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AN ANALYSIS OF WORKING CAPITAL IN L & t
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A STUDY ON WORKING CAPITAL IN LARSEN & TOUBRO LIMITED

A STUDY ON WORKING CAPITAL IN LARSEN & TOUBRO LIMITED

A REPORT ONSTUDY ON WORKING CAPITAL IN LARSEN & TOUBRO LIMITED submitted as partial fulfilment of the requirement of PGDM programme of ITM Business School, Siruseri, ChennaiBY KARTHICK MInstitute for Technology and Management, Chennai

Final ReportJune 2013

Certificate of internship

AUTHORIZATION

I hereby declare that "A STUDY ON WORKING CAPITAL IN LARSEN & TOUBRO LIMITED has been prepared by me during the academic year 2012-2014. The project was done under the supervision and able guidance of Prof. Dr.U.Jayalakshmi Srikumar of Institute for Technology and Management, Chennai and Mr. V.Gopalan of (Larsen and toubro-ECC division) in partial fulfillment of the requirement for the Post Graduate Diploma in Management Course at the institute.

I also declare that this project is the result of my original work and has not been submitted to any other institution for the award of any degree or diploma.

Date: Place: (Karthick M)

ACKNOWLEDGEMENTSI express my gratitude to Prof. Lakshmi Mohan , Deputy Director of Institute for Technology and Management, Siruseri,Chennai for giving me this internship as a part of my curriculum.I thank my company guide Mr.V.Gopalan for the extended support and guidance he has shown to me during the period of internship.I owe many thanks to the guide of theproject Prof.Dr.U.Jayalakshmi for her constant guidance and support. She had taken a great deal of effort to gothrough my work and gave valuable suggestions.My thanks and appreciations also go to the respondents whom I have the opportunity to meet for their valuable inputs.

Certificate of ApprovalThe foregoing report titled A STUDY ON WORKING CAPITAL IN LARSEN & TOUBRO LIMITED is hereby approved as a creditable study of the project and has been presented in a satisfactory manner to warrant its acceptance as pre-requisite to the degree for which it was submitted.It is understood that by this approval, the undersigned do not necessarily endorse any conclusion drawn or opinion expressed therein, but approve the report for the purpose for which it is submitted.

Panel of Examiners:1)2)3)

TABLE OF CONTENTS S.NOParticularsPage no.

1.Introduction 1.1 Company profile1.2 Working capital1.3 Objective of the study1.4 Need of the study1.5 Scope and significance1.6 Limitation7810101212

2.Review of the Literature12

3.Research methodology3.1 Nature of the study3.2 Period of study3.3 Methodology3.4 Tools applied in the study1717171718

4.Data analysis and interpretation18

5.Findings31

6.Suggestions32

7.Conclusion33

8.References34

List of illustrations:1. Working capital management curve19

2. Current ratio25

3. Liquid ratio26

4. Debt- equity ratio27

5. Debtors turnover ratio28

6. Creditors turnover ratio29

7. Working capital ratio30

1. INTRODUCTION1.1 COMPANY PROFILELarsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in India's private sector. Seven decades of a strong, customer-focused approach and the continuous quest for world-class quality have enabled it to attain and sustain leadership in all its major lines of business. L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf region. The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support. L&T believes that progress must be achieved in harmony with the environment. A commitment to community welfare and environmental protection are an integral part of the corporate vision.M/s Larsen & Toubro Ltd. ECC Division is prestigious organization having business worldwide, its ECC Division undertake engineering contracts of various construction in the field of Electrical, Mechanical & Civil Engineering.The Company having its headquarters at Chennai, and whole India is distributed in regions having respective regional headquarters, viz. Mumbai, Ahmadabad, Kolkata, Delhi, Hyderabad, Chandigarh etc. which coordinate all activities of sites within their region.Chattisgarh state have rich natural resources, coal is found in abundance thus various thermal power plant are established at various places, Sipat Super Thermal Power Plant is one of the biggest Thermal Power Plant, wherein our company execute construction of Boiler Erection & Electrical Cabling works and some other misc. works. Our Principal employer is M/s National Thermal Power Corporation Ltd.The workforce consists of 2500 workmen and Engineers and staff in various cadre, the workforce consist of employees from all over India.Operating Divisions:Engineering Construction & Contracts (ECC)Heavy Engineering Department (HED)PowerElectrical & Electronics (EBG)

Machinery & Industrial Products (MIPD)IT & Technology ServicesFinancial ServicesRailway Projects1.2 Working CapitalIntroduction of Working Capital Management

Working capitalmanagement is the device of finance. It is related to manage of current assets and current liabilities. After learning working capital management, commerce students can use this tool forfund flow analysis. Working capital is very significant for paying day to day expenses and long term liabilities.

Meaning and Concept of Working Capital and its management

Working capital is that part ofcompanys capital which is used for purchasing raw material and involve in sundry debtors. We all know that current assets are very important for proper working of fixed assets. Suppose, if you have invested yourmoneyto purchase machines of company and if you have not any more money to buy raw material, then your machinery will no use for any production without raw material. From this example, you can understand that working capital is very useful for operating any business organization. We can also take one more liquid item of current assets that iscash. If you have not cash in hand, then you cannot pay for different expenses of company, and at that time, your many business works may delay for not paying certain expenses. If we define working capital in very simple form, then we can say that working capital is the excess of current assets over current liabilities.

Types of Working Capital

1.Gross working capital

Total or gross working capital is that working capital which is used for all the current assets. Total value of current assets will equal to gross working capital.

2. Net Working Capital Net working capital is the excess of current assets over current liabilities. Net Working Capital = Total Current Assets Total Current Liabilities

This amount shows that if we deduct total current liabilities from total current assets, then balance amount can be used for repayment of long termdebtsat any time.

3. Permanent Working Capital

Permanent working capital is that amount of capital which must be in cash or current assets for continuing the activities of business.

4. Temporary Working Capital

Sometime, it may possible that we have to pay fixed liabilities, at that time we need working capital which is more than permanent working capital, then this excess amount will be temporary working capital. In normal working of business, we dont need such capital.

In working capital management, we analyze following three points1) what is the need for working capital?

After study the nature of production, we can estimate the need for working capital. If company produces products at large scale and continues producing goods, then company needs high amount of working capital.

2) What is optimum level of Working capital in business?

Have you achieved the optimum level of working capital which has invested in current assets? Because high amount of working capital will decrease thereturnoninvestment and low amount of working capital will increase the risk of business. So, it is very important decision to get optimum level of working capital where both profitability and risk will be balanced. For achieving optimum level of working capital, finance manager should also study the factors which affect the requirement of working capital and different elements of current assets. If he will manage cash, debtor and inventory, then working capital will automatically optimize.

3) What are main Working capital policies of businesses?

Policies are the guidelines which are helpful to direct business. Finance manager can also make working capital policies.

Working capital policyLiquidity policy

Under this policy, finance manager will increase the amount of liquidity for reducing the risk of business. If business has high volume of cash andbankbalance, then business can easily pays his dues at maturity. But finance manger should not forget that the excess cash will not produce and earning and return on investment will decrease. So liquidity policy should be optimized.

Profitability policy

Under this policy, finance manger will keep low amount of cash in business and try to invest maximum amount of cash and bank balance. It will sure that profit of business will increase due to increasing of investment in proper way but risk of business will also increase because liquidity of business will decrease and it can create bankruptcy position of business. So, profitability policy should make after seeing liquidity policy and after this both policies will helpful for proper management of working capital.1.3 Objectives of the study:Primary objective: To study the overall performance of the company for the selected period of 5 years from 2007-2012.Secondary objectives: To identify the financial strengths and weakness of the company. Through net profit ratio and other profitability ratios, understand the profitability of the company. To know the liquidity position of the company with the help of current ratio. To find out the utility of financial ratio in credit analysis and determining the financial capacity of the firm.1.4 NEED FOR THE STUDYa) Business cycle: In period of boom, when the business is prosperous there is need for larger amount of working capital due to rise in sales, rise in prices, optimistic expansion of business etc. on the contrary, in times of depression, the business contracts, sales decline, difficulties are faced in collection from debtors and the firm may have a large amount of working capital.

b) Earning capacity and dividend policy: Some firms have more earning capacity than others due to quality of their products. Such firms generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirements of working capital.c) Growth and expansion of business: In the beginning, the working capital requirements of a firm are low. However, with the gradual growth and expansion, its working capital needs also increase. Discernibility, larger amount of working capital in a growing concern is required for its expansion programs.d) Capital structure of the firm:If the shareholders have provided some funds towards the working capital needs, the management will find it relatively easy to manage working capital. If the firm has to depend entirely upon outside sources for both permanent and temporary working capital needs; it faces an uphill task under money conditions.e) Credit policy: A firm making purchases on credit and sales on cash will always require lower amount of working capital. On the contrary, a firm which is compelled to sell on credit and at the same time having no credit facilities may find itself in a tight corner.f) Profit margin: Firms differ in their capacity to generate profit from business operations. Some firms enjoy a dominant position due to quality product or good marketing management of monopoly power in the market and earn a high profit margin.g) Liquidity and profitability: If it is interested in improving its liquidity, it increases the level of its working capital. However, this policy is likely to result in a reduction of the sales volume, and therefore, of profitability. A firm, therefore, should choose between liquidity and profitability and decide about its working capital requirements.

1.5 SCOPE AND SIGNIFICANCE OF THE STUDY: Every business firm requires some amount of working capital. Even a fully equipped manufacturing firm is sure to collapse without having the following factors: An adequate supply of raw materials to process. Cash to meet the wage bill The capacity to wait for the market for its finished products and, The ability to grant credit to its customers. Similarly, a commercial enterprise is virtually good for nothing without merchandise to sell. Working capital, thus, is the back bone of a business. As a matter of fact, any organization, whether profit oriented or otherwise will not be able to carry on productive and distributive activities smoothly without adequate working capital.

1.6 LIMITATIONS The data collection is from the secondary source of information (i.e. balance sheet provided by the firm) The comparison and analysis are limited only for the five years. The study is limited for a particular period

2. REVIEW OF LITERATUREEvery business needs funds for two purposes basically; they are for establishment and tocarry day-to-day operations. Long termfundsarerequired forestablishment of the organization, it is required for production facility through purchase of fixed assets and it needs fixed capital and the funds which are needed for short termpurposesforthepurchaseofrawmaterials, payment ofwages, paymentofdaytoday expenses etc, the funds required for these are known as WORKING CAPITAL.

Workingcapitalreferstothatpartofthefirm'scapitalwhichisrequiredforfinancing short term or current assets such as cash, marketable securities, debtors and inventories. Funds, thus, invested in current assets keep revolving fast and arebeingconstantlyconverted intoCashandthis cashflowoutinexchangeforothercurrentassets. HenceitisalsoknownasCIRCULATINGCAPITALorREVOLVING CAPITAL or SHORT TERM CAPITAL.

According to GENESTENBERG:-"Circulating capital means current assets of a company that are changed in the ordinary course of business from oneform to another, as forexample, from cashto inventories, inventories to receivables into cash."Need for working capital cannot be over emphasized. Every business needs some amount of working capital. The need of working capital arises due to the time gapbetween production and realization of cash from sales. Thus, the working capital is needed for the following purposes:-a) forthepurchase ofraw materials,components andspares.b) To pay wages and salaries. c)To incur day-to-dayexpenses and overhead costs such as fuel, power and office expenses etc. d)To met the selling costsas packing,advertisingetc e)To provide credit facility to customers. f) To maintainthe inventories ofraw material,work-in-progress,storesand spares and finished stock. For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern, as a going concern and as one which has attained maturity. Many researchers have studied working capital from different views and in different environments. The following ones were very interesting and useful for our researchAccording to El jelly, in 2004:-Elucidated thatefficientliquiditymanagement involvesplanningandcontrolling current assets and current liabilities in such a manner that eliminates the risk ofinability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by currentratioandcashgap (cashconversioncycle) onasampleofjointstockcompanies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than thecurrentratiothataffects profitability.Thesizevariablewasfoundtohave significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second, the study also revealed that there was great variation among industries with respect to the significant measure of liquidity.According to De loof, in 2003:-Discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days

accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for theirshareholders by reducing the number of days accounts receivable and inventories to a reasonableminimum. Thenegativerelationship betweenaccountspayableandprofitabilityisconsistentwiththeviewthatlessprofitablefirms wait longertopay their bills.According to Ghosh and Maji, in 2003:-Inthispapermadeanattempttoexaminetheefficiencyofworkingcapitalmanagement of the Indian cement companies during 1992 1993 to 2001 2002. Formeasuring the efficiency of working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also tested the speed of achieving that target level ofefficiency by an individual firm during the period of study. Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well during this period.According to Shin and Soenen, in 1998:-Highlighted that efficient Working Capital Management (WCM) was very important for creating value forthe shareholders. The wayworking capital wasmanaged hada significant impact on both profitability and liquidity. The relationship between the lengths of Net Trading Cycle, corporate profitability and risk adjusted stock return wasexamined usingcorrelationandregressionanalysis,byindustryandcapital intensity. They found a strong negative relationship between lengths of the firms net trading Cycle and its profitability. In addition, shorter net trade cycles were associated with higher risk adjusted stock returns.According to Sushma Vishnani, FCA, and Finance Faculty:-It is felt that there is the need to study the role of working capital management policies on profitability of a company. Conventionally, it has been seen that if a company desires to take a greater risk for bigger profits and losses, it reduces the size of its working capital in relation to its sales. If it is interested in improving its liquidity, it increases the level of its working capital. However, this policy is likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should strike a balance between liquidity and profitability. In this paper an effort has been made tomake anempiricalstudy ofIndianConsumer Electronics Industryforassessing the impact of working capital policies & practices on profitability during theperiod199495to200405.Theimpactofworkingcapitalpoliciesonprofitabilityhas been examined by computing coefficient of correlation and regression analysisbetween profitability ratio and some key working capital policy indicator ratios.

According to Charles O. Egbu, (2004):-Innovation is viewed as a major source of competitive advantage and is perceived tobeapre-requisitefororganizationalsuccessandsurvival.Theabilitytoinnovate depends largely on the way in which an organisation uses and exploits the resources available to it. The paper explores the importance of knowledge management (KM) and intellectualcapital(IC) inorganisations. Italso considers the criticalfactorsthat lead to successful innovations and the role of KM and IC in this regard. The paperargues that effective management of knowledge assets involves a holistic approach to a host of factors. It is also suggested that there are a host of factors that combine indifferentways toproducesuccessfulorganizationalinnovations.Itrecommendsthat more is needed on the education and training of construction personnel and that the education and training programmes should reflect the nature of innovation and KM dimensions as very complex social processes.According to Kenneth A. Froot and Jeremy C. Stein in 1998:-We develop a framework for analyzing the capital allocation and capital structure decisions facing financial institutions. Our model incorporates two key features: (i) value-maximizing banks have a well-founded concern with risk management; and (ii)not all the risks they face can be frictionlessly hedged in the capital market. This approach allows us to show how bank-level risk management considerations should factor into the pricing of those risks that cannot be easily hedged. We examine several applications, including theevaluation ofproprietary tradingoperations , andthe pricingofunhedgeablederivativespositions.Wealsocompareourapproachtothe RAROC methodology that has been adopted by a number of banks.

According to Pradeep Singh (2008):-Empirically analysed that a firms working capital consists of itsinvestments in current assets, which includes short-term assetscash and bank balance, inventories, receivableand marketable securities. Therefore,the working capitalmanagement refers to the management of the levels of all these individual current assets. On the otherhand,inventory,whichisone oftheimportantelementsofcurrentassets, reflects the investment of a firms fund. Hence, it is necessary to efficiently manage inventories in order to avoid unnecessary investments. A firm, which neglects the management of inventories, will have to face serious problems relating to long-termprofitability andmay failto survive. Withthe helpof betterinventory management, a firm can reduce the levels of inventories to a considerable degree. This paper tries to evaluate the effect of the size of inventory and the impact on working capital through inventory ratios, working capital ratios, trends, computation of inventory and working capital, and liquidity ranking. Finally, it was found that the size of inventory directly affects working capital and it's management. Size of the inventory and working capital of Indian Farmers Fertilizer Cooperative Limited (IFFCO) is properly managed and controlled compared to National Fertilizer Ltd. (NFL).According to Pedro Juan Garca-Teruel and Pedro Martnez-Solano (2007):-Conducted research for the object of the research presented in this paper is to provide empirical evidence onthe effectsof working capital management onthe profitability of a sample of small and medium-sized Spanish firms. The results, which are robust to the presence of endogeneity, demonstrate that managers can create value by reducing their inventories and the number of days for which their accounts are outstanding. Moreover, shortening the cash conversion cycle also improves the firms profitability.The aim is to ensure that the relationships found in the analysis carried out are due to the effects of the cash conversion cycle on corporate profitability and not vice versa.According to Naila Iqbal (2001):-Examined that for increasing shareholder's wealth a firm has to analyze the effect offixed assets and current assets on its return and risk. Working Capital Management is related with the Management of current assets. The Management of current assets is different from fixed assets on the basis of the following points i.e. Current assets are for short period while fixed assets are for more than one year. The large holdings ofcurrent assets, especially cash, strengthens Liquidity position but also reduces overallprofitability, andtomaintainan optimumlevel ofliquidityandprofitability,riskreturntradeoffisinvolvedholding Currentassets. Only CurrentAssetscanbe adjusted with sales fluctuating in the short run. Thus, the firm has greater degree offlexibilityinmanagingcurrentAssets.ThemanagementofCurrentAssetshelps a firm in building a good market reputation regarding its business and economic condition.According to Vellanki S. Kumar, Awad S.Hanna, Teresa Adams (2000):-Conducted research and examined that the systematic assessment of working capital requirement in construction projects deals with the analysis of various quantitative and qualitative factors in which information is subjective and based on uncertainty. There existsaninherent difficulty inthe classical approach to evaluate theimpactof qualitativefactors fortheassessmentof workingcapitalrequirement.Thispaperpresents a methodology to incorporate linguistic variables into workable mathematicalpropositions forthe assessment ofworking capitalusing fuzzyset theory.This article takes intoconsiderationthe uncertainty associatedwith many ofthe

project resource variables and these are reflected satisfactorily in the working capital computations. A case study illustrates the application of the fuzzy set approach. The results of the case study demonstrate the superiority of the fuzzy set approach to classical methods in the assessment of realistic working capital requirements for construction projects.According to Maynard E. Rafuse (1996):-Argues that attempts to improve working capital by delaying payment to creditors are counter-productive to individuals and to the economy as a whole. Claims that altering debtor and creditor levels for individual tiers within a value system will rarely produce anynetbenefit. Proposesthatstockreductiongeneratessystemwidefinancial improvementsandother important benefits.Urgesthoseorganizationsseeking concentratedworkingcapitalreductionstrategiesto focusonstockmanagement strategies based on lean supply-chain techniques.3. RESEARCH METHODOLOGY 3.1 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, solvency, profitability and turnover position of the company. It also helps in studying the composition of various items of Current Asset and Current Liability. This helps in framing control measures of items of Current Asset and Current Liability. 3.2 Period of StudyThe period of study was limited to three months during January to March of 2013. During this period all the required data was collected through secondary sources and analyzed with the help of financial tools of analysis. 3.3 Methodology The objective of the study is to analyze the Working Capital position of the company for the past five years 2008 to 2012. The major sources of data were secondary data (i.e.) published annual reports and financial reports etc. Discussion with the officials of the company. Firstly, 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. Secondly, an analysis of the various items of Current Asset and Current Liabilities for past five years has been done.

3.4 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 Comparison of balance sheet for the last five years.4. DATA ANALYSIS AND INTERPRETATIONCalculation of working capital:Particulars20082009201020112012

Current assets

Inventories4305.905805.051415.371577.151776.62

Sundry debtors7365.0110055.5211163.7012427.6118729.84

Cash and bank balance964.46775.291431.871730.351778.12

Other current assets--6353.2211049.2511917.64

Loans and advances3663.826790.605997.458225.299128.04

Investments----6787.19

Interest accrued on investment14.3221.56---

Total (A)16313.5223448.0226361.6135009.6550117.45

Current liabilities

Liabilities11648.4214775.8819054.5025589.8234243.76

Provisions2035.423066.532188.362233.432112.04

Total (B)13683.8417842.4121242.8627823.2536355.80

Working capitalC.A. (-) C.L.2629.685605.615118.757186.4013761.65

Inference: The working capital was kept increasing over the years from 2008-2012. The activity of the company was increased. Their businesses were extended in various sectors and worldwide. There was an huge profit margin every year so that all the shareholders are paid dividend.

Working capital is calculated by the difference between current assets and current liabilities.

4.1 COMPARATIVE BALANCE SHEET STATEMENT FOR THE YEAR ENDED 2007-2008Particulars2007(in crore)2008(in crore)INCREASE/DECREASE%CHANGES

LIABILITIES:

Shareholders Fund:

Share capital56.6558.471.823.21

Reserves & surpluses5660.289382.223721.9465.75

Employee stock option51.5114.3962.89122.12

Loan Fund:

Secured loans245.4308.5363.1325.72

Unsecured loans1832.353275.421443.0778.75

Deferred tax liabilities204.88244.3339.4519.25

Current liabilities & Provisions:

Liabilities8157.1311741.723584.5943.94

Provisions1180.132035.42855.2972.47

TOTAL LIABILITIES:17388.3227160.509772.1856.20

ASSETS:

Fixed asset2144.043553.431409.3965.73

Intangible asset80.6592.0111.3614.08

Fixed asset held for sale----

Investment3104.446922.263817.82122.98

Deferred tax assets164.69182.9618.2711.09

Current Assets

Interest accrued on investments26.5214.32-12.2-46

Inventories3001.144305.911304.7743.47

Sundry Debtors5504.647365.011860.3733.79

Cash & Bank balance1094.43964.46-129.97-11.88

Loans & advances2257.933757.081499.1566.39

Miscellaneous expenses9.843.06-6.78-68.09

Other current assets ----

TOTAL ASSETS17388.3227160.509772.1856.20

Interpretation: There is an increase in employee stock option of 122.11% and investments have increased by 122.98 for the year 2007-08.FOR THE YEAR ENDED 2008-2009Particulars2008(in crore)2009(in crore)INCREASE/DECREASE%CHANGES

LIABILITIES:

Shareholders Fund:

Share capital58.47117.1458.67100.34

Reserves & surpluses9382.2212106.892724.6729.04

Employee stock option114.39235.66121.27106.01

Loan Fund:

Secured loans308.531102.38793.85257.3

Unsecured loans3275.42`5453.652178.2366.50

Deferred tax liabilities244.33435.16190.8378.10

Current liabilities & Provisions:

Liabilities11741.7214775.883034.1625.85

Provisions2035.423066.531031.1150.65

TOTAL LIABILITIES:27160.537293.2910132.7937.30

ASSETS:

Fixed asset3553.435053.781500.3542.22

Intangible asset92.01140.8248.8153.04

Fixed asset held for sale----

Investment6922.268263.721341.4619.37

Deferred tax assets182.96386.69203.73111.35

Current Assets

Interest accrued on investments14.3221.567.2450.55

Inventories4305.915805.051499.1434.81

Sundry Debtors7365.0110055.522690.5136.53

Cash & Bank balance964.46775.29-189.17-19.61

Loans & advances3757.086790.63033.5280.74

Miscellaneous expenses3.060.26-2.8-91.5

Other current assets ----

TOTAL ASSETS27160.537293.291013.7937.30

Inference: While comparing the year 2008-09, there is an increase in the share capital by 100.34% and employee stock option by 106.01%FOR THE YEAR ENDED 2009-2010Particulars2009(in crore)2010(in crore)INCREASE/DECREASE%CHANGES

LIABILITIES:

Shareholders Fund:

Share capital117.14120.44`3.32.81

Reserves & surpluses12106.8917882.225775.3347.70

Employee stock option235.66308.9873.3231.11

Loan Fund:

Secured loans1102.38955.73-146.65-13.3

Unsecured loans5453.655845.1`391.457.17

Deferred tax liabilities435.16389.27-45.89-10.55

Current liabilities & Provisions:

Liabilities14775.8819054.504278.6628.95

Provisions3066.532188.36-878.17-28.63

TOTAL LIABILITIES:37293.2946744.609451.3125.34

ASSETS:

Fixed asset5053.786223.081169.3023.13

Intangible asset140.82142.681.861.33

Fixed asset held for sale----

Investment8263.7213705.355441.6365.84

Deferred tax assets386.69311.88-74.81-19.35

Current Assets

Interest accrued on investments21.560-21.56-100

Inventories5805.051415.37-4389.68-75.62

Sundry Debtors10055.5211163.701108.1811.02

Cash & Bank balance775.291431.87656.5884.68

Loans & advances6790.65997.45-793.15-11.68

Miscellaneous expenses0.260-0.26-100

Other current assets 06353.226353.220

TOTAL ASSETS37293.2946744.609451.3125.34

Inference: There is an increase in cash balance by 84.68%FOR THE YEAR ENDED 2010-2011Particulars2010(in crore)2011(in crore)INCREASE/DECREASE%CHANGES

LIABILITIES:

Shareholders Fund:

Share capital120.44121.771.331.10

Reserves & surpluses17882.2221356.183473.9619.42

Employee stock option308.98368.3159.3319.20

Loan Fund:

Secured loans955.731063.04107.3111.22

Unsecured loans5845.16098.07252.974.32

Deferred tax liabilities398.27549.74160.4741.22

Current liabilities & Provisions:

Liabilities19054.5025589.826535.3234.29

Provisions2188.362233.4347.392.16

TOTAL LIABILITIES:46744.6057380.3610635.7622.75

ASSETS:

Fixed asset6223.087236.981013.916.29

Intangible asset142.68221.1578.4754.99

Fixed asset held for sale----

Investment13705.3514684.82979.477.14

Deferred tax assets311.88286.27-25.61-8.21

Current Assets

Interest accrued on investments----

Inventories1415.371577.15161.7811.43

Sundry Debtors11163.7012427.611263.9111.32

Cash & Bank balance1431.871730.35298.4820.84

Loans & advances5997.458188.692191.2436.53

Miscellaneous expenses----

Other current assets 6353.2211027.344674.1273.57

TOTAL ASSETS46744.6057380.3610635.7622.75

Inference: There was an increase in employee stock option of 19.20% and other current assets by 73.57%FOR THE YEAR ENDED 2011-2012Particulars2011(in crore)2012(in crore)Increase/ Decrease% Changes

LIABILITIES:

Shareholders funds:

Share capital:121.77122.480.710.58

Reserves & Surpluses21724.4925100.543376.0515.5

Long term borrowings5425.415330.06-95.35-1.75

Deferred tax liability263.47133.01-130.46-49.51

Long term liability32.41376.02343.611060.19

Long term provisions242.08275.0532.9713.61

Current liabilities29300.3736355.807055.4324.07

TOTAL LIABILITIES:57110.0067692.9610582.9618.53

ASSETS:

Fixed assets7415.538363.66948.1312.78

Investments7400.849084.711683.8722.75

Loans & Advances3317.064042.80725.7421.87

Current Assets38975.7746074.657098.8818.21

Cash & Bank balances0.80127.14126.3415792.5

TOTAL ASSETS:57110.0067692.9610582.9618.53

Inference: There was an increase in long term liability by 1060.19% and also in cash and bank balance by 15792.5%

Working capital Ratios:1. Current Ratio: It is given by the formula current assets divided by current liabilities.YearAssetsLiabilitiesCurrent Ratio

2007-200816313.5213683.841.19

2008-200923448.0217842.411.31

2009-201026361.6121242.861.24

2010-201134951.1427823.251.25

2011-201246074.6536355.801.27

Inference:From the above table it is observed that in 2007-2008 the ratio is 1.19 it is quiet low. It may be due to the absence of information related to short term investments.

2. Quick Ratio: It is given by the formula liquid assets divided by current liabilities.YearLiquid AssetsCurrent LiabilitiesLiquid ratio

2007-200812007.6113683.840.87

2008-200917642.9717842.410.98

2009-201024946.2421242.861.17

2010-201133373.9927823.251.19

2011-201244298.0336355.801.21

Inference:The ideal quick ratio is 1;1. Since there is no information related to short term investments it is low for the first two years.

3. Debt equity ratio: It is given by the formula: Total long term debts divided by shareholders funds Year Long term debtsShare holders fundsDebt-Equity Ratio

2007-20083583.999555.080.38

2008-20096556.0312459.690.52

2009-20106800.8318311.640.37

2010-20117161.1121846.260.32

2011-201210156.9425223.020.40

Inference: Higher debt capacity is available since institutional norms require 1.5:1 for financing the projects. Generally the ratio is higher for capital intensive projects.

4. Debtors turnover ratio:YearReceivablesCredit salesDebtors Turnover ratio

2007-20087365.0125187.48107 days

2008-200910055.5234045.04108 days

2009-201011163.7036995.93110 days

2010-201112427.6143886.17103 days

2011-201218729.8453737.78127 days

It is given by the formula : Receivables ------------------------------------ X 365 Credit sales

Inference: It indicates the level of the company. There is adequate capital reserve in the company, so progress is very good and so there is no delay in payment settled to debtors. It indicates a good sign.5. Creditors Turnover ratio:YearCredit PurchasesAverage Accounts PayableCreditors turnover ratio

2007-200819130.4611690.211.64

2008-200926232.0114671.111.79

2009-201028453.5518947.991.50

2010-201133431.6225589.821.31

2011-201241020.1836355.801.12

The creditors turnover ratio is given by the formula: credit purchases divided by average accounts payable.Inference: The working capital management is very efficient. Creditors settle their disputes in a short span so that work gets easier. There can also be more number of new projects created.

6. Working capital turnover ratio:

Year Net sales Net working capitalWorking capital turnover ratio

2007-200824854.692629.659.45

2008-200933646.695605.486.00

2009-201036675.955118.657.17

2010-201143495.617127.426.10

2011-201253170.529718.855.47

Inference: The working capital ratio is not consistent throughout the year 2008-2012. In the present year 2011-12 the ratio is decreasing because there is no proportionate increase in NET SALES when compared to NET WORKING CAPITAL.5. FINDINGS The following has been found in the thesis:a) Current ratio of the company is 1.19 for the year 2007-08 and it increased to 1.31 in the year 2008-09.Further it declined in the subsequent years.b) Quick ratio of the company for the period 2008-2012 varies from 0.87 in the year 2008 to 1.21 in the year 2012. The maximum been 1.21 in the year 2012 and the minimum being 0.87 in 2008.c) Debt-equity ratio of the company is 0.38 in the year 2008 and it increases to 0.52 in the next year, then again it falls to 0.37 in the subsequent year.d) Debtors turnover ratio during the period of study varies from107 days in the year 2008 to 127 days in the year 2012.The maximum is 127 days and minimum is 103 days in 2011.e) Creditors turnover ratio indicates the number of times the creditors are turned over during a year. The creditors turnover ratio is increasing upto 2008-2009 then it gets decreasing till 2012, which is a good sign for the company.f) Working capital turnover ratio stood at 9.45 in the year 2008, it got decreased to 5.47 in 2012. It is mainly due to the fact that there is low sales volume in year 2012 compared to 2011. g) The share capital and the secured loans of the company for the year 2009 increases by 100.3% and 257.30% from the previous year 2008. Similarly the fixed assets and the inventories of the company increased by 42.22% and 34.81% in the year 2009.h) For the year 2009& 2010, the reserves and surplus of the company increased to 17882.22 in 2010 which is 47.70% of the previous year 2009.The investments and the liquid cash & bank balances of the company increased by 58.22% and 84.68% in the year 2010. The stock balance has come down by 75.62% and the miscellaneous expenses have completely written off to scratch in the year 2010.

6. Suggestions: During the year 2009 there was sudden hike in price ofRaw materials, the company cannot do anything against the economical changes.

This is due to the companys commitment to its clients with the minimum use ofthe raw materials the company should work with it.

The company should keep an eye on to maximize the production so that the sharevalue of the company will be increased so that the company will get morebusiness.

The company should able to verify that the due payments they have get at propertime so that there will not be delay in getting payment.

The company should follow the method of getting income over the fixed asset.

The company can maintain its interest coverage ratio.

The company should not disturb its fixed asset frequently that will affect the turnover ratio.

The company should maximize stock and it should not be dead stock this will leadto loss of money and place.

So the company should utilize its inventory according to the production.

The working capital of the company that is the current asset and the currentliability should be maintained properly by this it helps in avoiding Bankborrowing and long term source of funds.

7. Conclusion: The main aim of using working capital is to maintain equilibrium between the current assets and current liabilities. Both inadequate and redundant working capital situation is dangerous. Thus, the firm will have adequate working capital without excess being wasted instead of getting inversed.

Based on study being carried out at L&T ECC division, it can inferred that theCompanys working capital position is good further the company has shown good growththis can read by their projects made around the world. The company is growing intoimmense size this can be understood by recent contribution to built CHENNAI METRO RAIL PROJECT AND ITC GRAND CHOLA A PREMIUM LUXURY SEVEN STAR HOTEL which is recently completed at Chennai. The company has utilized the investment proposals and all the ratios have mostly satisfied the standard norms in the past five years.

8.References:1. www.google.com2. www.lntecc.com3. www.wikipedia.com4. www.moneycontrol.com5. Annual reports from Larsen and toubro limited for the year 2008-2012.6. Working capital management by R.K.Sharma.

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