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Summer Training Report on Working Capital Mangement

Summer Training Report on Working Capital Mangement


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Published by rakesh kumar baral
this is a summer training report on working capital management of nalco during the period of 02 may to 02 july 2009.
this is a summer training report on working capital management of nalco during the period of 02 may to 02 july 2009.

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Published by: rakesh kumar baral on Jul 11, 2009
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  • Rakesh Kumar Baral
  • Working Capital:-
  • Objective of the study:-
  • Place of study:-
  • Study design and methodology:-
  • Limitations:-
  • Aluminium – Inputs
  • Aluminium – Products
  • Salient features of Indian Aluminium Industry
  • Consumption of Aluminium in India
  • Sector-wise aluminum consumption
  • Sector wise consumption break up
  • Brief History:
  • Location:
  • Achievements of Nalco:
  • Working Capital
  • Constituents of Current Assets and Current Liabilities
  • Financing Working Capital
  • Management of Inventory
  • Objective of Inventory Management:-
  • Management of cash
  • Need to hold cash
  • Management of Receivables
  • Working Capital Cycle
  • Sources of Additional Working Capital
  • Handling Receivables (Debtors)
  • Managing Payables (Creditors)
  • Key Working Capital Ratios



“Working capital management at Nalco”


Accman institute of management
Summer Internship Project (Batch of 2008)


To start any business, First of all we need finance and the success of that business entirely depends on the proper management of day-to-day finance and the management of this short-term capital or finance of the business is called Working capital Management. Working Capital is the money used to pay for the everyday trading activities carried out by the business - stationery needs, staff salaries and wages, rent, energy bills, payments for supplies and so on. I have tried to put my best effort to complete this task on the basis of skill that I have achieved during the last one year study in the institute. I have tried to put my maximum effort to get the accurate statistical data. However I would appreciate if any mistakes are brought to my by the reader.


A work is never a work of an individual. I owe a sense of gratitude to the intelligence and co-operation of those people who had been so easy to let me understand what I needed from time to time for completion of this exclusive project. I am greatly indebted to my guides Prof. DENESH SINGH ,faculty guide for Finance (summer internship), Accman Institute Of Management & Mr. SATYABRATA DASH , Manager , Finance Department ,corporate office , NALCO , Bhubaneswar for their constant guidance ,advice and help which enabled me to finish this project report properly in time . I am also grateful to Prof. S.C.GHOSH, CRIC Chief and Mr. RAJIV KUMAR, DIRECTOR, Accman Institute of Management, for permitting me to undertake this study. Last but not the least, I would like to forward my gratitude to my friends & other faculty members who always endured me and stood with me and without whom I could not have completed the project.

Rakesh Kumar Baral

DECLARATION I do hereby declare that this piece of project report entitled “A Study on Working capital Management practices in NALCO” for partial fulfillment of the requirements for the award of the degree of “POST GRADUATE DIPLOMA IN MANAGEMENT” is a record of original work done by me under the supervision and guidance of Prof. PLACE: DATE: SIGNATURE OF THE STUDENT .This project work is my own and has neither been submitted nor published elsewhere. Accman Institute Of Management . DENESH SINGH.

CERTIFICATE This is to satisfy that the summer project work of Mr. The project work was carried out during 02. The indebtness to other works/publications has been duly acknowledged at the relevant places. Manager (finance) NALCO.2009 to 02. Corporate office NALCO Bhaban. Rakesh Kumar Baral Titled Working capital management is an original work and this work has not been submitted elsewhere in any form.05. Satyabrata Dash. Bhubaneswar .2009 in National Aluminum Company Limited (NALCO).07. Date: Mr.

No. Inputs and Products 11-21 (A) Financial Year-08 (B) Prospects (c) Salient Features Of The Industry (D) Quantitative Industry (E) .Indian Aluminium Industry Aluminium Structure.TABLE OF CONTENTS Sr. 2 3 4 5 8 9-10 (A) Research Methodology and Scope Of Study (B) Limitation Of The Study (C ) 7 Introduction. 1 2 3 4 5 6 Contents Preface Acknowledgement Declaration Certificate Executive Summary Introduction To The Study Objective Of The Study Page No.

next 5 years (E) 9 10 Introduction-Working Capital Working Capital Management Consequences of under and over assessment of W.C 35-42 43-51 (A) Types of W.products (C) 5 years performance – physical and highlights (D) Production .Consumption Of Aluminium In India (F) 8 Introduction – NALCO Brief History 22-34 (A) Achievements (B) Nalco.C (B) Financing W.C (C) Inventory Management (D) Cash Management (E) Receivables Management (F) 11 12 Important Terms and Ratios (graphical presentation) Conclusion 52-62 63 .




The major objective of the study is to proper understanding the working capital of NALCO & to suggest measures to overcome the shortfalls if any. Funds needed for short term needs for the purpose like raw materials, payment of wages and other day to day expenses are known as working capital. Decisions relating to working capital (Current assets-Current liabilities) and short term financing are known as working capital management. It involves the relationship between a firm’s short-term assets and its short term liabilities. By definition, working capital management entails short-term definitions, generally relating to the next one year period. The goal of working capital management is to ensure that the firm is able to continue its operation and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses. Working capital is primarily concerned with inventories management, Receivable management, cash management & Payable management.

Inventories management at NALCO:
NALCO is a large scale manufacturing company involved in mining of Bauxite and production of Aluminum. Therefore, it has to maintain large quantity of inventories at production units for its smooth running and functioning.

Cash management at NALCO:
NALCO has been accumulating huge cash surpluses over last several years, which enables the organization to maintain adequate cash reserves and to generate required amount of cash.

Receivables management at NALCO:
NALCO has set up its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New Delhi, Chennai, Bangalore, and Pondicherry. This marketing office

obtains sales order from Aluminum users in India as well as globally. On the basis of order received for different products it marks production planning of different i.e. Ingot sow ingot, Billets, Wire etc.


Working Capital:The life blood of business, as is evident, signified funds required for day-to-day operations of the firm. The management of working capital assumes great importance because shortage of working capital funds is perhaps the biggest possible cause of failure of many business units in recent times. There it is of great importance on the part of management to pay particular attention to the planning and control for working capital. An attempt has been made to make critical study of the various dimensions of the working capital management of NALCO, a Star Trading House with NAVRATNA Status. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient money flow to satisfy both maturing short-term debt and upcoming operational expenses.

Objective of the study:The following are the main objective which has been undertaken in the present study:

1. To determine the amount of working capital requirement and to calculate various ratios relating to working capital. 2. To make an item wise study of the components of the working capital.

3. To suggest the steps to be taken to increase the efficiency in management of working capital.

Place of study:The project study is carried out at the Finance Department of NALCO Corporate office Situated at Bhubaneswar, ORISSA. The study is undertaken as a part of the PGDM curriculum from 02 MAY 2009 to 02 JULY 2009 in the form of summer placement.

Study design and methodology:Two types of data are collected, one is primary data and second one is secondary data. The primary data were collected from the Department of finance, NALCO. The secondary data were collected from the Annual Report of NALCO, NALCO website, etc.

Limitations:There may be limitations to this study because the study duration (summer placement) is very short and it’s not possible to observe every aspect of working capital management practices.

In USA. This sector is going through a consolidation phase and existing . gold. bauxite. and rolling into foils. At present. India has huge deposits of natural resources in form of minerals like copper. manganese. Hindalco and Nalco are one of the most economical in the production of aluminum in the world. automobile manufacturing. refining of the ore. chromite. etc.INDIAN ALUMINIUM INDUSTRY Aluminium Industries in India is one of the leading industries in the Indian economy. lead. utensils. The growth of the aluminum Metal industry in India would be sustained by the diversification and exploration of new horizons for the industry. This rapid development has made the India aluminum industry prominent among the investors. The India aluminum industry is developing fast and the advancement in its technologies is boosting the growth even faster. One reason of low consumption in the country could be that consumption pattern of aluminium in India is vastly different from that of developed countries. The India aluminum industry falls under the category of non iron based which include the production of copper. etc. 19 kg.andmanganese. tin. The utilization of both international and domestic resources was significant in the rapid development of the India aluminum industry. For the sustenance of the growth the aluminum industry in India has to develop research and development units to assist the production and improve on the quality measures to keep a stringent quality control. The main operations of the of the India aluminum industry is mining of ores.aluminum. casting. brass.5 kg as against 25 kg. The India aluminum Metal Industries sector in the previous decade experienced substantial success among the other industries. The per capita consumption of aluminium in India is only 0. The India aluminum industry has a bright future as it can become one of the largest players in the global aluminum market as in India the consumption is fairly low.in Japan and 10 kg. Even the World’s average per capita consumption is about 10times of that in India. iron ore. alloying. sheet. the industry may use the surplus production to cater the international need for aluminum which is used all over the world for several applications such as aircraft manufacturing. zinc. In Europe . The demand of aluminium is expected to grow by about 9 percent per annum from present consumption levels.

. The former three are private sector companies while the latter two are government owned. extrusions and foils. The problem was further compounded by the vulnerable financial position of State Electricity Boards (the main users of electrical grade aluminum) and high import and excise duties. (b) The secondary producers who add value to the ingots and billets to produce semi-fabricated products. All the primary producers have integrated forward into the manufacture of high value semi-fabricated products like rods.producers are in the process of enhancing their production capacity so that a demand supply gap expected in future is bridged. • • Regulated till 1989 o Until 1989. Madras Aluminum (Malco). rolled products. National Aluminum (Nalco) and Bharat Aluminum (Balco). for use by the transmission power industry. India is a net exporter of alumina and aluminium metal at present. The government fixed ingot prices on the basis of a Retention Pricing Mechanism. At present there are only five companies in the primary aluminium market viz. the Aluminum Control Order (ACO) required all domestic manufacturers to ensure that atleast 50% of their ingot production was electrical grade. The producers resorted to inflated prices for other types of aluminium to compensate for the disadvantages they suffered because of this regulation. However. ALUMINIUM-STRUCTURE • The aluminium industry in India can be classified as: (a) The primary producers who produce ingots and billets (primary form of aluminium) using bauxite. o The above control resulted in a skewed product mix and shortages of aluminum for other sectors. taking into consideration the average retention prices of all producers and a minimum return on equity. Indian Aluminum (Indal). Hindalco.

5 – 3 tonnes are required for manufacture of 1 tonne of alumina. The production process for manufacture of aluminium is briefly outlined below. In turn. caustic soda. • The mined bauxite ore is mixed with caustic liquor and is refined to produce alumina. and LS/FS furnace oil. ample bauxite reserves. Depending on the quality of bauxite. This is then smelted (through electrolysis in a smelter) to obtain aluminium.o The ACO was scrapped in 1989 and in 1991 the government lifted restrictions on capacity additions resulting in a free market environment. calcined petroleum coke. coal tar pitch. . • The main raw material for the manufacture of aluminium includes bauxite. 2. coupled with cheap labour costs make Indian companies amongst the most competitive aluminium producers globally. 2 tonnes of alumina are required for manufacture of 1 tonne of aluminium. Aluminium – Inputs • The aluminium industry in India can be classified as: Captive power.

Both companies have the advantage of 100% captive power. . and account for 6% of total world reserves. enabling it to become one of the most economical bauxite producers in the world.Bauxite o Indian bauxite reserves at 3 bn tonnes. • Hindalco and Nalco’s production costs are amongst the lowest in the world. are the 5th largest in the world. vital in a power intensive industry and in a power deficit country like India. Most alumina refineries are designed around the bauxite reserves to reduce transportation costs. Almost all the major Indian companies have captive power plants thus giving them access to cheap power. o For example.600 m tonnes of bauxite reserves only 20 kms from its alumina refinery. Cost per tonne of bauxite varies for players depending on the location of the refinery and bauxite mines. This makes India one of the most competitive low cost aluminium producers in the world. Nalco has an estimated 1. Power • Power constitutes the single largest cost component for aluminium manufacturers (35–40% of operating costs).

Major users of aluminium foils include the pharmaceutical. demand for the metal is expected to pick up as the scenario improves for user industries. consumer products. Consequently. A major portion of rolled products capacity is accounted for by the five integrated producers (around 82%). Demand.006 mm finding application mainly in the packaging sector. Major users of extruded aluminium products are buildings.Aluminium – Products o Aluminium products can be segregated into rolled products. infrastructure and transportation. floors and windows. Barriers to entry. engineering applications. KEY POINTS Supply . but are yet to find use in structural parts and bodies). Also. o Extrusions include products as bars. transportation and electrical sector o Production in this segment is widely spread and the top three players control around 31% of the market (the largest company .2 mm up to 0. web stock for laminated packaging (for toothpastes). cigarette and cable manufacturing industries. .Supply of aluminum is in excess and any deficit can be imported at low rates of duty.Large economies of scale. and foils.Demand for aluminium is estimated to grow at 6%-8% per annum in view of the low per capita consumption in India. high capital costs.Hindalco commands around 14% market share in this segment). construction (roofing and walls). consumer durables. o Rolled products find applications in automobiles (paneling. Currently. pipes and tubes. o Foils are sheets having thickness of less than 0. like power. extrusions. domestic production comfortably meets domestic requirements.

However. it further increased to 38 MT. accounting for 30% of global primary aluminum consumption in 2007. which has emerged as the largest aluminum consuming nation. Bargaining power of customers. As far as global consumption is concerned. customers enjoy relatively high bargaining power. it increased by 8. differentiation is difficult.competition is primarily on quality and price. Strong growths in industrial. In 2007. the recent spate of consolidation has reduced the competitive pressure in the industry. as prices are determined on demand and supply. transportation and power sectors were the drivers . increasing usage of captive power plants (CPP) will help to rationalise power costs to a certain extent in the long-term. In 2007. the corresponding figures were 10% and 37.Most domestic players operate integrated plants. FINANCIAL YEAR-08 • Global production of primary aluminum rose from 32 million tons (MT) in 2005 to 34 MT in 2006. a jump of 6%. Asia. • The Indian aluminium industry registered a strong double-digit growth in 2007 in tune with the economic growth. Competition. increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry. as Government is the only supplier.8 MT respectively. Bargaining power is limited in case of power purchase. automobile. However.7 MT. an increase of 12% YoY. driven largely by increased industrial consumption in China. as being a commodity.Being a commodity.Bargaining power of suppliers. China alone accounted for 29% of global primary aluminum production. infrastructure. once again showed the largest annual increases in consumption of primary aluminum. Further.2% in 2006 and touched 34.

However. domestic realisation of aluminium majors. Thus causing margins to squeeze at both ends. However.for the metals demand. Asia will continue to be the high consumption growth area led by China. PROSPECTS o Globally. causing a drop in average rupee realisation per tonne of the primary metal as compared to FY07. Salient features of Indian Aluminium Industry • Highly concentrated industry with only five primary plants in the country . as the buffer on international prices is reduced. Domestic demand growth is estimated to average in the region of over 8% over the longer-term. The customs duty has been reduced in a series of steps from 15% in 2003 to 5% in January 2007. with greater linkage to international prices. producers are moving downstream to negate the higher volatility. macroeconomic parameters like the rupee appreciation. Aluminum imports are currently subject to a customs duty of 5% and an additional surcharge of 3% of the customs duty. the aluminium industry is sensitive to fluctuations in performance of the economy. infrastructure and transportation account for almost 3/4th of domestic aluminium consumption. volatility in financials could increase. With the government focusing towards attaining GDP growth rates above 8%. o Lowering of duties reduces the net tariff protection for domestic aluminium producers. Power. Although the average LME remained strong but could not help the companies like Hindalco to increase the domestic realisation due to fall in import duty and rupee appreciation. which is expected to continue to register double-digit growth rates in aluminium consumption in the medium-term. newer packaging applications and increased usage in automobiles is expected to keep the demand growth for aluminium over 5% in the longterm. is likely to be under pressure. Moreover. With reduction in import duties. the key consuming industries are likely to lead the way. namely Hindalco and Nalco. which could positively impact aluminium consumption. import duty cut and unrelenting cost-push impacted the sector adversely. o With key consuming industries forming part of the domestic core sector.

• Controlled by two private groups and one public sector unit • Bayer-Hall-Heroult technology used by all producers • Electricity. coal and furnace oil are primary energy inputs • All plants have their own captive power units for cheaper and un-interrupted power Supply • Energy cost is 40% of manufacturing cost for metal and 30% for rolled products • Plants have set internal target of 1 – 2% reduction in specific energy consumption in the next 5 – 8 years • Energy management is a critical focus in all the plants • Two plants have declared formal energy policy • Each plant has an Energy Management Cell • Achievements in energy conservation are highlighted in the Annual Report of the Company Energy targets are based on best energy figures achieved in their sector / region and by the plant itself in the past • • Generally. government policies were rated as conducive to energy management • ‘Task Force’ formed by BEE in this sector to work as catalyst in promoting energy efficiency • High cost of technology is the main barrier in achieving high energy efficiency Quantitative details Raw material and product type: .

all primary metal producers have installed their own captive power plants to supply cheaper and uninterrupted power for their use. Technology Status: Invented over 100 years ago. Furnace oil and electricity are primary energy inputs in aluminium production. However. Hence. Fuel Usage: Coal. Bayer-Hall-Heroult is the only available commercial technology. which is used in the process while fuel oil is mainly used in Calcinations of alumina and various furnaces in fabrication plants.Bauxite and calcined petroleum coke are primary raw materials for this industry. a mineral containing up to 60% in the form of mono/tribhydrate is carried out through the Bayer route. Majority of electricity consumed in this industry is supplied by their captive power plants. which is an extractive hydro-metallurgical process. Consumption of Aluminium in India The consumption of aluminium in India of 0. However. Alumina is the basic raw material for the production of aluminium metal through electrolytic process. the low per capita consumption of . for the production of aluminium. Coal is primarily used to generate steam. even today. alumina is raw materials for smelters and aluminium metal is raw material for fabrication units. The production of alumina obtained from bauxite.7 kg per person in 2005 is very low in keeping with the countries low GDP. Electricity is the major energy input in aluminium production and is considered to be prime factor in determining economics of aluminium production.

9%. the automotive. powers & chemicals – 13% The Transportation sector is a major driver of aluminum consumption in the future where the onus of growing consumption lies with the industry. Sector-wise aluminum consumption Aluminium is used in various sectors. while in India the power sector consumes most followed by automotive and housing sectors. Consumption is estimated to have increased to a 5 year CAGR of 12.aluminum in India is in fact an opportunity for growth in aluminium consumption against the back drop of fast growing economic conditions in India.6 MT last year. transportation. building / construction and electricity. The automobile segment has attracted major global producers to set up their manufacturing facilities in the country.08mt. such as. the usage pattern differs significantly for Indian and rest of the world. packaging. packaging and the construction sectors are the major end users of aluminium.6% in 2006 to around 1. Secondary aluminium demand also shot up to 0. However. However. Globally. Sector wise consumption break up Electrical – 65% Transport-21% Construction -8% Packaging – 5% Industrial machinery – 4% Consumer durables – 4% Steel sweetening. All these manufacturers are now engaged in bringing out . aluminum consumption has increased 12.

India’s imports of aluminum and products primarily comprise of unwrought items like ingots.4 million tons.casting (LPDC). Exports figures hovers around 82000 tons annually and the major importer countries of Indian aluminium are Bangladesh. foil. there are commercial vehicles which have also witnessed quantum growth over the years. Use of Aluminum as an alternative to steel has huge potential in the railways. pellets.high quality fuel-efficient cars in the market for India as well as global markets. The country’s share in the global downstream sector is low as compared to other developed countries. due to the shortage of domestically produced ingots. and squeeze casting. billets. The global casting is currently estimated at around 7. Egypt and Iraq. investment casting. Sri Lanka. Aluminum castings are primarily used in transport and automobile sectors. scrap. Besides cars. bars and rods.000 tons. powder and flakes. tubes and pipes. domestic aluminum production exceeds the domestic demand. Imports are necessary. and cast by modern methods like low-pressure die. scrap. Casting of aluminum alloys is a particularly versatile process and offers greater degree of flexibility than other methods of manufacture. India also exports aluminum products such as. and can be done by various methods like in sand. Although. Imports of primary aluminum products account for less than 10 per cent of domestic consumption. sheets. under gravity or pressure. bar rods. . in metallic dies. No other metal can be cast under such a wide range of processes and sizes varying from a few grams to 100 kg. against that consumption in India as only around 110. The government has taken note of this and has started working on that. NATIONAL ALUMINIUM COMPANY LTD. India imports on an average 15-20 per cent of the total supply of aluminum.

ALUMINIUM SMELTER PLANT . Nalco has not only addressed the need for self-sufficiency in aluminium.of India. Besides.e.National Aluminium Company Ltd. 635 families in 51 villages were displaced . jobs have been provided to 1060 persons. Nalco has also been sponsoring ITI training to such persons and 543 have been technically trained so far. In a major leap forward. employment has been provided to 625 nominees. Even from these. 1495 families were substantially affected (i. In Orissa. During the inception of the company.600 families in Damanjodi sector and 35 families in Angul sector. pisciculture. National Aluminium Company Limited (Nalco) acquired 7263 acres of land at Damanjodi in Koraput district and 4057 acres at Angul. education. but also given the country a technological edge in producing this strategic metal to the best of world standards. From these 635 displaced families. culture and literature are all a part of Nalco's deep involvement with the life of the community. Alumina refining. Community participation in innovative farming. Nalco was incorporated in 1981 in the Public Sector. encompassing Bauxite mining. 100 crore towards various social sector development activities. Apart from financial compensation. for setting up Asia's largest integrated alumina-aluminium complex in 1981. health care and drinking water gets priority in the periphery development plans of the company. to exploit a part of the large deposits of bauxite discovered in the East Coast. The Captive Power Plant (CPP) & Smelter Plant are situated near Angul. Confusion regarding educational background and nomination status of balance 10 families has been taken up at appropriate level. Nalco has also spent more than Rs. social forestry and sanitation programmes apart. Nalco is one of the biggest and Asia’s largest integrated complex. Creation of infrastructure in the surrounding villages for communication. rail and port operations. Successful operations of the company have led to employment and income generation for the local people in many significant ways. (Nalco) is considered to be a turning point in the history of Indian Aluminium Industry. employment and rehabilitation packages. encouragement to sports. Aluminium smelting and casting power generation. NALCO was established in 1981 as a public sector enterprise of the Govt. It is considered a truing point in the 50-yearold history of the Indian aluminum industry. parting with one third or more land) in Angul sector. art.

the 50. anode tems etc. fin stock. 45. can stock.5 tph wire rod mills o 2 x 45 tonne furnaces and 60/42 per drop billet casting machine o 2 x 1. bus bars.000 tpa.000 tpa capacity Aluminium Smelter is located at Angul in Orissa.000 tpa export-oriented Rolled Products Unit is all set to produce foil stock.The 2.5 tonne induction furnace with a 4 tph alloy ingot casting machine o 26. cable wraps. coil stock. 4 x 35 tone and 4 x 45 tone furnaces and 2 x 15 tph and 2 x 20 tph ingot casting machines o o o 4 x 45 tonne furnaces and 2 x 9. the Smelter Plant is in operation since early 1987. The salient features: o Advanced 180 KA cell technology o Micro-processor based pot regulation system o Fume treatment plant with dry-scrubbing system for pollution control and fluoride salt recovery Integrated facility for manufacturing carbon anodes. 30. circles.000 tpa strip casting machines With the acquisition and subsequent merger of International Aluminium Products Limited (IAPL) with Nalco. Based on energy efficient state-of-the-art technology of smelting and pollution control. Presently. the capacity is being expanded to 3. standard sheets and coils CAPTIVE POWER PLANT .

The salient features: • Micro-processor based burner management system for optimum thermal efficiency • Computer controlled data acquisition system for on-line monitoring • Automatic turbine run-up system • Specially designed barrel type high pressure turbine • Electrostatic precipitators with advanced intelligent controllers • Wet disposal of ash The water for the Plant is drawn from River Brahmani through a 7 km long double circuit pipeline. The coal demand is met from a mine of 3.Close to the Aluminium Smelter at Angul. The Power Plant is inter-connected with the State Grid. has been established for firm supply of power to the Smelter. Brief History: . the capacity is being expanded to 960 MW. a Captive Power Plant of 720 MW capacity. Presently. comprising 6 x 120 MW clusters.5 million tpa capacity opened up for Nalco at Bharatpur in Talcher by Mahanadi Coalfields Limited.

..East of Koraput District of Orissa. The newly founded NALCO signed an agreement of collaboration with aluminum Pechiney. Nalco was incorporated in 1981as a public sector Unit..... 30km... Location: Registered office………………………………...…………………………Angul Aluminium smelter…………………………...Damanjodi Captive power plant…..…………………………………..Panchpatmali Aluminium refinery………….. 1978..... the govt. authorized Aluminum Pechiney of France to prepare a feasibility report on the industrial exploration of bauxite for the establishment of an integrated Aluminum complex........After the discovery of 1000 million tons of Bauxite reserves in the Eastern Ghats... the world leader in this field for incorporation of technical know-how to set up Asia’s largest integrated aluminium complex.Bhubaneswar Bauxite mine…………………………………….Angul Achievements of Nalco: 1980: .…Angul Port facilities…. of India on the 28th March..... The result of this study led to sifting of focus of attention to Panchpattermali.Visakhapatnam Rolled product unit……………………………….

claimed alumina.12. A special Alumina plant at Damanjodi was undertaken with a Capacity of 20.000 TPY detergent grade Zeolite (Zeolite-A) plant at Damanjodi. and alumina refinery from 8.200 No.28.19.9 million tonnes per annum capacity.8 million tpa. of shares allotted 1994: The Company proposed to undertake expansion of bauxite mine from2. 1997: Subject to necessary approvals being obtained the company proposed to convert 50% of its existing equity capital into debt. to 13. This was subject to necessary clearances.86. 1993: NALCO signed a project co-operation agreement with Hydro Aluminium AG. The public sector aluminium giant. The Company Manufacture aluminium hydrate.50. 1996: The proposal to expand the capacities of bauxite mine at Panchpatmali from 24 lakh tonnes to 48 lakh tonnes and alumina refinery at Damanjodi from 8 lakh tonnes to 15. as a wholly owned enterprise of Government of India.000 TPY. aluminium ingots and aluminium wire rods. Norway to carry out a joint study for feasibility of setting up a100% export oriented aluminium plant of 0.000 tpa. 1. by the Government of India for technical collaboration and financing of an integrated alumina-aluminium complex with Aluminium Pechiney of France.000 tpa. National Aluminium Company (NALCO) set up in technical collaboration with . was undertaken. 1981: The Company was incorporated on 7th January.1996. 1995: A Smelter plant at Angul was undertaken with a capacity of 26000 TPY of strip casting facility.A Memorandum of Understanding was signed in January.4million TPA. to 4.00. A 10.75 lakh tonnes was approved by the Government on 18.

National Aluminium Company (Nalco). Bhubaneswar. got the ISO 14001 certification for environmental excellence. 1998: The company has been forced to curtail its power generation capacity due to a drastic reduction in intake by Gridco. 1999: The National Aluminium Company Ltd (NALCO) a Government of India undertaking is setting up a plant for extraction of gallium at its aluminium refinery complex at Damanjodi. 2002: S Behuria appointed as part time official Director of Nalco. India's largest producer andex porter. has opened a stockyard at Bhiwandi in Thane district. France is the largest integrated aluminium company in Asia.Pechiney.the nodal power transmission and distribution agency in Orissa. The National Aluminium Company. National Aluminium Company Ltd (Nalco). country's largest Aluminium Company. 2001: A public sector Aluminium Company making a foray into detergent business sounds out of place. signed an agreement of national importance with the NRDC for licensing from the NRDC the knowhow to manufacture gallium from the sodium alumina plant. But if senior officials of National Aluminium Company (Nalco) are to be believed.75 lakh tone . the country’s second largest aluminium company will be doing that at its zeolite plant scheduled to start operations in July end.58-crore Non-convertible debenture issue of the company. The National Aluminium Company (Nalco) will take over International 2000: Icra has retained the Laaa rating for the Rs 642. . Nalco's alumina refinery capacity increased to 15. while it has assigned an A1 rating to the Rs 5-crore CP issue of Narmada Chematur Petrochemicals.

NALCO-PRODUCTS Aluminium Metal . 2003 have withdrawn the admission granted to dealings on their exchange for the securities of NALCO.2003: Commissions one unit of Captive Power Plant with a capacity of 120 MW and 120 pots of Smelter with a capacity to produce 57. Delhi. Calcutta & Madras 2004: National Aluminium Company Limited (NALCO) has informed that Madras Stock Exchange Limited vide its letter dated December 22.500 MT of Aluminium per year Nalco members okay delisting of securities from stock exchanges of Bhubaneshwar. 2005: Nalco inks agreement with NMDC. Nalco open offer to acquire 20% stake for Ondeo Nalco India.

      Ingots Sows Billets Wire rods Alloy wire rods Cast strips Alumina & Hydrate   Calcined Alumina Alumina Hydrate Zeolite-A 5 years performance at a glance (physical) particulars units 2007/08 2006/07 2005/06 2004/05 2003/04 .

43.23278 1575500 1475200 4854253 4851721 9.968 5.05.954 3.616 9.32.874 1.573 8.920 12.29.679 858 5.09.994 21.650 MU 129 421 322 406 498 5 YEARS PERFORMANCE HIGHLIGHTS .38.457 3.000 1575500 MT 3.98.730 1.040 5.177 17.636 2.16.064 2.734 3.58.762 1556100 15.747 1.Domestic sales Alumina MT /hydride Aluminum Power 10.718 11.61.784 MT 2.678 95.34.613 2.58.847 92.73.Export sales Alumina MT Aluminum MT 3.684 46.1.609 5.307 10.60.660 5.587 5.production Bauxite Alumina Hydride Alumina for MT MT 46.122 8.00.943 7.483 2.004 2.794 1.094 2.207 In consumption Rolled products MT Power(net) MU 2.

crores 6515 5324 4420 3349 2740 2003 2004 2005 2006 2007 2.1.crores 2586 2200 1501 1717 2306 2381 2003 2004 2005 2006 2007 3.crores 1235 737 521 1562 2003 2004 2005 2006 2007 . NET PROFIT-Rs. EXPORTS-Rs. SALES – Rs.

08 11. 37 24.4. EARNING PER SHARE-Rs.44 2003 2004 2005 2006 2007 PRODUCTION-NEXT 5 YEARS .17 8.25 19.

B 90 80 70 60 46.5 50 Lakh MT 50 40 30 20 10 .

Working Capital .

Even a business which is fully equipped with all types of fixed assets required is bound to collapse without o adequate supply of raw materials for processing. debtors etc. they rotate and business operations continue. o cash to pay for wages.Every business needs investment to procure fixed assets.. Every running business needs working capital. The life span of . is called ‘Shortterm Funds’ or ‘Working Capital’. Subsequently. and. Investment remains in a particular form of current asset for a short period. As a result. which remain in use for a longer period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Business also needs funds for short-term purposes to finance current operations. All these require working capital. the working capital cycle involves rotation of various constituents of the working capital. (i) short life span. as funds needed for carrying out day-to-day operations of the business smoothly. Initially ‘cash’ is converted into raw materials. the finished goods assume the form of debtors who give the business cash on due date. The ‘Working Capital’ can be categorized. two characteristics of current assets should be kept in mind viz. power and other costs. Thus. Thus ‘cash’ assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. Investment in short term assets like cash. and (ii) swift transformation into other form of current asset. inventories. o The ability to grant credit to its customers. This is how various components of current assets keep on changing their forms due to value addition. the raw materials get converted into work in process and then into finished goods. with the usage of fixed assets resulting in value additions. Each constituent of current asset has comparatively very short life span. While managing the working capital. Working capital is thus like the lifeblood of a business. When sold on credit. Working capital cycle involves conversions and rotation of various constituents Components of the working capital. The management of the working capital is equally important as the management of long-term financial investment. o creating a stock of finished goods to feed the market demand regularly.

which are in several forms of current assets: o Stock of Cash o Stock of Raw Material o Stock of Finished Goods o Value of Debtors o Miscellaneous current assets like short term investment loans & Advances .current assets depends upon the time required in the activities of procurement. The various components of the working capital are closely related and mismanagement of any one component adversely affects the other components too. A very short life span of current assets results into swift transformation into other form of current assets for a running business. • • The working capital has the following components. production. sales and collection and degree of synchronization among them. The difference between the present value and the book value of profit is not significant. These characteristics have certain implications: • Decision regarding management of the working capital has to be taken frequently and on a repeat basis.

Gross Working Capital. What a firm really does is to take decisions with respect to various current assets and current liabilities. Thus it is known as revolving or circulating capital or short term capital. “WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT LIABILITIES “ The same may be designated in the following equation: WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES: Funds thus invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets.A number of definitions have been formulated: perhaps the most widely acceptable would be. Net Working Capital. Gross working capital is the total of all current assets. b. Net working capital is the difference between current assets and current liabilities. Though the later concept of working capital is commonly used it is an accounting concept with little sense to say that a firm manages its net working capital. The constituents of current assets and current liabilities are shown in table A. Constituents of Current Assets and Current Liabilities . These are two concepts of working capital:- a.

other. Cash and Bank balance. the same would be short in an enterprise involved in providing services. The important ones are discussed in brief as given below: Nature of Enterprise The nature and the working capital requirements of an enterprise are interlinked. The amount required also varies as per the nature. Current Liabilities • • • • Sundry Creditors. • • • • • Trade Debtors. Provisions. Borrowings. While a manufacturing industry has a long cycle of operation of the working capital. Finished goods. Trade Advances. Investments. Loans and Advances. an enterprise involved in production would require more working capital than a service sector enterprise.Current Assets Inventories – Raw materials and components. The working capital needs of a business are influenced by numerous factors. Manufacturing/Production Policy . Work in progress.

conversion of finished stick in to sales and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on. Market Condition If there is high competition in the chosen product category. . and others may follow the principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly. for which the working capital requirement will be high. immediate delivery of goods etc. Ice creams and cold drinks have a great demand during summers. Otherwise. The cycle involves the purchase of raw materials and ends with the realization of cash from the sale of finished products. The cycle involves purchase of raw materials and stores. Working Capital Cycle In manufacturing concern. working capital cycle starts with the purchase of raw materials and ends with realization of cash from the sale of finished goods. then one shall need to offer sops like credit. while in winters the sales are negligible. The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. its conversion in to stock of finished goods through work in progress with progressive increment of labor and service cost. Operations The requirement of working capital fluctuates for seasonal business. some follow the policy of uniform production even if the demand varies from time to time. the working capital requirements vary for both of them. if there is no competition or less competition in the market then the working capital requirements will be low.Each enterprise in the manufacturing sector has its own production policy.

On the other hand a concern buying its requirements for cash and allowing credit to its customers. Earning Capacity and Dividend policy .Credit Policy The credit policy is concerned in its dealings with debtors and creditors influence considerably the requirements of the working capital. On the other hand. Growth and Expansion Growth and expansion in the volume of business results in enhancement of the working capital requirement. sales decline.e. if raw material is not readily available then a large inventory/stock needs to be maintained. shall need larger amount of funds are bound to be tied up in debtors or bills receivables. when there is a down swing of the cycle. As business grows and expands. optimistic expansion of business etc. On the country at he time of depression i.e. the need for increased working capital funds precedes growth in business activities. difficulties are faced in collections from debtors and firms may have a large amount of working capital lying ideal Availability of Raw Material If raw material is readily available then one need not maintain a large stock of the same. business contracts. thereby reducing the working capital investment in raw material stock. rise in prices. when the business is prosperous there is a need for larger amount of working capital due to increase in sales. thereby calling for substantial investment in the same. In a period of born i. Normally. Business Cycle Business Cycle refers to alternate expansion and contraction in general business activities. it needs a larger amount of working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital.

At times. depending on its level of completion. the duration at various stages of the working capital cycle is estimated. Manufacturing Cycle The manufacturing cycle starts with the purchase of raw material and is completed with the production of finished goods. Component of Working Capital Basis of Valuation . the need for working capital would be more.Some firms have more earning capacity than others due to the quality of their products. asset structure. Thereafter. A firm that maintains steady high rate of cash dividend irrespective of its generation of profits needs more capital than the firm retains larger part of its profits and does not pay high rate of cash dividend. Each constituent of working capital retains its form for a certain period and that holding period is determined by the factors discussed above. irregularities a supply. Price Level Changes Generally. also influences the requirement of working capital. rising price level requires a higher investment in the working capital. Other Factors Certain other factors such as operating efficiency. management ability. banking facilities etc. Such firms with high earning capacity may generate cash profits from operations and contribute to their capital. The assessment of working capital requirement is made keeping these factors in view. business needs to estimate the requirement of working capital in advance for proper control and management. monopoly conditions etc. So for correct assessment of the working capital requirement. The factors discussed above influence the quantum of working capital in the business. the same level of current assets needs enhanced investment. importance of labor. With increasing prices. proper value is assigned to the respective current assets. The dividend policy of a concern also influences the requirements of the working capital. If the manufacturing cycle involves a longer period. import policy.

can affect the day-to-day operations severely. WORKING CAPITAL MANAGEMENT . therefore. An inaccurate assessment of the working capital may cause either under-assessment or over-assessment of the working capital and both of them are dangerous. Negligence in proper assessment of the working capital. It may lead to cash crisis and ultimately to liquidation. whichever is lower • Stock of finished goods Cost of production • Debtors Cost of sales or sales value • Cash Working expenses Each constituent of the working capital is valued on the basis of valuation Enumerated above for the holding period estimated. We know that working capital has a very close relationship with day-to-day operations of a business.• • Stock of raw material Purchase cost of raw materials Stock of work in process At cost or market value. The total of all such valuation becomes the total estimated working capital requirement. The assessment of the working capital should be accurate even in the case of small and micro enterprises where business operation is not very large.

since it depends upon several variables such as character of the business. Implementation of operating plans may become difficult and consequently  the profit goals may not be achieved. The importance of working capital management is effected in the fact that financial manages spend a great deal of time in managing current assets and current liabilities.Working Capital Management refers to management of current assets and current liabilities. administering the accounts receivable. To be sure. and monitoring the inventories consume a great deal of time of financial managers. negotiating favorable credit terms. Investment in current assets and the level of current liabilities have to be geared quickly to change in sales. controlling the movement of cash. The major thrust of course is on the management of current assets . CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL o Growth may be stunted. the lengths of the merchandising cycle. Working Capital Management is a significant fact of financial management. It may become difficult for the enterprise to undertake profitable projects due to non-availability of working capital.This is understandable because current liabilities arise in the context of current assets. o . this relationship is not as close and direct as it is in the case of working capital components. volume and terms of purchase & sales and seasonal and other variations. rapidity of turnover. scale of operations. fixed asset investment and long term financing are responsive to variation in sales. The problem of working capital management is one of the “best” utilization of a scarce resource. However. Arranging short term financing. Its importance stems from two reasons:• • Investment in current assets represents a substantial portion of total investment. Thus the job of efficient working capital management is a formidable one.

 o Over-investment in working capital makes capital less productive and may reduce return on investment. Non-availability of stocks due to non-availability of funds may result in production stoppage. Each of the components of the working capital needs proper management to optimize profit. The business may fail to honour its commitment in time. o o o o CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL o Excess of working capital may result in unnecessary accumulation of  inventories.o Cash crisis may emerge due to paucity of working funds. needs efficient management and control. This situation may lead to business closure. It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management. o Optimum capacity utilization of fixed assets may not be achieved due to non availability of the working capital. over assessment of working capital also has its own dangers. The business may be compelled to buy raw materials on credit and sell finished goods on cash. Both these situations would affect profitability adversely. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. Working capital is very essential for success of a business and. o o It may make management complacent leading to its inefficiency. therefore. . While underassessment of working capital has disastrous implications on business. thereby adversely  affecting its credibility.

for purchasing raw material and supplies. salaries and other sundry expenses. office expenses and other expenses. This type of working capital remains always in the enterprise for the successful operation. which is required at the time of the commencement of business. payment of wages. Reserve margin working capital. It is used to raise the volume of production by improvement or extension of machinery. 4. In this case greater amount of capital is required for maintenance of the business. be met with short term capital. depression. 1. 2. It represents the amount utilized at the time of contingencies.e. Financing Working Capital . Regular working capital. It supplies the funds necessary to meet the current working expenses i. These unpleasant events may occur at any time in the running life of the business such as inflation. Fluctuating working capital. of course.The working capital in certain enterprise may be classified into the following kinds. 3. Attorney's fees. Initial working capital. lay off and unavoidable competition etc. is called initial working capital. This capital is needed to meet the seasonal requirements of the business. It may be secured from any financial institution which can. slump. strike. These are the promotion expenses incurred at the earliest stage of formation of the enterprise which include the incorporation fees. fire. It is also called variable working capital. earthquakes. The capital. flood.

Short-term funds are also called current liabilities. The following are the major sources of raising short-term funds: I. which unlike fixed assets change their forms rapidly. etc. upon completion of the credit period. Working capital or current assets are those assets. The credit given by the suppliers of raw materials is for a short period and is considered current liabilities. These funds increase the liquidity of the business. They are long-term funds and. work in process. therefore do not require immediate repayment.Now let us understand the means to finance the working capital. Bank Loan for Working Capital This is a major source for raising short-term funds. Banks extend loans to businesses to help them create necessary current assets so as to achieve the Required business level. Thus bank loans for creation of current assets are also current liabilities. keeping some security margin. ii. iii. These funds should be used for creating current assets like stock of raw material. Promoter’s Fund It is advisable to finance a portion of current assets from the promoter’s funds. i.e. The loans are available for creating the following current Assets: • Stock of Raw Materials • Stock of Work in Process • Stock of Finished Goods • Debtors Banks give short-term loans against these assets. Due to this nature. The cost of raw material is paid after some time. Thus. without having an outflow of cash the business is in a position to use raw material and continue the activities. The advances given by banks against current assets are short-term in nature and banks have the right to ask for immediate repayment if they consider doing so. Supplier’s Credit At times. they need to be financed through short-term funds. finished goods. . business gets raw material on credit from the suppliers.

It is. . • Precautionary motive necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Needs to hold inventories:There are three general motives for holding inventories:• Transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation. a considerable amount of funds is required to be committed to them. inventories are approximately 60 % of current assets in public limited companies in India. • Speculative motive influences the decision to increases or reduce inventory levels to take advantage of price fluctuations and also for saving in reordering costs and quantity discounts etc. Because of the large size of inventories maintained by firms maintained by firms. by using simple inventory planning and control techniques. A firm neglecting a firm the management of inventories will be jeopardizing its long run profitability and may fail ultimately. On an average.Management of Inventory Inventories constitute the most significant part of current assets of a large majority of companies in India. therefore very necessary to manage inventories efficiently and effectively in order to avoid unnecessary investments. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories at considerable degrees. without any adverse effect on production and sales.

pilferage. To maintain investments in inventories at the optimum level as required by the operational and sale activities. The following are the objectives of inventory management:- To ensure continuous supply of materials. o To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores. Clear cut account ability should be fixed at various levels of the organization. o To keep material cost under control so that they contribute in reducing cost of production and overall purchases. o To eliminate duplication in ordering or replenishing stocks.Objective of Inventory Management:The main objectives of inventory management are operational and financial. o To facilitate furnishing of data for short-term and long term planning and control of inventory o o o . The operational mean that means that the materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. o To ensure right quality of goods at reasonable prices. The financial objective means that investments in inventories should not remain ideal and minimum working capital should be locked in it. wastages and damages. o To design proper organization for inventory control so that management. o To minimize losses through deterioration. This is possible with the help of centralizing purchases. To avoid both over-stocking of inventory. spares and finished goods.

currency and cheques held by the firm and balances in its bank account. The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain ideal without contributing anything towards the firm’s profitability. wages and salaries. This kind of investment contributes some profit to the firm. The term cash includes coins. taxes. Cash is the basic input needed to keep the business running in the continuous basis. The firm needs cash primarily to make payments for purchases. other operating expenses.Management of cash Cash is the important current asset for the operation of the business. Cash is the money. it invests it is marketable securities. dividends. which a firm can disburse immediately without any restriction. Thus a major function of the financial manager is to maintain a sound cash position. etc. Generally when a firm has excess cash. Sometimes near cash items such as marketing securities or bank term deposits are also included in cash. it is also the ultimate output expected to be realized by selling or product manufactured by the firm. Need to hold cash The firm’s need to hold cash may be attributed to the following three motives:- The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. .

on the other hand a supplier who used to give credit for 15 days may not have the stock to supply or he may not be in opposition to give credit at present. The opportunities to make profit changes.) Stores and spares conversion period= Average stock of Stores and spares/ Average consumption per day.) Credit period availed=Average trade creditors/Average credit purchase per day. Components of working capital are calculated as follows: 1) Raw Materials Storage Period=Average stock of raw materials/Average cost of raw material consumption per day. when it is expected that interest rates will rise and security price will fall.) W-I-P Holding period=Average w-i-p in inventory/Average cost of production per day. 3. For example a debtor who pays after 7 days may inform of his inability to pay. Speculative Motive: .) Finished goods conversion period= Average stock of finished goods/Average cost of goods sold per day. . 2. Though cash inflows and outflows are anticipated but there may be variations in these estimates.The Precautionary Motive: A firm is required to keep cash for meeting various contingencies. 6. The firm will hold cash.The speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise. 4. 5.) Debtors collection period=Average book debts/Average credit sales per day.

the need of receivables management is “to promote sales and profits until that point is reached where the return of investment in further funding of receivables is less than the cost of funds raised to finance that additional credit. Sometimes other concern in that line might have established a practice of selling goods on credit basis. But for investment in receivables. But at the same time investment in this asset involves cost consideration also. there is a risk of bad debts also. The increase in sales is also essential to increases profitability. very necessary to have a proper control and management of receivables.Management of Receivables A sound managerial control requires proper management of liquid assets and inventory. Receivables result from credit sales. These assets are a part of working capital of the business. An efficient use of financial resources is necessary to avoid financial distress. S. In the words of Bolton. Thus. The increase in sales will bring in more profits.. A concern is required to allow credit sales in order to expand its sales volume. Needs to hold cash: Receivables management is the process of making decisions relating to investment in trade debtors. it is not possible to avoid credit sales without adversely affecting sales. Further. there is always a risk of bad debts too. the objective of receivable management is to take a sound decision as regards investments in debtors.E. a firm has to insure certain costs. Under these circumstances. receivables constitute a significant portion of current assets of a firm.” . Further. It is not always possible to sell goods on cash basis only. Certain investments in receivables are necessary to increase the sales and the profits of a firm. After a certain level of sales the increase in sales will not proportionately increase production costs. Thus. It is therefore.

The cheapest and best sources of cash exist as working capital right within business. then it should. Good management of working capital will generate cash will help improve profits and reduce risks. The faster a business expands . There are two elements in the business cycle that absorb cash . generate cash surpluses. in theory.Important Terms Working Capital Cycle Cash flows in a cycle into. the business will eventually run out of cash and expire. . It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. the more cash it will need for working capital and investment. If it doesn't generate surpluses. The main sources of cash are Payables (your creditors) and Equity and Loans. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. around and out of a business. If a business is operating profitably.Inventory (stocks and work-in-progress) and Receivables (debtors owing you money).

reduce inventory levels relative to sales). you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. remember that this is now longer available for working capital. receivables and payables) has two dimensions . if available.. Collect receivables (debtors) faster You release cash from the cycle Collect receivables (debtors) slower Your receivables soak up cash Get better credit (in terms of You increase your duration or amount) from suppliers cash resources Shift inventory (stocks) faster Move inventory (stocks) slower You free up cash You consume more cash • • • • • It can be tempting to pay cash..g..Each component of working capital (namely inventory. these are cash outflows and. the business will generate more cash or it will need to borrow less money to fund working capital... leasing etc.. you effectively create free finance to help fund future sales. computers.g.loans. vehicles etc.. if you can negotiate improved terms with suppliers e.. if you pay dividends or increase drawings.. If you..g.TIME .. When it comes to managing working capital . plant. Similarly..TIME IS MONEY. More businesses fail for lack of cash than for want of profit.. Then. consider other ways of financing capital investment ... Similarly.g. for fixed assets e. if cash is tight.. get longer credit or an increased credit limit. As a consequence.. If you can get money to move faster around the cycle (e. they remove liquidity from the business. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.... Therefore. and MONEY...... . If you do pay cash.. like water flowing downs a plug hole. equity.

you can easily over-stretch the financial resources of the business. Early warning signs include: o o o o o o o Pressure on existing cash Exceptional cash generating activities e.Sources of Additional Working Capital Sources of additional working capital include the following: • • • • • • Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans If you have insufficient working capital and try to increase sales. Handling Receivables (Debtors) . offering high discounts for early cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help pay wages. pending receipt of a cheque). This is called overtrading.g.

in particular on small businesses who can least afford it.. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. suppliers and customers. the greater the chance you will never get paid. If the average age of your debtors is getting longer. Slow payment has a crippling effect on business. Keep very close to your larger customers. Establish clear credit practices as a matter of company policy. 7. Use credit agencies. Check out each customer thoroughly before you offer credit. Every business needs to know. industry sources etc.... 5.Consider accepting credit /debit cards as a payment option.Cash flow can be significantly enhanced if the amounts owing to a business are collected faster..... who owes them money. 11..Monitor your debtor balances and ageing schedules. 2. 3... Establish credit limits for each customer. you may need to look for the following possible defects: . 8.. they will begin to manage your business as you will gradually lose control due to reduced cash flow and. you could experience an increased incidence of bad debt. 4. Invoice promptly and clearly. 6. and don't let any debts get too large or too old. 9. how much is owed. for what it is owed. how long it is owing. and stick to them. Make sure that these practices are clearly understood by staff. 12. Recognize that the longer someone owes you. bank references... 10. If you don't manage debtors. Be professional when accepting new accounts. of course. or is already very long. and especially larger ones. The following measures will help manage your debtors: Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves.Consider charging penalties on overdue accounts. 1. Late payments erode profits and can lead to bad debts.

The act of collecting money is one which most people dislike for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demand their attention now.... Managing Payables (Creditors) .. Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention.. Look for the warning signs of a future bad debt. Profits only come from paid sales..• • • • • • weak credit judgement poor collection procedures lax enforcement of credit terms slow issue of invoices or statements errors in invoices or statements Customer dissatisfaction... For example. o o o o o longer credit terms taken with approval. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer. particularly for smaller orders use of post-dated checks by debtors who normally settle within agreed terms evidence of customers switching to additional suppliers for the same goods new customers who are reluctant to give credit references Receiving part payments from debtors.

and reduce dependence on a single supplier. It is important to look after your creditors . a good supplier is someone who will work with you to enhance the future viability and profitability of your company Key Working Capital Ratios . Consider the following: o o o o o o o o o Who authorizes purchasing in your company .Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Remember. credit terms.slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!).is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities which take account of stock-holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis? There is an old adage in business that if you can buy well then you can sell well. get quotes from major suppliers and shop around for the best discounts. Management of your creditors and suppliers is just as important as the management of your debtors.

Current Liabilities are amount you are due to pay within the coming 12 months. It takes you on average x days to collect monies due to you.50 for every $1. just in time ordering will reduce average days. why? One or more large or slow debts can drag out the average days. Current Assets are assets that you can readily turn in to cash or will do so within 12 months in the course of business. you pay your suppliers every x days. If you’re official credit terms are 45 day and it takes you 65 days. If you pay earlier. the quality of service and any flexibility provided by your suppliers may suffer. For example. slow moving lines will extend overall stock turnover days. say. Faster production. Ratio Formulae Result Stock Turnover (in days) Average Stock * 365/ =x Cost of Goods days Sold Receivables Debtors * 365/ = x Ratio Sales days (in days) Payables Ratio (in days) Creditors * 365/ =x Cost of Sales days (or Purchases) Current Ratio Total Current = x Assets/ times Total Current Liabilities Interpretation On average. to get a discount this will decline.. Less than 1 times e.g. 1. If you simply defer paying your suppliers (without agreement) this will also increase . Effective debtor management will minimize the days. You may need to break this down into product groups for effective stock management. Obsolete stock. fewer product lines. ratios are important measures of working capital utilization. If you negotiate better credit terms this will increase..The following.75 means that you could have liquidity problems and be under pressure .but your reputation.5 times means that you should be able to lay your hands on $1. On average. 0. you turn over the value of your entire stock every x days. easily calculated.00 you owe.

Sales Other working capital measures include the following: Bad debts expressed as a percentage of sales. it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors.As % Capital capital needs are high relative to your Payables)/ Sales Ratio sales. • Debtor concentration . Liabilities (Inventory + Working A high percentage means that working Receivables . • Once ratios have been established for your business. DATA ANALYSIS AND INTERPRETATION (Rs in cores) . (Total Current Assets Similar to the Current Ratio but takes =x Quick Ratio Inventory)/ account of the fact that it may take time to times Total Current convert inventory into cash. lines of credit. it is critical that the impact of working capital be fully assessed when making cash flow forecasts. invoice discounting etc.to generate sufficient cash to meet oncoming demands.degree of dependency on a limited number of customers. • Cost of bank loans. When planning the development of a business.

09 260.57 ………………………………………………………… 806.4 406.08 B: CURRENT LIABELITIES: Sundry creditors: a) On capital a/c: b) on others: Other liabilities: Security deposit: Book over draft Provisions: … TOTAL: WORKING CAPITAL (A-B): 64.95 2005/6 591.72 1540.71 118.49 222.10 …………………………………………………………………………….98 272.65 940.69 …….72 169.78 324.61 3822.10 ……… 102.42 2193.39 222.94 557.01 351.46 236.94 162.06 92.96 34.39 1004.96 55.73 1218.33 4974.15 2317.40 3433.53 212.82 346.81 755.95 284.46 541.62 364.14 332.92 55.21 82.66 9.04 3257.95 2006/7 634.58 29.2004/05 A: CURRENT ASSETS: Inventories: Sundry debtors: Cash and bank balance: Other current assets: Loans and advances: 529.74 424.65 3516. TOTAL: 1811.42 2007/8 686. 190.88 5041.65 60. 44.64 74..68 IMPORTANT RATIOS OF NALCO .92 …….38 326.13 3686.

09 23.81 48.71 30. OPERATING PROFIT MARGIN (%) 56.36 54.51 2007 2008 2004 2005 2006 2007 2008 .95 18.39 3.29 2005 2006 26.1.63 2004 26.46 61.12 46.6 31.96 32. NET PROFIT MARGIN (%) 40.09 30.36 2004 2005 2006 2007 2008 2. RETURN ON NETWORTH (RONW) (%) 19.

RETURN ON CAPITAL EMPLOYED (ROCE) 31. It is found that the company has a sound and effective .89 24.01 18.4.3 24.79 23.21 2004 2005 2006 2007 2008 CONCLUSION After studying the components of working capital management system of NALCO.

Company is competing well at the domestic as well as the international level and it is among the low cost producers of aluminium in the world only because of its proper management of finance.we can say that the companies management is an effective one and knows well the management of finance. BIBLIOGRAPHY 1. its working capital management system is very good because of which only the company has got the status of NAVRATNA company. Financial Management…….policy and its performance is very good even in this bad recession situation company has managed to post good profit. The company is a matured one and it has contributed well in the countries growth and development and will also continue to perform and contribute to the whole nation.. specially the short term finance known as the working capital.Prasanna Chandra . In conclusion .

4. Auditors Report.google. Annual Report of NALCO. Financial Management…….co.co.I. 5. www.2.www.in 6.nalco. Nalco’s official website….in .Pandey 3.M. Directors Report and Investors Report.

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