Project on Working Capital Management

A Study on

WORKING CAPITAL MANAGEMENT With reference to

LANCO INFRASTRUCTURE LIMITED, HYDERABAD

A Project report is submitted to Andhra University in partial fulfillment of

requirement for the award of the degree of

MASTER OF BUSINESS ADMINSTRATION

Submitted By

ANITHA KUMARI PABBATHI

Regd. No: 110200202012

Under the guidance of

Prof. M.MADHUSUDANA RAO Ph.D

Department of Commerce and Management Studies

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY

Accredited by NAAC with “A” grade (ISO 9001:2000 Certified)

VISAKHAPATNAM.

2010 – 2012

DECLARATION

I (Anitha Kumari.Pabbathi, Regd no : 110200202012), hereby solemnly declare that the

project report entitled “WORKING CAPITAL MANAGEMENT with reference to

LANCO INFRASTRUCTURE LIMITED, HYDERABAD” submitted by me is a

genuine bonafide work done by me and is not submitted to any other university or

published any time before. The project work is in partial fulfillment of the requirement

for the award of MASTER OF BUSINESS ADMINISTRATION.

Place: VISAKHAPATNAM

Date:

(ANITHA KUMARI PABBATHI)

CERTIFICATE

This is to certify that the project report entitled “A STUDY ON WORKING CAPITAL

MANAGEMENT with reference to LANCO INFRASTRUCTURE LIMITED,

HYDERABAD” being submitted by Miss. ANITHA KUMARI PABBATHI

(Regd.no.110200202012) in partial fulfillment of requirement for the award of the

degree of “MASTER OF BUSINESS ADMINISTRATION” to the Department of

Commerce and Management Studies – ANDHRA UNIVESITY is a bonafide work done

by her under my guidance and supervision.

Date:

Station:

Prof.M.Madhusudana Rao

Department of Commerce & Management Studies

Andhra university,

Visakhapatnam.

ACKNOWLEDGEMENT

The satisfaction that accompanies the successful completion of the task would be

incomplete without mentioning the people who made it possible and whose constant

guidance & encouragement crown all the efforts of success.

I wish to take great pleasure in recording my profound gratitude and sincere thanks to

Prof. M.MADHUSUDANA RAO, Department of Commerce and Management studies,

ANDHRA UNIVERSITY for giving me an opportunity to work on this project and for

his supervision with valuable advices, his inspiring guidance, keen interest and critical

evaluation of the work for the successful completion of the project work.

I would like to express my sincere gratitude to Mr. Kiran Kumar, Finance Manager,

LANCO INFRASTRUCTURE LIMITED, HYDERABAD for providing me a chance to

work on the WORKING CAPITAL MANAGEMENT system with his guidance, in the

organization.

(ANITHA KUMARI PABBATHI)

CONTENTS

Chapter Title Page No

CHAPTER-I INTRODUCTION 1-5

CHAPTER-II INDUSTRY PROFILE 6-9

CHAPTER-III COMPANY PROFILE 10-17

CHAPTER-IV THEORITICAL FRAMEWORK 18-40

CHAPTER-V DATA ANALYSIS AND 41-81

INTERPRETATION

CHAPTER-VI SUMMARY, FINDINGS AND 82-86

SUGGESTIONS

BIBLIOGRAPHY

CHAPTER I

INTRODUCTION

Need for the study Objectives of the study Methodology of the

study Limitations of the study

INTRODUCTION

Financial Management refers to that part of management activity,

which is concerned with planning, and controlling of firm's financial

resources. It deals with finding out various sources for raising funds for the

firm. The sources must be suitable and the economical for the needs of the

business. In simple words, financial management is the study about the

process of procuring and judicious use of financial resources with a view to

maximize the value of business enterprise thereby the value to the owners is

maximized.

Financial management is the activity concerned with planning,

raising, controlling and administrating the funds used in the business.

Financial management is that managerial activity which is concerned

with the planning and controlling of the firm's financial resources.

Working capital management is the process of planning and

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

financing these assets. Specifically working capital management requires

financial manager to decide what quantities of cash, other liquid assets,

account receivables and inventories, the firm will hold at any point in time.

In addition, financial manager must decide how the current assets are to be

financed. Finally choices include the mix of current as well as long-term

liabilities.

NEED FOR THE STUDY

1. To know that current assets are needed because sales do not convert

into cash instantaneously.

2. To understand that an operating cycle involved in the conversion of

sales into cash.

3. To identify the time gaps in purchase of raw materials and production,

production and sales, sales and realization of cash.

4. To understand that the firm should maintain sound working capital

position that is having adequate working capital to run its business

operations.

5. To understand that both excessive and inadequate working capital

means ideal funds which earns no profit for the firm. So the firm

should maintain balanced working capital.

OBJECTIVES OF THE STUDY

1. To study the existing system of working capital management in

LANCO.

2. To examine the feasibility of present system of Managing cash,

Debtors and Inventory in LANCO

3. Suggesting a better way if any for improving management or working

capital.

4. To analyze the financial performance of the company with reference

to its working capital components.

5. To study the various aspects of working capital management and its

importance in the smooth and efficient running of an organization.

6. To understand the necessity of working capital management in the

organization.

7. To evaluate the efficiency of working capital management of

LANCO.

8. To identify the work areas if any and provide necessary

recommendations.

METHODOLOGY OF THE STUDY

Methodology is a systematic procedure of collecting information in

order to analyse various phenomenon. The collection is done through two

principle sources.

Primary Data:

Primary data has been collected from the return statements of the company.

1. Interaction with the planning and development department.

2. Interaction with the finance department

3. Conducting personal interview with officials of the company.

4. Individual observation and inferences.

5. From the people who are directly involved with the transaction of the

firm.

Secondary Data:

1. Accounting manuals of LANCO.

2. Websites of LANCO.

3. Printed matters of (from authorized text books)

LIMITATIONS OF THE STUDY

1. The data made available by the LANCO to the extent of annual

reports, which are used extensively throughout report.

2. Due to time constraint it has not been possible to have a study of other

field in finance.

3. The executives could not spend much time due to their routine work

load.

4. The time limit for project is only around 45 days for that it does not

cover all related fields.

CHAPTER II

INDUSTRY PROFILE

INDUSTRY PROFILE

Lanco believes that people management is a matter of creating,

nurturing and sustaining an environment conducive to optimal use of

employee potential. Lanco is home to more than 5500 committed, talented

and ambitious professionals. As one of the preferred employers in the

industry, LANCO attracts and retains the best talents. Lanco has adopted

some of the best people practices and policies from around the world to

delight its people.

Lanco Infrastructure Limited, an integrated infrastructure

development company, engages in the construction, power generation,

property development, and other infrastructure developments in India. It

involves in the construction of power plants based on gas, coal, bio-mass,

hydro, and wind; irrigation and water supply projects, including dams,

tunnels, lift irrigation, sewerage schemes, and marine works; civil

constructions, such as commercial and residential buildings, mass housing

projects and townships, industrial structures, information technology parks,

corporate offices, and hospitals; and transportation engineering projects

comprising roads, highways, bridges, and flyovers. Its power generation

activities include the generation of power from gas, coal, biomass, hydro,

and wind sources, as well as the trading of power. As of March 31, 2009,

Lanco Infrastrcture had a power generation capacity of approximately 511

megawatts. The company’s property development activities comprise

development of integrated properties, such as commercial and residential

buildings. It also provides engineering, procurement, construction, project

management, and commissioning services to the power sector. The company

is based in Gurgaon, India.

Global Market Direct's LANCO Infrastructure Limited - Alternative

Energy - Deals and Alliances Profile is an essential source for company data

and information. The profile examines the company's key business structure

and operations, history and products, and provides summary analysis of its

key revenue lines and strategy as well as highlighting the company's major

recent financial deals.

LANCO Infrastructure Limited is an integrated infrastructure

developing company. The company is principally engaged in the generation

and transmission of electricity. Furthermore, LANCO is also engaged in

infrastructure, construction and property development business. As of July

2009, the company has interested in 16 power projects of which five are

operational and 11 are under progress. The five operational projects of total

aggregated capacity accounted to 511 MW. Additionally, 3,913 MW are

under construction and approximately 3,960 MW are under development.

LANCO has more than 34 subsidiary companies located across India, and

More inside the report.

LANCO Infrastructure Limited became a listed entity in November

2006 following the Initial Public Offering of shares. Presently the market

capitalization of the company is around US$ 3 billion. Of the total 240.78

million shares outstanding 67.95% is held by the founder promoters of the

company.

At LANCO, their objective is to create value for their stakeholders,

including our shareholders, clients, employees, and communities. Good

corporate governance standards that promote the principles of integrity,

transparency, and accountability will protect and likely enhance their

stakeholder value. Thus, they believe that good business practices,

transparency in corporate financial reporting, and the highest levels of

corporate governance are essential components of our success.

The company will continue to take any steps the Board believes will

further improve our standards, controls, and accountabilities and, as

additional regulations and recommendations on corporate governance are

announced, will continue to make required changes to our policies.

LANCO's corporate governance has been and continues to remain, an

important area of focus for LANCO's senior executives and Board of

Directors. We have a track record of judiciously managing the business

and disclosing our performance to investors. We will not only run our

operations in accordance with Government of India regulations but also

within the spirit of those regulations.

LANCO Infrastructure Limited has executed many challenging

infrastructure project across India including Highways. Lanco is currently

executing theVaranasi Non Metro Airport Project.

LANCO Infrastructure Limited has an excellent track record in Construction

projects. Its project expertise spans:

Power plants based on Gas, Coal, Bio-mass and Hydro.

Irrigation and water supply projects, including dams, tunnels, lift

irrigation, sewerage schemes and marine works.

Civil construction including commercial and residential buildings,

mass housing projects and townships, industrial structures,

information technology parks, Corporate offices, Hospitals and more.

Transportation engineering projects including roads, highways,

bridges and flyovers.

Lanco Infrastructure Limited Company Snapshot Purchase a Full

Report on this Company Business Description:

Business Description:

The Group's principal activities are construction and development of

infrastructure facilities, property development, generation of power and

trading in power. It operates in four business segments: Construction,

Power, Property Development and Infrastructure. The Construction segment

involves in construction of Industrial, residential & commercial buildings,

roads, engineering, procurement and commissioning. Infrastructure segment

involves in development of roads on build, operate and transfer basis and

other infrastructure. The Property development segment involves in

development of IT park, residential buildings, retail and commercial

complex. Power segment involves in generation of power and trading in

power.

CHAPTER III

COMPANY PROFILE

COMPANY PROFILE

About Lanco

The Lanco odyssey began more than two decades ago in civil

engineering and the core sector. The challenges and opportunities in a

resurgent India following economic liberalization saw Lanco reengineer and

consolidate itself under a single apex entity, Lanco Infratech Ltd.

Lanco's operations have always been marked by creation of synergies,

backward and forward integrations and strategic innovations for competitive

edge. Today, Lanco Infratech, through twenty-two subsidiaries has

operations across a synergistic span of verticals.

In power generation, Lanco has a presence in thermal, hydro, wind

and renewables. Projects in operation and those underway represent over

8000 MW. The operations in power generation draw deep strengths from its

own EPC, entry into O&M and the capabilities of its Construction wing.

Lanco's presence in power extends to being a leader in power trading.

Multiple synergies are being leveraged for a strategic presence in

transmission and distribution. In wind energy, Lanco's first line of turbines

will roll out in 2009. Wind project developments are underway in India,

Europe and the Americas.

Lanco's admired expertise in civil engineering has been displayed

across the years in the execution of dams, railways, roads, industrial

structures, residential and commercial construction, canals and other areas

across the length and breadth of India. These competencies and depth of

resources are unfolding a new roadmap in the Indian infrastructure sector.

Lanco is already executing projects in ports, highways, airports and other

areas.

In property development, Lanco has emerged as a trend setter with

Lanco Hills, which has also drawn international attention. Lanco Hills, in the

Indian metropolis of Hyderabad, is coming up as one of the world's largest

mixed property development with thirty million square feet of built-up area,

including the world's tallest residential tower!

Lanco Infratech is built on a tradition and culture of trust within and

without. Lanco draws the best professionals who see growth in an

environment underscored by good corporate governance and the melding of

individual aspirations and organizational goals.

A member of the UN Global Compact, Lanco's Corporate Social

Responsibility begins at home with facility audits and volunteerism of its

people across all CSR initiatives. Lanco is spearheading CSR interventions

and programmes have touched the lives of individuals and communities in

the vicinity of Lanco facilities and across the country in areas where

assistance is most needed. Demand driven, participatory CSR initiatives by

Lanco exemplify the larger corporate vision that Lanco Infratech

represents.... of Inspiring Growth.

MISSION...

Development of Society through Entrepreneurship

VISION...

Most Admired Integrated Infrastructure Enterprise

COMPANY VALUES

Integrity

Lanco chosen to be honest in all their Business Interactions and

Transactions and remain steadfast even when challenged. They strive for

consistency between - what they Think, what they Say and what they Do.

Organization Before Self

Lanco recognize that organization interest is supreme, above

individual preferences and goals. In all their decisions, actions and dealings

they put the Organization before self.

Positive Attitude

Lanco always demonstrate a 'can-do' mind-set and engage to deliver

organizational goals. They look upon challenging circumstances as

opportunities to enhance their capabilities and find ways of achieving.

Teamwork

Lanco work harmoniously with a shared vision, energized by their

collective talent. They Trust, Listen to, Share with and Empower team

members and take collective responsibility for the results.

Humility & Respect

Lanco has consistently humble in their approach to and interactions

with people. They treat every person with respect at all times,

unconditionally.

Achievement Drive

Lanco has an urge that drives us to intensely focus on performance

and act decisively with high energy to achieve the desired results. They

strive to continuously learn and consistently set higher Standards of

Excellence.

Accountability

Lanco own up to their words, actions and outcome. When they

commit to do something, they own it and they do it - decisively and

responsibly.

Innovation

Lanco value and encourage application of creative ideas that enhance

the effectiveness of their business. They freely express ideas and take

actions to generate successful Solutions.

About Chairman & Founder

L Rajagopal, a technocrat-turned industrialist, is the Founder

Chairman of LANCO Group. In addition to his entrepreneurial spirit,

Rajagopal has a strong sense of social responsibility. He established

LANCO Foundation (formerely LIGHT), a Charitable Trust, in the year

2000 to reach out to the needy and has been involved in various

philanthropic activities. After one-and-half decades of outstanding

contribution to the industry, Rajagopal chose to enter public life in 2003. He

is a Member of Parliament, India. His vowed mission is to make a difference

in the life of the common man.

LANCO Infratech Limited

Award for Excellence in Bridge Engineering 1999 from the Indian

Institute of Bridge Engineers.

LANCO Kondapalli Power Pvt Ltd

OHSAS 18001 :1999 Certification in respect of Environmental

Management System by Lloyd's Register Quality Assurance Ltd in

2005.

National Award for Excellence in Water Management 2005 by Cll -

GBC Green Business Centre.

Silver Award in Gas Power Sector for Outstanding Achievement in

Environment Management for 2003-04 from Greentech Foundation.

Leadership Efforts towards Environmental Management and

Sustainable Initiative among Corporates for 2002-03 by TERI.

Best Environment Improvement Activity Award 2002 - 03 from

FAPCCI.

CM Leadership and Excellence Award in Safety, Health and

Environment 2002.

ABAN Power Company Ltd

OHSAS 18001:1999 Certificate from TUV SUD Management Service

GmbH Trading as TUV South Asia Pvt Ltd.

LANCO GROUP CORPORATE COMMUNICATIONS

2007

PRSI National Award for House Journal (English) - First Prize

PRSI National Award for Corporate Film in English - First Prize

PRSI National Award for Corporate Brochure - First Prize

2006

PRSI National Award for In- House Magazine (Content and Layout)-

Second Prize

PRSI National Award for Corporate Campaign - Second Prize

PRSI National Award for Corporate Brochure - Second Prize

2005

PRSI National Award for In-House Magazine (Content and Layout)-

Third Prize

PRSI State (Andhra Pradesh) Award for In- House Magazine (Content

and Layout) - Second Prize

CHAPTER IV

THEORITICAL FRAMEWORK

THEORITICAL FRAMEWORK

Working capital management is the process of planning and

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

financing these assets. Specifically working capital management requires

financial manager to decide what quantities of cash, other liquid assets,

account receivables and inventories the firm will hold at any point in time.

In addition, financial manager must decide how the current assets are to be

financed. Finally choices include the mix of current as well as long-term

liabilities.

NATURE OF WORKING CAPITAL

Working capital refers to current assets

Those, which are convertible into cash within 1 year.

Those, which are required to meet day-to-day expenses.

The fixed assets as well as current assets require funds. The

management of working capital involves different concepts than the

techniques used in fixed assets management. The fixed assets involve long

period perspective and therefore, the concept of time value of money is

applied in order to discount the future position.

Cash inflows, where as working capital time horizon is limited one

year and time value of money concept is considered. The fixed assets affect

long term profitability of firm while current assets affect short-term

liquidity.

So, working capital management, the financial manager is faced with

decisions involving some of the considerations as follows:

What should be total investment in working capital of the firm?

What should be the level of individual current assets?

What should be different sources of working capital?

The working capital management may be defined as the management

of firm’s sources and uses of working capital in order to maximize the

wealth of shareholders. The proper working capital management requires

both medium terms planning (upto 3 years) and also the immediate

adaptations to changes arising due to fluctuations in operating levels of firm.

CLASSIFICATION OF WORKING CAPITAL

The working capital may be classified as follows:

a) On the basis of concept

b) On the basis of time

On the basis of concept, working capital is classified as:

I. Gross working capital

II. Networking capital

On the basis of time, working capital is classified as:

I. Permanent or fixed working capital

II. Temporary or variable working capital

ON THE BASIS OF CONCEPT

I. GROSS WORKING CAPITAL

The total of current assets of the business is called Gross Working

Capital. Actually Gross working capital is the amount of capital blocked in

the current assets of the entity is treated.

II. NET WORKING CAPITAL

If all the current liabilities of a firm are paid, the residual balance that

would remain at hand out of the current assets is called as the Net Working

Capital.

The Net Working Capital is helpful to find out the amount of fund to

be collected from long-term sources.

Net Working Capital = Current Assets-Current Liabilities.

ON THE BASIS OF TIME

I. PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is the minimum amount, which is

required to ensure effective utilization of fixed facilities and for maintaining

the circulation of current assets. There is always a minimum level of current

assets, which is continuously required by the enterprise to carry out its

normal business operations. For example, every firm has to maintain a

minimum level of raw material, work-in-progress, finished goods and cash

balance. The minimum level of current assets is called Permanent or Fixed

Working Capital, as this part of capital is permanently blocked in current

assets. As the business grows, the requirements of permanent working

capital also increase due to the increase in current assets. The permanent

working capital can further be classified as:

Regular Working Capital

Reserve Working Capital

Regular Working capital required ensuring circulation of current

assets from cash to inventories, from inventories to receivables and from

receivables to cash and so on. Reserve working capital, which may be

provided for contingencies that may arise at unstated periods such as strikes,

rise in prices, depreciation, etc.

II. TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working

capital, which is required to meet the seasonal demands and some special

exigencies. Variable working capital can be further classified as:

Seasonal Working Capital

Special Working Capital

Most of the enterprises have to provide additional working capital to

meet to seasonable and special needs. The capital required to meet the

seasonal needs of the enterprise is called Seasonal Working Capital. Special

working capital is that part of the working capital which is required to meet

special exigencies such as launching of extensive marketing campaigns for

conducting research etc.

IMPORTANCE OF ADEQUATE WORKING CAPITAL

Working capital is the life and nerve centre of a business. No

business can run successfully without an adequate amount of working

capital.

ADVANTAGES OF ADEQUATE WORKING CAPITAL

The main advantages of adequate amount of working capital are as

follows:

GOODWILL: Sufficient working capital enables a business concern to

make prompt payments and hence helping creating and maintaining good

will.

EASY LOAN: A concern having adequate working capital, high solvency

and good credit standing can arrange loans from banks and others on easy

and favorable terms.

CASH DISCOUNTS: Adequate working capital also enables a concern to

avail discounts on the purchases and hence it reduces costs.

REGULAR SUPPLY OF RAW MATERIAL: Sufficient Working Capital

ensures regular supply of raw materials and continuous production.

REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY TO

DAY COMMITMENTS:

A company which has working capital can made payment of salaries,

wages and other day to day commitments which raises the morale of its

employees increase their efficiency, reduces wastage, costs enhance

production and profits.

INADEQUATE WORKING CAPITAL

Every business concern should have adequate working capital to turn

its business operations. It should have neither redundant / excess working

capital nor shortage of working capital. Both excess and shortage of

working capital positions are bad for any business however, out of the two, it

is the inadequacy of working capital, which is more dangerous from the

point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING

CAPITAL

Excessive working capital means idle funds which earn no profits for

the business and hence the business cannot earn a proper rate for its

investment.

When there is a redundant working capital, it may lead to unnecessary

purchasing and accumulation of inventories causing chances of waste

and losses.

Excessive working capital implies excessive debtors and defective

credit policy, which may cause higher incidence of bad debts.

When there is excessive working capital, relations with banks and

other financial institutions may not be maintained.

Due to low rate of return on investment, the value of shares may also

fall.

NEED FOR WORKING CAPITAL

The need of working capital is over emphasized. Every business needs

some amount of working capital. The need for working capital arises due to

the time gap between production and realization of cash from sales. There is

an operating cycle involved in the sales and realization of cash. There are

time gaps in purchase of raw materials, production, sales and realization of

cash. Thus, working capital is needed for the following purpose:

For the purchase of raw materials, components and spares.

To pay wages and salaries.

To incur day to day expenses and overhead costs such as fuel, power

and office expenses etc.

To meet the selling costs such as packing, advertising etc.

To maintain the inventories of raw material, work-in-progress, stores

and spares and finished stock.

DETERMINANTS OF WORKING CAPITAL

The working capital requirements of a concern depend upon a large

number of factors such as nature and size of business, the character of their

operations, the length of production cycles, the rate of stock turnover and the

state of economic situations. It is not possible for them because all are of

different important factors generally influencing the working capital

requirements. The factors may be external or internal. However the

following are the factors influencing the working capital requirements.

NATURE OR CHARACTERISTICS OF BUSINESS

The working capital requirements of a firm basically depends upon

the nature of its business. Public utility undertakings like electricity, water

supply and railways need very limited working capital because they offer

cash sales only and supply services, not products and as such no funds are

tied up inventories and receivables. On the other hand trading and financial

firms require less investment in fixed assets but have to invest large amount

of working capital.

SIZE OF BUSINESS OR SCALE OF OPERATIONS:

The working capital requirements of concern are directly influenced

by the size of its business, which may be measured in terms of scale of

operations. Greater the size of a business unit, generally larger will be the

requirements of working capital. However, in some cases even a smaller

concern may need more working capital due to high overhead charges,

influence use of available resources and other economic disadvantages of

small size.

MANUFACTURING PROCESS OR LENGTH OF PRODUCTION

CYCLE:

In manufacturing business, the requirement of working capital

increases in direct proportion to length of manufacturing process. Longer

the process period of manufacture, larger is the amount of working capital

required. The longer the manufacturing time, the raw materials and other

supplies have to be carried for a longer period in the process for finished

product.

SEASONAL VARIATIONS:

In certain industries raw material is not available throughout the year.

They have to make raw materials in bulk during the season to ensure an

uninterrupted flow and process them during the entire year. A huge amount

is, thus block in the form of material inventories during such seasons, which

gives rise to more working Capital requirements. Generally during the busy

season, a firm requires large working capital than in the slake season.

WORKING CAPITAL CYCLE:

In manufacturing concern, the working capital starts with the purchase

of raw materials and ends with the realization of cash from the sales of

finished goods. The cycle involves purchase of raw materials and stores, its

conversion stocks of finished goods through work-in-progress with

progressive increment of labour and service costs, conversion of finished

stock into sales, debtors and receivables and ultimately realization of cash

and this cycle continues again from cash to purchase of raw material and so

on.

RATE OF STOCK TURNOVER

There is a high degree of inverse co-relationship between the quantum

of working capital and the velocity or speed with which the sales are

affected. A firm having a high rate of stock turn over will need lower

amount of working capital as compared to a firm having a low rate of stock

turnover. For example in case of precious stock dealers, the stock turnover

is very low. They have to maintain a large variety of stocks and movement

of stocks is very low. Thus, the working capital requirements of such dealer

should be higher than that of a previous stock.

BUSINESS CYCLE

Business cycle refers to alternative expansion and contraction in

general business activity. In a period of boom i.e. when the business is

prosperous, there is a need for larger amount if working capital due to

increase in sales, rise in prices, optimistic expansion of business, etc., on the

contrary in the times of depression i.e., when there is a down swing of the

cycle, the business contracts sales decline, difficulties are faced in collection

of debtors and firms may have a large amount of working capital lying idle.

RATE OF GROWTH OF BUSINESS

The working capital requirements of a concern increase with the

growth and expansion of its business activities. Although, it is difficult to

determine the relationship between the growth in the volume of business and

growth in the working capital of a business. We may have retained profits to

provide for more working capital but in fast growing concerns, we shall

require larger amount of working capital.

MANAGEMENT OF WORKING CAPITAL

There are two types of assets in every business concerns:

Current assets

Fixed assets

Both are necessary for a profit running of a business. Working capital

is the difference of current assets and current liabilities. Management of

working capital is concerned with problems that arise in attempt to manage

current assets, current liabilities and interrelationship between them.

Working capital must be adequate. In case of excess working capital

that is idle funds, which are not profits for business.

In case of inadequacy of working capital the firm will lead to

insolvency. In this contest working capital management is three

dimensional in nature.

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

There are two bold objectives of the working capital:

Maintainance of working capital at appropriate level

Availability of ample funds as and when they are needed

In accomplishment of these two objectives the management has to

consider the composition of current assets pool. The working capital

position sets the various policies in the business with respect to general

operations such as financing expiation, purchasing and dividends etc.

STUDY OF WORKING CAPITAL MANAGEMENT

The management of working capital management has been studied under

three following heads:

MANAGEMENT OF CASH BALANCES.

MANAGEMENT OF ACCOUNT RECEIVABLES.

MANAGEMENT OF INVENTORY.

MANAGEMENT OF ACCOUNT RECEIVABLES

Receivables result from credit sales. A concern is required to allow

credit sales in order to expand its sales volume. It is not always possible to

sell goods on cash basis only.

MEANING OF RECEIVABLES

Receivables represent amount owned to the firm as a result of goods

or service in the ordinary course of business. There are claims of the firm

against its customers and from part of its current assets. Receivables are

also known as accounts receivables, trade receivables or book debts. The

receivables are carried for the customers. The period of credit and extent of

receivables depends upon the credit policy followed by the firm. The

purpose of maintaining or investing receivables is to meet competition and

to sales and profits.

DETERMINATION OF ACCOUNT RECEIVABLES

In most of business enterprise, investment in accounts receivables

from major part of their assets. Accounts receivables are one of the major

components of working capital. The financial manager should pay attention

to management of receivables so that each rupee invested in accounts

receivables may contribute to net worth of firm.

The position basically a problem of balancing profitability and

liquidity soft credit terms are attraction of sales and longer of a company

allows to pay its customer, the greater the sales and higher the profits.

However on the hand, the longer the period of credit, the greater the risk, the

greater the level of debt, greater the strain on the liquidity of the company.

EXPANSION PLANS

When a concern wants to expand its activities, it will have to enter

new markets. To attract customers it will give incentives in the form of

credit facilities. The period of credit can be reduced when the firm is able to

get permanent customers. In the early stage of expansion more credit

becomes essential and size of receivables will be more.

RELATION WITH PROFITS

The credit policy is followed with a view to increase sales. When

sales increase beyond a certain level the additional costs incurred are less

than the increase in revenues. It will be beneficial to increase sales beyond a

point because it will bring more profits. The increase in profits will be

followed by an increase in the size of receivables or vice-versa.

CREDIT COLLECTION EFFORTS

The collection of credit should be streamlined. The customer should

periodical reminders if they fail to pay in time. On the other hand, if

adequate attention is not paid towards credit collection then the concern then

the concern can land itself a serious problem. Efficient credit collection

machinery will reduce the size of receivables. If these efforts are slower

than the outstanding amounts will be more.

HABITS OF CUSTOMERS

The paying habits of customers also have a bearing on the size of

receivables. The customers may be in habit of delaying payments even

though they are financially sound. The concern should remain in touch with

such customers and should make them realized the urgency of their needs.

COST OF FINANCING RECEIVABLES

The business concern incurs the following costs on maintaining

receivables.

When goods and services are provided on credit then concern’s capital

is allowed to be used by the customers. The receivables are financed from

the funds supplied by shareholders for long term financing and through

retained earnings. The concern incurs some cost for collecting funds, which

finance receivables.

COST OF COLLECTION

A proper collection of receivable is essential for receivable

management. The customers who do not pay the money during a stipulated

credit period are reminders for early payments. Some persons may have to

be sent for collection these amounts. In some case legal resources may have

to be taken for collecting receivables. All these costs are known as collection

costs which a concern is generally required to incur.

DEFAULT COSTS

Some customers may fail to pay amounts due towards them. The

amount, which the customers fail to pay are known as bad debts. Though a

concern may be able to reduce bad debts through efficient collection

machinery but one cannot altogether rule this cost.

POLICIES FOR MANAGING RECEIVABLES

The credit policy of any firm should be estimated in such a way that

the benefits like to accrue from it, the credit policy should incorporate the

following:

CREDIT STANDARDS

The term credit standards represent the basic criteria for the extension

of credit to any customer. This is done with the help of factors such as credit

ratings, credit references and various financial ratios. The level of sales and

the amount of account are fairly liberal as compared to sales under the

restructure to tight credit standards.

The credit standards of any firm are usually determined by 5 C’s

namely

CAPACITY: It refers to ability of the specific customer to manage the

required scales of business.

CHARACTER: It refers to integrity of customer i.e. his willingness to pay

dues.

COLLATERAL: It refers to the security in form of assets owned by

customers, which can be offered by the customer i.e. his capacity to raise

required funds.

CONDITION: It refers to the impact of economic environment of the

country on the firm or special circumstances offered by the government or

local agencies which may affect the customer’s profitability and his ability

to meet obligations.

CREDIT TERMS: This refers to the stipulations under which the goods are

sold on credit that is terms and conditions of trade relating to payment. The

two components are:

CREDIT PERIOD: It refers to the duration of time which trade credit is

extended. This is the period available to the customer to pay off his dues.

CASH DISCOUNT: It refers to that amount of discount which is given to

customer on paying of his debts within the stipulated period. Attractive cash

discounts terms help in reduction of average collection period and in term

reduce amount of investment in receivables.

COLLECTION POLICIES: The third decision area in the management of

receivables is the collection policies. The policy must be strict and lenient.

Sending a remainder for payments

Personal request through telephone

Personal visits to customers.

Taking help of collecting agencies

Taking legal action

MANAGEMENT OF INVENTORY

Every enterprise needs inventory for smooth running of its activities.

It serves as a link between production and distribution processes. The

greater the time lag, the higher the requirements for inventory. It also

provides a cushion for future price fluctuations.

The investment in inventories constitutes the most significant part of

current assets working capital in most of the undertakings. Thus, it is very

essential to have proper control and management of inventories.

The purpose of inventory management is to ensure availability of

materials in sufficient quantity as and when required and also to minimize

investment in inventories.

The investment in inventory is very high in most of the under taking

engaged in manufacturing, wholesale and retail trade. The amount of

investment is sometimes more in inventory than in other assets. In India a

study of 29 major industries has received that the average cost of materials

in 64 paisa and the cost of labor and overheads in 36 paisa in rupee. About

90% of working capital is invested in inventories. An efficient system of

inventory management wills determines.

What to purchase

How to purchase

From where to purchase

Where to store, etc.

The purpose of inventory management is to keep the stocks in such a

way that neither over stocking nor under stocking. The over stocking mean

a reduction of liquidity and starving of the production process; under

stocking, on the other hand will result in stoppage of work.

The investments in inventory should be kept in reasonable limits.

nature of inventoriesThe dictionary meaning of inventory is “stock of goods or list of goods”.

In accounting language it may mean stock of finished goods only.

RAW MATERIAL: Raw material from the major input into the

organization. They are required to carry out the production activities

uninterruptedly. The quantity of raw material required to be

determined by the rate of consumption and the time required for the

replenishing the supplies. The factors like availability of raw

materials and government regulations, etc., too affect the stock of raw

materials.

WORK-IN-PROGRESS: The work in progress is that stage of stocks

which are in between raw materials and finished goods. The raw

materials enter the process of manufacture but they are yet to attain a

final shape of finished goods.

FINISHED GOODS: These are the goods, which are ready for

consumers. The stock of finished goods provides a buffer between

production and market.

NEED TO HOLD INVENTORIES

The question of managing inventories arises only when the company

holds inventories. Managing inventories involves typing up of the

company’s funds and incidence of storage and holding costs. If it is

expensive to maintain inventories, why do companies hold inventories?

There are three general motives for holding inventories:

Transactions motive emphasis the need to maintain inventories to facilitate

smooth production and sales operations.

Precautionary motive necessiates holding of inventories to guard against

the risk of unpredictable changes in demand and supply forces and other

factors.

Speculative motive influences the decision to increase or reduces inventory

levels to take advantage of price fluctuations.

OBJECTIVES OF INVENTORY MANAGEMENT

The main advantage of inventory management is operational and

financial. The operational objectives mean that the materials and spares

should be available in sufficient quantities so that work should not disrupted

for want for inventory. The financial objective means that investments in

inventories should not remain idle and minimum working capital should be

locked in it. The following are the objectives of inventory management:

To ensure continuous supply of materials, space and finished goods so

that production should not suffer anytime and the customers demand

should also be met.

To avoid both over stocking and under stocking of inventory.

To maintain investments in inventories at the optimum level as

required by the operational and sales activities.

To keep material cost under control so that they contribute in reducing

cost of production and overall costs.

To eliminate duplication in ordering stocks, this is possible with the

help of centralizing.

To design proper organization for inventory management clear cut

accountability should be fixed at various levels of the organization.

TECHNIQUES OF INVENTORY MANAGEMENT

The following are the important tools and techniques of inventory

management and Control:

Determination of stock levels.

Determination of economic order quantity

A.B.C Analysis

Vital Essential Desirable (VED) analysis

Inventory turnover ratios

CASH MANAGEMENT

INTRODUCTION

Cash is the important current asset for the operations of the business.

Cash is the basic input needed to keep the business running on continuous

basis; it is also the ultimate output expected to be realized by selling the

service or product manufactured by the firm. The firm should keep

sufficient cash neither more nor less. Cash shortage will disrupt the firm’s

manufacturing operations while excessive cash will simply remain idle,

without contributing anything towards the firm’s profitability. Thus, a major

function of the financial manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without

any restriction. The term includes coins, currency and cheques held by the

firm, in its accounts. Sometimes near-cash items, such as marketable

securities or bank time’s deposits, are also included in cash. The basic

characteristics of near-cash assets are that they can readily be converted into

cash. Generally, when firm has excess cash, it invests it in marketable

securities. This kind of investment contributes some profit to the firm.

MOTIVES FOR HOLDING CASH

The firm’s needs for cash may be attributed to the following needs:

Transaction Motive, Precautionary Motive and Speculative Motive. Some

people are of the view that a business requires cash only for the first two

motives while others feel that speculative motive also remain. These

motives are discussed as follows:

TRANSACTION MOTIVE

A firm needs cash for making transactions in the day to day

operations. The cash is needed to make purchases, pay expenses, taxes,

dividend, etc. The cash needs arise due to the fact that there is no complete

synchronization between cash receipts and payments. Sometimes cash

receipts exceed cash payments or vice-versa. If more cash is needed for

payments than receipts it may be raised through bank overdraft. On the

other hand if there are cash receipts than payments it may be spent on

marketable securities.

PRECAUTIONARY MOTIVE

A firm is required to keep cash for meeting various contingencies.

Though cash inflows and cash outflows are anticipated but there may be

variations in these estimates. For example a debtor who has to pay after

seven days inform of his inability to pay; on the other hand a supplier who

used to give credit for fifteen days may not have the stock to supply or he

may not be in a position to give credit at present. In these situations cash

receipts will be less than expected and cash payments will be more, as

purchases may have to be made per cash instead of credit. Such

contingencies often arise in a business. A firm should keep some cash for

such contingencies.

SPECULATIVE MOTIVE

The speculative motive relates to holding of cash for investing in

profitable opportunities as and when they arise. Such opportunities do not

come in regular manner. For example, the prices of shares and securities

may be low at a time with an expectation that these will go up shortly. The

prices of raw materials may fall temporarily and a firm may like to make

purchases at these prices. Such opportunities can be availed of if firm has

cash balance with it. These transactions are speculated because prices may

not move in a direction in which we suppose them to move.

CASH MANAGEMENT AT LANCO INFRATECH LIMITED

There is a separate cash section, which looks after the cash

management in Lanco Infratech Limited. The activities performed include

cash book maintenance, Bank reconciliation statement, proposal for few

investments, making arrangements for payments etc.

Cash Budget

Cash Monitoring

Physical Cash Verification

Cash Investment

CASH BUDGET:

Cash budget is a summary statement of expected cash inflows and

outflows, budgets are prepared semi-annually. The budget is mainly based

on the deployment or action plan, which is prepared for every dredger.

The action plan is based on the target. The target refers to the how

much quantity of work to be done or how many should be the total number

of dredging hours for each dredger. Keeping in this mind an expenditure

statement for each dredger for 30 days is prepared. Apart from this

department wise monthly expenditure statement is prepared to verify

whether the expected receivables would be sufficient to meet the obligations

or not. Usually budgeting is prepared in two ways.

(a) Conventional Method

(b) Zero based budgeting method

Conventional method of budgeting is used to plan the fixed

expenditure. Zero based budgeting method is used to plan the expenditure

going to incur on dredgers for repairs and maintenance spares, stores etc.

CASH MONITORING

The aim of cash monitoring is to see that there is no misutilization of

cash or unauthorization of cash.

PHYSICAL CASH VERIFICATION

This is done on surprise basis. Daily the payment and receipts of cash

is tailed with the cash book closing balance.

There is a separate internal audit section to do concurrent audit,

annual audit thoroughly to ensure that the financial statements show the true

picture of the affairs of the concern.

Bank Reconciliation Statement is prepared by the concern to see that

the cash and cheques are timely deposited and collected. This is done on

monthly basis.

To clear the payments, a cheque is written for the net amount payable

as per the payment voucher after making an entry in the register of cheque

drawn and is submitted to the authorized signatories, along with the voucher

to which an original supporting bill is attached, for the signature.

CASH INVESTMENT

According to the guidelines given by the department of public

enterprises regarding investment of surplus funds by public sector

enterprises.

OBJECTIVES OF CASH MANAGEMENT

Formula:Cash

Cash to Net Working Capital Ratio = ------------------------------- Net Working Capital

There are two basic objectives of cash management. These are

To meet the cash disbursement needs as per the payment schedule.

To meet the amount of funds help up as cash balance.

MEETING CASH DISBURSEMENT

The basic objective of cash management is to meet all payment

obligations in time. This requires the maintenance of sufficient cash funds

to meet the payment schedules of raw materials suppliers, workers and

banks, etc. In fact the production activity can come to a half if these

schedules are not maintained and the firm may even go to insolvency or

bankruptcy. It is for that cash has been described as “the oil to lubricate the

ever turning wheels of business without which the process grinds to a stop”.

MINIMUM FUNDS HELP UP AS CASH BALANCE

The second objective of cash management is to minimize cash

balances. A large amount of cash balance ensures the liquidity and all its

advantages but it also implies very high cost, as large funds remain idle

because it leads to the production held up and all its associated

disadvantages. Therefore the objective of cash management is to maintain

an optimum level of cash balance i.e. sufficient cash instead of excessive

cash.

DETERMINING OPTIMUM CASH NEEDS

There are three approaches to work out the optimum cash balances to

be maintained by any firm:

Minimum cash model

Minimum cash model with precautionary balances

Cash budget

The first two approaches are mathematical and are outside our scope.

Therefore, we look at only cash budget.

CASH BUDGET

Cash budget is probably the most important device for planning and

controlling the use of cash. It aims at maintaining adequate cash balance to

meet all obligations but at the same time avoiding excessive balances. It

involves the estimation of all future cash inflows and cash outflows of the

firm over various intervals of time. It highlights the net cash position i.e.,

surplus or deficiency at the end of each cash budget period so that necessary

arrangements can be made from other sources in case of deficiency or the

amount could be employed elsewhere aim fully in case of surplus balance.

CHAPTER V

DATA ANALYSIS AND

INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

Financial management is that managerial activity which is concerned

with the planning and controlling of the firm’s financial resources. The

subject of financial management is of immense interest to both academicians

and practicing managers. It is still developing, and there are still certain

areas where controversies exist for which no unanimous solution has been

reached as yet. Practicing managers are interested in this subject because

among the crucial decisions of the firm are those which relate to finance and

an understanding of the theory of financial management provides them with

conceptual and analytical insights to make those decisions skillfully.

The management of current assets is similar to that of fixed assets in

the sense that it is in the both cases, a firm analysis their effects on into turn

and risk. The management of fixed and current assets, however, differs in

three important ways. First, in managing in fixed assets, time is a very

important factor, consequently, discounting and compounding techniques

play a very significant role in capital budgeting and minor one in the

management of current assets. Second, the large holding of current assets,

especially cash, strengthens the firm liquidity position and the over all

profitability. Thus, a risk return trade off is involved in holding current

assets. Third, level of fixed as well as current assets depends upon expected

sales, but it is only current assets, which can be adjusted with sale functions

in the short run. Thus, the firm has a greater degree of flexibility in

managing current assets.

TABLE 5.1.1

SCHEDULE CHANGES IN WORKING CAPITAL FOR THE YEAR 2004-05 (RS. IN LAKHS)

S. No

Particulars As On 2003-04

As On 2004-05

Increase Decrease

(A)

(B)

Current Assets, Loans & Advances

Inventories

Sundry debtors

Cash & bank balances

Other current assets

Loans and advances

Total (A)

Current liabilities and Provisions

a) Current liabilities

I. Sundry creditors

II. unclaimed dividend

III. Deposits from contractors

IV. Advances from customers

V. Other liabilities

VI. Interest occurred but not due to loans

b) Provision

I. For proposed dividend

II. For dividend tax

III. For employee benefits

IV. For contractual obligations

V. For shortage/losses and unserviceable

assets

VI. For dry dock repairs due

Total (B)

(A-B) Net Working Capital

Increase in Working Capital

917.73

14780.49

36092.14

5555.58

7219.76

64565.70

238.62

0.86

495.22

12.10

8629.95

45.22

3360.00

430.50

623.38

40.11

9.63

1909.00

15794.59

48771.11

9243.21

58014.32

1353.49

14255.31

40266.08

8367.82

5999.48

70242.18

1235.14

6.67

118.99

21.36

6525.36

36.91

2240.00

314.16

689.16

40.11

0.00

1000.00

12227.86

58014.32

58014.32

435.76

4173.94

2812.24

376.23

2104.59

8.31

1120.00

116.34

9.63

909.00

12066.04

525.18

1220.28

996.52

5.81

9.26

65.78

9243.21

12066.04

Interpretation:

In the year 2004-2005 there is an increase in working capital position

of the company to Rs.9243.21 lakhs. In the year 2004-2005 the currents

assets of the company had increased and current liabilities of the company

had decreased when compared to previous year. The above schedule of

2004-2005 says about the position of the current assets and current liabilities

of the company. As there is an increase in current assets and decrease in

current liabilities with this working capital have increased. This indicates

that financial position of the company is satisfactory due to increase in

current assets of the company.

TABLE 5.1.2

schedule changes of in working capital for the year 2005-2006(Rs. in lakhs)

S. No


As On 2005-06

Increase Decrease

(A)

(B)


Inventories

Sundry debtors



Loans and advances

Total (A)



I. Sundry creditors

II. Unclaimed dividend

III. Deposits from contractors

IV. Advances from customers

V. Other liabilities

VI. Interest occurred but not due to loans

b) Provision






assets


Total (B)



1353.49

14255.31

40266.08

8367.82

5999.48

70242.18

1235.14

6.67

118.99

21.36

6525.36

36.91

2240.00

314.16

689.16

40.11

0.00

1000.00

1222.86

58014.32

9589.07

67603.39

1047.57

19620.68

47214.28

8298.37

8822.82

85003.72

1264.79

7.14

143.64

394.82

10618.96

27.75

2520.00

353.43

662.98

40.11

0.00

1366.71

17400.33

67603.39

67603.39

5365.37

6948.20

2823.34

9.16

26.18

15172.25

305.92

69.45

29.65

0.47

24.65

373.46

4093.60

280.00

39.27

366.71

9589.07

15172.25

Interpretation:




had increased when compared to previous year. The above schedule of


of the company. As there is an increase in current assets and increase in




TABLE 5.1.3

schedule changes of in working capital for the year 2006-07 (Rs. in lakhs)

S. No


As On 2006-07

Increase Decrease

(A)

(B)


Inventories

Sundry debtors



Loans and advances

Total (A)



I. Sundry creditors

II. Deposits from contractors

III. Advances from customers

IV. Other liabilities

V. Interest occurred but not due to loans

VI. Unclaimed dividend

b) Provision






assets


Total (B)



1047.57

19620.68

47214.28

8298.37

8822.82

85003.72

1264.79

143.64

394.82

10618.96

27.75

7.14

2520.00

353.43

662.98

40.11

0.00

1366.71

17400.33

67603.39

3255.90

70859.29

2258.98

22972.14

39855.44

12737.44

11832.47

89656.47

2780.34

165.49

86.75

11937.46

18.60

10.59

2520.00

428.27

809.57

40.11

0.00

0.00

18797.18

70859.29

70859.29

1211.41

3351.46

4439.07

3009.65

308.07

9.15

1366.71

13695.52

7358.84

1515.55

21.85

1318.50

3.45

74.84

146.59

3255.90

13695.52

Interpretation:






of the company. As there is an increase in current assets and increase in




TABLE 5.1.4

schedule changes of in working capital for the year 2007-2008 (Rs. in lakhs)

S. No


As On 2007-08

Increase Decrease

(A)

(B)


Inventories

Sundry debtors



Loans and advances

Total (A)



I. Sundry creditors






b) Provision





V. For shortage/losses and unserviceable assets


Total (B)


Decrease in Working Capital

2258.98

22972.14

39855.44

12737.44

11832.47

89656.47

2780.34

165.49

86.75

11937.46

18.60

10.59

2520.00

428.27

809.57

40.11

0.00

0.00

18797.18

70859.29

2956.00

29659.33

27340.94

13452.25

15955.01

89363.53

4562.00

511.49

4.59

14716.20

10.75

17.62

2100.00

356.90

668.38

40.11

15.50

0.00

23003.54

66359.99

4499.33

697.02

6687.19

714.81

4122.54

82.16

7.85

420.00

71.37

141.19

4499.33

12514.50

1781.66

346.00

2778.74

7.03

15.50

70859.29 70859.29 17443.43 17443.43

Interpretation:

In the year 2007-2008 there is an decrease in working capital position


assets of the company had decreased and current liabilities of the company



of the company. As there is an decrease in current assets and increase in

current liabilities with this working capital have decreased. This indicates

that financial position of the company is not satisfactory due to increase in


TABLE 5.1.5

schedule changes of in working capital for the year 2008-2009(Rs. in lakhs)

S. No


As On 2008-09

Increase Decrease

(A)

(B)


Inventories

Sundry debtors



Loans and advances

Total (A)



I. Sundry creditors






b) Provision






assets


Total (B)



2956.00

29659.33

27340.94

13452.25

15955.01

89363.53

4562.00

511.49

4.59

14716.20

10.75

17.62

2100.00

356.90

668.38

40.11

15.50

0.00

23003.54

66359.99

2992.27

8178.77

30895.01

33184.38

16373.05

10045.25

98876.46

7098.47

596.02

408.22

19004.37

3.35

11.07

1400.00

237.93

724.66

40.11

0.00

0.00

29524.20

69352.26

5222.77

1235.68

5843.44

2920.28

7.40

6.55

700.00

118.97

15.50

5909.76

2536.47

84.53

403.63

4288.17

56.28

2992.27

69352.26 69352.26 16071.11

16071.11

Interpretation:






of the company. As there is an increase in current assets than increase in




Table : 5.1.6

STATEMENT OF CURRENT ASSETS AND CURRENT LIABILITIES IN LANCO INFRATECH LIMITED

(Rs.in lakhs)YEAR CURRENT ASSETS CURRENT

LIABILITIES

2004-2005 70242.18 12227.86

2005-2006 85003.72 17400.33

2006-2007 89656.47 18797.18

2007-2008 89363.53 23003.54

2008-2009 98876.46 29524.20

Analysis :

The analysis of current assets and current liabilities in Lanco infratech

limited for the period 2004-2009. The current assets are good in the year

2008-2009. The period is recorded as 98876.46. The current liabilities are

less in the year 2004-2005 and the period is recorded as 12227.86.

Interpretation:

From the above the Gross Working Capital at Lanco infratech limited

indicates that the utilization of working capital is good in the year 2008-09

the period is recorded almost a positive trend for 2004-05 to 2008-09.

Graph : 5.1.6

Table 5.2.1

STATEMENT OF GROSS WORKING CAPITAL FOR THE FIVE YEARS PERIOD FROM 2004-05 TO 2008-09

(RS. IN LAKHS)

YEAR GROSS WORKING CAPITAL

2004-05 70242.18

2005-06 85003.72

2006-07 89656.47

2007-08 89363.53

2008-09 98876.46

Source: Annual Reports of Lanco infratech limited

Analysis:

The above table indicates the net working capital position for five

years period i.e., from 2004-05 to 2008-09 In this year 2004-05 its amount is

Rs. 70242.18 lakhs. It is increased to Rs. 85003.72 lakhs in the year 2005-

06. It is increased to Rs. 89656.47 lakhs in the year 2006-07. It is reduced

to Rs. 89363.53 in the year 2007-08. It is increased to Rs. 98876.46 lakhs

in the year 2008-09.

Interpretation:

From the above the Gross Working Capital at Lanco infratech

limited indicates that the utilization of working capital is good in the year

2008-09 the period is recorded almost a positive trend for 2004-05 to 2008-

09.

Graph 5.2.1

Table 5.2.2

STATEMENT OF NET WORKING CAPITAL FOR FIVE YEAR PERIOD FROM 2004-05 TO 2008-09

(RS. IN

LAKHS)

YEARCURRENT

ASSETSCURRENT

LIABILITIESNET WORKING

CAPITAL

2004-05 70242.18 12227.86 9243.21

2005-06 85003.72 17400.33 9589.07

2006-07 89656.47 18797.18 3255.90

2007-08 89363.53 23003.54 4499.30

2008-09 98876.46 29524.20 2992.27

Source: Annual Reports of LANCO INFRATECH LIMITED

Analysis:

The above table indicates the net working capital position for

five years period i.e., from 2004-05 to 2008-09. In this year 2004-05 its

amount is Rs. 9243.21 lakhs. It is increased to Rs. 9589.07 lakhs in the year

2005-06. It is reduced to Rs. 3255.90 lakhs in the year 2006-07. It is

increased to Rs. 4499.30 lakhs in the year 2007-08. It is decreased to Rs.

2992.27 lakhs in the year 2008-09.

Interpretation:

From the above the Net Working Capital at Lanco Infratech Limited

indicates that the utilization of working capital is good in the year 2005-06.

The higher the net working capital ratio, the greater ability to meet its

current obligations.

Graph 5.2.2

Table 5.2.3

STATEMENT OF CURRENT RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

(Rs. IN LAKHS)

YEAR CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2004-05 70242.18 12227.86 5.74

2005-06 85003.72 17400.33 4.88

2006-07 89656.47 18797.18 4.76

2007-08 89363.53 23003.54 3.88

2008-09 98876.46 29524.20 3.34

Source: Annual Reports of lanco intratech Limited

Analysis:

The above table represents current assets, current liabilities of DCI for

last five years from 2004-05 to 2008-09. Ratio between the current assets

and current liabilities is shown in the above table. The current ratio in the

year 2004-05 was 5.74. It was decreased 4.88 in the year 2005-06 and 4.76

in the year 2006-07. It is further decreased to 3.34 in the year 2008-09.

Interpretation:

From the above the Current Ratio at lanco infratech Limited indicates

that the utilization of Current Ratio is good in the year 2004-05.The higher

current ratio is greater the margin of safety, the more the firm’s ability to

meet its current obligations.

Graph 5.2.3

Table 5.2.4

STATEMENT OF QUICK RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

[RS. IN LAKHS]

YEAR QUICK ASSETS

CURRENT LIABILITIES

QUICK RATIO

2004-05 68888.69 12227.86 5.63

2005-06 83956.15 17400.33 4.82

2006-07 87397.49 18797.18 4.64

2007-08 86407.53 23003.54 3.75

2008-09 90697.69 29524.20 3.07

Source: Annual Reports of lanco infratech Limited

Analysis:

The above table represents Quick ratio of DCI for the last five years

from 2004-05 to 2008-09. The position of Quick ratio for the past five years

in the year 2004-05 was 5.63. It was decreased to 4.82 in the year 2005-06

and 3.75 in the year 2007-08. The current ratio is decreased to 3.07 in the

year 2008-09.

Interpretation:

From the above the analysis of Quick Ratio at Lanco infratech

Limited indicates that the utilization of Quick Ratio is good in the year


09.

Graph 5.2.4

Table 5.2.5

STATEMENT OF CASH RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

(RS. IN LAKHS)

YEAR CASH &BANK BALANCE

CURRENT LIABILITIES

CASH RATIO

2004-05 40266.08 12227.86 3.29

2005-06 47214.28 17400.33 2.71

2006-07 39855.44 18797.18 2.12

2007-08 27340.94 23003.54 1.18

2008-09 33184.38 29524.20 1.12


Analysis:

The above table represents cash ratio of Lanco infratech limited for

the last five years from 2004-05 to 2008-09. . This means cash worth Rs. 1

are adequate for liabilities worth Rs. 2. In the year 2004-2005 the cash ratio

is 3.29 and it is decreased to 1.12 in the year 2008-2009.

Interpretation:

From the above the Cash Ratio at Lanco infratech limited indicates

that the utilization of Cash Ratio is good in the year 2004-05. Cash ratio is

very exact measure of liquidity. From the point of view absolute liquidity

ratio, a ratio of 1:2 or 0.5 considered as on acceptable standard.

Graph 5.2.5

Table 5.2.6

STATEMENT OF WORKING CAPITAL TURNOVER OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

(Rs. In Lakhs)

YEARS INCOME FROM OPERATIONS

NET WORKING CAPITAL

WCT RATIO

2004-05 52478.87 58014.32 0.90

2005-06 50689.89 67603.39 0.74

2006-07 57289.09 70859.29 0.80

2007-08 70531.72 66359.99 1.06

2008-09 68522.19 69352.26 0.98


Analysis:

The analysis of Working Capital Turnover Ratio at Lanco infratech



09. For the year 2008-09 the working capital turnover ratio at Lanco

infratech limited is 0.98.

Interpretation:

The working capital turnover ratio studies the velocity or utilization

of the working capital of the firm during a year. The higher the working

capital turnover ratio the lower is the investment in the working capital and

the higher would be the profitability.

Graph 5.2.6

Table 5.2.7

STATEMENT OF CURRENT ASSETS TURNOVER RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

(RS. IN LAKHS)

YEARS INCOME FROM OPERATIONS

CURRENT ASSETS

CURRENT ASSETS TURNOVER RATIO

2004-05 52478.87 70242.18 0.74

2005-06 50689.89 85003.72 0.59

2006-07 57289.09 89656.47 0.63

2007-08 70531.72 89363.53 0.78

2008-09 68522.19 98876.46 0.69


Analysis:

The analysis of current assets turnover ratio of Lanco infratech limited

for past five years reveals a satisfactory ratio. The current assets turnover

ratio is high in 2007-08. The current assets turnover ratio was 0.69 in 2008-

09.

Interpretation:

From the above the current assets turnover ratio of DCI for the last

five years from 2004-05 to 2008-09. A high ratio indicates a high degree of

efficiency. The higher the ratio the lower is the investment in current assets

and higher would be the profitability.

Graph 5.2.7

Table 5.2.8

STATEMENT OF CASH TO NETWORKING CAPITAL TO LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

(RS. In Lakhs)

YEAR CASH NETWORKING CAPITAL

CASH TO NET WORKING

CAPITAL RATIO2004-05 40266.08 58014.32 0.69

2005-06 47214.28 67603.39 0.69

2006-07 39855.44 70859.29 0.56

2007-08 27340.94 66359.99 0.41

2008-09 33184.38 69352.26 0.47


Analysis:

The analysis of Cash to Networking Capital Ratio at Lanco infratech


2004-05 and 2005-2006, the period is recorded almost a positive trend for

2004-05 to 2008-09. For the year 2008-09 the Cash to Networking capital

ratio at Lanco infratech limited is 0.47.

Interpretation:

The cash to net working capital ratio of Lanco infratech limited for the

last five years from 2004-05 to 2008-09. Cash is a basic source of working

capital therefore ratio between cash and working capital is so essential.

Graph 5.2.8

Table 5.2.9

CASH FLOW STATEMENT OF DCI FROM 2004-05 TO 2008-09

(Rs. In Lakhs)YEAR OPERATION

PROFIT FROM OPERATION ACTIVITIES

CASH GENERATED

FROM OPERATIONAL

ACTIVITIES

NET CASH FROM

OPERATIONAL ACTIVITIES

2004-05 20255.06 17017.43 9087.23

2005-06 18171.35 17713.07 13739.89

2006-07 20876.61 10977.51 8183.12

2007-08 15821.79 1792.51 8353.14

2008-09 8133.29 14780.98 10651.85


Analysis:

The analysis of Net Cash from Operational Activities at Lanco

infratech limited indicates that the utilization of working capital is good in

the year 2005-2006, the period is recorded almost a positive trend for 2004-

05 to 2008-09. For the year 2008-09 the Net cash from Operational

Activities at Lanco infratech limited is 10651.85.

Interpretation:

From the above the cash flow statement of Lanco infratech limited for

the last five years from 2004-05 to 2008-09. It observed that the cash flow

from operating activities is increasing year to year.

Graph 5.2.9

TABLE 5.2.10

STATEMENT OF DEBTORS TURNOVER RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

[Rs. In lakhs]YEAR INCOME FROM

OPERATIONSAVERAGE DEBTORS

DEBTORS TURNOVER

RATIO

2004-05 52478.87 14255.31 3.68

2005-06 50689.89 19620.68 2.58

2006-07 57289.09 22972.14 2.49

2007-08 70531.72 29659.33 2.37

2008-09 68522.19 30895.01 2.21

Source: Annual Reports of Lanco infratech limited.

Analysis:

The analysis of Debtors Turnover Ratio at Lanco infratech limited

indicates that the utilization of Debtors Turnover Ratio is good in the year


09. For the year 2008-09 the Debtors Turnover Ratio at Lanco infratech

limited is 2.21.

Interpretation:

From the above debtors turnover ratio of Lanco infratech

limited for last five years from 2004-05 to 2008-09. The higher Debtors

Turnover Ratio is indicating of a sound credit management policy.

Graph: 5.2.10

TABLE 5.2.11

STATEMENT OF DEBTORS TURNOVER RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

[Rs. In Lakhs]YEAR DEBTORS

TURNOVER RATIO

NO. OF DAYS IN A YEAR

AVERAGE COLLECTION PERIOD DAYS

2004-05 3.68 365 99

2005-06 2.58 365 141

2006-07 2.49 365 147

2007-08 2.37 366 154

2008-09 2.21 365 165

Source: Annual Reports of Lanco infratech limited.

Analysis:

The analysis of Average collection Period Days at Lanco infratech

limited indicates that the utilization of Average Collection Period Days is

good in the year 2008-09 the period is recorded almost a positive trend for

2004-05 to 2008-09.

Interpretation:

Debtors average collection period reveals the number of days on an

average the firm has collected its debtors. A low debit collection period is an

indicate of sound credit management policy.

Graph 5.2.11

Table 5.2.12

INVENTORY TURNOVER RATIO OF LANCO INFRATECH LIMITED FROM 2004-05 TO 2008-09

[RS. In Lakhs]YEAR SALES/

OPERATING INCOME

AVERAGE STOCK

INVENTORY TURNOVER

RATIO2004-05 52478.87 1135.61 46.21

2005-06 50689.89 1200.53 42.22

2006-07 57289.09 1653.27 34.65

2007-08 70531.72 2608.99 27.03

2008-09 68522.19 5567.38 12.30

Source: Annual Reports Of Lanco infratech limited

Analysis:

Lanco infratech limited for last five years from 2004-05 to 2008-09.

The ratio is 46.21 in the year 2004-05 and the ratio has decreased to 42.22 in

the year 2005-06 and it is decreased to 34.65 in the year 2006-07 and it is

decreased to 27.03 in the year 2007-08 and it is decreased to 12.30 in the

year 2008-09.

Interpretation:

The analysis of Inventory Turnover Ratio at Lanco infratech limited

indicates that the utilization of Ratio is good in the year 2004-05 the period

is recorded almost a positive trend for 2004-05 to 2008-09. The performance

of the company is satisfactory.

Graph 5.2.12

NOTE:

Here income from operations is treated as Sales/Operating Income

since company does not engaged in manufacturing activities.

Table 5.2.13

STATEMENT OF INVENTORY TO NET WORKING CAPITAL RATIO FROM 2004-05 TO 2008-09

[RS. In Lakhs]YEAR INVENTORY NET WORKING

CAPITALINVENTORY TO NET WORKING

CAPITAL RATIO

2004-05 1353.49 58014.32 0.023

2005-06 1047.57 67603.39 0.015

2006-07 2258.98 70859.29 0.031

2007-08 2956.00 66359.99 0.044

2008-09 8178.77 39652.26 0.117

SOURCE: ANNUAL REPORTS OF LANCO INFRATECH LIMITED

Analysis:

The analysis of Inventory to Networking Capital Ratio at Lanco

infratech limited indicates that the utilization of Ratio is good in the year


09. For the year 2008-09 the Inventory to Networking Capital Ratio at Lanco

infratech limited is 0.117.

Interpretation:

From the above inventory to networking capital ratio is gradually

increasing every year which indicates satisfactory performance of the

organisation.

Overall organization is maintaining stock approximately to

satisfactory position, which is greater efficiency of the organization.

Graph 5.2.13

Working capital ratios in Lanco infratech limited From 2004-2005 to 2008-09

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

1. Current ratio 5.74 4.88 4.76 3.88 3.34

2. Quick ratio 5.63 4.82 4.64 3.75 3.07

3. Cash ratio 3.29 2.71 2.12 1.18 1.12

4. WorkingCapital ratio

0.90 0.74 0.80 1.06 0.98

5. currentAssets turnover ratio

0.74 0.59 0.63 0.78 0.69

6. cash tonet workingcapital

0.69 0.69 0.56 0.41 0.47

7. DebtorsTurn overratio

3.68 2.58 2.49 2.37 2.21

8. Inventory toNetworkingCapital ratios

0.023 0.15 0.31 0.044 0.117

Working capital ratios in Lanco infratech limited

CHAPTER VI

SUMMARY, FINDINGS

AND

SUGGESTIONS

SUMMARY

As Lanco infratech limited, a public sector organization its objective

for financial management is not only wealth maximization but service to the

nation is also to be considered. This fact has its influence on the working

capital management i.e., inventory management, investment policies of

surplus cash, debtors management, which includes credit period, credit

discounts, credit standards etc. under its purview, as amount of customers of

Lanco infratech limited are ports and public sector organization, in taking.

Decision Lanco infratech limited has to consider this factor

Cash, management in Lanco infratech limited, is a conservative one,

which requires maintaining sufficient enough cash, this policy though may

result in decreased profitability, it helps to maintain the liquidity of the

organization.

In Lanco infratech limited the investment of cash in bank balances,

are in the form of bank deposits. Because of its conservative policy that is

taken from the guidelines of Government of India. It invests surplus cash in

bank deposits rather than other investment options, which could yield more

return. Because of these deposits, which are earning significant amount of

funds, a company is maintaining good profitability through the current assets

levels are high.

The investment in fixed assets like dredgers are taken from its internal

sources like reserves and surpluses, equity etc., its dependence of debt is low

by this, organization may not major the benefits of leverage. But because of

its policy it is utilizing internal sources mostly for its capital investment

requirements.

Lanco infratech limited is going to increase its fleet in the 10 th plan at

an out lay of Rs. 1000 crores (approximately) which, it is going to raise from

internal sources, loans from Government of India and from commercial

borrowings. This acquisition will boost Lanco infratech limited’s growth

and dominance in the dredging field. The acquisition also helped Lanco

infratech limited to enter into international dredging markets. These

acquisitions will have influence on future financial position i.e., cash levels,

working capital, depreciation funds, etc.

FINDINGS

The working capital ratio is satisfactory which increases year to year.

Current ratio of the firm in satisfactory position from the period 2004-

2009

The current assets turnover ratio is maintained consistently at 0.7%

which is favorable to organization.

The quick assets are more than current liabilities, which may not be a

problem to meet the obligation.

The cash ratio which is only 50% of current liabilities, which needs

improvement.

The inventory is maintained consistently but the inventory turnover

ratio fluctuates due to change in operating income.

The debt collection period is high. This gives problem in quick

recovery of debt.

The company has no debts.

SUGGESTIONS

Lanco infratech limited has been performing well since its inception.

It is in strong financial position and it commands good credit worthiness.

Still there is a scope for better performance through different policies that

are intended in reducing costs and improving the profitability and efficient

utilization of funds. In this regard some observations have been made for

better performance of the organization.

The following features may be suggested to Lanco infratech limited for

further growth

Considering the competition Lanco infratech limited may be

suggested to improve quality of its services and implement best

technology available in the market to have an edge over the

competitors. Lanco infratech limited also suggested implementing

development in technologies not only in dredging field but also allied

like uses of information technology for competition edge.

Presently Lanco infratech limited could not meet its domestic demand

so it is suggested to expand the capacity to meet the domestic demand

as well as to tap international markets effectively.

It is suggested to train its human resources to have the required skilled

human resources for increase efficiency on operations.

Lanco infratech limited also suggested forming effective policies to

cost maximization without comprising with quality of service which

will help in competing with international market players.

It suggested utilizing the benefits of leverage in the extent permitted

options, which could yield more return.

It is also suggested to implement credit policies, which minimizes the

cost of maintaining debtors.

It is suggested to use modern techniques in cash management

inventory management that could increase the profitability of the

organization.

Lanco infratech limited is suggested to improve the inland dredging

demand by promoting it and utilize the demand.

It is suggested to Lanco infratech limited to leverage in its capabilities

and experience in other allied services it provides along with dredging

in providing consultancy services and collaborations with other

organizations.

The company also suggested tapping international market by which it

could earn the foreign exchange.

BIBLIOGRAPHY

BIBLIOGRAPHY

Reference Books

1. Financial Management ----------- I.M. Pandey

2. Financial Management ----------- R.M. Srivatsava

[Principles and Problems]

3. Financial Management ---------- Prasanna Chandra

[Theory and Problems]

4. Financial Management ---------- M.Y. Khan &Jain

5. Websites ---------- www.dredge.gov.in

http://www.dredge.gov.in/

Project on Working Capital Management

Documents

finally choices

sundry creditors

proposed dividend

lanco infratech

dividend tax

anitha kumari

variable working

gross working