ON THE JOB TRAINING REPORT

ON

THE STUDY OF WORKING CAPITAL AT SJVN SHIMLA H.P

SUBMITTED TO HIMACHAL PRADESH TECHNICAL UNIVERSITY,

HAMIRPUR IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE
AWARD OF DEGREE

OF

MASTERS OF BUSINESS ADMINSTRATION

ACADEMIC SESSION: 2018- 2020

SUBMITTED BY:
DIKSHA

ROLL NO: 18MBA0501

L.R. INSTITUTE OF MANAGEMENT, JABLI-KYAR, P.O. OACHGHAT, SOLAN

H.P. 173223.

1
 L R INSTITUTE OF MANAGEMENT

JABLI-KYAR, P.O. OACHGHAT, SOLAN

H.P.173223

CERTIFICATE

This is to that this on the job training report titled certify “The Study of
WORKING CAPITAL AT SJVN ” submitted in partial fulfillment of the
requirement for the degree of Masters of Business Administration of Himachal
Pradesh Technical University, Hamirpur, by Miss. DIKSHA , University Roll
No.18MBA0501 has been carried out under my Supervision and Guidance.

To the best of my knowledge data reported is original. The assistance and help
received during the course of this project has been duly acknowledge

Counter Signed by
Director

L.R. Institute of Management

Date:
Place: SOLAN

2
 DECLARATION

I do hereby declare that the Report entitled “WORKING CAPITAL” is an

authentic work developed by me at SJVN SHIMLA. in partial fulfillment
of the requirements for the award of the degree of Masters of Business
Administration (MBA) to the L.R INSTITUTE OF MANAGEMENT,
SOLAN (H.P)

I also declare that, any or all contents incorporated in this Report have not
been submitted in any form for the award of any degree or diploma of any
other institution or university.

Dated: (DIKSHA)

3
 ACKNOWLEDGEMENT

It is a great sense of satisfaction and a matter of privilege to me to work at

SJVN SHIMLA for facilitating my training in their organization.

I wish to express my heartiest thanks to MR RAMESH NARAIN MISHRA

Managing Director of SJVN and all the staff members for providing me the
opportunity to undergo training in the esteemed organization. Under such
a nice environment, systematic work approach and target oriented task
management of this division provided me with much desired training
experience needed for future.

My special thanks to teachers accepted me as a trainee in his group and

helping in the projects with words of encouragement and has shown full
confidence in my abilities.

I will be failing in my obligation if to not thank my family for their support

and encouragement.

(DIKSHA)

4
 CONTENTS

S No Contents Page No
1 Company profile 8-18
1.1 History
1.2 Vision, Mission, Objectives
1.3 Swot Analysis
1.4 Organizational structure
2 Topic: Working Capital 19-23
2.1 Meaning and Concept of Working
Capital:
2.1 Meaning and Concept of Working
Capital:
2.3 Importance of Working Capital:
2.4 Different Sources of Working Capital

3 Work Profile 24-38

weekly report
Week 1
Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
4 Suggestions and findings 39-40
References

5
 CHAPTER- 1

INTRODUCTION

6
1.1 History

SJVN LTD
The SJVN Ltd (formerly Satluj Jal Vidyut Nigam Limited-SJVNL ) was incorporated on
May 24. 1988 as a joint venture of the Government of India ( GOl ) and the Government of
Himachal Pradesh (GOHP) to plan, investigate, organize,execute, operate and maintain
Hydro-electric power projects. The present authorized share capital of SJVN is Rs 7000
crores.The Nathpa Jhakri Hydro — Electric Power Station — NJIIPS (1500 MW) was the
first project undertaken by SJVN for execution. In addition to the financial assistance from
the World Bank, SJVN has also been financed as loan by a Consortium of European Banks.
the Power Finance Corporation (PFC) and various domestic commercial banks. Besides the
social and economic upliftment of the people in its vicinity, the 1500 MW NJHEP has been
designed to generate 6612 MU of electrical energy in a 90% dependable year with 95 %
machine availability. It is also providing 1500 MW of valuable peaking power to the
Northern Grid. Out of the total energy generated at the bus bar. 12 percent is supplied free of
cost to the home state i.e. Himachal Prndesh. From the remaining 88% energy generation.
25% is supplied to HP at bus bar rates. Balance power has been allocated to the beneficiary
states / UTs of Northern Region by Ministry of Power.Beside above. indirect benefits have
also accrued to the region by way of increase in agriculture and industrial production. In
addition, the project has provided gainful employment to a large number of skilled and
unskilled workers and has also opened the landlocked hinterland by providing essential
facilities such as schools, hospitals etc. for the people of the area. Thus. 1500 MW NJIIPS
has ushered in the social and economic upliftment of the persons living in the vicinity of the
Project i.e. of society at large.

1.2 VISION, MISSION, OBJECTIVES

VISION
To be best in class Indian power-company globally admired for developing affordable clean
power and sustainable value to all stake holders.

MISSION
 To drive socio-economic growth and optimize stakeholders interests by:
 Developing and operating projects in cost effective and socio-environment friendly
manner.
 Nurturing human resources talent with care.
 Adopting innovative practices for technological excellence.
 Focusing on continuous growth and diversification.

7
OBJECTIVES
 Operating and maintaining power stations with maximum performance efficiency.
 Establishing and following sound business, financial and regulatory policies.
 Taking up of other hydro power projects.
 Completion of the new projects allocated to SJVN in an efficient and cost effective
manner.
 Use of the best project management practices for the project implementation by
applying latest universally accepted Project Management Techniques and by enabling
its engineers, to become certified Project Managers through further trainings.
 Dissemination of available in-house technical and managerial expertise to other
utilities / projects.
 Creating work culture and work environment conducive to the growth and
development of both the organization and the individuals through introduction of
participative
management philosophy.
 Fulfilling social commitments to the society. Achieving constructive cooperation and
building personal relations with stakeholders. peers. and other related organization.
 Striving clean and green project environment with minimal ecological and social
disturbances.
 To strive for acquiring Nav Ratna Status.

8
SJVN’S HYDROELECTRIC PROJECTS

NJHEP (NATHPA JHAKRI HYDRO ELECTRIC PROJECT)

The Nathpa Jhakri Hydroelectric Station of 1500 MW capacity is the country’s largest
hydropower plant. The run of the river project is located on River Sutlej. A major tributary
on the Indus basin, in Shimla district of Himachal Pradesh in North India. The Nathpa Thakri
plant is designed to generate 6950.88 (6612) million units of electricity each year but quality
management at the plant has enabled generation to exceed yearly targets. A Memorandum of
Understanding for execution of the Nat hpa-Jhakri project was signed between Government
of India and Government of Himachal Pradesh in July. 1991. The Nathpa Thakri
Hydroelectric project has been financed on a 50:50 debt equity ratio basis. The project had
the backing of World Bank. The project was completed ata cost of Rs 8187 Crore. The
Nathpa Jhakri project was commissioned in May, 2004 and officially dedicated to the nation
by Prime Minister Manmohan Singh on May 28, 2005. Power Allocation to various states
and UTs

9
S No State Allocation in Percentage in
MW installed capacity
1 HARYANA 64 4.27
2 HIMACHAL PRADESH 547 36.4
3 JAMMU AND KASHMIR 105 7.00
4 PUNJAB 114 7.60
5 RAJASTHAN 112 7.47
6 UTTARPRADESH 221 14.73
7 UTTARANCHAL 38 2.53
8 CHANDIGARH 08 0.53
9 DELHI 142 9.47
10 UNALLOCATED QUOTA AT THE 149 9.93
DISPOSAL OF THE CENTRAL GOVT.

RHEP ( RAMPUR HYDRO ELECTRIC PROJECT)

The Rampur project with a generation potential of 412 MW is located on River Satluj. A
major tributary of Indus basin, in Shimla and Kullu district of Himachal Pradesh in North
India. The project is designed as a cascade run of the river plant to India’s largest
hydroelectric power plant, the 1500 MW Nat hpa Jhakri plant.The Rampur project has the
potential to generate 1969.68 million units of electricity each year The Ranipur
Hydroelectric Project involves financing of the project on a 70:30 debt-equity ratio basis. The
Rampur Project is backed by the World Bank. Construction of Rampur Project began in
February, 2007 and all the six units of 68.67 MW each is scheduled to be commissioned by
March 2014.The Rampur Project is a very environment friendly project as it does not involve
construction of any diversion dam or any dc-silting Cham-
bers and does not inundate any land.
LUHRI HYDRO ELECTRIC PROJECT
The Luhri Pmject with a generation potential of 588 MW is located on River Satluj. a major
tributary of Indus basin, in Shimla/Kullu/Mandi district of Himachal Pradesh in North India.
The pruject is designed as a standalone run of the river project. The Luhri project has the
potential to generate 2244 million units in a 9O9 dependable year. The Memorandum of
Understanding for execution of Luhti project was signed with the Government of Himachal
Pradesh on October 27. 2008. The estimated cost of the project at January. 2013 price level is
Rs. 7137.02 Cr. The Project shall be financed on 70:30 debt equity ratio. The equity portion
is to be shared between
the Govt. of India (GOl) and govt. of Himachal Pradesh (GOHP).
DEVSARI HYDRO ELECTRIC PROJECT
The Devsari project with a generation potential of 252 MW is located on River Pinder, on
Ganga basin, in Chamoli district of Uttamkhand state in North India.The project is designed
as a standalone run of the river project. The Devsari project has the potential to generate
936.90
million units of electricity each year. A Memorandum of Understanding for execution of
Devsari project was signed with the Government of Uttarakhand on November 21. 2005.The

10
Devsari hydroelectric Project involves financing of the project on a 70:30 debt-equity ratio
basis. The estimated cost of the project at June, 2012 price levels is Rs 1790.09 crores
Construction period

NAITWAR MOÑ HYDRO ELECTRIC PROJECT

The Naitwar Mon Project with a generation potential of 60 MW is located on River Tons, a
major tributary of River Yamuna on the Ganga basin, in Uttarkashi district of Uttarakhand
state in North India. The project is designed as a standalone run of the river project. The
Naitwar Mori project has the potential to generate 265.5 million units of electricity each
year.A Memorandum of Understanding for execution of Naitwar Mohri project was signed
with the Government of Uttarakhand in November 21. 2005.The Naitwar Mon Hydroelectric
Project involves financing of the project on a 70:30 debt-equity ratio basis. The estimated
cost of the project at March 2012 price levels is Rs 664.6 crores. Construction period of
Naitwar Mori project is 4 years.

JAKHOL SANKRI HYDRO ELECTRIC PROJECT

The Jakhol Sankri Project with a generation potential of 5) MW is located on River Supin, a
tributary of River Tons and part of River Yainuna on the Ganga basin, in Uttarkashi district
of Uttarakhand state in North India.The project is designed as a standalone run of the river
project. The Jakhol Sankri project has the potential to generate 2)6.26 million units of
electricity each year. A Memorandum of Understanding for execution of Jakhol Sankri
project was signed with the Government of Uttarakhand in November 21, 2005 Construction
period of Jakhol Sankri
project is 48 months.

AI-UN III HYDRO ELECTRIC PROJECT

Memorandum of Understanding (MOU) was signed with the Govt. of Nepal for the execution
of 900 MW Aiim —III HE Project onO2.03.2008. Proposed to be located in the
Sankhuwasabha Distt. of Nepal which is 657 Km from Kathiuandu via Birat Nagar. The
Survey license for generation was issued by Govt. of Nepal during July 2008 & extended
upto 17.07.2013. TOR clearance for lEE of roads issued by Govt.of Nepal on 20.04.20 10.
Letter of intent issued on 23.05.201010 carry out infrastructure work at Dam & Power house
site. Detailed Project Agreement is in the process of exaiui nation by GoN before signing.
FSR & commercial viability for 900 MW was approved by CEA on 23.02.2010. Final DPR
submitted to CEA on 31.03.2011
and under examination for vetting.

DHAULASIDH HYDRO ELECTRIC PROJECT

The Dhaulasidh Project with a generation potential of 66 MW is located on River Beas. part
of the Indus basin. in Hamirpur district of Himachal Pradesh in North India. The project is
designed as a mn of the river project with a small live storage that would be utilized for
peaking power during the lean season. The Dhaulasidh project design holds potential of
generating 253.18 million units of electhc energy each year he Dhaulasidh hydroelectric
Project involves financing of the project on a 70:30 debt-equity ratio basis. The estimated

11
cost of the project at June. 2012 price levels is Rs 774.1 crores including ¡DC. Constmction
period of the project is 54 months.

WANGCHU HYDRO ELECTRIC PROJECT

Wangchu I-hEP with the revised installed capacity of 570 MW as a run of river scheme on
the river Wangchu in Bhutan will annually generate 1968.55 MU of energy. DPR is
submitted to CEA/MOE (RG0B) on dated 30.12.11 and under examination. A presentation
was given to RGoB authorities on 13.04.12. The Project shall be financed on 70: 30 debt
equity ratio.

KHOLONGCHU HYDRO ELECTRIC PROJECT

Kholongchu HEP with the installed capacity of 600 MW on the river Kholongchu in Bhutan
will annually generate 2568.88 MU of energy. The DPR was submitted to CEA for vetting in
March 2011 and is under examination & approved in principle by OEA on 05.11.20 12.
RGoB approved DPR on 23.05.201 3.The formation of SPV for the execution of the project
is underway .The Project shall be financed on 70: 30 debt equity ratio.

HYDROELECTRIC ENERGY
Hydroelectric energy is made by moving water. Hydro comes from the Greek word for water.
Hydroelectric energy has been in use for thousands of years. Ancient Romans built turbines,
which are wheels turned by flowing water. Roman turbines were not used for electricity, but
for grinding grains to make flour and breads. Water mills provide another source of
hydroelectric energy. Water mills, which were common until the Industrial Revolution, are
large wheels usually located on the banks of moderately flowing rivers. Water mills generate
energy that powers such diverse activities as grinding grain. cutting lumber, or creating hot
fires to create

HARNESSING HYDROELECTRICITY

12
To harness energy from flowing water, the water must be controlled. A large reservoir is
created. Usually by damming a river to create an artificial lake, or reservoir. Water is
channeled through tunnels in the dam. fydro” means “

The energy of water flowing through the dams tunnels causes turbines to turn. The turbines
make generators move. Generators are machines that produce electricity. Engineers control
the amount o1 water let through the dam. The process used to control this flow of water is
called the intake system. When a lot of energy is needed, most of the tunnels to the turbines
are open. and millions of gallons of water flow through them. when less energy is needed,
engineers slow down the intake system by closing some of the tunnels. During floods, the
intake system is helped by a spill way. A spiliway is a structure that allows water to flow
directly into the river or other body of water below the dam, bypassing all tunnels, turbines,
and generators. Spillways prevent the dam and the community from being damaged.
Spillways. which look like long ramps. are empty

HYDRO POTENTIAL
INDIA is endowed with economically exploitable and viable hydro potential assessed to he
about 84,000 MW at 607 load factor (1.48.701 MW installed capacity). In addition. 6780
MW in ternis of installed capacity from Small. Mini. and Micro 1-lydel schemes have been
assessed. Also, 56 sites for pumped storage schemes with an aggregate installed capacity of
94.000 MW have been identified. However. only I 9.9% of the potential has been harnes.sed
so far.

13
Advantages of Hydro power

 A renewable source of energy - saves scarce fuel reser’es.

 Non-polluting and hence environment friendly.
 Long life - The first hydro project completed in 1897 is stilt in operation at
 Darjeeling.
 Cost of generation, operation and maintenance is lower than the other sources of
energy.
 Ability to start and stop quickly and instantaneous load acceptance/rejection makes it
suitable to meet peak demand and for enhancing system reliability and stability.
 has higher efficiency (over 90%) compared to thermal (35%) and gas (atound 50%).
 Cost of generation is free from inflationary effects after the initial installation.
 Storage based hydro schemes often provide attendant benefits of irrigation, flood
control, drinking water supply, navigation, recreation, tourism, pisciculture etc.
 Being located in remote regions leads to development of interior backward areas
(education. medical, road communication. telecommunication etc.)

KHIRVIRE WIND POWER PROJECT IN MAHARASHTRA - 47.6 MW

Letter of Award (LOA) for the Khirvire Wind Power Project has been issued to M/s Gamesha
Wind Turbines Pvt Limited, Chennai on 19.10.2012. The Scheduled Commissioning for the
pioject is 18.08.2013.The Contract Agreement for the project has been signed on 14.12.2012.

Solar Power Project

Solar PV Project in Gujarat - 5 MW
DPR has been prepared by M/s Gujarat Power Corp. Ltd. for 5 MW Solar PV Plant for piot
no. 89 as allocated to SJVN at Charnka Solar Park. The land of 25.95 acres has been blocked
at the above mentioned plot by M/s GPCL in favour of SJVN.The 5 MW solar power project
is expected to generate approximately 8.02 MU per year. The project is to be registered under
REQ mode.The project involves financing of the project on a 70:30 debt-equity ratio basis.
Buxar Thermal Power Project (1320) Public sector enterprise sjvn has acquired 100 percent
equity in buxar bijlee company and it has been allotted a coal block in the deocha-pachaini
belt in west bengal for its upcoming 1320-mw power plant at chausa in biliar.A memorandum
of understanding (MoU) was signed in January 2013 for the joint ventun between SJVN and
Bihar Power Infrastructure Company. Based on supercritical technology, the project will
have two generating units of 660MW each of these will pmduce 9.090 million units of
electricity annually.

ISO 9001-2008 CERTIFICATION

In order to develop SJVN as a wodd class company in the power sector, ISO-9001- 2008
certification has been achieved and efforts are being made throughout the organisation to

14
romote all round efficiency and professionalism in the work culture. Further, efforts aœ being
made for
creating cohesive and conducive work culture in the organization.

AWARDS & ACHIEVEMENTS

Vishwakarma Awards to SJVNJor CSR, Health, Safriv & Environ ment.SJVN Bags SCOPE
Coininenda (ion Certificate SJVN Awarded Gold Shield SJVN Ltd. is con frrred with the
Green tech Environment Excellence Award 2010 SJVN Limited conferred wit/i Scope Gold
Medal Award SI VN c Fornwr CAÍD Honoured with India Power A ward 2010 SJVN Bags
Scope Excel lente Award Si VNL Forner CMD Honoured with National Achievement Award
for
Corporate Leaders/i ip

15
1.3 Swot Analysis

16
17
18
FINANCIAL OVERVIEW

The financial position of SJVN. for 3 years. is as under: (t In Crores)

INCOME DETAILS 2016-17 2017-18 2018-19

INCOME FROM 1829.74 1909.79 1680.42
OPERATIONS
OTHER OPERATING 149.42 177.10 168.00
INCOME
TOTAL REVENUE 1976.16 1927.50 1682.10
NET PROFIT AFTER TAX 912.13 1068.68 1052.32
PAID UP CAPITAL 4136.63 4136.63 4136.63
RESERVES AND SURPLUS 3068.89

NET WORTH OF SJVN The Net worth of SJVN is as under:

Year Net worth ( in crores )
2006-7 4925.29
2007-8 5406.0
2008-9 6047.34
2009-10 6653.76
2010-11 7205.52
2011-12 7822.28
2012-13 8410.01

CAPITAL STRUCTURE AND CREDIT WORTHNESS OF S.JVN

The total credit worthiness in the company in equity. reserves/surplus and loan funds as on
31.03.2013 was 10286.28 Crore. The source wise detail is as under:

PAID-UP-CAPITAL
A Government of India 2666.61 Crore
B Govt of H.P 1055.02 Crore
C Others 415.00 Crore
Total 4136.63 Crore

RESERVES AND SURPLUS

Reserves and Surplus 4273.38 Crore

LOANS
Long term borrowings 1876.27 Crore

The company is making profits and paying dividends to the shareholders.

 It has the capacity to fund the equity portion of the projects from its internal resources
to a considerable extent.
19
  The company has developed a good rapport with its creditors with the faultless
repayment of loans
 Therefore its creditworthiness has increased over the period of time after the first
venture of the company: the NATHPA JHAKRI HPS carne into operation.

NON FINANCIAL PERFORMANCE

Year MOU Gross Target Gross Achieved
2011 6700.005 7140.077

HIGHLIGHTS OF THE YEAR 2011-12

The Nathpa Thakri Power station established a new milestone by generating 7610million
units of energy during FY 2011 -12. The generation this year was not only 470 MU more
than last years record production of 7140 MU but also 710 MU than the MOU targets
assigned by the Ministry of Power. Govt. of India.Plant Availability Factor during the year
peaked at 104.26% against the
normativeaverage of 82%.

HIGHLIGHTS OF THE YEAR 2012 -13

During quarter ending June 2012, SJVN’s 1500 MW NJIIPS has achieved the PAF of 108%
as against 103.6% .during the corresponding period of last year. As a result additional income
of Rs 5.28 crore was earned. In month of July 2012 NJ lIPS created yet another record by
generating 11 86MUs.The plant reconied the highest ever single day generation of 39.015
MUs on 27th of
July 2012.For the first time, with opportune planning not a single component was sent
forhard coating during the full year 2011-12. as these were coated in the In- house coating
workshop at project site Jhakri.

20
 CHAPTER- 2

Working capital

21
During the training period the company provided me a platform that was sufficient enough to
grasp the basics of the company profile along with the skills that were the part of my
education.
Here are the segments that were covered during the training tenure. We were well aware
about the concepts and the team manager also supported us well, I would like to mention the
name of Mr Sanjeev Goel (manager head accounts department ) for his guidance and
assistance during the training and he explained the concepts of the accounts in details. During
the training I came across the following aspects of the accounts department
2.1 Meaning and Concept of Working Capital:
In ordinary parlance, working capital denotes a ready amount of fund available for carrying
out the day-to-day activities of a business enterprise. It is considered to be the life-blood of
the business and its effective and efficient management is necessary for the very survival of
the business.

22
There are two concepts of working capital:

(i) Gross concept, and

(ii) Net concept.

(i) Gross Concept of Working Capital:

The gross working capital refers to the total fund invested in current assets. Current assets are
those assets which are easily converted into cash within a time period of one year. It includes
cash in hand and at bank, short term securities, debtors, bills receivable, prepaid expenses,
accrued expenses and inventories like raw materials, work-in-progress, stores and spare parts,
finished goods.

The gross concept of working capital refers to the firm’s investment in above current assets.

23
It is useful for the following purposes:
(a) It is the total investment in current assets which earns profit.

(b) Management can give attention to manage very efficiently and carefully each item of the
current assets in order to minimise bad debt, slow-moving and non-moving items, idle cash
etc.

(c) It takes into consideration of the fact that, if other things remain constant, infusion of fund
in the business increases its working capital.

(d) It enables management to compute the rate of return on total investment in current assets.

(ii) Net Concept of Working Capital:

The term net working capital refers to the excess of current assets over current liabilities. In
other words, the amount of current assets that would remain in a firm after all its current
liabilities are paid.

Current liabilities are those claims of outsiders to the business enterprise which are payable
within a period of one year, and include sundry creditors, bills payable, outstanding expenses,
short-term loans, advances and deposits, bank overdraft, proposed dividend, provision for
taxation etc.

The net concept of working is useful for the following reasons:

(a) It indicates the liquidity position of the firm i.e., ability of the firm to meet its short- term
obligations.

(b) It helps creditors and other potential investors to judge the financial health of the firm.

(c) Gross concept of working capital may lead to incorrect conclusion regarding financial
stability of firms having the same amount of current assets.

(d) It indicates the extent of long-term sources of fund used in financing current assets of a
business enterprise.

So both gross concept of working capital and net concept of working capital are useful for
working capital management. However, while preparing a vertical form of balance sheet, the
Institute of Chartered Accountants of India has defined and shown working capital as the
difference between current assets and current liabilities.

There is yet another view, according to which the net working capital may be referred to as
the qualitative—and the gross working capital as the quantitative—aspects of the idea. These
two concepts of working capital are generally known as the balance sheet concepts as they
depend upon the contents of balance sheet items.

24
2.1 Meaning and Concept of Working Capital:
If gross concept of working capital is used, there will always be positive working capital as it
represents only current assets. On the other hand, if net concept of working capital is used,
there may be positive, negative or zero (nil) working capital.

(i) Positive Working Capital:

Positive working capital refers to excess of current assets over current liabilities. It indicates
the extent of long-term sources of funds such as equity share, preference share, retained
earnings, long-term loans and debentures etc. used to finance the current assets of a business
concern.

(ii) Negative Working Capital:

If current liabilities of a firm exceed current assets it is called negative working capital. In
other words, working capital is said to be negative when the current assets fall short of the
current liabilities. The excess of current liabilities over current assets is supposed to have
been used in procuring fixed assets of the firm.

o, it indicates the extent of short-term sources of fund used to finance the fixed assets of the
firm. A negative working capital means a negative liquidity and is disastrous for the firm.

25
(iii) Zero Working Capital:
If the current assets are equal to current liabilities, it is called zero or nil working capital.

26
Working Capital = Current Assets – Current Liabilities

A Ltd : Rs. 8,000 – Rs. 6,000 = (+) Rs. 2,000

B Ltd : Rs. 8,000 – Rs. 10,000 = (-) Rs. 2,000

In the case of A Ltd., a part of long-term funds (i.e., Rs. 14,000 – 12,000) or Rs. 2,000 is
invested for financing current assets while Rs. 6,000 is available from short-term funds. As a
result, working capital is positive. In the case of B Ltd. long-term funds (i.e., Rs. 6,000 + Rs.
4,000 = Rs. 10,000) is not sufficient to finance fixed assets.

As a result, a part of short-term sources (i.e., Rs. 10,000 – Rs. 8,000) or Rs. 2,000 is used for
financing fixed assets. Hence, working capital is negative.

2.3 Importance of Working Capital:

The importance of sufficient working capital in any business concern can never be
overemphasized. A concern requires adequate working capital to carry on its day-to-day
operations smoothly and efficiently. Lack of adequate working capital not only impairs firm’s
profitability but also results in stoppage in production and efficiency in payment of its current
obligations.Thus working capital is considered the life-blood of the business.

27
The advantages of having adequate working capital may be summarised:
Smooth Flow of Production:
To maintain a smooth flow of production, it is necessary that adequate working capital is
available for paying trade suppliers, hiring labour and incurring other operating expenses.

Increase in Liquidity and Solvency Position:

It enhances the liquidity and solvency position of the business concern.

Goodwill:
A firm with sound working capital position can make timely payment of its outstanding bills.
This enhances the reputation of the firm.

Advantages of Cash Discount:

It enables the firm to avail itself of the facilities like cash discount by making prompt
payments.

Easy Loan:
Adequate amount of working capital builds a sound credit-worthiness of the firm. As a result
it becomes easier for the firm to obtain additional loans in favourable terms and conditions in
order to meet seasonal increase in demand or to finance the increased working capital
resulting from expansion.

Regular Payment of Wages and Salaries:

The firm can make regular and timely payment of wages and salaries to its employees. This
increases the morale and efficiency of employees.

Security and Confidence:

It creates a sense of security and confidence in the mind of management or officials of the
firm.

Efficient Use of Fixed Assets:

Adequate amount of working capital enables the firm to use its fixed assets more efficiently
and extensively. If the fixed assets remain idle due to paucity of working capital, depreciation
of fixed assets and interest on borrowed capital invested in fixed assets will have to be
incurred unnecessarily.

Meeting of Contingencies:
It can meet unforeseen contingencies of the firm. Unforeseen contingencies like business
depression, financial crisis due to huge losses etc. can easily be overcome, if adequate
working capital is maintained by a firm.

Completing operating cycle:

A sound management of working capital helps in completing the operating cycle quickly.
This enables a firm to increase its profitability.

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Timely Payment of Dividend:
Adequate working capital ensures regular payment of dividends to the shareholders.

Components or Composition of Working Capital:

There are two components of working capital viz., current assets and current liabilities.

Current Assets:
Current assets generally mean those assets which, in the normal and ordinary course of
business, will be or are likely to be converted into cash within a year.

Examples of current assets are:

1. Inventories like raw materials, work-in-progress, stores and spare parts, finished goods

2. Sundry Debtors (net of provision)

3. Short-term investment or marketable securities

4. Short-term loans and advances

5. Bills receivable or accounts receivable

6. Pre-paid expenses

7. Accrued Income

8. Cash in hand and bank balances.

Current Liabilities:
Current liabilities means those liabilities repayable within the same period, i.e., a year. In
other words, current liabilities are those which are to be repaid in the ordinary course of the
business within a year.

Examples of current liabilities are:

1. Sundry creditors

2. Bills payable

3. Outstanding expenses

4. Short-term loans, advances and deposits

5. Provision for tax

6. Proposed dividend

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7. Bank overdraft.

2.4 Different Sources of Working Capital:

A firm can use two types of sources to finance its working capital, namely:
Long-term source, and Short-term source.

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Long-Term Sources:
Every business organisation is required to maintain a minimum balance of cash and other
current assets at all the times—irrespective of the ups and downs in the level of activity. The
portion of working capital which is continuously maintained by the business at all times to
carry on its minimum level of activities is called permanent working capital.

This type of working capital should be arranged from long-term sources of fund.

The following are the long-term sources of financing permanent working capital:
 Issue of Equity shares
 Issue of Preference shares
 Retained earnings (ploughed-back profits)
 Issue of Debentures and other long-term bonds
 Long-term loans taken from financial institutions etc.

Short-Term Sources:
The short-term financing of working capital is generally used to support the temporary
working capital which is usually needed to meet the seasonal increase or sudden spurt in
demand.

Various short-term sources of financing of temporary working capital are:

Bank credit (e.g., cash credit, letter of credit, bills finance, working capital demand loan,
overdraft facility etc.)

 Public deposits
 Trade credit
 Outstanding expenses
 Provision for depreciation
 Provision for taxation
 Advances from customers
 Loans from directors
 Security money received from employees
 Receipts from factoring.

Determinants of Working Capital:

A firm should always maintain a requisite amount of working capital for smooth and efficient
functioning of its operations. The total working capital requirement is determined by a wide
variety of factors. These factors affect different enterprises differently. They also vary from
time to time.

In general, the following factors are to be considered in determining the working capital
requirement of a firm:

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Nature of Business:
The working capital requirements of a firm are widely influenced by the nature of business.
Public utilities like bus service, railways, water supply etc. have the lowest requirements for
working capital—partly because of the cash nature of their business and partly because of
their rendering service rather than manufacturing product and there is no need of maintaining
any inventory or book debt except capital assets.

On the contrary, trading concerns are required to maintain more working capital because they
have to carry stock-in-trade, receivables and liquid cash. Manufacturing concerns also require
large amount of working capital because of the time lag involved in the conversion of raw
materials into finished products and, finally, into cash.

Size of the Business:

The amount of working capital requirement also depends upon the size of the business. The
size can be measured in terms of the scale of operations. A large firm with a high scale of
operation will require to maintain a large amount of working capital than a firm with a small
scale of operation.

Production Cycle:
Production cycle is the time involved in manufacturing or processing a product. It starts when
raw materials are put in the production process and ends with the completion of
manufacturing of the product. Longer the production cycle, higher is the need of working
capital.

This is because funds remain blocked in work-in-progress for long periods of time. For
example, the working capital needs of a ship-building industry will be much longer than
those of a bakery.

Business Cycle:
The working capital requirements are also determined by the nature of the business cycle.
During the boom period, the need for working capital will increase to meet the requirements
of increased production and sales. On the other hand, in a slack period, the reduced volume of
operation will require relatively lower amount of working capital.

Credit terms of Purchase and Sale:

The period of credit given by the suppliers and the period of credit granted to the customers
will affect the working capital needs of a firm. If a firm allows a very short credit period, cash
will be realised very soon from debtors. So the need for the working capital will be less.

On the other hand, a liberal credit policy will result in higher amount of book debts. Higher
book debts will mean more working capital requirement. If the firm has to purchase raw
materials in cash or gets credit for shorter period, it has to arrange for relatively higher
amount of working capital.

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Seasonal Variations:
There are industries like cold drinks, ice-cream and woolen where the goods are either
produced or sold seasonally. So, in such industries, working capital requirements during
production or sale seasons will be large and these will start decreasing when the season starts
coming-to end.

However, much depends on the policy of management with regard to production or sale of
goods. For example, the management of a woolen industry wants to carry on production
evenly throughout the year rather than concentrating on its production only in the busy
season. In that case the working capital requirements will be low.

Operating Efficiency:
If the operating efficiency of a firm is very high, the resources will be properly utilised. As a
result, it improves the profitability of the firm which ultimately, helps in releasing the
pressure of working capital. On other hand, inefficiency compels the firm to maintain
relatively a high level of working capital.

Price level changes:

If prices of input rise, the firm requires additional working capital to maintain the same level
of production.

Growth and Expansion of the Business:

Every concern wants to grow over a period of time and with the increase in its size, so the
working capital requirements are bound to increase. A growing firm would require greater
working capital than a static one.

Profitability and Retention Money:

The net profit earned by the firm goes to increase the working capital to the extent it has been
earned in cash. The cash profit can be found by adjusting non-cash items such as
depreciation, outstanding expenses and losses or intangible assets written-off in the net profit.

But what portion of this profit will be reinvested as working capital will depend upon the
retention policy of a firm which is, again influenced by corporate tax structure and dividend
policy. So, if the amount of retained profit is not immediately invested outside the business, it
would increase the amount of working capital.

Relationship of Material Cost to Total Cost:

In manufacturing concerns, where raw material costs bear a large proportion to the total cost
of production, a greater amount of working capital will have to be maintained. For example,
in industries like textile and electronics, large sums are required to maintain the inventory of
such raw materials.

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Turnover of Current Assets:
The speed with which the current assets revolve around also affects working capital
requirements of a firm. In few cases like vegetables or fruit shops, stocks get sold very
quickly and, for this reason, a little or no working capital is required in carrying over the
stock.

On the other hand, there are some businesses, like jewellery, having very slow turnover of the
stocks—leading to the need for a larger amount of working capital. Working capital is
essentially the capital that is required for a business to run on a regular basis. The uses
of working capital are:

1. Maintaining an optimum level of inventory

2. Paying creditors on a timely basis
3. Having a cash reserve
4. Managing short-term debts
5. Meeting unforeseen or unpredictable expenses
6. Meeting miscellaneous day-to-day business expenses

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 CHAPTER- 3

Work Profile

Weekly report
 WEEK 1

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 The training stared with the basic awareness and exposure of the company profile and
the team was lead through the basics of the company and a complete round of the
premises, equipment’s, machines and structure and other related segments.
The main things done are as follows:

 Premises

 Equipment’s

 Machines

 System

 Power backup

 Sections

 Power house

 WEEK 2
This week was the main study based training part, we were made well aware about the
types of recruitments. Working strategies and employee management along with work
responsibilities as per the departments
 Jobs hunting

 Job sources

 Profile hunter

 Recruitment steps

 Interview rounds

 Bond letter and agreement

 WEEK 3
This week was the awareness of the working structure
 Management department

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  HR department

 Finance department

 Finance software

 Accounting

 Accounting methods

 Software like excel and telly

 SAP finance software

 WEEK 4
This week was also the part of working structure of the organization
 Norms of company

 Style of working

 Business policy

 Rules and regulations

 Salary hikes and incentives

 Bonds and resignations

 Internal job postings

 Postings and financial supports

 Loans and appraisals

 WEEK 5
The main part of the study was done in this week about the working capital
 WEEK 6

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 This week was also utilized in training the working capital of the organization with all
the system in deep details including al aspects that are the roots of the working capital
running and maintenance.
 WEEK 7
This week was the later part of the training and was engaged in other related parts of
the organization like hazard situation dealing, medication and backup support and
other related part of the organization running processes.

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 CHAPTER- 4

SUGGESTIONS & FINDINGS

SUGGESTIONS
The company SJVN is a big project and has a great set of organizational structure norms that
are most essential for the smooth running of the organization, to understand the structure one
ought to get deep into the company and understand each department individually, since the
target of our study was to focus on the working capital as a part of our degree, we went
through all the aspects that are the need of the organization, we came across the management
system of finance and how the working capital is arranged in a proper way and it created a

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professional system of managing accounts and its division as per the requirements. The
accounts and working capital system of such a big organization is a complete set of rules and
systematic parts and are being designed in such a way that there are rarely any chances for a
major flaw.

BIBLIOGRAPHY

REFERENCES

 Satluj Vani-Bi- monthly house journal

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  Annual Reports of Si VNL& NHPC

BOOKS

 IM Pandey : Financial Management

 TS GREWAL :Analysis of FINANCIAL STATEMENTS

WEBSITES

 www.sjvn.nicin

 www.nhpc.co.in

 www.study mode.co.in

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