CHAPTER I

INTRODUCTION

COMPANY PROFILE

Larsen & Toubro Limited (L&T) is a technology, engineering, construction and

manufacturing company. It is one of the largest and most respected companies in India's
private sector. Seven decades of a strong, customer-focused approach and the continuous
quest for world-class quality have enabled it to attain and sustain leadership in all its
major lines of business. L&T has an international presence, with a global spread of
offices. A thrust on international business has seen overseas earnings grow significantly.
It continues to grow its overseas manufacturing footprint, with facilities in China and the
Gulf region. The company's businesses are supported by a wide marketing and
distribution network, and have established a reputation for strong customer support. L&T
believes that progress must be achieved in harmony with the environment.
The evolution of L&T into the country's largest engineering and construction
organization is among the most remarkable success stories in Indian industry. L&T was
founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen
and Soren Kristian Toubro. Both of them were strongly committed to developing India's
engineering capabilities to meet the demands of industry. Beginning with the import of
machinery from Europe, L&T rapidly took on engineering and construction assignments
of increasing sophistication.
In 1938, the two friends decided to forgo the comforts of working in Europe, and started
their own operation in India. All they had was a dream and the courage to dare. Their first
1

office in Mumbai (Bombay) was so small that only one of the partners could use the
office at a time! In the early years, they represented Danish manufacturers of dairy
equipment for a modest retainer. But with the start of the Second World War in 1939,
imports were restricted, compelling them to start a small work-shop to undertake jobs and
provide service facilities. Germany's invasion of Denmark in 1940 stopped supplies of
Danish products. This crisis forced the partners to stand on their own feet and innovate.
They started manufacturing dairy equipment indigenously. These products proved to be a
success, and L&T came to be recognized as a reliable fabricator with high standards. The
war-time need to repair and refit ships offered L&T an opportunity, and led to the
formation of a new company, Hilda Ltd., to handle these operations. L&T also started
two repair and fabrication shops - the Company had begun to expand. Again, the sudden
internment of German engineers (because of the War) who were to put up a soda ash
plant for the Tatas, gave L&T a chance to enter the field of installation - an area where
their capability became well respected.
In 1944, ECC was incorporated. Around then, L&T decided to build a portfolio of foreign
collaborations. By 1945, the Company represented British manufacturers of equipment
used to manufacture products such as hydrogenated oils, biscuits, soaps and glass. By
1964, L&T had widened its capabilities to include some of the best technologies in the
world. In the decade that followed, the company grew rapidly, and by 1973 had become
one of the Top-25 Indian companies. Today, L&T is one of India's biggest and best
known industrial organizations with a reputation for technological excellence, high
quality of products and services, and strong customer orientation. It is also taking steps to
grow its international presence.
The L&T vision reflects the collective goal of the company. It was drafted through a large
scale interactive process which engaged employees at every level, worldwide. L&T has a
global presence. A thrust on international business over the years has seen overseas
revenues growing steadily. The company has manufacturing facilities in India, China,
Oman and Saudi Arabia. It has a global supply network with offices in 10 locations
worldwide, including Houston, London, Milan, Shanghai, and Seoul. Customers include
global majors in over 30 countries. L&T InfoTech is a global IT services and solutions
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provider. Their clients include industry leaders like Chevron, Free scale, Hitachi, Sanyo
and Lafarge, among others. The parent company is Larsen & Toubro Ltd. (L&T), a
technology, engineering, manufacturing and construction conglomerate, with global
operations.

HISTORY
Originally founded as L&T Information Technology Ltd (LTITL), a wholly-owned
subsidiary of Larsen & Toubro Ltd (L&T), the company changed its name to L&T
InfoTech on 1 April, 1997. In 2004, it tied up with Fidelity Information Services, a
division of Fidelity National Financial to provide banking solutions for the Indian
banking industry. In 2005, L&T InfoTech was rated amongst the top 5 preferred
employers for the class of 2005 by AC Nielsen.
In December 2006, L&T InfoTech acquired GDA Technologies (a privately held
electronic design firm based in California, USA) and all of its design centers in USA and
India, for an undisclosed consideration.
L&T InfoTech is a global IT services and solutions provider. We provide the winning
edge to our clients by leveraging our Business-to-IT Connect and deeply committed
people. Our clients include industry leaders like Chevron, Free scale, Hitachi, Sanyo and
Lafarge, among others. They have found in us a right-size partner who combines scale,
stability and customer-centricity
Our parent company is Larsen & Toubro Ltd. (L&T),a technology, engineering,
manufacturing and construction conglomerate, with global operations. This rich corporate
heritage has given us many inherent advantages that we translate into tangible benefits
for our clients.

In April 2007, The Economic Times reported that L&T InfoTech Ltd. is looking to buy
three to four firms with revenues of $50 million or less in the banking and financial
services segment. In February 2008, L&T InfoTech stated that it will acquire a US firm in
the manufacturing vertical for about $300 million within a year.
VISION
The L&T vision reflects the collective goal of the company. It was drafted through a large
scale interactive process which engaged employees at every level, worldwide.
CORE VALUES

Performance Driven

Innovation

Integrity

Excellence

Customer Focus

Mutual Respect

ACHIEVEMENTS OF L&T
Built India's first indigenous hydrocracker reactor.
Built the world's largest continuous catalyst regeneration reactor.
Built the world's biggest fluid catalytic cracking regenerator.
Built the world's longest product splitter.
Built Asia's highest viaduct - Panvalnadi for the Konkan Railway.

 Built the world's longest LPG pipeline.

Built the worlds longest cross country conveyor.
ROLES IN L&T

Business services

Sales & Marketing

Construction Management

Project management

Manufacturing engineering

Technical services

MANAGEMENT
Mr. Deosthalee is also on the Board of several Subsidiary & Associate Companies of the
L&T Group of Companies. He is the Founding Trustee of the newly formed L&T Public
Charitable Trust, a major CSR initiative of the Company.
RN.Mukhija
L&T:Whole-time Director & President (Electrical and Electronics)
L&T Infotech: Director
Mr. R. N. Mukhija is President (Operations) & Member of the Board of Larsen & Toubro
Limited, Mumbai. As a whole time director on the board, he is involved in policies and
strategy formulation, projecting L&T's capabilities to external stakeholders, business
community and society, liason with Government agencies at Ministerial level for policies
affecting L&T. He is a member of the Investors' Grievance Committee.

He is in-charge of the company's Electrical & Electronics Division, which has six
Businesses namely Electrical Standard Products (ESP), Electrical Systems & Equipment
(ESE), Petroleum Dispensing Pumps (PDP), Metering & Protection Systems (MPS),
Medical Equipment & Systems (MED), and Control & Automation (C&A). These
business units are located in different locations like Mumbai, Mysore, Faridabad,
Ahmednagar, Coimbatore and Wuxi (China).
As the head of the Electrical & Electronics Division, he is involved in strategy
formulation and ensuring implementation of periodic plans. He is presently steering the
Division to a high growth path with an emphasis on exports, performance excellence, HR
initiatives & IT strategy. For most of the businesses, leadership position & high Brand
Equity have been created in the domestic market where he has played & continues to play
a significant role
SUDIP BANERJEE
Chief Executive Officer
Sudip Banerjee joined L&T Infotech as Chief Executive Officer on 1st Sept 08.
Sudip started his career in the IT industry in 1979 at HCL. He joined Wipro in 1983 as
one of the founder members of the IT group of the company. His impeccable track record
saw him quickly move up the ladder to the position of Regional Manager.
In April 1997, Sudip moved as Group Vice President - Human Resources for Wipro
Infotech Group. During this stint he was responsible for the Human Resources function
for both Domestic and Global operations. He was instrumental in driving organizational
changes, leading to the formation of the software services part of Wipro (Wipro
Technologies).
From October 1999 until January 2002, Sudip was the Chief Executive Operations &
Staffing of Wipro Technologies. His responsibilities included creation and setting up of
Development Centres, Resources, Staffing & Training, Administration and Facilities &
6

Infrastructure Management.

DIRECTOR
Samir T. "Sam" Desai was with Motorola for more than 30 years. He has served as Senior
Vice President and General Manager for iDEN Networks and Devices, which includes
iDEN mobile devices and iDEN Infrastructure, under Motorola's Network Business.
As General Manager, Mr. Desai provided senior leadership and focus for the iDEN
business and its relationships with its carrier customers. This appointment was a
continuance of Mr. Desai's successful history with Motorola's iDEN business, which he
founded in the early 1990's. Mr. Desai was instrumental in growing the business to what
it is today and forming its strategic partnership with Nextel. iDEN technology is used by
Nextel and other carriers, including Southern LINC, Nextel Partners, Boost Mobile and
NII Holdings, to provide wireless communication services that include push-to-talk-twoway radio service.
Mr. Desai served as Motorola's Chief Information Officer from 2002 to 2004 and Senior
Vice President and deputy to the President of the Motorola Personal Devices Business
from 2001 to 2002. As CIO, Mr. Desai was responsible for driving an aggressive threepronged strategy to increase efficiency, effectiveness, and technology transformation. In
just one year, Mr. Desai's three-pronged strategy led to a 50 percent efficiency increase in
operating budget and established a standard across the enterprise and governance
structure within Motorola's Information Technology. Furthermore, under Mr. Desai's
leadership, the Personal Devices Business experienced tremendous growth and stability
with improved engineering and quality performance while successfully shipping a vast
number of Platform 2000 products.
Products and Service Divisions
ENGINEERING & CONSTRUCTION
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In engineering and construction, L&T's technology capabilities include a strategic mix of

in-house strengths and the expertise of its joint venture partners. Engineering Centres at
Mumbai, Vadodara and Delhi carry out process design and simulation, analysis of
computational fluid dynamics, mechanical design, failure analysis and trouble shooting.
L&T has set up an engineering and project management centre in Abu Dhabi, to
undertake oil and gas related projects as well as engineering and consultancy services. An
engineering centre in Sharjah is an extended arm in the Gulf.
This is supplemented through collaborations with key partners: L&T-Valdel for
engineering services in the upstream hydrocarbon sector, L&T-Chiyoda for the mid and
downstream sectors, and L&T Sargent & Lundy for the power sector. The engineering
services provided by L&T's Engineering Design Research Centres at Chennai and
Kolkata include feasibility studies, project reports, system engineering, architectural,
structural and civil design for infrastructure development projects. L&T-Ramboll
Consulting Engineers provides civil engineering and consultancy services for a wide
range of projects in the transportation sector - ports, airports, highways and bridges.
MANUFACTURING
L&T's design & engineering capabilities in manufacturing enable it to set new
benchmarks in terms of scale, sophistication and speed. The Company has dedicated
engineering centres at the manufacturing locations. Two 'Technology Development
Centres' have been set up to develop new products and manufacturing technologies. L&T
also collaborates with the organisations like ISRO to bolster its capabilities in the
strategic sectors of aerospace, defence and nuclear power. L&T's Electrical & Electronics
Division is a pioneer in the design of switchgear and switchboards that are engineered for
tropical conditions. It has built further on this experience, and has leveraged its R&D
strengths to develop a host of new products and features. In 2008-09, the division filed
applications for over 100 patents, improving its previous years score of 101 patents.
Cumulatively, L&T's Electrical & Electronics Division has applied for and secured 409
patents - a landmark for an Indian company.

Technology Services
L&T provides its global clients with the winning edge through the development of
optimal solutions. L&T's e-engineering services leverage the Company's own engineering
heritage and experience. The Embedded Systems unit provides technological assistance
across a broad spectrum - design, maintenance, re-engineering, testing, prototyping and
industrial design. In every sphere of L&T's operations, technology is the key enabler,
reinforcing its leadership position, and sustaining its competitive strengths. While for
some, technology is a means to an end, for L&T, technology represents endless
possibilities.

BUSINESS GROUPS
Engineering & Construction - Projects: L&T has an enviable track record of successful
implementation of turnkey projects in major core and infrastructure sectors. L&T's core
competencies in engineering include highly qualified and experienced personnel from
various disciplines, state-of-the-art 2-D and 3-D CAD facilities with sophisticated plant
design systems and basic engineering capabilities. L&T is the only Indian EPC company
pre-qualified for executing large, process-intensive projects for oil & gas, refinery,
petrochemical and fertilizer sectors.
Heavy Engineering: L&T has been among Indian corporate sector in introducing new
processes, products and materials in manufacturing. It is acknowledged as one of the top
five fabrication companies in the world and has globally-benchmarked workshops are
located in Mumbai, Hazira, Baroda and Kansbahal.
Construction: ECC, the Engineering Construction & Contracts Division of L&T, is
India's largest construction organization. It is credited with building some of India's
famous landmarks such as exquisite buildings, tallest structures, largest industrial
projects, longest flyovers, highest viaducts, longest pipelines etc.
Electrical & Electronics: L&T is a major international manufacturer of a wide range of
electrical and electronic products and systems. In the electrical segment, L&T is Indias
9

largest manufacturer of low tension switchgear. In the electronic segment, L&T offers a
wide range of meters and provides complete control and automation systems for diverse
industries.
Information Technology: L&T InfoTech Limited, a 100 per cent subsidiary of L&T,
caters to leading international companies across the globe and offers comprehensive, end
to end software solutions and services with a focus on Manufacturing, BFSI and
Communications & Embedded Systems.
Machinery & Industrial Products: L&T manufactures markets and provides service
support for critical construction and mining machinery such as surface miners, hydraulic
excavators, aggregate crushers, loader backhoes and vibratory compactors.

KEY PRODUCTS OF L&T

TURNKEY PROJECTS
o Hydrocarbon
o Power
o Cement and allied machineries
o Water
o Engineering services
o Railway projects
CONSTRUCTION
o Construction services
o Building products
o Infrastructure concessions
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o Engineering services
o International products
ENGINEERED PRODUCTS AND SYSTEMS
o Refinery
o Oil and gas
o Petrochemicals
o Fertilizers
o Coal gasification
o

Aerospace

o Thermal power plant

o

Nuclear power plant

ELECTRICAL AND ELECTRONIC PRODUCT AND SYSTEMS

o Switchgears
o Electrical solutions
o Metering systems and relays
o Medical equipment
o Control and automation
o Petroleum dispensers and systems
o Tooling solutions
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IT AND ENGINEERING SERVICES

o IT services
o Engineering services
o Embedded systems
FINANCIAL SERVICES
o Infrastructure finance
o Equipment finance

DISTRIBUTION CHANNEL OF L&T INFOTECH

In spite with increased competition from alternate distribution channels, the company
believes independent agents continue to represent a major chunk of carriers' business.
Hence it is imperative for carriers to focus on enriching their relationship with Agents.
The suite of services enables insurance companies to achieve a 'Carrier of choice' status
amongst agents.

AGENCY RELATIONSHIP MANAGEMENT

AGENCY PORTAL
Mobile Based Agency Management Solution
Agency - Carrier Interface Solution
These services enable insurance carriers to retain its top agents, while developing an
attractive proposition to attract new agents.
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AGENCY PORTAL - ENABLING EASE OF DOING BUSINESS

Agency Portal is a state-of-the-art, web-based solution that enables ease-of-doingbusiness across the Agency-Carrier relationship touch-points. It provides a single,
consistent interface with self service abilities for Agents to execute key business
transactions efficiently that leads to improved Agency retention, growth in direct written
premium, customer service and brand recall besides reducing operational costs. Built
using ACORD standards, Agency Portal has ready to use pre-built components which can
accelerate development of this collaboration platform for your agencies.
Agency Portal converses seamlessly with the Agency management systems and core
Carrier systems such as policy administration and claims. Agency Portal facilitates self
service for customer and policy information reducing dependency on Carrier personnel. It
has an extensive library of online forms, manuals and informative marketing resources.
Agency Portal provides functionality including performance dashboard covering KPIs,
upcoming renewal alerts, personalized training, satisfaction survey and task management.
PERFORMANCE MANAGEMENT
L&T InfoTechs solution accelerator is a state-of-the-art mobile solution to be used by
Agency interfacing personnel of an insurance company, such as Agency Relationship
managers, Territory managers and Sales managers. The solution presents a variety of vital
analytical Agency information fetched from the Carrier's core systems. The solution can
be deployed on any handheld device (PDA, BlackBerry), having Windows Mobile or
Windows Pocket PC operating system. This .NET based application, uses web service for
real time communication with the remote office server which is done via GPRS.
It focuses on optimum and effective utilization of equipment, high equipment availability,
technical support and offers alternative solutions to control operating & maintenance
costs through data driven practices and Quality policies for ensuring customer (operating
Business Unit) satisfaction. In recognition of its performance, this Business Unit has been
accredited with ISO9001 certification by BVQI. ECCs resources in terms of Equipment,
People and Facilities enable it to undertake construction of complex structures of large
13

magnitude with quality and within stringent time schedule. The equipment management
activities at jobsites like mobilization, commissioning, operation, periodic maintenance
and repairs are undertaken through well defined operating procedures. These activities
are handled by P&M in-charges located at sites duly supported in terms of men, material
and technical advice by Regional Plant Managers (RPLMs) located in the seven regional
offices and senior executives at HQ.

MATERIALS MANAGEMENT
Materials Management, the most important link in Supply Chain Management, supports
the global operations of ECC by catering to the needs of all the offices, factories and
projects spread across all parts of India and abroad by constantly enhancing value
creation. The Materials Management function includes procurement from indigenous and
overseas sources, logistics management, inventory management at regional stores,
disposal of obsolete / unserviceable items etc. The overall operations of Materials
Management function are monitored from ECCS Headquarters in Chennai. The
Department has received ISO 9001:2000 certification through BVQI. Materials
Department at HQ handles all issues connected with imports, exports, procurement of
capital items and procurement for all projects and factories. It also handles high value
purchases, Rate Contracts, system development & implementation and lays down
procurement policies and systems to ensure compliance.
RESOURCES SUPPORT
Resources Support Department fulfils the resource requirement of manpower and Plant &
Machinery for various projects in India and abroad. It helps in identifying and mobilizing
the right resources for the right job to facilitate timely completion of the projects. It also
acts as a resource center to support project sites with data on subcontractors available for
various types of works. The resource identification, allocation and distribution is taken
care at two levels, i.e. at the HQ for the inter-regional requirements and in Regional
Offices for intra-regional requirements.
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SUBCONTRACT MANAGEMENT
Subcontracting is one of the major inputs in the execution of projects. The main areas of
focus are streamlining / standardizing of systems and procedures, contractor registration,
data bank on the track record and rating of subcontractors based on their performance
through a suitable on-line system. Importance is given for imparting training to
subcontract labour to suit ECCs requirements. On-line management of data on
subcontractors across the company is an important function of this department.
QUARRY & CRUSHING
Fully mechanized stone and metal quarries and crushing plants throughout India
strengthen ECCs resource base. They are operated on environment-friendly lines. Project
efficiency is sustained through a dependable channel for high-quality aggregates. ECCs
specialized Quarry and Crushing Department was set up to meet this need. The
department has extended its services to include: Controlled drilling and blasting for heavy
civil foundations/ excavations, controlled blasting close to existing structures and
pipelines, demolition of old bridges/culverts by blasting, tunneling, large scale
mechanized rock excavation and producing graded stones for breakwater/marine work.
ECC operates 24 stone metal quarries, and crushing plants in different parts of the
country, which are fully mechanized and run on modern lines. Two state-of-the-art mobile
crushing plants add to its strength. These handle over one million tons of aggregates
every year, providing efficient support to all construction operations.
PRICING POLICY
L&T showcases aggressive pricing strategy to penetrate the space in all its segments
especially the energy segment. This strategy may be essential for L&T to not only outbid
its key competitors like BHEL but more importantly to compete against overseas players
such as the Chinese and Koreans, known for their low pricing strategies. However, as
L&T is yet to fully put up a plant for power equipment, components for the current set of
orders it receives may have to be sourced from the Japanese partner.
15

CORE COMPETENCIES OF L&T

The key core competencies of L&T are as follows
1. The research and design facility available in Chennai is a state-of-the-art centre
through which the company designs the various innovative and efficient steps for the
engineering and construction division.
2. With the largest fleet of earth moving equipments and human resource, L&T can be
time efficient in its projects.
3. The seamless integration of all the systems online helps the company to manage the
supply chain more effectively.
4. After localizing the production for energy equipments the company can take a major
leap in the market through its low pricing.

GROWTH STRATEGIES
In a challenging market environment, an environment characterized by prolonged
downturn in the domestic industrial sector and a recession in the global market, an
engineering company like L&T had to follow some crucial strategies for growth. General
practices would be to reduce costs, go into hibernation and wait till the climate becomes
more conducive. Move in aggressively thereafter. There is certainly no single sure-fire
recipe guaranteeing both survival and growth in a challenging market. According to Mr
P.M. Mehta, Senior Vice-President (Operations), L&T is concentrating on hi-tech areas,
vacating non-remunerative product lines and focusing on the exports market. The
company is currently following a multi-pronged strategy for beating recession without
compromising growth. Three years ago the company had visualized opportunities
shrinking in the traditional sectors, process plants, power and refineries.
16

FUTURE PLANS
A blueprint for the next phase of growth till 2015, named Vision 2015, at Larsen and
Toubro Ltd is being drafted and will be ready by March 2010. The company is planning
to focus on segments traditionally dominated by foreign defence equipment makers and
state-owned companies. Since 2000, L&T has charted two five-year plans to reposition
the company which was heavily into engineering, procurement and construction
segments with a large exposure to commodity businesses, such as cement and ready-mix
concrete, to a more focused value-added engineering company.
L&T recent moves such as signing a slew of pacts with nuclear engineering firms such as
Westinghouse of USA, Atomic Energy Commission of Canada and Russias Atoms troy
export for nuclear plants, an entry into nuclear equipment forging, defence shipbuilding
and the latest joint venture make it clear that L&T is focusing more on its core
competencies. Its power business is also taking shape with 11 new factories making
various parts of power equipment. The highly skilled areas of engineering that L&T is
entering are currently largely serviced by imports.
The company also hopes that the nuclear program will be in place once the new
government assumes power. By signing pacts with three companies in the nuclear energy
space, L&T has hedged its risks as a nuclear equipment maker. It has put in place a
nuclear equipment forging shop in Hazira in Gujarat at an investment of Rs1, 500 crore.
This is in addition to a defence shipbuilding yard near Chennai at a cost of Rs1, 500
crore. As per plan, the company will create three operating companies to look after
defence, aerospace and nuclear power sectors for effective operations. The three
operating companies could happen in 2012-13, provided they had the requisite volumes.
TO RETAIN ITS EMPLOYEES

Providing innumerable growth & learning opportunities.

Involving people in business, social and extracurricular activities to propel their

performance loyalty & attachment towards the organization.

17

Encouraging support activities.

Performance Appraisal.

Ongoing staff training

Employee Motivation

Frequent /consistent rewards and recognition for performance

Changing & reviewing goals & targets & area of expertise.

Set goals, review, evaluate, feedback.

Be sensitive to personal issues

Keep your promises

Build employees self-esteem

Staff events / Team building

React on employee suggestions

Regular staff meetings, parties Everyone is equal to each other

Medical Facilities & Perks

Flexi hours to senior officials

Various beneficiary schemes to its employees + bonuses + allowance etc

NEED FOR THE STUDY

18

Capital Budgeting constitutes part of the Crown's investment in a department.

Associated with this is an opportunity cost to the Crown. (Money invested in one area
may "cost" opportunities for investment in other areas.) If a department is operating with
more working capital than is necessary, this over-investment represents an unnecessary
cost to the Crown.
From a department's point of view, excess working capital means operating
inefficiencies. In addition, unnecessary capital Budgeting increases the amount of the
capital charge which departments are required to meet from 1 July 1991.
.

CHAPTER II
19

REVIEW OF LITERATURE
Capital Budget management involves the relationship between a firm's short-term assets
and its short-term liabilities. The goal of Capital Budget Management is to ensure that a
firm is able to continue its operations and that it has sufficient ability to satisfy both
maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories.
Decisions relating to working capital and short term financing are referred to as
Capital Budget management. These involve managing the relationship between a firm's
short-term assets and its short-term liabilities. The goal of Capital Budget Management is
to ensure that the firm is able to continue its operations and that it has sufficient cash flow
to satisfy both maturing short-term debt and upcoming operational expenses.
By definition, Capital Budget Management entails short term decisions generally, relating to the next one year period - which is "reversible". These decisions are
therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as
above) rather they will be based on cash flows and / or profitability.
The importance of cash flow is not new to the finance literature. Over twenty
years ago, Largay and Stickney (1980) reported that the then-recent bankruptcy of W.T.
Grant, a nationwide chain of department stores, should have been anticipated because the
corporation had been running a deficit cash flow from operations for 8 of the last 10 years
of its corporate life. As part of a study of the Fortune 500s financial management
practices, Gilbert and Reichert (1995) find that time value of money cash flow analysis is
used to select projects in 91 percent of the firms. Accounts receivable management
models are used in 59 percent of these firms, while inventory management models were
used in 60 percent of the companies.
Recently, Farragher, Kleiman and Sahu (1999) find that 55 percent of firms in the
S&P Industrial index complete some form of a cash flow assessment, but did not present
insights regarding accounts receivable and inventory management, or variations of any
current account asset or liability accounts across industries.

20

Theoretical determination of optimal trade credit limits are the subject of many
articles over the years (e.g., Schwartz, 1974 and scherr, 1996), with scant attention paid
to actual accounts receivable management.
Across a limited sample, weinraub and visscher (1998) observe a tendency of
firms with low levels of current ratios to also have low levels of current liabilities.
Combining accounts receivable and payable into one issue is hill, satoris, and fergusons
(1984) finding that payees define date of payment as the date payment is received, while
payors view payment as the postmark date. Additional WCM insight across firms,
industries, and time is needed! maness and zietlow (2002, pp. 51, 496) presents two
models of value creation through effective short-term financial management activities.

However, these models are generic models and do not consider unique firm or
industry influences. maness and zietlow discuss industry influences in a short paragraph
that includes the observation that an industry a company is located in may have more
influence on that companys fortunes that overall gnp (2002, p. 507). In fact, a careful
review of this 627-page textbook finds only sporadic information on actual firm levels of
WCM dimensions, virtually nothing on industry factors except for some boxed items
with titles such as should a retailer offer an in-house credit card (p. 128), and nothing
on WCM stability over time. This research will attempt to fill in this void space.
How are the readings connected? If there any other text out there besides the one
in the last paragraph. The first annual cfo working capital survey, a joint project with rel
consultancy group, was published in the june 1997 issue of cfo. rel is a london, englandbased management consulting firm specializing in working capital issues for its global
list of clients. The original survey reports several working capital benchmarks for public
companies using data for 1996. Each company is ranked against its peers and also against
the entire field of 1000 companies. rel continues to update the original information on an
annual basis. The industries that include at least 8 companies over the 1996-2000 periods
are listed below. Deleted: represented.
21

DEFINITION OF CAPITAL BUDGETING

The term Capital Budget refers to the amount of capital which is readily available
to an organization. That is Capital Budget is the difference between resources in cash or
readily convertible into cash (Current Assets) and organizational commitments for which
cash will soon be required (Current Liabilities).
Current Assets are resources which are in cash or will soon be converted into cash
in "the ordinary course of business".
Current Liabilities are commitments which will soon require cash settlement in
"the ordinary course of business".
Thus:
WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
In a department's Statement of Financial Position, these components of working
capital are reported under the following headings:
CURRENT ASSETS:

Liquid Assets (cash and bank deposits)

Inventory

Debtors and Receivables

CURRENT LIABILITIES:

Bank Overdraft

Creditors and Payables

Other Short Term Liabilities

22

APPROACHES TO WORKING CAPITAL MANAGEMENT

The objective of Capital Budget Managements to maintain the optimum balance
of each of the working capital components. This includes making sure that funds are held
as cash in bank deposits for as long as and in the largest amounts possible, thereby
maximizing the interest earned. However, such cash may more appropriately be
"invested" in other assets or in reducing other liabilities.
Capital Budget Management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital and to
identify areas requiring closer management.

The individual components of working capital can be effectively managed by using

various techniques and strategies.

When considering these techniques and strategies, departments need to recognize that
each department has a unique mix of working capital components. The emphasis that
needs to be placed on each component varies according to department. For example,
some departments have significant inventory levels; others have little if any inventory.
Furthermore, Capital Budget Managmentis not an end in itself. It is an integral part of
the department's overall management. The needs of efficient Capital Budget Management
must be considered in relation to other aspects of the department's financial and nonfinancial performance.
Financial ratio analysis calculates and compares various ratios of amounts and
balances taken from the financial statements.
The main purposes of working capital ratio analysis are:

To indicate Capital Budget Management performance; and

To assist in identifying areas requiring closer management.

23

Three key points need to be taken into account when analyzing financial ratios:

The results are based on highly summarized information. Consequently, situations

which require control might not be apparent, or situations which do not warrant
significant effort might be unnecessarily highlighted;

Different departments face very different situations. Comparisons between them, or

with global "ideal" ratio values, can be misleading;

Ratio analysis is somewhat one-sided; favorable results mean little, whereas

unfavorable results are usually significant.

However, financial ratio analysis is valuable because it raises questions and indicates
directions for more detailed investigation.
The following ratios are of interest to those managing working capital:

working capital ratio;

liquid interval measure;

stock turnover;

debtors ratio;

Creditors ratio.
WORKING CAPITAL RATIO
Current Assets
Current Liabilities
The working capital ratio (or current ratio) attempts to measure the level of
liquidity, that is, the level of safety provided by the excess of current assets over current
liabilities.

24

The "quick ratio" a derivative, excludes inventories from the current assets,
considering only those assets most swiftly realizable. There are also other possible
refinements.
There is no particular benchmark value or range that can be recommended as
suitable for all government departments. However, if a department tracks its own
working capital ratio over a period of time, the trends-the way in which the liquidity is
changing-will become apparent.
LIQUID INTERVAL RATIO
Liquid Assets
Average Operating Expenses
This is another measure of liquidity. It looks at the number of days that liquid
assets (for example, inventory) could service daily operating expenses (including
salaries).
STOCK TURNOVER RATIO
Cost of Sales
Average Stock Level
This ratio applies only to finished goods. It indicates the speed with which
inventory is sold-or, to look at it from the other angle, how long inventory items remain
on the shelves. It can be used for the inventory balance as a whole, for classes of
inventory, or for individual inventory items.
The figure produced by the stock turnover ratio is not important in itself, but the
trend over time is a good indicator of the validity of changes in inventory policies.
In general, a higher turnover ratio indicates that a lower level of investment is
required to serve the department.
25

Most departments do not hold significant inventories of finished goods, so this

ratio will have only limited relevance.
DEBTOR RATIO
There is a close relationship between debtors and credit sales to third parties (that
is, sales other than to the Crown). If sales increase, debtors will increase, and conversely,
if sales decrease debtors will decrease.
The best way to explain this relationship is to express it as the number of days that
credit sales are carried on the books:
Credit sales per period x days per periods
Average Debtors
Where trading terms are 30 days net cash, and customers buy from day-to-day
during the 30 day period and pay 30 days after a statement is rendered, a collection
period of 45 days (the average between 30 and 60 days) would be satisfactory.
If the average collection period extends beyond 60 days, debtors are holding cash
that should have flowed into the department. This means that the department is unable to
satisfy pressing liabilities or to invest that cash.
The debtor ratio does not solve the collection problem, but it acts as an indicator
that an adverse trend is developing. Remedial action can then be instigated.
CREDITOR RATIO
This ratio is much the same as the debtor ratio. It expresses the relationship
between credit purchases and the liability to creditors. It can be stated as the number of
days that credit purchases are carried on the books.
Credit purchase per period x days per period

26

Average creditors

CHAPTER III
OBJECTIVES OF THE STUDY

To find whether the company maintains minimum investment in inventory

Organized the profitability.

To know whether the company maintain a large size of inventory for efficient and
smooth production and sales operations.

To know how the company maintains its credit policy.

To point out how well the company manage its cash.

To find whether there is proper match between current assets and current
liabilities.

To know the ways and means of financing working capital

Suggestions for the Capital Budget management.

27

CHAPTER IV
RESEARCH METHODOLOGY
RESEARCH DESIGN
A research design is the arrangement of conditions for collection and analysis of
data in a manner that aims to combine relevance to the research purpose with economy in
procedure.
The formidable problem that follows the task of defining the research problem is
the preparation of the design of the research project, popularly known as the research
design. Decisions regarding what, where, when, how much, by what means concerning
an inquiry or a research study constitute a research design.

DATA COLLECTION
SECONDARY DATA
Secondary data means that are already available i.e. they refer to the data which
have already been collected and analyzed by someone else. Secondary data may either be
published data or unpublished data. Usually published data are available in various
publications of the central, state, local governments. Also in technical and trade journals,
books, magazines and newspapers, reports and publications of various associations
connected with business and industry, banks, stock exchanges reports prepared by
research scholars universities in different fields
This study is period for the annual reports and statements of accounts extended
from the years
ANALYTICAL TOOL FOR THE STUDY
During the course of research for the researcher for analysis and interpretation o
data is given below has applied various tools.
28

Ratios analysis

Comparative balance sheet

Trend analysis

CHAPTER V
DATA ANALYSIS AND INTERPRETATION
LIQUIDITY OF WORKING CAPITAL:
The liquidity position of a firm is largely affected by the liquidity of its
working capital. The appropriate tests of this important feature of working capital
analysis are analysed below.

CURRENT RATIO:
The current ratio is an indication of a firm's market liquidity and ability to meet creditor's
demands. Acceptable current ratios vary from industry to industry. If a company's current
asset exceeds current liabilities, then it is generally considered to have good short-term
financial strength. If current liabilities exceed current assets, then the company may have
problems meeting its short-term obligations. If the current ratio is too high, then the
company may not be efficiently using its current assets or its short-term financing
facilities. This may also indicate problems in working capital management.

5.1CURRENT RATIO

YEAR

CURRENT

CURRENT

ASSETS

LIABILITIES

RATIO

( Times )

2005-2006

1259369408

221154699

5.69

2006-2007

1607087538

184830664

8.69

2007-2008

857669926

120407697

7.12

29

2008-2009

1135662118

112919857

10.05

2009-2010

1049098939

220779845

4.75

Chart 5.1 Current Ratio

INFERENCE:
This ratio is an indicator of the firms commitment to meet its short-term
liabilities. The company has not had adequate current assets. An ideal current ratio 2 is
considered as a safe margin of solvency due to the fact that if the current assets are
reduced to half (i.e) instead of 2 then also the creditors will able to get their payments in
full. However a business having seasonal trading activity may show a lower current ratio
at a certain period of the year. A very high current ratio is also not desirable since it
means efficient use of funds. The company is not desirable in efficient use of funds.

30

WORKING CAPITAL TURNOVER RATIO

A company uses working capital (current assets - current liabilities) to fund operations
and purchase inventory. These operations and inventory are then converted into sales
revenue for the company. The working capital turnover ratio is used to analyze the
relationship between the money used to fund operations and the sales generated from
these operations. In a general sense, the higher the working capital turnover, the
better because it means that the company is generating a lot of sales compared to the
money it uses to fund the sales.

5.2 WORKING CAPITAL TURNOVER RATIO

YEAR

SALES

CAPITAL

RATIO

(Rupees)

( Times )

(Rupees)
2005-2006

98492557

1038214709

0.09

2006-2007

136214011

241219109

0.56

2007-2008

148087677

1084194229

0.14

2008-2009

121535360

1022742261

0.12

2009-2010

85410661

828319091

0.10

31

Chart 5.2 WORKING CAPITAL TURNOVER RATIOS

INFERENCE:
This ratio indicates whether working capital has been effectively utilized in
making sales or not.
From the table it is noted that working capital had some fluctuation in the middle
of the study period, yet the company was able to increase it in the later years.
Hence the turnover indicates that company had utilized its working capital
efficiently and the company can also try to work on this to get more effective values.

32

INVENTORIES TO CURRENT ASSET

Typical current assets include cash, cash equivalents, short-term investments, accounts
receivable, inventory and the portion of prepaid liabilities which will be paid within a
year.
Inventory inventory includes raw material, work in progress and finished goods.
Trading these assets is a normal business of a company. The inventory value reported on
the balance sheet is usually the historical cost or fair market value, whichever is lower.
This is known as the "lower of cost or market" rule.
In this inventories are taken into account to find out the considerable level of investment
made by the company.

5.3 INVENTORIES TO CURRENT ASSETS

CURRENT

RATIO

INVENTORIES

ASSETS

( Times )

(Rupees)

(Rupees)

2005-2006

443218275

1259369408

0.35

2006-2007

4565366544

1607087538

0.28

2007-2008

493646982

857669926

0.41

2008-2009

478946594

1135662118

0.42

2009-2010

453879029

1049098939

0.43

YEAR

33

Chart 5.3 INVENTORIES TO CURRENT ASSETS

INFERENCE:
34

From the table it is known that the inventories to current assets ratio also register
a fluctuating trend during the entire study period.
The average ratio is 0.41 times and thus it is found that the investment in
inventories is kept at the considerable level

CASH TO CURRENT ASSETS RATIO

Cash to current asset ratio is useful for determining the proportion of cash
within the current asset category. This is the most conservative way to
measure the current liquidity since it ignores the liquidation value accounts
receivable and inventory. It is useful for determining the ability of a
company to pay off liabilities in extremely short term

5.4 CASH TO CURRENT ASSETS RATIO

YEAR

2005-2006

CURRENT

RATIO

CASH

ASSETS

( Times )

(Rupees)

(Rupees)

472165527

1259369408

35

0.37

2006-2007

357605655

1607087538

0.22

2007-2008

521248923

857669926

0.43

2008-2009

306643076

1135662118

0.27

2009-2010

241319457

1049098939

0.23

Chart 5.4 CASH TO CURRENT ASSETS RATIO

Inference:
From the table shows the details of cash to current assets ratio and registered a
fluctuating trend throughout the study period from 1999 to 2004.

36

The average cash to current assets is maintained at proper times. Hence we find
that company had moderate level of cash in proportion to current assets

CASH TO WORKING CAPITAL RATIO

Cash to Working Capital Ratio is useful for determining the proportion of working
capital that is made up of cash or investments that can be readily converted into cash. If
the ratio is low, it may be an indication that a company will have trouble meeting its
short-term commitments because of a lack of cash. If this were the case, the next formula
to calculate would be the number of expense coverage days to determine exactly how
many days of operations can be covered by existing cash levels.

5.5 CASH TO WORKING CAPITAL RATIO

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

CASH

WORKING

RATIO

CAPITAL

( Times )

(Rupees)

(Rupees)

472165527
357605655
521248923
306643076
241319457

1038214709
241219109
37
1084194229
1022742261
828319091

0.45
0.15
0.48
0.29
0.29

Chart 5.5 CASH TO WORKING CAPITAL RATIO

INFERENCE:
The cash to working capital ratio registered a fluctuating trend during the study
period this is noted from the table.
The average ratio of cash to working capital is balanced. Hence it is found that the
working capital ratio is managed by using the cash & bank balance available in the
company.

38

CASH TO SALES RATIO

This ratio, which is expressed as a times, compares a company's cash flow to its net sales
or revenues, which gives investors an idea of the company's ability to turn sales into cash.
It would be worrisome to see a company's sales grow without a parallel growth in cash
flow. Positive and negative changes in a company's terms of sale and/or the collection
experience of its accounts receivable will show up in this chart.

5.6 CASH TO SALES RATIO

39

RATIO
YEAR

CASH

SALES

(Rupees)

(Rupees)

2005-2006

472165527

98492557

4.79

2006-2007

357605655

136214011

2.62

2007-2008

521248923

148087677

3.52

2008-2009

306643076

121535360

2.52

2009-2010

241319457

85410661

2.82

Chart 5.6 CASH TO SALES RATIO

40

( Times )

INFERENCE:
This is one of the important ratios of controlling cash. A study of cash to sales
ratio will provide a deep insight into the cash balance held in the concerns.
Evident from the table shows cash to sales registered a fluctuating trend
throughout the study period.

CASH RATIO
The ratio

of a company's

total cash and cash equivalents to its current

liabilities. The cash ratio is most commonly used as a measure of company liquidity. It
can therefore determine if, and how quickly, the company can repay its short-term debt. A
strong cash ratio is useful to creditors when deciding how much debt, if any, they would
be willing to extend to the asking party.
41

5.7 CASH RATIO

YEAR

CASH

CURRENT

RATIO

LIABILITIES

( Times )

(Rupees)

(Rupees)
2005-2006

472165527

221154699

2.14

2006-2007

357605655

184830664

1.93

2007-2008

521248923

120407697

4.33

2008-2009

306643076

112919857

2.71

2009-2010

241319457

220779845

10.9

Chart 5.7 CASH RATIO

42

INFERENCE:
From the table it is noted that the cash position of the company is satisfactory as
the average ratio.
It is found that the cash required to meet out the current liabilities is maintained at
a normal level hence its shows that company follows an average policy

CURRENT ASSET TO FIXED ASSET RATIO

Optimal investment in current asset is part of the working capital management policy
within an organization. An effective working capital management requires right amount
of investment in current assets and appropriate level of short-term financing. Excessive
investment in current assets means lack of funds to invest elsewhere which shall effect
43

the liquidity aspect of the company, while too little investment means inability to service
the growing demand for the goods which will erode the profitability of the company.
Therefore, it is a matter of finding that equilibrium or optimal level of investment in
current asset and a right mix of financing (either short-term or long-term) to support the
investment. Companys decision of selecting a short-term investment policy must be
based upon maximizing the firm value in the long run while keeping a balance between
the profitability and liquidity goals of the company. So for measuring the level of current
asset the ratio between the current asset and fixed asset is find out.

5.8CURRENT ASSETS TO FIXED ASSETS RATIO

44

YEAR

CURRENT

FIXED ASSETS

RATIO

ASSETS

(Rupees)

( Times )

(Rupees)
2005-2006

1259369408

445335336

2.83

2006-2007

1607087538

445335336

3.61

2007-2008

857669926

298717767

4.03

2008-2009

1135662118

477487671

2.20

2009-2010

1049098939

468492769

2.42

Chart 5.8 CURRENT ASSETS TO FIXED ASSETS RATIO

INFERENCE:
45

The level of current assets can be measured by using this current asset to fixed
assets ratio.
From the table it is noted that the ratio is between the average ratio and this
indicates the company had a moderate current asset policy throughout the study period.

CURRENT ASSET TO TOTAL ASSET RATIO

Total assets consist of all assets of a company. An asset is defined in business as any
items of ownership convertible into cash. Examples of assets include cash, notes and
accounts receivable, securities, inventories, goodwill, fixtures, machinery, real estate and
the like. All assets, and the total cash value of the total assets, are reported on the
company's balance sheet. In this level of current asset is finding out by using the total
asset maintained by the company

5.9 CURRENT ASSETS TO TOTAL ASSETS RATIO

46

CURRENT

TOTAL

RATIO

ASSETS

ASSETS

( Times )

(Rupees)

(Rupees)

2005-2006

1259369408

1941885379

0.65

2006-2007

1607087538

1838866594

0.87

2007-2008

857669926

1878097191

0.64

2008-2009

1135662118

1799527219

0.63

2009-2010

1049098939

1711356105

0.61

YEAR

Chart 5.9 CURRENT ASSETS TO TOTAL ASSETS RATIO

47

INFERENCE:
From the table shows the current assets to total assets ratio of the company, which
registered a fluctuating trend throughout the study period.
This ratio implies that company is maintaining a considerable level of current
assets in proportion to total assets.

WORKING CAPITAL RATIO

The main advantages of looking at the working capital position are being able to foresee
any financial difficulties that may arise. Even a business that has billions of dollars in
fixed assets will quickly find itself in bankruptcy court if it can't pay its monthly bills.
Under the best circumstances, poor working capital leads to financial pressure on a
company, increased borrowing, and late payments to creditor - all of which result in a
lower credit rating. A lower credit rating means banks charge a higher interest rate, which
can cost a corporation a lot of money over time.

5.10 WORKING CAPITAL RATIO

48

WORKING
YEAR

CURRENT

RATIO

CAPITAL

ASSETS

( Times )

(Rupees)

(Rupees)

2005-2006

1038214709

1259369408

0.82

2006-2007

241219109

1607087538

0.15

2007-2008

1084194229

857669926

0.90

2008-2009

1022742261

1135662118

0.90

2009-2010

828319091

1049098939

0.78

Chart 5.10 WORKING CAPITAL RATIOS

INFERENCE:

49

From the table working capital ratio registered a fluctuating trend during the study
period this is noted.
Hence it is found that the working capital ratio is managed by using the cash &
bank balance available in the company.

TREND ANALYSIS
Y = a + bX
Where a = Y
n

b = XY
X2

Table 5.11

INVENTORIES

Inventories
YEAR
2005-2006

-2
4
2006-2007
-1
1
2007-2008
0
0
2008-2009
1
1
2009-2010
2
4
TOTAL
5
10
(Source: Annual Report)

(Rs )

Y
4,43,218,275
4,56,536,544
4,93,646,982
4,78,946,594
4,53,879,029
2,326,227,424

50

XY
(Rs)

-8,86,436,550
-4,56,536,544
0
4,78,946,594
9,07,758,058
43,731,558

=
b

2,326,227,424
5

4, 65,245,484.8

43,731,558
10

4,373,155.8

Inventories value in 2004-05 will be about 1,31,19,467.4 lakh.

Table 5.12
CASH / BANK

Cash / Bank
YEAR

(Rs )

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

-2
4
-1
1
0
0
1
1
2
4
TOTAL
5
10
(Source: Annual Report)

XY
(Rs)

4,72,165,527 -9,44,331,054
3,57,605,655 -3,57,605,655
5,21,248,923
0
3,06,643,076 3,06,643,076
2,41,319,457 4,82,638,914
1,898,982,638 -512,654,719

1,898,982,638
5

-512,654,719
10

379,796,527.6

= - 51,265,471.9

51

Cash/Bank value in 2004-05 will be about 418,46,67,912.4 lakh.

Table 5.13
RECEIVABLE
RECEIVABLE

YEAR

(Rs)

X2

2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

-2
4
-1
1
0
0
1
1
2
4
TOTAL
5
10
(Source: Annual Report)

a
b

XY

3,26,151,232
3,19,961,287
2,96,585,354
3,14,999,942
12,02,157,554
2,459,855,369

-65,23,02,464
-3,19,961,287
0
3,14,999,942
24,04,315,108
1,747,051,299

= 2,459,855,369
5
=

(Rs)

1,747,051,299
10

52

491,971,073.8
174,705,129.9

Sundry Debtors value in 2004-05 will be about 13,904.03 lakh.

Table 5.14
CURRENT LIABILITIES

YEAR

Current
Liabilities

XY

(Rs)

(Rs)

Y
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

-2
4
-1
1
0
0
1
1
2
4
TOTAL
5
10
(Source: Annual Report)

a
b

=
=

2,21,154,699
1,84,830,664
1,20,407,697
1,12,919,857
2,20,779,848
8,60,092,765

8,60,092,765
5

-72,660,509
10

53

-4,42,309,398
-1,84,830,664
0
1,12,919,857
4,41,559,696
-72,660,509

17,2018,553
-7,266,050.9

Current liabilities value in 2004-05 will be about 8,01,438,369.33 lakh.

Table 5.15

BILLS PAYABLE

X2

YEAR
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

-2
1
0
1
2
TOTAL
5
(Source: Annual Report)

a
b

=
=

4
1
0
1
4
10

BILLS
PAYABLE
(Rs )
Y

(Rs )

56,677,194 -1,13,354,388
1,28,990,900 -1,28,990,900
14,045,050
0
1,04,122,991 1,04,122,991
67,966,652 1,35,933,304
371,802,787
-2,288,993

371,802,787
5

-2,288,993
10

54

XY

74,360,557.4
-228,899.3

Bills Payable value in 2004-05 will be about -6,866,979 lakh.

FINANCIAL STATEMENTS:
The history of financial statement analysis is traced back to the beginning of 20th
century. The analysis was started in western countries for the use of credit analysis. Till
1914, financial institutions used to rely on the facts of financial statements. But over a
period of time, the need for analysis was felt and a number of techniques were invested
and made use of the purpose of analysis.
The important techniques of analysis and interpretation of financial statements are
listed below
a. Comparatives financial statement
b. Trend analysis
c. Ratio analysis
.
(a). COMPARATIVE FINANCIAL STATEMENT.
This is yet another technique used in financial statement analysis.

These

statements summaries and present related data for a number of years, incorporating there
in changes (absolute and relative) in individual items of financial statements. These
statements normally comprise comparative balance sheets, comparative statements of
change in total capital as well as in working capital.

55

They help in making interfered and inter firm comparisons and also highlights
the trends in performance efficiency, and financial position.

Table 5.16

COMPARATIVE
AS ON 31 MARCH (2005 AND 2006)
st

PARTICULARS

2005
(Rs)

2006
(Rs)

(+)
(or) (-)
In 2007 over 2006
Amount
percentage

ASSETS
CURRENT ASSETS

Stock
Deposits
Bill Receivable
Sundry debtors
Cash in hand
Cash at bank
TOTAL (A)

443218275
7498550
326151226
141649658
94433105
2,36082764
1249033578

456536544
9038550
319961287
136081699
90721130
12,39142039
1239142039

13318269
154000
-6189945
-5567959
-3711975
92799539
-9891539

3.00%
20.54%
-1.87%
-3.93%
-3.93%
-3.93%
-9.32%

445335336
445335336

445335336
445335336

1694368914

1684477369

-9891545

-5.837%

16069405
290514861
306584266

22107922
235280109
257388031

6038517
-55234.782
49196235

37.57%
-19.01%
-16.04%

277556924.6
763281556

356772334.5
856253602.8

155673887
41230204

56%
-5.40%

346946162
1694368914

214063400.7
1684477369

-58125822
-9891539

-16.75%
-5.83%

FIXED ASSETS

Fixed Assets
TOTAL (B)
TOTAL ASSETS
(A+B)
LIABILITIES:
CURRENTLIBILITY:

Sundry creditors
Bill Payable
TOTAL (C)
CAPITAL&RESERVE:

Capital
Profit & loss a/c
LONGTERM LOANS

Loans
TOTAL LIABILTIES

56

Table 5.17

COMPARATIVE BALANCESHEET
AS ON 31st MARCH (2006 AND 2007)

PARTICULARS

2006
(Rs)

2007
(Rs)

(+)
(or) (-)
In 2008 over 2007
Amount
percentage

ASSETS
CURRENT ASSETS

Stock
Deposits
Bills Receivable
Sundry debtors
Cash in hand
Cash at bank
TOTAL (A)

456536544
9038550
319961281
136081699
90721130
226802829
1239142039

493646982
12580790
296585354
143439642
95626428
239066070
1280945266

+37110438
3542240
-23375933
+7357943
4905298
12623241
41802227

+8.12%
+39.10%
-7.30%
+5.40%
5.40%
5.40%
3.37%

445335336
445335336

447161879
447161879

1826543
1826543

+4.10%
+4.10%

1684477369

1728107145

43369736

+2.59%

Bills Payable
Sundry debtors
Provisions

235280109
22107922
-

145140974
443822569
153914443

-90139135
21714647
153914647

-38.31%
98.22%
100%

TOTAL

257388031

342877986

85489955

33.25%

356772334
856253602.8

207784373.9
900398953.5

-148987960
44145350.6

-41.75%
5.1%

FIXED ASSETS

Fixed Assets
TOTAL(B)
TOTAL ASSETS
(A+B)
LIABILITIES:
CURRENTLIBILITY:

CAPITAL&RESERVE:

Capital
Profit & loss a/c

57

LONGTERM LOANS

Loans

214063400

277045831.7

62982431

29.42%

TOTAL LIABILITIES

168447369

1728107145

43629776

2.59%

Table 5.18

COMPARATIVE BALANCESHEET
AS ON 31st MARCH (2007 AND 2008)

PARTICULARS

2007
(Rs)

2008
(Rs)

(+)
(or)
(-)
In 2009 over 2008
Amount
percentage

ASSETS
CURRENT ASSETS

Stock
Deposits
Bills Receivable
Sundry debtors
Cash in hand
Cash at bank

493646982
12580790
296585354
143439354
956626428
239066070

478946594
25871970
314999999
91998322
61332216
153330539

-14700388
13291180
18414645
-51441320
-34294212
-85735531

-2.97%
105.64%
6.20%
-35.82%
-33.83%
-32.86%

1280945266

1126479640

-154465626

-12.05%

447161879
447161879

468472769
468472769

21330890
21330890

4.77%
4.77%

1728107145

1594972409

-133134690

-12.05%

Sundry creditors
Provision
Bills Payable

43822569
145140974

51128387
68174856
128472622

7305818
68174856
-16668352

16.67%
100%
-11.48%

TOTAL

188963543

247775865

58839322

31.13%

769571780
461743068

353842850
1061528550

-415728930
599785482

-54.20%
129.89%

TOTAL (A)
FIXED ASSETS

Fixed Assets
TOTAL (B)
TOTAL ASSETS
(A+B)
LIABILITIES:
CURRENTLIBILITY:

CAPITAL&RESERVE:

Capital
Profit & loss a/c

58

LONGTERM LOANS

Loans
TOTAL LIABILITIES

307828714

-307828714

-100%

1728107145

1594792409

-133314696

-7.71%

Table 5.19

COMPARATIVE BALANCESHEET
AS ON 31st MARCH (2008 AND 2009)
PARTICULARS

2008
(Rs)

2009
(Rs)

(+)
(or)
(-)
In 2010 over 2009
Amount
percentage

ASSETS
CURRENT ASSETS

Stock
Deposits
Loans & Advances
Sundry debtors
Cash in hand
Cash at bank
TOTAL (A)

8,35,823.09
13,720.00
52,150.00
42,083.40
4,012.95
37,136.40
9,84,926.44

15,35,450.00
38,720.00
72,632.60
4,78,970.52
1,321.55
7,11,908.54
28,39,003.21

+6,99,626.31
+25,000.00
+20,482.60
+4,36,887.10
-2,691.40
+6,74,772.14
+18,54,076.77

+83.70%
+182.21%
+39.27
+1038.14%
-67.06%
+1817.01%
+188.24%

40,30,052.75
40,30,052.75

38,82,952.75
38,82,952.75

-1,47,100.00
-1,47,100.00

-3.65%
-3.65%

1,00,000.00
1,00,000.00

40,000.00
40,000.00

-60,000.00
-60,000.00

-60%
-60%

51,14,979.19

67,61,955.96

+16,46,976.77

+32.19%

Sundry creditors
Provision

4,07,343.50
1,00,350.00

10,91,486.72
1,94,241.00

+6,84,143.22
+93,891.00

+167.95%
+93.56%

TOTAL (D)

5,07,693.50

12,85,727.72

+7,78,034.22

+153.24%

45,07,285.69
45,07,285.69

44,17,978.24
44,17,978.24

-89,307.45
-89,307.45

-1.98%
-1.98%

FIXED ASSETS

Fixed Assets
TOTAL (B)
INVESTMENT:

Investment
TOTAL
TOTAL ASSETS
(A+B+C)
LIABILITIES:
CURRENTLIBILITY:

CAPITAL&RESERVE:

Capital
Profit & loss a/c
TOTAL (E)

59

LONGTERM LOANS

Loans
TOTAL (F)

1,00,000.00
1,00,000.00

10,58,250.00
10,58,250.00

+9,58,250.00
+9,58,250.00

+958.25%
+958.25%

51,14,979.19

67,61,955.96

+16,46,976.77

+32.19%

TOTAL LIABILITIES

(D+E+F)

CHAPTER VI

6.1 FINDINGS:
Cash to current assets ratio has huge fluctuations during the period.
Cash position in of the company has uneven trend.
Uneven trend in networking
The company has its Budget ratio has been above the standard norms during the
period 2005-06, 01-02, 02-03.
Liquidity position of the company is satisfied.
Current assets are not properly utilized by the concern towards the turnover.
Capital turnover ratio in the year 2007 better when compare to the previous year.
The company has spent huge expenses.

60

6.2 SUGGESTION:

The cash position of the company has not been properly maintained. So the
company has to make an effort to reduce the expenses and also cash to current
assets ratio.
Company can utilize their assets properly.
Modernized equipments can purchase.
From current ratio, overall ratio was above the accepted norms of 0.5. so the
company has to reduce the overall ratio avoid the unnecessary cash kept in ideal.
Company can properly maintain their debtors to sales turnover ratio.
A Working capital ratio has been maintained below the norms.

61

CHAPTER VII

CONCUSION

The project report is the apex of the master of business administration course
conducted by the crescent business school. The study is conducted at L & T InfoTech,
Chennai with the title of a study on Capital Budgeting management. This study was
conducted mainly with help of secondary data obtained from the unit.
The company should use the minimum investment in inventory to organize it
profitability. Whether the company may invest large size of inventory to the concern.
The efficient and production levels are decreased. So the concern should maintain the
maximum investment in inventory. The company able to achieve the Capital Budget
Management objectives in proper way.

62

CHAPTER VIII

8.1 SCOPE OF THE STUDY

The scope of the present study on composes within its fold a theoretical frame
work of Capital Budget management. In general, analysis of capital trends, relationship
of working capital to sales, liquidity of Budget capital, analysis of management of
components of working capital and the management of capital finance in the select unit.
The period covered by the study in five years from 2005 to 2010.

63

8.2 LIMITATIONS OF THE STUDY

An account of Shortage of time, money and energy this is confined only L&T
InfoTech Pvt Ltd, Chennai.
Some datas are not given because of confidential.
Due to lack of practical knowledge, I am unable to research in an in depth
manner.

64

BIBILIOGRAPHY
Management accounting

S.N.MAHESHWARY

Financial management

I.M.PANDEY

Research methodology

C.R.KOTHARY

Management accounting

R.S.N.PILLAI
&
BAGAVATHI

Web site:
www.google.com
www.finance.org

65