CHAPTER 1INTRODUCTIONMarginal Costing - DefinitionMarginal costing is formally defined as: The accounting system in which variable costs are charged to cost units and the fixed costs of the period are written-off in fullagainst the aggregate contribution. Its special value is in decision making. Marginal costing distinguishes between fixedcosts and variable costsas conventionally classified. Variable costing is another name ofmarginal costing. Marginal costing may be defined asthe technique of presenting costdata where invariable costs and fixedcosts are shown separately formanagerial decision-making. It should be clearly understood that marginal costing is not a method of costing likeprocess costingor job costing. Rather itis simplya method ortechnique ofthe analysis of cost information for the guidance of management which tries to find out an effect onprofit due to changes in thevolume of output.
MARGINAL COSTThe marginal cost of a product is itsvariable cost. This is normally taken to be; direct labor, direct material, direct expenses and thevariable part ofoverheads. Marginal cost means the cost of the marginal or last unit produced. It isalso defined as the cost of one more orone less unit produced besides existing level of production The marginal cost varies directly with thevolume of production and marginal cost perunit remains the same. It consists of prime cost, i.e. cost of directmaterials, directlabour and all variable overheads. It does not contain any element of fixedcost which is kept separate under marginal cost technique. The term contribution mentioned in the formal definition is the term given to the difference between Salesand Marginal cost. Thus MARGINAL COST =VARIABLE COST DIRECT LABOUR+ DIRECT MATERIAL+ DIRECT EXPENSE+ VARIABLE OVERHEADS Marginal costing technique has given birth to a very useful concept of contribution where contribution is given by:Sales revenue less variable cost (marginal cost)Contribution may be defined as the profit before the recovery of fixed costs. Thus, contribution goes toward the recovery of fixed cost and profit, and is equalto fixed costplus profit (C= F + P).In case afirm neither makes profitnor suffers loss, contribution will be just equal to fixed cost (C = F). This is known as breakeven point.The concept of contribution is very useful in marginal costing. It has afixed relation with sales. Theproportion of contribution to sales is known as P/Vratio which remains the same undergiven conditions of production andsales.
Theory of Marginal CostingThe theory of marginal costing as set out in A report on Marginal Costing publishedby CIMA, London isas follows: In relation to a given volume of output, additional output can normally be obtained artless than proportionate cost because within limits, the aggregate of certain items of cost will tend to remain fixed and only the aggregate ofthe remainder will tend to riseproportionately with an increase in output.Conversely, a decrease inthe volume ofoutput will normally be accompanied by lessthan proportionate fall in theaggregate cost.The theory of marginal costing may, therefore, by understood in the following two steps:1. If the volume of output increases, the cost per unit in normal circumstances reduces. Conversely, if anoutput reduces, the cost per unit increases. If a factory produces 1000units at a totalcost of $3,000 and if byincreasing the output by one unit the cost goes up to $3,002, the marginal cost of additional output will be $.2.2. If an increase inoutput is more than one, the total increase incost divided by the total increase in output will give the average marginal cost per unit. If, for example,the output is increased to 1020 units from 1000 units andthe total cost to produce these units is $1,045, the average marginal cost per unit is$2.25. It can be described as follows: Additionalcost= $45 =$2.25Additional units 20The principles of marginal costing are asfollows: a. For any given period of time, fixed costs will bethe same, for any volume of sales and production (provided that the level of activity is within the relevant range).Therefore, by selling an extra item of product or service the following will happen:Revenue will increase by the sales value of the item sold.Costs will increase by the variable cost per unit.Profit will increase by theamount of contribution earned from the extraitem.b. Similarly, if the volume of sales falls by oneitem, the profit will fall by the amount of contribution earned from theitems. Profit measurement should therefore be based onan analysis of totalcontribution. Since fixed costs relate to a period of time, and do not change with increases ordecreases in sales volume, it is misleading to charge units of sale witha share of fixedcosts.d. When a unit ofproduct is made, the extra costs incurred in its manufacture are the variable production costs. Fixed costs are unaffected, and no extra fixed costs are incurred when output is increased.Ineconomicsandfinance,marginal costis the change in thetotal costthat arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good.In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit. For example, if producing additional vehicles requires building a new factory, the marginal cost of theextravehicles includes the cost of the new factory. In practice, this analysis is segregated into short and long-run cases, so that over the longest run, all costs become marginal. At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production are considered fixed.If the good being produced is infinitely divisible, so the size of a marginal cost will change with volume, as a non-linear and non-proportional cost function includes the following:variable terms dependent to volume, constant terms independent to volume and occurring with the respective lot size, jump fix cost increase or decrease dependent to steps of volume increase.In practice the above definition of marginal cost as the change in total cost as a result of an increase in output of one unit is inconsistent with the differential definition of marginal cost for virtually all non-linear functions. This is as the definition finds the tangent to the total cost curve at the point q which assumes that costs increase at the same rate as they were at q. A new definition may be useful for marginal unit cost (MUC) using the current definition of the change in total cost as a result of an increase of one unit of output defined as: TC(q+1)-TC(q) and re-defining marginal cost to be the change in total as a result of an infinitesimally small increase in q which is consistent with its use in economic literature and can be calculated differentially.If the cost function is differentiable joining, the marginal cost is the cost of the next unit produced referring to the basic volume.
If the cost function is not differentiable, the marginal cost can be expressed as follows.
A number of other factors can affect marginal cost and its applicability to real world problems. Some of these may be considered market failures. These may includeinformation asymmetries, the presence of negative or positiveexternalities,transaction costs,price discriminationand others.
Cost functions and relationship to average costIn the simplest case, the total cost function and its derivative are expressed as follows, where Q represents the production quantity, VC represents variable costs, FC represents fixed costs and TC represents total costs.
Since (by definition) fixed costs do not vary with production quantity, it drops out of the equation when it is differentiated. The important conclusion is that marginal costis not related tofixed costs. This can be compared withaverage total costor ATC, which is the total cost divided by the number of units produced anddoes include fixed costs.
For discrete calculation without calculus, marginal cost equals the change in total (or variable) cost that comes with each additional unit produced. In contrast, incremental costis the composition of total cost from the surrogate of contributions, where any increment is determined by the contribution of the cost factors, not necessarily by single units.For instance, suppose the total cost of making 1 shoe is $30 and the total cost of making 2 shoes is $40. The marginal cost of producing the second shoe is $40 $30 = $10.Marginal cost is not the cost of producing the "next" or "last" unit.As Silberberg and Seen note, the cost of the last unit is the same as the cost of the first unit and every other unit. In the short run, increasing production requires using more of the variable input conventionally assumed to be labor. Adding more labor to a fixed capital stock reduces the marginal product of labor because of thediminishing marginal returns. This reduction in productivity is not limited to the additional labor needed to produce the marginal unit - the productivity of every unit of labor is reduced. Thus the costs of producing the marginal unit of output has two components: the cost associated with producing the marginal unit and the increase in average costs for all units produced due to the damage to the entire productive process (AC/q)q. The first component is the per unit or average cost. The second unit is the small increase in costs due to the law of diminishing marginal returns which increases the costs of all units of sold.Therefore, the precise formula is: MC = AC + (AC/q)q.Marginal costs can also be expressed as the cost per unit of labor divided by the marginal product of labor.
Becauseis the change in quantity of labor that affects a one unit change in output, this implies that this equals. ThereforeSince the wage rate is assumed constant, marginal cost and marginal product of labor have an inverse relationshipif marginal cost is increasing (decreasing) the marginal product of labor is decreasing (increasing). Economies of scaleEconomies of scale is a concept that applies to the long run, a span of time in which all inputs can be varied by the firm so that there are no fixed inputs or fixed costs. Production may be subject toeconomies of scale(ordiseconomies of scale). Economies of scale are said to exist if an additional unit of output can be produced for less than the average of all previous units that is, if long-run marginal cost is below long-run average cost, so the latter is falling. Conversely, there may be levels of production where marginal cost is higher than average cost, and average cost is an increasing function of output. For this generic case, minimum average cost occurs at the point where average cost and marginal cost are equal (when plotted, the marginal cost curve intersects the average cost curve from below); this point willnotbe at the minimum for marginal cost if fixed costs are greater than 0.Perfectly competitive supply curveThe portion of the marginal cost curve above its intersection with the average variable cost curve is the supply curve for a firm operating in aperfectly competitive market. (the portion of the MC curve below its intersection with the AVC curve is not part of the supply curve because a firm would not operate at price below the shut down point) This is not true for firms operating in other market structures. For example, while a monopoly "has" an MC curve it does not have a supply curve. In a perfectly competitive market, a supply curve shows the quantity a seller's willing and able to supply at each price - for each price there is a unique quantity that would be supplied. The one-to-one relationship simply is absent in the case of a monopoly. With a monopoly there could be an infinite number of prices associated with a given quantity. It all depends on the shape and position of the demand curve and its accompanying marginal revenue curve.Decisions taken based on marginal costsIn perfectly competitive markets, firms decide the quantity to be produced based on marginal costs and sale price. If the sale price is higher than the marginal cost, then they supply the unit and sell it. If the marginal cost is higher than the price, it would not be profitable to produce it. So the production will be carried out until the marginal cost is equal to the sale price. In other words, firms refuse to sell if the marginal cost is higher than the market price.
Relationship to fixed costsMarginal costs are not affected by changes in fixed cost. Marginal costs can be expressed as C(q)Q. Since fixed costs do not vary with (depend on) changes in quantity, MC is VCQ. Thus if fixed cost were to double MC would not be affected and consequently the profit maximizing quantity and price would not change. This can be illustrated by graphing the short run total cost curve and the short run variable cost curve. The shape of the curves are identical. Each curve initially decreases at a decreasing rate, reaches an inflection point, then increases at an increasing rate. The only difference between the curves is that the SRVC curve begins from the origin while the SRTC curve originates on the y-axis. The distance of the origin of the SRTC above the origin represents the fixed cost - the vertical distance between the curves. This distance remains constant as the quantity produced, Q, increases. MC is the slope of the SRVC curve. A change in fixed cost would be reflected by a change in the vertical distance between the SRTC and SRVC curve. Any such change would have no effect on the shape of the SRVC curve and therefore its slope at any point - MC.ExternalitiesExternalities are costs (or benefits) that are not borne by the parties to the economictransaction. A producer may, for example,pollutethe environment, and others may bear those costs. A consumer may consume a good which produces benefits for society, such as education; because the individual does not receive all of the benefits, he may consume less than efficiency would suggest. Alternatively, an individual may be a smoker or alcoholic and impose costs on others. In these cases, production or consumption of the good in question may differ from the optimum level.Negative externalities of production
Negative Externalities of ProductionMuch of the time, private and social costs do not diverge from one another, but at times social costs may be either greater or less than private costs. When marginal social costs of production are greater than that of the private cost function, we see the occurrence of anegative externalityof production. Productive processes that result inpollutionare a textbook example of production that creates negative externalities.Such externalities are a result of firms externalizing their costs onto a third party in order to reduce their own total cost. As a result of externalizing such costs we see that members of society will be negatively affected by such behavior of the firm. In this case, we see that an increased cost of production on society creates a social cost curve that depicts a greater cost than the private cost curve.In an equilibrium state we see that markets creating negative externalities of production will overproduce that good. As a result, the socially optimal production level would be lower than that observed.Positive externalities of production
Positive Externalities of ProductionWhen marginal social costs of production are less than that of the private cost function, we see the occurrence of apositive externalityof production. Production ofpublic goodsare a textbook example of production that create positive externalities. An example of such a public good, which creates a divergence in social and private costs, includes the production of education. It is often seen that education is a positive for any whole society, as well as a positive for those directly involved in the market.Examining the relevant diagram we see that such production creates a social cost curve that is less than that of the private curve. In an equilibrium state we see that markets creating positive externalities of production will under produce that good. As a result, the socially optimal production level would be greater than that observed.Social costsOf great importance in the theory of marginal cost is the distinction between the marginalprivateandsocialcosts. The marginal private cost shows the cost associated to the firm in question. It is the marginal private cost that is used by business decision makers in their profit maximization goals. Marginal social cost is similar to private cost in that it includes the cost of private enterprise butalsoany other cost (or offsetting benefit) to society to parties having no direct association with purchase or sale of the product. It incorporates all negative and positiveexternalities, of both production and consumption. Examples might include a social cost from air pollution affecting third parties or a social benefit from flu shots protecting others from infection.
The main features of marginal costing areas follows:1. Cost ClassificationThe marginal costing technique makes a sharp distinction between variable costs and fixed costs. It is thevariable cost on the basis of which production and sales policies are designed by afirm following the marginal costing technique.2. Stock/Inventory Valuation Under marginal costing, inventory/stock forprofit measurement isvalued at marginal cost. It is insharp contrast to the total unit cost underabsorption costing method.3. MarginalContribution Marginal costing technique makes use of marginal contribution for marking various decisions. Marginal contribution is the difference between sales andmarginal cost. It forms the basis forjudging the profitability of different products ordepartments.
Advantages and Disadvantages ofMarginal Costing TechniqueAdvantages:1. Marginal costing is simple tounderstand.2. By not charging fixed overhead to cost ofproduction, the effect of varying chargesper unit is avoided.3. It prevents the illogical carry forward in stock valuation of some proportion ofcurrent years fixed overhead.4. The effects of alternative sales or production policies can be more readily available and assessed, and decisions takenwould yield the maximum return to business.5. Iteliminates largebalances left in overhead control accountswhich indicate the difficulty of ascertaining an accurate overhead recovery rate.6. Practical cost control isgreatly facilitated. By avoiding arbitrary allocation of fixed overhead, efforts can beconcentrated onmaintaining a uniform and consistent marginal cost. It is useful tovarious levels of management.7. It helps inshort-term profit planning by breakeven and profitability analysis, both inters of quantityand graphs. Comparative profitability andperformance between two or more products and divisions can easily be assessed and brought tothe notice ofmanagementfor decisionmaking.Disadvantages:1. The separation of costs into fixed and variable is difficultand sometimes gives misleading results2. Normal costing systems also apply overhead undernormal operating volume and this shows that no advantage is gained by marginal costing.3. Under marginal costing, stocks and workin progress are understated. The exclusion of fixed costs from inventories affect profit, and true and fair view offinancial affairs ofan organization may not beclearly transparent.4. Volume variance in standard costing also discloses the effect of fluctuating output unfixed overhead. Marginal cost data becomes unrealistic incase of highly fluctuating levels of production, e.g., incase of seasonal factories.5. Application of fixed overhead depends on estimates and not on the actual andas such there may be under or over absorption of thesame.6. Control affected by means of budgetary control is also accepted by many. In order to know the net profit, we should not be satisfied with contribution and hence, fixed overhead is also a valuable item. A system which ignores fixed costs is less effective since a major portion of fixed cost isnot taken care of under marginal costing.7. In practice, sales price, fixed cost and variable cost per unit may vary. Thus, the assumptions underlying the theoryof marginal costing sometimes becomes unrealistic. For long term profitplanning, absorption costing is the only answer.
OBJECTIVE OF THE STUDY1. To study about Marginal Costing
2. To study and analyze Financial statements of Larsen & Toubro
SCOPE OF THE STUDY1. It covers the information about Marginal Costing1. It covers the information about Financial Statements of Larsen & Toubro
RESEARCH DESIGN For the purpose of the present study only secondary data were used. Secondary data are collected from books and websites
LIMITATIONS OF THE STUDY During the study there was lack of information available for the study. No proper source on the topic
CHAPTER 2COMPANY PROFILE
TradedasNSE:LTBSE:500510BSE SENSEX Constituent
FoundedMumbai then Bombay,Maharastra, India(1938)
FounderSren Kristian ToubroHenning Holck-Larsen
HeadquartersL&T House, Ballard Estate,Mumbai,Maharashtra,India
Area servedIndia,Middle East,East AsiaandSoutheast Asia
Key peopleK. Venkataramanan (CEO&MD)A. M. Naik(Executive Chairman)
ProductsConstructionHeavy equipmentElectrical equipmentPowerShipbuildingFinancial servicesIT Services
RevenueUS$14 Billion (2014)
Operating incomeUS$ 1.07 Billion (2014)
Net incomeUS$ 952.638 Million (2013)
Total assetsUS$ 26.188 Billion (2013)
Total equityUS$ 6.6818 Billion (2013)
Number of employees84,027 (Mar 2014)
DivisionsTechnology, engineering, construction, manufacturing
SubsidiariesL&T Infotech,L&T Mutual Fund,L&T Infrastructure Finance Company, L&T Finance Holdings, L&T Technology Services, L&T MHPS
Larsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in India's private sector.
More than seven decades of a strong, customer-focused approach and the continuous quest for world-class quality have enabled it to attain and sustain leadership in all its major lines of business.
L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow itsglobal footprint, with offices and manufacturing facilitiesin multiple countries.
The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support.
L&T believes that progress must be achieved in harmony with the environment. A commitment to community welfare and environmental protection are an integral part of the corporate vision.
In response to changing market dynamics, L&T has gone through a phased process of redefining its organisation model to facilitate growth through greater levels of empowerment. The new structure is built around multiple businesses that servethe needs of different industries.
The evolution of L&T into the country's largest engineering and construction organization is among the most remarkable success stories in Indian industry.
L&T was founded in Bombay (Mumbai) in1938by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly committed to developing India's engineering capabilities to meet the demands of industry.
Henning Holck-Larsen and Soren Kristian Toubro, school-mates in Denmark, would not have dreamt, as they were learning about India in history classes that they would, one day, create history in that land.
In1938, the two friends decided to forgo the comforts of working in Europe, and started their own operation in India. All they had was a dream. And the courage to dare.
Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office at a time!
In the early years, they represented Danish manufacturers of dairy equipment for a modest retainer. But with the start of the Second World War in1939, imports were restricted, compelling them to start a small work-shop to undertake jobs and provide service facilities.
Germany's invasion of Denmark in1940stopped 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 recognised as a reliable fabricator with high standards.
The war-time need to repair and refit ships offered L&T an opportunity, and led to the formation of a new company, Hilda Ltd., to handle these operations. L&T also started two repair and fabrication shops - the Company had begun to expand.
Again, the sudden internment of German engineers (because of the War) who were to put up a soda ash plant for the Tatas, gave L&T a chance to enter the field of installation - an area where their capability became well respected.HistoryA company was founded in Bombay (Mumbai) in 1938 by two Danish engineers,Henning Holck-LarsenandSoren Kristian Toubro. The company began as a representative of Danish manufacturers of dairy equipment. However, with the start of the Second World War in 1939 and the resulting restriction on imports, the partners started a small workshop to undertake jobs and provide service facilities.Germany's invasion of Denmark in 1940 stopped supplies of Danish products.The war-time need to repair and refit ships offered L&T an opportunity, and led to the formation of a new company, Hilda Ltd., to handle these operations.L&T also started to repair and fabrication shops signalling the expansion of the company.The sudden internment of German engineers inBritish India(due to suspicions caused by the War), who were to put up a soda ash plant for the Tatas, gave L&T a chance to enter the field of installation.In 1944, ECC was incorporated by the partners; the company at this time was focused on construction projects (Presently, ECC is the construction division of L&T). L&T decided to build a portfolio of foreign collaborations. By 1945, the company represented British manufacturers of equipment used to manufacture products such as hydrogenated oils, biscuits, soaps and glass.In 1945, the company signed an agreement with Caterpillar Tractor Company, USA, for marketing earth moving equipment. At the end of the war, large numbers of war-surplus Caterpillar equipment were available at attractive prices, but the finances required were beyond the capacity of the partners. This prompted them to raise additional equity capital, and on 7 February 1946, Larsen & Toubro Private Limited was incorporated.
Post-independenceOffices were set up inKolkata(Calcutta),Chennai(Madras) andNew Delhi. In 1948, fifty-five acres of undeveloped marsh and jungle was acquired inPowai, Mumbai. That uninhabitable swamp subsequently became the site of its main manufacturing hub.In December 1950, L&T became a public company with a paid-up capital of Rs. 20lakhs(2 million rupees) (2,000,000). The sales turnover in that year was Rs. 1.09crore(10.9 million rupees).In 1956, a major part of the company's Mumbai office moved to ICI House inBallard Estate, Mumbai; which would later be purchased by the company and renamed as L&T House, its present corporate office.The sixties witnessed the formation of many new ventures: UTMAL (set up in 1960), Audco India Limited (1961), Eutectic Welding Alloys (1962) and TENGL (1963).Operating divisionsL&T has delivered Engineering, Procurement and Construction (EPC) services for many projects in the upstream hydrocarbon sector over the last two decades, inIndia,Middle East,Africa,South-East AsiaandAustralia.L&T has formed a joint venture with SapuraCrest Petroleum Berhad, Malaysia for providing services to offshore construction industry worldwide.The joint venture will own and operate the LTS 3000, aHeavy Lift cum Pipelay Vessel.L&T Power has set up an organization focused on coal-based, gas-based and nuclear power projects.L&T has formed two joint ventures withMitsubishi Heavy Industries, Japan to manufacture super critical boilers and steam turbine generators.L&T is among the top five fabrication companies in the world.L&T has a shipyard capable of constructing vessels of up to 150 meters long and displacement of 20,000 tonsat its heavy engineering complex at Hazira. The shipyard is geared up to take up construction of niche vessels such as specialized Heavy lift Cargo Vessels, CNG carriers, Chemical tankers, defense & para military vessels, submarines and other role specific vessels.The design wing of L&T ECC is called EDRC (Engineering Design and Research Centre). EDRC provides consultancy, design and total engineeringsolutionsto customers. It carries out basic and detailed design for both residential and commercial projects.L&T SolarL&T Construction a subsidiary of the Larsen & Toubro conglomerate also undertakes solar projects. In April 12, L&T commissioned India's largest solar photo voltaic-based power plant (40 MWp) owned byReliance PoweratJaisalmer, Rajasthan from concept to commissioning in 129 days.In 2011, L&T entered into a partnership with Sharp for EPC (engineering, procurement and construction) in megawatt solar project and plan to construct about 100 MW in the next 12 months in most of the metros.L&T Infra Finance, promoted by the parent L&T Ltd, is also active in the funding of solar projects in India.Electrical and automationL&T is an international manufacturer of a wide range of electrical and electronic products and systems. L&T also manufactures custom-engineered switchboards for industrial sectors like power, refineries, petrochemicals and cement.In the electronic segment, L&T offers a range ofmetersand provides control and automation systems for industries. Medical Equipment.Information technologyMain article:Larsen & Toubro InfotechL&T Infotech focuses oninformation technologyand software services. Larsen & Toubro Infotech Limited, a 100 per cent subsidiary of the L&T, offers software and services with a focus on Manufacturing,BFSIand Communications and Embedded Systems. It also provides services in the embedded intelligence and engineering space.Machinery and industrial productsL&T manufactures, markets and provides service support for construction and mining machinery, surface miners, hydraulic excavators, aggregate crushers, loader backhoes and vibratory compactors; supplies a wide range of rubber processing surya; and manufactures and markets industrial valves and allied products and a range of application-engineered welding alloys.EWAC Alloys LimitedEWAC Alloys Limited is a wholly owned subsidiary of Larsen & Toubro, India. The Company is engaged in design & development, manufacture and supply of special welding electrodes, gas brazing rods and fluxes, welding torches and accessories, atomised metal powder alloys, flux cored continuous wires & wire feeders, polymer compounds & wear resistant plates.Prof. Wasserman, Founder of Eutectic Castolin, and Mr. Henning Hock Larsen, Founder of Larsen & Toubro, laid the foundation of Eutectic Division in India in the year 1962. Recently Eutectic Castolin merged into Messer Group of Companies, Germany and referred as Messer Eutectic Castolin (MEC).Major subsidiaries and joint venturesL&T has over 130 subsidiaries and 15 associate companies.L&T Kobelco Machinery Private LimitedThis is a joint venture of L&T and Kobe Steel of Japan, to manufacture internal mixers and twin screw roller-head extruders for the tyre industry.The Company has set up a factory at Karai Village, Kanchipuram to manufacture Internal Mixers and Twin Screw Roller head Extruders for the tyre industry and commenced its commercial operations in December 1, 2012.L&T Komatsu LimitedHaving its registered office atMumbai, India and focusing onconstruction equipmentandmining equipment, L&T-Komatsu Limitedis a joint venture of Larsen and Toubro, and Komatsu Asia Pacific Pte Limited, Singapore, a wholly owned subsidiary ofKomatsu Limited, Japan. Komatsu is the worlds second largest manufacturer of hydraulic excavators and has manufacturing and marketing facilities.The plant was started in the year 1975 by L&T to manufacture Hydraulic Excavators for the first time in India. In 1998, it became a joint venture. L&TKomatsu Limiteds manufacturing facilityThe Bangalore Workscomprises Machinery Works and Hydraulics Works. Machinery Works has a manufacturing facility for design, manufacture and servicing of earthmoving equipment. Hydraulics Works, with a precision machine shop, manufactures the complete range of high pressure hydraulic components and systems, and design, development, manufacturing and servicing of hydraulic pumps, motors, cylinders, turning joints, hose assemblies, valve blocks, hydraulic systems and power drives as well as allied gear boxes.In April 2013, L&T bought the 50% stake held by Komatsu Asia & Pacific. The company's name was changed to L&T Construction Equipment Limited.L&T FinanceLarsen & Toubrofinancial servicesFinancial Services is a subsidiary which was incorporated as a Non Banking Finance company in November 1994.The subsidiary has financial products and services for corporate, construction equipments etc. This is a new division after the company declared its restructuringA partnership between L&T Finance andSonalika Groupfarm equipment maker International Tractors Ltd, was announced in April 2014. The partnership would provide credit and financing benefits to customers of Sonalika Group throughout India.L & T Mutual Fundis the mutual fund company of the L&T group. This company providesmutual fundschemes for investors inIndia. The average Assets Under Management (AUM) of L&T Mutual Fund for the quarter Jul-13 to Sep-13 was INR 15.8 billion.Larsen & Toubro Infrastructure FinanceMain article:Larsen and Toubro Infrastructure Finance Company LimitedLarsen and Toubro Infrastructure Finance Company Limitedwas set up as a 100% subsidiary of L&T. It commenced its business in January 2007 upon obtainingNon-Banking Financial Company(NBFC) license from theReserve Bank of India(RBI).As of 31 March 2008, L&T Infrastructure Finance has approved financing of more than a billion USD to select projects in the infrastructure sector.L&T Infrastructure Finance has received the status of "Infrastructure Finance Company" from the Reserve Bank of India within the overall classification of "Non-Banking Financial Company".L&T (TS)L&T Technology Services (previously known as Integrated Engineering Services or L&T IES), a business unit of L&T, offers a combination of mechanical, electrical and electronic design (mechatronics/embedded systems), civil and architectural services. L&T TS has its design and delivery locations in Vadodara, Chennai, Bangalore, Mysore and Mumbai in India.L&T TS services also encompass architectural, civil, structural design and building utility systems design. Practices include both product and plant engineering services in the automotive, trucks and off-highway vehicles, industrial .Mysore based campus of Electronic design unit of TS works predominantly for Embedded systems with a variety of range of operations from Avionics, Automotive, Industrial automation and metering, Medical and more.L&T ValvesL&Ts Valves Business Group markets valves manufactured by L&T's Valve Manufacturing Unit and L&T's joint ventures, Audco India Limited, India and Larsen & Toubro Valves Manufacturing Unit, Coimbatore as well as allied products from major international manufacturers.The company's valve manufacturing Unit in Coimbatore manufactures industrial valves specifically for the Power Industry. It also sells value-added flow controlsolutionsto oil and gas, refining, petrochemical, chemical and power industries, industrial valves and customized products for major Refinery,LNG, GTL, Petrochemical and Power projects.L&T Valves Business Group has offices in the USA, South Africa, Dubai, Abu Dhabi, India and China, and alliances with valve distributors and agents in these countries.L&T MHPS BoilerLMB is the joint venture between L&T and Mitsubishi Hitachi Power Systems. The group specializes in Engineering, Manufacturing, Erecting & Commissioning of Super Critical Boilers used in Mega and Ultra Mega power plants. It is mainly headquartered in Faridabad with Manufacturing facility in Hazira and an Engineering Centre in Chennai & Faridabad. Currently the group is engaged in projects for JVPL, MAHAGENCO, NABHA Power & RRVUNL.L&T MHPS Turbine Generators Pvt.LtdIn 2007, Larsen & Toubro Limited (L&T) and Mitsubishi Heavy Industries Limited (MHI), headquartered in Tokyo, Japan inked a Joint Venture Agreement for setting up a manufacturing facility to supply super-critical Steam Turbine & Generator facility in Hazira, Surat, India, . This follows a Technology Licensing and Technical Assistance Agreement for manufacture of super-critical Turbine & Generator, signed between L&T, MHI, and Mitsubishi Electric Corporation (MELCO), headquartered in Tokyo, Japan.In February 2014, MHI and Hitachi Ltd integrated the business centered on thermal power generation systems (gas turbines, steam turbines, coal gasification generating equipment, boilers, thermal power control systems, generators, fuel cells, environmental equipment and so on) and started a new company as Mitsubishi Hitachi Power Systems Ltd. (MHPS), headquartered in Yokohama, Japan .L&T Howden Pvt.LtdL&T Howden Pvt. Ltd. is a joint venture between L&T and Howden to cater Axial Fans and Air Preheaters of range 120-1200 MW to thermal power plants. L&T Howden is an ISO -9001 and 5001 certified organisation, Plant is located in Surat Hazira and marketing office in Faridabad.
L&T Special Steels and Heavy Forgings Pvt. Ltd.LTSSHF is a joint venture between L&T and NPCIL. Headquartered at Hazia, LTSSHF is recognized as India's largest integrated steel plant and heavy forging unit. With state-of-the art facilities, LTSSHF is capable of producing forgings weighing 120MT each. LTSSHF currently is engaged in projects from Nuclear, Hydrocarbon, Power and Oil & Gas sectors.
In1944, ECC was incorporated. Around then, L&T decided to build a portfolio of foreign collaborations. By1945, the Company represented British manufacturers of equipment used to manufacture products such as hydrogenated oils, biscuits, soaps and glass.
In1945, L&T signed an agreement with Caterpillar Tractor Company, USA, for marketing earthmoving equipment. At the end of the war, large numbers of war-surplus Caterpillar equipment were available at attractive prices, but the finances required were beyond the capacity of the partners. This prompted them to raise additional equity capital, and on 7th February1946, Larsen & Toubro Private Limited was born.
Independence and the subsequent demand for technology and expertise offered L&T the opportunity to consolidate and expand. Offices were set up in Kolkata (Calcutta), Chennai (Madras) and New Delhi. In1948, fifty-five acres of undeveloped marsh and jungle was acquired in Powai. Today, Powai stands as a tribute to the vision of the men who transformed this uninhabitable swamp into a manufacturing landmark.
PUBLIC LIMITED COMPANY
In December1950, L&T became a Public Company with a paid-up capital of Rs.2 million. The sales turnover in that year was Rs.10.9 million.
Prestigious orders executed by the Company during this period included the Amul Dairy at Anand and Blast Furnaces at Rourkela Steel Plant. With the successful completion of these jobs, L&T emerged as the largest erection contractor in the country.
In1956, a major part of the company's Bombay office moved to ICI House in Ballard Estate. A decade later this imposing grey-stone building was purchased by L&T, and renamed as L&T House - its Corporate Office.
The sixties saw a significant change at L&T - S. K. Toubro retired from active management in1962.
The sixties were also a decade of rapid growth for the company, and witnessed the formation of many new ventures: UTMAL (set up in1960), Audco India Limited (1961), Eutectic Welding Alloys (1962) and TENGL (1963).
By1964, L&T had widened its capabilities to include some of the best technologies in the world. In the decade that followed, the company grew rapidly, and by1973had become one of the Top-25 Indian companies.
In1976, Holck-Larsen was awarded the Magsaysay Award for International Understanding in recognition of his contribution to India's industrial development. He retired as Chairman in1978.
In the decades that followed, the company grew into an engineering major under the guidance of leaders like N. M. Desai, S.R. Subramaniam, U. V. Rao, S. D. Kulkarni and A. M. Naik.
Today, L&T is one of India's biggest and best known industrial organisations 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.
For an institution that has grown to legendary proportions, there cannot and must not be an 'end'. Unlike other stories, the L&T saga continues....
CHAPTER 3 FINANCIAL STATEMENTSStandalone Profit & Loss account------------------- in Rs. Cr. -------------------
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Power & Fuel Cost758.99638.79420.27334.08456.39
Other Manufacturing Expenses33,081.8226,787.1822,372.5316,913.3115,659.17
Selling and Admin Expenses0.000.000.001,854.231,844.83
Preoperative Exp Capitalised0.000.000.00-36.25-24.48
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Other Written Off0.000.000.0030.9521.16
Profit Before Tax6,711.156,310.335,901.475,995.284,678.61
PBT (Post Extra-ord Items)6,711.156,310.335,901.475,950.154,657.52
Reported Net Profit4,910.654,456.503,957.894,375.523,481.66
Total Value Addition40,354.6133,293.7027,590.9321,770.0920,503.25
Corporate Dividend Tax85.86101.44112.82110.25101.83
Per share data (annualised)
Shares in issue (lakhs)6,153.866,123.996,088.526,021.955,856.88
Earning Per Share (Rs)79.8072.7765.0172.6659.45
Equity Dividend (%)925.00825.00725.00625.00525.00
Book Value (Rs)473.57411.87358.81303.28212.32
Balance Sheet of Larsen and Toubro------------------- in Rs. Cr. -------------------
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Sources Of Funds
Total Share Capital123.08122.48121.77120.44117.14
Equity Share Capital123.08122.48121.77120.44117.14
Share Application Money0.000.000.0025.090.00
Preference Share Capital0.000.000.000.000.00
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Application Of Funds
Less: Accum. Depreciation3,559.592,850.252,228.521,727.681,421.39
Capital Work in Progress596.84758.68771.34857.661,040.99
Cash and Bank Balance1,455.661,778.121,729.551,104.89693.13
Total Current Assets26,132.8522,284.5815,734.3113,683.9616,553.70
Loans and Advances21,035.9921,172.8219,275.3412,662.557,198.85
Total CA, Loans & Advances47,168.8443,457.4035,009.6526,673.4923,834.71
Total CL & Provisions35,025.9334,203.1628,932.1621,632.1318,277.57
Net Current Assets12,142.919,254.246,077.495,041.365,557.14
Book Value (Rs)473.57411.87358.81
Cash Flow of Larsen and Toubro------------------- in Rs. Cr. -------------------
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Net Profit Before Tax6457.096255.335568.565880.673940.41
Net Cash From Operating Activities2114.751081.583833.305482.751478.57
Net Cash (used in)/fromInvesting Activities464.93-1922.28-2409.98-6071.73-3308.53
Net Cash (used in)/from Financing Activities-2990.261015.61-1124.841245.561640.79
Net (decrease)/increase In Cash and Cash Equivalents-410.58174.91298.48656.58-189.17
Opening Cash & Cash Equivalents1905.261730.351431.87775.29964.46
Closing Cash & Cash Equivalents1494.681905.261730.351431.87775.29
Marginal cost sheet of Larsen & Toubro Particulars Rs (In Cr.)Sales Revenue60,873.26
Less Marginal Cost of Sales
Less Fixed Cost
Marginal Costing Profit/Loss
Chapter 4Findings, Suggestions and ConclusionFindings Marginal cost is the cost ofthe next unitorone additional unitof volume or output. The marginal cost varies directly with the volume of production and marginal cost per unit remains the same. It consists of prime cost, i.e. cost of direct materials, direct labor and all variable overheads. L & T is diversified company, which operates in national as well as international level. Company is going for new ventures in the market so , we can assume that it has greater scope in future. Earnings per share of the company Rs 56, which shoes the positive trend. Operating income of the company is showing positive trend in the 2011,which shows the positive trend. Net profit of the company is showing the negative slope, which is risky for the company. Long term debt and equity of the company is showing the negative slop, which is good for the company. Fixed assets of the company are showing the decline slop which is alarming situation for the company. Current ratio of the company is showing the giz-gaz trend which is not suitable for the company. Total exports of the company are declining at high rate which is alarming for the company.
CHAPTER VCONCLUSIONFrom the above information, we can conclude that company is having sound financial position, with reference to debt equity ratio, earning per share, and operating income .But net profit, net export, fixed assets and current ratio is showing negative trend .L&T need to pay attention towards the cost reduction so that profitability of the company can be maintained, and control the liabilities
BIBLIOGRAPHYThe information is obtained from the listed sources www.moneycontrol.com www.wikipedia.com www.timesofindia.com Financial Management- Khan and Jain