Akanksha Project on WCM

7/28/2019 Akanksha Project on WCM

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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.

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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

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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

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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 trade-

off 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.

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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:-

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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.

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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:-

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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

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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.

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I. Permanent or long-termworking 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

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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

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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

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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.

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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

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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 5 th 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

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tariff in the country. With its experience and expertise in the power sector, NTPC is

extending consultancy servicesto 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 forash 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 eco-

nurturing 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

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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

Projects No. of Projects

Commissioned

Capacity

(MW)

NTPC OWNED

COAL 14 22,395

GAS/LIQ. FUEL 07 3,955

TOTAL 21 26,350

OWNED BY JVCs

Coal 3 314*Gas/LIQ. FUEL 1 740**

GRAND TOTAL 25 27,404

* Captive Power Plant under JVs with SAIL

** Power Plant under JV with GAIL, & MSEB

Table: 1.1

Coal based State

Commissioned

Capacity

(MW)

1. Singrauli Uttar Pradesh 2,000

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2. Korba Chhattisgarh 2,100

3. Ramagundam Andhra Pradesh 2,600

4. Farakka West Bengal 1,600

5. Vindhyachal Madhya Pradesh 3,260

6. Rihand Uttar Pradesh 2,000

7. Kahalgaon Bihar 1,340

8. NTCPP Uttar Pradesh 840

9. Talcher Kaniha Orissa 3,000

10. Unchahar Uttar Pradesh 1,050

11. Talcher Thermal Orissa 460

12. Simhadri Andhra Pradesh 1,000

13. Tanda Uttar Pradesh 44014. Badarpur Delhi 705

Total (Coal) 22,395

Coal Based Power Stations table 1.2

Gas/Liq. Fuel Based Power Stations

Gas based State

Commissioned

Capacity

(MW)

1 Anta Rajasthan 413

2 Auraiya Uttar Pradesh 652

3 Kawas Gujarat 645

4 Dadri Uttar Pradesh 817

5 Jhanor-Gandhar Gujarat 648

6

Rajiv Gandhi CCPP

Kayamkulam

Kerala 350

7 Faridabad Haryana 430

Total (Gas) 3,955

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Table 1.3

Projects under Implementation

Coal / Hydro State Fuel

Additional

Capacity

Under

Implementatio

n (MW)

1

.

Kahalgaon Stage II

(Phase I) (Phase II)Bihar Coal

500

500

2

.

Sipat (Stage I) (Stage II)

Chhattisgar

h

Coal

1980

1000

3

.

Barh Bihar Coal 1980

4

.

Bhilai (Exp. Power

Project-JV with SAIL)

Chhattisgar

h

Coal 500

5

.

Korba (Stage III)

Chhattisgar

h

Coal 500

6 Farakka (Stage III) West Bengal Coal 500

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.

7

.NCTPP (Stage II)

Uttar

PradeshCoal 980

8

.

Simhadri (Stage II)

Andhra

Pradesh

Coal 1000

9

.

Koldam (HEPP)

Himachal

Pradesh

Hydro 800

1

0

.

Loharinag Pala (HEPP) Uttarakhand Hydro 600

1

1

.

Tapovan Vishnugad

(HEPP)

Uttarakhand Hydro 520

Total (Coal + Hydro) 11,360

Table 1.4

Power Plants with Joint Ventures

Coal

Based

State Fuel

Commissioned

Capacity

(MW)

2

2

.

Durgapu

r

West Bengal Coal 120

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2

3

.

Rourkel

aOrissa Coal 120

2

4

.

Bhilai Chhattisgarh Coal 74

2

5

.

RGPPL Maharastra Naptha/LNG 740

Total(JV) 1054

Grand Total (Coal + Gas + JV) 27,404

Table -1.5

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

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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 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

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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. Establishments

II. Works and Bills section

III. Store, Bills and PSL (Price Store Ledger) Section

IV. Commercial Section

V. Weighting and Concurrences

VI. Cash and Bank

VII. Books and Budget section

VIII. 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.

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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.

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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 below-

1. 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 below-

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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

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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.

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- 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

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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 -

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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

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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. TheForbes Global 2000ranking 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 sectorcompany, 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.

59
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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.

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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.

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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) The precision of cash needed to meet operational requirement.

(b) 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

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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 profit-

earning 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 AssetsCurrent 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

6- Cash to Receivables Ratio = Cash

Receivables

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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

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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.

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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.

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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: - CashInventory

2. Average Collection Period

Average Collection Period: - Average ReceivablesSales

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

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Inventory

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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 AssetsCurrent 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 AssetsCurrent 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 CashInterest & 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: CashCurrent Assets

6. Cash to Receivables Ratio = CashReceivables

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.

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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

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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.

86


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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

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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

Akanksha Project on WCM

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