Rasu in Final

CHAPTER - I
1.1 INTRODUCTION
Working capital management is the part of financial management. In working capital
management, management of cash, management of inventory, management of debtor and
creditor will include.
The study of working capital behavior occupies an important place in financial
management. The earlier emphasis of financial management was more on a long-term financial
decision. Working capital management, which is concerned with short term financial decision,
appears to have been relatively neglected in the literature of finance.
The developing economies generally face the problem of inefficient utilization of
Resources available to them. Capital is the scarce productive resource in such economies and
hence a proper utilization of these resources promotes the rate of growth, cuts down the cost of
production and above all, improves the efficiency of the productivity system. Fixed capital and
working capital are the dominant contributors to the capital of a developing country. Fixed
capital investment generates productive capacity, whereas working capital makes the utilization
of that capacity possible.
Working capital management (WCM) is the management of short-term financing
requirements of a firm. This includes maintaining optimum balance of working capital
components receivables, inventory and payables and using the cash efficiently for day-to-day
operations. Optimization of working capital balance means minimizing the working capital
requirements and realizing maximum possible revenues. Efficient WCM increases firms free
cash flow, which in turn increases the firms growth opportunities and return to shareholders.
Even though firms traditionally are focused on long term capital budgeting and capital structure,
the recent trend is that many companies across different industries focus on WCM efficiency.
There is much evidence in the financial literature that present the importance of WCM.
Results of empirical analysis show that there is statistical evidence for a strong relationship
between the firms profitability and its WCM efficiency. However the study undertaken based on
the data from CFO magazine on the rankings of firms on WCM efficiency reveals that the
measures of WCM efficiency vary across different industries.
1
The study also gives significant evidence that issues of WCM are different for different
industries and firms from different industry sectors adopt different approaches to working capital
management. Firms follow an appropriate working capital management approach that is
favorable to their industry. Firms in an industry that has less competition would focus on
minimizing the receivable to increase the cash flow. For firms in industry where there are large
numbers of suppliers of materials, the focus would be on maximizing the payable. The
Telecommunication industry is characterized by high intensive working capital requirements and
high competition because of rapid technology changes, which make the WCM crucial to bring
attractive earnings to shareholders. The study undertaken based on the data from CFO magazine
on the rakings of firms on WCM efficiency gives statistical evidence that telecommunication
industry showed.
Working Capital Management Concepts

The working capital meets the short-term financial requirements of a business enterprise. It is the
investment required for running day-to-day business. It is the result of the time lag between the
expenditure for the purchase of raw materials and the collection for the sales of finished
products. The components of working capital are inventories, accounts to be paid to suppliers,
and payments to be received from customers after sales. Financing is needed for receivables and
inventories net of payables. The proportions of these components in the working capital change
from time to time during the trade cycle. The working capital requirements decide the liquidity
and profitability of a firm and hence affect the financing and investing decisions. Lesser
requirement of working capital leads to less need for financing and less cost of capital and hence
availability of more cash for shareholders. However the lesser working capital may lead to lost
sales and thus may affect the profitability.
The management of working capital by managing the proportions of the WCM components is
important to the financial health of businesses from all industries. To reduce accounts receivable,
a firm may have strict collections policies and limited sales credits to its customers. This would
increase cash inflow. However the strict collection policies and lesser sales credits would lead to
lost sales thus reducing the profits. Maximizing account payables by having longer credits from
the suppliers also has the chance of getting poor quality materials from supplier that would
ultimately affect the profitability. Minimizing inventory may lead to lost sales by stock-outs.
The working capital management should aim at having balanced; optimal proportions of
the WCM components to achieve maximum profit and cash flow.
1.2 OBJECTIVES OF THE STUDY

Primary objective
To study about the Working capital management and Ratio Analysis in Neyveli Lignite
Corporation Limited.
Secondary objectives
To analyze the working capital requirement of Neyveli Lignite Corporation Limited for
the period 2008-09 to 2012-13.

To analyze the changes in working capital.
To analyze and evaluate liquidity position of the company.
To analyze and evaluate the profitability position of the company.
To analyze and evaluate the level of current asset and current liability.
1.3 SCOPE OF THE STUDY
This study is about the ratio analysis of WORKING CAPITAL MANAGEMENT,

which is a part of financial analysis. Ratio analysis is perhaps the first financial tool
developed to analyze and interpret the financial statement and is still used widely for
this purpose.
The company to understand its own position over time.
The present and potential investors, outside parties such as the creditors, debtors,
government and many more to get an idea of the overall performance of the firm.
Ratio analysis is the specific area of finance dealing with the financial decision
corporations make, and the tools and analysis used to make the decisions.
It may divide as long-term and short-term decisions and techniques.
1.4 NEED FOR THE STUDY
To know the companys working capital.

To pay wages and salaries.
To incur day to day expenses.
To maintain inventories of raw materials, work in progress and finished goods.
Gives a company the ability to meet its current liabilities.
1.5 RESEARCH METHODOLOGY
The term Research refers to the systematic method consisting of enunciating the
problem, formulating a hypothesis, collecting the data, analyzing the facts and reaching certain
6
conclusions either in the form of solutions towards the concerned problem or in certain
generalized form of some theoretical formulation.
RESEARCH DESIGN:
Research design is the blue print for doing the research. It is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure.
This is an empirical study based on the financial information contained in the annual
reports of NLC. The study adopts descriptive methodology for evaluating the financial
performance of the organization.
A study on financial performance of Neyveli Lignite Corporation Limited has been made
by calculating various ratios. The data for such analysis have been extracted from the financial
statements. These ratios have been interpreted and conclusions have been drawn. Based on
which, suggestion have been made to improve the financial performance of Neyveli Lignite
Corporation Limited.
CONCEPT OF WORKING CAPITAL

1. Gross Working Capital
2. Net Working Capital
GROSS WORKING CAPITAL
It refers to the firms investment in total current or circulating assets. According to this concept,
the working capital refers to the firms total investment in current assets. Current assets mean
assets which can be converted into cash within an accounting year. Current assets include cash
and bank balance, bills receivable, sundry debtors, inventory, prepaid expenses.
NET WORKING CAPITAL:
According to this concept the working capital refers to the difference between current assets and
current liabilities. Current liabilities refer to the claims of outsiders which are expected to mature
7
for payment within an accounting year. Net working capital can be positive or negative. Positive
Networking capital arises when current assets exceed current liabilities. Negative net working
capital occurs when current liabilities are in excess of current assets.
PERIOD OF STUDY
The period of the study for project work is 6 month.
TOOLS USED
The data collected are analyzed with the help of the following tools
Ratio Analysis
Comparative Statement Of Working Capital
Common Size Balance sheet.
DATA COLLECTION:
SECONDARY DATA:
The secondary data on the other hand are those which have already been collected by
someone else. The analysis of working capital management of the organization necessitates
accurate and reliable data. Therefore the sources for collecting the data include secondary data.
For the purpose of the study available secondary data is used. The Annual Reports of the
company for the past five years (i.e.) F.Y.2008-09 to F.Y.2012-13 constituted the basis of the
study. For the purpose of Analysis, Financial statements viz.., Fund Flow Statements and
Financial Ratios relating to working capital on specific current assets were used. Information
collected from the above source helped the researcher to conduct the study successfully.
PLAN OF ANALYSIS:
The study is made only by using accounting ratios, comparative statements and average
performance. It is basically a common size statement analysis. The five years gross and net
working capitals are obtained. The percentage shares of the components of working capital are
8
compared to that of the standard norms and deviations if any are described as either favorable or
unfavorable.
Diagrammatic presentations of statistical data are exhibited through bar diagrams, Pie
Charts for analysis of data for better understanding.
SIGNIFICANCE OF THE STUDY
The working capital of an organization is the lifeblood, which flows through the veins
and arteries. It gives courage and moral to the brain (management) and the muscles (personnel).
It digests to the best degree, the raw material used, by its constant and regular flow and returns to
the heart (cash flow) for another journey. Hence when working capital is lacking or slow, the
financial bodies have value only as a junk.
Funds are needed for short term purposes, viz., for purchases of raw material payments of
wages and other day to day business expenses. Many a times, in the event of failure of a
business concern, the shortage of working capital is given out as its main cause. But in ultimate
analysis, it may be the mismanagement of resources of the firm that could have converted the
otherwise successful business, an unsuccessful one. A firm can exist and survive without making
profit but cannot survive without working capital funds.
Working capital has acquired a great significance and a sound position for the twin objects of
Profitability and Liquidity. It consumes a great deal of time to increase profitability as well as
to maintain proper liquidity at minimum risk. So the effective management of working capital is
the primary means of achieving the firms goal of adequate liquidity, which helps to measure the
degree of protection against problems that might cause a shortage of funds. Essentially, the
efficient management of working capital minimizes risk in the repayment of its sources of
finance, thereby contributing to the maximization of firms value.
The present study on working capital management of Neyveli Lignite Corporation Ltd
enables the organization to efficiently manage its working capital components and achieve the
goal of maximizing the value of the organization.
1.6 LIMITATIONS OF THE STUDY
The working capital analysis is based on the annual reports published by the
organization. Thus the reliability of the analysis is depending on the data provided
in the balance sheets.
10
The study on working capital management is confined to a period of 5 years, i.e.,

from 2008-2009 to 2012-2013 due to time constraints.
The study is based on secondary data and not on the basis of primary data.
The study is based on the accounting standards and not based on the economic
condition.
CHAPTER I1
2.1 COMPANY PROFILE
Neyveli Lignite Corporation is a large-scale business organization with its core activities of
lignite mining and power generation in Neyveli.
11
NLC is a profitable business entity with the firm of running business for more than 50 year. In
the year 2006, it celebrated its golden jubilee. The occurrence of lignite in neyveli, district of
Tamilnadu first became known in 1934 the than government of madras took up regular
exploration the 1943 to democrat the extant of the field. Meaning operation (mine) commenced
in May 1957.
Neyveli Lignite Corporation limited (NLC Ltd) was register as a company on 14 th November
1956 under companies act 1956. The mining operations in mine-I were formally inaugurated on
20th may 1957 by the then prime minister pandit Jawaharlal Nehru of the total deposits of 37154
million tones (as on 1.4.2005) of lignite in India, neyveli has a geological minable reserves of
2194 million tonnes. In Tamilnadu, Jayamkondacholapuran, Mannargudi and east and Jammu
&Kashmir are the other states in which lignite resources were identified. The lignite occurrence
depths vary from 200 to 300 meters deeper.
The major lignite deposits in India are in the status of Tamilnadu, Rajasthan, Gujarat, Jammu and
Kashmir, and Kerala. About 82% of the lignite reserves in the country are in Tamilnadu and
puducherry. Neyveli is endowed with proven existence of 4150 million tones of lignite in an area
of 480sq.km.
Today Mine-I and II and IA are producing 24 Million Tons per annum. Neyveli opens cast
Lignite Mines are the first of its kind, which have obtained ISO 9001:2000(Quality Management
system). ISO 14001:20004 (Environment Management System) and implemented the integrated
Management System comprising Quality, Environment and safety standards.
The basic industries on which Neyveli Thrives are The lignite mines(I,II,IA) and Thermal
power stations (I,II&IEXP`N) one of The largest open cost mines, with very large machinery
The lignite mines is an engineering marvel since The entire Township has been built for The
purpose of employees of The corporation The other sources of economic activity are The support
service to The Township This includes contracts with The NLC Shops private hospitals in The
periphery school etc..
There are also a lot of mining industries that have been developed in The last Two
decades .A fertilizer B&S plant That was owned by Neyveli Lignite corporation was closed few
year back
12
Lignite Deposit in Neyveli

Lignite is the younger offspring of the coal family. It is a fossil fuel belonging to the
Miocene age (25 million years). Popularly known as Brown Coal, lignite is tan brown in color,
light to handle and brittle in nature. This fuel is born from vegetable matter having undergone
bio-chemical decay to the stage of peat (rotten wood) and then metamorphosed to lignite under
the pressure of the soil above through floods, movements of the earths crust and dehydration
when the pressure of the lignite, particularly the horizontal thrust is further increased, lignite is
made more dense, less volumetric and becomes coal as such. The lignite mined at Neyveli varies
in color from brown to dark brown and has a non-bonded granular structure. Microscopic studies
of these sections prepared from bulk samples of lignite indicate that the fuel is composed of a
wide variety of plant ingredients, mainly of coniferous nature.
Vision
To emerge as a leading Mining and Power Company, continue to be a socially responsible
company and strive for operational excellence in Mining and Exploration.
Mission
Strive towards greater cost competitiveness and work towards continued financial strength.
Continually imbibe best practices from the best Indian and International Organizations engaged
in Power Generation and Mining. Be a preferred employer by offering attractive avenues of
career growth and excellent work environment and by developing human resources to match
international standards. Play an active role in society and be sensitive to emerging environmental
issues.
Neyveli, the home of the Neyveli Lignite Corporation Ltd., is today Indias Energy Bridge to the
21st century and a fulfillment of Pandit Nehrus vision. Incidentally, PanditNehru and NLC share
a common birthday (14.11.1956) and NLC Ltd., is celebrated the year (2006) as the Golden
Jubilee Year.
HUMAN RESOURCE
With a view to develop and maintain harmonious relationships at workplace and striking a
balance between organizational goals and individual goals, our Company continues to have good
13
HR practices and recognize the huge potential of its human resource. The thrust on achieving
higher growth coupled with optimal utilization of manpower continued. The focus on improving
productivity and adoption of best practices in every area was relentlessly pursued. Efforts for
active participation by employees has been at the core HR initiative and interventions. The total
manpower of our company as on 01.01.2014 was 17,364.
HIGHLIGHTS OF NEYVELI LIGNITE CORPORATION LIMITED
Highest overburden removal and lignite production in any year since inception.
All time high generation and export of power.
Lignite production from Mine-II highest in any year since inception.
Highest ever lignite production from Barsingsar Mine.
Highest ever generation and export of power from TPS-II & TPS-I Expansion.
More than 90% Plant Load Factor achieved by TPS-I expansion.
The authorized share capital has been Rs.2000 crores and the issue and past share capital
to Rs.1677.71 crores
CORPORATE SOCIAL RESPONSIBILITY:

Our company, as a socially responsible corporate citizen, has been carrying out development
works in the surrounding villages, right from its inception.
An Annual CSR budget of not less than 1% of the profit after tax has been created by our
company and the CSR projects are monitored periodically by a Sub- committee of Board of
14
Director. Our Board of Directors has sanctioned Rs. 14.11crore as budget for CSR projects for
the year 2013-14.
Base line survey is conducted by our Company before commencement of any Projects.
Times frames and various milestones are fixed before commencement of any Project.
Initiatives
of
State
Governments/Central
Governments
Departments/Agencies
are
dovetailed/synergized with the CSR activity of our Company.

The CSR expenditure of our company for the year 2012-13 is Rs. 14.26crore.
5 YEARS PERFORMANCE AT A GLANCE PHYSICAL

PARTICULARS
UNIT
2012-13
2011-12
15
2010-11
2009-10
2008-09
PRODUCTION
Lignite
Mine-I
LT
79.60
77.34
83.05
91.59
90.40
Mine-IA
LT
29.40
28.77
27.19
27.11
30.56
Mine-II
LT
139.44
130.96
117.11
104.43
91.09
Barsingsar Mine
LT
13.79
8.83
4.09
0.25
1.02
LT
262.23
245.90
231.44
223.38
213.07
4035.43
3987.85
3878.65
4114.44
3577.49
3569.44
3510.55
3400.54
3630.13
3141.03
3319.77
3042.68
2997.04
2979.43
3126.05
3035.58
2809.97
2743.44
2720.12
2858.42
11238.09
11087.65
10739.78
10559.69
9064.44
10152.16
10018.96
9701.51
9549.99
8172.14
1280.85
617.68
265.61
2.48
0.00
1118.40
514.29
193.45
2.48
0.00
28.20
53.58
0.00
0.00
0.00
-Net
19.81
39.34
0.00
0.00
0.00
MU
-Gross MU
19902.34
18789.44
17881.08
17656.04
15767.98
-Net
17895.39
16893.11
16038.94
15902.72
14171.59
TOTAL
Power
T.P.S.-I
-Gross
MU
-Net
T.P.S.-I Expn.
MU
-Gross
MU
-Net
T.P.S.-II
MU
-Gross
MU
-Net
Barsingsar T.P.S.
MU
-Gross
MU
-Net
T.P.S.-II Expn.
TOTAL
MU
-Gross
MU
MU
SALES
Lignite
LT
27.56
27.18
21.68
21.69
21.35
Power
MU
16841.51
15810.67
14971.26
14828.22
13204.05
2.3 REVIEW OF LITERATURE
16
There is no unanimity in the definition of the working capital. There are as many definitions of
the concepts as there are many authors on financial management, some of the definitions are
reproduced below:
Working Capital is the excess of current assets over current liabilities
Harry G. Guthman and Herbert E. Dougall.
Most commonly, working capital is defined as the excess of current assets of a business (Cash,
Accounts Receivable Inventories) over current items owned to employees and others (such as
salaries, wages Accounts Payable owned to the Government.)
-
Dr. Colin Park and Prof. Gladson
Current Assets by definitions are assets normally converted into cash within one year. Working
capital management usually concerned to involve the administration of these assets namely cash
and marketable securities, receivables and inventories.
-
James C. van Horne
Of these definitions, net working capital concept is more popular and has pragmatic value.
Economists like Lineout Sailors approve of the net working capital on the following grounds:
a. It enables the creditors and investors to judge the financial soundness of the enterprise.
b. The excess of the current assets over current liabilities is the only amount that can rely
upon to meet contingencies and emergencies.
c. The comparison of two concerns having the same amount of current assets can be done
only with the help of these concepts.
Banerjee study on corporate liquidity and profitability
Banerjee (1982) conducted a study on the corporate liquidity and profitability. The study
related to the period 1970-71 to 1977-78. The purpose of the study was to analyses the trend in
the liquidity position and their relationship with the profitability in the medium and large public
limited companies in India. The study concluded that for some industry group risk in liquidity
will lead to risk in profitability and vice versa, there are other factors where increase in liquidity
is associated with a decline in profitability.
Hampton view on adequacy on current assets and risk posed by current liabilities
17
According to Hampton (1983) the working capital management is the functional area of
finance that covers all the current accounts of the firm. It is concerned with the adequacy of
current assets as well as the level of risk posed by current liabilities. He also viewed that the
firms policies for managing its working capital should be designed to achieve three goals such
as adequate liquidity minimization of risk and contribute to minimizing firm value.
Know ,Scoh , Martin and Petty view on managing the investments
According to Know, Scoh, Martin and Petty (1983) working capital management
involves managing the firms liquidity, managing the firms investments in current assets and its
use of current assets was found to reduce the firms risk of liquidity at the expenses of lowering
its overall rate of return on its investment in assets. Furthermore the use of long term sources of
financing was found to enhance the firms liquidity, which reduces the rate of return on assets.
Sarma and Reddy study on liquidity position of Nizam Sugar Factories limited
Sarma and Reddy (1985) made a study on the liquidity position of Nizam Sugar Factories
Limited (NSF) during the year 1972-73 and 1981-82 to identify the factors influencing the
liquidity position of the firm with respect to input and output as well.
Pradhan study on describing the demand for working capital and its various components
Pradhan (1986) in his work on working capital management of Nepal Enterprise used
econometric models to describe the demand for working capital and its various components.
Using regression and coefficient of variation, it is used to find holding costs also.
Reddy study on maintaining the liquidity and sufficient amount of net working capital
Reddy (1988) in his study stressed that the co-operative sugar mills did not manage
working capital properly. The study concludes that sustained efforts have to be made to maintain
liquidity and sufficient amount of net working capital in order to avoid the potential danger of
technical insolvency. The problem of management of working capital was also traced to be
seasonal character of raw material.
CHAPTER III
18
DATA ANALYSIS AND INTERPRETATION
This chapter deals with the study of working capital management of Neyveli Lignite Corporation
Limited. The tools used for the study are common size statements and ratio analysis.
GROSS WORKING CAPITAL:
The Gross Working Capital of Neyveli Lignite Corporation Limited registered trend
during the entire period of the last five years of study. It has gone up to from Rs.7586.18 crores
in 2008-09 to Rs. 8123.14crores in 2012-13.
19
TABLE 3.1.1
STATEMENT OF GROSS WORKING CAPITAL (Rs. In Crores)
COMPONENTS
OF CURRENT
2008-
2009-
ASSETS
2009
2010
Inventories
535.85
502.96
2010-2011
491.71
2011-
2012-
2012
2013
1506.1
683.72
9
Sundry Debtors
781.44
1611.6
2202.39
2
4420.73
3647.0
3800.2
3329.1
2866.6
Cash and Bank
5482.1
4823.6
balance
Other current Assets
189.48
164.56
177.48
156.24
162.24
Loans and Advances
597.22
581.59
559.81
406.80
610.27
CURRENT
7586.1
7684.3
7852.12
8045.8
8123.1
ASSETS
TOTAL
Source: Compiled from the Annual Reports of NLC Ltd.

Gross working capital includes various current assets such as inventory, sundry debtors,
cash and bank balances and loans and advances. The position of gross working capital, the
components of gross working capital and their percentage in the total assets are shown in Table-1
The components of Current Liabilities and their percentage in the total Current Liabilities
are shown in Table-2.
20
TABLE-3.1.2
CURRENT LIABILITIES AND PROVISIONS Rs. In Crores
STATEMENT OF CURRENT
2008-09
2009-10
2010-11
2011-12
2012-13
LIABILITIES
A. Current liabilities
1. Sundry creditors and
accrued expenses
2. Mine closure
3. Capital works and
4.
5.
6.
7.
8.
purchases
Other liabilities
Unutilised revenue grant
Unclaimed dividend
Staff security deposit
Interest accrued but not
due
a. Neyveli Bonds
b. Calyon Bank
c. KfW
B. Provision for
1. Accrued earned leave
2. Half pay leave
3. Short-term benefit of
earned leave
4. Short-term benefit of half
734.16
1175.70
1103.33
252.34
266.59
491.40
108.94
18.87
19.80
471.41
426.60
482.94
198.85
221.45
431.34
276.87
222.04
198.45
221.45
8.35
6.21
3.94
4.78
6.99
0.63
1.28
0.86
0.93
1.27
0.01
0.01
0.01
0.01
0.01
9.87
9.87
9.87
9.87
9.99
2.77
0.96
1.17
2.18
1.9
1.16
1.01
1.01
1.05
1.03
399.20
96.06
143.41
96.06
120.68
90.66
49.18
70.33
30.35
54.36
0.00
3.46
3.43
4.36
10.69
5.58
1.48
1.95
2.57
4.21
3.73
pay leave
5. Gratuity
6. Contingencies
21
7. Postretirement medical
benefit
8. Loss on assets
9. Proposed final dividend
10. Proposed final dividend
203.77
141.37
0.00
58.20
42.05
35.13
44.82
54.82
46.60
84.88
10.15
11.48
12.45
14.98
17.21
0.86
0.86
0.86
1.00
0.41
335.54
167.77
385.87
469.76
301.99
57.03
27.86
62.60
76.21
51.33
1834.04
3003.19
2836.14
1544.02
1348.32
tax
TOTAL
Source: Compiled from the Annual Reports of NLC Ltd..
From the Previous Table, it is inferred that the current liability of NLC show a mixed trend. It
was low in 2008-09 i.e. Rs. 1834.04 Crores but gradually raised to Rs. 1348.32Crores in 201213.
22
TABLE -3.1.3
COMPONENTS OF CURRENT ASSETS 2008-09(Rs. In Crores)
COMPONENTS OF
CURRENT ASSETS
2008-09
PERCENTAGE
Inventories
535.85
7.06
Sundry Debtors
781.44
10.3
Cash and Bank balance
5482.19
72.26
189.48
2.49
Loans and Advances
597.22
7.87
TOTAL CURRENT ASSETS
7586.18
100

CHART - 3.1.3
COMPONENTS OF CURRENT ASSETS 2008-09
597.22 535.85
189.48
Inventories
Sundry Debtors
781.44
Cash and Bank

balance
5482.19

Loans and Advances
TABLE -3.1.4
23
COMPONENTS OF
CURRENT ASSETS
2009-10
PERCENTAGE
Inventories
502.96
6.55
Sundry Debtors
1611.62
20.97
4823.63
62.77
164.56
2.14
Loans and Advances
581.59
7.57
7684.36
100
CHART - 3.1.4
581.59 502.96
164.56
Inventories
1611.62
Sundry Debtors
Cash and Bank
balance
4823.63

Loans and Advances
TABLE -3.1.5
COMPONENTS OF
24
CURRENT ASSETS
2010-11
PERCENTAGE
Inventories
491.71
Sundry Debtors
2202.39
28
4423.99
57
177.49
Loans and Advances
560.05
7855.63
100

CHART - 3.1.5
560.05 491.71
177.49
Inventories
2202.39
Sundry Debtors
Cash and Bank
balance
4423.99

Loans and Advances
TABLE 3.1.6
COMPONENTS OF
CURRENT ASSETS
2011-12
25
PERCENTAGE
Inventories
506.19
6.21
Sundry Debtors
3647.03
44.75
3329.10
40.85
259.44
3.18
Loans and Advances
406.80
4.99
8148.56
100
Source: Compiled from the Annual Reports of NLC Ltd
CHART - 3.1.6
406.8 506.19
259.44
3647.03
3329.1
Inventories
Sundry Debtors
Cash and Bank
balance
Loans and Advances
TABLE 3.1.7
COMPONENTS OF
CURRENT ASSETS
2012-13
PERCENTAGE
Inventories
683.72
8.4
Sundry Debtors
3800.27
46.7
26
2866.64
35.2
162.24
1.9
Loans and Advances
610.27
7.5
8123.14
100

CHART - 3.1.7
610.27 683.72
162.24
2866.64
3800.27
Inventories
Sundry Debtors
Cash and Bank
balance
Loans and Advances
TABLE 3.1.8
COMPONENTS OF CURRENT LIABILITIES 2008-09(Rs. In Crores)
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crores
PERCENTAGE
Sundry Creditors
734.16
25.69
Capital Works & Purchases
471.41
16.5
2008-09
27
Mine Closure
399.20
13.97
Other Liabilities
459.32
16.07
Provisions
792.66
27.74
Total Current Liabilities
2856.75
100

CHART 3.1.8
COMPONENTS OF CURRENT LIABILITIES 2008-09
734.16
792.66
459.32
471.41
399.2
Sundry Creditors
Capital Works &
Purchases
Mine Closure
Other Liabilities
Provisions
TABLE 3.1.9
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crores
PERCENTAGE
Sundry Creditors
1175.70
39
426.60
14
Mine Closure
491.40
17
2009-10
28
Other Liabilities
276.87
Provisions
613.28
21
2983.85
100

CHART 3.1.9
613.28
Sundry Creditors
1175.7
276.87
491.4
Other Liabilities
Mine Closure
426.6
Provisions
TABLE 3.1.10
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crores
PERCENTAGE
Sundry Creditors
1108.80
39
721.47
26
Mine Closure
108.94
Other Liabilities
225.15
2010-11
29
Provisions
649.94
23
2814.3
100

CHART 3.1.10
649.94
225.15
108.94
Sundry Creditors
1108.8
Capital Works &

Purchases
Mine Closure
721.47
Other Liabilities
Provisions
TABLE 3.1.11
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crores
PERCENTAGE
Sundry Creditors
252.34
13.1
198.85
10.3
Mine Closure
18.87
0.9
Other Liabilities
647.40
33.7
Provisions
798.49
41.6
2011-12
30
1915.95
100

TABLE 3.1.11
798.49
252.34
198.85
18.87
Sundry Creditors
Capital Works &
Purchases
Mine Closure
647.4
Other Liabilities
Provisions
TABLE 3.1.12
COMPONENTS OF
CURRENT LIABILITIES
Rs. In Crores
PERCENTAGE
Sundry Creditors
266.59
9.9
221.45
8.2
Mine Closure
19.80
0.7
Other Liabilities
1628.44
60.4
Provisions
555.79
20.6
2692.07
100
2012-13
31

TABLE 3.1.12
266.59
555.79
Sundry Creditors
221.45
Capital Works &

Purchases
19.8
Mine Closure
1628.44
Other Liabilities
Provisions
CALCULATION OF NET WORKING CAPITAL
Net working capital is a qualitative concept. It indicates the liquidity position of the firm and
suggests the extent to which working capital needs may be financed by permanent source of
funds.
Net working Capital = Current Asset Current Liabilities.
TABLE 3.1.13
CALCULATION OF NET WORKING CAPITAL
Rs.in Crore
YEARS
CURRENT
CURRENT
32
NET WORKING
ASSETS
LIABILITIES
CAPITAL
2008-2009
7586.18
2856.75
4729.43
2009-2010
7684.36
2983.85
4700.51
2010-2011
7852.12
2567.19
5284.93
2011-2012
8148.56
2760.95
5387.61
2012-2013
8314.65
2784.34
5530.34
CHART 3.1.13
NET WORKING CAPITAL
33
9000
8000
7000
6000
5000
CURRENT ASSETS
4000
CURRENT LIABILITIES
3000
NET WORKING CAPITAL
2000
1000
20
13
20
12
-
20
12
20
11
-
20
11
20
10
-
20
10
20
09
-
20
08
-
20
09
RATIO ANALYSIS
Ratio Analysis is a powerful tool of Financial Analysis. Ratio Analysis of business
enterprises centers on efforts to drive quantitative measures or guides concerning the expected
capacity of the firm to meet its future financial obligations or expectations. The ratio analysis
facilitates a firm to consider the time dimensions into account i.e., whether the financial position
of a firm is showing any improvement or deteriorating over years.
Ratio is known as one number expressed in terms of another, it is an expression of
relationship spelt out by dividing one figures into the other.
TYPES OF RATIOS
Ratios are classified in broad groups. They are as follows:
Liquidity Ratios.
Leverage Ratios.
Activity ratios.
Profitability Ratios.
34
LIQUIDITY RATIO
Liquidity ratios derive a picture of the capacity of a firm to meet its short term obligations
out of its short term resources. These ratios constitute ratio-analysis of the short-term financial
position. Liquidity ratios, by establishing a relationship between cash and other current assets to
current obligations, provide a quick measure of liquidity.
The most common ratios which indicate the Liquidity are:
Current Ratio
Quick Ratio
Cash Position Ratio
CURRENT RATIO
Current Ratio is the relationship between the total current assets and current liabilities. It
is the ratio of the current assets and current liabilities and is found out by dividing the current
assets by the current liabilities. As the ratio is connected with the working capital [Current Assets
Current Liabilities] and it is also called working capital ratio. Current ratio is the indicator of
short term liquidity position of a firm.
CurrentAssets
Current Ratio =
----------------------CurrentLiabilitie
TABLE 3.1.14
CURRENT RATIO
35
(Rs. in crores)
Current
Current
Assets
Liabilities
Year
Ratio
2008-09
7557.07
2851.56
2.6
2009-10
7684.36
2541.85
3.02
2010-11
7855.63
2567.19
3.06
2011-12
8148.56
2760.95
2.95
2012-13
7630.93
2228.55
3.42

CHART 3.1.14
CURRENT RATIO
4
3.5
3
2.5
2
1.5
2.6
3.02
3.06
2.95
2009-10
2010-11
2011-12
3.42
1
0.5
0
2008-09
2012-13
INTERPRETATION
The calculated current ratio of the company was decrease from the 3.42:1 for the year
2012-13 to3.06:1 for the year 2010-11 and then 3.02:1 for the year 2009-10 and always
maintained more than the standard current ratio is 3:1. The current asset of the company
36
increased from 7557.07crore to 7630.93crore due to increase in cash and bank balance has a
main constituent of current asset. Hence the liquidity of the company is high for the period under
the review from the current ratio point of view.
QUICK RATIO
It is also a tool of testing the liquidity of an organization. This ratio is also called as
Liquid Ratio (or) Acid test ratio. Acid Test Ratio or Liquid Ratio is concerned with the
relationship between Liquid Assets and Current Liabilities. Quick Ratio is an Indicator of Short
term solvency of the company.
LiquidAssets
Quick Ratio =
---------------------CurrentLiabilities
TABLE 3.1.15
QUICK RATIO(Rs. in crores)
Quick
Current
Year
Ratio
Assets
Liabilities
2008-09
7021.22
2851.56
2.4
2009-10
6075.02
2541.85
2.39
2010-11
7114.83.
2567.19
2.77
2011-12
7771.53
2559.79
3.04
2012-13
7630.93
2228.55
3.42

CHART 3.1.15
QUICK RATIO
37
4
3.5
3
2.5
2
1.5
2.77
2.4
2.39
2008-09
2009-10
3.42
3.04
0.5
0
2010-11
2s011-12
2012-13
INTERPRETATION
The calculated quick ratio or liquid ratio decreases from3.42:1 in 2012-13 to 3.04:1 in the
year 2011-12 and 2.77 in 2010-11. So the standard quick ratio is 2:1, the quick ratio of the
company is always on the higher side when compared to the standard ratio. It shows the
company is having higher liquid asset when compared to current liability. Hence the company is
having higher liquidity for the period under the study from the quick ratio point of view.
CASH POSITION RATIO:
Cash Ratio measures the relationship between cash and near cash items on one hand and
immediately maturing obligations on the other. This test is rigorous measure of a firms liquidity
position. It is also called as absolute liquid ratio.
Cash + Marketable Securities
Cash position Ratio =
-----------------------------------------Current Liabilities
TABLE 3.1.16
CASH POSITION RATIO
38
(Rs. in crores)
Cash +
Current
Year
Marketable
Ratio
Liabilities
Security
2008-09
5452.20
2851.56
1.91
2009-10
4823.63
2541.85
1.89
2010-11
4420.73
2567.19
1.72
2011-12
4415.55
2559.79
1.72
2012-13
3406.84
2784.34
1.22

CHART 3.1.16
CASH POSITION RATIO
2.5
2
1.5
1
1.91
1.89
1.72
1.72
1.22
0.5
0
2008-09
2009-10
2010-11
2011-12
39
2012-13
INTERPRETATION
Generally, ideal absolute liquid ratio of 1:1 is said to be satisfactory. The calculated cash
ratios are varying from 1.91:1 for the year 2008-09 to 1.89:1 for 2009-10 and then to 1.72 for
2010-11. Cash ratios are calculated for maintaining higher than the standard ratio. A cash ratio
greater than 1.0 means that there is more than enough cash on hand. It is vivid from the above
analysis that the company has sufficient high liquid funds to meet its current obligations. Hence
the company is having very high liquidity from cash ratio point of view.
LEVERAGE RATIOS
Leverage Ratios measure the contribution of financing by owners compared with

financing provided by the outsiders. Leverage Ratios also provide some measure of the risk of
debt financing by the calculation of the coverage of fixed charges. Leverage has a much more
important bearing on profitability than does Liquidity.
The most common Ratios used are:
Debt-Equity Ratio
Interest Coverage Ratio
Proprietary Ratio
DEBT EQUITY RATIO

Debt Equity Ratio is determined to ascertain the soundness of the long-term financial
position of the company. The investor may take Debt-Equity ratio as satisfactory if shareholders
Funds are equal to Outsiders Funds. This ratio indicates the extent to which the firm depends
upon outsiders for its existence.
40
Outsiders Fund
Debt Equity Ratio =
---------------------------Shareholders Fund
TABLE 3.1.17
DEBT EQUITY RATIO
(Rs. in crores)
Outsiders
Shareholders
Fund
Fund
2008-09
3100.00
9412.78
0.32
2009-10
3237.50
10093.15
0.32
2010-11
3147.50
11174.48
0.28
2011-12
4957.76
12609.96
0.39
2012-13
7351.59
13081.26
0.56
Year
Ratio

CHART - 3.1.17
DEBT EQUITY RATIO
41
0.6
0.5
0.4
0.3
0.56
0.2
0.39
0.32
0.32
2008-09
2009-10
0.28
0.1
0
2010-11
2011-12
2012-13
INTERPRETATION
The calculated debt equity ratio has been increased from 0.56 in the year 2012-13 to 0.39
in the year 2011-12. The resource and surplus of the firm shows `an increasing trend from
3100.00 crore to 7351.59 crore in 2008-13 and also outsiders funds such as secured loans and
unsecured loans are increased because of the expansion projects.
INTEREST COVERAGE RATIO
Interest Coverage Ratio is also known as Fixed charges cover. This ratio established
the relationship between EBIT and fixed interest charges. Interest coverage ratio measures the
ability of the company to meet interest commitments.
It also highlights the ability of the firm to raise additional funds in future. Higher the
ratio, better is the position of long-term creditors and the companys risk is lesser.
Earnings before Depreciation, Interest and Tax
Interest Coverage Ratio=
------------------------------------------------------------- Interest
TABLE 3.1.18
INTEREST COVERAGE RATIO(Rs. in crores)

Year
EBIT
2008-09
Interest
1486.37
42
8.15
Ratio
182.37
2009-10
1889.16
33.58
56.26
2010-11
2259.98
159.07
14.18
2050.76
2011-12
2012-13
2045.66
376.47
193.39
5.45
10.57
CHART 3.1.18
INTEREST COVERAGE RATIO
200
180
160
140
120
100
80
182.37
60
40
56.26
20
0
2008-09
2009-10
14.18
5.45
10.57
2010-11
2011-12
2012-13
INTERPRETATION
The calculated interest coverage ratios from 2008-09 to 2012-13 are appears to be the
average of around 182 and it is 10 for the year 2008-09 and it is 182 for the year 2008-10. This is
due to low interest is to be covered and higher earnings of the company But in 2010-11 interest
charged is very high when compared to rest of the years so the interest coverage ratio is reduced
to 14.18.The higher interest coverage ratio indicates more solvency to the company and the
company can very well cover the interest payments on its long term debt..
43
PROPRIETARY RATIO:
This ratio relates the shareholders funds to total assets. It throws light on the general financial
strength of the company. It is of greater importance to the creditors since it enables to find out
the proportion of shareholders funds in the total assets of the business. A high Proprietary Ratio
indicates relatively secure position to the creditors in the event of liquidation. A low proprietary
ratio will include greater risk to the creditors.
Shareholders Fund
Proprietary Ratio =
-----------------------------Total Assets
TABLE 3.1.19
PROPRIETARY RATIO
(Rs. in crores)
Shareholders
Year
Fund
Total Assets
Ratio
2008-09
9469.23
17049.9
0.55
2009-10
10093.15
14972.46
0.67
2010-11
11174.48
15757.95
0.70
2011-12
4488.91
1295.90
0.29
2012-13
13081.26
23217.19
0.56
CHART 3.1.19
PROPRIETARY RATIO
44
0.8
0.7
0.6
0.5
0.4
0.3
0.67
0.7
0.56
0.55
0.2
0.29
0.1
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION
The calculated proprietary ratio are varying from 0.56 for 2012-13 and then decrease to
0.55 for the year 2008-09The decrease in ratio is because of purchase of some special mining
equipment during the year 2008-09. The total asset of the company has been increased from
17049.9in 2008-09 to 23217.19in 2012-13. In 2010-11proprietory ratio increase by 0.70 The
higher ratio indicate more security to the creditors and relatively secure position of the company
in the event of liquidation.
ACTIVITY RATIOS:
An activity ratio measures the effectiveness of the employment of resources. These ratios
not only analyze the use of the total resources of the firm but also the use of the components of
the total assets. Activity Ratios involve a relationship between assets and sales. Several Activity
Ratios can be calculated to judge the effectiveness of asset utilization.
Some of these ratios are:
Debtors turnover ratio.
Fixed assets turnover ratio.
Working capital turnover ratio.
Capital turnover ratio.
45
DEBTORS TURNOVER RATIO

Debtors constitute an important constituent of current assets and therefore the quality of
debtors to a great extent determines a firms liquidity.
This ratio indicates the efficiency of the staff entrusted with the collection of book debts.
The higher the ratio, the better it is.
Net Sales
Debtors Turnover Ratio = ---------------Debtors
Table 3.1.20
Debtors Turnover Ratio(Rs. in Crores)
Year
Net Sales
Debtors
Ratio
2008-09
3354.91
781.44
4.29
2009-10
4121.03
1611.62
2.56
2010-11
3949.08
2202.39
1.79
2011-12
4489.46
2503.45
1.79
2012-13
5590.97
3800.27
1.47

CHART 3.1.20
Debtors Turnover Ratio
46
5
4.5
4
3.5
3
2.5
2
4.29
1.5
2.56
1.79
1.79
2010-11
2011-12
0.5
1.47
0
2008-09
2009-10
2012-13
INTERPRETATION
The calculated debtors turnover ratio increased from 4.29 in 2008-09 to 2.56 in 2009-10 and the
decreases from there to 1.79 in 2010-11. It indicates the company has taken efficient debt
management
FIXED ASSET TURNOVER RATIO

Fixed Asset Turnover Ratio indicates the extent to which the investment in fixed assets
contributes towards sales. A highest ratio is an indication of greater efficiency in the utilization of
fixed assets. Fixed asset of the company are land and building, Plant and machinery etc.
Cost of Goods Sold
Fixed Asset Turnover Ratio = --------------------------Fixed Asset
TABLE 3.1.21
47
Fixed Asset Turnover

(Rs. in crores)
Cost of
Year
Fixed Assets
Ratio
Goods Sold
2008-09
2623.34
4503.04
0.58
2009-10
2231.87
5238.80
0.43
2010-11
3302.42
4990.15
0.66
2011-12
4488.91
8515.84
0.53
2012-13
5590.07
14902.54
0.37
CHART 3.1.21
Fixed Asset Turnover Ratio
0.7
0.6
0.5
0.4
0.3
0.66
0.58
0.53
0.43
0.2
0.37
0.1
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION
The fixed asset turnover ratios for the period under study are very less when compared to
standard ratio of 5. NLC being an integrated complex having capital intensive mining and power
48
industry, investment in fixed asset is high and the ratio indicates the lesser ability of the company
to generate sales from the investment in the fixed assets. Higher ratio will help in improving the
profitability of the company.
WORKING CAPITAL TURNOVER RATIO
The ratio of cost of goods sold to Net working capital is determined in order to test the
efficiency with which net working capital is utilized. It indicates whether the business is being
operated on a small or large amount of Net working capital in relation to sales.
A high working capital turnover may be the result of favorable turnover of inventories
and receivables whereas; a low turnover of net working capital results in slow turnover of
inventories and receivables.
Cost of Goods Sold
Working Capital Turnover Ratio = ----------------------Working Capital
Table 3.1.22
(Rs. in crores)
Cost of
Working
Year
Ratio
Goods Sold
Capital
2008-09
2623.34
4705.51
0.55
2009-10
2231.087
4681.17
0.48
2010-11
3302.42
2584.05
1.28
2011-12
3129.75
5387.61
0.58
2012-13
3581.01
5530.34
0.64

CHART 3.1.22
49
6
5
4
3
2
1
0
1.28
0.55
0.48
0.58
0.64
INTERPRETATION
The working capital turnover ratios show a Decreasing trend from 0.55 the year 2008-09 to 0.48
for the year 2009-10 and has shown some improvement during 2008-09. The decreasing trend of
the working capital turnover ratio indicates the companys ability to generate sales was
decreasing up to 2009-10 and has shown a sign of reversal in 2010-11. It means utilization
working capital in generating sales has started increasing from 2007-08 and continued in 201213. Working capital turnover ratio is high in 2012-13 when compared with other year because of
mine closure and provision of gratuity
CAPITAL TURNOVER RATIO
Capital Turnover Ratio indicates the extent to which capital employed contributes
towards sales. High ratio signifies that there exists efficient utilization of the capital employed by
the firm
Cost of Goods Sold
Capital Turnover Ratio =
-------------------------Capital Employed
Table 3.1.23
50
(Rs. in crores)
Year
Cost of Goods
Capital
Sold
Employed
Ratio
2008-09
2623.34
9303.62
0.28
2009-10
2231.87
11166.88
0.20
2010-11
3302.42
11621.00
0.28
2011-12
3129.75
17733
0.17
2012-13
3581.01
17364
0.20

CHART 3.1.23
0.3
0.25
0.2
0.15
0.28
0.1
0.28
0.2
0.17
0.2
0.05
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION
The calculated capital turnover ratio was 0.28 for the year 2008-09 it decreased to 0.02
in 2009-10 and then increased to 0.28in 2010-11. It indicates the effective utilization of the
51
capital employed by the company to generate sales has decreased from the year 2008-09 to 200910 and increased in the latter years from 2010-11 to 2012-13.
PROFITABILITY RATIOS:
Profitability ratios are calculated to measure the operating efficiency of the company.
Profitability Ratios are designed to highlight the end-result of business activities. Profitability
ratios can be determined on the basis of Sales or Investment. Profitability Ratios indicates the
profitability i.e., the ability of the firm to earn profit.
The important ratios are:
Net profit ratio.

Return on net worth.
Return on capital employed.
Gross profit ratio.
NET PROFIT RATIO:
Net Profit Ratio is the ratio of Net Income or Profit after Taxes to Net sales. It indicates with
portion of sales is left to the proprietors after all costs, charges and expenses; have been
deducted. It is extremely useful to the firm being an indication of cost control and sales
promotion. Net profit Ratio is a guide as to the efficiency or otherwise of operating the firm.Net
profit ratio is widely used as a measure of over-all profitability and is very useful to the
proprietors. Higher the ratio better is the operational efficiency of the company.
Net Profit
Net Profit Ratio =
-------------Sales
Table 3.1.24
NET PROFIT RATIO
52
(Rs. in crores)
Year
Net Profit
Sales
Ratio
2008-09
821.09
3354.91
0.24
2009-10
1247.46
4121.03
0.30
2010-11
1298.28
3949.08
0.32
2011-12
4488.91
1295.90
0.29
2012-13
5590.07
13081.26
0.42
CHART 3.1.24
NET PROFIT RATIO
0.45
0.4
0.35
0.3
0.25
0.42
0.2
0.15
0.3
0.32
2009-10
2010-11
0.24
0.1
0.29
0.05
0
2008-09
2011-12
2012-13
INTERPRETATION
The calculated net profit ratio of the company was 0.24 for 2008-09 and decreased to 0.3 for the
year 2009-10 due to fall in net profit from Rs821.09Cr for 2008-09 to Rs1247.46 Cr for 2009-10
53
and has shown a sign of improvement in 2010-11 to 0 32. It decreased to 0.29for 2011-12 due to
fall in net profit to Rs 1298.68 Cr due to Provision for gratuity of Rs 4488.91 Cr . The reduction
in the sales turnover during the year 2012-13 as compared to previous year 2009-10 was due to
the adjustment of mine closure cost amounting to Rs 340.72 crore in the sale income of 201213.and Ministry of coal revised downward in view of the reduction in mine closure cost for the
above period as stated the excess liability created in the earlier years amounting to Rs 382.45
crore has been withdrawn and included in other income.
RETURN ON NET WORTH

Return on net worth is desired to work out the profitability of the company from the
shareholders point of view, because the shareholders are interested in total income after tax
including net Non-operating Income.
Profit after tax
Return on Net worth =
------------------Net worth
Table 3.1.25
RETURN ON NET WORTH
(Rs. in crores)
Profit
Year
Net worth
Ratio
9412.78
0.08
after tax
2008-09
821.09
54
2009-10
1247.46
10225.60
0.12
2010-11
1298.28
11121.40
0.11
2011-12
1411.33
11989.57
0.12
2012-13
1459.75
12925.15
0.11
CHART 4.1.25
RETURN ON NET WORTH
0.14
0.12
0.1
0.08
0.06
0.12
0.04
0.11
0.12
0.11
0.08
0.02
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION
The calculated return on net worth was high at 0.08 in the year 2008-09 and slowly
decreased to 0.12 in 2009-10 and increased to 0.11 in 2010-11 and then decreased to 0.12 in the
year 2011-12. The decrease in trend on return on net worth was due tom fall in profit from
821.09 crore for 2008-09 to 1247.46crore in 2010-11. The decrease in returns on net worth for
55
the year 2011-12 is 0.12 due to provision for gratuity and mine closure to extent of
rupees1298.28crore further decrease in return on net worth in 2012-13 is 0.11 is due to The board
of Directors of the company has recommended a dividend of 23% for the year 2010-11 (previous
year 20%) the total outgo on account of the dividend including distribution tax will be Rs 448.47
Crore (previous year Rs 391.91Crore)
RETURN ON CAPITAL EMPLOYED
Return on Capital Employed Ratio shows the overall efficiency of the firm. This ratio is
the indicator of profitability of a firm. The profit being the net result of all operations, the return
on capital employed expresses all efficiency the Inefficiency of a business collectivity and thus it
is a dependable basis for judging its overall efficiency or inefficiency.
Profit after Tax

Return on Capital Employed = ----------------------Capital Employed
Table 3.1.26
(Rs. in crores)
Profit
Year
Capital employed
Ratio
after tax
2008-09
2231.87
5238.80
0.43
2009-10
3302.42
4990.15
0.66
2010-11
1298.33
11621.00
0.11
2011-12
1411.33
17733
0.07
2012-13
1459.75
17364
0.08
CHART 3.26
56
0.7
0.6
0.5
0.4
0.66
0.3
0.2
0.43
0.1
0
2009-10
2010-11
0.11
0.07
0.08
2010-11
2011-12
2012-13
INTERPRETATION
The calculated return on capital employed ratio is 0.43 in 2008-09 and slowly increased
to 0.66 in 2009-10 and decreased to 0.11 in 2010-11 and then decreased to 0.07 in 2011-12. The
decrease in trend on return on capital was due to fall in net profit from Rs 2231.87 Cr for 200809 to Rs 4488.91Cr in 2010-11. The reason for decrease in return on capital for 2010-11 is due to
provision for gratuity and mine closure to an extent of Rs1298.33Cr and in 2012-13 return on
capital is stable because little increase in profit leads to increase in capital works and purchases
up to 1459.75Cr when compared to last year .
GROSS PROFIT RATIO:

Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage
representing the percentage of gross profits earned on sales. An increase in gross profit ratio may
reflect an increase in the sale price of goods sold without any corresponding increase in costs, a
decrease in cost without its impact on the sale price of goods. Low gross profit ratio may indicate
un-favorable purchasing and mark-up policies.
Gross Profit
Gross Profit Ratio =
------------------Sales
57
TABLE 3.1.27
GROSS PROFIT RATIO
(Rs. in crores)
Year
Gross Profit
Sales
Ratio
2008-09
1486.37
3354.91
0.49
2009-10
1889.16
4121.03
0.46
2010-11
2259.98
3949.08
0.57
2011-12
1905.74
4866.85
0.39
2012-13
1886.31
5590.07
0.33

CHART 3.1.27
GROSS PROFIT RATIO
0.6
0.5
0.4
0.3
0.57
0.49
0.2
0.46
0.39
0.33
0.1
0
2008-09
2009-10
2010-11
58
2011-12
2012-13
INTERPRETATION
The gross profit ratio for 2012-13 is the lowest during the period under the study. The
gross profit shows a fluctuating trend. The declining trend in gross profit ratio is due to reduction
in operating profit. The operating expense was 1886.31crore during the year 2012-13 it was
considerably high when compared to other years, in 2012-13 gross profit increase to due to
overburden removal of 1886.31LM3 from all mines of the company put together so the gross
profit also increased so gross profit ratio increased by 0.33.
59
TABLE 3.2.1
SCHEDULE OF CHANGES IN WORKING CAPITAL
CURRENT ASSETS
2007-08
2008-09
INCREASE DECREASE
INVENTORIES
448.05
535.85
87.8
SUNDRY DEBTORS
218.83
781.44
562.61
CASH & BANK BALANCES
4749.56
5452.2
702.64
OTHER CURRENT ASSETS
159.67
189.47
29.8
LOANS & ADVANCES
307.64
598.11
290.47
TOTAL (A) 5883.75
7557.07
1673.32
CURRENT LIABILITIES
2007-08
2008-09
CURRENT LIABILITIES
1465.96
2058.9
592.94
PROVISIONS
368.08
792.66
424.58
TOTAL (B) 1834.04
2851.56
WORKING CAPITAL (A-B) 4049.71
4705.51
655.8
655.8
655.8
4705.51
4705.51
655.8
655.8
INCREASE IN WORKING
CAPITAL
TOTAL
INTERPRETATION
60
1017.52
Schedule of Changes in Working Capital, when compared between 2008-09 and 2009-10
It is stated that,
IN CURRENT ASSETS
Inventories increases by Rs. 87.8 Crores.

Debtors increases by Rs. 562.61 Crores.
Cash and Bank Balance increases by Rs. 702.64 Crores.
Other Current Assets increases by Rs. 29.8Crores.
Loans and advances increases by Rs. 290.47 Crores
IN CURRENT LIABILITIES & PROVISIONS

Current Liabilities increases by Rs. 592.94 Crores.
Provisions increases by Rs. 424.58 Crores.

Increase in Working capital Rs. 655.8 Crores.
TABLE 3.2.2
61
CURRENT ASSETS
2008-09
2009-10
INVENTORIES
535.85
502.96
SUNDRY DEBTORS
781.44
1611.62
5452.2
4823.63
628.57
189.47
164.56
24.91
LOANS & ADVANCES
598.11
581.59
16.52
7557.07
7684.36
CURRENT LIABILITIES
2008-09
2009-10
CURRENT LIABILITIES
2058.9
2389.91
PROVISIONS
792.66
613.28
TOTAL (B)
2851.56
3003.19
331.01
179.38
WORKING CAPITAL (A-B)
4681.17
4705.51
523.51
499.17
INCREASE IN WORKING CAPITAL

TOTAL
24.34
4705.51
4705.51
523.51
24.34
523.51
TOTAL (A)
INTERPRETATION
62
INCREASE
DECREASE
32.89
830.18
830.18
702.89
331.01
179.38
Schedule of changes in working capital, when compared between 2008-09 and 2009-10.
It is stated that,
IN CURRENT ASSETS:
Inventories Decreases by Rs. 32.89 Crores.

Cash and Bank Balance Decreases by Rs.628.57 Crores.
Other Current Assets Decreases by Rs. 24.91 Crores.
Loans and Advances Decreases by Rs. 16.52 Crores.
IN CURRENT LIABILITIES & PROVISIONS:

Current Liabilities increases by Rs. 331.01Crores.
Provisions Decreases by Rs. 179.38 Crores.
Increase in working capital Rs. 24.34 Crores.
TABLE 3.2.3
63
CURRENT ASSETS
200910
2010-11 INCREASE DECREASE
INVENTORIES
502.96
491.71
SUNDRY DEBTORS
1611.62
2202.39
4823.63 4420.73
164.56
177.48
LOANS & ADVANCES
581.59
559.81
TOTAL (A) 7684.36 7852.12

CURRENT LIABILITIES
200910
11.25
590.77
402.9
12.92
21.78
603.69
435.93
2010-11
455.8
CURRENT LIABILITIES
2389.91
1934.11
PROVISIONS
613.28
649.94
36.66
3003.19 2584.05
36.66
455.8
4681.17 5268.07
567.03
19.87
547.16
567.03
567.03
TOTAL (B)

INCREASE IN WORKING
CAPITAL
547.16
T0TAL 5268.07 5268.07
INTERPRETATION
Schedule of changes in working capital, when compared between 2009-10 and 2010-11. It is
stated that,
64
IN CURRENT ASSETS:
Inventories decreases by Rs. 11.25 Crores.

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

Current Liabilities decreases by Rs. 455.8Crores.
Provisions increases by Rs. 36.66Crores.
Increase in working capital Rs. 547.16Crores.
TABLE NO-3.2.4

CURRENT ASSETS
2010-11
65
2011-12
INCREASE
DECREASE
INVENTORIES
491.71
506.19
14.48
SUNDRY DEBTORS
2202.39
3647.03
1444.64
4420.73
3329.10
177.48
259.44
LOANS & ADVANCES
559.81
406.80
TOTAL (A) 7852.12
8148.56
1091.63
81.96
153.01
1541.08
CURRENT LIABILITIES
2010-11
2011-12
CURRENT LIABILITIES
1934.11
1962.46
28.35
PROVISIONS
649.94
798.49
148.55
TOTAL (B) 2584.05 2760.95

WORKING CAPITAL (A-B) 5268.07
INCREASE IN WORKING
CAPITAL
TOTAL
1265.88
176.9
5387.61
1364.18
1265.88
98.3
98.3
5387.61
5387.61
1364.18
1364.18
INTERPRETATION
It is stated that,
IN CURRENT ASSETS:
66
Inventories increases by Rs. 14.48 Crores.

Cash and Bank Balance Decreases by Rs.1091.63 Crores.
Other Current Assets increases by Rs. 81.96 Crores.
Loans and Advances Decreases by Rs. 153.01Crores.

Current Liabilities increases by Rs. 28.35Crores.
Provisions increases by Rs. 148.55 Crores.
Increase in working capital Rs. 98.3 crores
TABLE NO-3.2.5

CURRENT ASSETS
INVENTORIES
2011-12
2012-13
1506.19
683.72
67
INCREASE
DECREASE
822.47
SUNDRY DEBTORS
3647.03
3800.27
3329.10
2866.64
156.24
162.24
LOANS & ADVANCES
406.80
610.27
TOTAL (A) 8045..86 8123.14
153.24
462.46
81.96
6.0
235.2
1284.93
CURRENT LIABILITIES
2011-12
2012-13
CURRENT LIABILITIES
1962.46
1801.65
160.81
PROVISIONS
798.49
555.79
242.7
TOTAL (B)
2760.95
2357.44
403.51
5284.91
5765.7
235.2
646.22
646.22
5765.7
5765.7
881.42
881.42
INCREASE IN WORKING
CAPITAL
TOTAL
INCREASE
DECREASE
881.42
INTERPRETATION
It is stated that,
IN CURRENT ASSETS:
Inventories Decreases by Rs. 822.47Crores.
Debtors increases by Rs. 153.24Crores.
68
Cash and Bank Balance Decreases by Rs.462.46Crores.

Other Current Assets increases by Rs. 81.96Crores.
Loans and Advances Decreases by Rs. 6.01Crores.
Current Liabilities decreases by Rs. 160.81Crores.
Provisions decreases by Rs. 242.7Crores.
Increase in working capital Rs. 646.22crores
TABLE - 3.2.6
CURRENT ASSETS AND LIABILITIES OF NLC Ltd..
Rs. In Crores
69
PARTICULARS
2008-09
2009-10
2010-11
2011-12
2012-13
(+)/(-)
Inventories
536
503
492
506.19
683.72
134
Debtors
781
1612
2202
3647
3800
2034
Cash and Bank
5452
4824
4420
3329
2866
1871
189
165
177
156
162
-26
598
584
559.81
406
610
221.81
Creditors
734
1176
1103
259
277
857
Work in Progress
471
421
483
198
221
390
Other Liabilities
454
277
222
251
383
-33
Provisions
793
613
650
798
555
522
Balance
Other Current
Assets
Loans and
Advances
INTERPRETATION
Changes in Current Assets and Current Liabilities, when compared between 2008-09 and
2012-13, It is stated that,
IN CURRENT ASSETS:
Inventories increases by Rs. 134 Crores in 2012-13 compared to base year 2008-09 it
is a normal increase @ 10% p.a.
70
Debtors decreases by Rs. 2034 Crores due to reduction in power tariff by CERC norms
and parameters and adjustment relating to earlier year sales.
Cash and Bank Balance increases by Rs. 1871 Crores due to increase in Secured and
Unsecured Loans for our expansion project, the amount is invested in bank and
utilizing the fund day by day. Accumulation of Reserve from our profit.
Other Current Assets decreases by Rs 26 Crores it is a normal decrease.
Loans and Advances increases by Rs.221.81 Crores it is a normal increase.
Sundry Creditors increases by Rs857 Crores, due to our expansion projects, it is a normal
increase.
Work in Progress increases by Rs. 390 Crores due to our expansion projects in Rajasthan,
Mine-II Expansion and Thermal-II Expansion, it is a normal increase.
Other liabilities is decreases by Rs 33 Crores due to our expansion projects in Rajasthan,
Mine-II Expansion and Thermal-II Expansion,it is a normal decrease.
Provisions are increases by Rs.522, due to final dividend declared in the earlier years but,
in current year interim dividend paid partly. A contingency provision also increases.
CHAPTER IV
4.1 FINDINGS
The study of working capital and its management in Neyveli Lignite Corporation Limireveals
the following:
The net working capital of the company has shown an increasing trend as against
Rs.4729.43 in 2008-09 it has grown to Rs.5530.34crores in 2012-13 thus it has increased
from 2.6 to 3.42 times during the period of study.
The increasing working capital is due to increase in the current assets without a
corresponding increase in current liabilities.
The current ratio of 2:1 indicates that the pattern of companys financial structure is
sound. The Current ratio ranges from 2.6 to 3.42 average of current ratio is 3.06
compared to the fixed norms. The liquidity position of the concern is good.
71
The information given above reveals that quick ratio of NLC Ltd fluctuate between 2.4
and 3.42 during the whole period of study its clearly indicates the concern has the ability
to maintain its liquidity positions in better manner.
The ideal absolute liquid ratio of 1:1 is said to be satisfactory. The calculated cash ratios
are varying from 1.91:1 for the year 2008-09 to 1.89:1 for 2009-10 and then to 1.72 for
2010-11.
The calculated debt equity ratio has been increased from 0.56 in the year 2012-13 to 0.39
in the year 2011-12. The resource and surplus of the firm shows `an increasing trend from
3100.00crore to 7351.59crore in 2008-13, so increased expansion projects.
The interest coverage ratio is reduced to 14.18.The higher interest coverage ratio
indicates more solvency to the company and the company can very well cover the interest
payments on its long term debt.
To calculated proprietory ratio are varying from 0.56 for 2012-13 and then decrease to
0.55 for the year 2008-09. The decrease in ratio is because of purchase of some special
mining equipment during the year 2008-09.
The calculated debtors turnover ratio increased from 4.29 in 2008-09 to 2.56 in 2009-10
and the decreases from there to 1.79 in 2010-11. It indicates the company has taken
efficient debt management
The working capital turnover ratio shows a decreasing trend from 0.55 the year 2008-09
to 0.48 for the year 2009-10 and has shown some improvement during 2012-13.
The calculated capital turnover ratio was 0.28 for the year 2008-09 it decreased to 0.02 in
2009-10 and then increased to 0.28in 2010-11. It indicates the effective utilization of the
capital employed by the company to generate sales has decreased from the year 2008-09
to 2009-10 and increased in the latter years from 2010-11 to 2012-13.
The calculated net profit ratio of the company was 0.24 for 2008-09 and decreased to 0.3
for the year 2009-10 due to fall in net profit from Rs821.09Cr for 2008-09 to Rs1247.46
Cr for 2009-10 and has shown a sign of improvement in 2012-13 to 0 32.
The calculated capital turnover ratio was 0.20 for the year 2008-09and increased by 0.28
in 2012-13 it shows the effective utilization of the capital employed by the company to
generate sales.
Working capital turnover ratio of average 0.70.for the period from 2008-2009 to 20122013. It indicates that the ratio ranges between0.55 to 0.64.
72
It is stated that, Debtors increases by Rs.153.24Crores, Other Current Assets increases by
Rs.81.96Crores, Current Liabilities decreases by Rs.160.81Crores, Provisions decreases
by Rs.242.7Crores, Increase in working capital Rs.646.22crores.
4.2 SUGGESTIONS AND RECOMMENDATIONS

To earn more profit the amount invested in current assets should be reduced by way of
reducing the quantum of inventories and debtors.
Asset utilization is goodmore efforts should be taken to achieve efficient utilization of
assets to earn more profit.
The members may aware that power generation is very necessary for infrastructure
development. NLC plays important role in the countrys development. NLC may take
necessary efforts to increase its capacities.
Development of participative culture and improve involvement of workmen and others to
be maintain conducive industrial climate for improving the productivity and growth.
New initiatives are being taken by the Government to streamline this sector in order to
achieve the ultimate object of Power to all. NLC should are strive hard to generate
power at affordable cost.
73
4.3 CONCLUSIONS
The analysis of working capital of Neyveli Lignite Corporation Limited, Neyveli reveals
effective position also of the companys working capital policy. Financial position of the
company is well and good for the past 5 years. Liquidity position of the company is excellent.
The company can still improve its working capital position by implementing the suggestion
made in this report.
Schedule of changes in working capital i.e. Increase or Decrease in Working Capital
during the period of study shows increases in working capital.
Hence, it is concluded that the companys financial position is at high level and Working
capital is being managed effectively.
74
4.4 BIBLIOGRAPHY
1. AnnualReports (2008-09 to 2012-13) collected from the library of Neyveli Lignite
Corporation Limited., Neyveli.
2. I.M.Pandey sixth edition Financial Management, Prentice hall of India pvt.ltd.
3. Prasanna Chandra-seventh edition, Financial Management- McGraw-hill publication.
4. T.S. Reddy & Y. HariPra
5. sad Ready Financial and Management Accounting Margham publishers, Chennai.
6. AswathDamodaran Corporate Finance 2nd Edition, wiley India (P) Ltd New Delhi,
2008.
7. Man Mohan and Shiv. N. Goyal Six Edition (1995), PRINCIPLES OF
MANAGEMENT ACCOUNTING SahityaBhawan Publications, Agra-282 003, PP.
388-415, 416-507.
8. S.N. Maheswari Management Accounting Sultan chand& Co., New Delhi.
9. Referral Website:
75
www.nlcindia.com
www.moneycontrol.com
www.Zenmoney.com
76

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CHAPTER - I

Working Capital Management Concepts

1.2 OBJECTIVES OF THE STUDY

the period 2008-09 to 2012-13.

1.3 SCOPE OF THE STUDY

This study is about the ratio analysis of WORKING CAPITAL MANAGEMENT,

1.4 NEED FOR THE STUDY

To know the companys working capital.

1.5 RESEARCH METHODOLOGY

CONCEPT OF WORKING CAPITAL

1.6 LIMITATIONS OF THE STUDY

The study on working capital management is confined to a period of 5 years, i.e.,

Lignite Deposit in Neyveli

CORPORATE SOCIAL RESPONSIBILITY:

dovetailed/synergized with the CSR activity of our Company.

5 YEARS PERFORMANCE AT A GLANCE PHYSICAL

2.3 REVIEW OF LITERATURE

Dr. Colin Park and Prof. Gladson

James C. van Horne

DATA ANALYSIS AND INTERPRETATION

Cash and Bank

Other current Assets

Loans and Advances

Source: Compiled from the Annual Reports of NLC Ltd.

Source: Compiled from the Annual Reports of NLC Ltd..

Cash and Bank balance

Other current Assets

Loans and Advances

TOTAL CURRENT ASSETS

Source: Compiled from the Annual Reports of NLC Ltd.

Cash and Bank

Other current Assets

Cash and Bank balance

Other current Assets

Loans and Advances

TOTAL CURRENT ASSETS

Source: Compiled from the Annual Reports of NLC Ltd.

Other current Assets

Cash and Bank balance

Other current Assets

Loans and Advances

TOTAL CURRENT ASSETS

Source: Compiled from the Annual Reports of NLC Ltd.

Other current Assets

Cash and Bank balance

Other current Assets

Loans and Advances

TOTAL CURRENT ASSETS

Source: Compiled from the Annual Reports of NLC Ltd

Cash and Bank balance

Other current Assets

Loans and Advances

TOTAL CURRENT ASSETS

Source: Compiled from the Annual Reports of NLC Ltd

Capital Works & Purchases

Total Current Liabilities

Source: Compiled from the Annual Reports of NLC Ltd.

Capital Works & Purchases

Total Current Liabilities

Source: Compiled from the Annual Reports of NLC Ltd.

Capital Works & Purchases

Total Current Liabilities

Source: Compiled from the Annual Reports of NLC Ltd.

Capital Works &