Working Capital Management of Nepal

Doorsanchar Company Limited

A Project Work Report

By

Sovit Subedi
Campus Roll No.: 153/070
T.U. Regd. No.: 7-2-0039-0852-2013
4th year exam symbol No.:390606
Shanker Dev Campus
Group: Finance

Submitted To
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
June, 2017
 DECLARATION

I hereby declare that the project work entitled Working Capital Management of
Doorsanchanr Company Limited submitted to the Faculty of Management, Tribhuvan
University, Kathmandu is an original peace of work under the supervision of Asso. Prof.
Shashi Kant Mainali, faculty member, Shanker Dev Campus, Putalisadak, Kathmandu
and is submitted in partial fulfillment of the requirements for the award of the degree of
Bachelor of Business Studies (BBS). This project work report has not been submitted to
any other university or institution for the award of any degree or diploma.

SOVIT SUBEDI
Date:

i
 SUPERVISORS RECOMANDATION

The project work report entitled Working Capital Management of Nepal

Doorsanchar Companmy Limited submitted by Sovit Subedi of Shanker Dev

Campus, Putalisadak, Kathmandu, is prepared under my supervision as per the procedure

and format requirements laid by the Faculty of Management, Tribhuvan University, as

partial fulfillment of the requirements for the award of the degree of Bachelor of Business

Studies (BBS). I, therefore, recommend the project work report for evaluation.

..

Signature

Asso. Prof. Shashi Kant Mainali

Shanker Dev Campus

Date:

ii
 ENDORSEMENT

We hereby endorse the project work report entitled Working Capital Management of
Nepal Doorsanchar Company Limited submitted by Sovit Subedi of Shanker Dev
Campus, Putalisadak, Kathmandu in partial fulfillment of the requirements for award of
the Bachelor of Business Studies (BBS) for external evaluation.

..
Prof. Dr. Kamal Deep Dhakal Asso. Prof. Krishna Prasad Acharya
(Head of Research Management Committee) (Campus Chief)
Date: Date:

iii
 ABSTRACT

This project report entitled to Working Capital Management of Nepal Doorsanchar

Company Limited. The main objective of the study is to analyze current working
position of the company. It is the process of identifying the current working strength and
weaknesses of the company properly establishing the relationship between the items of
balance sheet and profit and loss account. The details regarding the history and finance
detail of the company were collected through the website of the company and many other
related sites.

The financial tool used for the study is ratio analysis. Tables are used for better
understanding. Through ratio analysis the company could understand the working
position and profitability of the company.

iv
 ACKNOWLEDGEMENT

This is an attempt to present project report entitled Working Capital Management of

Nepal Doorsanchar Company Limited prepared for partial fulfillment of the
requirement for Degree of Bachelor of Business Studies (BBS) is an outcome of
continuous and immeasurable cooperation and support of several hands.

I express my sincere honor and special sense of gratitude to my academic supervisor,

Asso. Prof. Shashi Kant Mainali for their generous guidance, thoughtful encouragement
and brilliant insight throughout this research work.

Sovit Subedi

Shanker Dev Campus

Date: June, 2017

v
 TABLE OF CONTENTS

Declaration i

Supervisors Recommendation ii

Endorsement iii

Abstract iv

Acknowledgement v

Table of Contents vi-vii

List of Tables viii

Abbreviations ix

CHAPTER ONE: INTRODUCTION 1-5

1.1 Background 1

1.2 Problem statement 2

1.3 Objectives 3

1.4 Rationale 4

1.5 Report Structure 4

CHAPTER TWO: RELATED LITERATURE REVIEW 6-12

2.1 Conceptual Preview 6

2.2 Review of Previous Works 8

2.3 Research Gap 12

CHAPTER THREE: METHODS 13-18

3.1 Types of Research 13

3.2 Population and Sample 14

3.3 Types of Data 14

vi
 3.4 Data Collection Procedure 14

3.5 Instruments and Techniques of Analysis 14

3.6 Limitations 18

CHAPTER FOUR: RESULTS AND FINDINGS 19-33

4.1 Presentation of Data in Tables and Figures and Their Analysis 19

4.1.1 Position of Current Assets 20

4.1.2 Composition of Working Capital (Financial Ratio) Analysis 22

4.1.3 Proportion of Current Assets to Total Assets 22

4.1.4 Proportion of Current Assets to Fixed Assets 23

4.1.5 Proportion of Cash and Bank Balance to Current Assets 25

4.1.6 Proportion of Cash and Bank to Total Assets 26

4.1.7 Proportion of Inventory to Total Assets 27

4.1.8 Proportion of Inventory to Current Assets 28

4.1.9 Profitability Position 29

4.1.10 Gross Profit Margin 29

4.2 Major Findings 31

CHAPTER FIVE: DISCUSSION AND CONCLUSION 34-37

5.1 Discussions 34

5.2 Conclusion 35

5.3 Implications 36

REFERENCES 39

vii
 LIST OF TABLES

Table No. Titles Page No.

4.1 Position of Current Assets 21

4.2 Current Assets and Total Assets 22

4.3 Current Assets to Fixed Assets 24

4.4 Cash and Bank Balance to Current Assets 25

4.5 Cash and Bank Balance to Total Assets 26

4.6 Inventory to Total Assets 27

4.7 Inventory to Current Assets 28

4.8 Gross Profit Margin 30

viii
 ABBREVIATIONS

ADSL =Asymmetric Digital Subscriber Line

CA = Current Assets

CL = Current Liabilities

Co. = Company

FY = Fiscal Year

GPM = Gross Profit Margin

Ltd. = Limited

NT/NTC =Nepal Telecom

NDCL =Nepal Doorsanchar Company Limited

PEs. = Public Enterprises

TA = Total Assets

WC = Working Capital

ix
 1

CHAPTER ONE

INTRODUCTION

1.1 Background

The term working capital implies a companys investment in short term assets cash, short

term securities, accounts receivables and inventories. Precisely, these assets are financed by

short-term liabilities, thus net working capital is current assets less current liabilities.

Working capital management is the decision relating to working capital and short term

financing, and this includes managing the relationship between the companys short-term assets

and its short-term liabilities. This enables the company to continue operations and to have enough

cash flow at its disposal to satisfy both maturing short-term debt and upcoming operational

expenses, which is the major objective of working capital management.

The efficient management of working capital is very vital for an organization. This is

premised on the fact having too much working capital signifies inefficiency, whereas too little

cash at hand signifies that the survival of business is shaky.

The concept of working capital management is all about the commercial and financial

parts of credit, inventory, marketing, purchasing, royalty and investment policy. The greater the

profit margin, the lesser is likely to be the level of working capital tied up in creating and selling

titles.

The difference between current assets and current liabilities is known as working capital.

The main current assets are stock, debtors and cash, while current liabilities are creditors and

accrued expenses. The main issue in the word "Current" is that it is anticipated to change into

cash, or perhaps be paid from cash, within the period of twelve calendar months. As a rule of

thumb, an organization wishes to tie up little money as much as possible in working capital.

Nevertheless, there are always trade-offs. One peculiar problem for business is running out of

cash, which consequently leads to failure to make employees payrolls, or business might be

unable to offer services due to absence of essential resources.

 2

In Nepal, operating any form of telecommunication service dates back to 94 years in B.S.

1970. But formally telecom service was provided mainly after the establishment of MOHAN

AKASHWANI in B.S. 2005.Later as per the plan formulated in First National Five year plan

(2012-2017); Telecommunication Department was established in B.S.2016. To modernize the

telecommunications services and to expand the services, during third five-year plan (2023-2028),

Telecommunication Department was converted into Telecommunications Development Board in

B.S.2026. After the enactment of Communications Corporation Act 2028, it was formally

established as fully owned Government Corporation called Nepal Telecommunications

Corporation in B.S. 2032 for the purpose of providing telecommunications services to Nepalese

People. After serving the nation for 29 years with great pride and a sense of accomplishment,

Nepal Telecommunication Corporation was transformed into Nepal Doorsanchar Company

Limited from Baisakh 1, 2061. Nepal Doorsanchar Company Limited is company registered

under the companies Act 2053. However the company is known to the general public by the

brand name Nepal Telecom as registered trademark.

Nepal Telecom (Nepal Doorsanchar Company Limited) is incumbent telecom operator in

Nepal which provides various kinds of services. Service ranges from basic telephone to mobile

and internet services. Pace of technological changes in tele-communication service is very rapid.

Telecom operator like Nepal Telecom should be with these technological advancement in order to

stay competitive in the market. Working capital management decision is very important for Nepal

Telecom for increasing its profitability.

1.2 Problem Statement

Working Capital Management becomes difficult in many organizations. In most

enterprises the management of working capital has been misunderstood as the management of

money and the managers are found over conscious about the burdening of money rather than its

efficient utilization. Regarding the management of working capital sources most of the public

enterprises have never been through seriously. They are usually found to depend upon Nepal

government even for overcoming the shortages of Working Capital in spite of trying to manage
 3

Working Capital needs form depreciation fund and utilized surplus to overcome of working

capital.

As working capital management is important instrument for every organization for their

success. They should invest available funds adequately in current assets otherwise it will

seriously erode their liquidity base. They must select the type of current assets suitable for

investment in proportionate percentage to raise their operational efficiency. Working capital is

required to ascertain turnover of current assets that greatly determine the prodigality of the

organization. A firm must have sufficient finished products. The efficient management of

working capital is useful for every organization over investment, unpredictability affirms,

whereas mismanagement of current liabilities will have a negative impact on both cost of capital

and risks of the organization.

Nowadays most of the companies have recognized the importance of working capital

management. Even then they are not able to obtain full advantages of working capital

management. This company is also facing problem considered with working capital management.

The working capital of the company is not satisfactory and encouraging. They are maintaining

high level of current assets. Most specifically, this study deals with following issues:

1. What is the working position of the company?

2. What is the relationship between working capital management and profitability of the

company?

3.

1.3 Objectives

Working Capital management is important instrument for any organization. Success or

failure of any organization depends on its investment in current assets. They should invest in right

percentage so that there will not be excess liquidity. The main objective of this study is to

examine the working capital management of Nepal Telecom. The specific objectives are as

follows:

1. To analyze the working position of the company.

2. To analyze the relationship between working capital management and profitability of the

company.
 4

1.4 Rationale

Working capital is related with the short term assets, i.e. current asset. Significant amount of total

assets are invested in current assets. So, it is necessary to study about the working capital

management in organization. The significance of the study of it is important for following

reasons:

1. A large proportion of the financial management time is allocated to working capital

management.

2. Large proportion of the total assets is typically invested in current assets.

3. The relation between sales, growth and invest in current assets is close and direct.

4. This study will attempt to measure the efficiency on working capital of the Company and

there by anyone can easily know how far it has been successful in this area.

5. This study will provide relevant and pertinent literature for the future research on the area of

working capital management.

1.5 Report Structure

This study will organized in five chapters as follows.

Chapter One: Introduction

The first chapter will describe shortly of different topic. This chapter will include

background of the study, statement of problem, objectives of the study, signification of

the study, limitation of the study and organization of the study.

Chapter Two: Related Literature Review

This chapter will include the conceptual framework of the related topic and writers and

deal the general concept of the write and thesis towards the working capital management.

Chapter Three: Methods

 5

This chapter will deal with research design, nature and source of data and data processing

procedures which includes financial tools..

Chapter Four: Results and Findings

In this chapter the collected data will be analyzed to greats the final result of the working

capital management.

Chapter Five: Discussion and Conclusion

This chapter will include the summary, conclusion drawn from the study of the thesis.
 6

CHAPTER TWO

RELATED LITERATURE REVIEW

Review of Literature means reviewing research studies or other related

Proposition in related area of the study so that all the past studies, their conclusions and

deficiencies may be known and further research can be conducted. Under this section of

the study the conceptual review related to the working capital management, the review of

Journals and articles and the review of the thesis have been presented.

Every business needs capital basically for two purposes. The first requires for

long term purpose which is called Fixed Capital. Such funds are required to create

production facility. Investment in plants, machinery, land, building etc. comes under

production activity. Investment in these assets represents that part of firms capital which

is block on a permanent or fixed basis. Such assets are not purchased with the objective

of resale.

To operate business, a firm also needs another type of capital which is known as

Short Term Capital or Working Capital. The funds required for purchased of raw

material, payment of wages and another day to day expenses etc. is called as Working

Capital. Similarly, the investment required for work-in-progress, raw material, finished

goods, sundry debtors, bills receivable etc. also comes under working capital.

2.1 Conceptual Review

Working capital management refers to the proper management of firm's current

assets and current liabilities. It is concerned with the all decisions and acts that influence

the determination of the appropriate level of current assets and their efficient use as well
 7

as the choice of the methods of financing them, keeping in view of liquidity. It is needed

to run the organizations, day to day in efficient manner. Thus, working and total current

assets are synonymous. It is also called circulating capital, since it keeps on circulation,

the course of business operation. Business starts with cash, which is converted into

inventory after sometimes. Inventory may be of raw materials, semi-finished goods and

finished goods. The inventory is converted into receivables and receivables into cash

again. Thus the cycle becomes complete. This kind of cycle keeps on operating the

organization. The length of cycle would differ depending upon the nature of business.

Generally cycle would be short for non-manufacturing company.

Working capital is controlling nerve of business organization. The terms working

capital of trend is used to refer the firm's current assets (primarily cash, marketable

securities, account receivable, and inventories). Working capital refers to the fact that

most of its components very closely related with the label of production and sales

working capital referred to as short term finance. Gross working capital refers to firm's

total current assets where as Net working capital is current assets minus current liabilities.

Working capital may be defined as assets held for current use within a business less then

among due to those await settlement in short term in whatever form. This idea embraces

the recurring transaction from cash to inventories to receivables to cash that form the

conventional chain of business operations. Funds employed for short term are mainly for

working Capital or operational business. Towards the day to day operation, a firm will

have to provide money towards, the purchase of raw materials, payments of wages and

salaries to extend credit to buyers of goods and services as well as to meet other day

operations.
 8

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, current liabilities and inter relationship that exist

between them. The current assets refers to those assets which in the ordinary course of

value and without disrupting the operation of the company. The major current liabilities

are those liabilities which are intended at their inception to be paid in the ordinary course

of business within a year, out of current assets or earnings of the concern. The basic

current liabilities are bills payable, capital overdraft outstanding expenses. The goal of

working capital management is to manage the firm's current assets and current liabilities

in such a way that the satisfactory level of WC is maintained.

2.2 Review of Previous Works

It is also important to review the relevant research studies relating to working

capital to add input in this study. In this regard the review has been arranged by

reviewing the studies done by different management experts. To review about the

previous works, some local studies are reviewed in this study such as journal/articles,

various published articles by different management exports relating to working capital

management.

Acharya (2008), in this study entitled, "A comparative study of Problems in Management

of Working Capital in Nepalese Enterprise". He has stated that in Nepalese Enterprises

the management of money and managers are found over conscious about receiving of

money rather than its efficient utilization. Thus, the existing problems in the finance are

mostly directed towards the management o WC rather than in any area. In his number of

studies it has been repeatedly found that the gross in efficiency exist in the operation of
 9

public Enterprises. He has stressed on high cost of production which have left these EPs

in less secured position. Thus, he farther added the cost reduction is the only possible

measure for smooth operation and long-term existence of the public enterprises in Nepal.

The cost reduction program is highly associated with the optimization of working capital.

He has focused some operational and organizational problems of Nepalese PE not

following traditional worm 2:1 between CA and CL, low rate of inventory turnover,

change in WC in relation to fixed capital has very low impacts over the profitability not

following conventional of debt equity as 1:1; than transmutation of capital employed into

sales management information, ineffective use of performance evaluation tools and

techniques and WC management has never been considered a managerial job.

Similarly, he has suggested that PEs finance staff must be acquainted with the

modern scientific tools used for the presentation and analysis of data. He further suggests

avoiding the system of crisis decision, which prevailed frequently in their operation. They

have to follow system and method for decision making. Lastly he has given emphasis to

optimize its level of investment at a point of time. Neither over nor under investment in

WCs is desired by the management of enterprises. Both of these situations will erode the

efficiency of the concern.

Pradhan (2010), in this study entitled "Working capital management of selected

manufacturing PEs of Nepal". The Specific objectives under taken in his study are:

i) To conduct risk return analysis of liquidity of working capital position.

ii) To assets the short-term financial liquidity position of the enterprises.

iii) To asset the structure and utilization of WC and

 10

iv) To estimate the transactions demand function of working capital and its

variation

His study has mentioned the following findings:

i) It has found that most of the selected enterprises have been activating a

trade of between risks and return there by following neither an

aggressive nor a conservative approach.

ii) It has showed a poor liquidity of most of the enterprises. This poor

liquidity position has been noticed as the enterprises have either

negative cash flows or negative earnings before tax or they have

excessive net current debts which cannot be paid within a year.

iii) The Nepalese manufacturing PEs have on a average half of their total

assets in the form of CAs, of all the different components of CAs the

share of inventories in total assets, on an average, is largest followed

by receivable and cash in most of the selected enterprises.

iv) The economics of scale have been highest for inventories followed by

cash and gross WC, receivable and Net WC.

v) The regression results also shown that the level of WC and its

components and enterprises desire to hold depend not on sales but on

holding costs also.

His study is concerned with interrelationships that exist between managing CAs

and CLs. The study manages to focus on Networking Capital Concept. The study has

employed ratio analysis discriminate analysis and econometric models for its analysis.
 11

This study does not cover all the PEs in manufacturing sector. Each selected

enterprises does not represent the entire industry in which it falls. The manufacturing PEs

selected for the study differs in its working and nature. These studies show that WC

management is the weakest or neglected part of financial management in most of the PEs

in Neal. It seems that Nepalese firms are fallowing conservative approach in financing as

well as investing working capital.

Gyawali (2013), in this study entitled "Working capital management of Sumi Distillery

PVT LTD." has focused his study on the appropriateness of investment in current assets to

its total assets liquidity position management of WC needs and utilization of current

assets in SDL. And the major finding of this study area as follow:-

i. The company has used the conservative financing polices, where the WC

analyzed by taking the position of the current assets. The CAs consists of the

inventories, sundry Debtors, cash and bank balances, loan and advances & other

assets. The company however following conservative WC policy, there is

negative return and positive turnover on net WC.

ii. The company has used maximum amount of the cash and bank balance in the F/Y

2067/68 during the study period. The investment pattern with respect to CAs to

TAs slows the average figure of 76.96% and 71.02% respectively. The lower ratio

shows the better management and vice versa.

iii. The company has faced greater problem of CAs than CLs in every year i.e. from

the study period of the thesis writing. The average percentage of net profit is 1.66.

Similarly, the company has earned less net profit then the average net profit.
 12

iv. During the study period the company's current ratio is enough to meet the

obligation of 2:1 which is 2.06:1.Which is standard enough.

2.3 Research Gap

The above studies are concerned with the research title Working Capital

Management. Also considering other researchers being carried out on the topic, some

researchers have adopted comparative study on more than one Service Company but this

study deeply studies on working capital management of Nepal Doorsanchar Company

Limited Statistical and financial tools are used to interpret the data available. The study

on Service Company in connection to working capital management seems not abundant.

Most of the studies have used some financial and statistical tools they have included only

summary, findings and conclusion in their study report but no concrete to solve the

problems.

As stated above, there is very limited study being carried out on working capital

management of service companies. Thus to fill this gap, the researchers has aimed to

conduct research on working capital management of service company. The study

attempts to throw light on working capital position of this company and also suggest the

possible measures for the improvement and stepping up the service sector.
 13

CHAPTER THREE

METHODS

Research is a systematic and organized effort to investigate a specific problem

that needs a solution. In simple, research is a process for searching knowledge and

methodology is concerned with the method which is used for research. As a whole,

research methodology is a way to systematically solve the problem. It may be understood

as a science of studying how research is done scientifically. This study is conducted on

the basis of secondary data. The proper analysis of this study can be meaningful only on

the right choice of research tools that helps in coming meaningful conclusion. The data is

analyzed with the help of financial tools. In this Chapter, we study the various steps that

are generally adopted by a researcher in studying his research problem along with the

logic behind them. The main objectives of this study are to analyze the working capital

management of Nepal Telecom (Nepal Door Sanchar Company Limited).

3.1 Types of Research

In common parlance research design is the conceptual structure within which the

research is performed. A research design is the arrangement of conditions for collection

and analysis of data in a manner that aims to compare relevance to the research purpose

with economy in procedure. Research design constitutes the blue print for collection,

measurement and analysis of data. This study continues to evaluate managerial

efficiencies and performance to use research design based on description and analytical

study. This study attempts to make composition and establish the relationship between

two or more variables.

 14

3.2 Population and Sample

The total numbers of Telecom operator companies in Nepal are the population of this

study and Nepal Telecom as a sample.

3.3 Types of Data

This study is mainly based on the secondary data. Not only this, other information

has been collected from internet, published and unpublished materials. The secondary

data has been collected from the annual report of NT. In this, data of five different fiscal

years has been taken.

3.4 Data Collection Procedure

Since the data used in this study are mainly based on the secondary in nature.

These secondary data has been collected from the annual report of NT. The annual report

includes balance sheet, profit and loss statement, and financial statement. All the

available data has been grouped in tables and charts according to their nature and

calculated according to the tools.

3.5 Instruments and Techniques of Analysis

Generally, there are two methods for data analysis, they are: Quantitative and

Qualitative method. But in this study, only one type of analytical tools is used, which is

Financial Tools.
 15

3.5.1 Financial Tools

The ratio analysis is the main tool for analyzing data under financial tools which

help to interpret the financial statement of a Company to know its strength and weakness

as well as its historical performance so that the current financial condition can be

determined. This also helps to conclude how far financial expression is meaningful and to

grab the suitable result. Financial ratio analysis is most useful tool which helps us to

understand the financial condition and performance of the Company.

In order to make rational decisions in keeping with the objectives of the company

and its financial viability, an analysis is undertaken by every interested party such as

creditors, investors and also by the company itself. Such, analysis varies according to the

specific interests of party involved; this analysis is called financial analysis. There are

following financial ratios, which can be analyzed to determine financial position of an

organization.

A. Ratio Analysis of Working Capital

It is studied by analyzing the following ratios:

i) Current Assets to Total Assets (CATA)

The ratio of current assets to total assets indicates what percentages of the

companys total assets are invested in the form of current assets. It is calculated as:

Current Assets
Current Assets to Total Assets = Total Assets

As the ratio increases, the risk and profitability of the company would decrease.

The low ratio indicates the small amount of working capital.

 16

ii) Current Assets to Fixed Assets (CAFA):

This ratio shows the relationship between the current assets and fixed Assets and

can be calculated as:

Current Assets
Current Assets to Fixed Assets= Fixed Assets

If the ratio is large, it indicates the sound working capital.

iii) Cash and Bank Balance to Current Assets (CBBCA):

It is calculated as:

Cash and Bank Balance

Cash and Bank Balance to Current Assets = Current Assets

The small ratio indicates the sound management and large ratio vice versa. The working

capital is directly affected by it.

iv) Cash and Bank Balance to Total Assets (CBBTA):

This ratio is calculated as under and indicates what percentage of total assets is invested

in cash and bank balance.

Cash and Bank Balance

Cash and Bank Balance to Total Assets = Total Assets

v) Inventory to Total Assets (ITA):

This ratio can be calculated as:

Inventories
Inventory to Total Assets = Total Assets
 17

This ratio indicates the percentage of total assets invested in form of invest in the form of

inventories. Inventory is a part of working capital so, if the percentage increased the

working capital automatically increased. The increase also indicates liberal inventory

policy or blocking of materials in stock.

vi) Ratio of Inventory to Current Assets (ICA):

This ratio implies the percentage of current assets in form of inventory and

derived as:

Inventory
Inventory to Current Assets =
Current Assets

The increase in the ratio is an indication of liberal inventory policy followed by company.

If ratio increases or percentage increases means greater part is occupied by inventory.

B. Profitability Ratio:

The main objective of the company is to earn maximum profit. It is necessary to have

enough profit to meet different obligation of the firm. The position of the profitability of

the company is analyzed with the help of following ratio:

i) Gross Profit Margin (GPM):

The gross profit margin ratio expresses the relationship between gross profit and sales.

Gross profit is obtained by deducting cost of goods sold from net sales.

Gross Profit
Gross Profit Margin = 100
Sales
 18

The gross profit margin ratio reflects the efficiency with which company produces each

unit of product. The higher percentage indicates the better efficiency of the company.

3.8 Limitation

Every field of activity has their own limitation. No one can perform their activity by

ignoring this limitation. This study has attempted to evaluate the working capital of the

Nepal Doorsanchar Company Limited. Data collection of related field is very difficult in

Nepal. In order to make a study on such topic more fruitful, it is essential that it should be

collected in frequent time intervals. So, this study will face many difficulties. This study

is also not an exception. No study can be free from its own limitations. So, the present

study has also some limitations. Reliability of financial tools used and lack of research

experience are the major limitations. The following are the limitation of the study:

This study will be limited to the working capital management of the company

which is sample to study about the working capital. These published documents

have their own limitations.

The study has been based on the secondary data only.

The study has been focused on the working capital of Nepal Doorsanchar

Company Limited with the help of financial tools to analyze the working capital

management of the company.

This study covers only the latest five fiscal years from 2068/69 to 2072/73.
 19

CHAPTER FOUR

RESULTS AND FINDINGS

This is the main chapter of the study. This is the most important sensitive part of

this study because it consists of analysis and presentation of empirical data focus in how

far the NT is position to manage their working capital. In order to examine the working

capital management of this telecom operator, the necessary financial facts and figures as

well as descriptive information has been gathered through the financial statement

(annual). These collected data has been calculated using financial tools. This chapter will

present the analysis of various components of working capital of this Company, which

includes size, structure and utilization of current assets and profitability position, relation

between current assets and total assets as well as fixed assets, sources and application of

fund and management of current assets.

4.1 Presentation of Data in Tables and Figures and Their Analysis

Presentation and analysis of data means to show the accurate data and perform its

presentation clearly or informatively. The main aim of this chapter is presentation and

analysis of data according to research method to attain the objective of this study. In this

chapter, an attempt has been made to analyze the working capital position of NDCL for

its operational period of five years that is 2068/69 to 2072/73. The data for this study are

presented in tabular form and are analyzed with the help of financial tool.
 20

4.1.1 Position of Current Assets:

As current assets are the main parts which are required to run day to day business

activities and total of this is known as working capital as the gross concept. Its position

has become needful to study. Most of the business organizations require some amount of

working capital and its requirement differ according to the size of the organization. A

service firm needs cash to purchase equipments, spare parts and pay expenses this is

because of not perfect matching between cash inflow and outflow. Cash is also needed to

meet the future expenses. The timely procurement of equipments of the project, spare

parts are kept in order to ensure smooth service delivery and to protect the risk of non-

availability of demand based quality service and benefit to competitor. To meet this

obligation also cash is needed. Any business organization aims to maximize return on

shareholders' investment. In order to accomplish this objective the business organization

should earn sufficient return for its operations. Earning a steady amount of profit requires

successful sales. So, the firm has to invest enough funds in current assets for the success

of sale. As the sale do not converted into cash instantly the extra amount of working

capital is needed.

The efficient management of current assets is an integral impact on maximization

of owners capital in this context, it is necessary to have proper analysis for current assets

management. The proper analysis of current assets of industrial concern reflects the

nature and operation of its management. So, the overall current assets are firstly analyzed.
 21

Table 4.1

Position of Current Assets (Rs in Millions)

Cash & Bank Sundry Debtors Inventory Advance Deposits Investments Total C.A.

Fiscal Year Amount % Amount % Amount % Amount % Amount %

2068/69 16134.52 64.54 3318.46 13.27 416.42 1.67 5131.07 20.52 0.00 0.00 25000.47

2069/70 18191.06 63.08 3593.21 12.46 180.13 0.62 6872.90 23.83 0.00 0.00 28837.30

2070/71 21611.54 61.72 4296.00 12.27 172.27 0.49 8935.56 25.52 0.00 0.00 35015.36

2071/72 16769.20 43.57 3904.74 10.14 958.05 2.49 16857.54 43.80 0.00 0.00 38489.55

2072/73 25220.62 47.36 4339.42 8.15 1049.69 1.97 22421.60 42.10 224.82 0.42 53256.15

Average 56.05 11.26 1.45 31.16 0.08 36119.77

Source: Annual Report of NT

The above table represents current assets position of NT. It also represents

investment pattern of this company in current assets and their fluctuations in years. In

FY 2068/69 NT current assets is Rs. 25000.47 millions and next year it is increase in

FY 2069/70 which is Rs. 28837.3 millions then it increase to Rs.35015.36 in FY

 22

2070/71. NTs Current assets remains continuously increasing in FY 2071/72 and FY

2072/73 which are Rs. 38489.55 and Rs. 53256.15 millions accordingly.

4.1.2 Composition of Working Capital (Financial Ratio) Analysis:

The compositions of working capital are analyzed with the following ratios:

4.1.3 Proportion of Current Assets to Total Assets:

The necessity of current assets depends upon the nature of the business. It is required

to meet the working capital, which is required to run the organizations day to day

activities. The table given below represents the percentage of current assets to total

assets.

Table 4.2

Current Assets and Total Assets (Rs. In Millions)

Fiscal Current Assets Total Assets Ratio

Year
2068/69 25000.47 38675.47 64.64%

2069/70 28837.30 46280.63 62.31%

2070/71 35015.36 52504.65 66.69%

2071/72 38489.55 76021.56 50.63%

2072/73 53256.15 105918.33 50.28%

Source: Annual Report of NT

 23

This ratio represents the proportion of current assets investment to total assets

investment of NT for the selected years of study period. The overall proportion of

current assets on total assets is fluctuating year after year. In the fiscal year 2068/69,

current assets absorb 64.64 % of total assets, which has slightly decreased in 2069/70

by 2.33% i.e. 62.31%. But in fiscal year 2070/71, the percentage of current assets to

total assets has increased to 66.69%. This is the highest absorption of C.A. to T.A.

during study period. This is due to increase in all types of current assets except

inventory. In next fiscal year 2071/72, it has drastically decreased by 16.06% being

50.63%. In last study period, in fiscal year 2072/73 it has decreased to 50.28%. So, we

can say that the proportion of current assets to total assets is fluctuating in first three

year and then decreasing; this is due to fluctuation in current assets.

4.1.4 Proportion of Current Assets to Fixed Assets:

For the purpose of success of any service concerns, firm should invest in current

assets as well as fixed assets to supports a particular level of return. Therefore, the

company should determine the proper position of current assets with fixed and total

assets. The level of current assets can be measured by relationship between current assets

to fixed assets, which can help to find the current assets investment policy. Assuming a

constant level of fixed assets, higher current assets to fixed assets ratio indicates an

aggression. Current assets policy conversely lower ratio indicates the conservative

current assets policy. If the company increase the proportion of current assets there is the

high probability of return as well as risk, vice-versa if decrease than it may be low risk

and return.
 24

Table 4.3

Current Assets to Fixed Asset (Rs. In Millions)

Fiscal Year Current Assets Fixed Assets Ratio

2068/69 25000.47 25193.71 0.99

2069/70 28837.30 29849.39 0.97

2070/71 35015.36 31150.35 1.12

2071/72 38489.55 45642.52 0.84

2072/73 53256.15 52662.18 1.01

Source: Annual Report of NT

In the above table, ratio of current assets to fixed assets of NDCL of five

different fiscal years has been presented. During the five study year, the current assets

to fixed assets are being fluctuated. The investment in fixed assets is less than that in

current assets in fiscal year 2070/71 and 2072/73. In fiscal year 2070/71, the ratio is

1.12 and in 2072/73, it is 1.01. The ratio is 0.99 in fiscal year 2068/69 and decrease to

0.97 in fiscal year 2069/70. It is lowest in fiscal year 2071/72 and is 0.84. Overall this

shows that the company has adopted the more aggressive current assets investment

policy
 25

4.1.5 Proportion of Cash and Bank Balance to Current Assets:

The main reason of holding the cash is for transaction motive, precautionary motive

and speculative motive. So, to fulfill the daily business requirement such as payment of

bills, payment of debt, optimum cash balance or bank balance has to be maintained.

The below table shows the proportion of cash to current assets:

Table 4.4

Cash and Bank Balance to Current Assets (Rs. In Millions)

Fiscal year Cash & Bank Balance Current Assets Ratio

2068/69 16,135 25000.47 64.54%

2069/70 18,191 28837.30 63.08%

2070/71 21,612 35015.36 61.72%

2071/72 16,769 38489.55 43.57%

2072/73 25,221 53256.15 47.36%

Source: Annual Report of NT

The above table shows that the proportion of cash to current assets is continuously

decreasing due to more increase in Current assets then cash and bank balance in later

years. It is 64.54% in the fiscal year 2068/69. The cash hold by the Company in this

fiscal year is Rs. 16,135 Millions. Likewise, the cash hold by the company in fiscal

year 2069/70 is Rs. 18,191 Million which is 63.08 percent of its total current assets.

The proportion in the fiscal year 2070/71 is 61.72% which has decreased to 43.57% in
 26

the next fiscal year 2071/72. And in fiscal year 2072/73 the proportion is increase to

47.36%.

4.1.6 Proportion of Cash & Bank Balance to Total Assets:

The proportion of liquid cash in comparison to the total assets shares the investment in cash

out of total assets. The more ratio decrease the risk and provide nothing, the profitability would

decrease. The below table shows the percentage of Cash & Bank Balance to Total Assets:

Table 4.5

Cash and Bank Balance to Total Assets (Rs. In Millions)

Fiscal Year Cash & Bank Total Assets Ratio

2068/69 Balance
16134.52 38675.47 41.72%

2069/70 18191.06 46280.63 39.31%

2070/71 21611.54 52504.65 41.16%

2071/72 16769.20 76021.56 22.06%

2072/73 25220.62 105918.33 23.81%

Average 19585.39 63880.13 33.61%

Source: Annual Report of NT

The above table shows the investment in cash out of its total assets in NDCL. During the

period of study of five years. In the fiscal year 2068/69, the proportion is 41.72% which is the

highest during the five study year has fallen down to 39.31% in the next fiscal year 2069/70. In

fiscal year 2070/71 it has increased to 41.16%. Again, it has decreased to 22.06% in fiscal year
 27

2071/72 and in fiscal year 2072/73, it is 23.81% respectively. The proportion of 22.06% in

fiscal year 2071/72 is the lowest among the five study year.

4.1.7 Proportion of Inventory to Total Assets:

Inventory takes little contribution in current assets for service organization like NDCL.

It has lower effect on the total assets. The below table shows the proportion of

inventories and total assets:

Table 4.6

Inventory to Total Assets (Rs. In Millions)

Fiscal Year Inventory Total Assets Ratio

2068/69 416.42 38675.47 1.08%

2069/70 180.13 46280.63 0.39%

2070/71 172.27 52504.65 0.33%

2071/72 958.05 76021.56 1.26%

2072/73 1049.69 105918.33 0.99%

Average 555.31 63880.13 0.81%

Source: Annual Report of NT

The above table shows the proportion between inventories and total assets during study

year. In fiscal year 2068/69, the proportion is 1.08%. It has decreased to 0.39% in

fiscal year 2069/70. In fiscal year 2070/71, it has fall down to 0.33% which is the
 28

lowest among the study years. Again it has increased respectively to 1.26%, which is

the highest ratio among the study years. It is 0.99% in fiscal years 2072/73.

4.1.8 Proportion of Inventory to Current Assets:

One of the less important parts of current assets is inventory for service organization

like NDCL. Main component of inventory for this company are Sim/Ruim Cards,

Telephone Sets, Spare parts of the System Equipment which is lower in amount but

plays important role for uninterrupted system operation and communication services.

Table 4.7

Inventory to Current Assets (Rs. In Millions)

Fiscal Year Inventory Current Assets Ratio

2068/69 416.42 25000.47 1.67%

2069/70 180.13 28837.30 0.62%

2070/71 172.27 35015.36 0.49%

2071/72 958.05 38489.55 2.49%

2072/73 1049.69 53256.15 1.97%

Average 555.31 36119.77 1.45%

Source: Annual Report of NT

 29

In the above table, the proportion of inventory to current assets during the study year

has been calculated. In the fiscal year 2068/69, it is 1.67%. In fiscal year 2069/70, it

has fallen to 0.62%. In 2070/71, it has lowest ratio of 0.49% among the study year.

And it has increased to 2.49% in fiscal year 2071/72, which is the highest among the

study years and 1.97% in F/Y 2072/73 respectively.

4.1.9 Profitability Position:

Behind the establishment of a company, there is objective of earning profit or

getting maximum return on investment. Profitability of company is concern with all

parties of the country. Effective utilization of resources to earn maximum amount

profit is the basic through of company. Profitability is the measure of efficiency. To

measure the profitability position of the NDCL, the researcher has tried to analyze the

profitability ratio, such as: gross profit margin, net profit margin, operating ratio, return

on assets, return on net working capital and return on working capital.

4.1.0 Gross Profit Margin (GPM):

It is the profit of excluding the deduction of operating expenses and income tax.

It is obtained by deducting cost of services sold from net sales revenue. The ratio is the

relationship between gross profits to net Revenue which explains that percentage

return of gross profit out of total assets. The ratio measure the efficiency of company

and soundness of management. Higher percentage indicates the better efficiency. The

below table shows the gross profit earned by the company during period of study and

Revenue made there off.

 30

Table 4.5

Gross Profit Margin (Rs. In Millions)

Fiscal Year Gross Profit Revenue Ratio

2068/69 10707.31 16694.26 64.14%

2069/70 13633.99 20628.95 66.09%

2070/71 14441.10 25058.30 57.63%

2071/72 16389.64 26406.99 62.07%

2072/73 15617.19 32798.05 47.62%

Total 70789.22 121586.56 297.54%

Average 14157.84 24317.31 59.51%

r=0.85 P.E.=0.08
Source: Annual Report of NT

In the above table gross profit margin of the firm during the five study years are

shown which is quite fluctuating. The firm has gross profit during all five studies. In

fiscal year 2068/69, it has gross profit margin of 64.14% i.e. gross profit. It is increases

to 66.09% in fiscal year 2069/70 which is the highest gross profit among the study

year. In next fiscal year 2070/71, it has fallen to 57.63% and increases to 62.07% in

fiscal year 2071/72. In fiscal year 2072/73 it has decreased to 47.62%.

The above calculation shows the positive relationship between gross profit and

Revenue because the correlation coefficient between them is positive. Hence, r is six

times greater than PE, the relationship is considered to be significant.

 31

4.2 Major Findings:

The major findings of the study during the period of five years in NDCL from the

analysis of secondary sources are summarized below:

i) The major components of current assets of NDCL are cash and bank, sundry

debtors, inventory and advance deposits. During the study years inventory

holds the minor portions of NDCLs current assets i.e. 1.45% average. The

average percentage of cash and bank, sundry debtors and advance deposits

are 56.05%, 11.26% and 31.16%. Because in many company not any terms

are constitute as a current assets.

ii) The proportion of current assets to total assets is fluctuating during the study

period. It has been fluctuated from 50.28% to 66.69%. The fiscal year

2070/71 has the highest proportion of current assets to total asset of 66.69%

during the fine study period. And fiscal year 2072/73 has the lowest

proportion of 50.28%. Because it changes with activity levels.

iii) Higher the proportion of current assets to fixed assets higher the risk and

return will be. So, in fiscal year 2070/71, the proportion of current assets to

fixed assets is highest with 3.34 times, it means that during this year, risk and

return is more than in other study years. And in fiscal year 2071/72, it has

proportion of 0.84 times which is lowest with low risk and return than in

other study year. Because management follows consistence investment.

 32

iv) The proportion of cash and bank balance to current assets is decreasing

during the study period except in 2072/73. It has 64.54%, 63.08%, 61.72%,

43.57% and 47.36% proportion of cash and bank balance to current assets

from fiscal year 2068/69 to 2072/73 respectively.

v) The average proportion of cash and bank balance to total assets is 33.61%

during the study period. Higher the proportion of cash and bank balance to

total assets, lower the risk and return and vice-versa. In fiscal year 2069/70,

the company has highest ratio among the study period, it means it has low

risk and return. And in fiscal year 2071/72, it has lowest ratio 22.06% with

high risk and return. Overall, the company has followed the conservative

working capital policy.

vi) The proportion of inventory to total assets is fluctuating during the study

period. The company has 1.08%, 0.39%, 0.33%, 1.26% and 0.99% of

proportion of inventory to total assets respectively from fiscal year 2068/69

to 2072/73. The firm has highest ratio in fiscal year 2071/72 and lowest in

fiscal year 2070/71.

vii) The average proportion of inventory to current assets is 1.45% during the

study period. The proportion has been fluctuated from 0.49% to 2.49%

during the study year. In fiscal year 2071/72 it has highest proportion and

lowest in fiscal year 2070/71. Because only 1.45% parts is taken over by

inventory so that result is obtained.

 33

viii) Profitability is the measure of efficiency. The profitability position is

analyzed from various angles. The gross profit margin of NDCL is

fluctuating over study period. The highest gross profit margin of 66.09% in

fiscal year 2069/70 and lowest of 47.62% in fiscal year 2072/73.

 34

CHAPTER FIVE

DISCUSSION AND CONCLUSION

5.1 Discussions

The first chapter describes the brief introduction of the study, history of

telecommunication services and establishment of Nepal Doorsanchar Company Limited.

This chapter includes background, problem statement, objectives of the study,

significances of the study and organization of the study as a whole. The second chapter is

review of literature. This chapter deals with the general concept of the writer and thesis

towards the working capital management. This includes the opinion of different writers

regarding with the thesis topic. It also includes review of pervious related research studies

and previous student. The third chapter is research methodology. It has included the

research design. It present the nature and sources of data, data collection and processing

technique and financial and statistical tools used. This chapter gives the knowledge about

various ratios. The fourth chapter is result and finding. An attempt to analyze the working

capital policy and trade off between working capital and profitability of NDCL during

five fiscal years (2068/69 to 2072/73) has been done. For the purpose of the analysis of

composition of current assets and current liabilities, proportion of current assets to total

assets and fixed assets, proportion of cash and bank balance to current assets have been

analyzed. And in the last chapter an attempt has been made to present summary, some

suggestion for NDCL as recommendation and lastly conclusions about the study.

The basic objective of this study is to examine the management of working capital

of NDCL. To accomplish these objectives set earlier in first chapter, the necessary data as

from secondary source are collected from financial statements of the NDCL.
 35

The secondary data has been analyzed through ratio analysis as a financial tools.

The major ratio analysis consists of composition of working capital position and

profitability position.

5.2 Conclusion

In conclusion, it can be said safely that the working capital management cannot be

neglected by NDCL Otherwise; it can seriously erode its financial viability in long run.

Thus, managers must understand the factors determining working capital needs because

surplus of working capital has no earning and do not increase the value of the company.

The proportion of current assets with respect to total assets and net fixed assets in NDCL

shows that current assets absorb high percentage of those total assets, as the higher ratio

indicates the greater amount of working capital which will decrease risk and profitability.

It is due to higher proportion of cash and cash equivalent and receivables. There is

positive correlation between current assets and total assets as well as statically significant

and there is significant difference between two variables which could adversely affect in

the firms wealth maximization goal is the long run.

Cash constitute an important part of assets of the firm. The profitability position

of the NDCL during the study period is satisfactory. Although it followed conservative

working capital which reduces risk but hamper in profitability in long run. So, the firm

can improve it by following appropriate working capital policy which could maximize its

profitability.
 36

5.3 Implications

Based on the finding of the study the following recommendations are forwarded for the

improvement of the working capital management of NDCL.

i) Effective Working Capital Management:

Financial situation is sound. But they must follow appropriate working capital

policy not only conservative. Beside this, there should be policy to prevent the

holding of excessive and inadequate current assets in the firm. In NDCL the most

important current assets are cash and cash equivalent, loan, advance and others.

ii) Effective Management of Cash:

The function of investment in money assets is to meet operational requirements in

day to day business, to provide a reserve of liquidity for major schedule outflows

of cash, to exploit opportunities, to avoid unexpected drains of cash and so on.

There are many ways to effective management of excess cash in NDCL such as:

investment in marketable securities, new technological projects etc. If cash

appears more than requirement, the company showed invests such ideal fund in

different service area such as hydropower plant, software develop company, spare

parts production company for portfolio diversification to minimize risk of

uncompetitive in the market.

iii) Effective Management of Receivable:

In NDCL there is lower investment in receivable. But there should be neither over

investment nor lower investment in receivable. These policies involving

 37

receivable management involves trade-off between risk and return. The main

determinants of the size of investment are terms of sale, the selection of customers

to give credit, efficiency in collecting receivables and so on. Collection of excess

bill of customer who left the service and take new number or line should be cross

checked.

iv) Effective Inventory Management:

Inventory absorbs very low percentage of current assets. Spare parts of

equipment, service equipment although in low portion are important for service

organization should be kept properly according to sales plans. For this company

should make effective sales plan which helps for immediate marketability. The

management must minimize the wastage, scarps, there should be good store-

keeping system better material handling system and timely inspection system.

Moreover the useful, the non-moving and absolute items should be discarded to

avoid unnecessary blockage up of inventory.

.
 38

REFERENCES

Books:

Acharya, K. (2008). Problems and Impediment in the Management of Working Capital in Nepalese Enterprises,

New Delhi: National Book Organization.

Pradhan, R. S. (2006). Management of Working Capital, New Delhi: National Book Organization.

Journals:

Acharya, K., (1985). The Management of Working Capital in the Public Enterprises of Nepal, Nepalese

Development Studies.

Pradhan, R. S. (1986). The Demand for Working Capital by Nepalese Corporation, The Nepalese Management
Review, Vol. 8.
Shrestha, M. K. (1983). Working Capital Management: A Case Study on Financial Results and Constraints,

Economical Bulletin, Vol. 8, Kathmandu.

Gyawali, K. (2013). Working Capital Management of Sumi Distillery Private Limited, An Unpublished
Dissertation, MBS, T.U.

https://www.ntc.net.np/pages/view/annual-reports
https://www.ntc.net.np/pages/view/nepal-telecom
https://books.google.com/
https://en.wikipedia.org/wiki/Nepal_Telecom
https://en.wikipedia.org/wiki/Telecommunications_in_Nepal