Larsen & Toubro

PROJECT REPORT

ON

" STUDY OF THE PRINCIPLES AND PROCEDURES

FOLLOWED IN

FINANCIAL ACCOUNTS DEPARTMENT "

AT

LARSEN & TOUBRO LIMITED( MACHINERY & INDUSTRIAL PRODUCTS DIVISION )

KANSBAHAL WORKS

For the Partial fulfilment of the degree of

Master of Business Administration ( M.B.A ) (2009-11)

FACULTY GUIDE:

Prof. Nituj Gupta

PROJECT GUIDE:

Mr. Pitabash Roy

SUBMITTED BY:

Natraj Agrawal.

Sec.: A

Roll No.: 9202001

KIIT SCHOOL OF MANAGEMENT, BHUBANESWAR

ACKNOWLEDGEMENT

To undertake such an important project and to accomplish it, one

needs quite a lot of guidance and support. The time, which I spent in L&T,

Kansbahal, during training, was a wonderful experience in itself and it is a

great pleasure and honour for me to take this opportunity to thank all

those who have helped and provided able guidance all along the project.

I would like to thank MR.V.N. Shrivastava (GM, Finance) for providing

me with an opportunity of carrying out my summer training at this

esteemed organization.

I would like to express my deep sense of gratitude to Mr. P. Roy

(Manager, Finance) whose support and guidance helped me in converting

my conception into visualization and also for the continuous guidance

throughout the project. I would also like to thank Mr. S.S. Sahoo and Mr.

Prashant Patra, who helped me in making me understand about all the

concepts of taxation and their application in the organisation. And also my

deepest sense of gratitude goes to Mr. R. K. Mishra, Mr. Amit Parashar and

Mr. T. N. Biswal. Without their co-operation it would have been difficult for

me to complete the project.

I would like to thank my Faculty guide Prof. Amiya Sahu for his

guidance and co-operation. I would also like to express my deep gratitude

to my parents for providing me with necessary facilities and guidance.

Lastly, I would like to express my gratitude towards our prestigious

institute KIIT School Of Management ( KSOM ), KIIT University,

Bhubaneswar for providing me with this lifetime opportunity.

Natraj Agrawal.

Roll No.: 9202001


DECLARATION

I Swarup Samal, Student of MBA (2009-11) of KIIT School of

Management, KIIT University, Bhubaneswar do hereby declare that the

Summer Internship project report entitled “STUDY OF THE PRINCIPLES

AND PROCEDURES FOLLOWED IN FINANCIAL ACCOUNTS

DEPARTMENT, at Larsen & Toubro Ltd., Kansbahal” is a true and

original work done by me. It is not duplicated from anywhere else. This

Project Report is my own and is not submitted to any other institution or is

not being published anywhere. This is going to be used for academic

purpose only.

This is being submitted in partial fulfilment of the requirement for

the award of “Master of Business Administration (MBA)”.

Place:

Date:

Swarup Samal

Roll No.:

9202001


PROJECT OBJECTIVES

To make a thorough study of the accounting principles, procedures

involved and the process of documentation by the various sections in

financial accounts dept. of Larsen and Toubro Limited., Kansbahal works.

The following are the main objectives of the study:

a) To check the feasibility of the project i.e., Calculation of Net present

value and Payback period.

b) Analyse the capital budgeting process.

c) Taxation and their application.

d) Analysis of Working Capital Management

e) Analysis of Operating and Cash cycle

f) Ratio analysis of the different components of working capital


METHODOLOGY

This Project Report is prepared at L&T, Kansbahal Works with the

help of Data collected from various sources:

I. Collection of data from the people of Finance department and Store

department by discussion.

II. Collection of data from the system maintained by L&T, Kansbahal

Works. i.e. (ERP, People Soft)

III. Collection of data from the Annual Accounts and Annual Report from

2006 to 2010.

IV. Collection of data from the PMS.

V. Collection of data from magazines, Journals of L&T, Kansbahal.

VI. Collection of data through Internet Service.

The collected data are analyzed and prepared, with the help of the

people of Finance Department.


LARSEN & TOUBRO Ltd.

( COMPANY PROFILE )


INTRODUCTION TO THE COMPANY

Larsen & Toubro Limited (L&T) is India's largest engineering and

construction conglomerate with additional interests in electrical,

electronics and IT. A strong customer-focus approach and constant quest

for top-class quality have enabled L&T to attain and sustain leadership

over 7 decades.

L&T's international presence is on the rise, with a global spread of

over 30 offices and joint ventures with world leaders. Its large technology

base and pool of experienced personnel enable it to offer integrated

services in world markets. Joint ventures with world leaders have

enhanced its presence. Its large technology base and a pool of

professionally qualified and experienced personnel enable it to offer

integrated services in world market. It is possible for them to remain as

leaders in the business world due to their regular transformation of

resources with changing trends in the business environment. L&T believes

that progress must necessarily be achieved in harmony with the society.

This is evident from the total commitment of L&T in the form of excellent

Corporate Social Responsibility programs (CSR) going on in various parts of

the country.

L&T has integrated its strengths in basic and detailed engineering,

process technology, project management, procurement, fabrication and

erection, construction and commissioning, to offer single point

responsibility under stringent delivery schedules. Strategic alliances with

world leaders enable L&T to access technical know-how and execute

process intensive, large scale turnkey projects to maintain its leadership

position.

L&T enjoys a brand image in India and several countries offshore.

With factories and offices located all over the country and abroad, L&T


operations are supplemented by a comprehensive distribution network and

nationwide ramifications for customer service and delight!

THE BEGINNING:

Henning Holck Larsen and Soren Kristen Toubro, both Danish

nationals, came to India in 1934, as employees of FL Smidth, Denmark, to

provide engineering services to cement plants in India. During their stay

they became fond of India and its culture. They realized the growing

business potential in this country and laid the foundation of their

partnership firm in the year 1938, christened as Larsen & Toubro.

In the early years, they represented Danish manufacturers of diary

equipment for a modest retainer. But with the start of the Second World

War in 1939, imports were restricted, compelling them to start a small

work-shop to undertake jobs and provide service facilities. Germany’s

invasion of Denmark in 1940 stopped supplies of Danish products. This

crisis forced the partners to stand on their own feet and innovate. They

started manufacturing dairy equipment indigenously. These products

proved to be a success, and L&T came to be recognized as a reliable

fabricator with high standards.

Again the sudden interment of German engineers (because of the

war) who were to put up a soda ash plant for the TATA, gave L&T a chance

to enter the field of installation – an area where their capability became

well respected.

The company had its humble beginning in a tiny room in South

Mumbai near to the corporate headquarters. With time the company took

huge achievement strides and the marshy land in South Mumbai was

transformed to a sprawling enterprise spread over 99 acres, employing

more than 24,000 people and catering to the engineering needs of the

world with a diverse product line.


Today, the enterprise of the company lies in Engineering and

Construction but it is constantly leveraging its knowledge in other areas

like Information Technology.

In India, it has a visible and vibrant presence. Some of India’s most

sophisticated projects and most complex industrial equipment carry the

L&T insignia of excellence. The adventure that began so humbly surpassed

even the well established companies, the evidence of which is contained in

the following milestones:

1940's:

Engineering Construction Corporation (ECC) was incorporated.

The partners signed a dealership agreement with the Tractor

Company, Caterpillar Inc., USA - one of the largest manufacturers of

earthmoving equipment.

L&T Pvt. Ltd. came into being on February 07, 1946.

L&T acquires 55 acres of land at Powai in 1948.

1950's:

L&T became public limited company on December 1950, with a paid-

up share capital of Rs. 20 lakhs. Sales turnover being Rs. 109lakhs.

Tractor Engineers Limited (TENGL) & Caterpillar Inc., USA were

incorporated as a joint venture of L&T on September 18, 1952.

On 1956, the company moved to IC office at Ballard Estate which is

today known as L&T House, Corporate headquarters.

L&T receives a substantial order from Rourkela Steel Plant for the

erection of 3 blast furnaces and a pig casting machine.

1960's:

L&T emerges as the largest and most outstanding erection

contractor in India.

Switch gear workshop was set up.


Prestigious contracts include turnkey construction of the Radiological

Laboratories for the Atomic Energy Establishment, Trombay - which

was one of the largest in Asia.

Receives a contract for the erection of an Iron ore plant for

Hindustan Steel Ltd. at Barsua, Orissa.

1970's:

Manufactures India's first indigenous Nuclear Reactor Vessel for

Rajasthan Atomic Power Plant.

Manufactures hydraulic excavators in collaboration with Poclain, S.A.,

France.

Manufactures a high speed bottling plant (Capacity: 24,000 bottles

per year) for the Delhi Milk Scheme.

Supplies and Commissions India's largest indigenous cement plant.

Fabricates and delivers motor casings for Indian Space Research

Organization (ISRO).

1980's:

Manufactures the first multi-wall vessel for ammonia separation for

Hindustan Fertiliser Corporation Limited, Namrup.

Manufactures India's 1st indigenous adjustable throat armour, at

Kansbahal, for the blast furnace at TISCO.

Receives national recognition for its path breaking achievement in

developing the tri-junction welding technique for critical parts of

nuclear reactors.

L&T secures an order from ISRO for the manufacture of rocket motor

casing made from maraging steel for the Polar Satellite Launch

Vehicle (PSLV).

Establishes itself as India's largest manufacturer of low tension

switch-gear, with the widest range.

Sets up cement plants at Awarpur.

Heavy Engineering facilities are set up in 1987 at Hazira near Surat

for the manufacture of heavy and large equipment.


1990's:

Emerges as India's largest integrated engineering and Construction

Company.

Ventures into Software development.

Fabricated giant oil platforms, including India's biggest marine

structure.

Emerges as the largest producer of cement and sets up plants at

Gujarat, Madhya Pradesh and Andhra Pradesh.

Fabricates India's 1st indigenous hydrocracker reactor.

Fabricates India's largest slab caster for Bokaro Steel Plant.

Builds India's first open-sea jetty.

Today L&T is one of the India’s biggest and best known industrial

organizations with a reputation for technological excellence, high quality of

products and services, and strong customer orientation. It is also taking

steps to grow its international presence. There cannot and must not be an

end. And thus L&T saga continues.


DIVISIONS

L&T businesses have been broadly grouped into six business divisions viz:

Engineering & Construction Projects (E&C)

Engineering & Construction Corporation (ECC)

Heavy Engineering Division (HED)

Electrical & Electronics Business Group (EBG)

Information Technology (IT)

Machinery & Industrial Products Division (MIPD)

I) ENGINEERING & CONSTRUCTION PROJECTS (E&C) :

Largest business segment

Serves to process technology, basic and detailed engineering, heavy

engineering and modular fabrication, procurement, logistics,

construction, erection, commissioning and project management.

Executes projects on turnkey basis.

Serves the core sectors & infrastructure of the economy, viz., oil

exploration & refinery, sulphur recovery units, diesel hydrotreaters,

hydro power, fertilizer, petrochemical, steel, cement, mining,

aerospace, nuclear power, roads, ports, bridges, telecommunication,

food and pharmaceuticals.

Landmark projects:-

i. Gas and crude distillation unit at Zirku Island in Abu Dhabi.

ii. FCC Regenerator and Combustor (world’s largest) supplied to

Reliance Refinery in India


iii. The 24,000 tons Giant Gas Injection Platform at L&T’s Modular

Fabrication Facility in Hazira, Gujarat, loaded onto the barge and

ready to sail.

II) ENGINEERING & CONSTRUCTION COMPANY DIVISION

(ECC):

ECC as its Construction Division was conceived as Engineering

Construction Corporation Limited in April 1944. It has today emerged

as India’s leading construction organization.

Prized landmarks: Its exquisite buildings, tallest structures, largest

industrial projects, longest flyovers, and highest viaducts have been

built by ECC. The famous Lotus Temple is built by ECC.

III) HEAVY ENGINEERING DIVISION (HED):

Activities are organized under self-reliant Strategic Business Units

(SBUs).

Cater to the needs of core sector industries.

Supplies equipment to Process Plant Industries and Defence, Nuclear

Power & Aerospace Sectors.

Its pioneer in the field of technology development, equipment

manufacture and site / plant services. It has achieved the prestigious

‘INS Industrial Excellence Award’ for outstanding contribution in the

nuclear sector.

L&T also has had a long and close association with the Indian Space

Research Organization. It developed the Naval Multi- Barrel Rocket

Launcher.

IV) ELECTRICAL & ELECTRONICS BUSINESS GROUP (EBG):-

It’s engaged in the business of low voltage Switchgear products,

Electrical Systems, Energy meters, Medical equipments, Petroleum

dispensing pumps, Automation solutions and Enterprise networking.


Largest manufacturer of low voltage switchgear and control gear in

India.

EBG products cater to the needs of diverse customers comprising

farmers, urban households and commercial buildings.

Its products are required in health-care equipments as advanced

protection, control and automation in a number of industries.

V) INFORMATION TECHNOLOGY:

L&T InfoTech Limited provides comprehensive, end-to-end software

solutions to clients all over the world.

It focuses on: Manufacturing, Banking, Securities & Insurance,

Utilities and Communications, Embedded systems.

The services provided are package implementation and support,

Application development and Maintenance, Application testing,

Enterprise application engineering, Data Warehousing and Business

Intelligence, Infrastructure Management services, Strategy

Consulting, Value Added services.

VI) MACHINERY & INDUSTRIAL PRODUCTS DIVISION (MIPD):

Caters to the needs of the industrial machinery, construction

equipments and industrial products business segments.

It enjoys market leading capabilities in product design, process

technology, procurement, project management, marketing and

services support including commissioning.

It offers products and services for all business verticals, maintaining

stringent delivery schedules.


ACHIEVEMENTS

In 2009 -

Mr. A. M. Naik receives Padma Bhushan from the President of

India.

CII honours L&T with Corporate Wellness Award.

L&T wins D&B-Rolta Top Indian Company Award.

L&T-Chiyoda bags ICWAI Award for Excellence in Cost

Management.

L&T Wins Golden Peacock Award for Corporate Social

Responsibility.

Chemtech Business Leader of the Year.

L&T bags FICCI Award for Outstanding Corporate Vision.

L&T bags FICCI Award for Outstanding Corporate Vision.

Technology Block at Hazira wins LEED Platinum Rating.

L&T is ‘Best for Investor Relations’: Asiamoney.

ET Business Leader of the Year for Mr. A. M. Naik.

Mr. A.M. Naik Conferred Gujarat’s Highest State Honour -

‘Gujarat Garima Award’.

In 2008 -

Krishnamurthy Award for Excellence.

Industrial Excellence Award.

E&Y Entrepreneur of the Year Award.

Transformational Leader Award.

All India Engineering Export Award.


Most Admired Infrastructure Company in India.

The International Trade Awards.

LIST OF SUBSIDIARY COMPANIES

1. Tractor Engineers Limited (TENGL)

2. L&T Komatsu Limited (LTK)

3. L&T-Case Equipment Private Limited

4. L&T Infrastructure Development Projects Limited

5. Larsen & Toubro Electromech LLC

6. HPL Cogeneration Limited

7. L&T-Sargent & Lundy Limited

8. L&T-Chiyoda Limited

9. L&T-Valdel Engineering Pvt. Limited

10. Audco India Limited (AIL)

11. L&T-Demag Plastics Machinery Limited

12. EWAC Alloys Limited

13. L&T Finance Limited

14. L&T International FZE

15. L&T Urban Infrastructure Limited

16. L&T Infrastructure Finance Limited

17. L&T Capital Company ltd. (LTCCL)


18. L&T Infrastructure Development Projects Ltd. (L&TIDPL)

OVERVIEW ON THE CAPITAL STRUCTURE:

REVENUE : ▲ US$ 8.50 billion (2009)

OPERATING INCOME : ▲ US$ 900 million (2009)

NET INCOME : ▲ US$ 0.58 billion (2009)

TOTAL ASSETS : US$ 9.92 billion (2009)

EMPLOYEES : 35,000

WEBSITE : www.larsentoubro.com


http://en.wikipedia.org/wiki/Employment

http://en.wikipedia.org/wiki/United_States_dollar

http://en.wikipedia.org/wiki/Asset


http://en.wikipedia.org/wiki/Net_income


http://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes


http://en.wikipedia.org/wiki/Revenue

BOARD OF DIRECTORS

L&T have two types of Directors i.e. Executive Directors and Non-

Executive Directors.

EXECUTIVE DIRECTORS:

1. A.M. Naik (Chairman & Managing Director)

2. J.P. Nayak (Whole-time Director & President Machinery & Industrial

Products)

3. Y.M. Deosthalee (Whole-time Director & Chief Financial Officer)

4. K. Venkataramanan (Whole-time Director & President Engineering &

Construction Projects)

5. R.N. Mukhija (Whole-time Director & President Electrical &

Electronics)

6. K.V. Rangaswami (Whole-time Director & President Construction)

7. V.K. Magapu (Whole-time Director & Senior Executive Vice President

IT & Technology Services)

8. M.V. Kotwal (Whole-time Director & Senior Executive Vice President

Heavy Engineering)

NON-EXECUTIVE DIRECTORS:

1. S. Rajgopal

2. S. N. Talwar

3. M. M. Chitale

4. Lt. Gen. Surinder Nath (Retd.)

5. U. Sundararajan

6. Thomas Mathew


7. N. Mohan Raj

8. Subodh Bhargava

LARSEN & TOUBRO Ltd.

( KANSBAHAL WORKS )


L & T - KANSBAHAL WORKS

( PROFILE )

Kansbahal works is located near Rourkela (Orissa), is state’s largest

heavy engineering unit. Kansbahal Works, a unit under the Machinery &

Industrial Products Division of L&T, is a world class Integrated Machine

Building Centre with facilities for Casting, Fabrication, Machining and

Assembly, complimented by excellent design, engineering, quality control

and logistics support.

Set up in 1962 as an Indo-German Venture, under the name of Utkal

Machinery Limited (UTMAL) to serve the steel and paper industries to

substitute imports. On inception it had four partners viz., GHH, VOITH,

KOOPERS and L&T. In the year 1982, it finally came under the umbrella of

L&T group after full acquisition of shares. It however remained a cost

centre for L&T serving several business divisions of the company and in

October 1999, it was structured as a Strategic Business Unit (SBU).

L&T, Kansbahal works is situated in sylvan surroundings of

Kansbahal, Orissa. It is 25 km away from Rourkela and 15 km from

Rajgangpur in the district of Sundergarh, Orissa. It is well connected by

roads and railways.

Kansbahal works is one of the oldest factories in the arsenal of L&T’s

manufacturing bases. It has licensed annual capacity of 12000 tones. It is

an ISO 9001 certified works. It has evolved into a world class integrated

manufacturing centre with facilities for Fabrication, Machining, Assembly

and Casting. This is complemented by excellent design, engineering,


quality control and logistic expertise. Kansbahal works manufactures and

supplies Heavy machinery, Crushing equipments, Paper machinery and

Foundry equipments for Power plants and Windmill.

The commitments to quality and customer satisfaction are the

driving forces for all its activities. The concern for environment is an

integral part of the company's vision.

It manufactures a range of steel, Iron and Alloy Iron including

spheroidised graphite iron castings as well as paper drying cylinders in

vertical pits up to 2000-mm dia and 7500 mm length. Approved by Lloyd’s

register of hipping, London, for manufacture of various grades of ferrous

castings, the foundry can manufacture a single piece casting of maximum

14 tons in steel, 22 tons in cast iron and 18 tons in spherodized graphite

iron. The fabrication shop has a built-up area of 9525 sq.m and can handle

a single unit of maximum 100tons.

The L&T Kansbahal Works has four main shops and they are:

1. Foundry Shop

2. Machine Shop

3. Fabrication Shop

4. Assembly Shop

Products:

1. Paper and pulp machineries

2. Crushing equipments for mining, limestone and minerals

3. Various Foundry Castings

4. Steel plant equipment

5. Surface Minor

6. Hub Casting and Fabrication items for Windmill power sector


VISION

L&T shall be

A professionally-managed Indian

Multinational, committed to total customer

Satisfaction and enhancing shareholders value.

L&T–ites shall be

An innovative, entrepreneurial and

Empowered team, constantly creating value

And attaining global benchmarks.

L&T shall

Foster a culture of caring, trust and

Continuous learning while meeting

Exceptions of employees,


Stakeholders and society.

LARSEN & TOUBRO LIMITED

ORGANIZATION STRUCTURE


T.N. BISWAL ( C.L )

ORGANIZATION STRUCTURE OF FINANCE & ACCOUNTS DEPARTMENT ( KANSBAHAL )


V.N SRIVASTAVA( General Manager )

B.B. DAS( MANAGER )

[ Costing system, Inventory Valuation

and Control, Auditing, Sales Accounting, Customer Ledger ]

S.C. MOHANTY( E3 )

[ Suppliers Payment ]

N. AGRAWAL( MANAGER )

[ Excise, Service tax,

VAT, CST,

General ledger, Final A/c's,

Capital budget ]

P.K. PANI( E2 )

[ Employee related Payment Provident

Fund ]

B.C.RANA( EXECUTIVE )

K. PARIJA( OFFICER )

P.C. ROUT( OFFICER )

M.M. SINGH( OFFICER )

S.K. DAS( C.L )

R.L. PRADHAN( OFFICER )

P. ROY( OFFICER ) A.K. PRASAD

( OFFICER )

S.S. SAHOO( OFFICER )

CAPITAL BUDGETING


D.K. SWAIN( OFFICER )

P. PODDAR( OFFICER )

S. BEURA( C.L )P.K. PATRA

( OFFICER )

CAPITAL BUDGETING

Capital budgeting is the planning process used to determine

whether a firm's long term investments such as new machinery,

replacement machinery, new plants, new products, and research

development projects are worth pursuing. It is the budget for major capital,

or investment, expenditures.

Capital Budgeting is the process in which a business determines

whether projects such as building a new plant or investing in a long-term

venture are worth pursuing. Oftentimes, a prospective project's lifetime

cash inflows and outflows are assessed in order to determine whether the

returns generated meet a sufficient target benchmark.

Capital Budgeting of an organisation includes the budgeting of all the

capital expenditures incurred in it. A capital expenditure is an expenditure

that is shown as an asset on the balance sheet. This asset, except in the

case of a non-depreciable asset like land, is depreciated over its life.

Capital expenditures have long term consequences.

Capital Expenditures include purchase of fixed assets.

Fixed Assets have 2 characteristics:

They are acquired for use over relatively long periods for carrying on

the operations of the firm and

They are not ordinarily meant for sale.

These fixed assets that are used at L&T are:

a) Factory Building

b) Non Factory Building

c) Plant and Machinery

d) Computer items

e) Furniture and Fixtures

f) Office Equipment


http://en.wikipedia.org/wiki/Capital_(economics)

http://en.wikipedia.org/wiki/Investment

g) Air Conditioning and Refrigeration

h) Photographic Equipment

i) Laboratory equipment

j) Vehicles

GUIDELINES FOR PREPARATION OF CAPITAL EXPENDITURES AND

INVESTMENT BUDGET :

A) CLASSIFICATION:

The Capital Expenditure (CAPEX) Budget will be analysed in the

following categories:

Real Estate i.e., Land (Free hold or Lease hold )

Real Estate i.e., Buildings ( Factory or Office / Commercial or

Residential Flats )

Plant and Machinery - General or specific

Information Technology (IT) related items - PC's, Laptops, Servers,

Photo copiers / Printers, Softwares, etc.

Special items - Transit houses and holiday homes, Vehicles,

Equipment for Medical/Welfare centres, Cars under employee car

scheme, Personal computers for employees under the company's

scheme, Aircraft, Others

Other office equipment

Furniture and Fixtures

The proposals should be entered in the appropriate subcategories under

respective categories.

The proposals for Real Estate and Plant & Machinery should contain

detailed item wise justification.

All proposals should be substantiated and collaborated with the complete

plan.

Specific plant and machinery items refer to:

a) New investments,


b) Expansion and

c) Items bought for targeted jobs

The specific and general P/M are budgeted under the aforesaid three

sub-categories with a detailed rationale covering all norms, such as Net

Present Value (NPV), Payback period, Project Internal Rate of Return (IRR).

The above norms should be justified with respect to probability of

award of job and its expected use and residual value post completion of

the job.

B) BUDGET PROPOSALS:

A detailed justification for the purchase of the new asset should be

submitted. The increase in revenues, contribution and cost savings

that will be achieved should also be given, wherever applicable.

The proposals should be comprehensive and must include cost of

consequential proposals such as stamp duty, registration charges,

material handling equipment, stores, land / site clearing, etc.

In case of proposal for general P&M costing Rs.150 lakhs or more &

specific P&M budgeted under new investments or expansion,

Payback Period, Net Present Value ( NPV ), and Project Internal Rate

of Return (IRR ) calculations should be furnished. NPV should be

arrived at using Weighted Average Cost of Capital (WACC).

Proposals for acquiring Plant & Machinery in anticipation of customer

orders should indicate the customer orders, the probability of getting

these orders and the redeployment plan for these assets after

execution of the orders.

For real estate proposals covering “construction", breakup of cost

into civil, electrical and air conditioning along with area and rate per

sq. meter should be provided. Cost of land, if applicable, should also

be separately disclosed along with likely stamp duty, registration

charges, land development expenses, etc.

Proposals for replacement of asset:


Details of existing asset:

a) Type of equipment

b) Year of purchase

c) Original cost, Written Down Value (WDV )

d) Present Capacity Utilization

e) Breakdown hours

f) Annual maintenance cost trend

g) Any major cost to be incurred

h) Estimated net realizable value

Proposed replacement:

a) Improvements expected including additional production

anticipated, cost saving, efficiency improvements, etc.

b) Cost of replacement

C) CARRY OVER PROPOSALS:

There will be no automatic carryover of proposals sanctioned for

the current year.

Carryover of proposals will be allowed only for partly committed

jobs / sanctions and the carry over proposals should be budgeted

based on the latest prices / costs.

In case of items where the cost is likely to exceed the amount

already sanctioned, a detailed justification should be given for

amounts exceeding 5% of the original estimate or Rs. 10 lakhs

(whichever is more).

D) HIRE OR LEASE OF ASSETS:

At times capital assets are taken on a long term hire, which is

similar to leasing of the assets. It is suggested that these


proposals should also be submitted to the finance dept. where the

annual outgo of rentals on account of such assets exceeds Rs. 20

lakhs. Such assets should form part of the proposals for the capital

sanction.

E) COSTS:

The amount to be indicated against each proposal should include

all taxes, duties, cost of accessories, spares, installation charges,

etc.

The cost of office space should include cost of modification,

transfer expenses, stamp duty, registration charges, etc.

F) PROPOSAL EVALUATION:

The CAPEX budget would be approved based on the Company's

cash flow position for the budget year.

All capital expenditure proposals are evaluated and sanctioned on

the basis of information given along with the Budget proposals. It

is therefore necessary that complete description and justification

of the proposals are given to facilitate sanction.

Further, it may be noted that a proposal sanctioned towards a

particular asset cannot be utilized for any other asset . In case for

requirement for substitution prior approval of the H.O Finance

dept. will be necessary.

G) MONTHLY REPORTING OF CAPITAL EXPENDITURE:

Budgeting units should ensure that they report to the H.O Finance

dept. on a monthly basis, about the item wise commitments and

cash flows for the sanctioned projects through utilization

statements.


CAPITAL BUDGETING PROCESS:

Capital Budgeting is a complex process which may be divided into

the following phases:

Identification of potential investment opportunities:

The capital budgeting process begins with the identification of

potential investment opportunities. Typically, the planning body develops

estimates of future sales which serve as the basis for setting production

targets. This information, in turn, is helpful in identifying required

investments in plant & machinery and equipment.

Assembling of Investment Proposals:

Investment proposals identified by the production department and

other department are routed through several persons. The purpose of

routing a proposal through several persons is primarily to ensure that the

proposal is viewed from different angles. It also helps in creating a climate

for bringing about coordination of interrelated activities. Then the

proposals are usually submitted in a standardised capital investment

proposal form.

Project Classification:

Normally projects are classified into different categories to have a

detailed analysis. Project analysis entails time and effort. The costs


incurred in this exercise must be justified by the benefits from it.

a) Mandatory Investments: These are expenditures required to

comply with statutory requirements such as pollution control

equipment, medical dispensary, fire fitting equipment and so on.

These are often non revenue producing investments. In analysing

such investments the focus is mainly on finding the most cost-

effective way of fulfilling a given statutory need.

b) Replacement Projects: The Company routinely invest in

equipments meant to replace obsolete and inefficient

equipments, even though they may be in a serviceable condition.

The objective of such investments is to reduce costs of labour,

raw material, and power. And also to increase yield and improve

quality.

c) Expansion Projects: These investments are meant to increase

capacity and widen the distribution network. Such investments

call for an explicit forecast of growth. Since this can be risky and

complex, expansion projects normally warrant more careful

analysis. Decisions relating to such projects are taken by the top

management.

d) Diversification Projects: These investments are aimed at

producing new products or services. Often diversification projects

entail substantial risks, involve large outlays and require

considerable managerial effort and attention. Given their

strategic importance, such projects call for a very thorough

evaluation, both quantitative and qualitative. Further they require

a significant involvement of the board of directors.

e) Research and Development Projects: R&D projects are

characterised by numerous uncertainties and typically involve

sequential decision making. Such projects are decided on the

basis of managerial judgement.

f) Miscellaneous Projects: This is a catch-all category that

includes items like interior decoration, recreational facilities,

landscaped gardens, and so on. There is no standard approach


for evaluating these projects and decisions regarding them are

based on personal preferences of top management.

Investment Criteria:

Investments in most of the projects should fulfil some criteria's so

that the project is accepted or else the project will be rejected. The

investment criteria that are followed at L&T, Kansbahal works are Net

Present Value (NPV) and Payback Period.

ANALYSIS OF CAPITAL BUDGETING PROCESS FOR THE

INSTALLATION OF VERTICAL LATHE M/C IN MACHINE SHOP AT

L&T, KANSBAHAL WORKS

Machine shop is a vital link that concretizes and fructifies the parts

which are to be assembled in the assembly shop.

The machine shop can be divided into :

1) Lathe shop

a) Centre lathe

b) Vertical lathe

c) Facing lathe

2) Boring group

a) Table borer

b) Floor borer

c) CNC borer

3) Central group

a) Marking

b) Miscellaneous machines


The operations that can be performed in Lathe shop are:

OD and ID Turning

Taper Turning

External threading

Internal Threading

Parting

Grooving

Chamfering, etc.

There were 4 vertical lathe machines available in the machine shop:

a) M/C No. - 021

b) M/C No. - 037

c) M/C No. - 032

d) M/C No. - 033

M/C No. - 033 was windmill component machinery.

Chuck dial - 4770 mm.

Height - 4 m.

Weight carrying capacity - 80 tons

But due to a major order from Bokaro Steel Plant, the Chuck Dial required

for the specified job was 5300 mm.

Hence the new Vertical Lathe was proposed to be bought, so as for the

completion of the order and to work out more no. of such orders. The

estimated total expenditure of the Vertical Lathe M/C was calculated to be

600 lakhs. Availing of the new machinery will result in:

1. Improving productivity

2. Increasing existing capacity

3. Creating new capacity and

4. Getting more no. of specific sales order


This particular investment was categorised as an Expansion project

and the Net present value (NPV) and Payback period were calculated to

check the feasibility of the project.

a) Net Present Value (NPV):

The Net present value of a project is the sum of the present values of

all the cash flows that are expected to occur over the life of the project.

Net present value of an investment/project is the difference between

present value of cash inflows and cash outflows. The present values of

cash flows are obtained at a discount rate equivalent to the cost of capital.

The decision rule associated with the net present value criterion is: Accept

the project if NPV is positive and reject the project if NPV is negative. If

NPV is zero, it is a matter of indifference.

The vertical lathe's present value of cash inflows is equal to Rs.

2191.19 lakhs which is much greater than Rs. 600 lakhs. Thus it generates

a positive net present value of Rs.1591.18 lakhs. Hence, this project adds

to the wealth of owners; therefore, it should be accepted.

b) Payback Period:

Payback period is the time duration required to recoup the

investment committed to a project. It is the length of time required to

recover the initial cash outlay on the project. According to the payback

criterion, the shorter the payback period, the more desirable is the project.

Firms using this criterion generally specify the maximum acceptable

payback period. If this is 'n' years, projects with a payback period of 'n'

years or less are deemed worthwhile and projects with a payback period

exceeding 'n' years are considered unworthy.

Preparation of Capital Expenditure Budget Proposals:

According to the requirement of materials by the different

departments of the unit, the Head of the Dept. writes a letter to the

Accounts Dept. mentioning the description, quantity and justification for


the purchase of those. Then the A/c's dept. prepares a budget proposal in

the mentioned format:

Cash Outflow

Sl. No.

Description

Qty.

Amount ( in

lakhs )Dept.

1st qtr.

2nd

qtr.

3rd qtr.

4th

qtr.

Justification

1Vertical Lathe

Machine1 600

Machine shop

0 0 600 0

For a specific & repetitive order

Increase in capacity

Submission of Budget:

Then the Budget proposals that are prepared in the unit are

submitted to the Head Office, Mumbai on the CAPEX System operating

on the intranet (http://172.25.11.2/capex/Login.aspx). This system will be

the platform for the submission of the CAPEX requests, release of

sanctions, monitoring of actual commitment and cash outflow. All the

requests are submitted through this proposal only. After the acceptance

from the head office the H.O. sends a letter of Capital sanction.

Capital Sanction:

The Head office then analyzes the proposal sent by its units and

sanctions capital accordingly. This is then sent to the individual units A/c's

dept... The A/c's department of the units then informs the individual units

whether their budgets are sanctioned or not.

Capital Sanction Format:

Sanctio

n No.

Projec

t No.Description

Capital

Sanctioned

( in lakhs )

Categor

yDept.


04378 56453

Vertical

Lathe

Machine

600 P/M Machine

shop

Capital Job Requisition:

This is prepared by the individual departments of the unit after the

project sanction and also according to the amount sanctioned; mentioning

the description, quantity, expected time for its use and the justification of

the requirement. For ex: To improve productivity, to increase existing

capacity or Replacement. And is then sent to the concerned heads such as

A/c's Head and Vice-President of Management for approval.

Capital Job Requisition ( CJR ) Format:

Initiated by Date

For Department-Machine shop

For Cost Centre- KBL Works

Asset Group Description - Vertical Lathe Machine

Quantity - 1

Supplier

When Reqd.

Expected Delivery

Execution

Departmental Contract

Indigenous Import

Estimated } Landed Cost Cash Outlay

Estimated

Checked

Cost } Installation Month Month

}Total(GrossValue) In

Month Month

Justification

1Improving Productivity 5

StatutoryObligation

2Increasingexistingcapacity 6

Welfare of Workmen/Community

3 Creating new capacity 7Replacement(state disposal of old assets)

4Specific sales order No. 8 Others(specify)

Extra Man PowerExtra Space

No. of Shifts

Horse Power

Any Incidental capital

Single outlay required


Grade : Area Sq m. (Specify)

Double

No: Location Treble Is the item included in your approved Budget: Is the estimated cost within the

YES NO approved budget ? YES NO

if NO ; Reason for this proposal if No reason for Excess

Departmental Head Divisional Head

(ACCOUNTS) (BUDGET)

1. Is this item approved in the Capital budget ?

1. Cash flow Certified 2. Is the Estimate within budget allocation?

2 3. Is budget over-run for any other item for Dept./CC?

3 4. Other Comments

(Date) (Accounts Department) (Date) (Budget Section)

(MANAGEMENT) (BUDGET)

1. Approved. 1. Appropriation noted Yes

2. Rejected. 2. Project No. :

3. Postponed 3. Head of account

4. Accounts advised on

(Date) ( Vice - President) (Date)

(Budget Section)

Purchase Requisition:

After the approval of the Capital Job Requisition ( CJR ) by the

Department heads, a Purchase Requisition ( PR ) is prepared and is sent to

the Purchase dept. for the purchase of the required materials mentioning

the quantity of those, the suppliers and the date of requirement.

Requisition Date: Estimated Value:

Larsen and Toubro Ltd., Kansbahal worksProject:

Cost Centre: 401 Group:EO Number: A/C No.: 7402 Line no.

Item No.

Description Quantity Unit Cost

Required Date

Total Cost


Delivery Instructions:

Purchase Order:

Now Purchase order is placed by the Purchase dept. to the Suppliers

for those items.

Larsen &Toubro Ltd., Machinery & Industrial Products

Division, Kansbahal Works, Kansbahal-770034,

Dist.: Sundergarh

Purchase Order No.:

Date:

AMD No.:

Vendor's Name & Address Vendor's Reference

Terms of payment:

Item no.

Material Stock

code/ Description

Deliver

y Qty.

Delivery

Schedule Unit rate Total price

Capital Work In Progress (CWIP ):

CWIP is done on quarterly basis. and as the order is received, the

product is installed and commissioned and is then put into Capital Work In

Progress (CWIP ).

CWIP list as on 16-03-2010

Project

No. Description Category

Dept

.

Original

Capital

Sanctione

d

Amoun

t as on

Jan 1st

Deletion

during

Jan 1st

to Mar

31st

Addition

during

Jan 1st to

Mar 31st

CWIP

as on

Feb

16th


Job Closure Report:

Larsen & Toubro Limited, Kansbahal Works

JOB CLOSURE REPORT

ISSUED TO : DEPT : ISSUED : DATE

CODE

WARD CC ORDER NO :

PROJECTNO:

ACCOUNTS JOB :

GR. DRG. ITEM NO :

DATE OF FINISH :

DELIVERED TO :

NET WEIGHT :

APPX. DIMENSION :

ITEM PURCHASED :

( SIGNITURE )

Capitalization:

It is a process in which a product or a sanctioned budget is

capitalized or converted into a fixed asset from the amount available in

Capital Work In Progress ( CWIP ).

CWIP to Fixed Asset:

i. Asset schedule for Land and Plant & Machinery:

Asset Schedule for the period April 2008 to March 2009

Asset No.

Original cost

Book

value

(1st

DEPSLM

WDV ( March31

st)

REPVALU

E

REPWD

VOPN

BOOK

DEPN

REPWD

VCLO

REVRESOPN

RECUPE

MENT

REVRESCLO


April )

ii. Asset schedule for Furniture& Fixtures, Office

equipment and Vehicles:

Asset Schedule for the period April 2008 to March 2009

Asse

t No.

Descriptio

n

Further

Particular

s

Dt. Of

Purchase

Qty

.

Origina

l Value

WDV

OPN

(April

1st)

Dep.

SLM

WDVCL

( 31st

March )

Thus the Asset is converted from CWIP to a fixed asset of the

company and the process is termed as Capitalization where a fixed

amount is depreciated each year.

Fixed Assets Register:

After the asset is capitalized, a Fixed Asset Register is maintained to

keep a record of all the assets of the organization. Here all the details of

the asset are recorded to keep a track on those.

Dept

.

code

Descriptio

n

Instal

l

ation

date

Asset

categor

y

Quantit

y

Original

value

Dep.

Rate

WDV

OPN

DEP

SLM

D

WDV

CLO

REP

VALU

E


Depreciation:

L&T, Kansbahal follows two types of depreciation methods:

Straight Line Method ( SLM ) - used for Book depreciation.

Written Down Value ( WDV ) - used for IT depreciation.

Depreciation on revalued assets is calculated on Straight Line basis on the

values and at the rates given by the valuers. The difference between

depreciation on the assets based on revaluation and that on original cost is

transferred from Revaluation A/c to Profit-Loss A/c.

a) Tangible Assets: Rate of Depreciation

I) Building:

Residential Purpose - 2.5%

Non Residential Purpose - 5%

Temporary Erections - 50%

II) Furniture & Fixtures :

General ( including electrical fittings ) - 5%

Colleges & other educational

Institutions, Library,

Welfare centres, City malls - 5%

III) Plant & Machinery:

General installed in the factory

Premises - 7.5%


Motor cars & other vehicles - 7.5%

Air pollution control equipment - 50%

Water pollution control equipment - 50%

Computers - 30%

Energy saving devices - 40%

Renewable energy devices - 40%

Furnace - 40%

Railway sidings - 7.5%

Ships - 10%

Laboratory equipments - 12.5%

Canteen equipment - 12.5%

Air conditioning & Refrigeration - 8.33%

Office equipment - 6.67%

b) Intangible assets:

Computer software - 30%

Other intangible assets - 12.5%

Depreciation Statement for an assessment year:

Depreciation Statement ( WDV method )

( Assessment Year 2008-09 )

[ Previous year ended 31-03-2008 ]

Asset descriptio

nOpening

WDV

Additions during

the year

Sale during

the year

WDVbefore dep.

Normal rate of

dep.

Dep. allowabl

e

WDV as on 31-03-2009

Grinder

1,78,63,7

76 27,670 -

17,891,4

46 5 %

894,57

2

16,996,8

74


Sale of Fixed assets:

After a use for a defined time-period, when an asset is no longer in

use the unit decides to sell the asset.

Sale of Fixed Assets during Oct-09 to Dec-09

Asset no. Description

Installation Date

Qty.

OriginalValue

Dep. Rate

WDVOPN

Sale Date

Dep SLM

WDVCLO

Sale value

Profit/Loss

Sold to

TAXATION


Tax

A Tax is a payment made by the person who has earned income

during a year to the government. Tax is nothing but it is a charge made by

the government on the goods, travelling, medicine, etc. that is a sort of

income to the government and this money is used for developing purpose.

Tax is a major source of revenue to the government. Tax is the price which

we pay for a civilised society. Broadly, Tax is divided into 2 categories:

A) Direct Tax:

Direct taxes are those which the taxpayer pays directly from his

income/ wealth/ estate, etc... Direct taxes are those which are paid after

the income reaches the hands of the tax-payer.

Income Tax:

An income tax is a tax levied on the financial income of persons,

corporations, or other legal entities. As per section-14, income of a person

is computed under the following heads:

1) Salaries :

The term salary includes:

a) Wagesb) Any annuity or pensionc) Gratuity


d) Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages

e) Any advance of salaryf) Leave encashmentg) Annual accretion to the credit balance in a recognised provident

fund

2) Income from house property:

Rent received from building or land appurtenant (i.e., land attached to

the building)

3) Profits and gains of business or profession:

a) Income derived by a trade or profession

b) Compensation or other payment received

c) Profit on sale of a licence granted under the imports order

d) Cash assistance received against exports

e) Value of any benefits or perquisites arising from a business or the

exercise of a profession

f) Interest, salary, bonus, commission or remuneration due to or

received by a partner of a firm

4) Capital gains:

Any profit or gain arising from the sale or transfer of a capital asset.

Capital asset is defined to include property of any kind, whether fixed or

circulating, movable or immovable, tangible or intangible.

Short term capital assets are:

a) Equity or preference shares

b) Securities like debentures or government securities

c) Units of UTI

d) Units of Mutual fund

e) Zero coupon bonds

An asset other than a short term capital asset is regarded as long term

capital asset.


5) Income from other sources:

Incomes from other sources include:

a) Dividends

b) Income from subletting

c) Interests on bank deposits and loans

d) Income from royalty

e) Director's fees

f) Director's commission

g) Ground rent

h) Agricultural income

i) Examination fees received by a teacher

j) Insurance commission

k) Winning from lotteries, etc.

Tax Rates that are currently applicable are:

For Resident woman ( who is below 65 years):

Net income range ( Rs.) Income tax rate ( % ) Education cess Secondary and Higher education cess

<= 1,90,000 Nil Nil Nil

1,90,000 - 5,00,000 10% 2% of income tax 1% of income tax


>= 8,00,000 30% 2% of income tax 1% of income tax

For Resident senior citizen ( who is 65 years or

more ):


<= 2,40,000 Nil Nil Nil





For any other individual:


<= 1,60,000 Nil Nil Nil




B) Indirect Tax:

Indirect taxes are those which the tax-payer pays indirectly i.e.,

while purchasing goods and commodities, paying for services, etc...

Indirect taxes are paid before the goods or a service reaches the tax

payer.

a) Central Excise Duty or Central Value Added Tax ( CENVAT ):

Central Excise is a tax on act of manufacture or production. Central

Excise Duty is imposed and collected on excisable goods ( that are

movable and marketable ) which are manufactured or produced in India.

Excisable goods are those that are included in Central Excise Tariff Act,

1985. It is collected by Central Govt. of India.

Basic Excise Duty - 10%

Education Cess - 2% on Basic excise duty (w.e.f. 9-7-

2004)

Secondary & Higher Education Cess - 1% on Basic excise duty (w.e.f.

1-3-2007)

For example:


Line Filter is a product that is manufactured and supplied by L&T,

Kansbahal. Total cost of the machine is Rs. 33,040/-and after addition of

excise duty amount the total value went up to Rs.36, 443.12. The excise

duty is charged as the product is been manufactured here.

Item CSH No. Description Quantity Rate(Rs.) Amount(Rs.)

880339 84314990 Line Filter 4 8,260.00 33,040.00

Assessable Value 33,040.00Excise Duty (%)

Excise Duty

Amount

E-Cess Rate (%)

E-Cess Amount

SHE-Cess Rate (%)

SHE-Cess Amount

10% 3,304.00 2% 66.1 1% 33.04 Total Excise Duty

3,403.12

Net Amount 36,443.12

Source: L&T Tax Invoice (Reference: Annexure)

b) Value Added Tax ( VAT ):

It is an act to provide for the imposition and collection of tax on the

sale or purchase of goods in the state. It extends to the whole of the state

of Orissa. It is collected by State Government. VAT is applicable on a

product after excise duty is imposed on it. It is a consumption tax as it is

paid by the final customer. All business transactions carried on within a

state by individuals, partnerships, companies, etc. will be covered under

VAT. Annual turnover of Rs. 2, 00,000/- or more will be covered under VAT.

Under the VAT system, 550 goods are covered.

Tax rates under VAT:

Zero Rate: Exempted goods such as flood relief goods.

1%: Part I of the schedule.

4%: Part II of the schedule covering 210 items such as

medicines and drugs, all agricultural and industrial inputs,

capital goods and declared goods.

12.5%: Part III of the schedule covering all remaining goods.

Item CSH No. Descriptio Quantit Rate(Rs.) Amount(Rs.)


n y

880339 84314990 Line Filter 4 8,260.00 33,040.00

Assessable Value 33,040.00

Excise Duty (%)

Excise Duty

Amount

E-Cess Rate (%)

E-Cess Amount

SHE-Cess Rate (%)

SHE-Cess

Amount

10% 3,304.00 2% 66.1 1% 33.04Total Excise Duty

3,403.12

Amount on which VAT is payable 36,443.12

VAT @ 12.5% 4,555.39

Net Value 40,998.51


VAT is a multipoint tax system with provision for input tax credit /

setoff tax paid on purchase at each point of sale.VAT liability of the dealer

is calculated by deducting input tax credit from tax collected on sales

during the payment period (say, a month).

c) Entry Tax:

An act to provide for the levy and collection of tax on the

entry of goods into the local areas of the state of Orissa for

consumption, use or sale therein and matters incidental thereto

and connected therewith. It is a tax collected for local

development.

A local area means the areas within the limits of any:

i) Municipal corporation

ii) Municipality

iii) Notified area council

iv) Gram panchayat

v) Industrial township

vi) Other local authority by whatever name called, constituted or

continued in any law for the time being in force.


Rate of tax:

The tax payable by a dealer or any other person under the act shall

be at the following rates:

i) Subject to the provisions, the goods specified in Part I of the

schedule (116 items) to the act shall be charged at the rate of 1% of

the purchase value.

L&T Products:

Coal & coke

Cotton yarn

Iron and steel

Furnace oil

Kerosene

Sheets & rods

Bricks & roofing tiles

Paper

LPG & Natural gases

Telephone & accessories

Petrol, Diesel and lubricants

Cement & asbestos

Doors and shutters

Plywood

Sheet glass

Computer & Softwares

Office stationary

ii) Subject to the provisions, the goods specified in Part II of the

schedule ( 43 items ) to the act shall be charged at the rate of 2% of

the purchase value.

L&T Products:

Electrical goods including

motors, conductors & cables

Electrical appliances

Voltage stabiliser

Machinery and equipments and

spare parts

Furniture including steel,

plastic and aluminium

Elevator and lift

Generator and transformer

Copier, Xerox machine, Fax

TV, VCD, DVD, Camera

All motor vehicles

Marbles and Tiles

Air conditioners, Refrigerators

Air coolers

Ferro alloys


Entry Tax Procedure:

Item CSH No. Description

Quantity Rate(Rs.) Amount(Rs.)

880339 84314990 Line Filter 4 8,260.00 33,040.00


Excise Duty (%)

Excise Duty Amount

E-Cess Rate (%)

E-Cess Amount

SHE-Cess

Rate (%)

SHE-Cess Amount


3,403.12

Amount on which VAT is payable 36,443.12

VAT @ 12.5% 4,555.39

Net Value 40,998.51

Entry Tax @ 2% 819.97

Net Payable 41,818.00


Entry tax in case of intra state transactions (i.e., within a state), the

tax is given by the buyer to the seller of the goods and it is mentioned in

the invoice. After the buyer collects the tax he deposits it to the Govt. But

in case of interstate transactions (i.e., one state to another), the tax is

given by the buyer to the Govt. directly and it is not mentioned in the

invoice.

d) Central Sales Tax ( CST ):

It is an act to formulate principles for determining when a sale or

purchase of goods takes place in the course of inter-state trade or

commerce or outside a state or in the course of import into or export from

India, to provide for the levy, collection and distribution of taxes on sale of

goods in the course of interstate trade or commerce and to declare certain

goods to be of special importance in interstate trade or commerce and

specify the restrictions and conditions to which state laws imposing taxes


on the sale or purchase of such goods of special importance shall be

subject.

Rate of Central Sales Tax (CST) is 2%. It extends to the whole of India.


880339 84314990 Line Filter 4 8,260.00 33,040.00


Excise Duty(%)

Excise Duty Amount

E-Cess Rate(%)

E-Cess Amount

SHE-Cess Rate(%)

SHE-Cess Amount


3,403.12

Amount on which CST is payable 36,443.12

CST @ 2% 728.86

Net Value 37,171.98

Entry Tax 0

Net Payable 37,171.98

In case of Central Sales Tax (CST), ), the Entry tax is given by the

buyer to the Govt. directly and it is not mentioned in the invoice.

e) Service Tax:

Service tax is a form of indirect tax imposed on specified services

called "taxable services". Service tax cannot be levied on any service

which is not included in the list of taxable services. Service tax is levied on

the value of such taxable service that shall be equivalent to the gross

amount charged by the service provider to provide similar service to any

other person in the ordinary course of trade and the gross amount charged


is the sole consideration. Over the last few years, service tax has been

expanded to cover new services. The intention of the government is to

gradually increase the list of taxable services until most services fall within

the scope of service tax. Till now 100 services have been made taxable.

The common services that are included are:

Advertisement services

Asset management services

Auction services

ATM operation & management

services

Banking & other financial

services

Broadcasting services

Business support services

Cargo and port handling

services

Cleaning services

Construction services

Courier services

Insurance services

Internet telephony services

Stock broking services

Presently the rate of service tax that is levied is:

Basic Service Tax - 10%

Education Cess - 2% on Basic excise duty (w.e.f. 9-7-

2004)

Secondary & Higher Education Cess - 1% on Basic excise duty (w.e.f.

1-3-2007)


880339 84314990Commissioning of Line Filter 4 8,260.00 33,040.00


Service Tax (%)

Service Tax

Amount

E-Cess Rate (%)

E-Cess Amount

SHE-Cess

Rate (%)

SHE-Cess Amount

10% 3,304.00 2% 66.1 1% 33.04 Total Service tax

3,403.12

Net Amount Payable 36,443.12


WORKING

CAPITAL

MANAGEMENT

WORKING CAPITAL MANAGEMENT INTRODUCTION

Proper management of working capital is very important for the

success of an enterprise. It aims at protecting the purchasing power of

assets and maximizing the return on investment. Constant management is

required to maintain appropriate levels in the various working capital

components. Sales expansion, dividend declaration, plant expansion, new

product line, increased salaries and wages, rising price levels etc. put

added strain on working capital maintenance.


Business concerns need funds for carrying on the business. These

funds are acquired either from equity or on borrowed basis. Concern

utilizes a part of the funds for acquiring fixed assets and other for long

term purposes. Apart from financing for investing in fixed asset, every

business concern also require funds on a continual basis for carrying on its

day-to-day operations. These include amount incurred for purchase of raw

materials, for processing them, constructions work, etc.. Working capital

refers to the sources of financing required to by business on continual

basis for meeting these needs.

MEANING OF WORKING CAPITAL:

Working capital typically means the firm’s holding of current or

short-term assets such as cash, cash receivables, inventory, and

marketable securities. Working capital focuses on the efficient

management of the individual current assets in the day-to-day operation of

the business. Working capital is that part of firm’s current assets which are

financed by long term funds when we take working capital as excess of

current assets over current liabilities. The net working capital provides an

accurate assessment of the liquidity position of the firm. With the liquidity

and profitability dilemma solidly authenticated in the financial scheme of

management, concerned efforts are made to ensure the ability of the firm

to meet the obligations, which mature within twelve month period.

Management must always ensure the solvency and viability of the firm.

The definition of working capital is fairly simple; it is the difference

between an organization's current assets and its current liabilities. Of more

importance, is it's function which is primarily to support the day-to-day

financial operations of an organization, including the purchase of stock, the

payment of salaries, wages and other business expenses, and the

financing of credit sales.

Working capital comprises a number of different items and its

management is difficult since these are often linked. Hence altering one

item may impact adversely upon other areas of the business. For example,

a reduction in the level of stock will see a fall in storage costs and reduce

the danger of goods becoming obsolete. It will also reduce the level of


resources that an organization has tied up in stock. However, such an

action may damage an organization's relationship with its customers as

they are forced to wait for new stock to be delivered, or worse still may

result in lost sales as customers go elsewhere.

NEED OF WORKING CAPITAL MANAGEMENT:

The working capital management refers to “Management of working

capital ", or, to be more precise “The management of current assets". A

firm’s working capital consists of its investment in current assets which

include short term assets such as cash and bank balance, inventories,

receivable and marketable securities, etc. So the working capital refers to

the management of the level of all these individual current assets. The

need for working capital management arises from two considerations:

i. Firstly, existence of working capital is imperative in any firm. The

fixed assets, which usually require a large chunk of total funds, can

be used as an optimal level of only if supported by sufficient working

capital, and

ii. Secondly, the working involves investment of funds of the firm. If the

working capital level is not properly maintained and managed, then

it may result in unnecessary blocking of scarce resources of the firm.

The insufficient working capital, on the other hand, put different

hindrances in smooth working of the firm. Therefore, the working

capital management needs attention of all financial managers”.

Proper management of Working Capital is very important for the

success of an enterprise. It aims at protecting the purchasing power of

assets and maximizing the return on investment. Constant management is

required to maintain appropriate levels in the various working capital

components.

It has been found that the major portion of a financial manager’s

time is utilized in the management of working capital. Current assets are a

large portion of the total investment of a firm. In some of the industries,

current assets account for a very large portion of the total investment of a

firm. In some of the industrial current assets on an average represent over


three-fifth of the total assets. In the case of trading concerns they account

for about 80 percent.

CONCEPTS OF WORKING CAPITAL:

There are two concepts regarding the meaning of Working Capital:

Gross Working Capital

Net Working Capital.

i. Gross Working Capital includes investment of a firm only in

current assets. Current assets are those which can be converted into

cash within an accounting year. They are cash, Sundry debtors,

Inventories and Short term securities, etc.. Current assets are of

circulating nature so it should be considered as working capital.

There would be an automatic increase in the Working Capital with

every increase in the funds of the company.

Gross Working Capital = Current Assets

GROSS WORKING CAPITAL OF L&T, KANSBAHAL WORKS FOR LAST

FIVE YEARS. (2005-2009)

CURRENT ASSETS:

As On 31-03-2010

As On 31-03-2009

As On 31-03-2008

As On 31-03-2007

As On 31-03-2006

INVENTORY:

60,93,96,591 90,37,34,909 77,24,35,692 62,66,18,535 67,10,58,974

Raw Materials

24,39,09,257 27,34,76,341 27,74,11,232 19,64,69,859 21,24,39,125

Work-In-Progress

26,41,31,520 49,80,05,436 33,76,71,000 32,71,20,950 34,96,27,890

Components 5,71,13,408 9,98,69,097 10,97,03,495 5,01,78,739 8,12,46,579


Stores and Spares

3,51,89,225 2,15,96,355 1,24,03,765 79,30,291 85,08,020

Finished Goods

90,53,182 1,07,87,680 3,52,46,200 4,49,18,696 1,92,37,360

SUNDRY DEBTORS

79,19,16,010 75,18,68,597 90,56,40,467 76,32,29,126 43,99,44,793

CASH AND BANK

BALANCE37,325 46,629 31,82,292 -10,89,505 -34,790

LOANS AND ADVANCES

19,46,36,758 13,34,51,167 14,20,21,170 14,67,04,521 11,03,89,478

WIP SUSPENSE

- 20,53,89,590 - - -

TOTAL CURRENT

ASSETS

1,59,59,86,683

1,99,44,90,892

1,82,32,79,621

1,53,54,62,677

1,22,13,58,455

Source-Financial records, L&T, Kansbahal Works

From the above table it is clear that the Gross Working Capital is

increasing in a very smooth way. It means the company’s liquidity position

is well.

ii. Net Working Capital refers to the excess of current assets over

current liabilities. Current liabilities are claims of outsiders expected

to mature within an accounting year. It includes Bills payable, Sundry

Creditors, Bank overdraft, Outstanding Expenses.etc. This concept of

Working Capital enables the shareholders to judge the financial

soundness of the concern and the extent of protection affordable to

them. It is particularly because with an increase in short term-

borrowings the, Working Capital does not increase. It is increase only

by following the policy by ploughing back of profits or conversion of

fixed assets into liquid assets or by procuring fresh capital from

Shareholders.


Net Working Capital = Current Assets – Current Liabilities.

NET WORKING CAPITAL OF L&T, KANSBAHAL WORKS FOR LAST FIVE

YEARS (2005-2009)

CURRENT ASSETS:

As On 31-03-2010

As On 31-03-2009

As On 31-03-2008

As On 31-03-2007

As On 31-03-2006

INVENTORY: 60,93,96,591 90,37,34,90

977,24,35,692 62,66,18,535 67,10,58,974

Raw Materials 24,39,09,257 27,34,76,341 27,74,11,232 19,64,69,859 21,24,39,125

Work-In-Progress

26,41,31,520 49,80,05,436 33,76,71,000 32,71,20,950 34,96,27,890

Components 5,71,13,408 9,98,69,097 10,97,03,495 5,01,78,739 8,12,46,579

Stores and Spares

3,51,89,225 2,15,96,355 1,24,03,765 79,30,291 85,08,020

Finished Goods 90,53,182 1,07,87,680 3,52,46,200 4,49,18,696 1,92,37,360

SUNDRY DEBTORS

79,19,16,010 75,18,68,597 90,56,40,467 76,32,29,126 43,99,44,793

CASH AND BANK

BALANCE37,325 46,629 31,82,292 -10,89,505 -34,790

LOANS AND ADVANCES

19,46,36,758 13,34,51,167 14,20,21,170 14,67,04,521 11,03,89,478

WIP SUSPENSE

- 20,53,89,590 - - -

TOTAL CURRENT

ASSETS

1,59,59,86,683

1,99,44,90,892

1,82,32,79,621

1,53,54,62,677

1,22,13,58,455

CURRENT LIABILITIES:

ACCEPTANCE 49,22,756 4,87,02,959 7,02,10,424 4,54,92,432 4,56,04,223

SUNDRY CREDITORS

69,46,83,732 66,69,63,221 58,32,79,469 46,80,24,418 27,96,14,624


ADVANCE FROM

CUSTOMER19,20,17,663 31,95,86,708 25,18,07,664 16,02,57,352 19,89,65,696

PROVISIONS - 35,77,635 36,09,716 30,90,608 41,50,660

TOTAL CURRENT

LIABILITIES89,16,24,150

1,03,88,30,523

90,89,07,273 67,68,64,810 52,83,35,183

NET WORKING CAPITAL

70,43,62,533 95,56,60,369 91,43,72,348 85,85,97,867 69,30,23,272


From the above table it can be seen that the amount of net working

capital for the company for the previous five years is fluctuating. The net

working capital is high in the year 2008-09. The net working capital is

always positive in nature i.e. current assets are always more than current

liabilities. The greater the amount of net working capital, the greater the

liquidity of the company.

MANAGING OF WORKING CAPITAL

Working Capital Management is the process of planning and

controlling the level of mix of current assets of the firm as well as financing

these assets. Specifically, Working Capital management requires financial

managers to decide what quantities of cash, other liquid assets, Accounts

receivables & inventories; the firm will hold at any point of time.

Management must always ensure the solvency and viability of the firm.

Management will use a combination of policies and techniques for

the management of working capital. These policies aim at managing the

current assets (generally cash and cash equivalents, inventories and

debtors) and the short term financing, such that cash flows and returns are

acceptable.

Cash and liquidity management: Identify the cash balance which

allows for the business to meet day to day expenses, but reduces cash

holding costs.


Inventory management: Identify the level of inventory which

allows for uninterrupted production but reduces the investment in raw

materials and minimizes reordering costs and hence increases cash flow.

Credit management: Identify the appropriate credit policy, i.e.

credit terms which will attract customers, such that any impact on cash

flows and the cash conversion cycle will be offset by increased revenue

and hence Return on Capital (or vice versa).

The objective of working capital management is to maintain the

optimum balance of each of the working capital components. This includes

making sure that funds are held as cash in bank deposits for as long as

and in the largest amounts possible, thereby maximizing the interest

earned. However, such cash may more appropriately be "invested" in

other assets or in reducing other liabilities.

Working capital management is not an end in itself. It is an integral

part of the department's overall management. The needs of efficient

working capital management must be considered in relation to other

aspects of the department's financial and non-financial performance.

Elements of Working Capital are:

1. Cash

2. Marketable Investments

3. Receivables

4. Inventories

5. Creditors

Factors influencing the Working Capital requirement of L&T,

Kansbahal Works:

1. Scale of Operation.

2. Technology.

3. Volume of Order in hand

4. Market condition

5. Working Capital Cycle.

6. Credit policies.

IMPORTANCE OF GOOD WORKING CAPITAL MANAGEMENT :


From a company's point of view, excess working capital means

operating inefficiencies. Money that is tied up in inventory or money that

customers still owe to the company cannot be used to pay off any of the

company's obligations. So, if a company is not operating in the most

efficient manner (slow collection), it will show up as an increase in the

working capital. This can be seen by comparing the working capital from

one period to another; slow collection may signal an underlying problem in

the company's operations.

A large investment in current assets under certainty would mean a

low rate of return on investment for the firm, as excess investment in

current assets will not earn enough return. The two important aim of the

working capital management are: Profitability and Solvency. Solvency

refers to the firm’s continuous ability to meet maturing obligations. To

ensure solvency, the firm should be very liquid, which means larger

current assets holdings.

Interpreting the level of the Current Assets to Fixed Assets

Ratio:

The level of the Current Assets can be measured by relating Current

Assets to Fixed Assets. Dividing Current Assets by Net Fixed Assets gives

CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA ratio

indicates a conservative Current Assets policy and a lower CA/FA ratio

means an aggressive Current Assets policy assuming other factor to be

constant. A "conservative policy implies greater liquidity and lower risk”;

while "an aggressive policy indicates higher risk and poor liquidity".

Moderate current assets policy fall in the middle of conservative and

aggressive policies.

Current Assets to Fixed Assets of L&T, Kansbahal Works.

Year Current Assets Net Fixed Assets Ratio

2009-10 1,595,986,683 1,725,796,584 0.92


2008-09 1,994,490,892 655,784,255 3.04

2007-08 1,823,279,621 439,803,577 4.15

2006-07 1,535,462,677 310,744,935 4.94

2005-06 1,221,358,455 294,351,357 4.15


As per the above data, it can be clearly seen that L&T, Kansbahal

Works follows a Aggressive Current Assets policy in the financial year

2009-10 than in the other years. The management believes on the

Liquidity and lower risk rather than Profitability with higher risk.

OPERATING

CYCLE


OPERATING CYCLEThe Working Capital Cycle or Operating Cycle is the length of time

between a company paying for materials entering into stock and receiving

the inflow of cash from sales. Investment in working capital is influenced

by 4 key events in the production and sales cycle of the firm:

i) Purchase of raw materials

ii) Payment for raw materials

iii) Sale of finished goods

iv) Collection of cash from sales

RMCP WIPCP

RCP FGCP

The firm begins with the purchase of raw materials which are paid

for after a delay which represents the accounts payable period. The firm

converts the raw materials into finished goods and then sells the same.

The time lag between the purchase of raw materials and the sale of

finished goods is the inventory period. Customers pay their bills sometime

after the sales. The period that elapses between the date of sales and the

date of collection of receivables is the accounts payable period (debt

period).

Order placed Stock arrives Cash Received


Inventory period Accounts Receivable periodAccounts

payable periodFirm receives

invoiceCash paid for

materials

The time that elapses between the purchase of raw materials and

the collection of cash for sales is referred to as the operating cycle,

whereas the time length between the payment for raw material purchases

and the collection of cash for sales is referred to as the cash cycle. The

operating cycle is the sum of the inventory period and the accounts

receivable period, whereas the cash cycle is equal to the operating cycle

less the accounts payable period.

Longer the working capital cycle period, larger the requirement of

working capital. The determination of operating cycle is helpful for control

purposes with a view to improve previous working capital ratios.

Determination of the length of Operating & Cash Cycle:

The length of Operating cycle of a manufacturing firm is the sum of:

Operating Cycle = Inventory Conversion Period + Receivables conversion Period

= RMCP + WIPCP + FGCP + RCP

I) Inventory Conversion Period:

It is the total time needed for producing and selling the product.

Typically, it includes:

a) Raw material Conversion Period( RMCP ):

It is the average time period taken to convert material into work in

process. RMCP depends on:

Raw material consumption per day and

Raw material inventory.


Operating cycle

Cash cycle

Raw material consumption per day is given by the total raw material

consumption divided by the number of days in a year ( 365 days).

Hence, RMCP = Raw Material Conversion Period.

= Average Stock of Raw Material Material Consumption Per day

b) Work-in-Process Conversion Period( WIPCP ):

It is the average time taken to complete the semi-finished or

work in process.

Hence, WIPCP = Work-In-Progress Conversion Period.

= Average Stock of Work – In - Progress Total Cost of Production per Day

c) Finished goods Conversion Period (FGCP):

It is the average time taken to sell the finished goods.

Hence, FGCP = Finished Goods Conversion Period.

= Average Stock of Finished Goods Total Cost of Goods Sold Per Day

II) Receivables or Debtors Conversion Period (RCP) :

It is the average time taken to convert debtors into cash. RCP

represents the average collection period. It is the time required to collect

the outstanding amount from the customers.

Hence, RCP = Receivable Conversion Period.

= Average Accounts Receivables Net Credit Sales Per day

CASH CYCLE:

It is the difference between operating cycle and payables deferral

period.


Cash Cycle = Operating Cycle – PDP

Payables or Creditors Deferral Period (PDP):

It is the average time taken by the firm in paying its suppliers or

creditors.

Hence, PDP = Payable Defferal Period

= Average Accounts Payable Net Credit purchase Per Day

Comparative Analysis of Operating & Cash Cycle from 2006-07 to 2009-10:

Year 2006-07 2007-08 2008-09 2009-10

Raw material conversion period

(days)

254613589 / 365 =

68.39

399515428 / 365

=

94.53

394916641 / 365

=

86.62

3,191 14,739 / 365 =

79.02

WIP conversion period (days)

327121009 / 365 =

56.83

337624141 / 365

=

51.04

498027872 / 365

=

65.22

259226887 / 365 =

35.19

FG conversion period (days)

44919345 / 365 =

8.47

35221414 / 365

=

5.99

10824229 / 365

=

1.63

9127854 / 365 =

1.19

Inventory Period (days)

133.69 151.57 153.47 115.4


Debtors conversion period

(days)

763225294 / 365 =

110.22

905628543 / 365

=

115.81

751831880 / 365

=

86.08

808934929 / 365 =

84.52

Operating Cycle (days)

243.91 267.38 239.55 199.92

Creditors conversion period

(days)

321313115 / 365 =

89.42

379416878 / 365

=

82.05

401516597 / 365

=

88.30

385013981 / 365 =

100.52

Cash Cycle (days)

154.49 185.33 151.25 99.4

Source: PMS, L&T, Kansbahal

The table shows that Operating & Cash Cycle for the year 2007-08

was maximum and hence forth it is decreasing which is good for the

company. This indicates efficient utilization of working capital within the

organization.

RATIO

ANALYSIS


RATIO ANALYSISAccounting ratios is used to describe significant relationships which

exist between figures shown on a balance sheet, in a profit & loss account,

in a budgetary control system or in any other part of the accounting

organisation. Ratios are simply a means of highlighting in arithmetical

terms the relationship between figures drawn from financial statements.

Ratio Analysis is the technique of analysis and interpretation of the

financial statements. Ratio Analysis facilitates the presentation of

information of financial statements in simplified and concise and

summarized form. It is the process of establishing and interpreting various

ratios for making certain decisions.

Nature of Ratio Analysis:

Ratios, by themselves, are not an end but only one of the means of

understanding the financial health of a business entity. Ratio analysis is

not capable of providing precise answers to all the problems faced by any

business unit. Ratio analysis is basically a technique of:

(i) Establishing meaningful relationship between significant variables

of financial statements; and

(ii) Interpreting the relationship to form judgement regarding the

financial affairs of the unit.


LIQUIDITY RATIOS

Liquidity ratios measure the ability of the firm to meet its current

obligations as they fall due. Liquidity is the case with which assets may be

converted into cash without loss. The failure of a company to meets its

obligation due to lack of sufficient liquidity, will result in a poor credit

worthiness, loss of creditor's confidence. Liquidity ratios usually consist of

Current ratio, Quick ratio, Cash ratio etc.

A)Current Ratio:

This ratio expresses the relationship between current assets and

current liabilities. This ratio is an indication of the company’s ability to

meet its short term liabilities. It is the ratio of current assets and current

liabilities. The most ideal current ratio of a company is 2:1. This means

every current liability should be covered by at least twice the amount of

current assets. Here the current liabilities also consider the bank

borrowings i.e., secured loans mentioned in the balance sheet.

Current Ratio = Current AssetCurrent Liabilities

Current Ratio

Year Current Assets Current Liabilities Ratio

2009-10 1,595,986,683 860,675,005 1.852008-09 1,994,490,892 1,022,286,575 1.95

2007-08 1,823,279,621 863,491,435 2.11

2006-07 1,535,462,677 681,312,393 2.25

2005-06 1,221,358,455 539,325,732 2.26


L&T has a current ratio of 1.85:1 and 1.95:1 for the financial year

2009-10 and 2008-09 respectively. This is interpreted to be insufficiently

liquid but the previous years have maintained high liquidity. The current


ratio of L&T, Kansbahal reveals that the obligations of the company can be

met on time.

B)Quick ratio or Acid-test ratio or Liquid ratio:

This is the ratio of quick assets or liquid assets to current liabilities.

Quick assets are defined as current assets excluding inventories. An asset

is liquid if it can be converted into cash within a short period without loss

of value. Inventory by nature cannot be converted into ready cash

abruptly. The term liquid assets does not include inventory. Here the

current liabilities also consider the bank borrowings i.e., secured loans

mentioned in the balance sheet. A ratio of 1:1 is considered as ideal.

Quick Ratio = Liquid Asset Current Liabilities

Current Ratio

Year Liquid Assets Current Liabilities Ratio

2009-10 986,590,092 860,675,005 1.15

2008-09 1,090,755,983 1,022,286,575 1.07

2007-08 1,050,843,929 863,491,435 1.22

2006-07 908,844,142 681,312,393 1.33

2005-06 550,299,481 539,325,732 1.02


The company has been maintaining a little more than necessary

quick ratio of 1:1. Thus, if the L&T’s inventories do not sell and it has to

pay all current liabilities it can easily meet its obligations because its quick

assets are 1.15 times of current liabilities. High Quick ratio indicates the

liquidity position of the firm. The quick ratio of the company reveals

satisfactory liquidity position since it also has considerably fast moving

debtors.

C) Activity / Efficiency / Turnover Ratios:


"Activity" ratios are concerned with measuring the efficiency in

assets management. "Efficiency" implies effective utilization of available

resources. "Turnover" refers to the utilization of a resource or an asset in

the process of business activity. The ratios of this kind, attempt to find out

the efficient utilization of asset by relating the same to sales/cost of goods

sold.

Inventory / Stock Turnover Ratio

Inventory turnover ratio indicates the velocity with which stock of

finished goods is sold i.e., replaced. Generally it is expressed as number of

times the average stock has been turned over or rotated during the year.

Inventory turnover ratio measures the velocity of conversion of stock

into sales. It would indicate whether inventory has been efficiently used or

not. Inventory turnover ratio indicates the number of times the stock has

been turned over during the period and evaluates the efficiency with which

a firm is able to manage its inventory.

Inventory Turnover Ratio = Net Sales Inventory

Inventory Turnover Ratio

Year Net Sales Inventory Ratio

2009-10 3,38,49,58,254 60,93,96,591 5.55

2008-09 2,97,83,53,765 90,37,34,909 3.30

2007-08 2,58,72,04,708 77,24,35,692 3.35

2006-07 2,31,50,28,433 62,66,18,535 3.69

2005-06 1,70,92,98,528 67,10,58,974 2.55


This shows that L&T is turning its inventory into sales 5.5 times in

the year 2009-10 which is more as compared to the previous years which

indicates there is an efficient management of Inventory. In 2005-06 the

ratio is very low i.e. 2.55 times. It indicates there is an inefficient


management of Inventory. A low ratio implies over-investment in

inventories, possibility of stock comprising of obsolete items, slow moving

products & poor selling policy; whereas a high ratio implies efficient

inventory control, sound sales policies, trading in quality goods, better

competitive capacity & less money required to finance the inventory.

Days of Inventory Holdings (DIH):

Days of Inventory Holdings (DIH) = Days in a year Inventory turnover ratio

Days of Inventory Holdings (DIH)

Year Days in a yearInventory Turnover

RatioDIH ( in days )

2009-10 365 5.55 65.77

2008-09 365 3.3 110.61

2007-08 365 3.35 108.96

2006-07 365 3.69 98.92

2005-06 365 2.55 143.14

L&T holds average inventory of 66 days in the year 2009-10 which is

the minimum than in comparison to the previous years which is good for

the company.

Debtors / Receivables Turnover Ratio

Debtor is an important constituent of current assets. Perhaps no

business can afford to make sales only thus extending credit to the

customers is a necessary evil. But care must be taken to collect book

debts quickly and within the period of credit allowed. Therefore the quality

of debtors to a greater extent determines the company’s liquidity and

efficiency. This is one of the ratios used by financial analysis to judge the

efficiency of the company.


The debtor turnover ratio indicates the velocity of debt collection of

firm. It indicates the number of times of the average that debtor’s turnover

each year. Generally higher the value of debtor turnover, the more the

efficiency is the credit management.

Debtors Turnover Ratio = Net Sales Debtors

Debtors Turnover Ratio

Year Net Sales Debtors Ratio(times)

2009-10 3,38,49,58,254 79,19,16,010 4.27

2008-09 2,97,83,53,765 75,18,68,597 3.96

2007-08 2,58,72,04,708 90,56,40,467 2.86

2006-07 2,31,50,28,433 76,32,29,126 3.03

2005-06 1,70,92,98,528 43,99,44,793 3.89


Debtor turnover is high in the year 2009-10. i.e. 4.27 times in a year

than in the other years which implies that Efficiency of management of

debtors is good in the year than other. There is consistency maintained by

L&T, Kansbahal and has an average of 3.60 times. The lowest ratio

indicates the poor management of debtors.

Average Collection Period:

The ACP measures the quality of debtors since it indicates the speed

of their collection. The shorter the ACP, the better the quality of debtors,

since a short collection period implies the prompt payments by debtors.

Average Collection Period (ACP)

Year Days in a year Debtors Turnover Ratio ACP (in days)

2009-10 365 4.27 85.48

2008-09 365 3.96 92.17

2007-08 365 2.86 127.62

2006-07 365 3.03 120.46


2005-06 365 3.89 93.83

L&T is able to turnover its debtors 4.27 times in a year. In other

words, its debtor remains outstanding for 86 days. But in the previous

years, its debtor remains outstanding for more number of days. This shows

the efficient utilization of debtors.

Creditors / Payable Turnover Ratio

It indicates the speed with which the payments are made to the

trade creditors. It establishes relationship between net credit annual

purchases and average accounts payables. Accounts payables include

trade creditors.

Creditors Turnover Ratio = Net Purchases Creditors

Creditors Turnover Ratio

Year Purchases Creditors Ratio(times)

2009-10 1,66,05,50,137 88,67,01,395 1.87

2008-09 1,78,99,98,563 98,65,49,929 1.81

2007-08 1,70,28,31,690 83,50,87,133 2.04

2006-07 1,32,97,00,660 62,82,81,770 2.12

2005-06 94,70,09,225 47,79,47,196 1.98

Higher payable turnover ratio indicate less period of credit enjoyed

by the business; it may be due to the fact that either business has better

liquidity position; believes in availing cash discount and consequently

enjoys better credit standing in the market or business credit rating among

suppliers is not good and therefore they do not allow reasonable period of

credit.

Working capital Turnover Ratio


The turnover ratio indicates the turnover of working capital or net

current assets of the company. This indicates whether or not working

capital has been effectively used. It expresses the number of times the

unit invested in working capital produces sale. It is calculated by simply

dividing the net sales by net current assets. It helps in measuring the

efficiency of the employment of working capital. Generally speaking

the higher the turnover, the greater the efficiency and larger the

profits. However a very high ratio may signify a potentially dangerous

situation of the shortage of working capital. Working capital turnover ratio

gives us a better and whole picture of efficiency and inefficiency than stock

or inventory turnover ratio.

Working Capital Turnover Ratio = Net Sales

Net Current Assets

Working Capital Ratio

Year SalesNet Current

AssetsRatio(times)

Reciprocal of the ratios

2009-10 3,38,49,58,254 70,43,62,533 4.81 0.21

2008-09 2,97,83,53,765 95,56,60,369 3.12 0.32

2007-08 2,58,72,04,708 91,43,72,348 2.83 0.35

2006-07 2,31,50,28,433 85,85,97,867 2.7 0.37

2005-06 1,70,92,98,528 69,30,23,272 2.47 0.40


The highest turnover is achieved in 2009-10. i.e. 4.81 and the lowest

is in 2005-06. i.e. 2.47. A higher ratio indicates efficiency utilization of

working capital in L&T, Kansbahal. The ratio can be used by making of

comparative and trend analysis for different companies in the same

industry and for various periods.


The reciprocal of the ratios indicates that for one rupee of sales, the

company needs Rs. 0.21 of net current assets. This gap will be met from

bank borrowings and long term sources of funds.

Assets Turnover Ratios

Assets are used to generate sales. Therefore a firm should

manage its assets efficiently to maximize sales. The relationship

between sales and assets is called assets turnover. Several assets

turnover ratios can be calculated:

a) Net Assets Turnover : The firm can compute net assets turnover

simply by dividing net sales by net assets.

Net assets turnover = Net Sales Net assets

Net assets include net fixed assets and net current assets i.e., current

assets minus current liabilities. Since net assets equal capital employed,

net assets turnover may also be called capital employed turnover.

Net Assets Turnover Ratio

Year Net Sales Net Assets Ratio(times)

2009-10

3,384,958,254 2,430,159,116 1.39

2008-09

2,978,353,765 1,611,444,624 1.85

2007-08

2,587,204,708 1,354,175,925 1.91

2006-07

2,315,028,433 1,169,342,802 1.98

2005-06

1,709,298,528 987,374,629 1.73

A firm’s ability to produce a large volume of sales for a given amount

of net assets is the most important aspect of its operating performance.

The net assets turnover in the year 2009-10 is 1.39 times which

implies that L&T is producing Rs. 1.39 of sales for one rupee of capital


employed in net assets. Net assets turnover in the year 2006-07 was good

and hence forth it is declining.

b) Total assets turnover:

This ratio shows the firm’s ability in generating sales from all

financing resources committed to total assets. Thus,

Total assets turnover = Net Sales Total assets

Total assets include net fixed assets and current assets.

Total Assets Turnover Ratio

Year Net Sales Total Assets Ratio(times)

2009-10

3,384,958,254 3,321,783,267 1.02

2008-09

2,978,353,765 2,650,275,147 1.12

2007-08

2,587,204,708 2,263,083,198 1.14

2006-07

2,315,028,433 1,846,207,612 1.25

2005-06

1,709,298,528 1,515,709,812 1.13

The total assets turnover of 1.02 times in the year 2009-10 implies

that L&T generates a sale of Rs. 1.02 for one rupee investment in fixed and

current assets together.

c) Fixed and Current Assets Turnover Ratio

This ratio measures sales per rupee of investment in fixed and

current assets. This ratio establishes the relationship between sales and

fixed & current assets. The purpose is to judge whether the firm is

generating adequate sales for the investment in fixed & current assets of

the firm.

The term fixed assets include land and buildings, plant and

machinery, furniture, etc., after the depreciation. Net fixed assets

includes net block of both tangible as well as intangible assets. This


ratio is supposed to measure the efficiency with which fixed assets

are employed. A high ratio indicates a high degree of efficiency in

asset utilization and a low ratio reflects inefficient use of assets.

Fixed Assets Turnover Ratio = Net Sales Net fixed assets

Fixed Assets Turnover Ratio

Year Net SalesNet Fixed

AssetsRatio(time

s)Reciprocal of

the ratios2009-

10

3,384,958,25

4

1,725,796,5

84 1.96 0.5102042008-

09

2,978,353,76

5 655,784,255 4.54 0.2202642007-

08

2,587,204,70

8 439,803,577 5.88 0.1700682006-

07

2,315,028,43

3 310,744,935 7.45 0.1342282005-

06

1,709,298,52

8 294,351,357 5.81 0.172117

Interpreting the reciprocals of the ratios, it can be said that in the

year 2009-10, for generating a sale of one rupee, the company needs

respectively Rs. 0.51 investment in the fixed assets.

The term current assets include inventories, sundry debtors,

cash and bank balances and loans and advances.

Current Assets Turnover Ratio = Net Sales Current assets

Current Assets Turnover Ratio

Year Net Sales Current Assets

Ratio(times)

Reciprocal of the ratios

2009-

10

3,384,958,2

54

1,595,986,68

32.12 0.471698

2008-

09

2,978,353,7

65

1,994,490,89

21.49 0.671141


2007-

08

2,587,204,7

08

1,823,279,62

11.42 0.704225

2006-

07

2,315,028,4

33

1,535,462,67

71.51 0.662252

2005-

06

1,709,298,5

28

1,221,358,45

51.4 0.714286

Interpreting the reciprocals of the ratios, it can be said that in the year

2009-10, for generating a sale of one rupee, the company needs

respectively Rs. 0.47 investment in the fixed assets.

In the year 2009-10, L&T turned over its current assets faster than

fixed assets but in the previous years 2005-06 to 2008-09 L&T turned over

its fixed assets faster than current assets.

INVENTORY

MANAGEMENT


INVENTORY MANAGEMENTInventories are stock of the product of a company is manufacturing

for sale and components that make up the product. The various forms in

which inventories exist in a manufacturing company are:

a) Raw materials - are materials and components that are inputs in

making the final product.

b) Stock-in-process - refers to goods in the intermediate stages of

production and,

c) Finished goods - consists of the final products that are ready for sale.

Inventories constitute the most significant part of current assets of a

company. On an average, Inventories are approximately 60 percent of the

current assets in public limited companies in India. Inventories represent

the second largest asset category for manufacturing companies, next only

to plant and equipment. There are three general motives for holding

inventories:

Transactions motive,

Precautionary motive &

Speculative motive.

The investment in inventory is very high in most of the undertakings

engaged in manufacturing. The amount of investment is sometimes more

in inventory than in other assets. About 90 percent part of working capital

is invested in inventories. It is necessary for every management to give

proper attention to inventory management. An efficient system of

inventory management will determine:


What to purchase?

How much to purchase?

Where to purchase?

Where to store?

Cost associated with Inventory:

There are two types of cost associated with inventory at L&T, Kansbahal.

They are:

i. Ordering cost are cost incurred for acquiring of raw materials. It

includes Requisitioning, Order Placing, Transportation, Receiving,

storing, inspecting and clerical and staff.

ii. Cost incurred for maintaining a given level of inventory is called

Carrying cost. They include warehousing, handling, clerical and

staff, insurance, obsolescence and taxes. Carrying costs generally

are about 25% of the value of inventories held.

iii. Shortage costs arise when inventories are short of requirement for

meeting the needs of production or the demand of customers.

Inventory shortages may result in high costs concomitant with

'crash' procurement, less efficient and uneconomic production

schedules, and customer dissatisfaction and loss of sales.

INVENTORY MANAGEMENT AT L&T, KANSBAHAL

There are two types of inventory considered in L&T, Kansbahal. They are:

General Inventories

Projected Inventories.

L&T, Kansbahal Works is not a process industry where only general

inventories are required. They purchase the Raw Materials and stored as

per their order. Those raw materials can be used only against certain

order. So they purchase raw materials as per their order and against a

specific job. These Inventories are projected inventories. The maximum

investment by L&T, Kansbahal in inventories are of projected Inventories

type.

Some of the common materials which can be used in other job also

are general Inventories. These Inventories required proper stock and the


methods to control and manage these inventories. They are: EOQ,

maximum level, minimum level and re-ordering level.

L&T, Kansbahal uses ERP (People Soft), which help them to find out

the EOQ, maximum level, minimum level and re-ordering level. The data

regarding the Stock can be found out with the help of ERP system. This

system makes the control system very easy, because, at any point of time

we can get the inventory status. It helps for planning and controlling of

inventory.

The percentage of inventory over current assets for last five

years:

Year Inventory Current Assets Ratio (%)

2009-10 60,93,96,591 1,59,59,86,683 38.18

2008-09 90,37,34,909 1,99,44,90,892 45.31

2007-08 77,24,35,692 1,82,32,79,621 42.37

2006-07 62,66,18,535 1,53,54,62,677 40.81

2005-06 67,10,58,974 1,22,13,58,455 54.94


The average portion of inventory in current asset is about 45% in the last 5

years. So in L&T inventory plays a vital role in current assets.


Inventory turnover ratio measures the velocity of conversion of stock

into sales. It would indicate whether inventory has been efficiently used or

not. Inventory turnover ratio indicates the number of times the stock has

been turned over during the period and evaluates the efficiency with which

a firm is able to manage its inventory.

Inventory Turnover Ratio = Net Sales Inventories at cost



Year Net Sales Inventory Ratio(times)

2009-10 3,38,49,58,254 60,93,96,591 5.55

2008-09 2,97,83,53,765 90,37,34,909 3.30

2007-08 2,58,72,04,708 77,24,35,692 3.35

2006-07 2,31,50,28,433 62,66,18,535 3.69

2005-06 1,70,92,98,528 67,10,58,974 2.55


A low ratio implies over-investment in inventories whereas a high

ratio implies less money required to finance the inventory. From the above

table, it is found that, there is an improvement in ratio which indicates the

improvement in the management of inventory.

The table shows that L&T is turning its inventory into sales 5.5

times in the year 2009-10 which is more as compared to the

previous years which indicates there is an efficient management of

Inventory. In 2005-06 the ratio is very low i.e. 2.55 times. It indicates

there is an inefficient management of Inventory.

A low ratio implies over-investment in inventories, possibility of

stock comprising of obsolete items, slow moving products & poor

selling policy; whereas a high ratio implies efficient inventory control,

sound sales policies, trading in quality goods, better competitive

capacity & less money required to finance the inventory.

Days of Inventory Holdings (DIH):

Days of Inventory Holdings (DIH) = Days in a year Inventory turnover ratio

Days of Inventory Holdings (DIH)

Year Days in a yearInventory Turnover

RatioDIH ( in days )


2009-10 365 5.55 65.77

2008-09 365 3.3 110.61

2007-08 365 3.35 108.96

2006-07 365 3.69 98.92

2005-06 365 2.55 143.14

L&T holds average inventory of 66 days in the year 2009-10 which is

the minimum than in comparison to the previous years which is good for

the company.

\\\

RESEARCH FINDINGS During my entire tenure of two months, I came to know the various

theoretical concepts are used in practise. The kind of practical exposure

that I have got here and the guidance given by my project guide has made

me aware of theories, concepts and their applications in real industry

environment which cannot be learnt in regular classroom teachings.

Concepts like Capital Budgeting, Working Capital Management, Ratio


Analysis, NPV, Payback period IRR and several other concepts has now

become very easy to understand.

L&T is a manufacturing concern where I got ample opportunity to

know about the working conditions and procedures applied, which helped

me a lot in achieving my objective viz., to begin my career as a financial

analyst. Apart from above

CONCLUSION


BIBLIOGRAPHY

Annual Accounts (2005-06 to 2009-10)

Annual Reports (2005-06 to 2009-10)

Magazines (published by L&T,Kansbahal)

Financial Management (I M Pandey)

Financial Management ( P Chandra)

Financial Management ( Shashi K.Gupta)

www.lntkbl.com

www.larsentoubro.com

www.lntenc.com


http://www.lntenc.com/

http://www.larsentoubro.com/

http://www.lntkbl.com/

BALANCE SHEET

( 2005-06 to 2009-10 )

BALANCE SHEET AS AT MARCH 31, 2010


PARTICULARS As at 31.03.2010

Schedule

s Rupees RupeesA) SOURCES OF FUNDS: i) Shareholders funds:

Reserves & Surplus B496,538,0

10

496,538,01

0ii) Loan funds:

Secured loans C

-30,949,14

5

-

30,949,145

Inter operating division balance 196457025

1

TOTAL 243015911

6

B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)

Gross Block 25545755

98

Less: Depreciation & Impairment 10211932

27

Net Block 15333823

71

15333823

71

Capital WIP(net of impairment) 18939663

9

172277901

0 Intangible Assets E(ii)

Gross Block 17377977 Less: Amortization & Impairment 14360403

Net Block 3017574 3017574

ii) Current Assets Loans & Advances G

Inventories 60939659

1

Sundry Debtors 79191601

0 Cash & Bank Balances 37325

Loans & Advances 19463675

8

15959866

83 Less: Current Liabilities & Provisions H


Liabilities 89162415

0 Provisions -

89162415

0 Net current assets 704362533

Miscellaneous Expenditure I - -

TOTAL 2430159,1

16Contingent Liabilities J

Significant Accounting Policies Q



Schedule


Reserves & Surplus B44777054

9

44777054

9ii) Loan funds:

Secured loans C -16543948 -16543948


98

TOTAL 16121962

99



73


8

Net Block 48578992

5

48578992

5

Capital WIP(net of impairment) 16637365

8

65216358




Less: Amortization & Impairment 11708002 Net Block 3620672

3620672ii) Current Assets Loans & Advances G


9




7

WIP Suspense 20538959

0

19944908



88 Provisions 3577635

10388305

23

Net current assets 95566036

9Miscellaneous Expenditure I 751675

TOTAL 16121962





Schedule



0 360757850

ii) Loan funds: Secured loans C -45415838

-45415838


6

TOTAL 135567927

8

B) APPLICATION OF FUNDS:


i) Fixed Assets Tangible Assets E(i)


56


4

Net Block 35907934

2

35907934

2 Capital WIP(net of impairment) 77571774



Net Block 3152461 3152461



2




0

18232796




90890727


Miscellaneous Expenditure I 1503353

TOTAL 13556792





Schedule



1


300222171ii) Loan funds:

Secured loans C 4447583 4447583


TOTAL 117448617

7B) APPLICATION OF FUNDS: i) Fixed Assets Tangible Assets E(i)


93


6

Net Block 28057250

7

28057250




Net Block 2452096 2452096



5


6 Cash & Bank Balances -1089505


1

15354626




67686481



TOTAL 11744861






Schedule



0 144951310

ii) Loan funds: Secured loans C 10990549

Un-Secured loans D 683835 11674384

Inter operating division balance 841540692TOTAL 998166386



97


7

Net Block 28708147

0

28708147




Net Block 3428459 3428459



4


3 Cash & Bank Balances -34790


8

12213584





52833518



TOTAL 99816638



PROFIT AND LOSS A/C FOR THE PERIOD ENDED MARCH 31, 2010

PARTICULARS 01.04.2009 to 31.03.2010

Schedule

s Rupees RupeesA) INCOME:

Sales & Service(Gross) K 3534651997

Less: Excise Duty 149693743

Sales & Service(Net) 3384958254

Other Income L(ii) 2898475

Interest Income L(iii) -11569542

3376287186B) EXPENDITURE

Mfg Construction & Operating expenses M 2386604263

Staff Expenses N 376954805 Sales Administration & Other

Expenses O 119966357

Interest & Brokerage P 3635983 Depreciation, obsolescence &

Impairment 84554446

Amortization of intangible assets 2652401

2974368255 Less: Overheads charged to Fixed

Assets 84423639

2889944616Profit before transfer from revaluation

reserve 486342570Add: Transfer from revaluation

reserve 2229343Profit before tax before extra ordinary

items 488571913

Provision for Fringe Benefit Tax -


- -Profit after tax before extra ordinary

items 488571913Profit after tax after extra ordinary

items 488571913

Profit after tax after Minority Interest 488571913

Profit available for appropriation 488571913

Profit available for distribution 488571913

Balance carried to Balance Sheet 488571913


PARTICULARS 01.04.2008 to 31.03.2009

Schedule


Sales & Service(Gross) K31902291

57


2


65


Interest Income L(iii) 1151516

29837022

74B) EXPENDITURE

Mfg Construction & Operating expenses M

2013471320

Staff Expenses N35287752

7 Sales Administration & Other

Expenses O16881425

7


Impairment 49825894


25875908


Assets 42020019

25455707

98


Profit before transfer from revaluation reserve

439131476

Add: Transfer from revaluation reserve 2021268

Profit before tax before extra ordinary items

441152744

Provision for Fringe Benefit Tax 3577635

3577635Profit after tax before extra ordinary

items 43757510

9Profit after tax after extra ordinary

items 43757510

9


9

Profit available for appropriation43757510

9


9


9


PARTICULARS 01.04.2007 to 31.03.2008

Schedule







2642155561

B) EXPENDITURE Mfg Construction & Operating

expenses M 1822365888




Impairment 44229714




Assets 7225595

2292013118Profit before transfer from revaluation

reserve 350142442Add: Transfer from revaluation

reserve 2008417Profit before tax before extra ordinary

items 352150859


3609716Profit after tax before extra ordinary

items 348541143Profit after tax after extra ordinary

items 348541143






PARTICULARS 01.04.2006 to 31.03.2007

Schedule







2321742082B) EXPENDITURE

Mfg Construction & Operating expenses M 1613630126



Interest & Brokerage P 1632041


Depreciation, obsolescence & Impairment 46384185



Assets 2776011

2034759479

Profit before transfer from revaluation reserve 286982603


Profit before tax before extra ordinary items 288953573


2956526

Profit after tax before extra ordinary items 285997047

Profit after tax after extra ordinary items 285997047






PARTICULARS 01.04.2005 to 31.03.2006

Schedule

s Rupees Rupees

A) INCOME:






1726298370

B) EXPENDITURE Mfg Construction & Operating

expenses M 1203835844




Interest & Brokerage P -425743 Depreciation, obsolescence &

Impairment 47997793



Assets 3152464

1595336456

Profit before transfer from revaluation reserve 130961914


Profit before tax before extra ordinary items 132905876


Profit after tax (PAT) 128755216




ANNEXURE


NET PRESENT VALUE (NPV)

CAPITAL EXPENDITURE EVALUATION - NPV

FOR CAPACITY INCREASE / NEW PRODUCTS

DESCRIPTION

NEW VERTICAL LATHEVALUE(RS IN LACKS)

600

REASONS FOR A SPECIFIC AND REPETITIVE ORDER

CASH FLOW (Rs IN LACKS) 2007-082008-

092009-

102010-

112011-

122012-

132013-

14

1.CAPITAL INVESTMENT 600

MATERIAL 0.00 0.00 0.00 0.00 0.00 0.00

LABOUR 7.20 7.20 7.20 7.20 7.20 7.20

REPAIR & 30.00 30.50 31.00 31.50 32.00 32.50

2. OPERATING MAINTANANCE

EXPENSES SUPPLIES 5.00 5.00 5.00 5.00 5.00 5.00

& TOOLING

POWER 6.71 6.71 6.71 6.71 6.71 6.71

TOTAL 48.91 49.41 49.91 50.41 50.91 51.41

3. QUANTITY OF PROD. (HRS) 69.00 69.00 69.00 69.00 69.00 69.00

4.SHOP RATE/HR ( in Rs.x100) 10.00 10.00 10.00 10.00 10.00 10.00

5.RECOVERY(3)X(4) 690.00 690.00 690.00 690.00 690.00 690.00

6.SALVAGE VALUE 100.00

7.BOOK VALUE 540.00 486.00 437.40 393.66 354.29 318.86

8.TAX SAVING = T((7)-(6)) 181.76 163.59 147.23 132.51 119.26 73.67

9.DEPRECIATION 60.00 54.00 48.60 43.74 39.37 35.43


10.TAX = T((5)-(2)+(9)) 235.99 233.80 231.81 230.01 228.37 226.87

11.TOTAL INFLOW = (5)+(6)+(8) 871.76 853.59 837.23 822.51 809.26 863.67

12.TOTAL OUTFLOW 600.00 284.90 283.21 281.72 280.42 279.28 278.28

13.NET INFLOW = ((11)-(12)) -600.00 586.87 570.38 555.51 542.09 529.98 585.38

14.DISCOUNT FACTOR @ (14%WACC) 1.00 0.877 0.769 0.675 0.592 0.519 0.456

15.DISCOUNTED NET INFLOW = (13)X(14)

-600.00 514.68 438.62 374.97 320.92 275.06 266.94

16.TOTAL NET PRESENT VALUE 1591.18 RETURN ON INVESTMENT

T=TAX RATE = 33.66% WACC @ 14%

SIGNATURE:DATE:

PAYBACK PERIOD

CAPEX EVALUATION - PAYBACK PERIOD FORM CEB-6

FOR CAPACITY INCREASE / NEW PRODUCTS SBU KBL WORKS

ASSET DESCRIPTION VALUE EXISTING LOADPAYBACK

PERIOD

VERTICAL LATHE M/CRS. Lacs

QUANTITY OR HOURS = 6 YEARS

600

BASIS TOTAL EXISTING CAPACITYCAPACITY INCREASE CAPACITY INCREASED CAPACITY

OF SIMILAR FACILITIES REQD. TO REMOVEOF

PROPOSED AFTER THE PROPOSEDTOTAL LOAD x

100% BOTTLENECK FACILITY ADDITION

HOURS TOTAL CAPACITY QTY. OR HOURSQTY. OR HOURS QTY. OR HOURS

TWO SHIFT

THREE SHIFT 4600 5400 4600 9200

YEAR FACILITIES AFTER PROPOSED ADDITION OTHER BALANCING FACILITIES REQUIRED

LOAD FORECAST CAPACITY FACILITY VALUE WHEN REQD.QTY OR HOURS UTILISATION (MT) RS. Lacs

(MT)TWO

SHIFTTHREE SHIFT

BASIS BASIS

BUDGET YR2007-08

BUDGET YR+1 10000 78002008-09

BUDGET YR+2 12000 93602009-10

BUDGET YR+3 14000 109202010-11

BUDGET YR+4 16000 12480


2011-12

BUDGET YR+4 18000 140402012-13

MAINTENANCE INFRASTRUCTURE, SPARES ,TOOLING

RAW MATERIAL,SPARES

1. IS IN-HOUSE EXPERIENCE AVAILABLE?

1. COST (RS. Lacs) 1. IS IT AVAILABLE LOCALLY?

YES NO

YES NOCOST

OFEQUIPMENT

2. IF NOT, HOW ELSE?

2. IF NOT, HOW ELSE? YES NO

Some imported spares would be required.CONSTRAINTS / LIMITATIONS (KNOWN /LIKELY)



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