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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


SUGGESTIONS
BIBLIOGRAPHY

82-86

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 companys 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 firms 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 concerns 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 Cs
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 customers 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 inventories
The 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
companys 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 firms
manufacturing operations while excessive cash will simply remain idle,
without contributing anything towards the firms 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 times 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 firms 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.
Formula:
Cash
Cash to Net Working Capital Ratio = ------------------------------Net Working Capital

OBJECTIVES OF CASH MANAGEMENT


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 firms 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)

Current Assets, Loans & Advances


917.73

1353.49

Sundry debtors

14780.49

14255.31

Cash & bank balances

36092.14

40266.08

4173.94

5555.58

8367.82

2812.24

7219.76

5999.48

64565.70

70242.18

238.62

1235.14

996.52

0.86

6.67

5.81

III. Deposits from contractors

495.22

118.99

IV. Advances from customers

12.10

21.36

8629.95

6525.36

2104.59

45.22

36.91

8.31

3360.00

2240.00

1120.00

430.50

314.16

116.34

623.38

689.16

40.11

40.11

9.63

0.00

1909.00

1000.00

15794.59

12227.86

(A-B) Net Working Capital

48771.11

58014.32

Increase in Working Capital

9243.21

Inventories

Other current assets


Loans and advances
Total (A)
(B)

435.76
525.18

1220.28

Current liabilities and Provisions


a) Current liabilities

I. Sundry creditors
II. unclaimed dividend

V. Other liabilities
VI. Interest occurred but not due to loans

376.23
9.26

b) Provision
I. For proposed dividend
II. For dividend tax
III. For employee benefits
IV. For contractual obligations

65.78

V. For shortage/losses and unserviceable


assets
VI. For dry dock repairs due

9.63
909.00

Total (B)

58014.32

9243.21
58014.32

12066.04

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

Particulars

As On
2004-05

As On
2005-06

Increase

Decrease

(A)

Current Assets, Loans & Advances


1353.49

1047.57

Sundry debtors

14255.31

19620.68

5365.37

Cash & bank balances

40266.08

47214.28

6948.20

8367.82

8298.37

5999.48

8822.82

70242.18

85003.72

1235.14

1264.79

29.65

6.67

7.14

0.47

III. Deposits from contractors

118.99

143.64

24.65

IV. Advances from customers

21.36

394.82

373.46

6525.36

10618.96

4093.60

36.91

27.75

2240.00

2520.00

280.00

314.16

353.43

39.27

689.16

662.98

40.11

40.11

0.00

0.00

1000.00

1366.71

1222.86

17400.33

(A-B) Net Working Capital

58014.32

67603.39

Increase in Working Capital

9589.07

Inventories

Other current assets


Loans and advances
Total (A)
(B)

305.92

69.45
2823.34

Current liabilities and Provisions


a) Current liabilities

I. Sundry creditors
II. Unclaimed dividend

V. Other liabilities
VI. Interest occurred but not due to loans

9.16

b) Provision
I. For proposed dividend
II. For dividend tax
III. For employee benefits
IV. For contractual obligations

26.18

V. For shortage/losses and unserviceable


assets
VI. For dry dock repairs due
Total (B)

67603.39

366.71

9589.07
67603.39

15172.25

15172.25

Interpretation:
In the year 2005-2006 there is an increase in working capital position
of the company to Rs.9589.07 lakhs. In the year 2005-2006 the currents
assets of the company had increased and current liabilities of the company

had increased when compared to previous year. The above schedule of 20052006 says about the position of the current assets and current liabilities of
the company. As there is an increase in current assets and increase 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 5.1.3
SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2006-07 (RS. IN LAKHS)
S.
No

Particulars

As On
2005-06

As On
2006-07

Increase

Decrease

(A)

Current Assets, Loans & Advances


1047.57

2258.98

1211.41

Sundry debtors

19620.68

22972.14

3351.46

Cash & bank balances

47214.28

39855.44

8298.37

12737.44

4439.07

8822.82

11832.47

3009.65

85003.72

89656.47

1264.79

2780.34

1515.55

II. Deposits from contractors

143.64

165.49

21.85

III. Advances from customers

394.82

86.75

10618.96

11937.46

27.75

18.60

7.14

10.59

2520.00

2520.00

353.43

428.27

74.84

662.98

809.57

146.59

40.11

40.11

0.00

0.00

1366.71

0.00

17400.33

18797.18

(A-B) Net Working Capital

67603.39

70859.29

Increase in Working Capital

3255.90

Inventories

Other current assets


Loans and advances
Total (A)
(B)

7358.84

Current liabilities and Provisions


a) Current liabilities

I. Sundry creditors

IV. Other liabilities


V. Interest occurred but not due to loans
VI. Unclaimed dividend

308.07
1318.50
9.15
3.45

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)

70859.29

Interpretation:

1366.71

3255.90
70859.29

13695.52

13695.52

In the year 2006-2007 there is an increase in working capital position


of the company to Rs.3255.90 lakhs. In the year 2006-2007 the currents
assets of the company had increased and current liabilities of the company
had increased when compared to previous year. The above schedule of 20062007 says about the position of the current assets and current liabilities of
the company. As there is an increase in current assets and increase 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 5.1.4

SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2007-2008 (RS. IN LAKHS)

Particulars

S.
No
(A)

As On
2007-08

Increase

Decrease

Current Assets, Loans & Advances


2258.98

2956.00

697.02

Sundry debtors

22972.14

29659.33

6687.19

Cash & bank balances

39855.44

27340.94

12737.44

13452.25

714.81

11832.47

15955.01

4122.54

89656.47

89363.53

2780.34

4562.00

1781.66

II. Deposits from contractors

165.49

511.49

346.00

III. Advances from customers

86.75

4.59

11937.46

14716.20

18.60

10.75

10.59

17.62

2520.00

2100.00

420.00

428.27

356.90

71.37

809.57

668.38

141.19

40.11

40.11

0.00

15.50

0.00

0.00

Total (B)

18797.18

23003.54

(A-B) Net Working Capital

70859.29

66359.99

Inventories

Other current assets


Loans and advances
Total (A)
(B)

As On
2006-07

12514.50

Current liabilities and Provisions


a) Current liabilities

I. Sundry creditors

IV. Other liabilities


V. Interest occurred but not due to loans
VI. Unclaimed dividend

82.16
2778.74
7.85
7.03

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

4499.33

Decrease in Working Capital

70859.29

70859.29

15.50

4499.33

17443.43

17443.43

Interpretation:
In the year 2007-2008 there is an decrease in working capital position
of the company to Rs.4499.33 lakhs. In the year 2007-2008 the currents
assets of the company had decreased and current liabilities of the company
had increased when compared to previous year. The above schedule of 20072008 says about the position of the current assets and current liabilities 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


current assets of the company.

TABLE 5.1.5

SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2008-2009(RS. IN LAKHS)

Particulars

S.
No
(A)

As On
2008-09

Increase

Decrease

Current Assets, Loans & Advances


2956.00

8178.77

5222.77

Sundry debtors

29659.33

30895.01

1235.68

Cash & bank balances

27340.94

33184.38

5843.44

13452.25

16373.05

2920.28

Loans and advances

15955.01

10045.25

Total (A)

89363.53

98876.46

Inventories

Other current assets

(B)

As On
2007-08

5909.76

Current liabilities and Provisions


a) Current liabilities

I. Sundry creditors

4562.00

7098.47

2536.47

II. Deposits from contractors

511.49

596.02

84.53

III. Advances from customers

4.59

408.22

403.63

14716.20

19004.37

4288.17

10.75

3.35

7.40

17.62

11.07

6.55

2100.00

1400.00

700.00

356.90

237.93

118.97

668.38

724.66

40.11

40.11

15.50

0.00

0.00

0.00

IV. Other liabilities


V. Interest occurred but not due to loans
VI. Unclaimed dividend
b) Provision
I. For proposed dividend
II. For dividend tax
III. For employee benefits
IV. For contractual obligations
V. For shortage/losses and unserviceable

56.28

15.50

assets
VI. For dry dock repairs due
Total (B)

23003.54

(A-B) Net Working Capital

66359.99

Increase in Working Capital

2992.27

69352.26

29524.20
69352.26
2992.27

69352.26

16071.11

16071.11

Interpretation:
In the year 2008-2009 there is an increase in working capital position
of the company to Rs.9243.21 lakhs. In the year 2008-2009 the currents
assets of the company had increased and current liabilities of the company
had increased when compared to previous year. The above schedule of 20082009 says about the position of the current assets and current liabilities of
the company. As there is an increase in current assets than increase 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 : 5.1.6

STATEMENT OF CURRENT ASSETS AND CURRENT LIABILITIES IN


LANCO INFRATECH LIMITED
(Rs.in lakhs)
CURRENT
LIABILITIES

YEAR

CURRENT ASSETS

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 200506. 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 200809.
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)

YEAR

CURRENT
ASSETS

CURRENT
LIABILITIES

NET 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 firms 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
2004-05 the period is recorded almost a positive trend for 2004-05 to 200809.
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

Source: Annual Reports of Lanco infratech limited

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

Source: Annual Reports of Lanco infratech limited

Analysis:
The analysis of Working Capital Turnover Ratio at Lanco infratech
limited indicates that the utilization of working capital is good in the year
2007-08 the period is recorded almost a positive trend for 2004-05 to 200809.

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

Source: Annual Reports of Lanco infratech limited

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 200809.

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

2004-05
40266.08
58014.32
2005-06
47214.28
67603.39
2006-07
39855.44
70859.29
2007-08
27340.94
66359.99
2008-09
33184.38
69352.26
Source: Annual Reports of Lanco infratech limited

CASH TO NET
WORKING
CAPITAL RATIO
0.69
0.69
0.56
0.41
0.47

Analysis:
The analysis of Cash to Networking Capital Ratio at Lanco infratech
limited indicates that the utilization of working capital is good in the year
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
2004-05
20255.06
17017.43
2005-06
18171.35
17713.07
2006-07
20876.61
10977.51
2007-08
15821.79
1792.51
2008-09
8133.29
14780.98
Source: Annual Reports of Lanco infratech limited

NET CASH
FROM
OPERATIONAL
ACTIVITIES
9087.23
13739.89
8183.12
8353.14
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 200405 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
OPERATIONS

AVERAGE
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
2004-05 the period is recorded almost a positive trend for 2004-05 to 200809. 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
INFRATECH LIMITED FROM 2004-05 TO 2008-09

OF

LANCO

[Rs. In Lakhs]

YEAR

DEBTORS
TURNOVER
RATIO

NO. OF DAYS IN A
YEAR

2004-05
3.68
365
2005-06
2.58
365
2006-07
2.49
365
2007-08
2.37
366
2008-09
2.21
365
Source: Annual Reports of Lanco infratech limited.

AVERAGE
COLLECTION
PERIOD DAYS

99
141
147
154
165

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
RATIO

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

52478.87
50689.89
57289.09
70531.72
68522.19

1135.61
1200.53
1653.27
2608.99
5567.38

46.21
42.22
34.65
27.03
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
CAPITAL

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

1353.49
1047.57
2258.98
2956.00
8178.77

58014.32
67603.39
70859.29
66359.99
39652.26

INVENTORY TO
NET WORKING
CAPITAL RATIO
0.023
0.015
0.031
0.044
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
2008-09 the period is recorded almost a positive trend for 2004-05 to 200809. 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

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
1. Current ratio

2004-05
5.74

2005-06

2006-07

2007-08

2008-09

4.88

4.76

3.88

3.34

to

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. Working
Capital ratio

0.90

0.74

0.80

1.06

0.98

5. current
Assets turn
over ratio
6. cash to
net working
capital
7. Debtors
Turn over
ratio

0.74

0.59

0.63

0.78

0.69

0.69

0.69

0.56

0.41

0.47

3.68

2.58

2.49

2.37

2.21

8. Inventory to
Networking
Capital 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 limiteds 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 20042009
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

----------

Prasanna Chandra

4. Financial Management

----------

M.Y. Khan &Jain

5. Websites

----------

www.dredge.gov.in

[Principles and Problems]


3. Financial Management
[Theory and Problems]