firm. It also grows with the size of the business. In other words greater the size of

the business greater is the amount of such working capital and vice versa. Permanent working capital is permanently needed for the business and therefore it should be financed out of long-term funds. II.

Temporary or short-term working capital


The amount of such working capital keeps on fluctuating from time to time

because of business activities. In other words, it represents additional current assets required at different times during the operating years. For example, extra inventory

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has to be maintained to support cells during peak sales period. Similarly receivable also increase and must be financed during period of high sales. On the other hand, investments in inventories, receivable

etc will decrease in period of depreciation.

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ADVANTAGES OF WORKING CAPITAL I Cash Discount- If proper cash balance is maintained the business can avail the advantages of cash discount by paying cash for the purchase of raw materials and the merchandise. It will result in reducing the cost of production II. It creates a feeling of security and confidence Adequate working capital creates a sense of security, confidence, and loyalty not only throughout the business itself but also among its customers creditors and business associates. III. Sound goodwill and debt capacity - The promptness of payment in business creates goodwill and increases the debt capacity of business. IV. Easy loans for the banks An adequate working capital helps the company to borrow insecure loans from the banks because the access provides a good security to the insecure loans. Banks favor in generating seasonal loans, if business has a good credit standing and reputation. V. Distribution of dividend If company is sort of working capital it cannot distribute the good dividend to its shareholders in spite of 12

sufficient profits. On the contrary, if the working capital is sufficient, ample dividend can be declared. VI. Exploitation of good opportunities- In case of adequacy of capital in a concern, good opportunities can be exploited. Company may make off-season purchase resulting in substantial savings or it can fetch big supply orders resulting in good profits. VII. Meeting unseen contingencies Financial crisis due to heavy losses, business oscillations etc can easily be overcome if company maintains adequate working capital. VIII. It increases fixed assets efficiency Adequate working capital increases the efficiency of fixed assets of the business because of its proper maintenance. IX. High moral- The provision of adequate working capital improves the moral of the executive because they have an environment of certainty, security, and confidence, which is a great psychological, factor in improving the overall efficiency of the business and of the person who is at helm of affairs in the company. X. Increased Production efficiency A continuous supply of raw materials research programme innovations and technical developments 13

and expansion programmes can successfully carried out if adequate working capital is maintained in the business. XI. Maintaining Solvency and containing production In order to maintain the solvency of the business, it is necessary that sufficient amount of funds be available to make all the payments in time and when they are due. Without ample working capital, productions will suffer particularly in the era of cutthroat competition and business can never flourish in the absence of adequate working capital.

FINANCING OF WORKING CAPITAL


Sources of financing of working capital differ as per the classification of working capital into permanent working capital and variable working capital.

Sources of permanent working capital:


(a) Owners funds- are the main source sale of equity or preference stock could provide a permanent working capital to the business with no burden of repayment particularly during short period. These funds can be retained in the business permanently. Permanent working capital provides more strength to the business.

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(b)

Bond financing-Another source of permanent working capital is bond financing but it has a fixed maturity period and ultimately repayment has to be made. For repayment of his source, company provides sinking funds for retirement of bonds issued for permanent working capital.

(c)

Term loan- from banks of financial institutions has the same characteristics as the bond financing or permanent working capital.

(d)

Short term- Borrowing is also a source of working capital finance on permanent basis.

Sources of temporary working capital


(a) Trade creditors- Trade creditors provide a quite effective source of financing variable working capital for the period falling between the point when goods are purchased and the point when payment is made.

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(b)

Bank loan- bank loan is used for variable or temporary working capital such loans run for 30 days to several months with renewals being very common.

(c)

Commercial paper- It can be defined as a short-term money market instrument issued in the form of promissory notes for a fixed maturity. It will be much unsecured and will have a maturity period running from 90 days to 180 days. It will meet the short-term finance requirements of the companies and will be good short-term investment for parking temporary surpluses by corporate bodies.

(d)

Depreciation as a source of working capital- The entire amount deducted towards depreciation to fixed assets is not invested in the acquisition of fixed assets and is saved and utilized in business as working capitals.

(e)

Tax liabilities- Differed payment of taxes is also a source of working capital. Taxes are not paid from day to day but estimated liability for taxes is indicated in balance sheets. Besides it, business organizations collect taxes by way of income tax payable on salaries, providend fund, staff deducted at source, old age retirement benefits excise taxes, sales taxes, etc. and retain them for some period in business to be used as working capital.

(f)

Other miscellaneous sources are Dealers Deposits, Customers Advances, etc.

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COMPANY PROFILE

About The NTPC

Fig 3 NATIONAL THERMAL POWER PLANT

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CORE VALUES

(BCOMIT) Business Ethics Customer Focus Organizational Pride Mutual Respect and trust Initiative and speed Total Quality

NTPC VISION

TO BE ONE OF THE WORLDS LARGEST AND BEST POWER UTILITIES, POWERING INDIAS 18

GROWTH CORPORATE MISSION

Make available reliable and quality power in increasingly large quantities at competitive prices and ensure timely realization of revenues. Adopt a broad based capacity portfolio including hydropower, LNG, nuclear power, and non-conventional and eco-friendly fuels. Plan and speedily implement power project using state-of the art technologies. Be an integrated utility by implementing strategic diversifications in areas such as power trading, distribution, transmission, coal mining, coal beneficiation etc. Develop a strong portfolio of profitable businesses in overseas markets including technical services, generation assets etc. Continuously attract and develop competent and committed human resources to match world standards. Lead fundamental and applied research for adoption of state of the art technologies, breakthrough efficiency improvements, and new fuels. Lead developmental efforts in the Indian power sector including assisting stat utility reform, policy advocacy etc. Be a socially responsible corporate entity with thrust on environment protection, ash utilization, community development, and energy conservation. Speedily plan and implement power projects, with contemporize technologies. 19

Fig- 4. Dadri power project of NTPC

NTPC DADRI POWER STATION

4 X 210MW + 2 X 490MW COAL BASED POWER PLANTS and 817 MW Combined Cycle Gas Turbine Plant World / India / Uttar Pradesh / Dadri

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NATIONAL THERMAL POWER CORPORAION LTD The year 1975 witnessed the birth of an organization that went on to achieve great feats in performance in a sector that was, until then, characterized largely by lack of investment, severe supply shortage and operational practices that made the commercial viability of the sector unsustainable. On November 7 1975, NTPC came into being and with it came a bold way of looking at the power infrastructure that could support the economy, then reeling under the oil crisis. Since then, NTPC has led the power sector with the creation of an immensely efficient and reliable power generation infrastructure, which was until then largely in the hands of state electricity boards. NTPC was set up in the central sector to build, own, and operate large thermal power stations which unit size of 200 MW and 500 MW.

Capacity addition by NTPC was meant to supplement the efforts of state electricity boards (SEBs). The first four projects namely, Singrauli, Korba, Ramagundam, Farakka, in four different regions of the country, were already on the drawing board 21

and were to be set up as pit-head stations. There were challenges aplenty. The expectations were high and so were the risks. NTPC symbolized hope of the country suffering from crippling power black-outs, the government of India, which was trying to put an ailing, economy back on track and the World Bank, which was supporting the country in many development initiatives. Thus, NTPC was created not only to redraw the power map of India but also to excel in its performance and set benchmarks for others to follow. It succeeded on both counts. In 1978, it was a clean state. Until the first sketches of an idea were scribbled on it. In addition, them, in no time, it seems, what was a dream became a reality power. Today, Singrauli stands tall among Indias foremost power plants. Cleared by the Government of India on eighth Dec.76, the project began to take shape in early78. An intrepid group of site engineers, supervisors, and workers braved the elements to lay the foundations of what at the time was thought to be a dream. By mid 1978, the first T.G raft connecting, a very precise and massive task was completed. By Nov. 78, the erection of the first steam generator had commissioned. In Nov.79, the first major milestone in the erection of the main plant was reached with the boiler drum of unit I being lifted successfully, signaling the commencement of pressure parts erections. By June80 the turbine installation work had already begun, and in Sept.81, the boiler was lit up and the cleaning process completed by Oct.81.

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Finally, on 13 Feb.1982, the turbine was steam rolled and the first unit of NTPC was successfully synchronized with the Northern Grid at Dadri. The peak load of 200MW was touched in April82. The fifth and the last one on 20 Feb.84, bringing the curtain down on stage I of the project. National Thermal Power Corporation is the largest power generation company in 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. 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 capitalizations. NTPCs core business is engineering, construction, and operation of power generating plants and 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), seven gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW). NTPCs share on 31 Mar 2006 in the total installed capacity of the country was 19.51% and it contributed 27.68% of the total power generation of the country during 2005-06. Thus, every fourth home in India is enlightened by NTPC. A total of 170.88 Bus of electricity was produced across all the stations of the company in the financial

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year 2005-2006. The Net Profit after Tax on March 31, 2006 was INR 58, 202 million. Net Profit after Tax for the quarter ended June 30, 2006 was INR 15528 million, which is 18.65% more than the same quarter in the previous financial year (2004-2005) where the profit was INR 13087 million. Pursuant to special resolution passed by the Shareholders at the Companys Annual General Meeting held on September 23, 2005 and the approval of the Central Government under section 21 of the Companies Act, 1956, the name of the Company National Thermal Power Corporation Limited has been changed to NTPC Limited with effect from October 28, 2005. The company, which has completed its thirty years of existence on November 7, 2005, has made its foray into hydropower and is planning to go into nuclear too). Within a span of 31 years, NTPC has emerged as a truly national power company, with power generating facilities in all the major regions of the country. Based on 1998 data, carried out by Data monitor UK, NTPC is the 6 th largest in terms of thermal power generation and the second most efficient in terms of capacity utilization amongst the thermal utilities in the world

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Fig 5 NTPCs core business is engineering, construction, and operation of power generating plants and providing consultancy to power utilities in India and abroad. As on date the installed capacity Of NTPC is 24,954 MW through its 14 coal based (20,685MW), seven gas based (3,955 MW) and 3 Joint Venture Projects (314 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). NTPCs share on 31 Mar 2006 in the total installed capacity of the country was 19.51% and it contributed 27.68% of the total power generation of the country during 2005-06.NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. It is providing power at the cheapest average 25

tariff in the country. With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the power business.TPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology approximately the plants. NTPC has undertaken massive a forestation near its plants. Plantations have increased forest area and reduced barren land. The massive forestation by NTPC in and around its Ramagundam Power station (2100 MW) has contributed reducing the temperature in the areas by about 3c. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete, cellular concrete, building material.

A Centre for Power Efficiency and Environment Protection (CENPEEP) has been established in NTPC with the assistance of United States Agency for International Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and econurturing initiative a symbol of NTPCs concern towards environmental protection and continued commitment to sustainable power development in India. As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic status of the people affected by the projects. 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 26

category (the best category) every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector Navratnas- a potential global giant.

INSTALLED CAPICITY Commissioned Projects No. of Projects Capacity (MW) NTPC OWNED COAL GAS/LIQ. FUEL TOTAL OWNED BY JVCs Coal Gas/LIQ. FUEL GRAND TOTAL 14 07 21 3 1 25 22,395 3,955 26,350 314* 740** 27,404

* Captive Power Plant under JVs with SAIL ** Power Plant under JV with GAIL, & MSEB Table: 1.1 Commissioned Coal based State Capacity (MW) 1. Singrauli Uttar Pradesh 27 2,000

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Korba Chhattisgarh Ramagundam Andhra Pradesh Farakka West Bengal Vindhyachal Madhya Pradesh Rihand Uttar Pradesh Kahalgaon Bihar NTCPP Uttar Pradesh Talcher Kaniha Orissa Unchahar Uttar Pradesh Talcher Thermal Orissa Simhadri Andhra Pradesh Tanda Uttar Pradesh Badarpur Delhi Total (Coal) Coal Based Power Stations table 1.2

2,100 2,600 1,600 3,260 2,000 1,340 840 3,000 1,050 460 1,000 440 705 22,395

Gas/Liq. Fuel Based Power Stations Commissioned Gas based State Capacity (MW) 1 2 3 4 5 6 7 Kayamkulam Faridabad Total (Gas) Anta Auraiya Kawas Dadri Jhanor-Gandhar Rajiv Gandhi CCPP Rajasthan Uttar Pradesh Gujarat Uttar Pradesh Gujarat Kerala Haryana 413 652 645 817 648 350 430 3,955

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Table 1.3

Projects under Implementation Additional Capacity Coal / Hydro State Fuel Under Implementatio n (MW) 1 . 2 . 3 Barh . 4 . 5 . 6 Bhilai (Exp. Power Project-JV with SAIL) Korba (Stage III) Farakka (Stage III) h West Bengal 29 Kahalgaon Stage II Bihar (Phase I) (Phase II) Chhattisgar Sipat (Stage I) (Stage II) h Bihar Chhattisgar Coal h Chhattisgar Coal Coal 500 500 500 Coal Coal 1000 1980 Coal 500 1980 500

. 7 NCTPP (Stage II) . 8 Simhadri (Stage II) . 9 Koldam (HEPP) . 1 0 . 1 Tapovan Vishnugad 1 (HEPP) . Loharinag Pala (HEPP)

Uttar Coal Pradesh Andhra Coal Pradesh Himachal Hydro Pradesh 800 1000 980

Uttarakhand

Hydro

600

Uttarakhand

Hydro

520

Total (Coal + Hydro) Table 1.4

11,360

Power Plants with Joint Ventures Commissioned Coal State Based (MW) 2 Durgapu 2 r . 30 West Bengal Coal 120 Fuel Capacity

2 Rourkel 3 a . 2 4 . 2 5 . Total(JV) Grand Total (Coal + Gas + JV) Table -1.5 1054 27,404 RGPPL Maharastra Naptha/LNG 740 Bhilai Chhattisgarh Coal 74 Orissa Coal 120

ACHIEVEMENTS

Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant. NTPC ranked 317th in the 2009, Forbes Global 2000 ranking of the Worlds biggest companies.

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NTPC has been rated as one of the top most Best Employer of the country for the year 2003, 2004 & 2005 in a row. It has also been rated as one of the Best Companies to Work for in India by Mercer HR Consulting- Business Today Survey 2004, it has developed into a multi-location and multi-fuel company over the past three decades. NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. Leadership Award for CMD, NTPC in the fourth Global Leadership Summit by Amity University for Sect oral Excellence in Power industry for his outstanding contribution to the growth of Indian business & bringing glory to the country through his pioneering leadership. Ranked #1 independent power producer in Asia in the THIRD ANNUAL PLANTS TOP 250 GLOBAL ENERGY COMPANY AWARDS 2008 for outstanding Global financial & Industrial performance at the award ceremony in Singapore. The corporation has been simultaneously ranked #15, overall in Asia amongst the energy companies. NTPCs excellence in executing power projects & its initiative in Decentralized Distributed Power Generation has been recognized and awarded at IEEMA Power Awards 2008. NTPC Vindhyachal Stage-III (2x 500MW) has been conferred the IPMA SILVER MEDAL for Project 32

Excellence by International Project Management Association, at the IPMA Congress, held in Rome, Italy, for implementation of project in record time & achieving excellent environmental, economic performance and giving outstanding support to the local community.

ORGANIZATION STRUCTURE OF NTPC 33

fig: 6

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L OCATION OF NTPC PLANTS

Fig: 7

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Dry ash collected for productive use

Fig 8

FINANCIAL DEPARTMENTS IN DADRI:-

Dadri is also having their own separate financial department and FAS (Online Integrated Material and Financial Accounting System). This department does all the function, which is related to the finance or fund of the company. It use a specific 36

language in the computer for manage zing all the work or communicating with other department and this language is ingress.

DADRI SECTIONS:-

There are various section are working in the NTPC Dadri for managing all the work in better way this section are divided according to the nature of work . It is organized into following ways:I. II. III. IV. V. VI. VII. VIII. Establishments Works and Bills section Store, Bills and PSL (Price Store Ledger) Section Commercial Section Weighting and Concurrences Cash and Bank Books and Budget section Miscellaneous

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ESTABLISHMENT SECTION

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Monthly Salary Slip

The establishment Section of F&A is mainly involved into two activities viz. Salary Preparation or processing & payment of Establishment or Employee Bills like Medical, LTC, TA etc. The section is processing the salary for the employees of Dadri Thermal, Dadri Gas and Muradnagar. The monthly Salary is processed based on inputs provided by Site HR, C&M Department. (Stores) etc. The data can be either master data or temporary data. The latter is temporary while the former is permanent in nature. The statutory deductions like PF, Pension are made as per the prevailing law while the income tax at source is deducted based on estimated Gross Income/Savings of the employee and as per the prevailing Income tax rules/act. The TDS certificate in the Form 16 is issued, at the end of each Financial Year, to the concerned employee. Similarly, employees are issued pension & PF Slips/ statements, at the year end, based on the deductions made from their salary as per procedure.

Besides, above, the sections also pay/reimburse TA, LTC and medical bill payments as per the prevailing rules, policies & procedure of the NTPC.

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BOOKS SECTION

The Books Section of Finance Department is mainly involved in the following activities: Preparation of Balance Sheet and P&L A/C, based on available/prevailing accounting guidelines/policies. Coordination with other sections of finance for review of Sectional Accounts. Preparation & review of General Ledger. Preparation & review of Trial Balance. Coordination with corporate accounts for preparation of final accounts viz. B/Sheet and P&L A/c. Coordination with various Auditors viz. Internal, Statutory and Government Auditors. Reconciliation of Inter Unit Accounts with Corporate Centre/Other Units of NTPC. Tax Audit

The Books Section at NCPS, Dadri is engaged in preparation of Three Balance Sheets, namely Dadri Thermal, Dadri Gas & Muradnagar that is a unique accomplishment by any station of NTPC. Besides, above, it is also maintaining various documents what are required as per the various prevailing laws & procedures. 40

For instance, it is maintaining fixed assets register, which contains all the relevant details of various fixed assets in the station/projects. The books section also prepares/controls DCO (Capital) budget and MBOA budget in consultation with site P&S.

CASH & BANK (TREASURY)

Fund management Payment of cash transactions Preparation of cash book Payment of Cheque/DD transactions Receipt of cash Receipt of outstation cheque/DD etc. Preparation of Bank Book Preparation of Bank Reconciliation Statements with various banks viz. SBI, PNB, OBC, ICICI.

WORKS & MISC SECTION


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Payment to various work contractors for capital works, as per LOA/WO issued by site/corporate contracts deptartment. & measurements recorded in the Measurement Book by the executing deptartment.

Payment to various O&M contractors for various operation & maintenance jobs carried out in plant & township. The payment is released based on LOA/WO issued by contracts Department. & measurements recorded by the executing Department in the Measurement Book.

Accounting for the payments made to various works & O&M contractors. Preparation of material reconciliation statement. Deduction of Income Tax from the payments made to various contractors and issues of TDS certificate(s) thereon.

Payment of Final Bill and contract closing.

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STORES BILL SECTION

Payment to various suppliers for procurements made, based on SRV/Purchase order/invoices issued /authenticated by the materials deptartment.

Accounting for the payments made to various suppliers. Reconciliation & Audit of accounts with various suppliers. Preparation and filing of sales tax return.

FINANCIAL CONCURRENCE

Vetting of cost estimates for civil, procurements and O&M works as per laid down guidelines regarding availability of Budget(s), canons of financial proprietary, delegation of powers etc.

Vetting of deviation statements viz. Extra item statement Substituted item statement Interim deviation statement Final deviation statement Modification of any terms & conditions in the LOA/P.O/W.O. with financial implication

Vetting of time extension proposals as per laid down guidelines. 43

Interpretation of delegations of powers.

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PRICED STORES LEDGER (PSL)


Accounting for material issued by the central stores. Accounting for material received by the central stores from the suppliers. Accounting for the material returned to the stores deptartment by the executing department. Accounting for material transferred from the station/project to other projects/stations of NTPC. Accounting for scrap material Physical verification of central stores items as per the available/existing guidelines lay down by the corporation.

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COMMERCIAL SECTION

At the operating stage of a power plant, Commercial, which mainly involves selling of electricity to various SEBs, is the main activity of the station. The NCPS occupies a unique position among all the power stations of NTPC. For, it has twin projects of Gas & Coal based units. The Gas Project has dual fuel capability of using HSD as well as gas for power generation. The total installed capacity of the twin project is 1669 MW. The sheer size and complexity of operations make it imperative that an effective system of internal controls is in place to ensure accuracy of record and reduce the scope for the interests of the corporation being compromised in any manner. To achieve this end, a comprehensive internal control system has been devised for all aspects of the corporation working in the Commercial Section. The system for fuel accounting is summarized below1. Coal:The supply of coal is linked up with the Piparwar mine at Jharkhand. The coal is mainly washed coal in nature. Total quantity of coal supplies in a year/ quarter/month are done based on linkage committee of the ministry of coal. The price of washed coal and terms & conditions are determined by the various MOMs between NTPC & CCL, while that of raw coal is based on various price notifications. The various steps in coal accounting are enumerated below46

a) Quantity:Coal is dispatched from the mines by railway wagons after weighment at the loading point with the help of weight meters. The latter are kept under joint seal and have to be recalibrated in the presence of representatives of both the parties as and when desired by either party. For accounting purposes, a Store Receipt Voucher (SRV) is made out for entry into the Priced Stores Ledger (PSL) for quantity determined as above. There is adjustment on A/c of moisture content. b) Grade variances:Both supplier & third party conduct chemical analysis of their respective samples in order to ascertain the actual grade of the coal received. Credit/Debit adjustments are passed on by the supplier based on the grade determined. c) Billing and payment:Bills are initially raised by the coal company based on declared grade. Payment to the coal company is released after making adjustments for grade difference, moisture content etc. d) Consumption :Coal from the track hopper or the stockyard is passed thru crushers before being sent to the pulverized mills, which convert it to a fine powder. The pulverized coal is then loaded into the coalbunkers from 47

where it is fed into the boilers thru the Gravimetric feeders. It is at this point that the weight of coal actually being fed into the Gravimetric/Merrick feeders is recorded. A Stores Issue Voucher (SIV) is then prepared and entry made in the Priced Stores Ledger (PSL) as the quantity consumed. e) Periodic Stock verification Stock verification of coal is done on six monthly/ annually basis as per the guidelines issued by the corporate centre. Actual quantity in stock is compared with book stocks and adjustments are made in the books of account after the approval of the Competent Authority.

f) Recovery of Coal Cost Thru Tariff:Coal cost is recovered through tariff under two heads: Basic Cost Recovery and Fuel Price Adjustment. Basic coal recovery is built into notified tariff based on coal price and Gross Calorific Value (GCV) on fired basis at the time of calculation of basic tariff. Fuel Price Adjustments are billed on a monthly basis by taking into account the weighted average cost of coal and actual GCV in that particular month. In the computation of weighted average cost of coal for a particular month, all costs that are attributable to the purchase of coal are taken into account in the priced stores ledger (PSL). Such costs include basic

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price, royalty, excise duty, surface transportation charges, Sales Tax, railway freight, debit, credit, note etc. Gas:Similar to the case of coal, gas linkage are also linked up with the source at the time of project identification itself. Daily availability of gas is intimated in advance. Gas Price is fixed by the Govt. of India whereas the Commercial terms and conditions of supplies are laid down in the Gas supply agreement entered into with GAIL. However, if the actual calorific value of the Gas supplied is less than the specified GCV in the agreement, a rebate proportionate to the difference between the actual and standard calorific value is given to NTPC. In the same fashion, a premium proportionate to the difference between the actual & standard calorific value is payable by NTPC.

Billing and payment:In accordance with the terms of the Gas supply agreement, billing for gas is fortnightly and payments are to be made within three working days of presentation of invoice. In case of discrepancy/dispute, a claim is to the lodged with the seller within fourteen days of receipt of the invoice under question. Recovery of Gas Cost Through Tariff:Gas cost is recovered thru tariff under two heads:

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Basic Gas Recovery and Fuel Price Adjustment. Basic Gas Recovery is built into notified tariff based on Gas Price and Gross calorific value (GCV) at the time of computation of basic tariff. Fuel Price Adjustments are billed on a monthly basis by taking into account the weighted average cost of gas and actual GCV in that particular month. In the computation of weighted average cost of gas for a particular month all costs that can be attributed to the purchase of gas are taken into account. Liquid Fuels:In case of gas station while gas is the primary fuel, HSD is the alternate fuel under the dual fuel provisions. Since liquid firing is a very costly option, it is done only at the specific instruction of the Regional Board/Ministry. Handling and accounting for all liquid fuels being procured is done based on purchase order placed on the various oil companies. The other activities are being carried out in the commercial section are summarized below: Payment and accounting of various kinds of fuel viz. solid; liquid; and gas. Preparation & control of O&M budget in consultation with respective deportments, site P&S/MTP; Regional HQ & Corporate Office. Computation of Fuel Price Adjustment. Preparation of monthly cost sheet and cost sheet as per cost accounting record rules. Interface with suppliers of various fuels viz. 50

IOCL BPCL HPCL GAIL CCL Eastern

Railways:

Eastern Central, Northern Railway

Interface with other departments at NCPS, Dadri C&M O&M: Thermal & Gas P&S HR TS EDP & Communication TA

Preparation of various MIS Reports as per the requirement of Site/Regional HQ/Corporate Office.

Reconciliation of Accounts with Coal Companies/Oil Companies/Railways

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Sales Reconciliation with Regional Office/Corporate Office for Sale of Electricity to different SEBs.

Interaction with various auditors viz. Internal/Statutory/Government.

JOINT VENTURES

NTPC has identified Joint Ventures, strategic alliances as well as acquisitions & diversifications as viable and desired options for its business development.

NTPC looks for opportunity to create such joint ventures & strategic alliances, in the entire value chain of the power business. NTPC as a partner endows the Joint Venture Alliances with a winning edge. Acquisitions & Diversifications in the areas related to 52

the core business not only ensure growth but also add to the robustness of the company. Diversification is carried out either directly or through subsidiaries/JV.

SUBSIDIARIES OF NTPC

COMPETITORS

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OBJECTIVE
To know about the working capital management in NTPC To study working capital and its different components. To study the working capital requirement at NTPC. To focus on problem areas of working capital management at NTPC.

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RESEARCH METHODOLOGY

Research can also define as a systematic & scientific search for pertinent information on a specific topic. In fact, it is art of scientific investigation. Systematic effort to gain new knowledge Redman & Mory

The manipulation of things, concepts or symbols for the purpose of generally to extend, correct or verify knowledge whether that knowledge aids in constructing of theory or in the practice of an art Clifford woody Types of research: - The basic types are Descriptive & Analytical Applied & Fundamental Qualitative & Quantitative Conceptual & empirical

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As such, the term Research refers to the systematic method consisting often uncrating of the problem, formulating a hypothesis, collecting the facts or data, analyzing the fact for finding the solution. Sampling: There are following steps in my sampling design:-

1. Type of universe: The first step in developing any sample design is to clearly define the set of objects, technically called the universe, to be studied. It is the finite universe because the numbers of items is certain. 2. Sampling unit: Decision has to be taken concerning a sampling unit before selecting sample. Sampling unit is following;Financial Department, Township Administration, Finance & Account, Civil/ Electrical Maintenance Department, Control & Instrumentation, Fuel Management, Human Resources and Electrical Office. Above all the sampling units that are used by me for study. I do the study through Questionnaire Method & Interview method.

RESEARCH INSTRUMENTS:-

When I do the research on working capital management, then I use some tools that are given below 56

ANNOVA Correlation Accounting research tools like ratio analysis etc. Regression

DATA COLLECTION SECONDARY DATA:While doing the research on working capital, i collected the following things: 1. I got the knowledge of working capital management, NTPC through reading the Financial Policy file. 2. Reading of annual reports of NTPC:i. 29th Edition ii. 30th Edition 3- Reading of NTPC Financial Reports. 4- Reading of Journals of NTPC. 5- Reading of NTPC Magazine like Dakshin Dhwani Alok Bharti Uttar Jyoti Roshni Damini 57

6- Reading of Reports of NTPC.

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WORKING CAPITAL MANAGEMENT IN NTPC

National Thermal Power Corporation is the largest power generation company in 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. Its main business of this company is to generate electricity. Therefore, according to its nature it is clear that this company required hues Working capital for the fulfillments of basic need of the company.

The company engage to producing electricity which not having physical existence, so there are not any types of raw material in term of finished goods for the company are present, which are use by other company as a raw material. In addition, the company does not having any types of semi-finished goods in their production cycle.

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CASH MANAGEMENT
Cash management has existed in business since the initial use of money as medium of exchange. Cash to an organization is what food to human bodies. It is both the means and ends of an organization. For cash management purposes cash is used broadly to cash and generally accepted equivalents of cash such as demand and time deposit in banks, claques, drafts, etc. and also marketable security i.e. short-term investment of cash. Cash management is simple terminology means forecasting cash requirement and marketing arrangements thereof. In other words, it refers to his manageability to forecast cash problems and to solve them when they arise with help of an expert in this field. The system of cash management, thus, aims at making the optimum use of the cash resources. Though, the specific nature of cash management of an organization depends upon the nature of the business enterprise, the internal organization structure and the nature of the concerned finance executive, yet he is expected to carry out certain specific generalized functions in the fields of cash management which are as enumerated below: Collection and Custody of cash and securities. Control of disbursements e.g. providing sufficient cash at the time Place required meeting obligations. 60

Maintenance of adequate supply of cash to meet projected cash requirement, cash-budgets, and day-to-day demands. Investment of surplus cash in marketable security to keep it fully employed and working towards greater profits. Maintenance of sound relations and adequate deposits to meet operating needs and to compensate the banks for their services. Cash management is equally important of both small concerns and big concerns. Even a fast growing concern yielding handsome profit may face shortage of cash posing threat to the interrupter flow of production. So deducing adequate fund requirement for the operating needs of the organization happens to be the perennial objective of finance executive.

MOTIVES OF HOLDING CASH


A distinguishing futures of cash as an assets irrespective of the firm in which it is held, is that it does not earn any substantial return for the business. In spite of this fact cash in held by the firm and with the following motives. (1) Transaction Motives

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The transaction motives for holding cash arise to enable the concern to conduct its business in the normal course. A firm needs cash to make payment for purchases, wages, operating expense, taxes, dividend etc.

(2)

Precautionary Motive A firm keeps cash balance to meet unexpected cash needs arising out of unexpected contingencies such as floods, presentment of bills of payment earlier than the expected data, unexpected slowing down of collection of account receivable, sharp increase in price of raw materials etc.

(3)

Speculative Motive The speculative motive for holding cash is deriving benefits out of changes in security price, material prices etc. The concern may postpone the purchase of material when its prices are high or it may go to more than the required material when its prices fall down.

(4)

Compensation Motive Banks provide certain services to their clients free of charge. They, there for, usually require clients to keep minimum cash balances with them, which help them to earn interest, and thus compensate them free services so provided. 62

OBJECTIVE OF CASH MANAGEMENT


Cash is the vital component of the working capital of a firm, as every transaction results in either an inflow or an outflow of cash. The main objectives behind effective management of cash are: (a) (b) The precision of cash needed to meet operational requirement. The provision of reserves liquidity against the forecast outflows and expected payments of cash and. (c) Minimum balance of cash to be held to channelizing otherwise used cash into earning assets. A part of cash required as compensating balance with the banks.

MANAGEMENT OF CASH AT NTPC


Cash section is an important section of finance and accounts department. It deals with the employees, contractors and suppliers for their payments. Corporate office plays a dominant role in cash management. The corporate office allocates different amount of each to different coalmines as per its requirements. Corporate office acts as a linkage between the NTPC and main book. The state bank of India, Corporate office has determined the credit facility for every units of NTPC.

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No one unit of NTPC can get the credit facility more than ones limit. The credit facility is known as rolling cash limit. This keeps on changing from year to year depending upon companys position transactions, profitability and inventory position. Although corporate office provides credit limit facilities, yet NTPC is fully dependent on the corporate office. The sale of scrap materials of defective at plant level generates the cash. Thus, at a time, plant can also pay liabilities and then the balance amount is only intimated to the corporate office. NTPC gives priority in cash payment, which is urgent, and sends the report to corporate office.

FUND ALLOCATION
Here the initial allocation for funds at NTPC is done by corporate office and all supplementary requirements are to look by NTPC itself. The corporate office allocates the funds for all coalmines and particularly about NTPC.

FUND UTILISATION
NTPC operates an annual cash budget and a rolling cash plan drawn up every month. Although specific forecasting technique is used, funds are deployed to different departments as per their requirements. A daily report on cash transaction is prepared 64

by cash section to keep a track of all payment in the days work. Every month, cash transaction report is sent to corporate office showing the all transaction of cash, actual utilization of cash and allocation of fund is compared. If the utilization of cash is more then, the allocation of funds, then the plant has to justify its more utilization and if the justifications are not found satisfactory then the corporate office gives the letter of improvement.

CASH PLANNING AND MANAGEMENT


Cash planning is an important technique of operation. It becomes the prime responsibility of the financial controller to make adequate arrangements of the payment of operating expenses, inventories, fixed assets, creditors etc. Even a profitearning concern may face shortage of cash with its growing needs. The basic objective of cash planning is to enable the concern to meet cash disbars committed for this purpose because holding of cash involves cost in the form of opportunity cost. Cash planning may be done on daily, weekly or monthly basis depending upon the size concern and managements Normally, large concern prepare daily or weekly plan, medium size concern go for weekly or monthly plan and small firms go for monthly plan. The periodicity of cash planning (i.e. Daily, Weekly, monthly) depends upon the position of funds i.e. whether funds position is tight, normal, or liberal.

CASH FORECASTING AND BUDGETING


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Cash budget is the more significant device to plan for and control the cash receipts. Cash budget is a summary of NTPC expected cash inflows and outflows. Again, this cash budget is broken into month wise budget where allocation of cash done on month basis with the help of projection of cash on month wise it becomes easier to allocate the amount. The information of expected cash flows and cash balance helps to financial managers of NTPC to determine the future cash need of the firm, plan for the financing of these needs and exercise control over the cash and liquidity of NTPC. NTPC needs cash to carry out the day-to-day functions of business just as the level of operations affects working capital requirements; it affects the need for cash. These days the direct sale of billets and merchant products are increasing cash. Cash has been receiving from customers and has been providing for adequate cash for their liabilities.

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Fig: 9 Parties involved in working capital managements

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EVALUATION OF CASH MANAGEMENT Composition and growth of cash Cash balance represents the aggregate of cash in hand, cheques in hand, remittances in transit, and balances with banks in current accounts and in fixed deposits with others. To bring uniformity on the components of cash, cash balances of the selected undertakings have been divided into two segments. Cash in hand and cheques on hand. Cash management at NTPC includes the discussion on size of each, cash flow statement, and liquidity position of the firm.

On the bases of above points it is clear that cash is to important term for the organization, and I clear the importance of cash management with the help of following graph representation which are based on the formula of ration analysis I. current ratio:- Current Assets Current Liabilities

II.

Acid Test ratio:- Liquid Current Assets Current liabilities

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3- Cash Turnover Ratio:Cash Turnover Ratio are the two known about the relationship between how much company hold the ideal balance of the cash in the organization.

Cash Turnover Ratios:

Interest & Finance Charges Average Cash Balance

4-Cash Holding Period:This ratio show the actually, no. of days on which company holds the cash in the organization: Cash Holding Period: - Average Balance of Cash Interest & Finance Charges 5- Cash to Current Assets:This cash to current assets ration show the relationship between cash and current assets in the organization and show that how much cash affect to the current assets:

Cash to Current Assets:

Cash Current Assets Cash Receivables

6- Cash to Receivables Ratio =

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INVENTORY MANAGEMENT
Inventory is an integral part of every business origination. The role of inventory has grown with advances in production technology. Inventory management is the vital area of management covering the sum total of activities need for the acquisition, storage, and raw materials. It is a technique of controlling the purchase, use, and transformation of materials in an optimal manner. In sample words inventory refers to the stock of products that a concern is offering for sale and the components that make up the product. The various forms in which inventory are exists in the company.

MEANING OF INVENTORY MANAGEMENT


Inventory management can be defined that co-coordinated function responsible to plan for, acquire, store, move and control materials and final products to optimize

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usage of facilities, personnel, capital goods and to provide customer service in line with corporate goal. The following arc the important factors affecting inventory management. Availability of credit in the economy. Government policy in procurement and distribution of materials. Complexities of business.

MOTIVES FOR HOLDING INVENTORIES


The transaction motives emphasize the need to maintain inventories to facilitate smooth production and sales operation. Precautionary motive which necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Speculative motives influence the decision to increase or reduce inventory level to take advantage of price fluctuations.

OBJECTIVES OF INVENTORY MANAGEMENT


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The objective of the inventory management is therefore, to determine and maintain the optimum level of investment in inventories, which help in achieving the following objectives. a. Ensuring a continuous supply of materials of production department facilitating uninterrupted production. b. Maintaining sufficient stock of raw material in periods of short supply. c. Maintaining sufficient stock of finished goods for smooth sales operations. d. Minimizing the carrying costs. e. Investment in Inventories at the optimum level.

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INVENTORY MANAGEMENT AT NTPC


Inventory is stock of a company, which is manufacturing for sale and component that make up the product. Inventory means, A schedule of items held at a particular point of time. In managing inventories, the objective of NATIONAL THERMAL POWER
CORPORATION LTD.

is to determine and maintain optimum level of inventory

investment. The optimum level of inventory lies between two-danger point of excess and inadequate inventories.

INVENTORY
The inventory of NTPC is unique for not having semi-finished goods, finished goods or raw materials. Fuel is some way could be considering raw material but by most definitions it would not qualify to be raw material because the product is intangible. The inventory of NTPC consist of fuel, spare parts, loose tools and components, chemicals consumables and some other material. The inventory of NTPC is very large comprising 73000 material codes. The inventory at Singrauli alone consist of 53000 material codes. Being a large inventory some of which is to be maintained

73

permanently for to continuity and security of generation, the inventory is valued by the monthly weighted moving average method.

The inventory of NTPC is subject to several analysis including ABC, XYZ, VED, FSN, ICU. The consumption is valued at PSL rate. Whereas at the point of induction at the store it is valued at the invoice price. The inventory is regularly verified for a match between the Bin Card balances and the physical stock as with the PSL run. This inventory in NTPC is also subject to regular checks and control exercises.

RAW MATERIAL
Raw materials are the inputs used by the concern for products of finished goods through manufacturing process. Raw material inventory are those, which have been purchased and are stored for future production. In NATIONAL THERMAL POWER CORPORATION LTD. raw material is purchased by central procurement and regional procurement unit of central marketing organization as per the requirement of the individual coal plant. The bulk purchase are procured and sent to the place of the need. Basic objectives in holding raw materials inventory is turn separate purchase and production activities. If raw material inventories were not held, purchase would have to be made continuously at the usage rate in production. 74

Inventory Turnover Ratio

1. Average Holding Period

Average Holding Period: -

Average Inventory Cost of Goods Sold

2. Cash to Inventory Ratio Cash to Inventory: Cash Inventory

RECEIVABLES MANAGEMENT
The term receivable is defined as "Debt own to the firm by customer arising from sale of goods or services in ordinary course of business.

75

Account receivable management is also an important aspect of working capital management. When a firm sells its products and services and does not receive cash for it is immediately, the firm is said to have granted trade credit to the customer and the customer from whom receivables or took debt have to be collected in future are called trade debtor. Account receivable represents the extension of credit on an open account by the firm to its customers. In order to keep current customer and attract new ones, most manufacturing firms find it necessary to offer credit. The practices give birth to accounts receivables. Receivable constitute a substantial portion of current assets of several firms.

MANAGEMENT OF RECEIVABLES IN NTPC


Receivables of NTPC are very important because of the nature of a product and the credit policy followed by NTPC. NTPC produce electricity which have no any physical existence like other finished goods and it sale their goods to the customers on the only credit bases. NTPC gives 60 days (two months) time to their customer for making payment, its means all the sales of the NTPC are on the credit bases.

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MANAGEMENT OF PAYBLE
Management of account payable is as much important as management of account receivables. Whereas the underlying objectives in cash accounts receivable is to maximize the acceleration of the collection process, the objectives in cash of account payables is to slow down the payment process much as possible. However, it should be noted the delay in payment of account payable may result in saving of some interest cost but it can prove costly to the firm in the form of loss of credit in market. The finance manager has therefore, to insure that the payment to the creditors is made at the stipulated times after obtaining the best credit terms possible.

MANAGEMENT OF ACCOUNT PAYABLES AT NTPC


The creditors are managed at plant level only. Mostly the creditor comprises of contractors to whom payment are to be given and the capital works. This is done as per terms and condition with respective parties. In case of small-scale industries, it is done within 30 days. There is also a scheme of earnests money deposits for the registered small-scale industries. The schemes allow having a security deposits which is refundable at the end of contract. In case of statutory payment that is the income tax, excise tax one month due is there.

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When the final payment is to be made to ex-employee, it is only done after the file reaches the department as per the individual case. Major chunk is from statutory liabilities, which are rapid as per act that is one month due is given. 1. Cash to Inventory Ratio Cash to Inventory Ratio: Cash Inventory

2. Average Collection Period Average Collection Period: Average Receivables Sales

3. Receivables to Current Assets Ratio Receivables to Current Assets Ratio: - Receivables Current Assets

4. Receivables to Current Liability Ratio

Receivables to Current Liability Ratio: - Receivables Current Liabilities

Loan and Advances Management


Although current assets traditionally comprise inventory, receivables and Cash, in an organization like NTPC which provides loans to its employees and also advances both to the employees and supplier as well as contractors, the loan and advances are

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also an important part of the company. The advances given to contractor are mainly the nature of mobilization advances and to the employees with the purpose of providing assistant to them by way facilities to help in the discharge of their duties. Their loans are included in the category of current assets for their regular recovery from the employees adjust and recovery from supplier within a very short period. The loan and advances given by the company to its suppliers, contractor, and its employees are the major part of its current assets. These other mainly on interest or free of charge advances given to suppliers and contactor are mostly free two of the advances given to employees are interest free, multipurpose advances and furniture advance recoverable in 12 and 60 installment respectively. Beside these all other loan and advances are on interest. The recovery of these interests bearing loan done as such a way that the principal is recovered first and the interest there after. The interest is levied on the diminishing balance of principal and there is no interest on interest. These loan and advances are categorized as current assets because their recovery is continuous immediately from the after the drawn month and the principal is first recovered. Loan and Advances to Current Assets Ratio

Loan and Advances to Current Assets Ratios:

Loan & Advances Current Assets

CURRENT LIABILITIES MANAGEMENT


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Current Liability shows the different combination of liabilities, which includes various liabilities. It generally shows on the liability side in the balance sheet under the head of liabilities. Others liabilities represent amount of income tax deducted at source, redemption amount payable on maturity of bonds, sales tax payable, development surcharge amount to be transferred to customers etc. Besides current assets, current liabilities also count in framing the structure of working capital. Bank over-draft, creditors for goods supplied, unpaid dividend, and taxes are the main constituents of current liabilities. The share of each constituent to total current liabilities determines to some extent the availability of current liabilities, the management remains more concerned with the administration of current assets. Other liabilities have increased due to transfer of as amount of Rs. 2,426 million from Development Surcharge Fund. In the previous years as per the regulations of central electricity regulatory commission (CERC) development surcharge was being charged from customer and kept invested in instruments as required by the regulations. CERC vide its order dated 09//11/2008 discontinued the billing and realization of development surcharge. It further directed that the amount collected earlier from the state utilities and invested in instruments corresponding to the amount contributed by each of the state utilities shall be transferred in the name of the concerned utility. Current Liabilities to Inventory:This is a way to show the relationship between Inventory and total Current Liabilities. Current Liabilities to current Inventory: Current Liability 80

Inventory

81

EVALUATION OF CASH MANAGEMENT Composition and growth of cash Cash balance represents the aggregate of cash in hand, cheques on hand, remittances in transit, and balances with banks in current accounts and in fixed deposits with others. To bring uniformity on the components of cash, cash balances of the selected undertakings have been divided into two segments. Cash in hand and cherubs on hand. Cash management at NTPC includes the discussion on size of each, cash flow statement and liquidity position of the firm.

On the bases of above points it is clear that cash is to important term for the organization, and I clear the importance of cash management with the help of following graph representation which are based on the formula of ration analysis 1. Current ratio:- Current Assets Current liabilities

(Current assets includes Inventory, Bills Receivables, Debtors, Cash in hand, Cash at bank etc.) (A current asset includes Bills payable, Bank Overdraft, Creditors etc.)

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2. Acid Test ratio:- Liquid Current Assets Current liabilities

3.

Cash Turnover Ratio:-

Cash Turnover Ratio is known about the relationship between how much company hold the ideal balance of the cash in the organization.

Cash Turnover Ratio: -

Interest & Finance Charges Average Cash Balance

4. Cash Holding Period:This ratio show the actually, no. of days on which company holds the cash in the organization:

Cash Holding Period: -

Average Balance of Cash Interest & Finance Charges

5. Cash to Current Assets:This cash to current assets ration show the relationship between cash and current assets in the organization and show that how much cash affect to the current assets:

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Cash to Current Assets:

Cash Current Assets

6.

Cash to Receivables Ratio = Cash


Receivables

MOTIVES FOR HOLDING INVENTORIES


The transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation. Precautionary motive which necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Speculative motives influence the decision to increase or reduce inventory level to take advantage of price fluctuations.

OBJECTIVES OF INVENTORY MANAGEMENT


The objective of the inventory management is therefore, to determine and maintain the optimum level of investment in inventories, which help in achieving the following objectives. 84

4. Ensuring a continuous supply of materials of production department facilitating uninterrupted production. 5. Maintaining sufficient stock of raw material in periods of short supply. 6. Maintaining sufficient stock of finished goods for smooth sales operations. 7. Minimizing the carrying costs. 8. Investment in Inventories at the optimum level.

INVENTORY MANAGEMENT AT NTPC


Inventory is stock of a company, which is manufacturing for sale and component that make up the product. Inventory means, A schedule of items held at a particular point of time. In managing inventories, the objective of NATIONAL THERMAL POWER CORPORATION LTD. is to determine and maintain optimum level of inventory investment. The optimum level of inventory lies between two-danger point of excess and inadequate inventories.

INVENTORY
85

The inventory of NTPC is unique for not having semi finished Shed goods, finished goods, or raw materials. Fuel is some way could be considering raw material but by most definitions it would not qualify to be raw material because the product is intangible. The inventory of NTPC consist of fuel, spare parts, loose tools and components, chemicals consumables and some other material. The inventory of NTPC is very large comprising 73000 material codes. The inventory at Singrauli alone, consist of 53000 material codes. Being a large inventory some of those, are to be maintained permanently for continuity and security of generation, the inventory is valued by the monthly weighted moving average method. The valued inventory are called priced stores ledger (PSL). PSL is run on monthly basis. This is regulated by the four instruments. (1) MRN (2) MTN (3) SRV (4) SIV. The inventory of NTPC is subject to several analysis including ABC, XYZ, VED, FSN, ICU. The consumption is valued at PSL rate. At the point of induction at the store, it is valued at the invoice price. The inventory is regularly verified for a match between the Bin Card balances and the physical stock is with the PSL run. This inventory in NTPC is also subject to regular checks and control exercises.

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RAW MATERIAL
Raw materials are the inputs used by the concern for products of finished goods through manufacturing process. Raw material inventory are those, which have been purchased and are stored for future production. In NATIONAL THERMAL POWER CORPORATION LTD. raw material is purchased by central procurement and regional procurement unit of central marketing organization as per the requirement of the individual coal plant. The bulk purchase are procured and sent to the place of the need. Basic objectives in holding raw materials inventory is turn separate purchase and production activities. If raw material inventories were not held, purchase would have to be made continuously at the usage rate in production.

Inventory Turnover Ratio


Average Holding Period:Average Inventory Cost of Goods Sold

Cash to Inventory :-

Cash Inventory 87

RECEIVABLES MANAGEMENT
The term receivable is defined as "Debt own to the firm by customer arising from sale of goods or services in ordinary course of business. Account receivable management is also an important aspect of working capital management. When a firm sells its products and services and does not receive cash for it is immediately, the firm is said to have granted trade credit to the customer and the customer from whom receivables or took debt have to be collected in future are called trade debtor. Account receivable represents the extension of credit on an open account by the firm to its customers. In order to keep current customer and attract new ones, most manufacturing firms find it necessary to offer credit. The practices give birth to accounts receivables. Receivable constitute a substantial portion of current assets of several firms.

MANAGEMENT OF RECEIVABLES IN NTPC


Receivables of NTPC are very important because of the nature of a product and the credit policy followed by NTPC. NTPC produce electricity which have no

88

any physical existence like other finished goods and it sale their goods to the customers on the only credit bases. NTPC gives 60 days (two months) time to their customer for making payment, its means all the sales of the NTPC are on the credit bases. There is a rebate on early or prompt payment. The present system of Tariff is Availability Based Tariff (ABC) where as the previous tariff system called the KP Rae Tariff was a two part Tariff essentially rewarding efficiency or PLF, the present system is a three part Tariff. (1) Fixed charge (2) Variable charge (now called energy charge) (3) Unscheduled interchange charge rewarding availability between the power producers i.e. NTPC and the customer. SEBE there is a monitor in the institution of the regional electricity board which coordinates the Availability schedule awarded to each of power producer in the region as well as the joint meter reading and both the ends. In addition, implement the new resume. The billing is completed during the first five days of the month following and therefore the billing cycle of NTPC comes to be 35 days.

MANAGEMENT OF PAYBLE
Management of account payable is as much important as management of account receivables. Whereas the underlying objectives in cash accounts receivable is to 89

maximize the acceleration of the collection process, the objectives in cash of account payables is to slow down the payment process much as possible. However, it should be noted the delay in payment of account payable may result in saving of some interest cost but it can prove costly to the firm in the form of loss of credit in market. The finance manager has therefore, to insure that the payment to the creditors is made at the stipulated time periods after obtaining the best credit terms possible.

MANAGEMENT OF ACCOUNT PAYABLES AT NTPC


The creditors are managed at plant level only. Mostly the creditor comprises of contractors to whom payment are to be given and the capital works. This is done as per terms and condition with respective parties. In case of small-scale industries, it is done within 30 days. There is also a scheme of earnests money deposits for the registered small-scale industries. The schemes allow having a security deposits which is refundable at the end of contract. In case of statutory payment that is the income tax, excise tax one month due is there. When the final payment is to be made to ex-employee, it is only done after the file reaches the department as per the individual case. Major chunk is from statutory liabilities, which are rapid as per act that is one month due is given.

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Cash to Inventory Ratio

Cash to Inventory Ratios: -

Cash Inventory

Average Collection Period Average Collection Period: Average Receivables Sales

Receivables to Current Assets Ratio

Receivables to Current Assets Ratio: - Receivable Current Assets

Receivables to Current Liability Ratio

Receivables to Current Liability Ratio: -

Receivable Current Liability

Investment to Receivable Ratio

Investment to Receivable Ratio: -

Investment Receivables

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Loan and Advances Management


Although current assets traditionally comprise inventory, receivables and Cash, in an organization like NTPC which provides loans to its employees and also advances both to the employees and supplier as well as contractors, the loan and advances are also an important part of the company. The advances given to contractor are mainly the nature of mobilization advances and to the employees with the purpose of providing assistant to them by way facilities to help in the discharge of their duties. Their loans are included in the category of current assets for their regular recovery from the employees adjust and recovery from supplier within a very short period. The loan and advances given by the company to its suppliers, contractor, and its employees are the major part of its current assets. These other mainly on interest or free of charge advances given to suppliers and contactor are mostly free two of the advances given to employees are interest free, multipurpose advances and furniture advance recoverable in 12 and 60 installment respectively. Beside these all other loan and advances are on interest. The recovery of these interests bearing loan done as such a way that the principal is recovered first and the interest there after. The interest is levied on the diminishing balance of principal and there is no interest on interest. These loan and advances are categorized as current assets because their recovery is continuous immediately from the after the drawn month and the principal is first recovered. Loan and Advances To Current Assets Ratio 92

Loan and Advances to Current Assets Ratios:

Loan & Advances Current Assets

CURRENT LIABILITIES MANAGEMENT

Current Liability shows the different combination of liabilities, which includes various liabilities. It generally shows on the liability side in the balance sheet under the head of liabilities. Others liabilities represent amount of income tax deducted at source, redemption amount payable on maturity of bonds, sales tax payable, development surcharge amount to be transferred to customers etc. Besides current assets, current liabilities also count in framing the structure of working capital. Bank over-draft, creditors for goods supplied, unpaid dividend, and taxes are the main constituents of current liabilities. The share of each constituent to total current liabilities determines to some extent the availability of current liabilities, the management remains more concerned with the administration of current assets.

Other liabilities have increased due to transfer of as amount of Rs. 2,426 million from Development Surcharge Fund. In the previous years as per the regulations of central electricity regulatory commission (CERC) development

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surcharge was being charged from customer and kept invested in instruments as required by the regulations. CERC vide its order dated 09//11/2008 discontinued the billing and realization of development surcharge.

Current Liabilities to Inventory:This is a way to show the relationship between Inventory and total Current Liabilities.

Current Liabilities to current Inventory: Current Liability Inventory

Balance Sheet of NTPC

------------------- in Rs. Cr. -------------------

Mar '12 Sources Of Funds

Mar '11

Mar '10

Mar '09 8,245.5

Mar '08 8,245.5 0 8,245.5 0 0.00

Total Share Capital Equity Share Capital Share Application

8,245.46 8,245.46 0.00

8,245.46 8,245.46 0.00 94

8,245.50 0 8,245.5 8,245.50 0.00 0 0.00

Money Preference Share 0.00 Capital 60,138.6 Reserves Revaluation 0.00 Reserves 68,384.1 Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities 73,291.17 2 9,156.30 38,182.03 6 43,188.2 47,338.33 4 111,572.3 120,629.50 6 10 70 00 0 101,521. 80 93,562. 60 81,458. 0 37,797.0 20 34,567. 90 27,190. 9,910.68 33,277.5 0 9,079.90 28,717.1 0 25,598. 0 19,875. 90 8,969.6 40 7,314.7 63,724.1 58,994. 54,267. 0.00 0.00 0.00 0.00 65,045.71 6 0 40 90 55,478.6 50,749. 46,021. 0.00 0.00 0.00 0.00

Financial Statements of NTPC


Mar '12 Application Of Funds 72,583.9 Gross Block Less: Accumulated 36,465.12 Depreciation Net Block 45,258.40 9 39,064.7 95 0 0 0 34,575.0 32,937.7 26,093.7 81,723.52 4 33,519.1 0 0 0 32,088.8 29,415.3 27,274.3 Mar '11 Mar '10 Mar '09 Mar '08

(Rs. In Crores) 66,663.8 62,353.0 53,368.0

Capital Work in 41,827.82 Progress Investments Inventories Sundry Debtors Cash and Bank Balance 11,206.38 3,702.85 5,832.51 16,146.11 Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & 42,545.20 Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous 0.00 Expenses Total Assets Contingent 120,629.50 22,336.90 0.00 16,388.98 3,819.32 20,208.30

5 38,441.8 4 12,344.8 4 3,639.12 7,924.31 326.34

0 0 0 32,290.6 26,404.9 22,478.3 0 0 0 14,807.1 13,983.5 15,267.2 0 0 0 3,347.70 3,243.40 2,675.70 6,651.40 3,584.20 2,982.70 634.00 10,633.1 271.80 473.00

25,681.47 11,889.77 16,863.73 0.00 2 35,396.7 9 0.00 10,945.5 5 2,730.31 13,675.8 6 21,720.9 3 0.00 111,572.3 6 42,308.16 33,227.2 96 7,648.10 15,858.9

7,099.40 6,131.40 0 6,357.10 7,826.10 9,936.20 13,825.5 15,999.8 14,460.2 0 0 0 30,815.7 30,925.3 30,527.8 0 0.00 0 0.00 0 0.00

7,896.80 7,439.20 5,548.40 3,070.50 3,249.50 7,360.60 10,967.3 10,688.7 12,909.0 0 0 0 19,848.4 20,236.6 17,618.8 0 0.00 0 0.00 0 0.00

101,521. 93,562.7 81,458.0 10 0 0

40,044.0 66,083.2 29,361.8

Liabilities Book Value (Rs)

88.89

9 82.94

0 77.28

0 71.55

0 65.81

Competitors of NTPC
Name NTPC Power Grid Corp Reliance Power Tata Power NHPC Neyveli Lignite List price 171.20 117.35 84.55 99.90 18.25 81.50 97 Market Cap. (Rs. cr.) 141,162.35 54,329.83 23,717.34 23,706.99 22,448.86 13,673.33 Sales Turnover 62,053.58 10,035.33 66.12 8,495.84 5,654.69 4,866.85 Net Profit 9,223.73 3,254.95 310.86 1,169.73 2,771.77 1,411.33 Total Assets 120,629.50 62,092.11 16,101.33 20,954.12 39,153.15 15,178.57

Reliance Infra Adani Power SJVN Jaiprakash Pow JSW Energy Torrent Power CESC IndiaBPower

505.90 41.60 20.70 31.75 48.85 153.00 320.00 11.70

13,304.66 9,068.95 8,562.82 8,333.60 8,011.67 7,228.46 4,032.00 3,091.99

17,906.67 3,948.90 1,927.50 1,615.56 5,016.42 7,917.82 4,669.00 1.15

2,000.26 -293.92 1,068.68 402.95 234.64 1,237.46 565.00 52.42

27,688.61 30,832.27 9,326.68 17,551.83 11,119.71 8,931.15 8,611.66 4,829.01

ANALYSIS AND INTERPRETATION


Working Capital = Current Assets - Current Liabilities

Rs. In cores year Total Current Assets Total Current Liabilities Mar '12 42,545.2 0 20,208.3 Mar11 35,396.7 9 13,675.8 Mar10 30,815.7 0 13,675.8 mar'09 Mar'08 30,925.30 30,527.80 10,688.70 12,909.00

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Working capital

0 22,336.9 0

6 21,720.9 3

6 17,139.8 4

20,236.60 17,618.80

Fig : 10 working capital

management

year current ratio

Mar '12 2.10533 3

Mar11 Mar10 2.5882679 2.253291 6 99

mar'09 2.893270 5

Mar'08 2.364846231

Working Capital is comparatively good in the year 2012. Therefore, we can conclude that the organization is growing faster than previous years. Current ratio of the organization match to the standard ratio i.e. 2:1

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SWOT ANALYSIS OF NTPC


STRENGHTS Good corporate image. Established brand name. Strong and wide networks of manpower across India. The company has kept with itself sufficient liquid funds to meet any kind of cash requirement. Company with an excellent record and high profits. An early starter more than 32 years of experience in power sector. Highly motivated and dedicated workers and officers and no industrial problems. Efficient and timely completion of projects. Excellent growth prospects with significant additions, modifications and replacements.

WEAKNESS Depleting raw materials. Some of the plants have become old and need investment in renovation and modernization. OPPORTUNITY Huge investment leading to greater demand of goods and services. Upcoming hydro and nuclear sector. Huge opportunity in consultancy services.

THREATS Rising prices of raw materials. Increase in number of small contractors leading to price war. 101

Emergence of competitors in the market like Reliance energy, Tata power and other private development. Huge capital requirement for expansion and diversification. Change in government policies for open trade or stock trading or energy trading.

FINDINGS AND INFERENCES

Blockage of high cash and bank balances in government securities. Consistently maintaining higher inventories. High credit payable period. Excessive working capital during rising cost of materials.

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LIMITIONS
The research study focuses on working capital management only and does not include other areas of financial management. Data used at various places for this research study are basically from published sources and thus, any error in data may have significant effects on the results arrived in this study. Working capital management is also effected by several environmental variables in managing working capital due to lack of time and resources.

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RECOMMENDATIONS
It should pump more money into business through debt or equity and should reduce reliance on short term creditors. it should try to focus on avoiding wastage of raw materials i.e. coal during inbound transportation. It should try to control its cost to enhance its profit margins. High cost cutting measures should be adopted.

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CONCLUSION
The tools applied in the study to analyze the efficiency and effectiveness in financial management is most appropriate ones. The firms Liquidity position in terms of short term and long term are good. The above analysis enables the company to understand the financial position and financial soundness of NTPC, Dadri. The main thing, I got that most of the employees are having some satisfaction and few are not satisfied in NTPC as some employees are getting more salary than they deserve, based on their educational qualification.

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BIBLIOGRAPHY

I choose NTPC Corporation for my study of working capital position, when I do the research; in this connection, following things are very useful to write this report and other things. Book of research methodology. Financial policy report of different years issued by NTPC. Performance highlights book. NTPC news Magazine of different years. Employees hand book. Annual reports of NTPC 28th Edition- 2007-08 29th Edition- 2008-09 30th Edition -2009-10 31th Edition -2010-11 32th Edition -2011-12

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News flash NTPC journal. Horizon journal.

REFERENCE BOOKS

Financial Management: I.M. Pandey Management Accounting: Sharma & Gupta Management Accountancy: Pilli & Bhagavati

WEBSITES:

www.ntpc.co.in www.moneycontrol.com www.indiabudget.nic.in www.indianfoline.com. www.rbi.ogr.in

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ANNEXURES
QUESTIONNAIRRE

1. Which of the following types of company will have the lowest level of investment in working capital to finance? a) b) c) d) e) Supermarkets Car manufacturers Ship builders Water suppliers Chemical manufacturers

2. Which of the following factors does not need to be considered when formulating policies on the level and financing of working capital? a) b) c) d) e) The relative cost of short-term and long-term finance The nature of current business operations The attitude to risk of a companys managers The availability of revenue reserves and capital reserves Terms of trade offered by competitors

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3. Which of the following statements relating to working capital financing is not correct?

a) b) c)

Short-term debt is cheaper than long-term debt An aggressive policy uses long-term debt to finance fluctuating current assets The matching principle indicates that fluctuating current assets should be financed by

hort-term debt d) Long-term funds are more expensive than short-term funds but also riskier e) Long-term debt is less risky that short-term debt

4.

Identify the incorrect statement in connection with working capital management.

a) Long-term funds are more expensive than short-term funds but also riskier b) Permanent current assets should be financed from long-term sources if a moderate or matching policy is adopted c) The objectives of working capital management are profitability and liquidity d) Conservative financing policies use short-term funds to finance only part of fluctuating current assets e) Aggressive financing policies increase profitability at the cost of higher risk

5. Which of the following will improve a company's working capital management position? a) An increased level of bad debts b) An increased debtor collection period 109

c) An increase in the credit period allowed by suppliers d) An increase in the stock turnover period e) An increase in the length of the production process

6. Identify which technique will not help a company to optimize its working capital cycle. a) Offering discounts for early payment by debtors b) Applying the economic order quantity model to stock management c) Adopting the use of just-in-time stock management methods d) Taking full advantage of credit offered by trade suppliers e) Using cash management models to optimize the level of cash held

7. Which of the following investments is not acceptable as a way for companies to invest short-term cash surpluses? a) Sterling certificates of deposit b) Treasury bills c) Ordinary shares d) Sterling commercial paper e) Money market deposits

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8. One of the following statements concerning debtor management is incorrect. Which statement is it? a) Assessment of the credit status of prospective customers can reduce the risk of bad debts b) A key variable affecting the level of debtors is the financing policy of the company c) Credit analysis depends on the provision of relevant information, for example trade references d) Credit limits should be reviewed periodically e) Longer credit terms may increase turnover, but they also increase the risk of bad debts

9. Identify the executives working are satisfied with their colleagues payoffs?

a) Very satisfied b) Satisfied c) Not satisfied d) dissatisfied

10. Identify which of the following measures is not likely to make debtor management more effective. a) Offering discounts for earlier payment 111

b) Undertaking an aged debtor analysis on a regular basis c) Assessing the creditworthiness of new customers prior to granting credit d) Employing the services of a factor e) Delaying payment of invoices

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