TABLE OF CONTENT

Sl.No

Topic

.
1.
2.
3.

Introduction
About the Company
Research Methodology

4.
5.
6.
7.
8.
9.

Page No.
1
2-21
22-27

Research Problem
Type of Data
Research Design

Cash Flow
Findings
Conclusions
Limitations
Recommendations
Bibliography

28-81
82
83-84
85
86-87
88-91

INTRODUCTION
Cash is the important current asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis; it is also the ultimate
output expected to be realized by selling the service or product manufactured by the
firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will
disrupt the firms manufacturing operations while excessive cash will simply remain
idle, without contributing anything towards the firms profitability. Thus, a major
function of the financial manager is to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm, and balances in its
bank accounts. Sometimes near-cash items, such as marketable securities or bank
times deposits, are also included in cash. The basic characteristic of near-cash assets
is that they can readily be converted into cash. Generally, when a firm has excess cash,
it invests it in marketable securities. This kind of investment contributes some profit to
the firm.

ABOUT THE COMPANY

UPPCL will be professionally managed utility supplying reliable and cost efficient
electricity to every citizen of the state through highly motivated employees and state of
art technologies, providing an economic return to our owners and maintaining leadership
in the country.
We shall achieve this being a dynamic, forward looking, reliable, safe and trustworthy
organization, sensitive to our customers interests, profitable and sustainable in the long
run, providing uninterrupted supply of quality power, with transparency and integrity in
operation, providing

TO OUR CONSUMERS:
High productivity reflected in a fair, equitable and cost based tariff across consumer
categories, accurate and timely billing on a rational, comprehensible billing basis
reflecting actual consumption, and convenient system for payment of dues. Simple and
well-advertised procedures, Guaranteed connection of requested load within reasonable
time, prompt breakdown attendance, and Efficient Complaint handling.

Timely actions based on anticipation of the future & perspective planning, and Clear
Communication on customer issues.

TO OUR SHAREHOLDERS :
A secure and well managed assets, Corporate Governance in line with Kumaramagalam
Birla Committee recommendations, a business growing organically and through
diversification, and satisfied stakeholders.

TO OUR EMPLOYEES :
Opportunities for career growth and development, Pride in the Organization, and a sense
of belongingness, with the ability to contribute to the organization. Well defined service
conditions and full compliance with Labor Laws. Accountability and Responsibility for
actions including performance incentives based on fair and transparent assessment and
compensation in line with the best in the industry, and an increased sense of security
based on the increased success of the organization.

TO THE REGULATOR :
The equitable satisfaction of all stakeholders, ensuring the long-term stability of the
section and an Adherence to Regulations and Guidelines issued by the Regulator,
including inter alias Compliance with License Conditions, Furnishing Accurate and

Timely Information, Ensuring techno-economic feasibility of investments, and an

effective consumer grievance redressed systems.

TO OUR FINANCIAL INSTITUTIONS :

Sustained growth and profitability, Sound Economic Appraisal of Projects to be
Undertaken, Security of loan and Timely servicing of Debts, and Timely Publication of
Audited Financial Statements, including Sound Accounting & Financial practice in
accordance with Law.

TO THE STATE GOVERNMENT :

Implementation of Reform Legislation and of all Government Policies and directives as
far as is practical, applying Public Funding and Subsidies to the intended category of
Consumers. Compliance with the rule of law and Electrical safety rules. The Satisfaction
of stakeholders.
In return Government will assist us by Ensuring Law and order and enforcement and
assistance with revenue realization.

TO OUR SUPPLIERS :
Transparent and efficient procedures for tendering and timely ordering and settlement in
adherence with Commercial Agreements.

TO OTHER UTILITIES :
Reliable and secure system operations in accordance with Grid Code, 0.2 class metering,
and timely readings, an Integrated Information system to provide fast and accurate
interface data, Timely settlement observing Proper Commercial Agreements between
entities, and Adherence to System operating procedures in terms of merit order dispatch,
security, etc.

TO THE PUBLIC:
Effective communication of policies and procedures, a Reliable supply to essential public
services, enforcing adequate safety norms and environmental and social norms,
minimizing inconvenience dare to disruptions etc.
We shall be a diversified business with a core function of providing quality, uninterrupted
power, Commercial focus considering all techno-economic issues of investments, and a
high level of Consumer Service with new connections on demand and low complaint
resolution times. Diversifications shall include optic fiber based activities, consultancy,
manufacture, and repairs, and we shall have a Diversified investment portfolio around the
globe.
We shall satisfy all stakeholders including the regulator.
We shall be a global industry Leader working in close cooperation with other utilities
supporting self sustained growth through financially viable business units and
technological leadership, providing a world class cost of supply, and world class profits,
6

doubling turnover every 5 years. We shall function independently; implementing prudent

safety and environment norms, with a cost of supply based tariff, without external
interference, in a transparent corruption free operating environment, in compliance with
statutory requirements. We shall add value to our shareholders, safeguard the
environment, and maintain our asset base. We shall maintain a strong image with the
general public.
We shall measure success on global standards, e.g.

STRUCTURE OF UPPCL

Chairman & MD
AMD

INDIAN

Company Secy

ELECTRICITY

RULES,

1956

ADG Vigilance

CE (A) Chairman

General Safety Precautions

MD-Lucknow
MD-Agra Discom
Discom
MD-Varanasi
Discom
MD-Kesco
Director
CP Director
&M
(com)
Director
(T)Director
1.MD-Merut
Construction,
installation,
protection,
operation
and main
electric (D)Director
supply

lines and apparatus . - All electric supply lines and apparatus shall be sufficient
CE-LESA

in power and size and of sufficient -mechanical strength for the work they may be

CE KNP

CE MEERUT

CE VNS

CE (HYDEL)

CE PPA

CE (RESPO)

CE (TR)

CGM (A & A)

required to do, and, so far as is shall be constructed, installed, protected, worked

CE LKO

maintained CE
in JHANSI
accordanceCEwith
the standards of the Indian CE
Standards
CE JHANSI and
CE Saharanpur
GKP DGCT & HRD CE (SAT)
(MM)

CE (DP)

CG

Institution so as to prevent danger.

CE FZB

2. Service lines and apparatus on consumer's premises.

CE (RAU)

CE AGRA

CE MBD

i.

CE AZAMGARH CE-ENQUIRYT-II

CE (CMUD)

CE (TE)

CE (PL

The supplier shall ensure that all electric supply lines, wires, fittings, and
apparatus belonging to him or under his control, which are on a

CE BARILLY

CE BANDA

consumer's
premises,CE
are(SER.
in aCOMM)
safe condition
CE AZAMGARH
CE NOIDA
CE (EAD)and

in all respects fit CE

for (TW)

supplying energy he supplier shall take due precautions to avoid danger

arising on premises from such supply lines, wires, fittings and apparatus.
CE (PERS I)

ii.

CE CIVIL (T-I)

Service lines placed by CE

the (PERS
supplier
II) on the premises of a consumer which
CE CIVIL (T-II)

are underground or which

are accessible
shall be so insulated and
GM (PERS
(III)
CE (C & C)

protected by the supplier as to be secured under all ordinary conditions

GM (IR)

mechanical, chemical or other injury to the insulate.CE (SYS. CONT)

LAW OFFICER

iii.

The consumer shall, as far as circumstances permit, take precautions for

the safe custody of the equipment on his premises belonging to the
supplier.

iv.

The consumer shall also ensure that the installation under his control is
maintained in a safe condition.

3. Cut-out consumer's premises. -

CE C

i.

The supplier shall provide a suitable cut-out in each conductor of every

service-line other than an earthed or earthed neutral conductor or the
earthed external conductor of a concentric cable within consumer's
premises, in an accessible position. Such cut-out shall be maintained
within an adequately enclosed fire-proof receptacle.

ii.

Where more than one consumer is supplied through a common service

line, each such consumer shall be provided with an independent cut-out of
junction to the common service.

iii.

The owner of every electric supply line, other than the earthed or earthed
neutral conductor of any system, or the earthed external conductor of a
concentric cableble, shall protect it by a suitable cut-out.

4. Identification of earthed and earthed neutral conductors and position of

switches and cut-outs therein - Where the conductors include an earthed
conductor of a two-wire system or an earthed neutral conductor of a multi-wire
system or a conductor which is to be connected thereto, the following conditions
shall be complied with: -- (1) An indication of a permanent nature shall be
provided by the owner of the earthed or earthed neutral conductor, or the
conductor which is to connected thereto enable such conductor to be distinguished
from any live conductor.
Caution Notices
The owner of every medium, high and extra high voltage installation shall affix
permanently in conspicuous position a caution notice in Hindi and the local language of
the district, and of a type approved by the Inspector ona. Every motor, generator, transformer and other electrical plant and equipment
together with apparatus used for controlling or regulating the same.
b. All supports of high, and extra-high voltage overhead lines
10

c. Luminous tube sign requiring high voltage supply, X-ray and similar highfrequency installations: Provided that where it is not possible to affix such notices
on any generator, motor, transformer or other apparatus, they shall be affixed as
near as possible thereto: Provided further that where the generator, motor,
transformer or other apparatus is within an enclosure, one notice affixed to the
said enclosure shall be sufficient for the purpose of this rule.
Accident charge - The owners of all circuits and apparatus shall so arrange them that
there shall be no danger of any part thereof becoming accidentally charged to any voltage
beyond the limits of voltage for which they are intended. Where A. C. and D. C. circuits
are installed on the same support they shall be so arranged and protected that they shall
not come into contact with each other when live.
Precautions to be adopted by consumers, owners, electrical contractors electrical
workmen and suppliers.
I.

No electrical installation work including additions, alterations, repairs and

adjustments to existing installation, except such replacement of lamps, fans, fuses,
switches, low voltage domestic appliances and fittings as in no way alters its
capacity or character, shall be carried out upon the premises of or on behalf of any
consumer or owner, for the purpose of supply to such consumer or owner, except
by an electrical contractor licensed in this behalf by the State Government under
the direct supervision of a person holding a certificate of competency issued or
recognised by the State Government: Provided that in case of works executed for
or on behalf of the central government and in the case of installations in mines, oil
fields and railways, the Central Government and in other cases the State
Government may, by notification in the official Gazette, exempt, on such
conditions as it may impose, any such work described therein either generally or
in the case of any specified class of consumers or owners from so much of this
sub-rule as requires such work to be carried out by an electrical contractor
licensed by the State ate Government in this behalf.
11

II.

No electrical installation work which has been carried out in, contravention of
sub-rule (1) shall be connected with the works of a suppliers.

III.

The provisions of sub-rule (1) shall come into force in respect of a State or part
thereof on such data as the State Government may, by notification in the official
Gazette, appoint: Provided that the said provisions shall come into force in any
field, mine or railway or in respect of any work carried out by, or on bet of, the
Central Government only on such data as the Central Government may, by like
notification, appoint.

THE

INDIAN

ELECTRICITY

ACT,

1948

Criminal Offences and Procedure

Theft of energy.Whoever dishonestly abstracts, consumes or uses any energy shall be deemed to have
committed theft within the meaning of the Indian Penal Code (XLV of 1860) ; and the
existence of artificial means for such abstraction shall be prim facie evidence of such
dishonest

abstraction.

Penalty for maliciously wasting energy or injuring works.Whoever maliciously causes energy to be wasted or diverted, or, with intent to cut off the
supply of energy, cuts or injuries, or attempts to cut or injure, any electric supply-line or
works, shall be punishable with imprisonment for a term which may extend to two years,
or with fine which may extend to one thousand rupees, or with both.
Penalty for unauthorised Supply of energy by non-licensees Whoever, in contravention of the provisions of section 28, engages in the business of
supplying energy shall be punishable with fine which may extend to three thousand
12

rupees, and in the case of a continuing contravention, with a daily fine which may extend
to

three

hundred

rupees.

Penalty for illegal or defective supply or for non-compliance with order Whoever,a. being a licensee or a person who has obtained the sanction of the State
Government under section 28 to engage in the business of supplying energy to the
public, save as permitted under section 27 or section 51 or by his licence or, as the
case may be, by the conditions of sanction, supplies energy or lays down or places
any electric supply-line or works outside the area of supply ; or
b. being a licensee or person who has obtained the sanction of the State Government
as aforesaid, in contravention of the provisions of this Act or of the rules
thereunder, or in breach of the condition of licence or of the sanction, as the case
may be, and without reasonable excuse, the burden of which shall lie on him,
discontinues the supply of energy or fails to supply energy ; or
c. makes default in complying with any of the provisions of an order or of any
notice or requisition issued under section 5 or section 6 ; or
d. makes default in complying with any directions issued to him under section 22A ;
or
e. makes default in complying with any order issued to him under section 22B, or
subjection (2) of section 34;
shall be punishable with fine which may extend to one thousand rupees,and in the case of
a continuing offence or default, with a daily fine which may extend to one hundred
rupees.
Penalty for illegal transmission or use of energy 13

Whoever in contravention of the provisions of section 30, transmits or uses energy

without giving the notice required thereby, shall be punishable with fine which may
extend to five hundred rupees, and, in the case of a continuing offence ,with a daily fine
which

may

extend

to

fifty

rupees.

Penalty for interference with meters or license for improper use of energy Whoever,a. connects any meter referred to in section 26, sub-section(1),or any in meter,
indicator or apparatus referred to sub-section (7), with any electric supply-line
through which energy is supplied by a licensee or disconnects the same from any
such electric supply-line ; or
b. lays or causes to be laid, or connects up any work for the purpose of
communicating with any other works belonging to a licensee ;or
c. maliciously injures any meter referred to in section 26,sub-section(1) or any meter
,indicator or apparatus referred to in section 26, sub- section (7), or wilfully or
fraudulently,alters the index of any such meter, indicator or apparatus, or prevents
any such meter, indicator or apparatus from duty registering;
d. improperly uses the energy of a licensee ;

shall be punishable with fine which may extend to five hundred rupees and, in the case of
a continuing offence, with a daily fine which may extend to fifty rupees ; and [if it is
proved that any artificial means exist] for making such connection as is referred to in
clause (a) on such communication as is referred to in clause (b) or for causing such
alteration or prevention as is referred to in clause (c) or for facilitating such improper use
as is referred to in clause (d)[ and that] the meter, indicator or apparatus is under the
custody or control of the consumer, whether it is his property or not [it shall be presumed,
14

until the contrary is proved,] that such connection, communication, alteration, prevention
or improper use , as the case may be , has been knowingly and wilfully caused by such
consumer.
Penalty for extinguishing public lamps Whoever maliciously extinguishes any public lamp shall be punishable with
imprisonment for a term which may extend to Six months, or with fine which may extend
three hundred rupees or with both.
Operation to save electricity theft :
1. At thermal and hydro power stations electronic metres to be installed to know the
accurate amount of power generated.
2. At 33 k.v sub stations metring facility is provided at incoming and outgoing
feeders to have energy balancing.
3. Electronic metres will installed at customer with more than hundred horse power.
4. Katia connections will be regularised. In year 2000 to 2001 twelve thousand katia
connections are to be regularised.
5. when energy audit of 11 K. V. is finished than feeders lazorisation of customer
will be started.
6. Sudden checking of various category of customer to minimize illegal acts related
to electricity.

ENERGY POLICY OF UP GOVERNMENT

15

1. Since independence the State's power sector has grown at a rapid rate,
contributing to the development of agricultural and industrial sectors in the state.
The installed capacity available to the State has increased from about 264 MW in
1959 to about 5,886 MW in 1998. The transmission network has increased fiftythree folds during this period. The UPSEB today serves about seven million
legitimate consumers, but there are many more who are not yet on the ledgers of
UPSEB. During this period per capita power consumption has increased from 58
KWH to over 204 KWH (1994-95). As against this, the per capita consumption in
States like AP, MP, Gujrat, Maharashtra the net average of the States, 319 KWH
have been achieved during 1994-95.
2. The power sector has not been able to keep pace with the increase in power
demand in the State. As against connected load of 13954 MW the installed
capacity is only 5886 MW (8600 MW including the share in the Central sector
units). Uttar Pradesh in currently facing an acute power shortage. Inspite of
Energy Supply Managment, UP has a peak demand deficit of about of 15% while
its energty shortage is about 8 percent. The power sector is faced with problems of
low plant load factor in its thermal power stations (about 49%) very high
transmission and distribution losses including non-technical losses, low voltage
and frequent interruption. This has resulted in an adverse impact on the
development and economy of the State and the welfare of the people. The State
Government is very concerned about the continuing power shortage and the
frequent power cuts imposed on electricity customers.
3. The root cause of the declining performance of the power sector is the lack of
addequate investments to meet the sector's capital requirments and the deteriation
in sector's efficiency. The primary reason for the lack of investment is the critical
financial situation of UPSEB. As on 31st March, 1997, the accumulated
commercial losses of UPSEB, excluding the State subsidies, were of the order of
Rs. 7000 Crores, and cash liabilities of the order of Rs. 4200 Crores. UPSEB has
not been able to meet its operational cash requirements because of high losses,
16

poor Bill collections and unremunerative tariff for some category of consumers
resulting in poor creditworthiness. The power sector has not been able to mobilise
the resources required to finance the development activities. The continuing cash
shortfall has also resulted in inefficient operations and in inadequate maintenance
of the existing system.
The State's Budgetary resources are extensively used to support the operations of
the power sector, which could alternatively have been used for other social
development activities.
4. As per the studies carried out, the State will need about 14,500 MW of additional
generation capacity by the year 2011 to meet its power demand. Substantial
investments will be required in transmission and distribution to supply this
additional power and distribution to supply this additional power and rehabilitate
the existing transmission and distribution system so as to reduce system losses
and improve quality of power supply. The estimated investment required in the
power sector e.g. for generation, transmission and distribution, by the year 2011 is
about Rs. 69,000 crores. These huge requirements cannot be met without a
massive mobilisation of resources, restoration of the creditworthiness of the
power utilities, and the establishment of a proper enabling environment. The
State Government is determined to overcome the prevailing problems in the
power sector and has decided to restructure & reform its power sector with
ultimate aim of privatisation of generation and distribution areas.
5. The goal of the Uttar Pradesh Power Sector Reform programme is to.:
o

Provide cost efficient good quality electricity to all categories of

consumers for economic development/social uplift of the State.

Make the energy sector commercially viable so that it ceases to be burden

on the state budget; and

17

Protect the investment of the consumers.

Keeping in view the above mentioned goals, the Government of Uttar

Pradesh has agreed on the following key aspects of the Power Sector
Reform Programme:

Restructing of Uttar Pradesh State Electricity Board (UPSEB) into

autonomous and sepratly accountable entities.

Creation of an Independent Regulatory Body to protect consumers as well

as long term financial health of the Power Sector.

Ultimate transfer of ownership of the assets to public corporate entities

over a phased time schedule.

Rationalization of tariff.

Reforms-Phase I (Corporation): With the increasing volume of activities

and specialisation in the field of Generation, Transmission and
Distribution and with a view to improve the performance of these sectors,
it has become essential to run them as separate profit centres. These profit
centres would subsquently be corporatised by establishining following
entities:

Thermal Generation Corporation;

Hydro Generation Corporation.

Transmission and Distribution Corporation

As a further step to make these entities more responsive to the customers and to
provide better sercvice, the process of involving private entrepreneurs in the
distribution of Electricity has already been started. The Greater NOIDA Area has
18

been privatised. It is envisaged that the distribution works of Moradabad, Kanpur

(KESA) and Agra zones will be handed over to privatise company through the
competitive bidding route in the begining of the reform process. This aspect too
will be finalised after requiste study.
b. Restructutring in the Third & subsequent Phases :
o

Generation corporations (Thermal and Hydro) will be horizontally divided

into smaller Generating companies (power station wise). The criteria
would be that each compnay functions as an independent economically
viable corporate entity. In the last phase e.g. privatisation phase, these
companies will be privatised through competitive bidding.

separate corprations for transmission and distribution would be created.

In the next phase, transmission corporation will be divided into two

separate companies on the basis of the functions namely:

Gridco-to own and manage the grid assets.

UP Power Corporation to manage the system coordination and market

making function.

In the last phase the distribution corporation will be further divided into
smaller distribution companies. These companies ultimately will be
privatised within a period of 6 to 8 years.
The sequence and phasing of the activities outlined above may very
depending upon consultancy inputs and prevailing circumtances.

The draft Uttar Pradesh Electricity reform Bill has prepared and will be
placed before the State Assembly. Meanwhile, the Government of Uttar
Pradesh has decided to create an Independent regulatory Body to Protect
19

the interests of all categories of consumers and power utilities in the State.
The Government is closely watching the reform activites in Orrisa,
Haryana, Rajasthan,Andhra Pradesh and other States as well as the steps
takenby Central Government in this regard. The Govt. of UP has decided
to establish UP Electricity Regulatory Commission under the provisions of
the Electricity Regulatory Commission Act, 1998.

The main functions of the Commission will be to :

Regulate the purchase, distribution, supply and utilization of electricity,

the quality of service, the tariff and the charges payable keeping in view
the interests of the consumers as well as the electricity companies.

Issue license for power transmission and distribution in the State;

Regulate the working of licenses and to promote their working in an

efficient, economical and equitable manner;

Promote efficiency, economy and safety in the use electricity in the State
with particular regard to quality, continuity and reliability of service to the
consumer.

Promote completion and encourage the participation of the private sector

while ensuring fair deal to the consumers.

To encourage uniform code of conduct and standards for the electricity

industry.

Require licenses to formulate prospective plans and schemes for the

promotion of generation, transmission, distribution and supply of
electricity. Aid and advice the State Government in matters concerning
electricity Generation transmission, distribution and supply in the state
and.
20

Act as arbitrator or adudicator to settle disputes arising between the

licenses.

The Government of Uttar Pradesh has already decided to entrust all new
generation projects to the private sector, Several Power Purchase
Agreements (PPAS) have already been signed with Independent Power
Producers (IPPS) for Thermal, Hydro and small Hydro Projects, namely.

Thermal -Jawaharpur and Rosa Thermal Projects.

Hydro-Vishunprayag Hydro Electric Project, Srinagar Power Project.

Small Hydro Projects - Bhilangana, Bhyundar Ganga, Pulna, Melkhet,

Madkini, Rupin and Rishi Ganga Projects.
In addition to the above, several PPAS for some more projects including
liquid based fuel and cogeneration plants are under process of finalization.

As a general policy, the Government of Uttar Pradesh considers that retail

tariffs should be rationalised. A dedinite formula has to be devised to
determine the extent of cross subsidisation, direct subvention by the
Government and the extent to which both of these can be reduced over a
period of time. The regulatory Body proposed to be constituted will set
tariffs to allow cost recovery. The retail tariff has already been revised
from January, 1997 with the an average increase of about 20%. The
Government is committed to further revise the tariff in phases to cover the
operationg expenditures.

In the process of restructuring, no staff will be retrenched and service

conditions of present staff shall be fully protected as and when they are
transferred to successor companies, for which necessary legal frame work
has already been provided in the draft Reform Bill.
21

The iplementation of the reform programme has already started. The

Government of Uttar Pradesh has established following organisations to
manage and implement the Power Sector Reform in UP.

A Steering Committee with the Chief Secretary as Chairman, to provide

overall guidance and ensure that decisions on policy matters are taken
expenditiously.

An Implementation Task Force with the Secretary in charge of Energy

Department as Chairman, to manage reform process.

A reform Action Group (RAG) headed by a Director of Chief Engineering

(UPSEB) rank, for providing day to day support to the Implementation
Task Force.

Government of Uttar Pradesh is committed to reform the power Sector in

the State. It has already set-up Uttar Pradesh Electricity Regulatory
Commission under provisions of the Central Act and notification has
already been issued and also taken several measures to accomplish this
task. The passage of the Uttar Pradesh Electricity reform Bill shall put in
place the remaining gaps in legislative framework. The institutional
changes required to implement the reform process are under active
consideration and will be implemented ina phasedc manner. With a clear
commitment to the people of Uttar Pradesh to provide quality power,
efficiently and at reasonable rates, the State Government looks forward to
working in close collaboration with all the stakeholders i.e. power sector
employees,

consumers

financial

22

institutions

and

civic

society.

RESEARCH METHODOLOGY
The definition of research is given by Creswell who states - "Research is a process of
steps used to collect and analyze information to increase our understanding of a topic or
issue". It consists of three steps: Pose a question, collect data to answer the question, and
present an answer to the question.

RESEARCH PROBLEM
The research problem is often argued as the heart of the research process, without which
no research process can take place. In formulating the problem the variables must be
eminent and easily identifiable while a hypothesis should accompany each research
problem. Once a research problem is clearly defined, it should be translated into a
research hypothesis that states; a relationship between two or more variables inone (or
more) population(s).Thus the assignment will reflect on the linkage of the research
problem, research hypothesis and the existing variables. Firstly, the research problem will
be explored, its importance, sources of the research problem, considerations as well as
steps to be followed when formulating a research problem. Secondly, identification of
variables will be discussed using the three commontypes of variables and the four
prominent scales of measurement.Lastly,the definition,functions,characteristics,types and
errors in testing hypothesis will be discussed.
A research problem is the first step and the most important requirement in the
researchprocess. It serves as the foundation of a research study thus if well formulated,
youexpect a good study to follow. According the Kerlinger; in order for one to solve
aproblem, one must know what the problem is. The large part of the problem is
knowingwhat one is trying to do. A research problem and the way you formulate it
determinesalmost every step that follows in the research study. Formulation of the
problem is likethe input into the study and the output is the quality of the contents of the
researchreport. A research problem is often accompanied by research question(s).
23

A ResearchQuestion
is a statement that identifies the phenomenon to be studied. For example,What resources
are helpful to new and minority drug abuse researchers?

TYPE OF DATA
This study mostly makes use of secondary data relevant for the purpose of analysis and
draws inferences which will throw light on the subject. They include UPPCL's published
annual reports for the relevant period, Annual plan documents, Company manuals and
records from UPPCL's Corporate Budget, International Finance, Power Bond Cell, also
site cash books and other relevant records. In addition to these, Bulk Power Supply
Agreements (BPSAs) entered into by UPPCL with the beneficiary State Electricity
Boards (SEBs), Bureau of Industrial Costs and Prices (BICP) and K.P. Rao Committee
Reports on UPPCL's tariffs, relevant electricity legislation like Indian Electricity Act,
1910, Electricity (Supply) Act, 1948 and other company records at UPPCL's Corporate
Centre are used for the study of tariffs.

Type of Data Collection

While deciding about the method of data collection to be used
f o r t h e s t u d y t h e researcher should keep in mind two types of data viz, Primary
data and secondary.

Primary Data
The data are those, which are collected afresh and for first time and thus
happens to be original in character. The secondary are those which have been
collected by someone else and which have already been passed through statistical
process. The researcher would
have to decide which sort of data he would be using for his study The method
collecting primary and secondary data differ since primary data are tube

24

originally collected while in case of secondary data the nature of data

collection work is merely that of compilation. There are several ways of collecting
Primary data.

Steps in conducting research

Research is often conducted using the hourglass model structure of research. The
hourglass model starts with a broad spectrum for research, focusing in on the required
information through the method of the project (like the neck of the hourglass), then
expands the research in the form of discussion and results. The major steps in conducting
research are:

Identification of research problem

Literature review

Specifying the purpose of research

Determine specific research questions or hypotheses

Data collection

Analyzing and interpreting the data

Reporting and evaluating research

The steps generally represent the overall process, however they should be viewed as an
ever-changing process rather than a fixed set of steps. Most researches begin with a
general statement of the problem, or rather, the purpose for engaging in the study. The
literature review identifies flaws or holes in previous research which provides
justification for the study. Often, a literature review is conducted in a given subject area
before a research question is identified. A gap in the current literature, as identified by a
researcher, then engenders a research question. The research question may be parallel to
25

the hypothesis. The hypothesis is the supposition to be tested. The researcher(s) collects
data to test the hypothesis. The researcher(s) then analyzes and interprets the data via a
variety of statistical methods, engaging in what is known as Empirical research. The
results of the data analysis in confirming or failing to reject the Null hypothesis are then
reported and evaluated. At the end the researcher may discuss avenues for further
research.
Rudolph

Rummel

says, "... no researcher should accept any one or two tests as

definitive. It is only when a range of tests are consistent over many kinds of data,
researchers, and methods can one have confidence in the results.

Research Design
Design used for this research is Explorative Research. As hidden insights are to be
find out from this research, in depth analysis is done to explore the facts.
Exploratory research

Exploratory research is a form of research conducted for a problem that has not been
clearly defined. Exploratory research

helps determine the best research design, data

collection method and selection of subjects. It should draw definitive conclusions only
with extreme caution. Given its fundamental nature, exploratory research often concludes
that a perceived problem does not actually exist.
Exploratory research often relies on secondary research such as reviewing available
literature and/or data, or qualitative approaches such as informal discussions with
consumers, employees, management or competitors, and more formal approaches through
in-depth interviews, focus groups, projective methods, case studies or pilot studies.
The Internet allows for research methods that are more interactive in nature. For
example, RSS feeds efficiently supply researchers with up-to-date information;
major search engine search results may be sent by email to researchers by services such

26

as comprehensive search results are tracked over lengthy periods of time by services
such as and websites may be created to attract worldwide feedback on any subject.
When the purpose of research is to gain familiarity with a phenomenon or acquire new
insight into it in order to formulate a more precise problem or develop hypothesis, the
exploratory studies ( also known as formulative research ) come in handy. If the theory
happens to be too general or too specific, a hypothesis cannot to be formulated. Therefore
a need for an exploratory research is felt to gain experience that will be helpful in
formulative relevant hypothesis for more definite investigation.
The results of exploratory research are not usually useful for decision-making by
themselves, but they can provide significant insight into a given situation. Although the
results of qualitative research can give some indication as to the "why", "how" and
"when" something occurs, it cannot tell us "how often" or "how many".
Exploratory research is not typically generalizable to the population at large.
Social exploratory research "seeks to find out how people get along in the setting under
question, what meanings they give to their actions, and what issues concern them. The
goal is to learn 'what is going on here?' and to investigate social phenomena without
explicit expectations." (Russell K. Schutt, "Investigating the Social World," 5th ed.). This
methodology is also at times referred to as a grounded theory approach to qualitative
research or interpretive research, and is an attempt to unearth a theory from the data itself
rather than from a predisposed hypothesis.
Earl Babbie

identifies three purposes of social science research. The purposes are

exploratory, descriptive and explanatory. Exploratory research is used when problems are
in a preliminary stage. Exploratory research is used when the topic or issue is new and
when data is difficult to collect. Exploratory research is flexible and can address research
questions of all types (what, why, how). Exploratory research is often used to generate
formal hypotheses. Shields and Tajalli link exploratory research with the conceptual
framework working hypothesis

27

Skeptics, however, have questioned the usefulness and necessity of exploratory research
in situations where prior analysis could be conducted instead.

28

CASH FLOW
CASH FLOW is concerned with the managing of:
(i)

cash flows into and out of the firm,

(ii) cash flows within the firm, and

(iii) cash balances held by the firm at a point of time by financing deficit or investing
surplus

cash.

Sales generate cash which has to be disbursed out. The surplus cash has to be invested
while deficit has to be borrowed. CASH FLOW seeks to accomplish this cycle at a
minimum cost. At the same time, it also seeks to achieve liquidity and control. CASH
FLOW assumes more importance than other current assets because cash is the most
significant and the least productive asset that a firm holds. It is significant because it is
used to pay the firms obligations. However, cash is unproductive. Unlike fixed assets
or inventories, it does not produce goods for sale. Therefore, the aim of CASH FLOW
is to maintain adequate control over cash position to keep the firm sufficiently liquid
and to use excess cash in some profitable way.
CASH FLOW is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no perfect coincidence between the inflows and
outflows of cash. During some periods, cash outflows will exceed cash inflows,
because payment of taxes, dividends, or seasonal inventory builds up. At other times,
cash inflow will be more than cash payments because there may be large cash sales
and debtors may be realized in large sums promptly. Further, CASH FLOW is
significant because cash constitutes the smallest portion of the total current assets, yet
managements considerable time is devoted in managing it. In recent past, a number of
29

innovations have been done in CASH FLOW techniques. An obvious aim of the firm
these days is to manage its cash affairs in such a way as to keep cash balance at a
minimum level and to invest the surplus cash in profitable investment opportunities.
In order to resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies for CASH FLOW. The firm should evolve strategies regarding
the following four facets of CASH FLOW:

OPTIMUM UTILISATION OF OPERATING CASH

Implementation of a sound cash flow programme is based on rapid generation,
efficient utilisation and effective conversation of its cash resources. cash flow is a
circle. the quantum and speed of the flow can be regulated through prudent financial
planning facilitating the running of business with the minimum cash balance. this can
be achieved by making a proper analysis of operative cash flow cycle along with
efficient management of working capital.

CASH FORECASTING
Cash forecasting is backbone of cash planning. it forewarns a business
regarding expected cash problems, which it may encounter, thus assisting it to regulate
further cash flow movements. lack of cash planning results in spasmodic cash flows.

CASH FLOW TECHNIQUES:

Every business is interested in accelerating its cash collections and
decelerating cash payments so as to exploit its scarce cash resources to the maximum.
there are techniques in the cash flow which a business to achieve this objective.

30

LIQUIDITY ANALYSIS:
The importance of liquidity in a business cannot be over emphasized. if one
does the autopsies of the businesses that failed, he would find that the major reason for
the failure was their inability to remain liquid. liquidity has an intimate relationship
with efficient utilization of cash. it helps in the attainment of optimum level of
liquidity.

PROFITABLE DEPLOYMENT OF SURPLUS FUNDS

Due to non-synchronization of ash inflows and cash outflows the surplus cash
may arise at certain points of time. if this cash surplus is deployed judiciously cash
flow will itself become a profit centre. however, much depends on the quantum of
cash surplus and acceptability of market for its short-term investments.

ECONOMICAL BORROWINGS
Another product of non-synchronisation of cash inflows and cash outflows is
emergence of deficits at various points of time. a business has to raise funds to the
extent and for the period of deficits. raising of funds at minimum cost is one of the
important facets of cash flow.
The ideal CASH FLOW system will depend on the firms products, organization
structure, competition, culture and options available. The task is complex, and
decisions taken can affect important areas of the firm. For example, to improve
collections if the credit period is reduced, it may affect sales. However, in certain
cases, even without fundamental changes, it is possible to significantly reduce cost of
CASH FLOW system by choosing a right bank and controlling the collections
properly.
31

MOTIVES FOR HOLDING CASH

The firms need to hold cash may be attributed to the following the motives:

The transactions motive

The precautionary motive
The speculative motive

TRANSACTION MOTIVE
The transaction motive requires a firm to hold cash to conducts its business in the
ordinary course. The firm needs cash primarily to make payments for purchases,
wages and salaries, other operating expenses, taxes, dividends etc. The need to hold
cash would not arise if there were perfect synchronization between cash receipts and
cash payments, i.e., enough cash is received when the payment has to be made. But
cash receipts and payments are not perfectly synchronized. For those periods, when
cash payments exceeds cash receipts, the firm should maintain some cash balance to
be able to make required payments. For transactions purpose, a firm may invest its
cash in marketable securities. Usually, the firm will purchase securities whose
maturity corresponds with some anticipated payments, such as dividends, or taxes in
the future. Notice that the transactions motive mainly refers to holding cash to meet
anticipated payments whose timing is not perfectly matched with cash receipts.
Precautionary Motive
The precautionary motive is the need to hold cash to meet contingencies in the
future. It provides a cushion or buffer to withstand some unexpected emergency. The
precautionary amount of cash depends upon the predictability of cash flows. If cash
flow can be predicted with accuracy, less cash will be maintained for an emergency.
32

The amount of precautionary cash is also influenced by the firms ability to borrow at
short notice when the need arises. Stronger the ability of the firm to borrow at short
notice, less the need for precautionary balance. The precautionary balance may be kept
in cash and marketable securities. Marketable securities play an important role here.
The amount of cash set aside for precautionary reasons is not expected to earn
anything; therefore, the firm attempt to earn some profit on it. Such funds should be
invested in high-liquid and low-risk marketable securities. Precautionary balance
should, thus, held more in marketable securities and relatively less in cash.

SPECULATIVE MOTIVE
The speculative motive relates to the holding of cash for investing in profit-making
opportunities as and when they arise. The opportunity to make profit may arise when
the security prices change. The firm will hold cash, when it is expected that the
interest rates will rise and security prices will fall. Securities can be purchased when
the interest rate is expected to fall; the firm will benefit by the subsequent fall in
interest rates and increase in security prices. The firm may also speculate on materials
prices. If it is expected that materials prices will fall, the firm can postpone materials
purchasing and make purchases in future when price actually falls. Some firms may
hold cash for speculative purposes. By and large, business firms do not engage in
speculations. Thus, the primary motives to hold cash and marketable securities are: the
transactions and the precautionary motives.

33

CASH PLANNING
Cash flows are inseparable parts of the business operations of firms. A firm needs cash
to invest in inventory, receivable and fixed assets and to make payment for operating
expenses in order to maintain growth in sales and earnings. It is possible that firm may
be taking adequate profits, but may suffer from the shortage of cash as its growing
needs may be consuming cash very fast. The cash poor position of the firm can be
corrected if its cash needs are planned in advance. At times, a firm can have excess
cash with it if its cash inflows exceed cash outflows. Such excess cash may remain
idle. Again, such excess cash flows can be anticipated and properly invested if cash
planning is resorted to. Cash planning is a technique to plan and control the use of
cash. It helps to anticipate the future cash flows and needs of the firm and reduces the
possibility of idle cash balances (which lowers firms profitability) and cash deficits
(which can cause the firms failure).
Cash planning protects the financial condition of the firm by developing a projected
cash statement from a forecast of expected cash inflows and outflows for a given
period. The forecasts may be based on the present operations or the anticipated future
operations. Cash plans are very crucial in developing the operating plans of the firm.
Cash planning can be done on daily, weekly or monthly basis. The period and
frequency of cash planning generally depends upon the size of the firm and philosophy
of management. Large firms prepare daily and weekly forecasts. Medium-size firms
usually prepare weekly and monthly forecasts. Small firms may not prepare formal
cash forecasts because of the non-availability of information and small-scale
operations. But, if the small firm prepares cash projections, it is done on monthly
34

basis. As a firm grows and business operations become complex, cash planning
becomes inevitable for its continuing success.

CASH FORECASTING AND BUDGETING

Cash budget is the most significant device to plan for and control cash receipts and
payments. A cash budget is a summary statement of the firms expected cash inflows
and outflows over a projected time period. It gives information on the timing and
magnitude of expected cash flows and cash balances over the projected period. This
information helps the financial manager to determine the future cash needs of the firm,
plan for the financing of these needs and exercise control over the cash and liquidity of
the firm.
The time horizon of the cash budget may differ from firm to firm. A firm whose
business is affected by seasonal variations may prepare monthly cash budgets. Daily
or weekly cash budgets should be prepared for determining cash requirements if cash
flows show extreme fluctuations. Cash budgets for a longer intervals may be prepared
if cash flows are relatively stable.
Cash forecasts are needed to prepare cash budgets. Cash forecasting may be done on
short or long-term basis. Generally, forecasts covering periods of one year or less are
considered short-term; those exceeding beyond one year are considered long term.
Short-term Cash Forecasts
It is comparatively easy to make short-term cash forecasts. The important functions of
carefully developed short-term cash forecasts are:

To determine operating cash requirements

35

To anticipate short-term financing

To manage investment of surplus cash.

The short-term forecast helps in determining the cash requirements for a
predetermined period to run a business. If the cash requirements are not determined, it
would not be possible for the management to know-how much cash balance is to be
kept in hand, to what extent bank financing be depended upon and whether surplus
funds would be available to invest in marketable securities.
To know the operating cash requirements, cash flow projections have to be made by a
firm. As stated earlier, there is hardly a perfect matching between cash inflows and
outflows. With the short-term cash forecasts, however, the financial manager is
enabled to adjust these differences in favor of the firm.
It is well known that, for their temporary financing needs, most companies depend
upon banks. One of the significant roles of the short-term forecasts is to pinpoint when
the money will be needed and when it can be repaid. With such forecasts in hand, it
will not be difficult for the financial manager to negotiate short-term financing
arrangements with banks. This in fact convinces bankers about the ability of the
management to run its business.
The third function of the short-term cash forecasts is to help in managing the
investment of surplus cash in marketable securities. Carefully and skillfully designed
cash forecast helps a firm to: (i) select securities with appropriate maturities and
reasonable risk, (ii) avoid over and under-investing and (iii) maximize profits by
investing idle money.
36

Short-run cash forecasts serve many other purposes. For example, multi-divisional
firms use them as a tool to coordinate the flow of funds between their various
divisions as well as to make financing arrangements for these operations. These
forecasts may also be useful in determining the margins or minimum balances to be
maintained with banks. Still other uses of these forecasts are:

Planning reductions of short and long-term debt

Scheduling payments in connection with capital expenditures programmes

Planning forward purchases of inventories

Checking accuracy of long-range cash forecasts

Taking advantage of cash discounts offered by suppliers

Guiding credit policies.

Short-term Forecasting Methods

Two most commonly used methods of short-term cash forecasting are:

The receipt and disbursements method

The adjusted net income method.

The receipts and disbursements method is generally employed to forecast for limited
periods, such as a week or a month. The adjusted net income method, on the other
hand, is preferred for longer durations ranging between few months to a year. Both
37

methods have their pros and cons. The cash flows can be compared with budgeted
income and expenses items if the receipts and disbursements approach is followed. On
the other hand, the adjusted income approach is appropriate in showing a companys
working capital and future financing needs.
Receipts and disbursements method: Cash flows in and out in most companies on a
continuous basis. The prime aim of receipts and disbursements forecasts is to
summarize these flows during a predetermined period. In case of those companies
where each item of income and expense involves flow of cash, this method is favoured
to keep a close control over cash.
Three broad sources of cash inflows can be identified: (i) operating, (ii) non-operating,
and

(iii) financial. Cash sales and collection from customers form the most

important part of the operating cash inflows. Developing a sales forecast is the first
step in preparing cash forecast. All precautions should be taken to forecast sales as
accurately as possible. In case of cash sales, cash is received at the time of sale. On the
other hand, cash is realized after sometime if sale is on credit. The time realizing cash
on credit sales depends upon the firms credit policy reflected in the average collection
period.
It can easily be noted that cash receipts from sales will be affected by changes in sales
volume and the firms credit policy. To develop a realistic cash budget, these changes
should be accounted for. If the demand for the firms products slackens, sales will fall
and the average collection period is likely to be longer which increases the chances of
bad debts. In preparing cash budget, account should be taken of sales discounts,

38

returns and allowances and bad debts as they reduce the amount of cash collections
from debtors.
Non-operating cash inflows include sale of old assets and dividend and interest
income. The magnitude of these items is generally small. When internally generated
cash flows are not sufficient, the firm resorts to external sources. Borrowings and
issuance of securities are external financial sources. These constitute financial cash
inflows.
The next step in the preparation of a cash budget is the estimate of cash outflows. Cash
outflows include: (i) operating outflows: cash purchases, payment of payables,
advances to suppliers, wages and salaries and other operating expenses, (ii) capital
expenditures, (iii) contractual payments: repayment of loan and interest and tax
payments; and (iv) discretionary payments: ordinary and preference dividend. In case
of credit purchases, a time lag will exist for cash payments. This will depend on the
credit terms offered by the suppliers.
It is relatively easy to predict the expenses of the firm over short run. Firms usually
prepare capital expenditure budgets; therefore, capital expenditures are predictable for
the purposes of cash budget. Similarly, payments of dividend do not fluctuate widely
and are paid on specific dates. Cash out flow can also occur when the firm repays its
long-term debt. Such payments are generally planned and, therefore, there is no
difficulty in predicting them.
Once the forecasts for cash receipts and payments have been developed, they can be
combined to obtain the net cash inflow or outflow for each month. The net balance for
each month would indicate whether the firm has excess cash or deficit. The peak cash
39

requirements would also be indicated. If the firm has the policy of maintaining some
minimum cash balance, arrangements must be made to maintain this minimum
balance in periods of deficit. The cash deficit can be met by borrowings from banks.
Alternatively, the firm can delay its capital expenditures or payments to creditors or
postpone payment of dividends.
One of the significant advantages of cash budget is to determine the net cash inflow or
out flow so that the firm is enabled to arrange finances. However, the firms decision
for appropriate sources of financing should depend upon factors such as cost and risk.
Cash budget helps a firm to manage its cash position. It also helps to utilize ideal
funds in better ways. On the basis of cash budget, the firm can decide to invest surplus
cash in marketable securities and earn profits.
The virtues of the receipt and payment methods are:

It gives a complete picture of all the items of expected cash flows.

It is a sound tool of managing daily cash operations. This method, however,

suffers from the following limitations:

Its reliability is reduced because of the uncertainty of cash forecasts. For example,
collections may be delayed, or unanticipated demands may cause large

disbursements.
It fails to highlight the significant movements in the working capital items.

Adjusted net income method: This method of cash forecasting involves the tracing of
working capital flows. It is sometimes called the sources and uses approach. Two
objectives of the adjusted net income approach are: (i) to project the companys need
for cash at a future date and (ii) to show whether the company can generate the

40

required funds internally, and if not, how much will have to be borrowed or raised in
the capital market.
As regards the form and content of the adjusted net income forecast, it resembles the
cash flow statement discussed previously. It is, in fact a projected cash flow statement
based on proforma financial statements. It generally has three sections: sources of
cash, uses of cash and the adjusted cash balance. This procedure helps in adjusting
estimated earnings on an accrual basis to a cash basis. It also helps in anticipating the
working capital movements.
In preparing the adjusted net income forecasts items such as net income, depreciation,
taxes, dividends etc., can easily be determined from the companys annual operating
budget. Normally, difficulty is faced in estimating working capital changes; especially
the estimates of accounts receivable (debtors) and inventory pose problem because
they are influenced by factors such as fluctuations in raw material costs, changing
demand for the companys products and possible delays in collections. Any error in
predicting these items can make the reliability of forecast doubtful.
One popularly used method of projecting working capital is to use ratios relating
accounts receivable and inventory to sales. For example, if the past experience tells
that accounts receivable of a company range between 32 percent to 36 percent of sales,
an average rate of 34 percent can be used. The difference between the projected figure
and that on the books will indicate the expected increase or decrease in cash
attributable to receivable.
The benefits of the adjusted net income method are:

41

It highlights the movements in the working capital items, and thus helps to keep a

control on s firms working capital.

It helps in anticipating a firms financial requirements.

The major limitation of this method is:

It fails to trace cash flows, and therefore, its utility in controlling daily cash
operations is limited.

Long-term Cash Forecasting

Long-term cash forecasts are prepared to give an idea of the companys financial
requirements in the distant future. They are not as detailed as the short-term forecasts
are. Once a company has developed long-term cash forecast, it can be used to evaluate
the impact of, say, new product developments or plant acquisitions on the firms
financial condition three, five, or more years in the future. The major uses of the longterm cash forecasts are:

It indicates as companys future financial needs, especially for its working capital

requirements.
It helps to evaluate proposed capital projects. It pinpoints the cash required to
finance these projects as well as the cash to be generated by the company to

support them.
It helps to improve corporate planning. Long-term cash forecasts compel each
division to plan for future and to formulate projects carefully.

Long-term cash forecasts may be made for two, three or five years. As with the shortterm forecasts, companys practices may differ on the duration of long-term forecasts
to suit their particular needs.
42

The short-term forecasting methods, i.e., the receipts and disbursements method and
the adjusted net income method, can also be used in long-term cash forecasting. Longterm cash forecasting reflects the impact of growth, expansion or acquisitions; it also
indicates financing problems arising from these developments.
Cash Collection Instruments in India
The main instruments of collection used in India are: (i) cheques, (ii) drafts, (iii)
documentary bills, (iv) trade bills, and (v) letter of credit.

43

Features of instruments of collection in India

Instrument
1. Cheques

Pros

Cons
Can bounce

No charge

Payable through clearing

Can be discounted after

Collection times can be

long

receipts

Collection charge

Low discounting charge

Payable in local clearing

Cost of collection

Chances of bouncing are

Buyers account debited

3. Documenta

less
Low discounting charge

on day one
Not payable

ry bills

Theoretically, goods are

2. Drafts

through

clearing

not released till payments

High collection cost

are made or the bill is

Long delays

Procedure is relatively

accepted
4. Trade bills

No charge except stamp

duty

5. Letters
credit

of

cumbersome

Can be discounted

Discipline of payment on

accept

discipline

due date
Good credit control as

Opening charges

goods

on

Transit period interest

payment or acceptance of

Negotiation charges

Need bank lines to open

are

released

bill
44

Buyers are reluctant to

the

due

date

Seller

forced

to

delivery schedule because

of expiry date.

LC

meet

Stamp duty on usance

bills

Determining the Optimum Cash Balance

One of the primary responsibilities of the financial manager is to maintain a sound
liquidity position of the firm so that the dues are settled in time. The firm needs cash to
purchase raw materials and pay wages and other expenses as well as for paying
dividend, interest and taxes. The test of liquidity is the availability of cash to meet the
firms obligations when they become due.
A firm maintains the operating cash balance for transaction purposes. It may also carry
additional cash as a buffer or safety stock. The amount of cash balance will depend on
the risk-return trade-off. If the firm maintains small cash balance, its liquidity position
weakens, but its profitability improves as the released funds can be invested in
profitable opportunities (marketable securities). When the firm needs cash, it can sell
its marketable securities (or borrow). On the other hand, if the firm keeps high
balance, it will have a strong liquidity position but its profitability will be low. The
potential profit foregone on holding large cash balance is an opportunity cost to the
firm. The firm should maintain- just enough, neither too much nor too little- cash
balance. How to determine optimum cash balance if cash flows are predictable and if
they are not predictable?
Optimum Cash Balance under Certainty:
Baumols Model

45

The Baumol model of CASH FLOW provides a formal approach for determining a
firms optimum cash balance under certainty. It considers CASH FLOW similar to an
inventory management problem. As such, the firm attempts to minimize the sum of the
cost of holding cash (inventory of cash) and the cost of converting marketable
securities to cash.
The Baumols model makes the following assumptions:

The firm is able to forecast its cash needs with certainty.

The firms cash payments occur uniformly over a period of time.
The opportunity cost of holding cash is known and it does not change over time.
The firm will incur the same transaction cost whenever it converts securities to
cash.

Let us assume that the firm sells securities and starts with a cash balance of C rupees.
As the firm spends cash, its cash balance decreases steadily and reaches to zero. The
firm replenishes its cash balance to C rupees by selling marketable securities. This
pattern continues over time. Since the cash balance decreases steadily, the average
cash balance will be: C/2

46

Baumols model for cash balance

Cash balance
C

C/2

Average

Time
0

T1

T2

T3

The firm incurs a holding cost for keeping the cash balance. It is an opportunity cost;
that is, the return foregone on the marketable securities. If the opportunity cost is k,
then the firms holding cost for maintaining an average cash balance is as follows:

Holding cost = k(C/2)

(1)

The firm incurs a transaction cost whenever it converts its marketable securities to
cash. Total number of transactions during the year will be total funds requirement, T,
divided by the cash balance, C, i.e. T/C. The per transaction cost is assumed to be
constant. If per transaction cost is c, then the total transaction cost will be:

47

Transaction cost = c(T/C)

(2)

The total annual cost of the demand for cash will be:

Total cost = k(C/2) + c(T/C)

(3)

What is the optimum level of cash balance, C*? We know that the holding cost
increases as the demand for cash, C, increases. However, the transaction cost reduces
because with increasing C the number of transactions will decline. Thus, there is a
trade-off between the holding cost and the transaction cost.

Cost
Total cost

Holding cost

Transaction cost
Cash balance
C*

Cost trade-off: Baumols model

48

The optimum cash balance, C*, is obtained when the total cost is minimum. The
formula for the optimum cash balance is as follows:
C* =

2cT/k

(4)

where, C* is the optimum cash balance, c is the cost per transaction, T is the total cash
needed during the year and k is the opportunity cost of holding cash balance. The
optimum cash balance will increase with increase in the per transaction cost and total
funds required and decrease with the opportunity cost.

Optimum Cash Balance under Uncertainty:

The Miller-Orr Model
The limitation of the Baumol model is that it does not allow the cash flows to
fluctuate. Firms in practice do not use their cash balance uniformly nor are they able to
predict daily cash inflows and outflows. The Miller-Orr (MO) model overcomes this
shortcoming and allows for daily cash flow variation. It assumes that net cash flows
are normally distributed with a zero value of mean and standard deviation. The MO
model provides for two control limitsthe upper control limit and the lower control
limit as well as a return point. If the firms cash flows fluctuate randomly and hit the
upper limit, then it buys sufficient marketable securities to come back to a normal
level of cash balance (the return point). Similarly, when the firms cash flows wander
49

and hit the lower limit, it sells sufficient marketable securities to bring the cash
balance back to the normal level (the return point).

Cash balance

Upper limit

Purchase of securities

Return point
Sale of securities
Lower point

Time
Miller- Orr model

The firm sets the lower control limit as per its requirement of maintaining minimum
cash balance. At what distance the upper control limit will be set? The difference
between the upper limit and the lower limit depends on the following factors:

The transaction cost (c)

The interest rate, (i)
The standard deviation of net cash flows.
50

The formula for determining the distance between upper and lower control limits
(called Z) is as follows:
(Upper LimitLower Limit) = (3/4 * transaction cost * cash flow variation/ interest
per day)

(5)

We can notice from equation (5) that the upper and lower limit will be far off from
each other (i.e. Z will be larger) if transaction cost is higher or cash flows show greater
fluctuations. The limits will come closer as the interest increases. Z is inversely related
to the interest rate. It is noticeable that the upper limit is three times above the lower
control limit and the return point lies between the upper and the lower limit. Thus,
Upper Limit = Lower Limit + 3Z

(6)

Return point = Lower Limit + Z

(7)

The net effect is that the firms hold the average cash balance equal to:
Average Cash Balance = Lower Limit +4/3 Z
The MO model is more realistic since it allows variation in cash balance within lower
and upper limits. The financial manager can set the lower limit according to the firms
liquidity requirement. The past data of the cash flow behavior can be used to
determine the standard deviation of net cash flows. Once the upper and lower limits
are set, managerial attention is needed only if the cash balance deviates from the
limits. The action under these situations are anticipated and planned in the beginning.

51

Parameter
Reliability of supply
Technical losses
Commercial losses
Collection efficiency
Billing efficiency
Employee cost

Measurement
99.50%
10%
2%
97%
100%
25 p/u

We shall have a Long-term dynamic vision based on strong perspective planning. We

shall have sophisticated procedures including on line billing, on line queries and
eBusiness functions.
We shall have the most motivated. Satisfied and best-trained employees with full
competence in all key areas, optimally deployed and the most satisfied customers in the
sector.
Our Supply quality shall be : 2% variation in voltage and 0.5 Hz variation in frequency,
with Fault repairs in 1 to 2 hours and redressal of 100% and new connections will be
made on demand.

52

.2. PESTEL ANALYSISOF UTTAR PRADESH POWER CORPORATION LTD..

A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the
macro-environmental (external marketing environment) factors that have an impact on an
organisation. The result of which is used to identify threats and weaknesses which is used
in a SWOT analysis.
PESTEL stands for:
P Political
E Economic
S Social
T Technological
E Environmental
L Legal
All the external environmental factors (PESTEL factors)

Political Factors:

These are all about how and to what degree a government intervenes in the
economy. This can include government policy, political stability or instability in
overseas markets, foreign trade policy, tax policy, labour law, environmental law,
trade restrictions and so on. It is clear from the list above that political factors
often have an impact on organisations and how they do business. Organisations

53

need to be able to respond to the current and anticipated future legislation, and
adjust their marketing policy accordingly.

Economic Factors:
Economic factors have a significant impact on how an organisation does business
and also how profitable they are. Factors include economic growth, interest
rates, exchange rates, inflation, disposable income of consumers and businesses
and so on. These factors can be further broken down into macro-economic and
micro-economic factors. Macro-economic factors deal with the management of
demand in any given economy. Governments use interest rate control, taxation
policy and government expenditure as their main mechanisms they use for
this.Micro-economic factors are all about the way people spend their incomes.
This has a large impact on B2C organisations in particular.

Social Factors:

Also known as socio-cultural factors, are the areas that involve the shared belief
and attitudes of the population. These factors include population growth, age
distribution, health consciousness, and career attitudes and so on. These factors
are of particular interest as they have a direct effect on how marketers understand
customers and what drives them.

54

Technological Factors:
We all know how fast the technological landscape changes and how this impacts
the way we market our products. Technological factors affect marketing and the
management thereof in three distinct ways:

o New ways of producing goods and services

o New ways of distributing goods and services
o New ways of communicating with target markets
o Environmental Factors

These factors have only really come to the forefront in the last fifteen years or so. They
have become important due to the increasing scarcity of raw materials, pollution targets,
doing business as an ethical and sustainable company, carbon footprint targets set by
governments (this is a good example were one factor could be classes as political and
environmental at the same time). These are just some of the issues marketers are facing
within this factor. More and more consumers are demanding that the products they buy
are sourced ethically, and if possible from a sustainable source.

Legal Factors:
Legal factors include - health and safety, equal opportunities, advertising
standards, consumer rights and laws, product labelling and product safety. It is
clear that companies need to know what is and what is not legal in order to trade
successfully. If an organisation trades globally this becomes a very tricky area to
get right as each country has its own set of rules and regulations. After you have

55

completed a PESTEL analysis you should be able to use this to help you identify
the strengths and weaknesses for a SWOT analysis.

2011:
1. Dividend:Considering the good performance during the year 2010-11, yourDirectors
have recommended a dividend of Rs.3.5 per Equity Share ofRs.2/- each (175%), for the
year ended under review. The total dividendoutgo for the current year would amount to
Rs.193.05 crore including
Dividend Distribution Tax of Rs.26.93 crore, as against Rs166.59 croreincluding
dividend distribution tax of Rs.24.20 crore, for the previousyear.
2.More than 12,00,000 customers have been serviced by the Company up to 31st March,
2011 since its inception.
3. Project loans: Growth in profit has been attributed amongst other factors to the
growing portfolio of project loans. The Company sanctioned/ disbursed project loans to
select builders/developers after proper analysis and sanction by the Executive Committee.
The project loans sanctioned and disbursed by the Company during the year were
Rs.2,375.57 crore and Rs.2,400.03 crore, respectively. These loans are generally for short
durations, giving better yields as compared to individual loans.
4. Fund raising: The Company raised funds aggregating to Rs.18,873.87 crore through
termloans from banks, Non-Convertible Debentures
5. Auditors: Statutory auditors M/s. Chokshi&Chokshi, Chartered Accountants,Mumbai
and M/s. Shah Gupta & Co., Chartered Accountants, Mumbai retireat the conclusion of
the forthcoming Annual General Meeting (AGM). TheCompany has received the
56

requisite certificate from them to the effectthat their appointment, if made would be
within the limits specifiedunder section 224(1B) of the Companies Act, 1956.
The Board of Directors recommend appointment of M/s. Chokshi&Chokshi,Chartered
Accountants, Mumbai and M/s. Shah Gupta & Co., CharteredAccountants, Mumbai, as
Joint Statutory Auditors of the Company forfinancial year 2011-12.
6. Directors: Shri DhananjayMungale, Director and Shri S. Ravi, Director retire
byrotation at the ensuing AGM and are eligible for reappointment.The Directors
recommend their reappointment / appointment.
2012
1. Fund raising
The Company raised funds aggregating to Rs 21,036.01 crore through termloans from
banks, Non-Convertible Debentures (NCD), commercial paper, NHB refinance and
Public Deposit.

The Companys NCD issues were rated''CRISIL AAA/Stable'' by

CRISIL & ''CARE AAA'' by CARE, bank loans wererated ''CRISIL AAA/Stable \
CRISIL A1 '', Public Deposit was rated asFAAA/STABLE and commercial paper was
rated ''CRISIL A1 '' by CRISIL.
Allotment of Equity Shares on preferential basisThe Company had issued 3, 00, 00,000
(three crore) equity shares on apreferential basis to promoter of the Company namely LIC
of India.
2. Corporate Governance
In addition to the basic governanceissues, the Board lays strong emphasis on
transparency, accountabilityand integrity.
3. Regulatory Compliance
57

The Company has been following guidelines, circulars and directions issued by National
Housing Bank (NHB) from time to time. Your Company has been maintaining capital
adequacy as prescribed by the NHB. The capital adequacy was 16.69 per cent (as against
12 per cent prescribed by the NHB) as on 31st March, 2012 after considering the loan to
value ratio for deciding risk weightage.

4. Depository system
The Company had signed an agreement with the Central Depository Services (India)
Limited (CDSL) for transactions of its shares in Dematerialised form, in addition to the
National Securities Depository Limited (NSDL), to give a choice to its shareholders in
selectingDepository participant.

5. Public deposits
During 2007-08, the Company started accepting deposits from the public. As on 31st
March, 2012, the outstanding amount on account of public deposits was Rs 276.44 crore.
227 deposits amounting to Rs 7.21 crore which were due for repayment on or before 31st
March, 2012 were not claimed by the depositors till that date. As on 30th April, 2012, 100
deposits amounting to Rs 1.47 crore thereof have been claimed and paid. The interest due
on the public deposits has been paid on time.
The Company through Registrar to the Public Deposit scheme i.e. Link Intime India Pvt.
Ltd has been sending reminders on periodical basis to the depositors who have not
claimed the maturity proceeds.

58

2013
Dividend
Considering the performance during the year 2013-14, your Directors recommend
payment of dividend for the financial year ended 31st March, 2014 of ` 4.50 per equity
share of face value of ` 2/- per share (225 percent including special dividend of 25
percent, being commemoration of stepping into 25th illustrious year of operation), as
against ` 3.80 per equity share of face value of ` 2/- per share for the previous year. The
total dividend outgo for the current year would amount to ` 265.58 crore including
Dividend Distribution Tax of ` 38.48 crore, as against ` 224.12 crore including dividend
distribution tax of ` 32.35 crore, for the previous year.
Silver Jubilee Year
On 20th June, 2013 LIC Housing Finance Limited commenced its Silver Jubilee Year.
The Company has over these years demonstrated the viability and importance of retail
housing finance withstanding various ups and downs in the business cycle. LIC HFL has
been one of the major players in the retail housing finance market in India and despite a
number of new entrants in the industry, your Company continues to be one of the key
player.
Regulatory Compliance The Company has been following guidelines, circulars and
directions issued by National Housing Bank (NHB) from time to time. Your Company
has been maintaining capital adequacy as prescribed by the NHB. The capital adequacy
was 16.38 percent (as against 12 percent prescribed by the NHB) as at 31st March, 2014
after considering the loan to value ratio for deciding risk weightage.

59

Auditors Joint Statutory Auditors M/s. Chokshi & Chokshi, Chartered Accountants,
Mumbai having Registration No.101872W and M/s. Shah Gupta & Co., Chartered
Accountants, Mumbai having Registration No.109574W hold office until the conclusion
of the forthcoming Annual General Meeting (AGM) and are eligible for appointment. The
Company has received a confirmation from them to the effect that their appointment, if
made at the ensuing AGM would be in terms of Section 139 and 141 of the Companies
Act, 2013 and Rules made thereunder.
Directors
Shri Dhananjay Mungale, Director resigned from the Board of Directors of the Company
with effect from 1st August, 2013 on completion of directorship for nine years in terms of
Code of Conduct for Board of Directors and Senior Management, adopted by the
Company. The Board places on record its appreciation of his valuable contributions,
commitment and guidance made during his tenure.
Corporate Governance A certificate from the Joint Statutory Auditors of the Company
regarding compliance of the conditions of Corporate Governance as stipulated under
Clause 49 of the Equity Listing Agreement with Stock Exchanges is attached to the
Corporate Governance Report.
Corporate Social Responsibility
In accordance with the provision of Section 135 of the Companies Act, 2013, the
Company is required to constitute a Corporate Social Responsibility (CSR) Committee of
Directors comprising atleast three Directors including an Independent Director.
Management Discussion and Analysis Report Management Discussion and Analysis
Report for the year under review, as stipulated under clause 49 of Equity the Listing
60

Agreement with Stock Exchanges is presented in a separate section forming part of the
Annual Report.
Business Responsibility Report
In accordance with the provisions of Clause 55 of the Equity Listing Agreement, the
Business Responsibility Report (BRR) is presented in a separate section forming part of
the Annual Report. Depository system The Company has an agreement with the Central
Depository Services (India) Limited (CDSL) for transactions of its shares in
dematerialised form, in addition to the National Securities Depository Limited (NSDL),
to give a choice to its shareholders in selecting depository participant. As at 31st March,
2014, 10,558 members of the Company continue to hold shares in physical form.
As per the Securities and Exchange Board of Indias (SEBI) instructions, the Companys
shares have to be transacted in dematerialized form and therefore, members are requested
to convert their holdings to dematerialized form

61

2014
1. Corporate Social Responsibility
In accordance with the provision of Section 135 of the Companies Act, 2013, the
Company is required to constitute a Corporate Social Responsibility (CSR) Committee of
Directors comprising at least three Directors including an Independent Director. The
Board at its meeting held on 16th January, 2014 constituted the CSR Committee. The
CSR Committee will monitor the implementation of the CSR Policy and apprise the
Board accordingly.
The Company has identified the fields it would like to focus its energy on Education
Health, Livelihood, Infrastructure development and Social Development.

2. Management Discussion and Analysis Report

Management Discussion and Analysis Report for the year under review, as stipulated
under clause 49 of Equity the Listing Agreement with Stock Exchanges is presented in a
separate section forming part of the Annual Report.
3. Business Responsibility Report
In accordance with the provisions of Clause 55 of the Equity Listing Agreement, the
Business Responsibility Report (BRR) is presented in separate section forming part of the
Annual Report.
4. Depository system
The Company has an agreement with the Central Depository Services (India) Limited
(CDSL) for transactions of its shares in dematerialised form, in addition to the National

62

Securities Depository Limited (NSDL), to give a choice to its shareholders in selecting

depository participant.
2015
The Company proposes:
* To grow business qualitatively by consolidating position and strengthening the
competitiveness on service delivery.
* To create brand LIC HFL as a source of trusted partner exuding consumer confidence.
* Understand the inherent risks to the business and managing it effectively.
* Focus on winning and retaining customers.
* Pursue new skills and expand knowledge aimed at managing competition effectively.
* Expand its operations by establishing new business centers.
* Increase its distribution by appointing new agents and activating more agents.
* Incentivizing and motivating the marketing intermediaries systematically for improving
productivity.
* Raising funds through loans at attractive terms.
* Making efforts towards reducing overall cost of funds.
* Steps to improve the recovery ratio and ensuring lowest NPA level.
* Timely review of credit appraisal system to improve the loan asset quality.
* Continuous efforts to upgrade Information Technology platform to ensure prompt and
effective service to the clientele.

63

4. MAIN HIGHLIGHTS OF AUDITORS REPORT OF LAST 5 YEARS

SPECIFYING

ANY

CHANGE

IN

ACCOUNTING

POLICY

FOR

DEPRECIATION, INVENTORY, FIXED ASSET ETC., ANY EXCEPTIONAL

REMARK BY AUDITORS
As required by sub-section 3 of Section 143 of the Act, we report that:
1. 2014- The fixed assets disposed off during the year, in our opinion, donot
constitute a substantial part of the fixed assets of the Company and such disposal
has, in our opinion, not affected the going concern status of the Company
2. 2015-The fixed assets have been physically verified by the management during
the year. In our opinion, the frequency of verification is reasonable. According to
the information and explanations given to us, no material discrepancies were
noticed on such verification.
3. In our opinion and according to the information and explanations given to us,
there are adequate internal control systems commensurate with the size of the
Company and the nature of its business for the purchase of fixed assets and sale of
services. The activities of the company do not involve purchase of inventory and
the sale of goods. We have not observed any continuing major weakness in such
internal control system during the course of the audit
4. The fixed assets have been physically verified by the management during the
year. In our opinion, the frequency of verification is reasonable. According to the
information and explanations given to us, no material discrepancies were noticed
on such verification.
5. As the Company does not have inventory, the Clauses (ii)(a) to (ii)(c) of
paragraph 3 of the Order are not applicable to the Company.

64

6. The Company has not granted any loans, secured or unsecured to companies,
firms or other parties covered in the register maintained under Section 189 of the
Act.
5. TREND , HORIZONTAL & VERTICAL ANALYSIS OF FINANCIAL
STATEMENT & ITS INTERPRETATION
Financial statement analysis is the collective name for the tools and techniques that are
intended to provide relevant information to decision makers. The purpose of the analysis
is to assess a companys financial health and performance.
Financial statement analysis consists of comparisons for the same company over periods
of time and for different companies in the same industry or different industries.
Financial statement analysis enables investors and creditors to evaluate past performance
and financial position Predict future performance
Methods of Financial Statement Analysis
The tools of financial statement analysis help in establishing significant relationships and
changes. The most commonly used analytical techniques are:
1. Horizontal Analysis
2. Trend Analysis
3. Vertical Analysis
4. Ratio Analysis
Horizontal Analysis:
Financial statements present comparative information for at least two years. Horizontal
analysis calculates the amount and percentage changes from the previous year to the
current year. While an amount change in itself may mean something, converting it to
65

percentage is more useful in appreciating the order of magnitude of the change.

Trend Analysis:
Trend analysis involves studying changes in financial statement items for many years. It
is an extension of horizontal analysis. We first assign a value of 100 to the financial
statement items in a past financial year used as the base year and then express the
amounts in the following years as a percentage of the base year value. Trend analysis
helps in identifying basic changes in the nature of the business. Since many large
corporations publish performance summaries and selected financial indicators for five or
more years, it is possible to perform trend analysis.

Vertical Analysis:
Vertical analysis is the proportion expression of the amount of each item on a financial
statement to the statement total. The results of vertical analysis are presented in the form
of common-size statements in which the items within each statement are expressed in
percentages of common number and always add up to 100. It is conventional to express
items in the statement of profit and loss as percentages of sales, and balance sheet items
as percentages of the total shareholders equity and liability. Vertical analysis helps in
making comparisions of companies that differ in size since the financial statements are
expressed in comparable common size format. Further, a comparison of common-size
statement for several years may reveal important changes in the components from one
year to another.

66

ACCOUNTING POLICIES

General Accident plc (the Company) is a public limited company incorporated

and domiciled in the United Kingdom (UK). The following accounting policies
have been applied consistently in dealing with items which are considered material
in relation to the Companys financial statements.
1. GENERAL

i) The Financial Statements have generally been prepared on the historical cost
convention.

ii) Accounting policies not specifically referred to otherwise are in consonance with
generally accepted

2. BASIS OF ACCOUNTING
The company follows the mercantile system of accounting generally except otherwise
stated herein below.
3. FIXED ASSETS
Fixed Assets are stated at cost less accumulated depreciation.
4. DEPRECIATION
a) Depreciation on fixed assets has been provided at the rates and in accordance with the
provisions of Schedule XIV of the Companies Act,1956 on SLM Method on days prorata
on basis of date put to use of the assests. However, no depreciation has been charged on
67

fixed assets during the year and profit of the company has been affected adversely to that
extent.
5. INVENTORIES
Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the
process of production for such sale; or (c) in the form of materials or supplies to be
consumed in the production process or in the rendering of services.
Net realisable value is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to make the sale.

68

6. ANALYSIS OF FINANCIAL STATEMENT THROUGH RATIO ANALYSIS

REVENUE AND EXPENDITURE RECOGNITION

Revenue Isrecognised and expendeiture is accounted for on their accrual except claims in
respect of goods purchased and sold & Insurance, which are accounted for on cash basis.

INVESTMENT :

Investment are valued at Cost. No provision has been made for

depreciation of the market value of the Investment.

(A)

Basis of presentation

The financial statements of the Company have been prepared in accordance with
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) and applicable at 31 December 2009, and
endorsed by the European Union. The date of transition to IFRS was 1 January 2004.

(B)

Use of estimates

The preparation of financial statements requires the Company to make estimates and
assumptions that affect items reported in the statement of financial position and income
statement and the disclosure of contingent assets and liabilities at the date of the financial
statements. Although these estimates are based on managements best knowledge
of current facts, circumstances and to, some extent, future events and actions,
actual results ultimately may differ from those estimates, possibly significantly.
69

(C)

Investment income

Investment income consists of interest receivable for the year. Interest receivable is
recognized as it accrues, taking into account the effective yield on the investment.

(D)

Financial instruments

Loans to, or from other Aviva Group companies are recognized when cash is
advanced to, or received from these companies. These loans are subsequently carried
at amortized cost. The Company reviews the carrying value of loans on a regular basis. If
the carrying value of the loan is greater than the recoverable amount, the carrying value is
reduced through a charge to the income statement in the period of impairment.

(E) Cash and cash equivalents

Cash and cash equivalents consist of cash at banks and in hand.

(F) Income taxes

The current tax expense is based on the taxable result for the year, after any adjustments
in respect of prior years.

Tax, including tax relief for losses if applicable, is

allocated over profits before taxation and amounts charged or credited to reserves
as appropriate.
Provision is made for deferred tax liabilities, or credit taken for deferred tax
70

assets, using the liability method, on all material temporary differences between the
tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax assets are recognized to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilized.

(G)

Share capital

Equity instruments
An equity instrument is a contract that evidences a residual interest in the assets
of an entity after deducting all its liabilities. Accordingly, a financial instrument is
treated as equity if:
I.

There is no contractual obligation to deliver cash or other financial assets

or to exchange financial assets or liabilities on terms that may be unfavorable;
and

II.

The instrument is a non-derivative that contains no contractual obligation to

deliver a variable number of shares, or is a derivative that will be settled only by
the Company exchanging a fixed amount of cash or other assets for a fixed
number of the Companys own equity instruments.

Dividends
Dividends on ordinary shares are recognized in equity in the period in which they
are paid and, for the final dividend, approved by shareholders. Dividends on
preference shares are recognized in the period in which they are declared and
appropriately approved.
Liquidity Ratios:
71

a) Current Ratio
The current ratio is a popular financial ratio used to test a company's liquidity (also
referred to as its current or working capital position) by deriving the proportion of current
assets available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term assets such
as cash, cash equivalents, marketable securities, receivables and inventory are readily
available to pay off its short-term liabilities such as notes payable, current portion of term
debt, payables, accrued expenses and taxes. In theory, the higher the current ratio, the
better.
Formula:

b) Quick Ratio:
The quick ratio also known as the acid-test ratio - is a liquidity indicator that further
refines the current ratio by measuring the amount of the most liquid current assets there
are to cover current liabilities. The quick ratio is more conservative than the current ratio
because it excludes inventory and other current assets, which are more difficult to turn
into cash. Therefore, a higher ratio means a more liquid current position.
The quick ratio is a more conservative measure of liquidity than the current ratio as it
removes inventory from the current assets used in the ratio's formula. By excluding
inventory, the quick ratio focuses on the more-liquid assets of a company.
72

The basics and use of this ratio are similar to the current ratio in that it gives users an idea
of the ability of a company to meet its short-term liabilities with its short-term assets.
Another beneficial use is to compare the quick ratio with the current ratio. If the current
ratio is significantly higher, it is a clear indication that the company's current assets are
dependent on inventory.
Formula:

c) Cash Ratio:

Cash ratio is the ratio of cash and cash equivalents of a company to its current
liabilities. It is an extreme liquidity ratio since only cash and cash equivalents are
compared with the current liabilities. It measures the ability of a business to repay
its current liabilities by only using its cash and cash equivalents and nothing else.
Its standard value is 1:1 or above but not very high.

LIQUIDITY RATIOS
Current Ratio
Quick Ratio
Inventory Turnover Ratio

Mar '15
5.22
5.22
0.00

Mar '14
5.69
5.67
0.00

PROFITABILITY RATIO:

73

Mar '13
5.22
5.21
0.00

Mar '12
5.90
5.88
0.00

Mar '11
12.13
12.09
0.00

A profitability ratio is a measure of profitability, which is a way to measure a company's

performance. Profitability is simply the capacity to make a profit, and a profit is what is
left over from income earned after you have deducted all costs and expenses related to
earning the income

Gross margin tells you about the profitability of your goods and services. It tells you
how much it costs you to produce the product. It is calculated by dividing your gross
profit (GP) by your net sales (NS) and multiplying the quotient by 100:

Gross Margin = Gross Profit/Net Sales * 100

Operating margin takes into account the costs of producing the product or services that
are unrelated to the direct production of the product or services, such as overhead and
administrative expenses. It is calculated by dividing your operating profit (OP) by your
net sales (NS) and multiplying the quotient by 100:

Operating Margin = Operating Profit / Net Sales * 100

PROFITABILITY RATIOS
Operating Margin (%)
Gross Profit Margin (%)

Mar '15 Mar '14 Mar '13 Mar '12 Mar '11
96.46
96.43
95.33
93.69
89.84
96.37
96.35
95.23
93.57
89.70

LEVERAGE RATIOS

74

A leverage ratio is meant to evaluate a companys debt levels. The most common
leverage ratios are the debt ratio and the debt-to-equity ratio.
Debt/Equity= (Short term debt + Long term debt)/Equity

Another important ratio is the interest covering ratio that determines the interest payment
ability of the company against the debt it owes. The interest payment is made from the
companys profit that it earns with the primary business it does. The formula for it is:

Interest Coverage = Operating Income / Interest Expenses

These leverage ratios are very important for the companys internal users as well as
external users. These ratios helps identify the weak areas of the company internally and
help the shareholders make a judgment about their investments.

LEVERAGE RATIOS
Long Term Debt / Equity
Total Debt/Equity
Owners fund as % of total Source
Fixed Assets Turnover Ratio

10.30
10.64
8.58
0.12

75

8.99
9.49
9.53
0.12

8.68
9.06
9.94
0.12

8.19
8.42
10.61
0.11

10.75
10.83
8.45
0.10

DEBTORS:(Rs. in lacks)
Year
Mar '15
Interest Cover
1.25
Total Debt to Owners
10.64
Fund
Financial
Charges
1.25
Coverage Ratio
Financial
Charges

Mar '14
1.25

Mar '13
1.23

Mar '12
1.25

Mar '11
1.35

9.49

9.06

8.42

10.83

1.26

1.23

1.25

1.35

Coverage Ratio Post 1.17

1.18

1.17

1.20

1.32

Tax
Interpretation : Debtors constitute a substantial portion of total current assets. In India it
constitute one third of current assets. The above graph is depict that there is increase in
debtors. It represents an extension of credit to customers. The reason for increasing credit
is competition and company liberal credit policy.

76

CURRENT ASSETS:

(Rs. In

lacks)
Year
Return

on

Including

Mar '14

Mar '13

Mar '12

Mar '11

154.92

149.27

128.43

112.59

87.83

154.92

149.27

128.43

112.59

87.83

Assets

Excluding
Revaluations
Return on

Mar '15

Assets

Revaluations
Interpretation : This graph shows that there is 64% increase in current assets in 2011.
This increase is arise because there is approx. 50% increase in inventories. Increase in
current assets shows the liquidity soundness of company.

77

7. ANALYSIS OF CASH FLOW STATEMENT AND CHANGES OF CASH

POSITION IN CASH FROM OPERATION, CASH FROM INVESTING & CASH
FROM FINANCING ACTIVITY

Cash Flow for UTTAR PRADESH POWER CORPORATION LTD.

The cash flow statement is one of the most revealing documents of a firms financial
statements, but it is often overlooked. It shows the sources and uses of a firms cash as it
moves both in and out. When analysing a company's cash flow statement, it is important
to consider each of the various sections that contribute to the overall change in cash
position. In many cases, a firm may have negative overall cash flow for a given quarter,
but if the company can generate positive cash flow from its business operations, the
negative

overall

cash

flow

is

not

necessarily

bad

thing.

1. Cash flow from operating activities:

(CFO) is an accounting item indicating the money a company brings in from ongoing,
regular business activities, such as manufacturing and selling goods or providing a
service. Cash flow from operating activities does not include long-term capital or
investment costs. It does include earnings before interest and taxes plus depreciation
minus taxes.

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Also called operating cash flow or net cash from operating activities, it can be calculated
as follows:
Cash Flow from Operating Activities = EBIT + Depreciation Taxes
Cash flow from operating activities also includes changes in working capital (current
assets minus current liabilities), such as increases or decreases in inventory, short-term
debt, accounts receivable and accounts payable. Income that a company receives from
investment activities is reported separately, since it is not from business operations.
2. Cash Flow From Investing Activities
An item on the cash flow statement belongs in the investing activities section if it results
from any gains (or losses) from investments in financial markets and operating
subsidiaries. An investing activity refers to cash spent on investments in capital assets
such as plant and equipment, which is collectively referred to as capital expenditure, or
capex.
An item on the cash flow statement that reports the aggregate change in a company's cash
position resulting from any gains (or losses) from investments in the financial markets
and operating subsidiaries, and changes resulting from amounts spent on investments in
capital assets such as plant and equipment.

3. Cash Flow From Financing Activities

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A category in a companys cash flow statement that accounts for external activities that
allow a firm to raise capital and repay investors, such as issuing cash dividends, adding or
changing loans or issuing more stock. Cash flow from financing activities shows
investors the companys financial strength. A company that frequently turns to new debt
or equity for cash, for example, could have problems if the capital markets become less
liquid.
The formula for cash flow from financing activities is as follows:
Cash Received from Issuing Stock or Debt - Cash Paid as Dividends and ReAcquisition of Debt/Stock
A positive number for cash flow from financing activities means more money is flowing
into the company than flowing out, which increases the companys assets. Negative
numbers can mean the company is servicing debt, but can also mean the company is
retiring debt or making dividend payments and stock repurchases, which investors might
be glad to see. Investors can also get information about cash flow from financing
activities from the balance sheets equity and long-term debt sections and possibly the
footnotes. Cash flow from financing activities is one of the three main sections of a
companys cash flow statement, the other two being cash flow from operations and cash
flow from investing. This section of the cash flow statement measures the movement of
cash between a firm and its owners and creditors.

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Cash Flow for UTTAR PRADESH POWER CORPORATION LTD. For 5 years

(Rs in Cr)

Profit Before Tax

Net CashFlow-Operating

Mar' 15
2,101.94
-

Mar' 14
1,825.50
-

Mar' 13
1,373.57
-

Mar' 12
1,230.91
-

Mar' 11
1,294.16
-

Activity
Net Cash Used In

14,353.93 11,502.56
-51.29
-20.63

Investing Activity
Net Cash Used in Fin.

14,231.45 13,048.14 12,466.41 11,541.89 10,238.38

12,585.51 11,818.98 10,267.81

-27.06
-35.18
197.62

Activity
Net Inc/Dec In Cash And

-173.77

1,524.95

-146.17

-312.28

168.19

Equivlent
Cash And Equivalent

2,931.04

1,406.09

1,552.26

561.07

267.00

Begin of Year
Cash And Equivalent

2,757.27

2,931.04

1,406.09

248.79

435.19

End Of Year

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8) OVERALL COMMENT ON PERFORMANCE OF COMPANY BY

IDENTIFYING STRENGTH AND WEAKNESSES
Strength
1. Largest state-owned life insurance company in India, and also the country's largest
investor.
2. Has over 2000 branches across all parts of India and more than 10,00,000 agents.
3. With Largest fund base it is the biggest investor in India.
4. Has over 115,000 employees across India.

Weakness
1. It has an image of a Government agency and hence lacks innovation.
2. Being a Government agency, red tape and bureaucracy causes problems.
3. Managing a huge workforce during economic crisis meant overburdened due to
salaries.

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FINDINGS

More than 50% of the population depends on UPPCLfor their daily transaction, more
than 80% of the population is aware of its products and services and 70% of them are
satisfied with the offered services and products by the bank.

UPPCL of India provides CASH FLOW services to Corporate Clients under the brand
name UPPCL ( Funds Available in Shortest Time).

UPPCL ensures optimization of collections and payouts while ensuring predictability in

the cash flows. Some of the feature and benefits of this UPPCL are:

Centralized Control of Cash

Interest Cost Reduction on Borrowings.

Enhanced Liquidity.

Interchange of Information between Treasury & Operating units.

Cash forecasting & scheduling.

Effective control over disbursements.

Efficient Financial Management.

CONCLUSION
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The study allowed us get answers regarding the service awareness among people
and the problems it faces. The key findings and analysis of the survey showed the
following :

A large number of clients and customers call the branch frequently to handle
banking issues , this shows the keenness of the customers to call the branch for
almost every small issue. The service Straight2bank does provide an answer to
the problem of the customers. The service provided by staright2bank does offer
the main requirements of the customers for which they visit or call the branch

All the respondents wanted to carry out the banking needs at their convenience.
This means the service caters the banking needs that customers generally require
and its main benefit of banking while sitting at office is desired by one and all,
thereby proving that the service does have the potential usage.

Few of the respondents were aware about the service which was desired by
100% respondents clearly showing that there has been a falter in its promotion
and awareness strategies.

Customers were not aware that the service was a free one, this is clear that
almost all the attributes of the services are favorable to the customers still
customers are not using the service and are not even aware of it.

84

Almost all customers once educated about the service readily enrolled for it
whereas a mere portion did not trust the bank and thought that the bank would
have some hidden charges that they are not putting forward

85

LIMITATIONS
In increasingly global environment, real threat will come from MNCs who are
having access to cheap funds and technological superiority. The new global
scenario will force UPPCL to rethink the strategy.

Private Sectors have access to cheaper technology from foreign countries like
China with minimum time lags. Whereas in case of UPPCL they have a running
contract with BHEL. BHEL takes longer time to deliver the required machinery at
a higher cost.

With the opening up of the sector, more and more players are keen to put up
power plants because of new enabling regulatory mechanism. They will operate
the plant with minimum overheads and flexible financing options.

Source of fund especially from stock market are cheaper compared to public
sector utilities. This is because of market perception that private sector can run
business more efficiently.

Being a Public Sector Company UPPCL has to bear to certain rules & regulation
formulated from time to time. Where private sectors has no such restrictions

UPPCL has to go through a formal route of tendering where the bids are invited
from interested parties. Whereas in case of Private sector, they have independence
of awarding contract without inviting any bids.

86

RECOMMENDATIONS

We suggest following measures, which UPPCL could take so as to take on heavy

competition:

Try to reduce cost, so that benefits can be passed on to customers. Senior

managers at UPPCLkeep on telling that it is difficult to reduce cost, because
of services we provide. But the fact is, India being a price sensitive market;
people at times go for monetary benefits rather than for long-term nonmonetary benefits. If charges cant be reduced because of costs involved,
make the services customized, so that services are provided to only those
customers who are willing to pay the price for services they are getting and
let the other customers enjoy costs benefits without getting services.

UPPCLshould contact with their clients regularly for knowing the problems
faced by them. This will help UPPCLin providing best services to customers.
This will result in additional customer base by getting further references
from satisfied clients.

UPPCLshould focus on getting the business other business clients other than
its existing customers as it would help them to increase their business
opportunities.

87

 In increasingly global environment, real threat will come from MNCs who are
having access to cheap funds and technological superiority. The new global
scenario will force UPPCL to rethink the strategy.

Private Sectors have access to cheaper technology from foreign countries like
China with minimum time lags. Whereas in case of UPPCL they have a running
contract with BHEL. BHEL takes longer time to deliver the required machinery at
a higher cost.

With the opening up of the sector, more and more players are keen to put up
power plants because of new enabling regulatory mechanism. They will operate
the plant with minimum overheads and flexible financing options.

Source of fund especially from stock market are cheaper compared to public
sector utilities. This is because of market perception that private sector can run
business more efficiently.

Being a Public Sector Company UPPCL has to bear to certain rules & regulation
formulated from time to time. Where private sectors has no such restrictions

UPPCL has to go through a formal route of tendering where the bids are invited
from interested parties. Whereas in case of Private sector, they have independence
of awarding contract without inviting any bids.

88

BIBLIOGRAPHY
Books
Agarwal N.K., Management of Working Capital, Sterling Publishers Pvt Ltd. New
Delhi 1983.
Chakravarty S. K., Reddy K., Inter firm comparison in the Indian Cement
Industry, The Charted Accountant, Vol. 20, No. 3, April 1973

Deloof, M.. Does Working Capital Management Affects Profitability of Belgian

Firms?, Journal of Business Finance & Accounting, 2003

Ghosh, S. K. and Maji, S. G.. Working Capital Management Efficiency: A study

on
the Indian Cement Industry, The Institute of Cost and Works Accountants of
India 2003

Guthmann H.G., Analysis Of Financial Statement Prentice Hall Inc. New York,
1935

Horrigan, J. O., A Short History Of Financial Ratio Analysis The Accounting

Review, April, 1968

Howard Leslie R., Working Capital : Its Management and Control, London
Macdonald And Evan Ltd., 1971

MAGAZINES:
Business Today
89

 Business World

NEWSPAPER
Economic Times
Business Standard
The Financial Express
The Times Of India

Reports, Journals, Bulletins and Periodicals:

Annual reports of the various selected cement units
Tendon committee reports
The Hindu, Chennai
The capital, Kolkata
Management accountants, India
The journal of industries and trade
Chartered accountant, new Delhi
Lok udyog, new Delhi
Productivity, new Delhi
The Indian economic journal, Mumbai
The Indian Accounting Journal
Journal of Accounting & Finance
Accounting Review
Internet web sits
http://www.studyfinance.com/lessons/capbudget/index.mv?page=01
90

 www.UPPCL.co.in
Financial Management by Prasanna Chandra
CERC Tariff Policy of 2009-2014.
www.moneycontrol.com
Indian Power Stations 2010 by UPPCL
Delegation of Power by UPPCL
Internal Management Reports
www.moneycontol.com
Tariff based Competitive-bidding Guidelines for Transmission Service

Authors by
Filbeck and Krueger (2005)
Wild , Subramanyam, and Halsey (2004),
Chiou et al (2006)
Vanhorne (1969)
Weston and Brigham (1972)

91

 Filbeck and Krueger (2005)

Lambrix and Singhvi (1979)
Welter, in his study (1970),
Warren and Shelton (1971)

Cohn and Pringle in their study (1973)

Copeland and Khoury (1980)

92