″A STUDY ON WORKING CAPITAL″ WITH REFERENCE TO LARSEN &TOUBRO- CHENNAI BY V.

AARTHI (Reg No: 35104001) PROJECT REPORT SUBMITTED In Partial fulfilment of the requirements For the award of the degree OF MASTER OF BUSINESS ADMINISTRATION

SRM SCHOOL OF MANAGEMENT SRM ENGINEERING COLLEGE SRM INSTITUTE OF SCIENCE AND TECHNOLOGY (DEEMED UNIVERSITY) KATTANKULATHUR.

MAY 2006

DECLARATION

I, V.Aarthi, student of S.R.M School of Management, S.R.M Institute of Science & Technology, Kattankulathur, and here by declare that this project report titled “A STUDY ON WORKING CAPITAL MANAGEMENT IN LARSEN & TOUBRO” is an original work done by me and submitted to the S.R.M Deemed University, for the award of Master Degree in Business Administration. I further declare that any part this project itself has not been submitted elsewhere for award of any degree.

PLACE: KATTANKULATHUR DATE:

V.AARTHI (35104001)

BONAFIDE CERTIFICATE Certified that this project report titled “A STUDY ON WORKING CAPITAL MANAGEMENT IN LARSEN & TOUBRO” is an original work done by Miss. V.AARTHI (Reg.No 35104001) of Fourth Semester, SRM School of Management, SRM Institute of Science and Technology, (Deemed University) Kattankulathur during the academic year 2006, who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other certificate.

Faculty Guide

HOD/Dean

Internal Examiner

External Examiner

PLACE: KATTANKULATHUR DATE:

its exquisite buildings. The business of ECC Division is organized in four business sectors which . As a division of L&T.is among the largest and most reputed companies in India's private sector. and highest viaducts .is India's largest construction organization. Leading-edge capabilities cover every discipline of construction: civil.The Construction division of Larsen & Toubro Limited .an engineering and construction major .ABSTRACT L&T Larsen & Toubro Limited . largest industrial projects.have been built by ECC. electrical and instrumentation. tallest structures. mechanical. longest flyover. ECC has the resources to execute projects of large magnitude and technological complexity in any part of the world. Many of the country's prized landmarks . ECC ECC .

Male.will primarily be responsible for Technology Development. Middle East and Africa North Zone consisting of Ahmedabad Region. Bhutan. Afghanistan. Sri Lanka. Bangladesh. Laos. The four Zones are: • • West Zone consisting of Mumbai Region. Business Development. International Tendering and work as Investment Centres. Hyderabad Region. Cambodia and Philippines • South Zone consisting of Chennai Region. Uzbekistan. Malaysia and Indonesia . Business Sector • • • • • • Buildings and Factories Sector Transportation Infrastructure Sector Industrial Projects & Utilities Sector Hydrocarbon & Power Sector Electrical & Instrumentation Sector Hydel & Nuclear Sector To give support and enhance business both in domestic and focused international markets. Myanmar. Delhi. Kazakhstan and Russian Federation • East Zone consisting of Kolkata Region. Bangalore Region. Nepal. Central Asia. the Global Operations will be operating through four Zones for seamless flow of resources across the Division.

7 Regional Offices and over 250 project sites. UK Award for outstanding structure-1994" for the Administrative Office Building of ECC at Chennai and special mention of the multi-purpose auditorium at Hyderabad.Locations . In India. 1994 . • "Federation Internationale de la Precontrainte (FIP). This was presented during the 12th Quadrennial congress of FIP at Washington DC USA on June 2. Awards for outstanding construction projects • ICI-Mc Bauchemie award for Most Outstanding Concrete Structure for ECC's center (EDRC building) from Indian Concrete Institute • Most Outstanding Bridge National award for a Chennai Flyover from Indian Institution of Bridge Engineers • ACCE-Billimoria award for excellence in construction of High rise buildings for Corporate HQ building of ICICI from Association of Consulting Engineers • Export Award for the year 1995-1996 in recognition of second best performance in the category of maximum turnover in overseas construction projects from Overseas Construction Council of India.ECC Division ECC Division's head quarters in Chennai. India. both constructed by ECC. In Overseas the division has offices in 11 countries. the Division has 4 Zonal Offices.

• ICI-MC Bauchemie Award for the "Most Outstanding Concrete Structure" for the year 1995-96 for the Sree Kanteerava Indoor Stadium. A study on this topic in L&T Ltd is necessary and it is very important in Working Capital Ratios which helps in knowing liquidity. The position of working capital has been analyzed through various working capital ratios. 1. • The open sea ethylene jetty at Ratnagiri and Sri Sathya Sai Institute of Higher Medical Sciences at Puttaparthi won "Certificates of Merit". Analysis of composition of current assets and current liabilities helps in framing control measures of items under it. To study this various tools of analysis have been used on last five years. profitability and turnover position of the company. A study is confirmed to the detailed study about the organization and identifies the company’s position in the industry and to suggest means or improvement in existing system. . • The Panvel Nadi viaduct near Ratnagiri in Maharashtra and the Jawaharlal Nehru Stadium at Chennai constructed by ECC has been adjudged the "Most Outstanding Concrete Structures in India for 1994". Bangalore from the Indian Concrete Institute.

Analysis of various items of current asset and current liabilities for the past five years. 3. Funds Flow Statement analysis has been analyzed 4. Finally. Due to increase in expenses and in consistent utilization of assets invested. with the help of analysis. From this analysis if found that working capital ratios are better as a whole. Future trends were calculated & free hand/graphic method was used to show the measured trend. Liquidity position is satisfactory as there are sufficient creditors it pay its liability. . Operating profit shows the decreasing trends even through the sales have been increasing.2.

I sincerely thank them for their valuable advises throughout the course of the project work. for being the source of encouragement through out the project.T. I extend my profound gratitude and heartfelt thanks for his valuable guidance. Jayashree Suresh for her invaluable support . I am extremely thankful to Prof.P.T.NAGESH Senior Professor and my Internal Faculty. wonderful suggestions and constructive criticism offered to me for the project.I also wish my gratitude to her contribution towards successful completion of the project.S.Lakshmi without them this project would have been just a dream . I also express my sincere gratitude to him for his valuable guidance and advices in all stages of the project work.Sridhar(Accounts Manager) and Mrs.ACKNOWLEDGEMENT First of all. My sincere thanks to all those friends and well wishers who had helped me during the course of the project work. I extend my gratitude to Mr.S.Venkatesh Joint General Manager (Finance& Accounts ) & my external guide Mr. I express my heartfelt thanks to my wonderful Parents for their moral support and wholehearted encouragement. M. timely help. I express my gratitude to my beloved Dean Dr. I am indebted to him for his contribution in helping me with the information for accomplishing my task. I thank Almighty for his enlightening presence throughout my project work and helping me to complete my project successfully. .

DATA ANALYSIS AND INTERPRETATION 45 .4 LIMITATION OF THE STUDY 5 6 2 4 2. COMPANY PROFILE 3.2 VISION 3.5 HISTORY 3.3 METHODOLOGY 4.2 PERIOD OF STUDY 4.1 INTRODUCTION 1.3 CORPORATE 3.4 TOOLS APPLIED 32 32 33 34 5.4 PRODUCTS/ SERVICES 3. INTRODUTION OF THE STUDY 1.3 SCOPE OF THE STUDY 1.1 NATURE OF STUDY 4.6 RESOURCE PLANNING 16 17 18 20 21 30 4.1 COMPANY PROFILE 3.CONTENTS CHAPTER DESCRIPTION PAGE: NO LIST OF TABLES LIST OF FIGURES 1. INDUSTRY PROFILE 8 3. RESEARCH METHODOLOGY 4.2 STATEMENT OF THE OBJECTIVE 1.

6 7.4 Interest Coverage Ratio 51 Table 5.3 Absolute Liquid Ratio 49 Table 5.7 Working Capital Turnover Ratio 57 .1 Current Ratio Table 5. FINDINGS SUGGESTIONS CONCLUSION APPENDIX EXCEL PROFIT& LOSS ACCOUNT & BALANCE SHEET.6 Inventory Turnover Ratio 55 Table 5. BIBLIOGRAPHY BOOKS 69 72 76 78 80 LIST OF TABLES Table No Table 5. 8.2 Quick ratio 47 Particulars Page no 45 Table 5.5 Asset Turnover Ratio 53 Table 5.

14 Changes in Working Capital for the year 2004-05 65 Table 1.Table 5.10 Changes in Working Capital for the year 2002-03 61 Table 5.15 Funds Flow Statement for the year 2004-05 66 .8 Changes in Working Capital for the year 2001-02 59 Table 5.13 Funds Flow Statement for the year 2003-04 64 Table 5.12 Changes in Working Capital for the year 2003-04 63 Table 5.9 Funds Flow Statement for the year 2001-02 60 Table 5.11 Funds Flow Statement for the year 2002-03 62 Table 5.

6 Inventory Turnover Ratio 56 Fig 5.5 Asset Turnover Ratio 54 Fig 5.3 Absolute Liquid Ratio 50 Fig 5.16b Trend Analysis 67 .2 Quick Ratio 48 Fig 5.1 Particulars Current ratio Page No 46 Fig 5.7 Working Capital Turnover Ratio 58 Fig 5.4 Interest Coverage Ratio 52 Fig 5.LIST OF FIGURES Chart No Fig 5.

ECC has the resources to execute projects of large magnitude and technological complexity in any part of the world.I 1. longest flyover.have been built by ECC. mechanical.The Construction division of Larsen & Toubro Limited . International Tendering and work as Investment Centers. electrical and instrumentation. . Many of the country's prized landmarks . The business of ECC Division is organized in four business sectors which will primarily be responsible for Technology Development.its exquisite buildings.Chapter I Introduction of the Study CHAPTER .1 Introduction General ECC ECC .is India's largest construction organization. As a division of L&T. largest industrial projects. and highest viaducts . tallest structures. Business Development. Leading-edge capabilities cover every discipline of construction: civil.

• Comparison of various Working Capital ratios for the past five years 2001 to 2005. This study also helps to find their operating efficiency and credit management of the company. • • Analysis of Current Asset and Current Liabilities To estimate Working Capital requirements . 1. finished goods. This is being attempted to through the detail study following tools of analysis. This is done to check whether the company is below standard or above standard.Working Capital management research is made at L&T Ltd for International Services at ECC division for detailed analysis of the short term funds. It also gives check on receivables and inventory management. This research Working Capital management helps to understand the utilization of the stock. If company utilizes the working capital efficiently and effectively it would become marked leader in the world. work in progress (wip).2 STATEMENT OF OBJECTIVE Objective of the study is to analyze Working Capital and Ratio analysis of the Company for the year 2001 to 2005.

. about the organization and identifies the company’s position in the industry and to suggest means of improvements in the existing system. ports and other sectors. 1.3 SCOPE OF THE STUDY The scope of the study is confined to the detailed study. Chapter II Industry Profile CHAPTER II INDUSTRY PROFILE The Rupees 2.1. including roads.000 crore construction industry could well see a faster growth driven by the buoyancy in the economy and increased investments in major infrastructure projects.4 LIMITATIONS OF THE STUDY This analysis is based on secondary data like published annual reports and company’s income statement and Balance Sheet. This scope of the study is limited to that extent. 40.

Their stock prices rose sharply and out performed the broad market indices comfortably. this could grow considerably driven by major projects across the country. According to experts “We need to look at these areas and bring in new technologies that would help to speed up projects due to new technologies and equipment”.Indian construction industry was worth about $70 billion (Rs.000 crore construction industry.000 crore) and by the year 2005-2006. It was estimated that about three crores of people were engaged in the construction market caught up. A company in the construction industry 2003 has been an encouraging year. there was a shortage of about 40 million homes. the infrastructure component Accounts for about 50 percent. 40. and other corridors. With major projects such as the Golden Quadrilateral. Out of the Rs. 40. The demand for domestic housing was yet to be tapped and as per projections. a . 2. The need for cement production capacity would be about 300 mt by 2006 and possibly 800 mt by the year 20010. This expectation stem from the fact that India and China are amongst the two major nations where the construction activity is poised for much rapid growth when compared to the developed world. according to experts. this could go up much more. would go up significantly over the next few years.2. The country was the second largest producer of cement having an estimated 140 million tones (mt) of cement manufacturing capability and this.

portfolio of five key stock from this sector saw a 100 per cent jump in value this year against an increase of a 46. Mauritius. the activities of construction division extend beyond the subcontinent. etc C. . INTERNATIONAL SERVICES MANAGEMENT’S DISCUSSION & ANALYSIS L&T is globalizing its operations with increasing focus on international business opportunities. Today. TEAM International presents the analysis of performance of the International Services (IS) for the year 2004-05 and the outlook for the future IS manages the accounting. and Dubai & Dhaka set-up for business promotion & liaisons for the on-going projects in that region. Project exports representing turnkey construction activities in the Middle East region. B. Africa. equipments. South America and SAARC nations. Abu Dhabi. Overseas branch offices like Kazakhstan. PERFORMANCE HIGHLIGHTS The steady commitment to the pursuit of growth and progress enabled the company to deliver a realistic performance for yet another year. Physical exports representing supply of materials.8 per cent in the S&P CNX. financial and administrative functions of following areas: the A.

The following are the highlights of significant achievements. .694.633.Construction of two outdoor multi sports stadium.50 crores from Rs. Chennai.450.38 croress from Rs. Working Capital Financing for the execution of projects abroad is governed by the guidelines of Project Export Manual (PEM) of Reserve Bank of India which restricts the borrowings to the maximum of 25% of Contract value. ONGOING PROJECTS AND EXPANSION AND DIVERSIFICATION The International Services operates as two zones for operational convenience namely North West and South East Zone.55 crores in the previous year ¾ Turnover rose to Rs.48 crores in the previous year.485. Major Jobs undertaken in the above mentioned countries:• Qatar . North West Zone operates from L&T Mumbai (Powai) and South East Zone operates through ECC Headquarters. The approval for financing of each project is obtained at the time of award of the contract from the concerned approving authorities as applicable. as also the forward-looking measures taken by our team during the year: ¾ Gross Assets of the IS rose to Rs.

procurement. UAE. Shuwaikh. ¾ Turnkey construction of 220 kV double circuit transmission line between Sahama sub-station and Samha sub-station Construction of 'Al Murooj Complex' . . ¾ Construction of middle trunk bridge at Palm Jumeirah.• UAE ¾ Engineering. UA ¾ Expansion of 220/33 kV Network in Musaffah Dhabiya Area (74 Kms) for interconnection with ADCO 220 kV Overhead lines. Kuwait. construction. ¾ Power supply to Sweihan pumping station via 33KVOHL ¾ 33KV submarine cable (2 Runs x 9.a multi-storied residential complex at Dubai. testing and commissioning of double circuit 400 kV Overhead Transmission line from Fujairah Water and Power plant to Dhaid Main 132/33 kV substation (69 Kms) and two bay extensions at 132/33 kV GIS Dhaid Main substation. ¾ 4 nos 33/11 KV primary substation-Alain. Training blocks and associated facilities for Electricity & Water training Institute in New University Campus. ¾ Turnkey construction of 220 kV Overhead transmissline from Liwa Grid Station to 220/33 kV Mobile substation to be located at Liwa. • Kuwait -Construction of Administration. design. manufacture.8Kmtrs) with integrated fibre optic cable and 3 Route kmtrs of 33KV UG cable from Jebel Dhana to Sir Baniyas Island located West of Abu Dhabi.

Mauritius .Engineering. and one of the largest companies in India's private sector. powerhouse and transformer cavern. utility buildings and site development works for Business Parks of Mauritius Limited • Suriname . Procurement and Construction of 1.Ebene Cybercity Project . penstock.construction of 70 m high. It has additional interests in manufacturing. customer-focused approach and the constant quest for top-class quality have enabled the Company to attain and sustain leadership in its major lines of business across seven decades. Energies Bedrijven Suriname in the North East tip of the South American continent. surge tank. .V. 12 storied Cyber Tower. tail race tunnel for Chilime hydro electric project. • • Bangladesh .1 COMPANY PROFILE Larsen & Toubro Limited (L&T) is a technology-driven engineering and construction organization. Domat and Khafji Chapter III Company Profile Chapter III 3.• • Nepal -Construction of headrace tunnel.2 mtpa cement plant for Lafarge Surma Cement Limited Saudi Arabia . A strong. services and Information Technology.Construction of 161kV / 33kV / 11kV gas insulated substation and stringing of 27km long 161kV transmission line towers with Optical Ground Wire (OPGW) for N.Construction of three 100 bed hospital project Rafha.

L&T believes that progress must necessarily be achieved in harmony with the environment. technology-driven Engineering & Construction conglomerate with additional interests in manufacturing. committed to total customer satisfaction and enhancing shareholder value • L&T-ites shall be an innovative. further supplemented by a wide marketing and distribution network. A thrust on international business over the last few years has seen overseas earnings growing to 18 per cent of total revenue.3 Corporate Larsen & Toubro Limited is one of Asia's largest vertically integrated. 3. 3. trust and continuous learning while meeting expectations of employees. stakeholders and society.L&T has an international presence. services and Information Technology.2 Vision • L&T shall be a professionally-managed Indian multinational. • L&T shall foster a culture of caring. Its reputation is based on a strong customer . L&T's image and equity extends to virtually every district of India. With factories and offices located around the country. entrepreneurial and empowered team constantly creating value and attaining global benchmarks. with a global spread of offices. A commitment to community welfare and environmental protection constitute an integral part of the corporate vision.

orientation. .The cement business of the Company was demerged into UltraTech CemCo Limited with effect from April 1. The company undertook the following major initiatives to enhance its value proposition: • Business Restructuring . portfolio review of businesses and thrust on engineering & design services through e-Engineering Solutions • • • Strengthening the organizational structure Management review and clearances for developing business in select markets. L&T has a fully-owned subsidiary . In IT. The Engineering core comprises Engineering & Construction Projects. Recruitment of people including foreign nationals with international experience in specific domains. • Thrust on Exports .Export revenues account for 14% of the Company's total revenues. Further initiatives were taken to enhance international focus. the technological sophistication that characterizes its products and projects and an impressive record of achievements across seven decades. 2003. • • Talent Retention & Acquisition Value creation by alliances with technology partners.Larsen & Toubro InfoTech Limited. Heavy Engineering. Construction. quality improvement. and Electrical & Electronics.

• Proactive certifications from international customers.4 PRODUCTS / SERVICES L&T products/services catalogue • • • • • • • • • • • • • • • • • • • • • • • • • Aerospace Equipment Bulk Material Handling Cement & Allied Machinery Chemical Plants Cogeneration and Captive Power Construction Equipment Construction Services Control & Automation Systems Cutting Tools Defense Fertilizer Projects Fertilizer. 3. EPC contractors and process licensors • Increased speed in introduction of new products with contemporary features. Petrochemical & Heat Transfer Equipment Hydrocarbon & Related Projects Hydraulic Equipment Industrial Valves & Allied Products Information Technology Iron & Steel Castings Medical Equipment Minerals & Metals Nuclear Power Plant Equipment Oil & Gas & Special Projects Petrol Pumps Plastics Processing Machinery Power Rubber Processing Machinery .

Record of Achievements L&T's signature of excellence is evident on: • • • • • • • • India's first indigenous hydro cracker reactor Oil and gas platform projects executed to global benchmarks The world's largest continuous catalyst regeneration reactor The simultaneous execution of clean fuel projects at eight refineries around India The world's biggest fluid catalytic cracking regenerator The world's longest product splitter Asia's highest viaduct .both of whom were strongly committed to developing India's engineering talent and enabling it to meet the demands of industry.3. The company was founded in Bombay (Mumbai) in 1938 by two Danish engineers.5 HISTORY The evolution of L&T into the country's largest engineering and construction organizations is among the more remarkable success stories in Indian industry. L&T rapidly took on engineering and construction assignments of increasing sophistication.built for the Konkan Railway The world's longest LPG pipeline . Henning Holck-Larsen and Soren Kristian Toubro . Today. the company sets engineering benchmarks in terms of scale and complexity. Beginning with the import of machinery from Europe.

project management. L&T's core competencies in engineering include highly qualified and experienced personnel from various disciplines. basic and detailed engineering. construction and commissioning. Operating at the high end of the technological spectrum. to offer single-point responsibility against stringent delivery schedules. L&T is the only Indian EPC company pre-qualified for executing large. erection. Strategic alliances with world leaders enable L&T to access technical know-how and execute processintensive large-scale turnkey projects to maintain its leadership position.• The world's longest cross country conveyor Building an international class football stadium in 260 days Engineering & Construction – Projects L&T's engineering & construction track record consists of successful implementation of turnkey projects in major core and infrastructure sectors of Indian industry. with engineering and manufacturing capabilities that are among the most sought after in industry. state-of-the-art 2-D and 3-D CAD facilities with sophisticated plant design systems and basic engineering capabilities. process-intensive projects for oil & gas. equipment fabrication. refinery. procurement. petrochemical and fertilizer sectors. L&T has led Indian industry in introducing new processes. L&T also has the logistics capabilities of fabricating and supplying over-dimensional . products and materials in manufacturing. Heavy Engineering L&T is acknowledged as one of the top five fabrication companies in the world. L&T has integrated its strengths in process technology.

African and SAARC countries. In the electrical segment. Hazira. L&T also manufactures custom-engineered switchboards for industrial sectors like power. Many of the country's prized landmarks .the Engineering Construction & Contracts Division of L&T is India's largest construction organization. South East Asia. Mauritius. Its products are widely sold in markets in Europe and Australia. L&T has also expanded its focus to the Middle East. Construction ECC . and is rapidly establishing itself in international markets. L&T offers a wide range of meters and provides complete control and automation systems for diverse . L&T set up a new manufacturing base for high-end air circuit breakers in China.equipment to tight delivery schedules. L&T is also developing markets for its construction services in the Indian Ocean rim countries. cement. L&T's globally-benchmarked workshops are located in Mumbai. highest viaducts. Africa and Latin America. mechanical. Electrical & Electronics L&T is a major international manufacturer of a wide range of electrical and electronic products and systems. tallest structures. Russia. longest pipelines … have all been built by L&T.its exquisite buildings. CIS. longest flyovers. the Company is India's largest manufacturer of low tension switchgear. Baroda and Kansbahal. In the electronic segment. largest industrial projects. electrical and instrumentation. petrochemical. refineries. Recently.civil. etc. L&T's leading edge capabilities cover every discipline of construction .

BFSI and Communications & Embedded Systems. It leverages the L&T parentage to also provide services in the embedded intelligence space. Medical equipment and systems manufactured by L&T include advanced ultrasound scanners and patient monitoring systems. Leveraging the heritage and domain expertise of the parent company.surface miners.industries. offers comprehensive. . It provides a cost cutting partnership in the realm of offshore outsourcing. hydraulic excavators. The Company's efforts have been widely recognized. L&T is conscious of its larger social obligations. a 100 per cent subsidiary of L&T. its services encompass a broad technology spectrum. Information Technology Larsen & Toubro Infotech Limited. loader backhoes and vibratory compactors. catering to leading international companies across the globe. and e-Engineering Machinery & Industrial Products L&T manufactures markets and provides service support for critical construction and mining machinery . end to end software solutions and services with a focus on Manufacturing. aggregate crushers. Corporate Social Responsibility Beyond the corporate objectives of achieving growth and profitability. application integration and package implementation.

The Strategic Business . Systems and procedures have been established for implementing the requisites of safety at all stages of construction and in respect of plants.Safety. The Occupational Safety. as per needs of the operations. safety is given the highest priority. Inspection and safety audits are conducted periodically. The QA system is based on ISO 9000 international standards. Besides the enforcement of engineering measures and management controls. Health & Environment measures through Safety coordinators located at job sites. He is assisted by the Regional Safety coordinators who in turn monitor implementation of Safety. machinery and materials. Health and Environment through a structured approach and a well defined organization. The Head of the Safety Engineering Department operates from the Headquarters. PPE conforming to relevant Indian Standards / International Standards are procured to ensure the quality of the appliances. Personal Protective Equipment (PPE). Health and Environment Policy enunciated by the Corporate Management lays emphasis on Safety. are provided to the employees free of cost. Health and Environment At ECC. Awareness among employees is sustained through regular training programmes Quality Assurance The E&C Division of L&T has integrated the requirements of timely delivery within-cost completion and supply of plant and equipment to the highest standards of quality in line with contractual requirements by implementing Quality Assurance (QA).

constructed. erected and finally commissioned under meticulous quality control standards. 3. OHSAS 18001 and BS 7799. whilst implementing globally recognized standards such as ISO 9001.a model jointly developed by the Confederation of Indian Industries and the European Foundation for Quality Management. These are carried out in line with OHSAS 18001.Units (SBUs) and Service Units (SUs) of E&C Division have been certified to ISO 9001 standards. ISO 14001. A major part of the activities of E&C Division is carried out at project sites where plant and equipment is fabricated. Occupational Health & Safety. L&T's corporate policy is a reflection of an Integrated Management System for Quality. Resources dept in the Regional Offices takes care of this function within the regions and also acts as a resource centre with data on subcontractors available for various types of works. distribution and movement of Staff and Plant & Machinery to meet the requirements for deployment in various regions and overseas across the company. IT Security and Personnel & Human Resources. Resources department as a focal point helps the Operational Units to optimize the productivity by maintaining a balance . The division has also secured ISO 14001 certification.6 Resource Planning Centralized Resources dept at HQ takes care of allocation. Environment. The QA system has been modeled on the CII-EFQM Model for Business Excellence . the global occupational health and safety management benchmark.

Zones. It also facilitates the process of decision and deployment of equipment from external agencies as needed. BUs. This helps in framing control measures of items of Current Asset and Current Liability.1 Nature of the study A study in this topic in L&T is necessary and it is very important in Working Capital ratios of the company which helps in knowing liquidity. Chapter IV Research Methodology Chapter IV RESEARCH METHODOLOGY 4. solvency. During this period all the required data was collected through secondary sources and analyzed with the help of financial tools of analysis. 4. profitability and turnover position of the company. It also helps in studying the composition of various items of Current Asset and Current Liability. This department plays the vital role in effective distribution and deployment of resources in co-ordination with all Sectors.between the availability and the requirement of resources (Staff and Plant & Machinery). and Regions etc. .2 Period of Study The period of study was limited to three months during February to May of 2006.

3 Methodology The objective of the study is to analyze the Working Capital position of the company for the past five years 2001 to 2005. Current • Thirdly. • Firstly. the future trend analysis of the companies’ working capital is done. the funds flow statement is prepared for the past five years of the company. 4.e.4. • Secondly. the position of the Working Capital has been analyzed through various Working Capital ratios with the help of data available in the financial statement of the past five years.) published annual reports and financial reports etc. • Finally.4 Tools applied in the study The various tools applied in the study to analyze the Working Capital position of the company are as follows: • • • Ratio Analysis Funds Flow Statement Trend Analysis . Discussion with the officials of the company. The major sources of data were secondary data (i. an analysis of the various items of Current Asset and Liabilities for past five years has been done.

Working Capital can take the form of cash and near-cash assets or even a little further from cash but yet in the process. Sufficient . Such items are stocks of raw materials and supplies needed for manufacture. Importance of Working Capital Management Business activity is dynamic in character and subject to wide fluctuations. stocks of finished goods awaiting sale. This time gap is technically termed as “operating cycle” of the business. It can also be regarded as that proportion of a company’s total capital. The movement from working capital to income and profits and back to working capital is one of the most vital characteristics of business administration. semi-processed items or components that will soon emerge as final-products. Working Capital is required because of the time gap between the sales and their actual realizing in cash. If the operations of an enterprise are to run smoothly. which is employed in short-term operations. which a company must have to carry out its day-to-day operations. sundry debtors representing pending collections against credit sales and short-term investments if any. a proper relationship between fixed capital and current capital must be maintained. This operation is concerned with the expenditure of funds with the hope that they will return with an additional amount called profit.LITERATURE REVIEW ANALYSIS OF WORKING CAPITAL RATIOS Working Capital in simple terms is the amount funds.

which are connected with each other in some manner.liquidity must be achieved and maintained to provide the funds to pay off obligations as they arise or mature. Moreover. Current Ratio This ratio is an indicator of the firm’s commitment to meet its short-term liabilities. It involves control of the everyday ebb and flow of financial resources circulating in the enterprise in one of the other. Current ratio = Current Assets / Current Liabilities Current Assets means that will wither be used up or converted into cash within a year’s time or normal operating cycle of the business. which represents a substantial portion of total investment. Working Capital Ratios Ratios are relationships expressed in mathematical terms between figures. . The maintenance of a sound working capital position is a constant problem for the finance manager. absolute figures are also unfit for comparison. The adequacy of cash and other current assets together with their efficient handling virtually determine the survival or diminish of the enterprise. Obviously. whichever is longer. liquidity and its structural health. no purpose will be served by comparing two sets of figures. Working capital management policies have a great effect on firm’s profitability. which are not at all connected with each other.

Quick Ratio = Liquid Assets / Current Liabilities Absolute Liquid Ratio This ratio is calculated when liquidity is highly restricted in terms of cash and cash equivalents. This ratio is ascertained by comparing the liquid assets to current liabilities. Quick Ratio This ratio is also termed as a acid test ratio or liquidity ratio. this ratio measures liquidity in terms of cash and near cash items & short-term current liabilities. Absolute Liquid Ratio = Cash & Bank balances + Marketable Securities / Current Liabilities . whichever is longer. This ratio is calculated when liquidity is highly restricted in terms of cash & cash equivalents.Current Liabilities mean liabilities payable within a year or during operating cycle of the business. Out of the existing current assets or by creation of other current liabilities. Prepaid expenses and stock are not taken as liquidity assets.

Inventory Turnover Ratio = Net Sales / Average Inventory . Interest Coverage Ratio = EBIT/ Interest Assets Turnover Ratio This ratio measures how efficiently assets are employed. A high interest coverage ratio means that the firm can easily meet its interest burden even if earnings before interest and taxes suffer a considerable decline. It shows the relationship between the cost of goods sold/cost of sales and the amount of average inventory. This ratio helpful in evaluating and review of inventory policy.Interest Coverage Ratio This ratio measures the margin of safety the firm enjoys with respect to its interest burden. It is a kind to the output – capital ratio used in economic analysis. A low interest coverage ratio may result in financial embarrassment when earning before interest and taxes decline. Assets Turnover Ratio = Net Sales / Total Assets Inventory Turnover Ratio This ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment.

‘Net working capital’ is the excess of current assets over current liabilities. ‘Funds flow’ is ‘change in working capital’. Flow of funds implies any changes in working capital. It also measures the smooth running of business. Funds flow statement measures and presents in an analytical manner the summarized version of the numerous flows of funds for a specified period.Working Capital Turnover Ratio This ratio measures the effective utilization of working capital. working capital is also a controversial term. “Circulating capital” is the amount revolving in the cycle of “cash – inventories – Receivables and cash”. The ratio establishes the relationship between cost of sales and working capital. However. It can be ‘Inflow’ or ‘Outflow’ of working capital. Funds flow statement is generally prepared and interpreted on the basis of “Networking capital”. ‘Funds’ is interpreted as ‘working capital’ in the context of funds flow statement. Working Capital Turnover Ratio = Sales / Net Working Capital Funds Flow Statement ‘Flow’ means change. day after day. Thus. ‘Gross working capital’ is the total of current assets. Networking capital can be computed as the difference between Current Assets and Current liabilities. So. Working Capital Funds flow statement is based on the working capital concept of funds. the changes in working capital may be called ‘FLOW’. These changes are a continuous process. as and when transactions take place. .

It helps in the planning. • It gives indications of any weakness or strength in the general financial of a firm. The sources from which funds were obtained are useful in computation of cost of capital of the business. . • A study of the applications of the funds provides an understanding about the utilization of resources in the past. • • It throws light on the financial consequences of business operations. The following benefits or uses of funds flow statement: • It provides a detailed analysis and understanding of changes in the distribution of financial resources between two balance sheet data. Funds flow statement is an important tool in the armory of the finance manager.Importance or uses or Benefits of Funds Flow Statement. deployment and controlling of funds year after year. • A detailed analysis of sources of funds in the past acts as a guide for obtaining funds for future requirements. It can form the basis for selection of investment proposals or future capital expenditure decisions. • • It shows how the funds were obtained and used during a period. It can be compared with the relevant budgets to assess the usage of funds as per plans.

whichever is longer. • Working capital and the causes for changes in working capital are highlighted. Chapter V Data Analysis & Interpretation CHAPTER V DATA ANALYSIS Ratios Analysis 5.• Re arrangement of capital structure. formulating long term financial plans. Out of the existing current assets or by creation of other current liabilities Current Ratio = Current Assets / Current Liabilities Table 5. Current Liabilities mean liabilities payable within a year or during operating cycle of the business. whichever is longer.1 Current Ratio Current Assets means that will wither be used up or converted into cash within a year’s time or normal operating cycle of the business.1 Current Ratio for the Period 2001-2005 . etc. are facilitated by funds flow analysis. and policies. This can help in the formulation of sound policy for liquidity and short term solvency of the firm.

47 1.81 2002-2003 6278.58 *Base: Table 5.72 4615.37 3059.58 *Source: Secondary data Fig – 5.47 2004-2005 8838. 2002-03. There is a sudden hike in price of raw material.2003 -04. There is a slow of moving stock of goods.58 2003-2004 6799.5 0 1 2 Years 3 4 1.58 1.05 3977.39 1.23 5599.Particulars Current Asset Current Liabilities Ratio 2001-2002 5544.2004-05.1 Current ratio Current Ratio 2 1. .81 1.5 Ratio 1 0.1 Inference The current ratio of L&T satisfies the conventional rule of current ratio that is 2:1 it test the quantity and not quality from 2001-02.67 1.64 1.42 1.

Quick ratio = Liquid Asset / Current Liabilities Table 5.2 2003-2004 4987.42 4615.23 3977.67 0.17 : *Source: Secondary data .39 5599.2 Quick Ratio This ratio is also termed as a acid test ratio or liquidity ratio.5.08 2004-2005 6527. This ratio is ascertained by comparing the liquid assets to current liabilities.99 3059.39 1.42 1.96 2002-2003 4762.2 Quick Ratio for the Period 2001-2005 Particulars Liquid Asset Current Liabilities Ratio 2001-2002 2943. Prepaid expenses and stock are not taken as liquidity assets.64 1.

2 Quick Ratio Quick Ratio 1.2 0 1 2 Years 3 4 1. During the year 2002-03 the company’s overall performance and production is high by this the share price will get increased.96 1.08 1.Fig – 5.6 0.4 0.20 0.2 Inference The ideal ratio is 1:1.2 1 0. 5.8 Ratio 0.3 Absolute Liquid Ratio . Hence the ratio for that year is high compared to the next consecutive years.17 *Base: Table 5.

08 2002-2003 320.39 0.67 0.42 0.3 Absolute Liquid Ratio .02 5599.08 2003-2004 375.3 Absolute Liquid Ratio for the Period 2001-2005 Particulars Cash & Bank balances Current Liabilities Ratio 2001-2002 237.53 3977.15 *Source: Secondary data Fig – 5.27 4615.64 0. Absolute Liquid Ratio = Cash & Bank balances + Marketable Securities / Current Liabilities Table 5.08 2004-2005 828.This ratio is calculated when liquidity is highly restricted in terms of cash and cash equivalents.14 3059. This ratio measures liquidity in terms of cash and near cash items & short-term current liabilities. This ratio is calculated when liquidity is highly restricted in terms of cash & cash equivalents.

16 0.12 0. This is due to the delay in getting payments from its clients so by this the liability is high.04 0.3 Inference By this the absolute liquid ratio is high during the year 2004-05.Absolute liquid ratio 0. 5. A low interest coverage ratio may result in financial embarrassment when earning before interest and taxes decline.02 0 0.14 0.08 1 2 Year 3 4 *Base: Table 5.15 0.1 Ratio 0.06 0. A high interest coverage ratio means that the firm can easily meet its interest burden even if earnings before interest and taxes suffer a considerable decline.08 0. .08 0.4 Interest Coverage Ratio This ratio measures the margin of safety the firm enjoys with respect to its interest burden.08 0.

32 12522.58 7738.46 9129 1.05 2002-2003 9614.08 2004-2005 13788.11 1.4 Interest Coverage Ratio .82 1.67 1.05 2003-2004 9959.35 9232.4 Interest Coverage Ratio for the Period 2001-2005 Particulars EBIT Interest Ratio 2001-2002 8137.Interest Coverage Ratio = EBIT / Interest Table 5.1 *Source: Secondary data Fig – 5.

This is due to the depreciation made in the asset of the company.05 1.1 Ratio 1.Interest coverage ratio 1.5 Asset Turnover Ratio This ratio measures how efficiently assets are employed.04 1. 5. It is a kind to the output – capital ratio used in economic analysis.08 1.08 1.06 1. The company gains income from the same asset.12 1. .05 1.02 1 2 Year 3 4 1.10 *Base: Table 5.4 Inference The interest coverage ratio is high during the year 2004-05 .

21 *Source: Secondary data Fig – 5.82 10.33 8.82 2003-2004 9561.1 1.5 Asset Turnover Ratio .09 2004-2005 13091.377.3 0.37 1.735.732.5 Asset Turnover Ratio for the Period 2001-2005 Particulars Net Sales Total Assets Ratio 2001-2002 7917.90 10.84 0.74 2002-2003 9360.859.12 11.Asset Turnover Ratio = Net Sales / Total Assets Table 5.

2 1.6 Inventory Turnover Ratio This ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment. The company generates income from the sale of fixed asset hence the ratios are of increasing in trend.09 0. .4 0. This ratio helpful in evaluating and review of inventory policy.21 1. It shows the relationship between the cost of goods sold/cost of sales and the amount of average inventory.2 0.4 4 3 Years 2 1 Ratio *Base: Table 5.82 0.5 Inference The asset turnover ratio is of increasing in trend.Asset turnover ratio 1. 5.74 0 0.8 1 1. During the year 2004-05 the ratio is high by this the fixed assets remains the same.6 0.

33 2421.90 2513.8 3.29 2.82 2967.95 2004-2005 13091.97 3.12 3358.6 Inventory Turnover Ratio .79 2003-2004 9561.41 *Source: Secondary data Fig – 5.7 4.6 Inventory Turnover Ratio for the Period 2001-2005 Particulars Net Sales Average Inventory Ratio 2001-2002 7917.15 2002-2003 9360.Inventory Turnover Ratio = Net Sales / Average Inventory Table 5.

Inventory turnover ratio
4.41 3.95 2.79 3.15 0 1 2 Ratio 3 4 5

4 3 Years 2 1

*Base: Table 5.6

Inference This ratio is of increasing in trend. It is high during the year 2004-05. In the manufacturing company the inventory of finished goods is also to convert into inventory turnover ratio. The inventory is being properly utilised by which the company gains income out of inventory which is used for production.

5.7 Working Capital Turnover Ratio

This ratio measures the effective utilization of working capital. It also measures the smooth running of business. The ratio establishes the relationship between cost of sales and working capital.

Working Capital Turnover Ratio = Net Sales / Net Working Capital

Table 5.7 Working Capital Turnover Ratio for the Period 2001-2005

Particulars Net Sales Net Working Capital Ratio

2001-2002 7917.90 8358.85 0.95

2002-2003 9360.12 9869.83 0.95

2003-2004 9561.33 9806.76 0.97

2004-2005 13091.82 13268.66 0.99

*Source: Secondary data

Fig – 5.7 Working Capital Turnover Ratio

Working capital ratio
0.99 0.97 0.95 0.95 0.93 0.94 0.95 0.96 0.97 0.98 0.99

4 3 Years 2 1 0.92

Ratio

*Base: Table 5.7 Inference The working capital turnover ratio is of increasing in trend. This is being

increased during the year 2004-05. This is due to the company maintaining current asset and current liability properly. But this helps in avoiding Bank borrowing and long term source of funds.

Funds Flow Statement

Changes in Working Capital for the year 2001-02

Table – 5.8

Particulars Current Assets Cash Stock

Year(Rs)2001

Year(Rs)2002

Increase

Decrease

138.90 2427.35

237.14 2600.38

173.03 173.03

Debtors Total (A) Current Liabilities Provisions Total (B) W.9 Sources of funds Application of funds Issue of shares 363.66 3991.11 Increase in working capital 322.C (A-B) Increase in W.65 Purchase of fixed assets 338.31 4279.C Total 1374.22 3670.59 338.59 *Source: Secondary data Funds Flow Statement for the year 2001-02 Table – 5.9 16.55 3991.9 287.44 Sale of fixed assets 124.32 271.91 Repayment of loan 919.24 1442.55 287.66 3991.33 322.9 338.99 3941.45 67.66 .03 322.22 271.82 Sale of investment 71.

25 Total 1580.55 3992.879 83.56 287.28 461.279.25 424.55 287.73 *Source: Secondary data .97 4454.92 1580.53 3042.97 4454.83 320.10 Particulars Current Assets Cash Debtors Stock Total (A) Current Liabilities Provisions Total (B) W.25 1683.14 1442.75 424.73 1683.75 4454.31 2600.39 1600.2 461.65 1515.25 137.34 1084.92 *Source: Secondary data Changes in Working Capital for the year 2002-03 Table – 5.Funds from operations 1021.C (A-B) Increase in W.C Total Year(Rs)2001 Year(Rs)2002 Increase Decrease 237.82 4.38 4.

11 Sources of funds Issue of shares 378.61 Increase in working capital 461.97 Funds from operations 1188.86 Tax paid 925.34 Sale of fixed assets 1513.6 Application of funds Repayment of loan 367.12 3356.Funds Flow Statement for the year 2002-03 Table – 5.94 Total 3356.87 Sale of investment 275.12 *Source: Secondary data Changes in Working Capital for the year 2003-04 Table – 5.05 Purchase of fixed assets 1600.12 .

25 *Source: Secondary data .30 3314.75 424.65 4879 375.74 296.16 236.25 623.93 424.Particulars Current Assets Cash Stock Debtors Total (A) Current Liabilities Provisions Total (B) W.82 3042.99 660.91 4841.99 4841.C Total Year(Rs)2001 Year(Rs)2002 Increase Decrease 320.58 271.16 660.58 5502.24 386.25 386.15 54.75 4454.C (A-B) Increase in W.16 623.53 1515.91 4841.27 1812.

65 Total 5868.79 Application of funds Repayment of loan 1851.91 Funds from operations 2248.65 Sale of investment 308.Funds Flow Statement for the year 2003-04 Table .13 Sources of funds Issue of shares 223.18 *Source: Secondary data .01 Increase in working capital 386.5.85 Purchase of fixed assets 2940.97 Sale of fixed assets 3087.53 Tax paid 688.18 5868.

65 1466.84 3963.16 1466.99 4841.60 7102.64 794.66 6307.66 6307.Changes in Working Capital for the year 2004-05 Table – 5.31 1600.15 828.54 649.02 660.46 452.C (A-B) Increase in W.75 498.82 794.31 *Source: Secondary data .82 1600.02 2310.58 5502.14 Particulars Current Assets Cash Stock Debtors Total (A) Current Liabilities Provisions Total (B) W.82 133.99 660.64 6307.27 1812.C Total Year(Rs)2001 Year(Rs)2002 Increase Decrease 375.30 3314.

2004 2004.91 1466.2005 Working Capital 322.2005 Years 2001.2003 2003.63 Tax paid 1470.01 Increase in working capital 1466.16b TREND ANALYSES Working Capital for the year 2001 .2002 2002.74 6053.11 Purchase of fixed assets 1725.Funds Flow Statement for the year 2004-05 Table – 5.97 386.66 .45 Application of funds Repayment of loan 1391.04 Total 6053.66 461.15 Sources of funds Issue of shares 1325.95 Sale of investment 1173.09 Sale of fixed assets 1182.66 Funds from operations 3680.74 *Source: Primary data 5.

04 the working capital has decreased due to the economical changes which affected the sales of the company. The company gains income from the same asset. During the year 2003. but during the 2004.Fig 5. .16 b TREND 1600 1400 1200 1000 800 600 400 200 0 200102 200203 200304 200405 Inference Here in the above figure it shows that the trend lines of the actual trend shows a increase and decrease in working capital.This is due to the depreciation made in the asset of the company. The interest coverage ratio is high during the year 2004-05 . actual line During the year 2004-05 the company had planned to increase profit during the year through production.05 it shows that the working capital has been increased tremendously this is due to the increase in sales for the year. The company management planned during the year 2003 -04 to purchase machines out of the previous year profit.

This is due to the depreciation made in the asset of the company. ¾ The interest coverage ratio is high during the year 2004-05 . ¾ By this the absolute liquid ratio is high during the year 2004-05. In the manufacturing company the inventory of finished goods is also to convert into . This is due to the delay in getting payments from its clients so by this the liability is high. ¾ The ideal ratio is 1:1. There is a slow of moving stock of goods. The company gains income from the same asset. During the year 2002-03 the company’s overall performance and production is high by this the share price will get increased. ¾ By this the absolute liquid ratio is high during the year 2004-05.2003 -04.Chapter VI Findings CHAPTER VI FINDINGS ¾ The current ratio of L&T satisfies the conventional rule of current ratio that is 2:1 it test the quantity and not quality from 2001-02. 2002-03. ¾ This ratio is of increasing in trend. Hence the ratio for that year is high compared to the next consecutive years.2004-05. It is high during the year 2004-05. This is due to the delay in getting payments from its clients so by this the liability is high. There is a sudden hike in price of raw material.

inventory turnover ratio. Chapter VII Suggestions & Recommendations CHAPTER VII SUGGESTIONS ¾ During the year 2001-02 .2002 -03 . This is being increased during the year 2004-05. But this helps in avoiding Bank borrowing and long term source of funds. ¾ The working capital turnover ratio is of increasing in trend. This is due to the company maintaining current asset and current liability properly. . This is due to the company’s commitment to its clients with the minimum use of the raw materials the company should work with it. ¾ The company should keep an eye on to maximise the production so that the share value of the company will be increased so that the company will get more business. 2003 -04 there was sudden hike in price of raw materials the company cannot do anything against the economical changes . The inventory is being properly utilised by which the company gains income out of inventory which is used for production.

¾ The company should not disturb its fixed asset frequently that will affect the turn over ratio. The company can maintain its interest coverage ratio. Chapter VIII Conclusion CHAPTER VIII CONCLUSION Based on study being carried out at L&T ECC division. ¾ The working capital of the company that is the current asset and the current liability should be maintained properly by this it helps in avoiding Bank borrowing and long term source of funds. ¾ The company should maximise stock and it should not be dead stock this will lead to loss of money and place. ¾ The company should follow the method of getting income over the fixed asset.¾ The company should able to verify that the due payments they have get at proper time so that there will not be delay in getting payment. it can inferred that the company’s working capital position is good further the company has shown good growth . ¾ So the company should utilise its inventory according to the production.

xls . Over all we management & inventory and receivables of the company is found to be better and it promises to improve in fast pace with controlled manner. The company is growing into immense size this can understand by recent contribution to built nuclear reactor project completion at Tarapus. The company has utilized the investment proposals and all the ratios have mostly satisfied the standard norm in the past five year’s.this can read by their projects made around the world. Appendix APPENDIX LARSEN & TOUBRO LIMITED – ECC CONSTRUCTION DIVISION PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST March2002 project excel.

Gupta Project Export Memorandum (PEM) by Reserve Bank of India Internet .N.References BIBLIOGRAPHY • • • • • • • Management Accounting Prasad Reddy Management Accounting Working Capital Management Business Statistics & Operation Research - T.Maheshwari R.Sharma Dr.S.K.P.Reddy & Y.S.Hari S.

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