Rajitha(WC IOCL)

INTRODUCTION

Finance is a scare resource and it to be managed efficiently for the successful functioning of an enterprise. Inefficient financial management has resulted in failure of many businesses organization organization.. “Irrespective “Irrespective of any in difference difference in structure structure ownership and size, the finance organizations of enterprise caught to be capable of ensuring ensuring that the various various finance functions planning and controlling are carried out at the highest degree of efficiency”. It is the lifeblood of every business activity without which the wheels of modern business organizations system cannot be greased. Thus the finance

function assumes an important

role in affairs of business management. The profitability and suitability of the business depends upon the manner how finance and the function are performed and related with other business functions. Finance has to be systematically controlled and regulated so that it may be contribute to different functions functions of business administration administration such as purchasing production and marketing. It is difficult to aggregate the finance functions from that of general business management. Simply finance intertwined with every business functions. Before the turn of the present century finance was studies as part of economics. It was only business of the present century that corporation finance evolved ev olved as a separate subject with special emphasis on the study capital market. The term corporate finance was used to describe what is known

in

the

academ demic

world

as

financi ncial

manag nagement ent.

AN OVER VIEW OF WORKING CAPITAL

Now-a-days management of Working Capital has to be recognized as one of the basic future of financial management, for successful conduct of business activities.

Working Capital management has become more and more important due to already shift towards closer internal financial control. control. The main objective of working working capital management thus, us to to ensure smooth functioning of the the business and to gets timely timely funds sufficiently. sufficiently. In the opinion of “Zenof “Zenoff” f” and “Zwic “Zwick”, k”, “Proper “Proper managemen managementt of Workin Working g Capita Capitall is very very import important ant for the

success of an enterprise. It aims at protecting the purchasing power of asset asset and maximizing the return on investment “. The effect effective ive manage managemen mentt of workin working g capita capitall involv involves es the balanci balancing ng of curren currentt assets assets and current current liabilities liabilities in order ensure a reasonable margin margin of safety. safety. In other words it is to manage each of the firm's current assets and current liabilities in such awa y that an acceptable level of net working capital is maintained. Working Capital management has been looked upon as the driving seat of financial manger. “Constant Management is required to maintain appropriate levels in the various working capital accounts”. accounts”. The importance importance that has been a given in economicall economically y advanced countries, countries, was not seriously considered and applied to many of the industries in India Work Workin ing g Capi Capita tall manag managem ement ent has has assu assume med d grea greatt impor importa tance nce in rece recent nt time timess due to the the profes professio sional nalism ism that has been been brought brought into into organi organizat zation ion , in financi financial al managem management ent of the business enterprises. The theoretical frame of working capital management and its application in the selected sugar factories is the subject matter of this chapter.

DEFINITION OF WORKING CAPITAL

“Working Capital sometimes called as Net Working Capital is represented by the excess of current assets over the current liabilities and identified the relatively liquid portion to total enterp enterpris risee capital capital which which constit constitute utess a margin margin of buffer buffer for maturi maturing ng obliga obligatio tions ns within within the ordinary operating cycle of the business”. 'Working Capital is a excess of current assets over cu rrent liabilities' Like the broader concept to capital there is no universally accepted definition for Working Capital. The following are some definitions of this group: “Working Capital means Current Assets”

-MEAD, BAKER, MALOTT“The sum of the Current Assets in the Working Capital of a Business”.

-J.S.MILL-

“Any acquisition of funds of which increase the Current Assets increase Working Capital also, for the are one and the same

-BONNEVILE“Work “Working ing Capital Capital refers refers to a firm's firm's invest investmen mentt in shortshort-ter term m Assets Assets like like cash, cash, short short term term securities, Account receivables and inventories”.

-WESTON&BRIGHAMIn the Narrow sense, the working capital id regarded as the “Excess of Current assets over current liabilities”. This is the definition used by most financial experts and authors rephrasing the accounting phase of finance.

OBJECTIVES OF THE STUDY

In this chapter, objectives of the study and methodology employed are discusses in following paragraph the methodology includes various items like sources of data, methods of data collection significance of the study and limitations of the study. 

To study the existing system of the working capital management in IOCL



To examine the feasibility of present system of managing working capital in most effective manner.



The analyze the financial performance of the company using working capital



To give some pertinent suggestion to the management of IOCL about the working capital management.

NEED FOR THE STUDY

The most important functions of the business firm are production, marketing finance. It is very difficult to separate finance functions from production, marketing and other functions. The functions of raising funds, investing them in assets and distributing returns earned from assets to share holders are respectively known as financing, investing and dividend decisions. In doing so, a firm attempts to balance cash inflow and outflows. Finance function call for skillful planning control and execution of firm's activities.

Hence, the study is taken to analyze the firm's activities through “Working Capital Management”.

LIMITATIONS OF THE STUDY

Every study is conducted under some limitations. This study is not exception the main limitations are. 

The study is conducted by a student of K.U University for the purpose of fulfillment of the condition stipulated by the University for the Completion the course. So the study may not fulfill all the requirement of a detail investigation.



This is a study conducted with in a period of Severn weeks in total.



During this limited period of the study. It may not be a detailed, full-fledged and utilitarian in all respects.



The study was conducted with the data available and the analysis was made accordingly.

METHODOLOGY OF THE STUDY

The following methodology has been used to the carryout the present study "Working Capital Management in IOCL". To carry out the present study, both primary and secondary data have been used. Primary data have been collected from officers and staff of finance and accounts department of IOCL.

Secondary data on the other hand form the printed material of the company balance sheets and profits and loss account of the year from 2006-2010 of IOCL, cashbooks, debtors ledgers and stock registers, annual reports. Article from the journal "The Management Accounting book", text books etc. RESEARCH METHODOLOGY Data collection:

The methodology of the study interrelations is to understand the procedural aspects of INDIAN OIL CORPORATION LTD and than to proceed with analysis of the financial performance. Primary Data:

Personal Interview was held with key personnel of finance department. Secondary Data: 

Published annual reports for 5 years (2005-06 to 2009-10).



Web Site “www. IOCL.com “.



Newspapers like Ennadu, The Hindu Etc.

RESEARCH TOOLS: 1.

Statement of changes in working capital.

2.

Trend Analysis.

A) Capital trend. B) Sales trend. C) PBT trend. D) PAT trend.

3.

Ratio Analysis .

A) Liquidity Ratios B) Activity Ratios C) Assets Turnover Ratios.

METHODOLOGY

The methodology to be followed here is 

Preparation of numeric data tables with data of accounting year wise factors of ratios with calculated ratios.



Graphical presentation of the ratios indicating changes.



Interpretation with the help of numeric and graphical presentation.

Opinion based on result on result of the analysis with conclusion.

Company Profile Indian Oil Corporation Limited

Indian Oil Corporation Ltd. (IndianOil) is the largest commercial enterprise in India, and the only Indian presence in the Fortune magazine’s “global 500” listing of the world’s largest corporations, with a ranking of 226 for fiscal 2001. In the ‘Forbes International 500’ list of the largest companies outside US, IndianOil is ranked 112 and tops the four Indian companies in the listing. In addition to being the largest national oil company in the Asia Pacific region, IndianOil has also been ranked ‘First’ in Petroleum Trading among the 15 national oil companies in the region in the 2001 Industry Perception Survey conducted by Applied Trading Systems, Singapore. Indian Refineries Ltd. And Indian Oil Company Ltd. were set up in 1958 and 1959 respectively, to build national competence in the oil refining and marketing business. On 1st September 1964, these two companies were merged to form Indian Oil Corporation Ltd. IndianOil owns and operates seven of the country’s 18 refineries, at Digboi, Panipat, with a combined capacity of 38.15 million metric tones per annum (MMTPA). A new MMTPA grassroots refinery is being set up at Paradip in Orissa. In addition, IndianOil has two subsidiary companies, Chennai Petroleum Corporation Ltd. And Bongaigaon Refinery and Petrochemicals Ltd., with a combined refining capacity of 9.35 MMTPA, thereby raising its total refining capacity to 47.50 MMTPA, the highest in the country today. IndianOil has the country’s largest network to crude and product pipelines, with a combined length of 6,523 km and a capacity of 43.45 MMTPA. With sales of 47.17 million metric tones in 2001-02, IndianOil holds over 53% of the petroleum products market share in India.

Its extensive network of over 22,000 sales points is backed for supplies by 182 bulk storage points and 78 Indane bottling plants. 92 Aviation Fuel Stations cater to the Aviation Industry, defence as well as civil. IBP Co. Limited, a stand-alone marketing company and a subsidiary of IndianOil, has a nationwide network of over 1,550 retail outlets. IndianOil’s Research and Development Centre has been engaged in world-class research in tribology (lubricants formulation), refinery processes and pipeline transportation. The Centre has developed over 2000 lubricant and grease formulations, and obtained approvals of original equipment manufactures in India and abroad. A wholly owned subsidiary, Indian Oil blending Ltd., manufactures over 450 grades of the country’s leading R brand of lubricants and greases. In pursuit of its Vision of becoming ‘ a major, diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security and public distribution’, IndianOil is proactively identifying and developing business opportunities in Exploration & Production (E&P), Gas and Gas-to-Liquid, Petrochemicals, Power, Information Technology & Communications, Collaborative R&D, Exports, Shipping, Training & Consultancy, Engineering & Construction, and Transnational Operations. Twelve joint Ventures are now operational in partnership with some of the leading international and Indian companies;

•

Avi-Oil (India) Pvt. Ltd. With NYCOSA, France, and Balmer Lawrie & Co. for manufacturing and marketing Defence and civil aviation lubricants and specialties.

•

The cover depicts a bird, symbolizing IndianOil, breaking through barriers to seek new horizons.

•

It is a quest marked by immense possibilities a quest for progress through pursuit of new opportunities.

•

The colour blue signifies the vast expanse of a new world, and is a tangible expression of widening horizons.

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Indian Oiltanking Ltd., with Oiltanking (India) GmbH, Germany, for infrastructure development and terminalling services.

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Petronet India Ltd. (PIL), a consortium of oil companies and financial institutions, for petroleum product pipeline projects.

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Petronet Vadinar-Kandla Ltd., as a subsidiary of PIL, for Vadinar-Kandla product pipeline.

•

Petronet Chennai-Trichy-Madurai Ltd., also as a subsidiary of PIL, for Chennai-Trichy-Madurai product pipeline.

IndianOil is marketing diesel fuel additives for automobiles in collaboration with Elf Antar, France. IndianOil Air BP are collaborating in aviation fueling business. IndianOil’s investments in creation of assets will exceed Rs. 40,000/- Crore over the decade beginning 1997. These investments, substantially funded from internal resources, will result in expansion and modernisation of existing capacities, as well as creation of state-of-the-art facilities.

IndianOil is an “academy” company with 18training centers. The IndianOil Institute of Petroleum Management (IIPM), Gurgaon, serves as an apex training and consultancy institute and conducts management development programmes in association with reputed national and international institutes. IndianOil Management Centre for Learning (IMCL) recently set up in Mumbai will facilitate in upgrading the functional knowledge and skills of the employees and also impart behavioural training. For the past two decades, IndianOil has been lending its expertise to several countries in areas of refining, marketing, transportation, training and R&D. These include Sri Lanka, Kuwait, Bahrain, Iraq, AbuDhabi, Tanzania, Ethiopias, Algeria, Nigeria, Nepal, Bhutan, Maldives, Malaysia and Zambia. IndianOil’s commitment to quality, safety, health and environment is reflected in the series of national and international certifications and awards earned over the years. The 17th largest petroleum company in the world, IndianOil, is now emerging as a transnational energy conglomerate. From the icy slopes of Leh in the Himalayas to Kanyakumari where the Bays of Bengal and the Arabian Sea join the Indian Ocean, and from the Single Buoy Mooring at Salaya in the West to the Monasteries at Tawang in the East, IndianOil lives in every heart and in every part of India.

GLOBAL RANKING

Indian Oil Corporation maintained its position as the sole Indian presence in the Fortune ‘Global 500’ listing of the world’s largest corporations for the eighth year in succession. In the latest ranking released by the Fortune magazine for the year 2001, Indian Oil Corporation is ranked 226 against the ranking of 209 last year. The lower ranking is mainly due to the diminished value of Rupee as compared to the US $ by 5.65% for the period under review. As per the Fortune listing, amongst the 269 largest petroleum-refining companies in the world, IndianOil is ranked 17, a step above last year’s position of 18. In the list of “Forbes International 500 Companies’ outside the US, IndianOil retains its last year ranking of 112, and tops the list among the four Indian corporates appearing in the listing. In addition to the Fortune and Forbes rankings, Indian Oil Corporation has been ranked ‘First’ in Petroleum Trading among the 15 National Oil Companies in the Asia Pacific Region in the 2001 Industry Perception Survey conducted by Applied Trading Systems, Singapore. FINANCIAL REVIEW TURNOVER

The turnover of Indian Oil Corporation for the year ended 31.03.2002 was Rs. 114,864 Crore as compared to Rs. 117,371 Crore in the previous year. The reduction in turnover is mainly on account of reduced sale of crude and product to other Oil Marketing Companies.

Further, the inland sales volume reduced by 0.63 million metric tones, from 47.80 million metric tones in 2000-01 to 47.17 million metric tones during 2001-02, registering a decline of 1.32%. The reduction in sales is mainly due to lower offtake of HSD, SKO and Naptha consequent to slow down of economy. PROFIT BEFORE TAX

The Corporation recorded the highest ever Profit Before Tax of Rs. 4,599 Crore during the current year as against Rs. 2,962 Crore in 2000-01, registering a growth of 55%. The increase in Profit Before Tax is mainly on account of settlement of Pool claims pertaining to previous year. PROVISION FOR TAXATION

a) Current Tax An amount of Rs. 977 Crore has been provided towards Current Tax considering the applicable Income Tax rates, as against Rs. 242 Crore provided during 200001. The effective tax rate for the current financial year works out to 21.68% as against 8.18% in 2000-01. The increase in effective tax rate is due to provision of tax during the current year at normal rates of tax due to higher profits as compared to provision at MAT (Minimum Alternative Tax) rate in the previous year. b) Deferred Tax In compliance of Accounting Standard-22 on “Accounting for Taxes on Income” issued by The Institute of Chartered Accountants of India, the Corporation has (i) Provided accumulated Deferred Tax Liability as on 01.04.2001 amounting to Rs. 2,688 Crore with a corresponding charge to General Reserve having no impact

on current year profits. (ii) Provided Deferred Tax Liability for financial year ended 31.03.2002 amounting to Rs. 717 Crore and accordingly Profit has been reduced by the same amount. PROFIT AFTER TAX

Profit After Tax has improved from Rs. 2,720 Crore in 2000-01 to Rs. 2,885 Crore during current financial year, registering a growth of 6%. DEPRECIATION

Consequent to increased capitalization of fixed assets, deprecation for the year 2001-02 was Rs. 1,392 Crore as against Rs. 1,224 Crore for the year 2001-02. INTEREST (NET)

Interest Expenditure (net) decreased from Rs. 1,174 Crore during 2000-01 to Rs. 882 Crore for the current year. The decrease is mainly due to reduction in short term loans and decrease in overall cost of borrowings. BORROWINGS

The borrowings of the Indian Oil Corporation have also reduced from Rs. 20,636 Crore as on 31.03.2001 to Rs. 19,070 Crore as on 31.03.2002. The Total Debt to Equity ratio as on 31.03.2002 works out to 1.25:1 as against 1.29:1 as on 31.03.2001 and long Term Debt to Equity ratio stands at 0048:1 as on 31.03.2002 as against.0.40:1 as on 31.03.2001.

EXPORT EARNING

During the year, Indian Oil Corporation earned Rs. 2,078 Crore through experts as against Rs. 2,206 Crore in 2000-01. The exports include exports of R lubricants to Nepal, Sri Lanka, Indonesia, Bangladesh, Bahrain and Mauritius, and sale of ATF to international airlines. PIPELINES

Indian Oil Corporation owns and operates the largest network of crude and product pipelines in the country with a total length of 6,523 km and overall capacity 43.45 MMT. The pipeline network transported 40.36 MMT of crude and petroleum products during 2001-02 against the previous year’s throughput of 39.44 MMT. MARKETING

During the year, IndianOil’s Marketing Division performed well in all key areas despite increased competition and unpredictable market conditions. New initiatives in the form of products and services were taken to achieve ‘Customer Delight’. SALES

During 2001-02, IndianOil Corporation sold 47.17 MMT of petroleum products as compared to 47.80 MMT in the previous year. The actual demand for petroleum products in the country during the year was much below the projections. This had an adverse impact on Indian Oil Corporation’s sales. Despite the sluggish demand and severe competitions, IOCL increased its market share in products like MS(Retail) and HSD (Retail). Indian Oil Corporation commissioned 350 Retail

Outlets and 19 SKO / LDO Dealerships during the year, raising their total number to 7,870 and 3,455 respectively. This includes 80 jubilee Retail Outlets. CUSTOMER SERVICE

In Indian Oil Corporation’s pursuit to provide better services, IVSR based complaint tracking and redressal system for customers was launched in 33 Indane Area Offices. Further, in order to provide value added services to monitoring public, Indian Oil Corporation, in association with State Bank of India, launched the SBI-Indian Oil Co-branded pre-paid card called “Smart Gold” for customers to avail of products and services at IndianOil retail outlets. Indian Oil Corporation introduced 35 ATMs at retail outlets during the year in various parts of the country, thereby bringing the total number of ATM’s installed to 57. The IndianOilCitibank co-branded credit card has reached a membership of 1.48 lakh as on 31.03.2002. Indian Oil Corporation, in association with Chennai based Sundaram Finance ltd., also launched “Power Plus Fleet Card” for transport fleet operators. INDANE COOKING GAS

During the year, Indian Oil Corporation enrolled 26 lakh Indane customers, and the cumulative Indane consumer population reached 322 lakh. The number of Indane distributorships commissioned during the year was 457 raising the total number of distributors to 3,881. During the year, seven new Indane Bottling Plants were commissioned, thus raising the total number of Indane Bottling Plants to 78 and the total bottling capacity to 32.21 metric tones per annum.

AVIATION

Indian Oil Corporation continued to be market leader in Aviation Fuel supply business with a market share of 67.9%. The entire Aviation Fuel requirements of Indian Navy and Indian Army, and over 87% requirement of Indian Air Force was met by IOCL. The major requirements of other market segments like Indian Airlines were catered to by Indian Oil Corporation. IOCL commissioned a state-ofthe-art Hydrant Refuelling System at Netaji Subhas Chandra Bose Airport in Kolkata during the year for use of Industry. As part of customer service initiatives Indian Oil Corporation has developed a user-friendly IndianOil Aviation web page on Internet, providing information on ruling prices, service network, aviation highlights, and information on products available location-wise. Indian Oil Corporation organized the 11th International Aviation Conference at Hyderabad, which was attended by representative of major international airlines, IATA, aviation equipment manufactures and Government. LUBRICANTS

Indian Oil Corporation produced 3.96 lakh metric tones of lubes and 0.13 lakh tonne of grease during the year. In spite of depressed market conditions, Indian Oil Corporation improved its market share in finished lubricants. 36 R bazaar-onwheels were added to penetrate the bazaar trade. 24 R stockists (auto) and 11 R stockists (industrial) were commissioned during the year to give a thrust to lubricant sales. During the year, R lubricants were launched in Bangladesh and Sri Lanka.

SPECIALITIES

Indian Oil Corporation introduced four new products, viz., Needle Coke (Guwahati Refinery), Microcrystalline Wax (Haldia Refinery), and Polymer Grade Hexane and Butene-2 (Gujarat Refinery) in the market as import substitutes. SHIPPING

149 product import tankers, 11 product tankers and 444 crude import tankers were handled during the year. QUALITY ASSURANCE

IOCL consistently accorded top priority on Quality Assurance for its products and services. IndianOil continues to be the market leader for testing petroleums products by providing the largest network of testing facilities. More than 2 lakh samples were tested in its 37 laboratories located across the country. During the year, a mobile laboratory was added at Patna, taking the number of mobile laboratories to 23. Laboratory Information Management System was successfully commissioned in a few IndianOil laboratories with the Laboratory Documentation and Management System software developed by the Quality Control Department of Marketing Division. INTERNATIONAL TRADE

Indian Oil Corporation arranged import of crude oil, petroleum products and lubricants for meeting the country’s requirements through a carefully selected diversified mix of supply sources and also exported petroleum products during

2001-02 as detailed hereunder:

Quantity(MMT)

Value (Rs. Crore)

Imports Crude Oil - 47.98 Petroleum

38,910.15

Products,

including

Nepal Oil Corporation

for

2.28

Lube Base Oils / Lubricants / Additives

2,506.80

0.02 51.30

Exports Petroleum Products Lubricants

0.21

1,382 MT

Bitumen

203.41 4.28

2,574 MT

2.09

RESEARCH & DEVELOPMENT

During

2001-02,

Indian

Oil

Corporation’s

R&D

Centre

focused

on

commercialization’s of already developed technologies, development of innovative and cost-effective technologies with reduced gestation period, and specialized technical services to operating divisions of the Corporation. During 2001-02, IndianOil’s R&D Centre developed 80 formulations, which include 42 new product formulations: 32 product formulations got approval from various national and international original equipment manufacturers and 14 products got American Petroleum Institute (API) certification while field trials on 12 new products were conducted. Intellectual Property Rights activities of the R&D Centre led to grant of 19 patents, including 10 Indian, seven US, One Canadian and one European. 11 new patents were field, which include four in India, three in US and one each in Europe, China and Brazil.

The efforts of the R&D Centre in proprietary additive development resulted in the synthesis of an EP Additive and Friction Modifier and its production on commercial scale at Taloja Additive Complex in Maharashtra. The Oilivorous-S Technology developed jointly with Tata Energy Research Institute for safe disposal of oil sludge has been put on field trial at Barauni and Mathura refineries. A multi-functional additive for MS was developed for improving the quality of fuel. Another breakthrough was the development of a process to improve deodorisation and dry point of MTO at Panipat Refinery. As further advancement in Bitumen technology, a high performance binder known as Crumb Rubber Modified Bitumen was developed and commercialized. In refining technology, technologies developed earlier have moved up on the commercialization process chain during the year. These include INDALIN Process for conversion of olefinic petroleum fractions into LPG and aromatics, LOTUS-24, which is under field trial at Mathura Refinery, and IMAX Additive for maximization of LPG yield, plant trial for which has been completed at Gujarat Refinery. Other breakthroughs include development of LPG-MAX, a new process for LPG maximization and continuous film contractor based process for removal of Mercaptan from LPG. The Instrumented Pig developed jointly by R&D Centre and Bhaba Atomic Research Centre, Mumbai, has completed field trials and is ready for commercialization.

INFORMATION SYSTEMS

Indian Oil Corporation aims at maintaining its leadership in the Indian hydrocarbon industry by assimilation of emerging Information Technology and web-enabled business solutions for integrating and optimizing the Corporation’s hydrocarbon supply chain. Indian Oil Corporation is focusing on total customer delight through value-added IT solutions, with emphasis on centralized control and decentralized response. PROJECT MANTHAN

As part of the on-going ERP (Enterprise Resource Planning) implementation across the corporation under Project Manthan, 12 units have gone live on the latest, state-of-the-art SAP r/3 software system on New Year Day (01.01.2002) and three more on 01.07.2002, without any disruption in operations at any of the units. Earlier, Indian Oil Corporation’s R&D Centre at Faridabad became the maiden unit to Golive on SAP in August 2001, followed by IndianOil Institute of Petroleum Management (IIPM) at Gurgaon in October 2001. The laboratory Information Management System package was also implemented at Panipat Refinery in March 2001 and at R&D Centre in August 2001. A-30 A-31 Construction of the Data Communication Centre, the electronic and communication hub of the project, at IIPM campus is in progress. It will not only host SAP Production System (including Database Servers, Application Servers and Storage Libraries) but also form the nucleus of a wide Area Network linking all locations of Indian Oil Corporation through an extensive and robust communication network using V-SATs, leased lines, ISDN / PSTN dial-up lines,

radio / wireless links and the Optical Fibre Cable communication system of Pipelines Division. Project Manthan is also in an advanced stage of customizing Add-On software packages in core business areas like demand forecasting; crude allocation to refineries, distribution planning for finished products; transportation scheduling; optimizing refinery operations and product mix solutions; and planning; optimizing and scheduling of the Corporation’s profitable lubricants business. HUMAN RESOURCES EMPLOYEE PROFILE

The human resources in Indian Oil Corporation was 31,675 strong as on 31.03.2002, of which 9,728 are in the Officers cadre and 21,947 are in the Staff cadre. There are 5,672 employees from SC category and 2,097 from ST category. The SC and ST employees constitute 24.53% of the total employees’ strength. There are 2,387 women employees, out of whom 692 are in the Officers carde and 1,695 in Staff cadre. The women employees constitute 7.54% of total employees’ strength. WELFARE OF EMPLOYEES

IndianOil Corporation continued its endeavour to upgrade facilities and promote the welfare of employees. With a view to promote employees’ welfare, Indian Oil Corporation brought about improvements in policies concerning medical facilities, allowances at remote locations, Productivity Incentive Scheme and post-retirement medical facilities.

WELFARE OF WEAKER SECTIONS

Indian Oil Corporation has been diligently following the Presidential Directives and various instructions / guidelines issued by the Government of India regarding reservation in Services for SCs / STs/ OBCs/ Physically Handicapped/ Exservicemen, etc. Sincere efforts have been made to recruit reserved category candidates as per the Government’s instructions. It has been the endeavour of your Corporation to utilise 25% of Community Development Funds towards Special Component Plan (SCP) and Tribal Sub Plan (TSP) for meeting the needs of weaker sections. Status on Implementation of Disabilities Act, 1995 Before the enactment of the Act, Indian Oil Corporation had been extending reservation for physically handicapped persons in recruitment to the posts in Group ‘C’ & ‘D’. With the enactment of the act, w.e.f. 07.02.1996, the reservation for physically handicapped persons has been extended to the posts in Group ‘A’ & ‘B’ as well. Indian Oil Corporation has been implementing the provision of 3% reservations for physically handicapped and disabled persons in letter and spirit. Besides, various concessions and relaxataions are being extended to physically handicapped persons in recruitment. Presidential Directives regarding Representation of SC’s and ST’s Officials dealing with the subject are given training as required so as to enable them to update their knowledge on the subject and perform their job effectively. Liaison Officers have been appointed at various locations/ units/ installations all over the country to ensure implementation of Government Directives.

In accordance with para-29 of the Draft Presidential Directives, a note about the Corporation’s activities having direct relevance to advancement of SC / ST category of employees along with statistics relating to presentation of SCs / STs, in the prescribed proformae – Appendices VII(A) and VII(B) – is placed as Annexure-2. In accordance with the revised instructions of the Government of India. THE INDIAN OIL FOUNDATION

As part of the Corporate Mission ‘to help enrich the quality of life of the community and preserve ecological balance and heritage…’, Indian Oil Corporation has set up The IndianOil Foundation as a non-profit Trust to protect, preserve and promote our national heritage and culture, in collaboration with the Archaeological Survey of India and the National Culture Fund of the Ministry of Culture. The Indian Oil Foundation will adopt at least one heritage site in every State and Union Territory. Archaeological works will be funded by the IndianOil Foundation to the Archaeological Survey of India through the National Culture Fund. Five prestigious sites have been identified, viz., Qutb Minar, Delhi; Khajuraho, Madhya Pradesh; Hampi, Karnataka; Kanheri Caves, Maharashtra; and Konarak, Orissa. The IndianOil Foundation will develop world-class facilities and conveniences for visitors. Indian Oil Corporation will provide refueling facilities for travelers and also undertake community development in the neighborhood.

COMMUNITY DEVELOPMENT

As a responsible corporate citizen, Indian Oil Corporation has made substantive contribution during the year to national causes, social welfare and community development programmes throughout the country, particularly in the vicinity of its major units ‘to improve the quality of life of the people.’ Indian Oil Corporation constructed 800 temporary shelters for earthquake victims at Bachau Gujarat. Besides, IOCL contributed Rs. 23 Lakh during the year to Shri Vedic Mission Trust, Rajkot towards reconstruction of 100 houses at Kharoda village in Kutch district of Gujarat. The employees of Indian Oil Corporation also contributed Rs. 91 Lakh to the Gujarat Chief Minister’s Relief Fund for earthquake Victims. CORPORATE COMMUNICATIONS

Indian Oil Corporation continues to project a positive image to the media, the public and the stakeholders through various campaigns. During the year a number of press conferences were organized by IOCL in Delhi, Mumbai, Kolkata and Chennai. The R umbrella campaign on Television titled ‘Best Friends for Life’ was well received and adjudged the Most Recalled Advertising Commercial on Television, winning the Indian Express Award for Excellence. IndianOil Day was celebrated on 01.09.2001 by the employees of Indian Oil Corporation to reinforce the resolve of the Indian Oil People to strive for excellence. INDIAN OIL BLENDING LTD.

The Annual Accounts and Directors’ Report of IndianOil Blending Ltd. (IOBL), a wholly owned subsidiary of the Corporation, are annexed.

IOBL earned a Net Profit of Rs. 6.86 Crore and declared a Dividend of 30% for the year 2001-02. The production for the year 2001-02 was 226 TMT, attaining a capacity utilization of 95%. CHENNAI PETROLEUM CORPN. LTD.

The annual Accounts and Directors’ Report of Chennai Petroleum Corporation Ltd. (CPCL), a subsidiary of the Corporation, are annexed. CPCL earned a Net Profit of Rs. 63.71 Crore on a Turnover of Rs. 6,175 Crore and declared a Dividend of 20% for the year 2001-02. BONGAIGAON REFINERY & PETROCHEM

The Annual Accounts and Inrectors’ Report of Bongaigaon Refinery & Petrochemicals Ltd. (BRPL), a subsidiary of the Corporation, are annexed. BRPL incurred a loss of Rs. 198.61 Crore on a Turnover of Rs. 1,195 Crore during the year 2001-02. IBP Co. LIMITED

The Annual Accounts and Directors’ Report of IBP Co. Limited, a subsidiary of the Corporation, are annexured. IBP Co. Limited earned a Net Profit of Rs. 195.79 Crore on a turnover of Rs. 8,453 Crore and declared a Dividend of 100% for the year 2001-02 .

CONCPTUAL FRAMEWORK OF WORKING CAPITAL:

“Working Capital sometimes called as Net Working Capital is represented by the excess of current assets over the current liabilities and identified the relatively liquid portion to total enterprise capital which constitutes a margin of buffer for maturing obligations within the ordinary operating cycle of the business”. 'Working Capital is a excess of current assets over cu rrent liabilities'.

CONCEPT OF WORKIGN CAPITAL:

There are two concepts of working capital such as 

Gross Concept



Net Concept

GROSS WORKING CAPITAL: (GWC)

The gross working capital simply called as working capital, refers to the firm's investment in current assets. Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, bills receivables, inventories and prepaid expenses. Gross Working Capital = Total of Current Assets

WORKING CAPITAL:

The term working capital refers to the capital required for day to day operations of a business enterprise. It is represented by excess of current assets, over Current liabilities. It is necessary for any organization to run successfully its affairs ,to provide for adequate working capital.

ADVANTAGES OF ADEQUATE WORKING CAPITAL

Working capital is the lifeblood and nerve center of business. Just as circulations of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows:

1. Solvency of the business:

Adequate working capital helps inmaintaining

solvency of the business by providing uninterrupted flow of production.

2. Goodwill:

sufficient working capital enables a business concern to Make

prompt payments and hence helps in creating and maintaining Goodwill.

3. Easy loans:

a concern hacking adequate working capital, high Solvency and

good credit standing can arrange loans from banks and others on easy and favorable terms. 4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. 5. Regular payments: Regular payments of salaries, wages and other day- To-day commitments company, which has sample working capital, can

make regular

payment of salaries. Wages and other day-to-day commitments. Which raise the morale of its employees, increase their Efficiency, reduce wastage's and costs and enhances production and profits.

6. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continues production.

7. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies

such depression because during such periods.

Generally, there is much pressure on working capital. 8. Quick and Regular return on Investments: Every investor wants a quick and regular return on investments. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors, as their may not

be much pressure to plough back profits. this gains the confidence investors and creates a favorable market

to

of its

raise additional funds in the

future.

9. High morale:

Adequacy of working capital creates an environment of

security, confidence and high morale creates

over all efficiency in a

business. DISADVANTAGES OF EXCESSIVE WORKING CAPITAL:

Every business concern should have adequate working capital to run its business operations. it should have neither redundant or excessive working capital nor inadequate shortage of working capital. Both excessive as well as short working capital positions are bad for any business. 1. Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments.

2. 3. When there is redudant working capital,it may lead to unnecessary purchesing and accumulation of inventories casuing more chances of theft waste and losses. 4. Excessive working capital implies excessive debtors and defective credit policy, which may it may cause higher incidence of bad debts. •

It may result into overall inefficiency in the organization.

•

When there is an excesses working capital relation with the banks and other financial institutions may not be rnaintained.

•

Due to low rate of return on investments the value of shares may also fall.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

1. A concern, which has inadequate working capital, cannot pay its short term liabilities in time. Thus it will loose its reputation and shall not be able to get good credit facilities. 2. It cannot buy its requirements in bulk can cannot avail of discounts etc.

3. It becomes difficult for the firm to exploit favorable market conditions and undertaken profitable due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increase costs and reduces the profits of the business. 5. It becomes impossible to utilize efficiently the fixed assets due to nonavailability of liquids funds. 6. The rate of return on investments also falls with the shortage of working capital.

DETERMINANTS OF WORKING CAPITAL:

A wide variety of factors influence the total investment in working capital in an enterprise. Significant among them are:

1. Promotional and Formative Phase:

The start up of a new project years from the most crucial phase planning and provisioning of working capital funds.

By neglecting this, many ventures run into financial difficulties in their early operating years, the rather casual approach to assessment of working capital needs during the periods when industry and business functioned in a sellers market could be understand as at the banker was willing to absorb all shock of fluctuations in project operations by providing ready funds to meet emergency needs. The position has undergone radical change. The banker can no longer be taken for granted and in the absence oil proper estimation of working capital needs, the project may have to face serious financial problems. 2. Position of Business Cycle:

Movements of the business cycle bring about shifts in working capital position. The upward wing is associated with spurt in sales and increase in levels of inventories and book debts. There could be a cash shortage and borrowing may become necessary. On he other hand, when there is a downswing, the level of inventories and book debts may fall, but revenues also fall, while certain categories of costs remain fixed and cash shortage right still be felt. 3. Nature of Business:

The nature of business has an important bearing on its working capital needs, some ventures like retail stores, construction companies etc. require an abundance of working capital.

In other cases such as power generations and supply, the current assets playa minor and secondary role. 4. The manufacturing cycle:

A longer manufacturing cycle between the raw material purchase and the completion of he manufacturing process will obviously mean larger tie up of funds to meet increased working capital needs. In such cases management should try to increase the rate of production and reduce the cycle time and thus cut down working capital requirement. This can be achieved through process changes or through effective organization and coordination at all levels of enterprise activity. Frequent changes in setups, waiting for materials, tools or instructions and accumulations of working progress result in extending the time cycle and blocking more funds. Organized negotiations with suppliers for attractive credit terms and retention of their continued confidence by the settlement of bills on agreed dated can also help reduce working capital requirements. 5. Credit Terms to Customers:

The credit terms to customers influence the working capital level by determining the level of investment in book debts. Management has to decide on suitable credit policy relevant to each customer based on the merits of his case.

Unduly liable credit policies and permissive attitude in the matter of collections of outstanding can lock up funds that would be other wise be available for operating needs.

6.

Vagaries in supply of Raw Materials:

The sources of certain raw materials are few and irregular and pore problems in the matter of procurement and holding, using up more funds. Materials that are available only in certain seasons have to be obtained and stored in advance. The working capital requirements in such instances will show seasonal fluctuations.

7. Shifts in Demand for Products:

Some manufactured products are subject to seasonal fluctuations in sales. In order to utilize the capacity to the maximum possible extent, steady production may have to be maintained, through the demand for finished products may very from time to time. Finished goods inventories will therefore accumulate during off season, requiring increased amounts of working capital to support higher levels of inventory. Financial planning will have to provide for these funds, requirements associated with steady, production and seasonal sales.

8. Production Polices:

To tackle the problem of having to find funds to support the increasing finished goods inventory levels until they are sold during the peak seasons, some companies diversify and produce other products that are in demand, enabling manufacture of the main product to follow the seasonal pattern of its demand. 9. Competitive Conditions:

In a competitive market, winnings and maintaining customers goodwill will involve additional costs and present a variety of working capital problems. To offer the customer the benefit of choice, a variety of products will have to be manufactured and stocked. This would mean higher levels of inventories in all stages and, therefore, additional working capital funds.

More generous credit

terms may have to be extended and the investments in accounts receivables may have to be higher, requiring additional funds. The degree of completion is thus an important factor influencing working capital requirements. 10. Growth and Expansion Programs:

As business grows, additional working capital has to be found. In fact, the need for increased working capital does not follow the growth in business activity, but preceded it.

Advance planning of working capital is thus a continuing necessity for Owning concern. Or else, the company may have substantial earnings but little cash. With fast growth, they may be under constant pressure for raising external funds in addition to the internal generation. Forward planning and continuous review, therefore, are very essential for such companies.

11. Profit Levels:

By the very nature of things, some enterprises generate high margins compared to others. The product category and the firm’s position in the market may have given these advantages. Others have to struggle in a highly competitive environment. But, profits cannot be considered as available cash at the end of the period. Even as the companies operations are in progress, cash is used up for augmenting stocks, book debts and fixed assets.

Elaborate planning and

projections of expected activities and cash flows, at short intervals, assume importance. To meet anticipated deficits, sources of funds will have to be identified and where surpluses are expected, suitable applications will have to be planned. 12.

Taxation:

Tax liability is an inescapable element in working capital planning. It is a short term liability payable in cash.

Advance taxes may have to be remitted in installments, on the basis of estimated profits. Periods of high taxation impose additional strain on working capital.

To able to get the best out of the available tax incentives, the finance manager has to draw up the operating plans of the company in advance and utilize the resources for research and development, exports or other purposes which promise tax benefits and promote the companies earnings.

13.

Dividend Policy:

Management has to preserve cash resources but at the same time, it a cannot fail to satisfy investor expectations. Market prestige for the shares of the company has also lobe nurtured and maintained in its long run interests. During periods of low profits, maintenance’s of steady dividends will involve draining of resources but may be needed to preserve the companies Image.

14.

Reserves Policy:

One of the cherished goal of enterprise management is to build up adequate reserves out of profits the urge to retain profits may act as a major constraint on the dividend policy, the funds position being given higher priority over dividend policy.

15.

Deprec Depreciat iation ion’’ Polic Policy: y:

Depreciation policy determines he amount to be provided as, depreciation on the various categories of fixed assets. The depreciation charges do not involve any cash outflow. Enhanced rated of depreciation have the effect of reducing profits profits correspondingly, which in turn can help in holding back distribution of dividends. This process process conser conserves ves cash. cash. Depreciat Depreciation ion polices polices.. Thus exert exert influen influence ce on the status of working capital in the enterprises from time to time.

16. Price Level Changes:

Rapidly rising prices create the need for more funds for maintaining the present volume of activity for same levels of inventories, higher cash outlays are needed. In an inflationary set up, even operating expenses will grow for given levels of acti activi vity ty..

Some Some comp compan anie iess may may be able able to compen compensa sate te part part of these these cost cost

increases through increases in prices for their products. The implications of changing price levels on working capital position will vary from company to company depending on the nature of the company. 17. Operating Efficiency:

There is a close relation ship between the operating efficiency of a company and its working capital position. Waste elimination, improved coordination coordination to cut delays higher efficiency in operations and fuller utilization of resources is among the initiatives taken to prevent erosion of profits. They also have the effect of getting more out of a given volume of working capital or obtaining the current levels of out put with with a reduced volume volume of working capital. capital. Efficiency of operation accelerates the place of the cash cycle, and improves the working. Capital turnover. It releases the pressure pressure on working capital capital by improving profitability and increasing internal generation of funds. With a large variety of factors exerting influence on working capital requirements, the management has to be continuously continuously aware aware of the developments, internal external external and and environmental, environmental, and has to plan and review constantly its working capital needs and strategy.

WORKING CAPITAL MANAGEMENT:

Working capital management involves the relationship between firm's shortterm assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient abil abilit ity y to sati satisf sfy y bo both th matu maturi ring ng shor shortt-te term rm debt debt and and up comi coming ng op oper erat atio iona nall expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

Why firms hold cash:

The financ financee profes professio sion n recogn recognize izess the three three prima primary ry reason reasonss offere offered d by economist JOHN Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for making transactions. All three of these reasons from the need for companies to process liquidity.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:

(i) Gross working capital (ii) Net working capita

In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period if normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Working Capital = Current Assets – Current Liabilities

Net working capital may be positive or negative. When the current assets exceed the current liabilities, the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. The Gross working capital concept in financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive; rather both have their own merits.

Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept may be suitable only for proprietary form of organization such as sole-trader or partnership firms. However, it may be made clear that as per the general net working capital is referred to simply as working capital.

TYPE OF WORKING CAPITAL

There are varying concepts or perceptions of working capital, which have relevance to specific situations. KINDS OF WORKING CAPITAL WORKING CAPITAL

On the basis of Concept

Gross

Net

Working Capital variable

On the Basis of Time

Permanent (or) Fixed

Temporary (or) working capital

Working Capital

Working capital

Regular Working capital

Reserve Working capital

Seasonal Working Capital

special Working Capital

1.

GROSS WORKING CAPITAL:

Gross working capital is represents by the sum total of all current assets of the enterprise. Enough funds will have to be provided to sustain the movement of raw materials through the work. But short term financing is more risky than long term financing. In process to the finished goods stage and then to accounts receivables and up to the realization of cash. In other words, the funds needed would total up to the constituent components, namely stock of raw materials and minimal cash and bank balances, constituting working capital. In managing gross working capital, the shifts in investment in current assets are under constant review, close attention and prompt correction. Excessive investment in current assets is to be carefully avoided, as otherwise profits would be adversely affected. 2. NET WORKING CAPITAL:

Net working capital is the difference between the current assets and current liabilities. While current assets are short term assets that are expected to get converted in to cash within one year, current liabilities are short – term liabilities that are expect to fall due or mature for payment in a short period, generally within a year, and represent short term sources of funds. The concept of net working

capital, as the excess of current assets over current liabilities, highlights the character of he sources from which the funds have been obtained to support that portion of current assets in excess of current liabilities. This part of working capital may be provided by way of share capital, from internal source such as reserves or plough back of profits or from external sources in the form of longterm borrowings. There are two implications. The management has to examine what proportion of the current assets has to be financed by permanent capital and long-term borrowings. Then there is the eagerness of short – term creditors to verify whether the total current assets, representing ultimate source of funds for the recovery of their dues, maintains a convincing level above the total current liabilities or obligations. A judicious policy of mixing long term and permanent as distinct from short term sources should be formulate to finance investment in current assets. 3. PERMANENT WORKING CAPITAL:

In actual operation of typical going concern, the current assets and each component of it, are subject to continuous and rapid pace of replacement. Over a period of time, there is a constant or minimum level, below, which the total investment in current assets does not fall. This minimum level of current assets can be called as the ‘hared core’ or fixed or constant or permanent working capital and should normally be financed by long

term debt and equity. Recognizing this, the matching principle of financing is interpreted to indicate that the fixed assets and permanent working capital should be financed by long term sources of funds and that the variable working capital should be financed with sort term sources of funds. 4. VARIABLE WORKING CAPITAL: Seasonal fluctuations in a business are a common features n many cases. The amount of funds needed over and above the fixed working capital to take care of such seasonal shifts constitutes the variable working capital. These are also referred to as fluctuating temporary working capital and may be financed by short term sources of appropriate amount and duration. In fact, in would be wise to cover also a part of this seasonal requirement form long term sources, as insurance against unexpected shifts in case flows.

Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it, flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out or cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash inventory (stocks and work-in -progress) and Receivables (debtors owing you money).The main sources of cash payables (your creditors) and Equity and Loans. Each component of working capital (namely inventory, receivables and payables) has to dimensions ....TIME.....And MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monics due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales).

The business will generate more cash or it will need to borrow less money to find working capital. Consequently, you could reduce the cost of bank interest or you will have additional free money available to support additional sales growth or investment.similarly,if you can negotiate, improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.

If you... •

Collect receivables (debtors)

faster •

Then..... •

You release cash from the

cycle Collect receivables (debtors)

•

Your receivables soak up cash

•

You

shower •

Get better credit (in term of

duration or amount) from suppliers •

Shift inventory(stocks) faster

•

Move inventory (stocks) slower

increase

your

cash

resources

•

You free up cash

•

You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers , plants, vehicles etc. if you do pay cash, remember that this is now longer available for working capital.Therfore,if cash is tight consider other ways of financing capital investment-loans,equity,leasing etc. similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business.

More business fail for lack of cash than for want of profit. The third area in the account receivable management is collection policies.

These policies cover two aspects. . Degree of effect to collect overdue . Type of collection effects THE OPERATING CYCLE:

The operating cycle of the company can be said to cover distinct stage, each stage requiring a level of supporting investment. The sum total of these stage-wise investments will be the total amount of working capital required. The operating cycle has four stages: a.

The raw materials and stores inventory stage.

b.

The work-in-progress stage

c.

The finished goods inventory stage

d.

The book debts or accounts receivable stage. The level of investments in raw materials and stores inventory can be

expressed in term of the number of day’s materials and stores consumption, on an average, held in inventory. The work-in-progress can be stated as representing a certain number of days have cost of production. The finished goods inventory can be expressed an equivalent to a given number of days cost of sales, on an average. The number of days purchases on an average, included in the trade creditors can also be calculated form the company’s data. The fact that the trade creditors

finance a good part of investment in raw materials and stores inventory desserts particular attention. The framework of operating cycle formula can be : t= (r-c) + w + f + b,

where

t= Stands for the total period of the operating cycle, in number of days. r= The number of days raw materials and stores consumption requirements held in raw material and stores inventory). c= The number of days purchases, included in trade creditors. w= The number of days cost of production held in work-in-progress. f= The number of days cost of sales included in the finished goods inventory. b= The number of days sales in accounts receivable. r= Average inventory of raw materials and stores Average materials and stores consumption per day. c=Average trade creditors Average purchase per day. w= Average work-in-progress Average cost of production per day. f= Average inventory of finished goods Average cost of sales per day r= Average accounts receivable Average sales day

The average inventory or accounts receivable level can be arrived at by finding the mean between the opening and closing balances for the year. The average consumption or output or cost of sakes or sales per day can be obtained by dividing the respective annual figures by 365. The total operating cycle time, expressed in number of days, can at best give a very general idea of the time interval for initial cash outlay on purchases to get converted into cash again after passing through production, sales and collection processes. But, the information pertaining to each distinct stage of the operating cycle, stated in number of days relevant activity, has considerable significance, in that it can be used, directly or with modifications, in arriving at the money values will represent the estimated working capital requirements. Such an estimate can only indicate the magnitude of working capital needs, on an average. The short run fluctuations attributable to seasonal and other factors and their impact on funds requirements cannot be spelt out by the above blanket approach to assessment of working capital needs. To get at these specifics, Short run forecasts and budgets have to be resorted to involving more elaborate and searching exercises, on accounting basis.

One of the main tasks of financial management is to hold and maintain adequate, but not excessive, cash position. Cash is an essential input company’s operations and as such it has to be available in sufficient does according to needs, on accounting basis. Cash is also the major out put or result of the company’s operations and there is the need for effective plan to deploy this liquid resource to utmost productive use.

Table showing the working capital for the year 31-03-2005 to 31-03-2006

(Rs.in Lakhs) Particulars YEAR

Changes in working capital Increase

2005

Decrease

2006 0.00

Current Assets

453.08 367.11

85.97

Sundry Debtors

330.89 137.23 0.00

193.66

Cash and bank balances

1399.46 3191.94 1792.48

0.00

Loans and advances

325.45 305.52 0.00

19.93

Total current assets (A)

2508.88 4001.8

Inventories

Liabilities and provisions

Liabilities

297.53 692.77 0.00

395.27

Provisions

495.46 284.3

0.00

Total current liabilities (B)

792.99 977.07

211.16

Net working capital Current assets(A) -current liabilities(B) 1715.89 3024.73 Increase in working capital

1308.84

1308.84

3024.73 3024.73 2003.64

2003.64

Inference: In 2005-06 the percentage of cash and bank balance had been the highest followed by

inventory, debtors, loans and advances, to the total current asset. In this annual the period of the company raised more cash and bank balance than actually required. From this, we can know the other current assets declaimed too least from the total study period.




2006

Decrease

2007 165.73

Current Assets

367.11 532.84

0.00

Sundry Debtors

137.23 387.17 249.46

0.00


3191.94 4615.58 1423.64

0.00

Loans and advances

305.52 371.36 65.84

0.00


4001.8 5906.95

0.00

Liabilities

692.77 279.29 413.48

0.00

Provisions

284.3

272.76


977.07 836.35

Inventories


557.06 0.00

Net working capital Current assets(A) -current liabilities(B) 3024.73 5070.6

2045.87

Increase in working capital

5070.6 5070.6 2318.63

2318.63


inventory, debtors, loans and advances, to the total current asset. In this annual the period of the company raised more cash and bank balance than actually required. In this annual the company decrease the credit sales and increase cash and bank balances.




2007

Decrease

2008 1.81

Current Assets

532.84 534.65

0.00

Sundry Debtors

387.17 386.24 0.00

0.93


4615.58 4685.06 69.48

0.00

Loans and advances

371.36 486.61 115.25

0.00


5906.95 6092.56

0.00

Liabilities

279.49 313.04 0.00

33.75

Provisions

557.06 394.54 162.52

0.00


836.35 707.58

Inventories


Net working capital Current assets- current liabilities 5070.6 5384.98 Increase in working capital

314.38

314.38

5384.98 5384.98 349.06

349.06


inventory, debtors, loans and advances, to the total current asset. In this annual the period of the company raised more cash and bank balance than actually required. In this annual the company decreases the credit sales and increase cash and bank balances.




2008

Decrease

2009 121.86

Current Assets

534.65 656.51

0.00

Sundry Debtors

386.24 495.42 109.18

0.00


4685.06 4830.46 145.40

0.00

Loans and advances

486.61 623.24 136.63

0.00


6092.56 6605.63

0.00

Liabilities

313.04 620.99 0.00

307.95

Provisions

394.54 219.49 175.05


707.58 840.48

Inventories


Net working capital Current assets(A) -current liabilities(B) 5384.98 5765.15 Increase in working capital

380.17

380.17

5765.15 5765.15 688.12

688.12

Inference :In 2008-09 the percentage of cash and bank balance had been the highest followed by

inventory, debtors, loans and advances, to the total current asset. In this annual the period of the company raised more cash and bank balance than actually required. In this annual the company decreases the credit sales and increase cash and bank balances.




2009

Decrease

2010

Current Assets

656.51 Inventories

427.71 427.71 291.28 291.28

0.00

Sundry Debtors

495.42


4830.46 5501.81 5501.81

0.00

Loans and advances

623.24

0.00


6605.63 6896.04 6896.04

0.00

Liabilities

620.99

429.39 429.39

307.95

Provisions

219.49

305.80 305.80


840.48

735.19 735.19

675.24 675.24

0.00


Net working capital Current assets(A) -current liabilities(B) 5765.15 6160.85 6160.85 Increase in working capital

1533.01

380.17

6160.85 6160.85 6160.85

688.12


inventory, debtors, loans and advances, to the total current asset. In this annual the period of the company raised more cash and bank balance than actually required. In this annual the company decreases the credit sales and increase cash and bank balances. FINDINGS



Though there are changes in the amount of net working capital of IOCL from year to all the other years having the positive working capital.



The turn over ratio of IOCL, reveals that the company's ability in managing the current assets for generation of sales has slightly decrease during the study period.



As the cash and bank balance is heavy it can be suggested the they are to utilized in an effective manner.



Working capital in 2005- 2006 was decreased but after that from 2009 – 2010 it has been increased tremendously. The keeping the funds ideally. The company has not gone for expansion and bought any fixed assets.



The study reveals that the liquidity position of, IOCL is satisfactory as its current assets remained above the standard norms through out the period of study.



On the whole it can be included that the working capital management is up to the expected level.



It can be suggested the large amount of current assets should be managed properly.

SUGGESTIONS



It can be suggested that the large amount of current assets should be managed properly



As the cash and bank balance is heavy it can be suggested that they are to be utilized in an effective manner.



Working capital in 2005-2006 was decreased but after that from 2009-10 it has been increased tremendously. Keeping the funds ideally the company has not gone for expansion and bought any fixed assets.



It is better to utilize funds by investing in fixed assets or going for expansion.



The company should effective measures for proper utilization of working capital, which is more adequate to for diversification or expansion.

Rajitha(WC IOCL)

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