Working Capital Management

Comparison
L&T Balance sheet with Others
Financial Statements
• Balance sheet
• Summery of financial position of any company on a given date. Total Assets =
Total Liabilities + Owners equity

• Income Statement
• A summery of firm’s Revenues and expenses over a period of time.
• Net Income = Revenue - expenses

• Cash Flow Statement

• Summery of changes firm’s financial position over a period of time.
• Source and use of funds / cash statement
Balance Sheet
Income Statement
Fund Flow Statement
Liquidity Ratio
Its determine the firms ability to pay off current debt obligations without
raising external capital. The common Liquidity ratios are :

• Current Ratio : Current Assets / Current Liabilities

• Quick Ratio : (Current Assets – Inventory) / Current Labilities

1 < Current Ratio < 2

High ratio value mean that business is liquid, but cash is not
working for growth of profits
L&T : Current & Quick
ratio Value in INR Cr
Mar-19 Mar-18 Mar-17 Mar-16 Mar-15
`
Sales Revenue 85,783 73,346 64,819 58,882 57,017
Total Current Assets 91,153 79,570 70,099 66,283 58,400

Total Current Liabilities 70,231 60,358 48,528 47,286 40,478

Current Ratio
(CA/CL)
1.30 1.32 1.44 1.40 1.44
Quick Ratio
(CA-Inv)/CL
1.25 1.28 1.41 1.36 1.39
Current & Quick ratio Comparisons : Mar-
19 Value in INR Cr

` L&T Reliance BEL TCS DMart HUL

Sales Revenue 85,783 3,71,019 11,789 1,23,170 19,881 37,660

Total Current Assets 91,153 1,52,927 16,638 79,032 2,029 11,374
Total Current
Liabilities
70,231 2,02,021 11,444 18,896 1,213 8,353
Current Ratio
(CA/CL)
1.30 0.76 1.45 4.18 1.67 1.36
Quick Ratio
(CA-Inv)/CL
1.25 0.54 1.06 4.18 0.37 1.07
Working Capital
Working capital is a short term funds to meet operating expenses. It refers
to the funds which a company must possess to finance its day to day
operations. It is used for :
• For the purchase of raw materials & pay wages and salaries
• For overhead costs such as fuel, power & office expenses etc.
• To meet selling costs such as packaging and advertising expenses
• To provide credit facilities to the customers
• To maintain the inventories of RM, WIP and FG
Working Capital Cycle

Salary
Day to day
Expenditure
Savings
Cash
Credit Card
Working Capital
• Gross Working Capital (GWC)
• GWC = Current assets

• Net Working Capital (NWC)

• NWC = Current assets – Current Liabilities
Net Working Capital : Modern View
• Working Capital is undesirable
• as its constitutes does not contribute to ROE
• It hides obsolete or non-moving inventory
• It hides delayed receivables that may not be collectable

• Emphasis should be reducing the current assets to the extended that

current liabilities can be funded from ongoing business operations
 Current Assets Current Liabilities
• Cash-in-hand • Bills Payable
• Cash-in-bank • Sundry creditors
• Customer Outstanding • Outstanding expenses
• Inventory • Bank over draft
• Customer Outstanding • Tax Liability
• Pre-paid expenses • Proposed dividends
• Advances given • Long term liability getting
• Marketable bonds / securities matured in the period
L&T : Current Assets Value in INR Cr
Mar-19 Mar-18 Mar-17 Mar-16 Mar-15 Average

Current Investments 4,694 4,344 6,982 4,670 5,380 7.4%

Inventories 3,220 2,500 1,762 1,888 2,207 3.2%
Trade Receivables 28,216 24,454 19,921 26,309 23,051 33.9%
Cash And Cash
Equivalents
7,599 4,317 3,535 1,680 1,515 4.8%
Short Term Loans
And Advances
1,293 992 1,905 10,205 7,812 6.8%
Other Current
Assets
46,127 42,960 35,991 21,522 18,433 44.0%
Total Current
91,153 79,570 70,099 66,283 58,400
Assets
Current Assets Comparisons :
Mar-19
L&T Reliance BEL TCS DMart HUL

Current Investments 7.4% 43% 0% 44% 0% 26%

Inventories 3.2% 29% 27.7% 0% 82% 27%

Trade Receivables 33.9% 6% 28.9% 31% 1% 11%

Cash And Cash

4.8% 4% 24.4% 7% 6% 29%
Equivalents

Short Term Loans

6.8% 7% 19.0% 6% 10% 0%
And Advances
8%
Other Current Assets 44.0% 11% 0% 12% 0%
L&T : Current Liabilities Value in INR Cr
Mar-19 Mar-18 Mar-17 Mar-16 Mar-15 Average

Short Term Borrowings 7,800 5,066 3,424 3,882 3,791 9%

Trade Payables 36,278 31,097 24,338 22,119 18,845 49%
Other Current
Liabilities
24,729 23,093 19,673 18,592 15,341 38%
Short Term Provisions 1,424 1,102 1,093 2,694 2,501 4%
Total Current
70,231 60,358 48,528 47,286 40,478
Liabilities
L&T : Current Liabilities
L&T Reliance BEL TCS DMart HUL

Short Term Borrowings 9% 14.0% 0% 1% 7%

Trade Payables 49% 40.3% 20% 40% 34% 83%
Other Current
Liabilities 38% 45.1% 80% 59% 55% 13%
Short Term Provisions 4% 0.6% 0.5% 1% 4% 4%
L&T : Net Working
Capital Value in INR Cr
Mar-19 Mar-18 Mar-17 Mar-16 Mar-15
`
Sales Revenue 85,783 73,346 64,819 58,882 57,017
Total Current Assets 91,153 79,570 70,099 66,283 58,400
Total Current Liabilities 70,231 60,358 48,528 47,286 40,478
Current Ratio (CA/CL) 1.30 1.32 1.44 1.40 1.44
Quick Ratio (CA-In)/CL 1.25 1.28 1.41 1.36 1.39
Net Working Capital
(NWC = CA-CL)
20,922 19,212 21,571 18,998 17,923

NWC / Rev 24% 26% 33% 32% 31%

Net Working Capital Comparisons :
Mar-19 Value in INR Cr

` L&T Reliance BEL TCS DMart HUL

Sales Revenue 85,783 3,71,019 11,789 1,23,170 19,881 37,660

Total Current Assets 91,153 1,52,927 16,638 79,032 2,029 11,374

Total Current
70,231 2,02,021 11,444 18,896 1,213 8,353
Liabilities
Current Ratio
1.30
(CA/CL) 0.76 1.45 4.18 1.67 1.36
Quick Ratio (CA-
1.25
In)/CL 0.54 1.06 4.18 0.37 1.07
Net Working Capital
20,922
(NWC = CA-CL) -49,094 5,194 60,136 816 3,021
NWC / Rev
24% -13% 44% 49% 4% 8%
Cash Conversion Cycle

The time that elapses

between the purchase
of raw material land the
collection of cash
for sale is referred as
the operating cycle.
 Cash Conversion Cycle (CCC)
• Measures the time to convert resources into cash
• Generally favourable: shorter result
• Indicator of working capital efficiency

Days of Inventory Days of Sales Days of Payables

CCC =
outstanding outstanding outstanding
Inventory x 365 Accounts Receivable x 365 Account Payable x 365
---------------------- ----------------------------------- --------------------------------
Cost of Goods Sales Sales
L&T : Cash Conversion Cycle Value in days

` Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Days of Inventory 150.1 112.8 87.3 93.2 154.2

Days to Collect Cash 120.1 121.4 111.2 161.3 146.2
Days of Payable 154.36 154.75 137.05 137.11 120.64
CCC 115.77 79.46 61.44 117.40 179.78
Cash Conversion Cycle Comparison Value in days

` L&T Reliance BEL TCS DMart HUL

Days of Inventory 150.1 60.74 302.77 0.00 33.0 83.1

Days to Collect Cash 120.1 11.91 166.23 79.67 1.4 10.0
Days of Payable 154.36 86.81 44.43 24.28 8.4 70.6
CCC 115.77 -14.16 424.57 55.39 26.0 22.6

ROCE 15.8% 7% 27% 52% 25% 88%

Conclusion
• Negative / Low NWC is desirable to reduce the cost of borrowing
• Low NWC be achieved by :
• Improving operations efficiency

• Recovering the money from Customer as fast as possible

• Correct invoice & BG
• Timely submission of reports, PDR, CDR, etc
• Delivery on Time & Full Delivery
• Correct Packing list
• Submission of Documents / manuals with system
• Timely completion of site work
Conclusion
• Reducing Inventory by increasing ‘throughput’
• Just-in-time delivery of raw material
• Correct sequencing of manufacturing activity
• Timely resolution of manufacturing & testing related problems

• Budgeting and forecasting

• Neither over nor under budgeting of cash flows

• More credit period from supplier

Thank You