A PROJECT REPORTONMARGINAL COSTING OF LARSEN & TOUBRO
In the subject Cost Accounting
SUBMITTED TOUNIVERSITY OF MUMBAIFOR SEMESTER 2 OF M.COM.BYName
of the student(WALKE SHAMEE ARUN)(Roll No. 79)
UNDER THE GUIDANCE OFProf. Ashwina PaulYEAR 2013 2014
ACKNOWLEDGEMENT
At the beginning, I would like to thank GOD for his shower of
blessing. The desire of completing this project was given by my
guide Prof. Ashwina Paul. I am very much thankful to him for the
guidance, support and for sparing his precious time from a busy
schedule.I would fail in my duty if I dont thank my parents who are
pillars of my life. Finally I would express my gratitude to all
those who directly and indirectly helped me in completing this
project.
(Signature of the student)
DECLARATION BY THE STUDENT
I, Walke Shamee Arun student of M.Com. Part-1 Accountancy, Roll
No. 79 hereby declare that the project for the Paper Cost
Accounting titled, Marginal Costing of Larsen & Toubro
submitted by me to University of Mumbai, Semester 2 examination
during the academic year 2013-2014, is based on actual work carried
by me under the guidance and supervision of prof. Ashwini Paul
Madam.I further state that this work is original and not submitted
anywhere else for any examination.
Signature of student
CERTIFICATE
This is to certify that the project entitled Marginal Costing of
Larsen & Toubro submitted by Ms.Walke Shamee Arun Roll No. 79
student of M.Com. (Part-1) Management (University of Mumbai)
Semester 2 examination has not been submitted for any other
examination and does not form a part of any other course undergone
by the candidate. It is further certified that she has completed
all required phases of the project. This project is original to the
best of our knowledge and has been accepted for Internal
Assessment.
Internal Examiner External Examiner
Co-coordinator Principal
College seal
INDEXSR.NOParticularsPage No
1
I) Cover page with details II) Declaration of the student III)
Certificate from the institutionIV) Acknowledgement
2IntroductionA) Objective of the studyB) Scope of the studyC)
Research DesignD) Limitation of the study
3Company Profile: Larsen & Toubro
4Findings, suggestions & conclusion
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.[2]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.
Therefore[4]Since 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 SCHEMEChapter 1- Introduction Gives an introduction to
the study
Chapter 2- Conceptual framework & Observation Gives the
information about profile, financial statement, marginal cost
statement of the company.
Chapter 3- Conclusion Deals with findings, suggestions and
conclusion to the topic
CHAPTER2COMPANY PROFILE:Date of Establishment- 1946Revenue-
9933.88 (USD in Millions )Market Cap- 785064.76857305 (Rs. in
Millions)Corporate Address- L & T House, Ballard
Estate,Mumbai-400001,Maharashtra www.larsentoubro.com Management
Details: Chairperson A.M.Naik MD A.M.Naik Directors A.K.Jain,
A.M.Naik, A.K.Jain, AM Naik,Bhagyam Ramani, J P Nayak, J S Bindra,
K VRangaswami, K Vekataramanan, K Venkataramanan, MM Chitale, M V
Kotwal, MM Chitale, N Hariharan, NMohan Raj, R N Mukhija, R Shankar
Raman, Ravi Uppal,S N Subrahmanyan, S N Talwar, S Rajgopal,
SubodhBhargava, Thomas Mathew T, V K Magapu, Y MDeosthaleeBusiness
Operation- Engineering ConstructionBackground- Larsen & Toubro
(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. Larsen & Toubro Limited is
the biggest legacy of two Danish Engineers, who built a world-class
organization that is professionally managed and a leader in India's
engineering and construction industry. It was the
business.Financials Total Income- Rs. 454455.4 Million (year ending
Mar 2011)Net Profit- Rs. 38870.5 Million (year ending Mar
2011)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.
THE JOURNEY
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).
EXPANDING HORIZONS
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....
AWARDS & RECOGNITION2014
Major Awards & Recognition won by L&T in 2014L&T
Bags Best Sustainability Report Award 2014L&Ts Sustainability
Report Future Now was declared the best corporate report by the
World CSR Congress for its width and depth of coverage, its high
degree of transparency and the engaging manner in which it has
projected non-financial data.The award was part of the Global
Sustainability Leadership Awards 2014 instituted by the World CSR
Congress. The selection process involved rigorous screening of
applications from a number of corporates. Shortlisted contestants
then made presentation to jury members comprising international CSR
consultants, CEOs, sustainability experts and members of the
media.The community initiatives of L&T Vizag unit also received
an award in Outstanding Social Impact category.L&T Electrical
& Automation's AU-Series WinsBest Product Award at ELECRAMA
2014The design and development capabilities of L&T's Electrical
& Automation (E&A) earned rich recognition at ELECRAMA 2014
when its AU-Series of Final Distribution Products was declared
winner of 'The Best Product developed by an Indian Exhibitor'
Award. The award ceremony was held at The Exhibitors Nite - JOSH
2014 on January 11, 2014.
The AU-series of final distribution products comprises a
complete range of protection, control and monitoring devices that
include Miniature Circuit Breakers, Residual Current Devices,
Isolators, Changeover switches, Energy meters, Time switches, Surge
Protection Devices, Modular Contactors, Communication devices, and
Distribution boards. It ensures the highest level of safety and
convenience to the end users.
CHAPTER 3 FINANCIAL STATEMENTSStandalone Profit & Loss
account------------------- in Rs. Cr. -------------------
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Income
Sales Turnover60,873.2653,170.5243,905.8737,187.5034,249.85
Excise Duty0.000.000.00317.31393.31
Net Sales60,873.2653,170.5243,905.8736,870.1933,856.54
Other Income2,104.961,393.281,480.372,321.671,612.58
Stock Adjustments1,132.03539.77532.64-422.99105.11
Total Income64,110.2555,103.5745,918.8838,768.8735,574.23
Expenditure
Raw Materials15,243.6214,133.9811,208.019,593.539,316.38
Power & Fuel Cost758.99638.79420.27334.08456.39
Employee Cost4,436.323,663.452,830.082,379.141,998.02
Other Manufacturing
Expenses33,081.8226,787.1822,372.5316,913.3115,659.17
Selling and Admin Expenses0.000.000.001,854.231,844.83
Miscellaneous Expenses2,077.482,204.281,968.05325.58569.32
Preoperative Exp Capitalised0.000.000.00-36.25-24.48
Total Expenses55,598.2347,427.6838,798.9431,363.6229,819.63
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Operating Profit6,407.066,282.615,639.575,083.584,142.02
PBDIT8,512.027,675.897,119.947,405.255,754.60
Interest982.40666.10619.25995.37770.00
PBDT7,529.627,009.796,500.696,409.884,984.60
Depreciation818.47699.46599.22383.65284.83
Other Written Off0.000.000.0030.9521.16
Profit Before Tax6,711.156,310.335,901.475,995.284,678.61
Extra-ordinary items0.000.000.00-45.13-21.09
PBT (Post Extra-ord
Items)6,711.156,310.335,901.475,950.154,657.52
Tax1,800.501,853.831,943.581,577.021,176.19
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
Preference Dividend0.000.000.000.000.00
Equity Dividend1,138.471,010.46882.84752.75614.97
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
Reserves29,019.6425,100.5421,724.4918,142.8212,317.96
Revaluation Reserves0.000.000.0023.2924.59
Networth29,142.7225,223.0221,846.2618,311.6412,459.69
Secured Loans1,234.011,453.341,063.04955.731,102.38
Unsecured Loans6,771.556,813.445,268.545,845.105,453.65
Total Debt8,005.568,266.786,331.586,800.836,556.03
Total
Liabilities37,148.2833,489.8028,177.8425,112.4719,015.72
Mar '13Mar '12Mar '11Mar '10Mar '09
12 mths12 mths12 mths12 mths12 mths
Application Of Funds
Gross Block11,864.7310,455.238,872.717,235.785,575.00
Less: Accum.
Depreciation3,559.592,850.252,228.521,727.681,421.39
Net Block8,305.147,604.986,644.195,508.104,153.61
Capital Work in Progress596.84758.68771.34857.661,040.99
Investments16,103.3915,871.9014,684.8213,705.358,263.72
Inventories2,064.181,776.621,577.151,415.375,805.05
Sundry Debtors22,613.0118,729.8412,427.6111,163.7010,055.52
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
Fixed Deposits0.000.000.00326.9882.16
Total CA, Loans &
Advances47,168.8443,457.4035,009.6526,673.4923,834.71
Deffered Credit0.000.000.000.000.00
Current
Liabilities32,656.2031,816.0726,687.9819,443.7715,211.04
Provisions2,369.732,387.092,244.182,188.363,066.53
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
Miscellaneous Expenses0.000.000.000.000.26
Total Assets37,148.2833,489.8028,177.8425,112.4719,015.72
Contingent
Liabilities12,987.9710,309.197,761.661,719.391,371.86
Book Value (Rs)473.57411.87358.81
303.28 212.32
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
Contribution
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.CONCLUSIONFrom 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
32