A

SYNOPSIS ON
WORKING CAPITAL MANAGEMENT
OF THE L & T.
UNDER SUPERVISION OF:
--------------------
SUBMITTED BY
NAME : MRS. A.R. RAJALAKSHMI
ENROLLMENT NO :
STUDY CENTER CODE :
REGIONAL CENTER :
Subm!!"# $ %&'!&( )u()((m"$! *) !+" '",u'"m"$!- )*' ,u&().$/
M&-!"' *) Bu-$"-- A#m$-!'&!*$ 0FINANCE1
1
WORKING CAPITAL MANAGEMENT
OF THE L & T.
TABLE OF CONTENTS
S. NO. CONTENTS PAGE NO.
1. Title of the Project...3
2. Introduction .......4
3. Rationale of study...7
4. Review of Literature...8
5. !jectives of the "tudy..1#
6. Research $ethodolo%y.......11
7. &'(ected )ontri!ution fro* "tudy ......1+
8. )ha(terisation.....13
9. ,i!lio%ra(hy14
+
3
2. INTRODUCTION
COMPANY PROFILE
Larsen - Tou!ro Li*ited .L-T/ is a technolo%y0 en%ineerin%0 construction and
*anufacturin% co*(any. It is one of the lar%est and *ost res(ected co*(anies in
India1s (rivate sector. "even decades of a stron%0 custo*er2focused a((roach and
the continuous 3uest for world2class 3uality have ena!led it to attain and sustain
leadershi( in all its *ajor lines of !usiness. L-T has an international (resence0 with
a %lo!al s(read of offices. 4 thrust on international !usiness has seen overseas
earnin%s %row si%nificantly. It continues to %row its overseas *anufacturin% foot(rint0
with facilities in )hina and the 5ulf re%ion. The co*(any1s !usinesses are su((orted
!y a wide *ar6etin% and distri!ution networ60 and have esta!lished a re(utation for
stron% custo*er su((ort. L-T !elieves that (ro%ress *ust !e achieved in har*ony
with the environ*ent. 4 co**it*ent to co**unity welfare and environ*ental
(rotection are an inte%ral (art of the cor(orate vision.
$7s Larsen - Tou!ro Ltd. &)) 8ivision is (resti%ious or%ani9ation havin%
!usiness worldwide0 its &)) 8ivision underta6e en%ineerin% contracts of various
construction in the field of &lectrical0 $echanical - )ivil &n%ineerin%.
The )o*(any havin% its head3uarter at )hennai0 and whole India is distri!uted
in re%ions havin% res(ective re%ional head3uarters0 vi9. $u*!ai0 4ha*ad!ad0
:ol6ata0 8elhi0 ;ydera!ad0 )handi%arh etc. which coordinate all activities of sites
within their re%ion.
)hattis%arh state have rich natural resources0 coal is found in a!undance thus various
ther*al (ower (lant are esta!lished at various (laces0 "i(at "u(er Ther*al Power Plant
4
is one of the !i%%est Ther*al Power Plant0 wherein our co*(any e'ecute
construction of ,oiler &rection - &lectrical )a!lin% wor6s and so*e other *isc.
wor6s. ur Princi(al e*(loyer is $7s <ational Ther*al Power )or(oration Ltd.
The wor6force consists of +=## wor6*en and &n%ineers and staff in various
cadre0 the wor6force consist of e*(loyees fro* all over India.
Operating Divisions:
&n%ineerin% - )onstruction Projects .&-)/
;eavy &n%ineerin% .;&8/
)onstruction
Power
&lectrical - &lectronics .&,5/
$achinery - Industrial Products .$IP8/
IT - Technolo%y "ervices
>inancial "ervices
Railway Project
WORKING CAPITAL MANAGEMENT
?or6in% )a(ital is the a*ount of ca(ital that a !usiness has availa!le to *eet the
day to day cash re3uire*ents of its o(erations. It is concerned with the (ro!le*
arise in atte*(tin% to *ana%e the current assets0 the current lia!ilities and the inter
relationshi( that e'ist !etween the*. ?or6in% )a(ital is the difference !etween
resources in cash or readily converti!le into cash and or%ani9ational co**it*ents
for which cash will soon !e re3uired or within one year without under%oin% a
di*inution in value and without disru(tin% the o(eration of the fir*. It also refers to
the a*ount of current 4ssets that e'ceeds current Lia!ilities.
=
?or6in% )a(ital refers to that (art of the fir* ca(ital0 which is re3uired for
financin% "hort2Ter* or )urrent 4ssets such as )ash0 $ar6eta!le "ecurities0
8e!tors and Inventories. ?or6in% )a(ital is also 6nown as Revolvin% or
)irculatin% )a(ital or "hort Ter* )a(ital.
The %oal of wor6in% ca(ital *ana%e*ent is to *ana%e the fir*@s current assets
and current lia!ilities in such way that the satisfactory level of wor6in% ca(ital is
*entioned. The current should !e lar%e enou%h to cover its current lia!ilities in
order to ensure a reasona!le *ar%in of the safety.
CONCEPT OF WORKING CAPITAL
B&(&$3" -+""! *' T'&#!*$&( 3*$3"%!:-
1. 5ross wor6in% ca(ital refers to the fir*@s invest*ent in current assets.
)urrent assets are the assets which can !e convert in to cash within year
includes cash0 short ter* securities0 de!tors0 !ills receiva!le and inventory.
5ross ?or6in% )a(ital A Total of )urrent 4ssets
2. <et wor6in% ca(ital refers to the difference !etween current assets and current
lia!ilities. )urrent lia!ilities are those clai*s of outsiders which are e'(ected to
*ature for (ay*ent within an accountin% year and include creditors0 !ills (aya!le
and outstandin% e'(enses. <et wor6in% ca(ital can !e (ositive or ne%ative.
&fficient wor6in% ca(ital *ana%e*ent re3uires that fir*s should o(erate with
so*e a*ount of net wor6in% ca(ital0 the e'act a*ount varyin% fro* fir* to fir*
and de(endin%0 a*on% other thin%sB on the nature of industries.net wor6in%
ca(ital is necessary !ecause the cash outflows and inflows do not coincide. The
cash outflows resultin% fro* (ay*ent of current lia!ilities are relatively
(redicta!le. The cash inflow are however difficult to (redict. The *ore (redicta!le
the cash inflows are0 the less net wor6in% ca(ital will !e re3uired.
C
<et ?or6in% )a(ital A &'cess of )urrent 4ssets over )urrent Lia!ilities
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3. RATIONALE FOR THE STUDY
<o !usiness can run successfully without an ade3uate a*ount of wor6in% ca(ital.
4de3uate wor6in% ca(ital hel(s in *aintainin% solvency of !usiness !y (rovidin%
uninterru(ted flow of (roduction. "ufficient wor6in% ca(ital ena!les a ;otel concern to
*a6e (ro*(t (ay*ents - hence hel(s in creatin% - *aintainin% %oodwill. 4 ;otel
havin% ade3uate wor6in% ca(ital0 hi%h solvency - %ood credit standin% can arran%e
loans fro* !an6s - others on easy and favora!le ter*s. 4de3uate wor6in% ca(ital
also ena!les a concern to avail cash discounts on the (urchase and hence reduce
costs. "ufficient wor6in% ca(ital ensures re%ular su((ly of raw *aterials - continuous
(roduction. 4 ;otel which has a*(le wor6in% ca(ital can *a6e re%ular (ay*ent of
salaries0 wa%es - other day2to2day co**it*ents which raises the *orale of its
e*(loyees0 increases their efficiency0 reduces wasta%e - costs and enhances
(roduction - (rofits. nly concerns with ade3uate wor6in% ca(ital can e'(loit
favora!le conditions such as (urchasin% its re3uire*ents in !ul6 when the (rices are
lower - !y holdin% its inventories for hi%her (rices. 4de3uate wor6in% ca(ital ena!les
a ;otel to face !usiness crisis in e*er%encies such as de(ression !ecause durin%
such (eriods0 %enerally0 there is *uch (ressure on wor6in% ca(ital. &very investor
wants a 3uic6 and re%ular return on his invest*ents. "ufficiency of wor6in% ca(ital
ena!les a concern to (ay 3uic6 and re%ular dividends to its investors0 a there *ay not
!e *uch (ressure to (lou%h !ac6 (rofits. This %ains the confidence of its investors -
creates a favora!le *ar6et to raise additional funds in the future.
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4. REVIEW OF LITERATURE:
&very !usiness needs funds for two (ur(oses !asicallyB they are for esta!lish*ent
and to carry day2to2day o(erations. Lon% ter* funds are re3uired for esta!lish*ent
of the or%ani9ation0 it is re3uired for (roduction facility throu%h (urchase of fi'ed
assets and it needs fi'ed ca(ital and the funds which are needed for short ter*
(ur(oses for the (urchase of raw *aterials0 (ay*ent of wa%es0 (ay*ent of day to
day e'(enses etc0 the funds re3uired for these are 6nown as ?or6in% )a(ital.
?or6in% ca(ital refers to that (art of the fir*1s ca(ital which is re3uired for
financin% short ter* or current assets such as cash0 *ar6eta!le securities0
de!tors and inventories. >unds0 thus0 invested in current assets 6ee( revolvin%
fast and are !ein% constantly converted into cash and this cash flow out in
e'chan%e for other current assets. ;ence it is also 6nown as )IR)DL4TI<5
)4PIT4L or R&ELEI<5 )4PIT4L or ";RT T&R$ )4PIT4L.
4ccordin% to 5&<&"T&<,&R5F2
G)irculatin% ca(ital *eans current assets of a co*(any that are chan%ed in the
ordinary course of !usiness fro* one for* to another0 as for e'a*(le0 fro*
cash to inventories0 inventories to receiva!les into cash.G
<eed for wor6in% ca(ital cannot !e over e*(hasi9ed. &very !usiness needs
so*e a*ount of wor6in% ca(ital. The need of wor6in% ca(ital arises due to the
ti*e %a( !etween (roduction and reali9ation of cash fro* sales. Thus0 the
wor6in% ca(ital is needed for the followin% (ur(osesF2
1) >or the (urchase of raw *aterials0 co*(onents and s(ares.
2) To (ay wa%es and salaries.
3) To incur day2to2day e'(enses and overhead costs such as fuel0 (ower
and office e'(enses etc.
4) To *et the sellin% costs as (ac6in%0 advertisin% etc.
5) To (rovide credit facility to custo*ers.
H
6) To *aintain the inventories of raw *aterial0 wor62in2(ro%ress0 stores and
s(ares and finished stoc6.
>or studyin% the need of wor6in% ca(ital in a !usiness0 one has to study the
!usiness under varyin% circu*stances such as a new concern0 as a %oin%
concern and as one which has attained *aturity.
A33*'#$/ !* G+*-+ &$# M&56 $ 2778:-
In this (a(er *ade an atte*(t to e'a*ine the efficiency of wor6in% ca(ital *ana%e*ent
of the Indian ce*ent co*(anies durin% 1HH+ I 1HH3 to +##1 I +##+. >or *easurin% the
efficiency of wor6in% ca(ital *ana%e*ent0 (erfor*ance0 utili9ation0 and overall efficiency
indices were calculated instead of usin% so*e co**on wor6in% ca(ital *ana%e*ent
ratios. "ettin% industry nor*s as tar%et2efficiency levels of the individual fir*s0 this (a(er
also tested the s(eed of achievin% that tar%et level of efficiency !y an individual fir*
durin% the (eriod of study. >indin%s of the study indicated that the Indian )e*ent
Industry as a whole did not (erfor* re*ar6a!ly well durin% this (eriod.
A33*'#$/ !* S+$ &$# S*"$"$6 $ 9::;:-
hi%hli%hted that efficient ?or6in% )a(ital $ana%e*ent .?)$/ was very i*(ortant for
creatin% value for the shareholders. The way wor6in% ca(ital was *ana%ed had a
si%nificant i*(act on !oth (rofita!ility and li3uidity. The relationshi( !etween the len%ths
of <et Tradin% )ycle0 cor(orate (rofita!ility and ris6 adjusted stoc6 return was e'a*ined
usin% correlation and re%ression analysis0 !y industry and ca(ital intensity. They found a
stron% ne%ative relationshi( !etween len%ths of the fir*@s net tradin% )ycle and its
(rofita!ility. In addition0 shorter net trade cycles were associated
with hi%her ris6 adjusted stoc6 returns.
1#
5. OBJECTIVES OF THE STUDY
>i'in% the o!jective is li6e identifyin% the star. The o!jective decides where
we want to %o0 what we want to achieve and what is our %oal or destination.
&very study is carried out for the achieve*ent of certain o!jectives.
1. To analy9e the various co*(onents of wor6in% ca(ital of L-T.
2. To study the financin% of wor6in% ca(ital of L-T.
3. To study and analy9e the o(eratin% cycle of L-T.
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6. RESEARCH METHODOLOGY
DATA COLLECTION METHODS:
The data will !e collected usin% !oth !y (ri*ary data collection *ethods as well as
secondary sources.
1 PRIMARY DATA F $ost of the infor*ation will !e %athered throu%h (ri*ary
sources. The *ethods that will !e used to collect (ri*ary data areF
1) Juestionnaire
2) Interview
2 SECONDARY DATAF "econdary data that will !e used are we! sites and (u!lished
*aterials related to wor6in% ca(ital *ana%e*ent as well as any relevant
infor*ation on ca(ital of the co*(any at ;eston :uwait.
SAMPLE SI<E F =#27=
1+
K
=. E>PECTED CONTRIBUTION FROM THE STUDY
T+" -!u#. - "?%"3!"# !* 3*$!'bu!" !+" )*((*@$/:
1 )ontri!ute ideas and su%%estions to individuals to related with wor6in% ca(ital
of the co*(any and there!y i*(rove (erfor*ance levels.
2 Provide an or%ani9ational develo(*ent tool to co*(anies in the relatively
new field of wor6in% ca(ital !ased on e*(irical research data.
3 ;el( tea*s and de(art*ent e*(loyees to identify0 access and *ana%e their own
and other@s *an%e the wor6in% ca(ital of the co*(any and there!y i*(rovin%
wor6in% relationshi(s and increase effective (roduction level of the co*(any.
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;. CHAPTERISATION:
8etailed7final (roject re(ort will include the followin% cha(tersB
I$!'*#u3!*$: )ha(ter II
Ob5"3!A" &$# -3*%" *) -!u#.: )ha(ter III
M"!+*#*(*/.: )ha(ter IIII
.8etails of *ethodolo%y used in studyin% and collectin%
the data and issue will !e descri!ed/F
D"-3'%!A" @*'B: )ha(ter IIE
8escri(tive wor6 on the to(ic0 this cha(ter will include analysis
and inter(retation of data ta!ulation and cate%ori9ationB
S!u#. '"%*'!: )ha(ter IE
"tudy re(ort of other researcher will !e o!served and analy9ed.
C*$3(u-*$: )ha(ter IEI
Lm!&!*$ )ha(ter IEII
R"3*mm"$#&!*$: )ha(ter IEIII
Bb(*/'&%+.: )ha(ter IIL
1
=
9. BIBLIOGRAPHY
[1] 4f9a0 T. and $. ". <a9ir0 .+##7/. ?or6in% )a(ital $ana%e*ent Policies of >ir*sF
&*(irical &vidence fro* Pa6istan. Conference Proceedings of 9th South Asian
Management Forum (SAMF) on February 24-250 <orth "outh Dniversity0 8ha6a0
,an%ladesh.
[2] 4f9a0 T. and $. ". <a9ir0 .+##8/. ?or6in% )a(ital 4((roaches and >ir*@s Returns.
Paistan !ourna" of Commerce and Socia" Sciences. 1.1/0 +=23C.
[3] ,alta%i0 ,. ;. .+##1/. &cono*etric 4nalysis of Panel 8ata. +nd &dition0 Mohn
?iley - "ons. )hichester.
[4] ,linder0 4. ". and L. $acinni0 .1HH1/. Ta6in% "toc6F 4 critical 4ssess*ent of
Recent Research on Inventories. !ourna" of #conomic Pers$ecti%es& =.1/0 732HC.
[5] )9y9ews6i0 4.,.0 and 8.?. ;ic6s0 .1HH+/. ;old nto Nour )ash.
Management Accounting. +723#.
[6] 8eloof0 $. .+##3/. 8oes ?or6in% )a(ital $ana%e*ent 4ffects (rofita!ility of
,el%ian >ir*sO !ourna" of 'usiness Finance ( Accounting. 3#.3/ - .4/0 #3#C2C8CL.
[7] &cono*ic "urvey of Pa6istan0 .+##C2#7/. >inance 8ivision0 5overn*ent of Pa6istan.
[8] &ljelly0 $.4. .+##4/. Li3uidity I Profita!ility TradeoffF 4n e*(irical investi%ation in
an e*er%in% *ar6et. )nternationa" !ourna" of Commerce ( Management. 14.+/.
[9] >il!ec60 5. and T. $. :rue%er0 .+##=/. 4n 4nalysis of ?or6in% )a(ital
$ana%e*ent results across Industries. American !ourna" of 'usiness. +#.+/0 11218.
[10] 5arcia2Teruel0 P.M. and $artine92"olano0 P. .+##7/. &ffects of ?or6in% )a(ital
$ana%e*ent on "$& Profita!ility. )nternationa" !ourna" of Manageria" Finance. 3.+/0
1C42177. )nternationa" *esearch !ourna" of Finance and #conomics - )ssue 4+ (2,-,)
1C+
R")"'"$3" *) B**B-
1. $ana%e*ent 4ccountin% and ,usiness >inance2,y R.:. "har*a and
"hashi : 5u(ta21C
th
&dition +##8
2. ?or6in% )a(ital $ana%e*ent2 ,y ,. $urali :rishna +#1#
3. >inancial $ana%e*entF Theory - Practice2,y Prasanna )handra +##4
1C
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