CHAPTER – 1

Working Capital

1
1.1 INTRODUCTION
Working capital is a financial metric which represents operating
liquidity available to a business, organisation or other entity, including
governmental entities. Along with working capital is considered a part of
operating capital. Gross working capital is equal to current assets.
Working capital is calculated as current assets minus current liabilities. If
current assets are less than current liabilities, an entity has a working
capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short

of liquidity if its assets cannot readily be converted into cash. Positive
working capital is required to ensure that a firm is able to continue its
operations and that it has sufficient funds to satisfy both maturing short-
term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and
payable, and cash.

1.2 WHY IT MATTERS

Working capital is a common measure of a company's liquidity,
efficiency, and overall health. Because it includes cash, inventory,
accounts receivable, accounts payable, the portion of debt due within one
year, and other short-term accounts, a company's working capital reflects
the results of a host of company activities, including inventory
management, debt management, revenue collection, and payments to
suppliers.

Positive working capital generally indicates that a company is able

to pay off its short-term liabilities almost immediately. Negative working
capital generally indicates a company is unable to do so. This is why
analysts are sensitive to decreases in working capital; they suggest a
company is becoming overleveraged, is struggling to maintain or grow
sales, is paying bills too quickly, or is collecting receivables too slowly.
Increases in working capital, on the other hand, suggest the opposite.
There are several ways to evaluate a company's working capital further,
including calculating the inventory-turnover ratio, the receivables ratio,
days payable, the current ratio, and the quick ratio.

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 One of the most significant uses of working capital is inventory.
The longer inventory sits on the shelf or in the warehouse, the longer the
company's working capital is tied up. The definition of working capital on
InvestingAnswers

When not managed carefully, businesses can grow themselves out

of cash by needing more working capital to fulfill expansion plans than
they can generate in their current state. This usually occurs when a
company has used cash to pay for everything, rather than seeking
financing that would smooth out the payments and make cash available
for other uses. As a result, working capital shortages cause many
businesses to fail even though they may actually turn a profit. The most
efficient companies invest wisely to avoid these situations.

Analysts commonly point out that the level and timing of a

company's cash flows are what really determine whether a company is
able to pay its liabilities when due. The working-capital formula assumes
that a company really would liquidate its current assets to pay current
liabilities, which is not always realistic considering some cash is always
needed to meet payroll obligations and maintain operations. Further, the
working-capital formula assumes that accounts receivable are readily
available for collection, which may not be the case for many companies.

It is also important to understand that the timing of asset purchases,

payment and collection policies, the likelihood that a company will write
off some past-due receivables, and even capital-raising efforts can
generate different working capital needs for similar companies. Equally
important is that working capital needs vary from industry to industry,
especially considering how different industries depend on expensive
equipment, use different revenue accounting methods, and approach other
industry-specific matters. Finding ways to smooth out cash payments in
order to keep working capital stable is particularly difficult for
manufacturers and other companies that require a lot of up-front costs.
For these reasons, comparison of working capital is generally most
meaningful among companies within the same industry, and the definition
of a "high" or "low" ratio should be made within this context.

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1.3 CALCULATION
Working capital is the difference between the current assets and the
current liabilities.

The basic calculation of the working capital is done on the basis of

the gross current assets of the firm.

Working Capital = CURRENT ASSETS - CURRENT LIABILITIES

INPUTS
Current assets and current liabilities include three accounts which
are of special importance. These accounts represent the areas of the
business where managers have the most direct impact:
• accounts receivable (current asset)
• inventory (current assets), and
• accounts payable (current liability)

The current portion of debt (payable within 12 months) is critical

because it represents a short-term claim to current assets and is often
secured by long-term assets. Common types of short-term debt are bank
loans and lines of credit.

An increase in net working capital indicates that the business has

either increased current assets (that it has increased its receivables or other
current assets) or has decreased current liabilities—for example has paid
off some short-term creditors, or a combination of both.

1.4 WORKING CAPITAL CYCLE

1.4.1 DEFINITION
The working capital cycle (WCC) is the amount of time it takes to
turn the net current assets and current liabilities into cash. The longer the
cycle is, the longer a business is tying up capital in its working capital
without earning a return on it. Therefore, companies strive to reduce their
working capital cycle by collecting receivables quicker or sometimes
stretching accounts payable.

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1.4.2 MEANING
A positive working capital cycle balances incoming and outgoing
payments to minimize net working capital and maximize free cash flow.
For example, a company that pays its suppliers in 30 days but takes 60
days to collect its receivables has a working capital cycle of 30 days. This
30-day cycle usually needs to be funded through a bank operating line,
and the interest on this financing is a carrying cost that reduces the
company's profitability. Growing businesses require cash, and being able
to free up cash by shortening the working capital cycle is the most
inexpensive way to grow. Sophisticated buyers review closely a target's
working capital cycle because it provides them with an idea of the
management's effectiveness at managing their balance sheet and
generating free cash flows.

As an absolute rule of funders, each of them wants to see a positive

working capital. Such situation gives them the possibility to think that
your company has more than enough current assets to cover financial
obligations. Though, the same can’t be said about the negative working
capital.[2] A large number of funders believe that businesses can’t be
sustainable with a negative working capital, which is a wrong way of
thinking. In order to run a sustainable business with a negative working
capital, it’s essential to understand some key components.

1. Approach your suppliers and persuade them to let you purchase the
inventory on 1-2 month credit terms, but keep in mind that you must
sell the purchased goods, to consumers, for money.

2. Effectively monitor your inventory management, make sure that it’s

often refilled and with the help of your supplier, back up your
warehouse.

1.5 WORKING CAPITAL MANAGEMENT

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 cash flow

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 to satisfy both maturing short-term debt and upcoming operational
expenses.

A managerial accounting strategy focusing on maintaining efficient

levels of both components of working capital, current assets, and current
liabilities, in respect to each other. Working capital management ensures a
company has sufficient cash flow in order to meet its short-term debt
obligations and operating expenses.

DECISION CRITERIA

By definition, working capital management entails short-term

decisions—generally, relating to the next one-year period—which are
"reversible". These decisions are therefore not taken on the same basis as
capital-investment decisions (NPV or related, as above); rather, they will
be based on cash flows, or profitability, or both.

• One measure of cash flow is provided by the cash conversion cycle—

the net number of days from the outlay of cash for raw material to
receiving payment from the customer. As a management tool, this
metric makes explicit the inter-relatedness of decisions relating to
inventories, accounts receivable and payable, and cash. Because this
number effectively corresponds to the time that the firm's cash is tied
up in operations and unavailable for other activities, management
generally aims at a low net count.

• In this context, the most useful measure of profitability is return on

capital (ROC). The result is shown as a percentage, determined by
dividing relevant income for the 12 months by capital employed;
return on equity (ROE) shows this result for the firm's shareholders.
Firm value is enhanced when, and if, the return on capital, which
results from working-capital management, exceeds the cost of capital,
which results from capital investment decisions as above. ROC
measures are therefore useful as a management tool, in that they link
short-term policy with long-term decision making. See economic value
added (EVA).

• Credit policy of the firm: Another factor affecting working capital

management is credit policy of the firm. It includes buying of raw

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 material and selling of finished goods either in cash or on credit. This
affects the cash conversion cycle.

MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination

of policies and techniques for the management of working capital. The
policies aim at managing the current assets (generally cash and cash
equivalents, inventories and debtors) and the short-term financing, such
that cash flows and returns are acceptable.

• Cash management. Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.

• Inventory management. Identify the level of inventory which allows

for uninterrupted production but reduces the investment in raw
materials—and minimizes reordering costs—and hence increases cash
flow. Besides this, the lead times in production should be lowered to
reduce Work in Process (WIP) and similarly, the Finished Goods
should be kept on as low level as possible to avoid overproduction—
see Supply chain management; Just In Time (JIT); Economic order
quantity (EOQ); Economic quantity

• Debtors management. Identify the appropriate credit policy, i.e. credit

terms which will attract customers, such that any impact on cash flows
and the cash conversion cycle will be offset by increased revenue and
hence Return on Capital (or vice versa); see Discounts and allowances.

• Short-term financing. Identify the appropriate source of financing,

given the cash conversion cycle: the inventory is ideally financed by
credit granted by the supplier; however, it may be necessary to utilize a
bank loan (or overdraft), or to "convert debtors to cash" through
"factoring".

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1.6 OBJECTIVE OF THE STUDY
• To analyse the working capital management of Mahanadi Coalfields
Limited.
• To evaluate the efficiency of the working capital management of
Mahanadi Coalfields Limited.
• To find out the liquidity position of the concern through ratio analysis.
• To study the growth of Mahanadi Coalfields Limited in terms of working
capital management.
• To make suggestion and recommendation to improve the working capital
position of Mahanadi Coalfields Limited.
• To identify the working capital efficiency on the basis of available data.
• To study on Working Capital Management techniques of the firm.

The importance of Working Capital Management in any industrial

concern cannot be overstressed. Under the present inflationary condition,
management of Working Capital is perhaps more important than even
management of profit and this requires greatest attention and efforts of the
finance manager. It needs vigilant attention as each of its components
require different types of treatment and it throws constant attention on
exercise of skill and judgment, awareness of economic trend etc, due to
urgency and complicacy the vital importance of Working Capital.

The anti-inflationary measure taken up by the Government, creating

a tight money condition has placed working capital in the most
challenging zone of management and it requires a unique skill for its
management. Today, the problem of managing Working Capital has got
the recognition of separate entity, so its study and management is of major
importance to both internal and external analyst to judge the current
position of the business concerns. Hence, the present study entitled “AN
ANALYSIS ON WORKING CAPITAL MANAGEMENT” has been taken up.

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1.7 SCOPE OF THE STUDY
The present study “Working Capital Management in Mahanadi
Coalfields Limited” analyses the efficiency of the working capital
management and its components i.e. inventory amount, cash and bank
balances and various current liabilities. The study attempts to determine
the efficiency and effectiveness of management in each segment of
working capital. Since the net concept of working capital has been taken
in the present study, management of both current assets andcurrent
liabilities will be critically reviewed.

The scope of Working Capital Management is very wide & broad

based. For the theoretical understanding, the first part of the study is
confined to the review of literature relating to Working Capital
Management & other related areas. The study covers a period of 1 and ½
month commencing from the financial year 15th may 2018 to 30th June
2018.

The importance of the study is emphasized by the fact that the

manner of administration of current asset and current liabilities
determined to a very large extent the success or failure of a business. The
efficient and effective management of working capital is of crucial
importance for the success of a business, which involves the management
of the current assets and the current liabilities. The business concern has
therefore to optimize the use of available resources through the efficient
and effective management of the current assets and current liabilities. This
will enable to increase the profitability of the concern and the firm could
be able to meet its current obligation will in time.

The study analysed the liquidity position and working capital

management of Mahanadi Coalfields Limited. The study of working
capital is based on only one tool i.e. Ratio Analysis. Further the study is
based on last 05 years Annual Reports.

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1.8 LIMITATIONS
1. The study duration is limited to 05 years.
2. The study is restricted only to MCL. Being a case study, the findings
cannot be generalized.
3. The study is limited to the analysis of the working capital management
of the companies.
4. The findings of the study are based on the information retrieved by the
annual reports of the companies.
5. The study takes into account only the quantitative data and the
qualitative aspects were not taken into account.

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 CHAPTER - 2
LITERATURE REVIEW

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2.1 INTRODUCTION
The review of literature guides then researcher for getting better
understanding of methodology used, limitations of various available
estimation procedures and database, and lucid interpretation and
reconciliation of the conflicting results. Besides this, the review of
empirical studies explores the avenue for future and present research
efforts related to the subject matters. In case of conflicting and unexpected
results, the research can take the advantages of knowledge of their
researchers simply through the medium of their published works. A
number of research studies have been carried out on different aspects of
financial appraisal by the researchers, economists and academicians in
India and abroad. Different author have analysed working Capital and
financial performance in different perspectives. A review of these
analyses is important in order to develop an approach that can be
employed in the context of the study of textile industry.

2.2 WORKING CAPITAL MANAGEMENT

It deals with all the aspects of working capital of which in depth
study has been carried out as discussed below.

1. Ray Sarbapriya (2012) studies the relationship between liquidity and

profitability in the manufacturing industry. The writer has taken as a
sample 311 manufacturing firms for a period of 14 years, and studied
the effect of different variables of working capital management. In this
study strong adverse relationship between measures of working capital
management and corporate profitability have been observed. In the end
insignificant negative relationship between firm size and its net
operating profit ratio was detected.

2. Kushalappa S.and Kunder Sharmila (2012) closely study the

relationship between working capital management policies and
profitability of the thirteen listed manufacturing firms in Ghana. At the
end of the study, a significantly negative relationship between
profitability and accounts receivable days is found to exist.
Profitability is significantly positively influenced by the firm‟s cash
conversion cycle (CCC), current assets ratio and current asset turnover.

12
 It is also suggested that managers can create value for the shareholders
by creating incentives to reduce their accounts receivable to 30 days.

3. Turan M. S., Bamal Sucheta, Vashist Babita and Turan Nidhi (2013)
attempt to examine the relationship between working capital
management and profitability by making an inter sector comparison of
two manufacturing industries i.e. Chemical industries and
Pharmaceutical industries. 50 companies from each sector based on
market capitalization and listed on BSE and 500 indices were selected
for the research for the period from 2002 to 2011. At the end of the
analysis it was concluded that in spite of similar nature of both the
industries in the manufacturing sector, working capital management
variables affect profitability indices more strongly in the chemical
industry than in the pharmaceutical industry. It was also observed that
both the industries have a significant relationship between profitability
and working capital management variables. Besides, working capital
management variables affect more strongly the profitability indices of
chemical industry than those of pharmaceutical industry.

4. Akoto Richard K., Vitor Dadson A. and Angmor Peter L. (2013)

closely study the relationship between working capital management
policies and profitability of the thirteen listed manufacturing firms in
Ghana. At the end of the study, a significantly negative relationship
between profitability and accounts receivable days is found to exist.
Profitability is significantly positively influenced by the firm‟s cash
conversion cycle (CCC), current assets ratio and current asset turnover.
It is also suggested that managers can create value for the shareholders
by creating incentives to reduce their accounts receivable to 30 days.

5. Joseph Jisha (2014) closely examines the study of working capital

management in Ashok Leyland and points out that the liquidity and
profitability position of the company is not satisfactory, and needed to
be strengthened in order to be able to meet its obligations in time.

6. Madhavi K. (2014) makes an empirical study of the co-relation

between liquidity position and profitability of the paper mills in
Andhra Pradesh. It has been observed that inefficient working capital

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 management makes a negative impact on profitability and liquidity
position of the paper mills.

7. Gurumurthy N. and Reddy Jayachandra K. (2014) have conducted a

study on the working capital management of four pharmaceutical
companies APSPDCL, APEPDCL, APNPDCL and APCPDCL and
have come to the conclusion that the existing system of working
capital management was not up to the mark and needed to be
improved.

2.3 PREVIOUS REVIEW

Although working capital is the concern of all firms, it is the small
firms that should address this issue more seriously. Given their
vulnerability to a fluctuation in the level of working capital, they cannot
afford to starve of cash. The study undertaken by (Peel et al., 2000)
revealed that small firms tend to have a relatively high proportion of
current assets, less liquidity, exhibit volatile cash flows, and a high
reliance on short-term debt. The recent work of Howorth and Westhead
(2003), suggest that small companies tend to focus on some areas of
working capital management where they can expect to improve marginal
returns. For small and growing businesses, an efficient working capital
management is a vital component of success and survival; i.e both
profitability and liquidity (Peel and Wilson, 1996). They further assert
that smaller firms should adopt formal working capital management
routines in order to reduce the probability of business closure, as well as
to enhance business performance. The study of Grablowsky (1976) and
others have showed a significant relationship between various success
measures and the employment of formal working capital policies and
procedures. Managing cash flow and cash conversion cycle is a critical
component of overall financial management for all firms, especially those
who are capital constrained and more reliant on short-term sources of
finance (Walker and Petty, 1978; Deakins et al, 2001).

Given these peculiarities, Peel and Wilson (1996) have stressed the
efficient management of working capital, and more recently good credit
management practice as being pivotal to the health and performance of
the small firm sector. Along the same line, Berry et al (2002) finds that

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 SMEs have not developed their financial management practices to any
great extent and they conclude that owner-managers should be made
aware of the importance and benefits that can accrue from improved
financial management practices. The study conducted by De Chazal Du
Mee (1998) revealed that 60% enterprises suffer from cash flow
problems. Narasimhan and Murty (2001) stress on the need for many
industries to improve their return on capital employed (ROCE) by
focusing on some critical areas such as cost containment, reducing
investment in working capital and improving working capital efficiency.
The pioneer work of Shin and Soenen (1998) and the more recent study of
Deloof (2003) have found a strong significant relationship between the
measures of WCM and corporate profitability. Their findings suggest that
managers can increase profitability by reducing the number of day’s
accounts receivable and inventories. This is particularly important for
small growing firms who need to finance increasing amounts of debtors.

Flash back almost three years ago, to the "technical" end of the
Great Recession in June of 2009. The depth of the financial crisis was just
beginning to be felt, and banks were tightening the reins on credit, which
resulted in a credit crunch that made it nearly impossible for many
businesses to obtain the capital they needed to grow, much less keep their
operations going.

In this environment, cash conservation became the name of the

game for many CFOs. To try to squeeze more cash out of their supply
chains, businesses focused on tightening collection of receivables,
stretching out their payables and reducing inventory.

A DIFFERENT SCENARIO

Now, fast forward to today. According to the data revealed in the

2011 CFO/REL Working Capital Scorecard, U.S. businesses are now
flush with cash. As a result, the emphasis on wringing every dollar out of
working capital seems to have dissipated somewhat.

For example, the scorecard revealed a paltry 2% decrease in days

working capital (DWC). Meanwhile, days sales outstanding (DSO)
declined by just 0.1% and days inventory outstanding (DIO) and days
payable outstanding (DPO) both rose by just 1.1%.
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 These modest improvements in working capital performance seem
to indicate that the emphasis by U.S. businesses has shifted from working
capital improvements to sales growth and profit enhancement. "The
energy and focus have now been placed much more on the profit-and-loss
statement," noted Mark Tennant, a principal with REL, which co-
sponsored the research. "There isn't a continuous focus on cash flow and
working capital."

Meanwhile, business lending activity appears to be on the rise. Data

recently released by the FDIC reveals that overall commercial and
industrial (C&I) lending by banks increased during each of the five
quarters preceding third-quarter 2011 after declining steadily since early
2008. And the growth rate in borrowing among small businesses (as
measured by the Thomson Reuters/PayNet Small Business Lending
Index) increased by double digits over the previous year for the 15th
consecutive month in October, rising by 20 percent after a 14 percent rise
in September.

A NEW MINDSET?

So, do improved corporate balance sheets, a brighter business

lending picture and an improving economy mean that CFOs should adopt
a new mindset when it comes to working capital management? My
answer: Not necessarily. In fact, statistics like those noted here could lead
CFOs to adopt a false sense of security.

In the article posted on CFO.com reporting on the results of

Working Capital Scorecard, Stephen Payne, Americas leader of working
capital advisory services at Ernst & Young, stated that corporate balance
sheets may not be nearly as impervious as they seem. Despite an
impressive recent comeback in corporate productivity, high
unemployment continues to plague the economy, Payne noted. To
produce sustainable growth, companies will "have to hire people and
invest via capex, and that's going to start depleting their cash hoards," he
said.

I would add that, while there have been recent signs of

improvement in the U.S. economy, we're by no means out of the woods
yet. While positive, economic growth remains anemic, especially
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 compared to most other post-recession rebounds. And unemployment
remains stubbornly high, despite some recent improvements in the
employment picture.

Finally, while the Small Business Lending Index points to positive

signs for business lending, more FDIC data paints a different long-term
picture: The overall volume of small business loans (defined as loans of
$1 million or less) has been shrinking since 2008 and was down 15
percent from its peak as of September 30, 2011. There were just 1.5
million small business loans outstanding at this time, the smallest number
since 1999, according to the FDIC.

Now, contrast these figures with the latest Asset-Based Lending

Index, which is published quarterly by the Commercial Finance
Association. There was a 1.5% increase in total committed credit lines in
the third quarter of 2011 from the previous quarter, which was the fourth
consecutive quarterly increase in asset-based credit lines.

Total asset-based credit commitments grew by 5% compared to the

third quarter of 2010, and new commitments were up by more than 26%.
Half of asset-based lenders reported an increase in new credit
commitments and 70% reported an increase in total commitments, while
utilization of asset-based lenders' credit lines increased for the third
consecutive quarter, to 40.5%.

UNCERTAINTY... AND OPPORTUNITY

The presidential election this November will probably add to, rather
than subtract from, the uncertainty that has plagued the economy since the
financial crisis began more than three years ago. Given this, CFOs would
be wise not to get too complacent about working capital management.

Meanwhile, this uncertainty could mean opportunity for asset-based

lenders in 2012. If the economy continues to pick up steam, small
business credit demand will certainly rise. But many small businesses still
won't qualify for bank financing, making them good candidates for non-
traditional and asset-based loans.

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 CHAPTER - 3
Indian Coal Industry

18
3.1 COAL

Coal is a fossil fuel and is the altered remains of prehistoric

vegetation that originally accumulated in swamps and peat bogs.

It has been estimated that there are over 861 billion tonnes of
proven coal reserves worldwide which means that there is enough coal to
last us around 112 years at current rates of production. In contrast, proven
oil and gas reserves are equivalent to around 46 and 54 years at current
production levels.

Coal reserves are available in almost every country worldwide,

with recoverable reserves in around 70 countries. The biggest reserves are
in the USA, Russia, China and India. After centuries of mineral
exploration, the location, size and characteristics of most countries’ coal
resources are quite well known.

In India, the gap between demand and availability of coal is

expected to rise every year. As per the 12th plan, the estimated demand of
coal will rise to 980 MT by 2016-17 and 1373 MT by 2021-22 while the
supply of domestic coal is expected to be 795 MT by 2016-17 and 1102
MT by 2021-22. Today nearly 60 % of the country’s total installed power
capacity of 209276 MW is generated using coal. India rank fourth largest
in coal reserves (286 BT) and the third largest coal producing country in
the world.

Though the coal demand has risen by around 9% over the last four
years, coal production has not been able to keep up with the requirements.
Coal production has grown by around 5% over the same period (FY 06-07
to 10-11). The domestic Industry could supply only 534.53 MT coal as
against the demand of 696.03 MT in financial year 2011-12.
Organisations are acquiring mines abroad to augment the capacity and
meet the growing demand. Besides, there is also an urgent need to adopt
some possible measures like rationalization of coal linkage, dedicated
freight corridors to improve the situation, need to develop skill sets of
mining professionals, promoting under ground mining, cleaner coal
technologies for sustainable development. More R&D and efforts are
required to promote coal to liquids (CTL), coal bed methane (CBM) and

19
 underground coal gasification (UCG). At the same time, the land
acquisition process should be streamlined.

Coal has been recognized as the most important source of energy

for electricity generation and industries such as steel, cement, fertilizers
and chemicals are major sectors of coal consumption. In order to satisfy
the coal demand, the Indian coal industry needs more investment and
private players to raise its production level.

3.2 COAL IN INDIA 2017

India is the world's third largest energy consumer, and its energy
use is projected to grow at a rapid pace supported by economic
development, urbanization, improved electricity access and an expanding
manufacturing base. By 2040, India's energy consumption will be more
than OECD Europe combined, and approaching that of the United States.

In India's energy sector, coal accounts for the majority of primary

commercial energy supply. With the economy poised to grow at the rate
of 8-10% per annum, energy requirements will also rise at a reasonable
level. Coal will continue to be a dominant commercial fuel two decades
from now and beyond, despite our nuclear energy programme,
development of natural gas supplies, increased hydropower generation,
and emphasis on renewables.

The Indian coal industry aspires to reach the 1.5 billion tonne (BT)
mark by FY 2020. In fore-coming years, the industry will naturally need
to focus on building on the success, and be on track for reaching the FY
2020 goal. One of the primary goals of the Government of India is to
ensure that it is able to meet the country's power generation needs.
Another aim is to lower the country's reliance on coal imports by boosting
the coal production quickly. India imports about 25% of its coal demand,
much of which comes from Indonesia.

The government expects that by 2017-19, it will not have to import

coal, except to feed power plants located along the coast. Coal imports
have shrunk by around 9% this year, according to the government, which
is a positive trend. The success of coal block auctions carried out by the
new government has proved that its decision to conduct a fair and
20
 transparent' bidding for coal mines has benefited the country in a big way.
India's investment in new coal-fired generation capacity will support an
increase in coal use. India has plans to almost double its production to one
billion tonnes by 2020 to meet its growing requirements.

3.3 INDIAN COAL RESOURCE AS ON 01.04.2017

3.3.1 INTRODUCTION
Indian coal resource scenario is changing at an exhilarating pace
through systematic exploration and exploitation by several agencies.
Geological Survey of India is carrying out its esteemed task of updating
the National Inventory for coal since 1972 following the norms of Indian
Standard Procedure (ISP) for coal resource estimation, which was
formulated in 1957 and modified later from time to time.

3.3.2 CATEGORY-WISE RESOURCE

Categorisation of coal resource into 'Measured'(331),
'Indicated'(332) and 'Inferred'(333) is based on the degree of confidence
level of exploratory data. The updated 'Measured' resource of the country
is 143,057.71 million tonne, while that of 'Indicated' and 'Inferred’
categories are 139,311.29 million tonne and 32,779.81 million tonne
respectively (Table-I) within 1200m depths. Within the 'Inferred’
resource, 749.92 million tonne, under 'Inferred (mapping)' category, had
been assessed during mapping in the Tertiary Coalfields of north eastern
states, while the rest 32,029.89 million tonne, assessed through drilling,
are kept under 'Inferred (exploration)' category.

An augmentation of 4,970.51 million tonne of 'Measured' resource

is the outcome of detailed exploration carried out by CMPDIL, SCCL and
MECL, and it signifies that this 2 quantum has mainly been brought into
higher confidence level through detailed exploration. Overall
augmentation of 160.42 million tonne in 'Indicated' resource and 1,216.04
million tonne of 'Inferred' resource over the earlier assessed figures is the
net outcome of addition of resources assessed through regional
exploration, computed against upgradation and recategorisation of the

21
 existing resources. Bulk of increase of Measured resource is from South
Karanpura, MandRaigarh and Talcher coalfields.

3.3.3 STATE-WISE RESOURCE

State-wise resource State-wise distribution of Indian coal shows
that Jharkhand tops the list with 82.44 billion tonne followed successively
by Odisha (77.28 billion tonne), Chhattisgarh (56.66 billion tonne), West
Bengal (31.67 billion tonne), Madhya Pradesh (27.67 billion tonne),
Telangana (21.46 billion tonne), Maharashtra (12.26 billion tonne) and
others. A glimpse at the coalfield-wise distribution of Indian coal resource
suggests that five coalfields - Talcher (51.16 billion tonne), Mand-Raigarh
(30.06 billion tonne), Raniganj (26.84 billion tonne), Ib-River (26.12
billion tonne) and Godavari (23.04 billion tonne) are sharing nearly 50%
of total resources of the country.

22
 CHAPTER – 4
COMPANY PROFILE

23
4.1 COAL INDIA LIMITED - PROFILE
4.1.1 ABOUT THE COMPANY
Coal India Limited (CIL) the state owned coal mining corporate
came into being in November 1975. With a modest production of 79
Million Tonnes (MTs) at the year of its inception CIL today is the single
largest coal producer in the world. Operating through 82 mining areas
CIL is an apex body with 7 wholly owned coal producing subsidiaries and
1 mine planning and consultancy company spread over 8 provincial states
of India. CIL also manages 200 other establishments like workshops,
hospitals etc. Further, it also owns 26 technical & management training
institutes and 102 Vocational Training Institutes Centres. Indian Institute
of Coal Management (IICM) as a state-of-the-art Management Training
‘Centre of Excellence’ – the largest Corporate Training Institute in India -
operates under CIL and conducts multi-disciplinary management
development programmes.

CIL is a Maharatna company - a privileged status conferred by

Government of India to select state owned enterprises in order to
empower them to expand their operations and emerge as global giants.
The select club has only few members out of more than Central Public
Sector Enterprises in the country.

The producing Indian subsidiary companies of Coal India Limited:

1. Eastern Coalfields Limited (ECL)
2. Bharat Coking Coal Limited (BCCL)
3. Central Coalfields Limited (CCL)
4. Western Coalfields Limited (WCL)
5. South Eastern Coalfields Limited (SECL)
6. Northern Coalfields Limited (NCL)
7. Mahanadi Coalfields Limited (MCL)
One mine planning and consultancy company of Coal India Limited
is Central Mine Planning & Design Institute Limited (CMPDIL).

24
4.1.2 HISTORY
HISTORY AND FORMATION OF COAL INDIA LIMITED

With dawn of the Indian independence a greater need for coal

production was felt in the First Five Year Plan. In 1951 the Working Party
for the coal Industry was set up which included representatives of coal
industry, labour unions and government which suggested the
amalgamation of small and fragmented producing units. Thus the idea for
a nationalized unified coal sector was born. Integrated overall planning in
coal mining is a post-independence phenomenon. National Coal
Development Corporation was formed with 11 collieries with the task of
exploring new coalfields and expediting development of new coal mines.

25
FACTORS WHICH LED UP TO NATIONALIZATION OF COAL INDUSTRY IN INDIA

Nationalization of coal industry in India in the early seventies was a

fall out of two related events. In the first instance it was the oil price
shock, which led the country to take up a close scrutiny of its energy
options. A Fuel Policy Committee set up for this purpose identified coal
as the primary source of commercial energy. Secondly, the much needed
investment needed for growth of this sector was not forthcoming with
coal mining largely in the hands of private sector. The objectives of
Nationalization as conceived by late Mohan Kumaramangalam were;
Conservation of the scarce coal resource, particularly coking coal, of the
country by

➢ Halting wasteful, selective and slaughter mining.

➢ Planned development of available coal resources.
➢ Improvement in safety standards.
➢ Ensuring adequate investment for optimal utilization consistent with
growth needs.
➢ Improving the quality of life of the work force.

Moreover the coal mining which hitherto was with private miners
suffered with their lack of interest in scientific methods, unhealthy mining
practices etc. The living conditions of miners under private owners were
sub-standard.

FORMATION OF COAL INDIA LIMITED

With the Government's national energy policy the near total

national control of coal mines in India took place in two stages in 1970s.
The Coking Coal Mines (Emergency Provisions) Act 1971 was
promulgated by Government on 16 October 1971 under which except the
captive mines of IISCO, TISCO, and DVC, the Government of India took
over the management of all 226 coking coal mines and nationalised them
on 1 May, 1972. Bharat Coking Coal Limited was thus born. Further by
promulgation of Coal Mines (Taking over of Management) Ordinance
1973 on 31 January 1973 the Central Government took over the
management of all 711 non-coking coal mines. In the next phase of
nationalization these mines were nationalized with effect from 1 May
26
 1973 and a public sector company named Coal Mines Authority Limited
(CMAL) was formed to manage these non coking mines.

A formal holding company in the form of Coal India Limited was

formed in November 1975 to manage both the companies.

4.1.3 CORPORATE STRUCTURE

27
4.2 MAHANADI COALFIELDS LIMITED - PROFILE

VISION
" To be one of the leading energy suppliers in the world through best practices from
mine to market "
MISSION
" To produce and market the planned quantity of coal and coal products efficiently
and economically in an eco-friendly manner with due regard to safety, conservation
and quality "

4.2.1 GENERAL INFORMATION

➢ Name : Mahanadi Coalfields Limited.
➢ Type : Public Sector undertaking
➢ Scale : Large Scale
➢ Date of Established : 3rd April, 1992
➢ Website : www.mahanadicoal.in
➢ Promoters : Govt. of India
➢ Head Office : Sambalpur
➢ Zonal coalfields :
IB –Velly, Jharsugda
Talcher, Angul
Basundhara, Sundergarh

4.2.2 HISTORY
Mahanadi Coalfields Limited (MCL) is one of the major coal
producing company of India. It is one of the eight subsidiaries of Coal
India Limited. Mahanadi Coalfields Limited was carved out of South
Eastern Coalfields Limited in 1992 with its headquarter at Sambalpur. It
has its coal mines spread across Odisha. It has total seven open cast mines
and three underground mines under its fold.

28
 MCL has two subsidiaries with private companies as a joint
venture. The name of these companies are MJSJ Coal Limited & MNH
Shakti Ltd.

There are 45 sanctioned mining projects in MCL with a capacity of

190.83 Mty of coal. The total capital outlay of 45 projects is Rs. 6076.78
Crs. & out of which 28 (capacity =73.98 Mty) have been completed with
a sanctioned capital investment of Rs. 2348.61 Crs. as on 01.04.09. Out of
the 28 completed projects, 2 have been exhausted (Balanda OCP &
Basundhara-East OCP). One Expn. Project, namely, Lajkura Expn. (2.50
Mty, 1.50 Mty incr.) is going to be approved within a short period of time.

4.2.3 FORMATION
Chronological Sequence Of Restructuring Of Coal India Limited is
Shown In The Chart Below

29
4.2.4 ADMINISTRATIVE SETUP OF MCL

4.2.5 MANPOWER

30
4.2.6 COAL PRODUCTION

4.3 AREA OF MCL

The Organization of MCL comprises 2 Coalfields, comprising of
11 Mining Areas with 6 underground and 16 Opencast mines, 2 Central
Workshops and 2 Central Hospitals and Sales Offices at Kolkata and
Bhubaneswar with its registered Office at Jagruti Vihar, Burla,
Sambalpur.
1. Talcher Coalfields
i. Jagannath Area
ii. Bharatpur Area
iii. Hingula Area
iv. Lingaraj Area
v. Kaniha Area
vi. Talcher Area (UG)

31
 2. IB valley Coalfields
i. Lakhanpur Area
ii. IB Valley Area
iii. Basundhara - Garjanbahal Area
iv. Siarmal Area
v. Orient Area (UG)

4.3.1 TECHNOLOGY AT MCL

i. Higher capacity HEMMs like 10 cum and 20 cum shovels, 100T and
170T Dumper, 770 HP Dozer ect have been envisaged in the latest
sanctioned project report.
ii. Continuous miner is slated to be introduced in different UG project of
MCL .tendering for its introduction in HBI mine is under process.
iii. MCL is the trend setter in introducing Blast free technology of
winning coal in opencast mine by surface miner now its envisaged to
introduced Ripper Dozer to remove OB also.
iv. MCL has undertaken geo technical studies for caving characteristic of
Talcher underground mine and Environment impact and impact on
ground water of fly ash filling in Balanda open cast filling excavation.
v. SILO with rapid loading system is going to be introduced in all the
major opencast project of MCL.
vi. Man riding system has already been introduced in 4 underground
mines at IB valley and going to be introduced all other mines in
Talcher coalfields.
vii. MCL has plan to construct 4 no of washeries of 10 Mty capacity each
two in Talcher, one in IB valley and another one in Basundhara.
viii. Introduction of GPRS system for coal sale/coal movement information
through RFID(Radio frequency identification).This is a machine that
fit in wagons Volvos which give the details data about the coal.

32
4.3.2 QUALITY
Consumer satisfaction is the prime objective and motto of MCL.
Coal is natural products and heterogeneous in nature. It is mines from
earth crust and not manufactured product. Hence the procedure and
method of Quality Control are different from other manufacturing
industries.
Following measures are taken for quality improvement.
Proper Assessment and Rationalized Grading of In-Situ Coal Quality
By adopting stringent sampling procedure in case of seam, stock,
siding and tipper samples, the annual coal grade is being declared every
year for the utmost satisfaction of the consumers.

PROPER SIZING

Before dispatch the coal from mine end / stock is being transported
to Feeder Breaker / CHP for crushing of coal up to size (-) 100 mm and
then this (-) 100 mm sized coal is being transported to all Railway
Sidings.
Apart from this MCL is having sufficient Surface Miner in all the
Projects from which proper sizing of coal is being produced and
dispatched directly to the Sidings for final dispatch to the consumer. In
addition to this, the intermittent band in the coal seams is being separated
and thrown out as reject to maintain the quality of coal.

PROPER WEIGHMENT OF COAL BEFORE DESPATCH

Before dispatch of coal by rail all the rakes are being weighed at In-
motion Rail Weighbridges.
Electronic Rail Weighbridges with print out facility exist at all
Railway Sidings. Apart from this, we have been provided with standby
weighbridges for achieving the target of 100% weighment.
Coal being dispatched by road is having 100% weighment.

PROPER SAMPLING AND ANALYSIS

Before dispatch of coal by rail proper sampling and analysis is

being done at all Railway Sidings as per BIS method.
33
 MCL is following strictly the guidelines of existing FSA on
sampling and analysis of coal being dispatched to all consumers including
power houses.

3rd Party sampling / analysis of coal is being done in response of

representatives of the consumers.

4.3.3 SAFETY POLICY IN MCL

MCL is one of the fast-growing Subsidiary of Coal India Ltd with
due diligence towards safety and conservation. MCL has a "Safety
Policy" in place with the objective to achieve "Zero Harm Potential". To
attain the safety norms &standards, an Internal Safety Organization (ISO)
functions at Corporate, Area and Unit Level. The company campaigns for
safety and conducts various awareness programmes at regular intervals
among employees at every level. With sustained growth in production
level, MCL makes all-out efforts to minimize rate of accidents over the
years.

34
4.3.4 SWOT ANALYSIS ON MCL
It focuses on the company’s financial as well as overall performance and
future.

STRENGTHS:

➢ Well organized structure of inventory management with high productivity

and economic cost.
➢ Well defined policies and innovative plans with cost reduction by its
excellent human resources.
➢ Good transportation system by Indian railway and Volvo.
➢ Environment consciousness.
➢ Monopoly business, no competitor.
➢ Profit making organization.

WEAKNESS:
➢ Nonmoving inventory items are in huge quantity.
➢ Due to regulated environment in the mining sector, there is a lack of
pricing in coalmines business of MCL.
➢ Dust particles polluted the environment.

OPPERTUNITIES:
➢ Huge demand of coal in the country specially for power generation.
➢ Huge potentiality of coal mining of MCL.
➢ Power plants located in the northern India are also linked to MCL.
➢ To formulate a sound marketing strategies and long term agreement with
Consumer, Railways & Shippers.
➢ To set up Washeries.
➢ Diversification to Power.
➢ JV for coal gasification and coal liquid.

THREATS:
➢ Coal amenable to opencast mining – requirement of more land.
➢ Land acquisition and consequent social displacement.
➢ Rehabilitation and resettlement issue.
➢ Proneness of opencast mining to environmental pollution.

35
➢ Inadequacy of railway tracks for coal transportation.
➢ Majority of consumers are far away from coalfields i.e. increase in rail
freight means high landed cost to consumers.

36
 CHAPTER – 5
Research Methodology

37
5.1 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying now research is
done systematically. In that various steps, those are generally adopted by
a researcher in studying his problem along with the logic behind them.

The procedure by which researcher go about their work of

describing, explaining, and predicting phenomenon are called
methodology”.

5.2 TYPES OF RESEARCH

This project “WORKING CAPITAL MANAGEMENT OF MAHANADI
COALFIELDS’’ Is considered as an analytical research.

Analytical Research is defined as the research in which, researcher

has to use facts or information already available, and analyse to make a
critical evaluation of the facts, figures, data or material.

5.3 SOURCES OF RESEARCH DATA

There are mainly two sources through which the data required for
the research is collected.

• PRIMARY DATA
This consists of original information, which is collected first hand,
and for first time which is original in nature. It can be collected in
following ways-
o Observation
o Focus group
o Survey

In the study the primary data has been collected from personal
interaction with finance manager and other staff members.

• SECONDARY DATA
Researchers usually start by gathering secondary data through the
company’s internal data base, which provides a good starting point.
However, the company can also tap a wide assortment of external
38
 information sources ranging from company public and libraries to
government business and publications.

The secondary data are those which have already collected and
stored. Secondary data easily get those secondary data from record, annual
report of the company etc. It will save time, money and efforts to collect
the data.

The major sources of data for this project was collected,

• From the annual report maintained by the MCL.

• Data are collected from the MCL website.
• Books and journal pertaining to the topic.
• Some more information collected from internet.

5.4 SAMPLING DESIGN

• Sampling unit: Financial statements
• Sampling size: last five years financial statements.

39
 CHAPTER – 6
WORKING CAPITAL: ASSETS
AND LIABILITIES

40
6.1 WORKING CAPITAL
Working Capital is the capital of a business which is used in its
day-to-day trading operations, calculated as the current assets minus the
current liabilities.

Working capital, also known as net working capital, is the

difference between a company’s current assets, like cash, accounts
receivable (customers’ unpaid bills) and inventories of raw materials and
finished goods, and current liabilities, like accounts payable.

There are two concepts of Working Capital – Gross and Net.

GROSS WORKING CAPITAL

It refers to the firm’s investment in current assets. Current assets

are the assets which can be converted into cash within an accounting year
including cash, short-term securities, debtors (accounts receivable or book
debts), bills receivable and stock (inventory).

NET WORKING CAPITAL

It refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders which are
expected to mature for payment within an accounting year and include
creditors, bills payable, and outstanding expenses.

Net Working Capital can be positive or negative. A positive net

working capital will rise when current asset exceeds current liabilities. A
negative working capital occurs when current liabilities are in excess of
current assets.

The working capital formula is:

Working capital = CURRENT ASSETS – CURRENT LIABILITIES

The working capital formula tells us the short-term, liquid assets

remaining after short-term liabilities have been paid off. It is a measure
of a company’s short-term liquidity and important for performing
financial analysis, financial modelling, and managing cash flow.

41
6.2 ASSETS
An asset is a resource with economic value that an individual,
corporation or country owns or controls with the expectation that it will
provide a future benefit. Assets are reported on a company's balance
sheet and are bought or created to increase a firm's value or benefit the
firm's operations. An asset can be thought of as something that, in the
future, can generate cash flow, reduce expenses, or improve sales,
regardless of whether it's manufacturing equipment or a patent.

6.2.1 TYPES OF ASSETS

The two main types of assets are current assets and non-current
assets. These classifications are used to aggregate assets into different
blocks on the balance sheet, so that one can discern the
relative liquidity of the assets of an organization.

Assets can also classify into two major classes: tangible

assets and intangible assets. Tangible assets contain various subclasses,
including current assets and fixed assets.

CURRENT ASSETS

Current assets are important because they indicate how much cash a
company essentially has access to within the next 12 months outside of
third-party sources. It is indicative of how the company funds its ongoing,
day-to-day operations, and how liquid a firm is.

Current assets are the assets which are expected to be converted to

cash within a year. Current Assets commonly include the following line
items:
• Cash and cash equivalents
• Marketable securities
• Prepaid expenses
• Accounts receivable
• Inventory
• Debtors

42
FIXED ASSETS

Fixed assets are of a fixed nature in the context that they are not
readily convertible into cash. They require elaborate procedure and time
for their sale and converted into cash. Other names used for fixed assets
are non-current assets, long-term assets or hard assets. Generally, the
value of fixed assets generally reduces over a period of time known
as depreciation.

Assets which are purchased for long-term use and are not likely to
be converted quickly into cash, such as land, buildings, and equipment.
Common Fixed assets are:
• Land
• Building
• Plant
• Machinery
• Equipment
• Furniture

INTANGIBLE ASSETS

An intangible asset is an asset that is not physical in nature.

Intangible assets cannot be seen, felt or touched physically by us. Some
examples of intangible assets are:
• Goodwill
• Franchise Agreements
• Patents
• Copyrights
• Brands
• Trademarks

43
6.3 LIABILITIES
Liabilities are legal obligations or debt owed to another person or
company. In other words, liabilities are future sacrifices of economic
benefits that an entity is required to make to other entities as a result of
past events or past transactions.

Liability is a present obligation of the enterprise arising from past

events, the settlement of which is expected to result in an outflow from
the enterprise of resources embodying economic benefits.

A liability is defined as Any type of borrowing from persons or

banks for improving a business or personal income that is payable during
short or long time.

6.3.1 TYPES OF LIABILITIES

There are three types of liabilities: current, non-current, and
contingent liabilities.

CURRENT LIABILITIES

Current liabilities, also known as short-term liabilities, are debts or

obligations that are due within one year. Current liabilities are closely
watched by management to make sure that the company possesses enough
liquidity from current assets to ensure that the debts or obligations can be
paid off.

Examples of current liabilities:

• Accounts payable
• Interest payable
• Income taxes payable
• Bills payable
• Bank account overdrafts
• Accrued expenses
• Short-term loans

44
NON-CURRENT LIABILITIES

Non-current liabilities, also known as long-term liabilities, are

debts or obligations that are due in over a year time. Long-term liabilities
are an important source of a company’s long-term financing. Companies
take on long-term debt to acquire immediate capital to fund the purchase
of capital assets or invest in new capital projects.

Long-term liabilities are crucial in determining a company’s long-

term solvency. If companies are unable to repay their long-term liabilities
as they become due, the company will face a solvency crisis.

List of non-current liabilities:

• Bonds payable
• Long-term notes payable
• Deferred tax liabilities
• Mortgage payable
• Capital lease

CONTINGENT LIABILITIES

Contingent liabilities are liabilities that may occur depending on the

outcome of a future event. Therefore, contingent liabilities are potential
liabilities. In accounting standards, a contingent liability is only recorded
if the liability is probable and the amount is reasonably estimated.

List of contingent liabilities:

• Product warranties

45
 CHAPTER – 7
DATA ANALYSIS AND
INTERPRETATIONS

46
 7.1 BALANCE SHEET OF ALL 5 YEARS
(Rs. In Crores)
2012-13 2013-14 2014-15 2015-16 2016-17
ASSETS
Non-Current Assets
(a) Property, Plant & Equipment’s 2160.32 2698.09 3411.79 3533.73 3937.85
(b) Capital Work in Progress 295.30 330.94 617.00 813.66 1864.74
(c) Exploration and Evaluation - - 106.74 114.27 111.12
Assets
(d) Other Intangible Assets 52.20 90.49 4.91 5.38 5.44
(e) Intangible Assets under 218.25 209.49 - - -
Development
(f) Investment Property
(g) Financial Assets
(i) Investments 1120.78 1098.07 1075.38 1075.41 1075.41
(ii) Loans 380.93 375.55 1.73 1.23 1201.06
(iii) Other Financial Assets - - 593.83 698.32 732.24
(h) Deferred Tax Assets (net) - - - - -
(i) Other non-current assets - - 653.33 940.56 382.50
Total Non-Current Assets (A) 4227.78 4802.63 6464.71 7182.56 9310.36

Current Assets
(a) Inventories 571.53 522.52 471.50 425.59 322.13
(b) Financial Assets
(i) Investments 58.71 675.71 247.70 1345.00 202.00
(ii) Trade Receivables 430.91 298.39 448.85 1107.61 1066.49
(iii) Cash & Cash equivalents 13083.00 10367.57 175.82 216.00 372.36
(iv) Other Bank Balances - - 10141.57 11199.47 14662.95
(v) Loans 3125.30 2174.55 0.44 0.47 0.32
(vi) Other Financial Assets - - 1171.32 897.88 999.28
(c) Current Tax Assets (Net) - - 224.31 379.73 706.54
(d) Other Current Assets 829.09 666.36 2490.77 1738.74 1024.36
Total Current Assets (B) 18098.54 14705.10 15372.28 17310.49 19356.43
Total Assets (A+B) 22326.32 19507.73 21836.99 24493.05 28666.79

47
 2012-13 2013-14 2014-15 2015-16 2016-17
EQUITY AND LIABILITIES

EQUITY
(a) Equity Share Capital 186.40 186.40 186.40 186.40 141.23
(b) Other Equity 8752.72 5377.02 4411.98 4276.68 3244.15
Equity attributable to equity holders
of the company
Non-Controlling Interests
Total Equity (A) 8939.12 5563.42 4598.38 4463.08 3385.38

LIABILITIES

Non-Current Liabilities
(a) Financial Liabilities
(i) Borrowings 96.60 9.14 6.90 7.21 6.13
(ii) Trade Payables
(iii) Other Financial Liabilities - - 28.47 43.47 40.19
(b) Provisions 9085.60 10607.11 12999.09 15506.52 16740.31
(c) Deferred Tax Liabilities (net) 60.68 28.08 122.90 183.60 201.82
(d) Other Non-Current Liabilities 41.49 54.34 133.31 167.83 176.83
Total Non-Current Liabilities (B) 9284.37 10698.67 13290.67 15908.63 17165.28

Current Liabilities
(a) Financial Liabilities
(i) Borrowings - - - - 2200.00
(ii) Trade payables 257.42 280.29 277.22 303.29 420.52
(iii) Other Financial Liabilities - - 220.30 284.93 342.02
(b) Other Current Liabilities 2386.70 2647.23 2875.35 2904.72 4123.32
(c) Provisions 1458.71 318.12 575.07 628.40 1030.27
(d) Current Tax Liabilities (net)
Total Current Liabilities (C) 4102.83 3245.64 3947.94 4121.34 8116.13

Total Equity and Liabilities 22326.32 19507.73 21836.99 24493.05 28666.79

(A+B+C)

48
 7.2 WORKING CAPITAL
WORKING CAPITAL = current assets – current liabilities

2012-13 2013-14 2014-15 2015-16 2016-17

Total Current Assets 18098.54 14705.10 15372.28 17310.49 19356.43

Total Current Liabilities 4102.83 3245.64 3947.94 4121.34 8116.13

Working Capital 13995.71 11459.46 11424.34 13189.15 11240.30

Working Capital
16000
13995.71
14000 13189.15
11459.46 11424.34 11240.3
12000
10000
8000
6000
4000
2000
0
2012-13 2013-14 2014-15 2015-16 2016-17

Working Capital

7.3 RATIO CALCULATION

1. CURRENT RATIO
Current ratio may be defined as the relationship between current assets
and current liabilities. This ratio, also known as working capital ratio, is a
measure of general liquidity and is most widely used to make the analysis of a
short-term financial position or liquidity of firm.
It is calculated by dividing the total of current assets by total of the
current liabilities.

Current Assets
Current Ratio =
Current Liabilities

49
INTERPRETATION

2012-13 2013-14 2014-15 2015-16 2016-17

Current Assets 18098.54 14705.10 15372.28 17310.49 19356.43

Current Liabilities 4102.83 3245.64 3947.94 4121.34 8116.13

Current Ratio 4.41 4.53 3.89 4.20 2.38

Current Ratio
5 4.53
4.41
4.5 4.2
3.89
4
3.5
3
2.38
2.5
2
1.5
1
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17

Current Ratio

ANALYSIS

1. The Standard norm of current ratio is 2:1, i.e., Current assets double the
current liabilities is considered to be satisfactory.
2. This ratio is an indicator of the firm’s commitment to meet its short –
term liabilities.
3. From the table it is clear that, During the year 2012-13 the current ratio
was 4.41 and during the year 2013-14 the ratio was 4.53 and it has
slightly decreased to 3.89 in the year 2014-15 then increased to 4.2 in
2015-16 and it has decreased to 2.38 in the year 2016-17.
4. Hence, the ratio above is more than the standard norm in all year. So the
ratio is satisfactory.
5. Thus the Current Ratio shows that the company has sufficient funds to
meet its short-term obligations.
50
2. QUICK RATIO

Quick ratio may be defined as the relationship between quick/liquid assets

and current or quick liabilities. This ratio, also known as Liquid ratio, is a more
rigorous test of liquidity than the current rartio.

It is calculated by dividing the total of quick assets by total of the current

liabilities.

Quick Assets
Quick Ratio =
Current Liabilities

Quick Assets = Current Assets – (Inventories + Prepaid Expenses)

INTERPRETATION

2012-13 2013-14 2014-15 2015-16 2016-17

Quick Assets 17527.01 14182.58 14900.78 16884.90 19034.30

Current Liabilities 4102.83 3245.64 3947.94 4121.34 8116.13

Current Ratio 4.27 4.36 3.77 4.09 2.34

Quick Ratio
5
4.27 4.36
4.5 4.09
4 3.77
3.5
3
2.34
2.5
2
1.5
1
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17

Quick Ratio

51
ANALYSIS
1. The Standard norm of quick ratio is 1:1 as a rule of thumb. This ratio
helps the management to measure short-term solvency.
2. From the table it is clear that, During the year 2012-13 the quick ratio was
4.27 and during the year 2013-14 the ratio was 4.36 and it has slightly
decreased to 3.79 in the year 2014-15 then increased to 4.09 in 2015-16
and it has decreased to 2.34 in the year 2016-17.
3. Hence, the ratio above is more than the standard norm in all year. So the
Company’s liquidity is satisfactory.
4. Thus the Quick Ratio shows that the current liabilities was fully secured
by liquid assets because the liquid assets were more than the current
liabilities.

3. ABSOLUTE LIQUID RATIO

Absolute liquid ratio may be defined as the relationship between absolute
liquid assets and current liabilities. This ratio, also known as cash.

It is calculated by dividing the Absolute liquid assets by total of the

current liabilities.
Absolute liquid Assets
Absolute liquid Ratio =
Current Liabilities
Absolute liquid assets are equal to liquid assets minus accounts
receivable and bills receivable. These assets usually include cash, cash
equivalents, bank balances and marketable securities etc.

INTERPRETATION

2012-13 2013-14 2014-15 2015-16 2016-17

Absolute Liquid Assets 13083.00 10367.57 10317.39 11415.47 15035.31

Current Liabilities 4102.83 3245.64 3947.94 4121.34 8116.13

Current Ratio 3.18 3.19 2.61 2.76 1.85

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 Absolute Liquid Ratio
3.5 3.18 3.19
3 2.76
2.61
2.5
2 1.85

1.5
1
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17

Absolute Liquid Ratio

ANALYSIS

1. The Standard norm of absolute liquid ratio is 1:2.

2. From the table it is clear that, During the year 2012-13 the absolute liquid
ratio was 3.18 and during the year 2013-14 the ratio was 3.19 and it has
slightly decreased to 2.61 in the year 2014-15 then increased to 2.76 in
2015-16 and it has decreased to 1.85 in the year 2016-17.
3. Hence, the ratio above is more than the standard norm in all year. So the
cash positions of the Company is satisfactory.
4. Thus the Absolute Liquid Ratio shows that the MCL keeping sufficient
cash & bank balances required to meet out the current liabilities.

4. INVENTORY TURNOVER RATIO

Inventory turnover ratio may be defined as the relationship between cost
of good sold and the amount of average inventory. This ratio, also known as
stock turnover ratio, it indicates the firm efficiency of the firm in producing and
selling its product
It is calculated by dividing the net sales by inventories.

Net Sales
Inventory Turnover Ratio =
Inventories

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INTERPRETATION

2012-13 2013-14 2014-15 2015-16 2016-17

Net Sales 10022.49 9989.67 11024.42 13933.66 14164.45

Inventories 571.53 522.52 471.50 425.59 322.13

Inventory Turnover Ratio 17.53 19.11 23.38 32.73 43.97

Inventory Turnover Ratio

50
43.97
45
40
35 32.73
30
23.38
25
17.53 19.11
20
15
10
5
0
2012-13 2013-14 2014-15 2015-16 2016-17

Inventory Turnover Ratio

ANALYSIS

1. This ratio indicates whether investment in inventory is efficiently used or

not and whether the investment is within proper limits.
2. From the table it is clear that, During the year 2012-13 the inventory
turnover ratio was 17.53 times and during the year 2013-14 the ratio was
19.11 times and then the ratio was 23.38 times in the year 2014-15 then
increased to 32.73 times in 2015-16 and again increased to 43.97 times in
the year 2016-17.
3. Inventory Turnover Ratio increased from year to year that is company
production may also increased. Subsequently sales are also increased.
4. Hence the efficiency of inventory control in MCL shows a satisfactory
position.

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