working capital management project repot

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APROJECT REPORT 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 :

Submitted in partial fulfillment of the requirements for qualifying

Master of Business Administration (FINANCE)

2011

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WORKING CAPITAL MANAGEMENTOF THE L & T.

Under Supervision of :

Submitted By:

Name :

Programme Code : MBA (FINANCE)

Enrollment No. :

Name of the Study Centre :

Study Centre Code :

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CERTIFICATE OF ORIGINALITY

This is to certify that the project report entitled Working Capital Management of

the L&T. submitted to Indira Gandhi National Open University in partial

fulfillment of the requirement for the award of the Degree of Master of Business

Administration is an authentic and original work carried out by A.R.

RAJALAKSHMI with Enrolment No . . under the guidance of

.

The matter embodied in this project is genuine work done by the student and has not

been submitted whether to this University or to any other University / Institute for the

fulfillment of the requirement of any course of study.

. ....

Signature of the Student: Signature of the Guide

Date:... Date:

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ACKNOWLEDGEMENT

With Candor and Pleasure I take opportunity to express my sincere thanks and

obligation to my esteemed guide . It is because of his able and mature guidance

and co-operation without which it would not have been possible for me to complete

my project.

It is my pleasant duty to thank all the staff member of the computer center who never

hesitated me from time during the project.

Finally, I gratefully acknowledge the support, encouragement & patience of my

family, and as always, nothing in my life would be possible without God, Thank You!

(A.R. RAJALAKSHMI)

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DECLARATION

I hereby declare that this project work titled Working Capital Management of the

L&T. is my original work and no part of it has been submitted for any other degree

purpose or published in any other from till date.

(A.R. RAJALAKSHMI )

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OF THE L & T.

TABLE OF CONTENTS

S. NO. CONTENTS PAGE NO.

1. Title of the Project....7

2. Introduction ........8

3. Review of Literature .....35

4. Objectives of the Study..48

5. Research Methodology......49

6. Data Analysis.. ......50

7. Conclusion and Major Finds......82

8. Recommendation and Limitation .84

9. Bibliography...85

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CHAPTER 1

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. A commitment to community welfare and environmental

protection are an integral part of the corporate vision.

M/s Larsen & Toubro Ltd. ECC Division is prestigious organization having business

worldwide, its ECC Division undertake engineering contracts of various constructionin the field of Electrical, Mechanical & Civil Engineering.

The Company having its headquarter at Chennai, and whole India is distributed in

regions having respective regional headquarters, viz. Mumbai, Ahmadabad, Kolkata,

Delhi, Hyderabad, Chandigarh etc. which coordinate all activities of sites within their

region.

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Chattisgarh state have rich natural resources, coal is found in abundance thus various

thermal power plant are established at various places, Sipat Super Thermal Power

Plant is one of the biggest Thermal Power Plant, wherein our company execute

construction of Boiler Erection & Electrical Cabling works and some other misc.

works. Our Principal employer is M/s National Thermal Power Corporation Ltd.

The workforces consist of 2500 workmen and Engineers and staff in various cadre, the

workforce consist of employees from all over India.

Operating Divisions:

Engineering & Construction Projects (E&C) Heavy Engineering (HED)

Construction

Power

Electrical & Electronics (E BG)

Machinery & Industrial Products (MIPD)

IT & Technology Services Financial Services

Railway Project

L&T's Signature of Excellence is evident on:

Hydrocarbon projects executed in India, the Middle East and South East Asia.

Power projects executed in India, the Gulf and Sri Lanka. The world's largest coal gasifier made in India and exported to China

The worlds biggest EO reactor for a petrochemical complex in the Gulf

The worlds largest FCC regenerator for a refinery

Asias highest viaduct

The worlds longest limestone conveyor

L&T played a critical role in building Indias first nuclear powered submarine

L&T played a major role in India's maiden moon mission

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HISTORY OF CONCERN

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.

Henning Holck-Larsen

(4.7.1907 - 27.7.2003)

Beginning with the import of machinery from Europe, L&T rapidly took on

engineering and construction assignments of increasing sophistication. Today, the

company sets global engineering benchmarks in terms of scale and complexity.

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Soren Kristian Toubro (27.02.1906 4.3.1982)


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EARLY DAYS

THE JOURNEY

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.

In 1945 , L&T signed an agreement with Caterpillar Tractor Company, USA, for marketing earthmoving equipment. At the end of the war, large numbers of war-

surplus Caterpillar equipment were available at attractive prices, but the finances

required were beyond the capacity of the partners. This prompted them to raise

additional equity capital, and on 7th February 1946 , Larsen & Toubro Private Limited

was born.

Independence and the subsequent demand for technology and expertise offered L&T

the opportunity to consolidate and expand. Offices were set up in Kolkata (Calcutta),Chennai (Madras) and New Delhi. In 1948 , fifty-five acres of undeveloped marsh and

jungle was acquired in Powai. Today, Powai stands as a tribute to the vision of the

men who transformed this uninhabitable swamp into a manufacturing landmark.

PUBLIC LIMITED COMPANY:

In December 1950 , L&T became a Public Company with a paid-up capital of Rs.2million. The sales turnover in that year was Rs.10.9 million.

Prestigious orders executed by the Company during this period included the Amul

Dairy at Anand and Blast Furnaces at Rourkela Steel Plant. With the successful

completion of these jobs, L&T emerged as the largest erection contractor in the

country.

In 1956 , a major part of the company's Bombay office moved to ICI House in Ballard

Estate. A decade later this imposing grey-stone building was purchased by L&T, andrenamed as L&T House - its Corporate Office.

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Henning Holck-Larsen and Soren Kristian Toubro, school-mates in Denmark, would

not have dreamt, as they were learning about India in history classes that they would,

one day, create history in that land.

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 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 recognised as a reliable fabricator with high standards.

The war-time need to repair and refit ships offered L&T an opportunity, and led to the

formation of a new company, Hilda Ltd., to handle these operations. L&T also started

two repair and fabrication shops - the Company had begun to expand.

Again, the sudden internment of German engineers (because of the War) who were to

put up a soda ash plant for the Tatas, gave L&T a chance to enter the field of

installation - an area where their capability became well respected.


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The sixties saw a significant change at L&T - S. K. Toubro retired from active

management in 1962 .

The sixties were also a decade of rapid growth for the company, and witnessed the

formation of many new ventures: UTMAL (set up in 1960 ), Audco India Limited

(1961 ), Eutectic Welding Alloys ( 1962 ) and TENGL ( 1963 ).

EXPANDING HORIZONS :

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.

In 1976 , Holck-Larsen was awarded the Magsaysay Award for International

Understanding in recognition of his contribution to India's industrial development. He

retired as Chairman in 1978 .

In the decades that followed, the company grew into an engineering major under the

guidance of leaders like N. M. Desai, S.R. Subramaniam, U. V. Rao, S. D. Kulkarni

and A. M. Naik.

Today, L&T is one of India's biggest and best known industrial organisations with a

reputation for technological excellence, high quality of products and services, and

strong customer orientation. It is also taking steps to grow its international presence.

For an institution that has grown to legendary proportions, there cannot and must not be an 'end'. Unlike other stories, the L&T saga continues...

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AWARDS & RECOGNITIONS:

Major Awards Received by L&T in 2011L&T CMD Ranks among Top News

Makers in Indian and Global Media

Mr. A.M. Naik, Chairman & Managing Director, L&T, has emerged as among the

most high profile of Indias corporate leaders in the Indian and the global media. A

recent survey of press citations saw Mr. Naiks rankings soar among the countrys

news makers. He was ranked Number 10 in the Indian media, having seen a rise of

157 per cent. In the survey of global media, Mr. Naik is ranked 12th.

L&T CMD Honoured with CHEMTECH Hall of Fame Award

In recognition of L&Ts CMD, Mr. A.M. Naiks stellar contributions to the industry

and nation, the Mumbai based CHEMTECH Foundation has conferred on him its

prestigious Hall of Fame - Leadership & Excellence Award 2011. (February 24, 2011)

L&T bags India Shining Star Award for Outstanding CSR

L&T bagged the India Shining Star CSR Award, instituted by the Wockhardt

Foundation, for Outstanding CSR in the sector for companies engaged in heavy

engineering. (February 19, 2011)

L&T wins Award for Company with Best CSR & Sustainability Practices-2011

L&Ts CSR initiatives were again in the limelight as it bagged the award for

Company with the Best CSR and Sustainability Practices by the Asian Centre for Corporate Governance and Sustainability. The award was presented at the 11th

International Conference of the Centre in Mumbai on February 11, 2011.

L&T wins Top Honours in Businessworlds Most Respected Company - 2011

Rankings

Leading business magazine, Businessworlds rankings of Most Respected

Companies saw stellar honours for L&T. In the sector-wise survey, L&T was ranked

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Indias Most Respected Company in the Infrastructure category. In the overall

rankings, L&T emerged second.

ICAI Bestows Top Honour on Mr. Y.M. Deosthalee, CFO, L&T

The Institute of Chartered Accountants of India (ICAI) the countrys apex body of

Chartered Accountants has bestowed its highest honour, Business Achiever

Corporate for the year 2010 on Mr. Y.M. Deosthalee, CFO, L&T, for his outstanding

contribution to business leadership as a finance professional. The institute saluted his

role in providing strategic direction to the business of financial services, development

projects and Information Technology of the L&T Group. (January 30, 2011)

Finance Minister Presents Coveted ET Company of the Year Award to Mr. A.M.

Naik

BOARD OF DIRECTORS :

Director Name Designation

A M Naik Chairman & Managing Director S N Talwar Non Executive Director M M Chitale Non Executive Director S Rajgopal Non Executive Director Subodh Bhargav Non Executive Director J S Bindra Non Executive Director

V K MagapuWhole-time Director & Senior Executive Vice

President - IT & Technology Services

Y M Deosthalee Whole-time Director & CFO

M V KotwalWhole-time Director & Senior Executive Vice

President - Heavy Engineering

J P Nayak Whole-time Director & President - Machiney &

Industrial ProductsK V Rangaswami Whole Time Director & President

K VenkataramananWhole-time Director & President - Engineering &

Constrution ProjectsRavi Uppal Whole-time Director

N Mohan Raj Nominee of LICA K Jain Nominee

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Bhagyam Ramani NomineeThomas Mathew T Nominee of LIC

N Hariharan Company Secretary

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THEORY OF WORKING CAPITAL


Working Capital is the amount of capital that a business has available to meet the day

to day cash requirements of its operations. It is concerned with the problem arise in

attempting to manage the current assets, the current liabilities and the inter

relationship that exist between them. Working Capital is the difference between

resources in cash or readily convertible into cash and organizational commitments for

which cash will soon be required or within one year without undergoing a diminution

in value and without disrupting the operation of the firm. It also refers to the amount

of current Assets that exceeds current Liabilities.

Working Capital refers to that part of the firm capital, which is required for financing

Short-Term or Current Assets such as Cash, Marketable Securities, Debtors and

Inventories. Working Capital is also known as Revolving or Circulating Capital or

Short Term Capital.

The goal of working capital management is to manage the firms current assets and

current liabilities in such way that the satisfactory level of working capital is

mentioned. The current should be large enough to cover its current liabilities in order

to ensure a reasonable margin of the safety.

Capital required for a business can be classifies under two main categories:

Fixed Capital

Working Capital

Every business needs funds for two purposes for its establishments and to carry out

day to day operations. Long term funds are required to create production facilities

through purchase of fixed assets such as plant and machinery, land and building,

furniture etc. Investments in these assets are representing that part of firms capital

which is blocked on a permanent or fixed basis and is called fixed capital. Funds are

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also needed for short term purposes for the purchasing of raw materials, payments of

wages and other day to day expenses etc. These funds are known as working capital.

In simple words, Working capital refers to that part of the firms capital which is

required for financing short term or current assets such as cash, marketable securities,

debtors and inventories.

CONCEPTS OF WORKING CAPITAL :

There are two concepts of working capital:

Balance Sheet concepts

Operating Cycle or circular flow concept

BALANCE SHEET CONCEPT:

There are two interpretation of working capital under the balance sheet concept:

Gross Working Capital

Net Working Capital

The term working capital refers to the Gross working capital and represents theamount of funds invested in current assets. Thus, the gross working capital is the

capital invested in total current assets of the enterprises. Current assets are those assets

which are converted into cash within short periods of normally one accounting year.

Example of current assets is:

Constituents of Current Assets:

Cash in hand and Bank balance

Bills Receivable

Sundry Debtors

Short term Loans and Advances

Inventories of Stock as:

Raw Materials

Work in Process

Stores and Spaces

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Finished Goods

Temporary Investments of Surplus Funds

Prepaid Expenses

Accrued Incomes

The term working capital refers to the net working capital. Net working capital is the

excess of current assets over current liabilities or say:

Net Working Capital = Current Assets Current Liabilities .

NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:

When the current assets exceed the current liabilities, the working capital is positive

and the negative working capital results when the current liabilities are more than the

current assets. Current liabilities are those liabilities which are intended to be paid in

the ordinary course of business within a short period of normally one accounting year

of the current assets or the income of the business. Examples of current liabilities are:

CONSTITUENTS OF CURRENT LIBILITIES :

Bills Payable

Sundry Creditors or Account Payable

Accrued or Outstanding Expenses

Short term Loans, Advances and Deposits

Dividends Payable Bank Overdraft

Provision for Taxation, If does not amount to appropriation of profits.

The gross working capital concept is financial or going concern concept whereas net

working capital is an accounting concept of working capital.

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OPERATING CYCLE OR CIRCULATING CASH FORMAT :

Working Capital refers to that part of firms capital which is required for financing

short term or current assets such as cash, marketable securities, debtors and

inventories. Funds thus invested in current assets keep revolving fast and being

constantly converted into cash and these cash flows out again in exchange for other

current assets. Hence it is also known as revolving or circulating capital. The circular

flow concept of working capital is based upon this operating or working capital cycle

of a firm. The cycle starts with the purchase of raw material and other resources

And ends with the realization of cash from the sales of finished goods. It involves

purchase of raw material and stores, its conversion into stocks of finished goods

through work in progress with progressive increment of labor and service cost,

conversion of finished stocks into sales, debtors and receivables and ultimately

realization of cash and this cycle continuous again from cash to purchase of raw

materials and so on. The speed/ time of duration required to complete one cycle

determines the requirements of working capital longer the period of cycle, larger is the

requirement of working capital.

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Receivable conversion period Raw materialstorage(RCP) conversion period (RMSCP)

Cash received formDebtors and paid to suppliers

Of raw materials

Sales of finished Raw materialsGoods introduced into process

Finished GoodsProduced

Finished goods conversion Work in processPeriod (FGCP) Conversion

period(WIPCP)

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The gross operating cycle of a firm is equal to the length of the inventories and

receivables conversion periods. Thus,

Where,

RMCP = Raw Material Conversion Period

WIPCP = Work in- Process Conversion Period

FGCP = Finished Goods Conversion Period

RCP = Receivables Conversion Period

However, a firm may acquire some resources on credit and thus defer payments for

certain period. In that case, net operating cycle period can be calculated as below:

Further, following formula can be used to determine the conversion periods.

Raw Material Conversion Period = Average Stock of Raw Material.

Raw Material Consumption per day

Work in process Conversion Period = Average Stock of Work-in-Progress

Total Cost of Production per day

Finished Goods Conversion Period = Average Stock of Finished Goods

Total Cost of Goods sold per day

Receivables Conversion Period = Average Accounts Receivables

Net Credit Sales per day

Payable Deferral Period = Average Payable

Net Credit Purchase per day

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Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

Net Operating Cycle Period = Gross Operating Cycle Period PayableDeferral period


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CLASSIFICATION OR KIND OF WORKING CAPITAL:

Working capital may be classified in two ways:

On the basis of concept

On the basis of time

On the basis of concept, working capital is classified as gross working capital and net

working capital. The classification is important from the point of view of the financial

manager.

On the basis of time, working capital may be classified as:

Permanent or Fixed working capital

Temporary or Variable working capital.

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On the basis of concept On the basis of time

Net WorkingCapital

Permanent orFixed Working

CapitalGross WorkingCapital

Temporary orVariable Working

Capital

Kinds of Working Capital

Reserve WorkingCapital

RegularWorking Capital

Special WorkingCapital

Seasonal WorkingCapital


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1. 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 enterprises to carry out its normal business operations.

2. TEMPRORAY 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.Varibles working

capital can be further classified as second working capital and special working capital.The capital required to meet the seasonal needs of the enterprises is called the seasonal

working capital.

Temporary working capital differs from permanent working capital in the sense that is

required for short periods and cannot be permanently employed gainfully in the

business

IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING

CAPITAL:

Working capital is the life blood and nerve centre of a business. Just a circulation of a

blood is essential in the human body for maintaining life, working capital is very

essential to maintain the smooth running of a business. No business can run

successfully without an adequate amount of working capital. The main advantages of

maintaining adequate amount of working capital are as follows:

Solvency of the Business

Goodwill

Easy Loans

Cash discounts

Regular supply of Raw Materials

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Regular payments of salaries, wages & other day to day commitments.

Exploitation of favorable market conditions

Ability of crisis

Quick and regular return on investments

High morals

THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be emphasized. Every business needs some

amount of working capital. The need of 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 and production, production and sales,

And sales, and realization of cash, thus, working capital is needed for the following

purposes:

For the purchase of raw materials , components and spaces.

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 as packing, advertising etc.

To provide credit facilities to the customers.To maintain the inventories of raw materials, work in- progress, stores and spares

and finished stock.

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AVABILITY OF RAW MATERIAL:

If raw material is readily available then one need not maintain a large stock of the

same thereby reducing the working capital investment in the raw material stock . On

other hand if raw material is not readily available then a large inventory stocks need to be maintained, there by calling for substantial investment in the same.

GROWTH AND EXAPNSION:

Growth and Expansions in the volume of business result in enhancement of the

working capital requirements. As business growth and expands it needs a larger

amount of the working capital. Normally the needs for increased working capital

funds processed growth in business activities.

PRICE LEVEL CHANGES :

Generally raising price level requires a higher investment in the working capital. With

increasing prices, the same levels of current assets needs enhanced investments.

MANAFACTURING CYCLE:

The manufacturing cycle starts with the purchase of raw material and is completed

with the production of finished goods. If the manufacturing cycle involves a longer

period the need for working capital would be more. At time business needs to estimate

the requirement of working capital in advance for proper control and management.

The factors discussed above influence the quantum of working capital in the business.

The assessment of the working capital requirement is made keeping this factor in

view. Each constituents of the working capital retains it form for a certain period andthat holding period is determined by the factors discussed above. So for correct

assessment of the working capital requirement the duration at various stages of the

working capital cycle is estimated. Thereafter proper value is assigned to the

respective current assets, depending on its level of completion. The basis for assigning

value to each component is given below:

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Each constituent of the working capital is valued on the basis of valuation Enumerated

above for the holding period estimated. The total of all such valuation becomes the

total estimated working capital requirement. The assessment of the working capital

should be accurate even in the case of small and micro enterprises where business

operation is not very large. We know that working capital has a very close relationship

with day-to-day operations of a business. Negligence in proper assessment of the

working capital, therefore, can affect the day-to-day operations severely. It may lead

to cash crisis and ultimately to liquidation. An inaccurate assessment of the working

capital may cause either under-assessment or over-assessment of the working capital

and both of them are dangerous.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY:

The following are the general principles of a sound working capital management

policy:

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COMPONENTS OF WORKINGCAPITAL BASIS OF VALUATION

Stock of Raw Material Purchase of Raw MaterialStock of Work -in- Process At cost of Market value which is lower

Stock of finished Goods Cost of ProductionDebtors Cost of Sales or Sales Value

Cash Working Expenses

PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY

PRINCIPLES OFRISK

VARIATIONS

PRINCIPLES OFCOST OF

CAPITAL

PRINCIPLES OFEQUITY

PRINCIPLES

PRINCIPLES OFMATURITY OFPAYMENTS


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1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY):

Risk here refers to the inability of a firm to meet its obligations as and when they

become due for payment. Larger investment in current Assets with less dependence on

short term borrowings, increase liquidity, reduces risk and thereby decreases the

opportunity for gain or loss. On the other hand less investments in current assets with

greater dependence on short term borrowings, reduces liquidity and increase

profitability. In other words there is a definite inverse relationship between the degree

of risk and profitability. In other words, there is a definite i nverse relationship

between the risk and profitability. A conservative management prefers to minimize

risk by maintaining a higher level of current assets or working capital while a liberal

management assumes greater risk by reducing working capital. However, the goal of management should be to establish a suitable tradeoff between profitability and risk.

2. PRINCIPLES OF COST OF CAPITAL:

The various source of raising working capital finance have different cost of capital

and the degree of risk involved. Generally, higher and risk however the risk lower is

the cost and lower the risk higher is the cost. A sound working capital management

should always try to achieve a proper balance between these two.

3. PRINCIPLE OF EQUITY POSITION:

The principle is concerned with planning the total investments in current assets.

According to this principle, the amount of working capital invested in each component

should be adequately justified by a firms equity position. Every rupee invested in

current assets should contribute to the net worth of the firm. The level of current assets

may be measured with the help of two ratios:

1. Current assets as a percentage of total assets and

2. Current assets as a percentage of total sales

While deciding about the composition of current assets, the financial manager may

consider the relevant industrial averages.

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4. PRINCIPLES OF MATURITY OF PAYMENT:

The principle is concerned with planning the source of finance for working capital.

According to the principles, a firm should make every effort to relate maturities of

payment to its flow of internally generated funds. Maturity pattern of various current

obligations is an important factor in risk assumptions and risk assessments. Generally

shorter the maturity schedule of current liabilities in relation to expected cash inflows,

the greater the inability to meet its obligations in time .

CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:

Growth may be stunted. It may become difficult for the enterprises to undertake

profitable projects due to non availability of working capital.

Implementations of operating plans may brome difficult and consequently the

profit goals may not be achieved.

Cash crisis may emerge due to paucity of working funds.

Optimum capacity utilization of fixed assets may not be achieved due to nonavailability of the working capital.

The business may fail to honour its commitment in time thereby adversely affecting

its creditability. This situation may lead to business closure.

The business may be compelled to by raw materials on credit and sell finished goods

on cash. In the process it may end up with increasing cost of purchase and reducing

selling price by offering discounts. Both the situation would affect profitable

adversely.

Now avaibility of stocks due to non availability of funds may result in production

stoppage. While underassessment of working capital has disastrous implications on

business overassesments of working capital also has its own dangerous.

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CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:

Excess of working capital may result in un necessary accumulation of

inventories.

It may lead to offer too liberal credit terms to buyers and very poor recovery

system & cash management.

It may make management complacent leading to its inefficiency.

Over investment in working capital makes capital less productive and may

reduce return on investment.

Working Capital is very essential for success of business & t herefore needs efficient

management and control. Each of the components of working capital needs proper

management to optimize profit.

INVENTORY MANAGEMNT:

Inventory includes all type of stocks. For effective working capital management,

inventory needs to be managed effectively. The level of inventory should be such that

the total cost of ordering and holding inventory is the least. Simultaneously stock out

costs should be minimized. Business therefore should fix the minimum safety stock

level reorder level of ordering quantity so that the inventory costs is reduced and outs

management become efficient.

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InventoryManagement


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RECEIVABLE MANAGEMENT :

Given a choice, every business would prefer selling its produce on cash basis.

However, due to factors like trade policies, prevailing market conditions etc. Business

are compelled to sells their goods on credit. In certain circumstances a business may

deliberately extend credit as a strategy of increasing sales. Extending credit means

creating current assets in the form of debtors or account receivables. Investment in the

type of current assets needs proper and effective management as, it gives rise to costs

such as:

Cost of carrying receivables

Cost of bad debts losses

Thus the objective of any management policy pertaining to accounts receivables

would be to ensure the benefits arising due to the receivables are more than the costs

incurred for the receivables and the gap between benefit and costs increased resulting

in increase profits. An effective control of receivables help a great deal in properly

managing it. Each business should therefore try to find out coverage credit extends to

its clients using the below given formula:

Average Credit = Total amount of receivable

(Extend in days) Average credit sale per day

Each business should project expected sales and expected investments in receivable

based on various factor, which influence the working capital requirement. From this it

would be possible to find out the average credit days using the above given formula. A

business should continuously try to monitor the credit days and see that the average.

Credit offer to clients is not crossing the budgeted period otherwise the requirement of

investment in the working capital would increase and as a result, activities may get

squeezed. This may lead to cash crisis.

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CASH BUDGET :

Cash budget basically incorporates estimates of future inflow and outflows of cash

cover a projected short period of time which may usually be a year, a half or a quarter

year. Effective cash management is facilities if the cash budget is further broken down

into months, weeks or even a daily basis.

There are two components of cash budget are:

1. Cash inflows

2. Cash outflows

The main sources for these flows are given here under:

1. Cash Sales

2. Cash received from debtors3. Cash received from Loans, deposits etc.

4. Cash receipts other revenue income

5. Cash received from sale of investment or assets.

CASH OUTFLOWS:

1. Cash Purchase

2. Cash payments to Creditors

3. Cash payment for other revenue expenditure

4. Cash payment for assets creation

5. Cash payments for withdrawals, taxes.

6. Repayments of Loan etc.

A suggestive for, at for cash budget is given below:

33

MONTHSPARTICULARS JANUARY FERBUARY MARCH

Estimated cash inflows

. I. Total cash inflows Estimated cash outflows .. .. II. Total cash outflows III. Opening cash balances IV. Add/deduct surplus/deflictduring the month ( I-II) V. Closing cash balances (III -IV)

VI. Minimum level of cash balance VII. Estimated excess or short fall of cash (V-VI)


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CHAPTER 2

REVIEW OF LITERATURE

Every business needs funds for two purposes basically; they are for establishment

and to carry day-to-day operations. Long term funds are required for establishment

of the organization, it is required for production facility through purchase of fixed

assets and it needs fixed capital and the funds which are needed for short term

purposes for the purchase of raw materials, payment of wages, payment of day to

day expenses etc, the funds required for these are known as WORKING CAPITAL.

Working capital refers to that part of the firm's capital which is required for

financing short term or current assets such as cash, marketable securities, debtors

and inventories. Funds, thus, invested in current assets keep revolving fast and are

being constantly converted into cash and this cash flow out in exchange for other

current assets. Hence it is also known as CIRCULATING CAPITAL or

REVOLVING CAPITAL or SHORT TERM CAPITAL.

According to GENESTENBERG:-

"Circulating capital means current assets of a company that are changed in the

ordinary course of business from one form to another, as for example, from cash to

inventories, inventories to receivables into cash."

Need for working capital cannot be over emphasized. Every business needs someamount of working capital. The need of working capital arises due to the time gap

between production and realization of cash from sales. Thus, the working capital is

needed for the following purposes:-

a) For the purchase of raw materials, components and spares.

b) To pay wages and salaries.

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

office expenses etc.

d) To met the selling costs as packing, advertising etc.

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e) To provide credit facility to customers.

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

spares and finished stock.

For studying the need of working capital in a business, one has to study the business

under varying circumstances such as a new concern, as a going concern and as one

which has attained maturity.

Many researchers have studied working capital from different views and in different

environments. The following ones were very interesting and useful for our research

According to Eljelly, in 2004:-

Elucidated that efficient liquidity management involves planning and controlling

current assets and current liabilities in such a manner that eliminates the risk of

inability to meet due short-term obligations and avoids excessive investment in these

assets. The relation between profitability and liquidity was examined, as measured by

current ratio and cash gap (cash conversion cycle) on a sample of joint stock

companies in Saudi Arabia using correlation and regression analysis. The study foundthat the cash conversion cycle was of more importance as a measure of liquidity than

the current ratio that affects profitability. The size variable was found to have

significant effect on profitability at the industry level. The results were stable and had

important implications for liquidity management in various Saudi companies. First, it

was clear that there was a negative relationship between profitability and liquidity

indicators such as current ratio and cash gap in the Saudi sample examined.

Second, the study also revealed that there was great variation among industries with

respect to the significant measure of liquidity.

According to Deloof, in 2003:-

Discussed that most firms had a large amount of cash invested in working capital. It

can therefore be expected that the way in which working capital is managed will have

a significant impact on profitability of those firms. Using correlation and regression

tests he found a significant negative relationship between gross operating income andthe number of days accounts receivable, inventories and accounts payable of Belgian

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firms. On basis of these results he suggested that managers could create value for their

shareholders by reducing the number of days accounts receivable and inventories to a

reasonable minimum. The negative relationship between accounts payable and

profitability is consistent with the view that less profitable firms wait longer to pay

their bills.

According to Ghosh and Maji, in 2003:-

In this paper made an attempt to examine the efficiency of working capital

management of the Indian cement companies during 1992 1993 to 2001 2002. For

measuring the efficiency of working capital management, performance, utilization,

and overall efficiency indices were calculated instead of using some common working

capital management ratios. Setting industry norms as target-efficiency levels of the

individual firms, this paper also tested the speed of achieving that target level of

efficiency by an individual firm during the period of study. Findings of the study

indicated that the Indian Cement Industry as a whole did not perform remarkably well

during this period.

According to Shin and Soenen, in 1998:-

highlighted that efficient Working Capital Management (WCM) was very importantfor creating value for the shareholders. The way working capital was managed had a

significant impact on both profitability and liquidity. The relationship between the

lengths of Net Trading Cycle, corporate profitability and risk adjusted stock return

was examined using correlation and regression analysis, by industry and capital

intensity. They found a strong negative relationship between lengths of the firms net

trading Cycle and its profitability. In addition, shorter net trade cycles were associated

with higher risk adjusted stock returns.

The Effect of Working Capital Management on Firm Profitability: Evidence

from Turkey

F. Samiloglu and K. Demirgunes (2008)

The aim of this study is to analyze the effect of working capital management on firm

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profitability. In accordance with this aim, to consider statistically significant

relationships

between firm profitability and the components of cash conversion cycle at length, a

sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the

period of 1998-2007 has been analyzed under a multiple regression model. Empirical

findings of the study show that accounts receivables period, inventory period and

leverage affect firm profitability negatively, while growth (in sales) affects firm

profitability positively.

All the above studies provide us a solid base and give us idea regarding working

capital

management and its components. They also give us the results and conclusions of

those researches already conducted on the same area for different countries and

environment from different aspects. On basis of these researches done in different

countries, we have developed our own methodology for research.

According to Smith and Begemann 1997:-

Emphasized that those who promoted working capital theory shared that profitability

and liquidity comprised the salient goals of working capital management. The

problem arose because the maximization of the firm's returns could seriously threaten

its liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article

evaluated the association between traditional and alternative working capital measures

and return on investment (ROI), specifically in industrial firms listed on the

Johannesburg Stock Exchange (JSE). The problem under investigation was to

establish whether the more recently developed alternative working capital concepts

showed improved association with return on investment to that of traditional working

capital ratios or not. Results indicated that there were no significant differences

amongst the years with respect to the independent variables. The results of their

stepwise regression corroborated that total current liabilities divided by funds flow

accounted for most of the variability in Return on Investment (ROI). The statistical

test results showed that a traditional working capital leverage ratio, current liabilities

divided by funds flow, displayed the greatest associations with return on investment.

Wellknown liquidity concepts such as the current and quick ratios registered

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insignificant associations whilst only one of the newer working capital concepts, the

comprehensive liquidity index, indicated significant associations with return on

investment. All the above studies provide us a solid base and give us idea regarding

working capital management and its components. They also give us the results and

conclusions of those researches already conducted on the same area for different

countries and environment from different aspects. On basis of these researches done in

different countries, we have developed our own methodology for research.

According to Marc Deloof 25 th April 2003:-

The relation between working capital management and corporate profitablity is

investigated for a sample of 1,009 large Belgian non-financial firms for the 1992-1996 period. Trade credit policy and inventory policy are measured by number of days

accounts receivable, accounts payable and inventories, and the cash conversion cycle

is used as a comprehensice measure of working capital management. The results

suggest that managers can increase corporate profitablity by reducing the number of

days accounts receivable and inventories. Less profitable firms wait longer to pay

their bills.

M. A., Zariyawati a, M. N., Annuar b and A.S., Abdul Rahim c a ,b & c

Univeristi Putra Malaysia, Malaysia.

Working capital management is important part in firm financial management decision.

An optimal working capital management is expected to contribute positively to the

creation of firm value. To reach optimal working capital management firm manager

should control the trade off between profitability and liquidity accurately. The purpose

of this study is to investigate the relationship between working capital management

and firm profitability. Cash conversion cycle is used as measure of working capital

management. This study is used panel data of 1628 firm-year for the period of 1996-

2006 that consist of six different economic sectors which are listed in Bursa Malaysia.

The coefficient results of Pooled OLS regression analysis provide a strong negative

significant relationship between

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Amber Collins University of Phoenix:-

Working Capital Management Concepts Worksheet Concept Application of Concept

in the Simulation Reference to Concept in Reading Describe the firm's cash

conversion cycle: Cash inflow "Most firms keep track of the average time it takescustomers to pay their bills. From this they can forecast what proportion of a quarter's

sales is likely to be converted into cash in that quarter and what proportion is likely to

be carried over to the next quarter as accounts receivable" (Allen, Brealey, & Myers

2005). Lawrence having a positive cash balance would have help in the event of

emergencies as well as unplanned outflow of money. Cash flow comes from

collections on accounts receivable (Allen, Brealey, & Myers 2005). Examine the

effects of credit policy on cash conversion cycle and revenue: Commitment Lawrencehad a commitment to the bank, Mayo, Murray, and Gartner.

According to Carole Howorth and Paul Westhead March 2003:-

Working capital management routines of a large random sample of small companies

in the UK are examined. Considerable variability in the take-up of 11 working capital

management routines was detected. Principal components analysis and cluster analysis

confirm the identification of four distinct types of companies with regard to patterns

of working capital management. The first three types of companies focused upon

cash management, stock or debtors routines respectively, whilst the fourth type were

less likely to take-up any working capital management routines. Influences on the

amount and focus of working capital management are discussed. Multinomial logistic

regression analysis suggests that the selected independent variables successfully

discriminated between the four types of companies. The results suggest that small

companies focus only on areas of working capital management where they expect to

improve marginal returns. The difficulties of establishing causality are highlighted and

implications for academics, policy-makers and practitioners are reported.

According to Maynard E. Rafuse, (1996):-

Argues that attempts to improve working capital by delaying payment to creditors is

counter-productive to individuals and to the economy as a whole. Claims that altering

debtor and creditor levels for individual tiers within a value system will rarely produce

any net benefit. Proposes that stock reduction generates system-wide financial

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improvements and other important benefits. Urges those organizations seeking

concentrated working capital reduction strategies to focus on stock management

strategies based on lean supply-chain techniques.

According to James A. Gentry, Dileep R. Mehta:-

Working capital literature is rather limited and the process of managing shortterm

resources is not understood well by academicians. In contrast, corporate managers are

continuously involved in the working capital decision-making process, but their

perspective is limited to the practices within their firm. In order to fill this gap in the

working capital literature, a study of management perceptions of the working capital

process was undertaken. A survey was used to collect information from a sample of marketing, production, and financial executives in large corporations in Belgium,

France, India, and the United States. The study interprets management ranking of

working capital objectives and indicates the need to improve financial planning

models to include explicitly short-run objectives; further, predictability of cash

inflows and outflows is examined and the potential factors affecting predictability are

evaluated. Finally, this study examines management perceptions of long-range

objectives in order to provide a proper perspective to the shortrun financial planning.

According to M.K. Kolay:-

The article analyses the pros and cons of different strategies to be adopted to

manage and avoid working capital crisis situations in any organisation. The working

capital position depends on many organisational parameters which are interrelated and

interdependent, and also vary over time. In such a situation, the use of a system

dynamics approach has been advocated to reflect the relevant dynamic cause-and-effect relationships for the development of appropriate long-term and short-term

strategies.

According to Wang Zhuquan et al 2007:-

Working capital management is the main contents of corporate finance, so the study in

this field should gain much attention. Compared with the rapidly development of the

practice, the development of the theory has been lagged obviously since 1990's.We

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suggest that the study should begin from the reclassification of working capital, and

then, the new framework of the theory should be set up, which is based on the supply-

chain management, the channel management and the customer relationship

management. Meanwhile, we should launch on the survey of working capital

management of Chinese companies and promulgate the results, which can offer the

data for the study and evaluation of working capital management.

According to James A. Gentry, Paul Newbold, David T. Whitford, (1984)

The objectives of this study are to offer cash based funds flow components as an

alternative to financial ratios for classifying the financial performance of companies;

to test empirically the ability of funds flow components to distinguish between failedand no failed companies with special emphasis on working capital components; to

analyze the empirical results and make recommendations for future study.

According to Jeffrey Ashe 2000:-

Working Capital is the United States' largest peer-group lending program. This article

reviews what Working Capital has learned about the market, its customers, program

impact, and service delivery over its ten year history. It presents a model for

understanding how participating in peer lending groups develops social and

economic capital in poor communities. The article then discusses how participants

judge the group model as they identify the characteristics of successful groups and the

impact of the group on their businesses, on themselves personally, and on the larger

community. The rest of the article discusses how Working Capital evolved from a

start-up operation in a single town into a multistate program and explores the

advantages and limitations of rapid expansion. A checklist for choosing affiliate

partners is presented, along with a list of the lessons learned about delivering services

though affiliates.

According to Alan P. Hamlin, David F. Heathfield 2000:-

Working capital is a necessary input to the production process and yet is ignored in

most economic models of production. The implications of modeling the time

dimension of production, and hence the working capital requirements of firms, are

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explored, with particular stress placed on the competitive advantage gained by firms

that retain flexibility in the time structure of their production.

According to VELLANKI S.S. KUMAR, AWAD S. HANNA, TERESA ADAMS,(2000):-

The systematic assessment of working capital requirement in construction projects

deals with the analysis of various quantitative and qualitative factors in which

information is subjective and based on uncertainty. There exists an inherent difficulty

in the classical approach to evaluate the impact of qualitative factors for the

assessment of working capital requirement. This paper presents a methodology to

incorporate linguistic variables into workable mathematical propositions for the

assessment of working capital using fuzzy set theory. This article takes into

consideration the uncertainty associated with many of the project resource variables

and these are reflected satisfactorily in the working capital computations. A case study

illustrates the application of the fuzzy set approach. The results of the case study

demonstrate the superiority of the fuzzy set approach to classical methods in the

assessment of realistic working capital requirements for construction projects.

According to Richard Petty, James Guthrie, (2000):-

The rise of the new economy, one principally driven by information and knowledge,

is attributed to the increased prominence of intellectual capital (IC) as a business and

research topic. Intellectual capital is implicated in recent economic, managerial,

technological, and sociological developments in a manner previously unknown and

largely unforeseen. Whether these developments are viewed through the filter of the

information society, the knowledge-based economy, the network society, or

innovation, there is much to support the assertion that IC is instrumental in thedetermination of enterprise value and national economic performance. First, we seek

to review some of the most significant extant literature on intellectual capital and its

developed path. The emphasis is on important theoretical and empirical contributions

relating to the measurement and reporting of intellectual capital. The second part of

this paper identifies possible future research issues into the nature, impact and value of

intellectual management and reporting.

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According to Sushma Vishnani, FCA, and Finance Faculty:-

It is felt that there is the need to study the role of working capital management policies

on profitability of a company. Conventionally, it has been seen that if a company

desires to take a greater risk for bigger profits and losses, it reduces the size of itsworking capital in relation to its sales. If it is interested in improving its liquidity, it

increases the level of its working capital. However, this policy is likely to result in a

reduction of the sales volume, therefore of profitability. Hence, a company should

strike a balance between liquidity and profitability. In this paper an effort has been

made to make an empirical study of Indian Consumer Electronics Industry for

assessing the impact of working capital policies & practices on profitability during the

period 199495 to 200405. The impact of working capital policies on profitabilityhas been examined by computing coefficient of correlation and regression analysis

between profitability ratio and some key working capital policy indicator ratios.

According to Charles O. Egbu, (2004):-

Innovation is viewed as a major source of competitive advantage and is perceived to

be a pre-requisite for organizational success and survival. The ability to innovate

depends largely on the way in which an organisation uses and exploits the resources

available to it. The paper explores the importance of knowledge management (KM)

and intellectual capital (IC) in organisations. It also considers the critical factors that

lead to successful innovations and the role of KM and IC in this regard. The paper

argues that effective management of knowledge assets involves a holistic approach to

a host of factors. It is also suggested that there are a host of factors that combine in

different ways to produce successful organizational innovations. It recommends that

more is needed on the education and training of construction personnel and that these

education and training programmes should reflect the nature of innovation and KM

dimensions as very complex social processes.

According to Kenneth A. Froot and Jeremy C. Stein in 1998:-

We develop a framework for analyzing the capital allocation and capital structure

decisions facing financial institutions. Our model incorporates two key features: (i)

value-maximizing banks have a well-founded concern with risk management; and (ii)

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not all the risks they face can be frictionlessly hedged in the capital market. This

approach allows us to show how bank-level risk management considerations should

factor into the pricing of those risks that cannot be easily hedged. We examine several

applications, including: the evaluation of proprietary trading operations, and the

pricing of unhedgeable derivatives positions. We also compare our approach to the

RAROC methodology that has been adopted by a number of banks.

According to Pradeep Singh (2008):-

Empirically analysed that a firms working capital consists of its investments in

current assets, which includes short-term assetscash and bank balance, inventories,

receivable and marketable securities. Therefore, the working capital management

refers to the management of the levels of all these individual current assets. On the

other hand, inventory, which is one of the important elements of current assets,

reflects the investment of a firms fund. Hence, it is necessary to efficiently manage

inventories in order to avoid unnecessary investments. A firm, which neglects the

management of inventories, will have to face serious problems relating to long-term

profitability and may fail to survive. With the help of better inventory management, a

firm can reduce the levels of inventories to a considerable degree. This paper tries to

evaluate the effect of the size of inventory and the impact on working capital through

inventory ratios, working capital ratios, trends, computation of inventory and working

capital, and liquidity ranking. Finally, it was found that the size of inventory directly

affects working capital and it's management. Size of the inventory and working capital

of Indian Farmers Fertilizer Cooperative Limited (IFFCO) is properly managed and

controlled compared to National Fertilizer Ltd. (NFL).

According to Pedro Juan Garca-Teruel and Pedro Martnez-Solano (2007):-

Conducted research for the object of the research presented in this paper is to provide

empirical evidence on the effects of working capital management on the profitability

of a sample of small and medium-sized Spanish firms. The results, which are robust to

the presence of endogeneity, demonstrate that managers can create value by reducing

their inventories and the number of days for which their accounts are outstanding.

Moreover, shortening the cash conversion cycle also improves the firms profitability.

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The aim is to ensure that the relationships found in the analysis carried out are due to

the effects of the cash conversion cycle on corporate profitability and not vice versa.

According to Naila Iqbal (2001):-

Examined that for increasing shareholder's wealth a firm has to analyze the effect of

fixed assets and current assets on its return and risk. Working Capital Management is

related with the Management of current assets. The Management of current assets is

different from fixed assets on the basis of the following points i.e Current assets are

for short period while fixed assets are for more than one Year.The large holdings of

current assets, especially cash, strengthens Liquidity position but also reduces overall

profitability, and to maintain an optimum level of liquidity and profitability, risk

return trade off is involved holding Current assets.Only Current Assets can be

adjusted with sales fluctuating in the short run. Thus, the firm has greater degree of

flexibility in managing current Assets. The management of Current Assets helps

affirm in building a good market reputation regarding its business and economic

condition.

According to Vellanki S. Kumar, Awad S.Hanna, Teresa Adams (2000):-

Conducted research and examined that the systematic assessment of working capital

requirement in construction projects deals with the analysis of various quantitative and

qualitative factors in which information is subjective and based on uncertainty. There

exists an inherent difficulty in the classical approach to evaluate the impact of

qualitative factors for the assessment of working capital requirement. This paper

presents a methodology to incorporate linguistic variables into workable mathematical

propositions for the assessment of working capital using fuzzy set theory. This article

takes into consideration the uncertainty associated with many of the project resource

variables and these are reflected satisfactorily in the working capital computations. A

case study illustrates the application of the fuzzy set approach. The results of the case

study demonstrate the superiority of the fuzzy set approach to classical methods in the

assessment of realistic working capital requirements for construction projects.

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According to Maynard E. Rafuse (1996) :-

Argues that attempts to improve working capital by delaying payment to creditors is

counter-productive to individuals and to the economy as a whole. Claims that altering

debtor and creditor levels for individual tiers within a value system will rarely produceany net benefit. Proposes that stock reduction generates system wide financial

improvements and other important benefits. Urges those organizations seeking

concentrated working capital reduction strategies to focus on stock management

strategies based on lean supply-chain techniques.

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CHAPTER 3

OBJECTIVES OF THE STUDY

Fixing the objective is like identifying the star. The objective decides where we want

to go, what we want to achieve and what is our goal or destination.

Every study is carried out for the achievement of certain objectives.

i. To analyze the various components of working capital of L&T.

ii. To study the financing of working capital of L&T .

iii. To study and analyze the operating cycle of L&T.

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CHAPTER 4

RESEARCH METHODOLOGY

DATA COLLECTION METHODS:

The data will be collected using both by primary data collection methods as well as

secondary sources.

PRIMARY DATA : Most of the information will be gathered through primary

sources. The methods that will be used to collect primary data are:

a) Questionnaire

b) Interview

SECONDARY DATA : Secondary data that will be used are web sites and published materials related to working capital management as well as any relevant

information on capital of the company at Heston Kuwait.

SAMPLE SIZE : 50-75

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[

CHAPTER 5

DATA ANALYSIS

Balance Sheet of Larsen and Toubro

------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of FundsTotal Share Capital 27.48 56.65 58.47 117.14 120.44Equity Share Capital 27.48 56.65 58.47 117.14 120.44Share Application Money 0.00 0.00 0.00 0.00 25.09Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 4,583.32 5,683.85 9,470.71 12,317.9618,142.8

2Revaluation Reserves 29.37 27.93 25.90 24.59 23.29

Networth 4,640.17 5,768.43 9,555.08 12,459.69 18,311.64Secured Loans 465.79 245.40 308.53 1,102.38 955.73Unsecured Loans 987.78 1,832.35 3,275.46 5,453.65 5,845.10

Total Debt 1,453.57 2,077.75 3,583.99 6,556.03 6,800.83

Total Liabilities 6,093.74 7,846.18 13,139.07 19,015.7225,112.4

7Mar '06 Mar '07 Mar '08 Mar '09 Mar '10


Application Of Funds

Gross Block 2,300.68 2,876.30 4,188.91 5,575.00 7,235.78

Less: Accum. Depreciation 982.22 1,122.83 1,242.47 1,421.39 1,727.68

Net Block 1,318.46 1,753.47 2,946.44 4,153.61 5,508.10

Capital Work in Progress 286.06 471.22 699.00 1,040.99 857.66

Investments 1,919.52 3,104.44 6,922.26 8,263.7213,705.3

5

Inventories 2,210.27 3,001.14 4,305.91 5,805.05 1,415.37

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Sundry Debtors 4,814.16 5,504.64 7,365.01 10,055.5211,163.7

0Cash and Bank Balance 398.71 993.68 779.86 693.13 1,104.89

Total Current Assets 7,423.14 9,499.46 12,450.78 16,553.7013,683.9

6

Loans and Advances 2,061.50 2,449.14 3,861.10 7,198.8512,662.5

5Fixed Deposits 184.49 100.75 184.60 82.16 326.98Total CA, Loans &Advances

9,669.13 12,049.35 16,496.48 23,834.71

26,673.49

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 6,106.04 8,362.01 11,892.75 15,211.0419,443.7

7

Provisions 1,015.37 1,180.13 2,035.42 3,066.53 2,188.36

Total CL & Provisions 7,121.41 9,542.14 13,928.17 18,277.57 21,632.13

Net Current Assets 2,547.72 2,507.21 2,568.31 5,557.14 5,041.36

Miscellaneous Expenses 21.98 9.84 3.06 0.26 0.00

Total Assets 6,093.74 7,846.18 13,139.07 19,015.7225,112.4

7

Contingent Liabilities 305.59 270.22 1,013.51 1,371.86 1,719.39Book Value (Rs) 335.61 202.65 325.98 212.32 303.28

PROFIT AND LOSS ACCOUNTS:

Larsen and ToubroProfit & Loss account ------------------- in Rs. Cr. -------------------



IncomeSales Turnover 15,030.81 17,983.37 25,280.49 34,249.85 37,187.50Excise Duty 253.86 338.08 334.38 393.31 317.31

Net Sales 14,776.95 17,645.29 24,946.11 33,856.54 36,870.19Other Income 527.52 459.80 616.69 1,612.58 2,321.67Stock Adjustments -103.24 121.76 746.17 105.11 -422.99Total Income 15,201.23 18,226.85 26,308.97 35,574.23 38,768.87

ExpenditureRaw Materials 4,510.78 5,320.98 8,256.46 9,316.38 9,593.53

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Power & Fuel Cost 221.50 308.13 365.25 456.39 334.08Employee Cost 890.03 1,258.21 1,535.44 1,998.02 2,379.14Other ManufacturingExpenses 6,647.70 7,451.07 10,632.83 15,659.17 16,913.31

Selling and Admin Expenses 996.59 1,222.80 1,393.80 1,844.83 1,854.23Miscellaneous Expenses 125.00 166.15 280.69 569.32 325.58Preoperative Exp Capitalised -1.89 -3.30 -11.42 -24.48 -36.25Total Expenses 13,389.71 15,724.04 22,453.05 29,819.63 31,363.62



Operating Profit 1,284.00 2,043.01 3,239.23 4,142.02 5,083.58PBDIT 1,811.52 2,502.81 3,855.92 5,754.60 7,405.25Interest 321.34 331.46 501.83 770.00 995.37PBDT 1,490.18 2,171.35 3,354.09 4,984.60 6,409.88Depreciation 107.12 160.13 195.94 284.83 383.65Other Written Off 0.00 0.00 15.66 21.16 30.95Profit Before Tax 1,383.06 2,011.22 3,142.49 4,678.61 5,995.28Extra-ordinary items -1.85 -5.34 12.21 -21.09 -45.13PBT (Post Extra-ord Items) 1,381.21 2,005.88 3,154.70 4,657.52 5,950.15Tax 366.12 601.87 982.05 1,176.19 1,577.02Reported Net Profit 1,012.14 1,403.02 2,173.42 3,481.66 4,375.52Total Value Addition 8,878.93 10,403.06 14,196.59 20,503.25 21,770.09Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 302.25 368.25 495.32 614.97 752.75Corporate Dividend Tax 42.39 53.34 76.26 101.83 110.25Per share data (annualised)Shares in issue (lakhs) 1,373.86 2,832.71 2,923.27 5,856.88 6,021.95Earnings Per Share (Rs) 73.67 49.53 74.35 59.45 72.66Equity Dividend (%) 1,100.00 650.00 850.00 525.00 625.00Book Value (Rs) 335.61 202.65 325.98 212.32 303.28

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CASH FLOW:

Larsen and Toubro

Cash Flow ------------------- in Rs. Cr. -------------------Mar '06 Mar '07 Mar '08 Mar '09 Mar '10


Net Profit Before Tax 1383.40 2004.89 3155.47 3940.41 5880.67 Net Cash From OperatingActivities 1369.25 2130.45 1945.24 1478.57 5482.75

Net Cash (used in)/fromInvesting Activities -1326.30 -1588.17 -5241.89 -3308.53 -6071.73

Net Cash (used in)/from

Financing Activities-287.77 -31.05 3166.68 1640.79 1245.56

Net (decrease)/increase InCash and Cash Equivalents -244.82 511.23 -129.97 -189.17 656.58

Opening Cash & CashEquivalents 828.02 583.20 1094.43 964.46 775.29

Closing Cash & CashEquivalents 583.20 1094.43 964.46 775.29 1431.87

QUARTERLY RESULTS:

Larsen and ToubroQuarterly Results ------------------- in Rs. Cr. -------------------

Mar '10 Jun '10 Sep '10 Dec '10 Mar '11

Sales Turnover 13,585.10 7,885.31 9,330.76 11,413.08 15,384.21Other Income 329.84 226.76 382.19 247.18 369.82Total Income 13,914.94 8,112.07 9,712.95 11,660.26 15,754.03Total Expenses 11,534.34 6,878.26 8,325.08 10,175.19 13,042.35Operating Profit 2,050.76 1,007.05 1,005.68 1,237.89 2,341.86Profit On Sale Of Assets -- -- -- -- --Profit On Sale Of Investments -- -- -- -- --

Gain/Loss On ForeignExchange -- -- -- -- --

VRS Adjustment -- -- -- -- --Other ExtraordinaryIncome/Expenses -- -- -- -- --

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Total ExtraordinaryIncome/Expenses 100.69 -- 70.84 35.30 225.77

Tax On Extraordinary Items -- -- -- -- -- Net Extra OrdinaryIncome/Expenses -- -- -- -- --

Gross Profit 2,380.60 1,233.81 1,387.87 1,485.07 2,711.68Interest 135.56 142.34 193.15 175.71 136.17PBDT 2,345.73 1,091.47 1,265.56 1,344.66 2,801.28Depreciation 116.22 114.15 121.21 128.09 235.77Depreciation On RevaluationOf Assets -- -- -- -- --

PBT 2,229.51 977.32 1,144.35 1,216.57 2,565.51Tax 791.41 311.15 379.37 376.04 879.30

Net Profit 1,438.10 666.17 764.98 840.53 1,686.21Prior YearsIncome/Expenses -- -- -- -- --

Depreciation for PreviousYears Written Back/Provided

-- -- -- -- --

Dividend -- -- -- -- --Dividend Tax -- -- -- -- --Dividend (%) -- -- -- -- --Earnings Per Share 23.88 11.04 12.65 13.83 27.69Book Value -- -- -- -- --Equity 120.44 120.63 120.99 121.56 121.77Reserves -- -- -- -- --Face Value 2.00 2.00 2.00 2.00 2.00

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HALF YEARLY RESULTS:

Larsen and Toubro

Half Yearly Results ------------------- in Rs. Cr. -------------------Sep '08 Sep '09 Mar '10 Sep '10 Mar '11


Sales Turnover 14,591.24 15,327.13 21,707.67 17,212.22 26,797.29Other Income 336.57 440.34 469.91 597.29 617.00Total Income 14,927.81 15,767.47 22,177.58 17,809.51 27,414.29Total Expenses 13,235.88 13,658.01 18,561.24 15,187.83 23,217.54Operating Profit 1,355.36 1,669.12 3,146.43 2,024.39 3,579.75

Profit On Sale Of Assets -- -- -- -- --Profit On Sale Of Investments -- -- -- -- --



Total ExtraordinaryIncome/Expenses -- 1,047.26 163.24 70.84 261.07


Gross Profit 1,691.93 2,109.46 3,616.34 2,621.68 4,196.75Interest 107.24 240.55 264.76 335.49 311.88PBDT 1584.69 2916.17 3514.82 2357.03 4145.94Depreciation 138.93 193.86 220.74 235.36 363.86Depreciation On RevaluationOf Assets -- -- -- -- --

PBT 1445.76 2722.31 3294.08 2121.67 3782.08Tax 483.06 543.71 1,097.16 690.52 1,255.34Net Profit 962.70 2,178.60 2,196.92 1,431.15 2,526.74Prior Year Income/Expenses -- -- -- -- --Depreciation for PreviousYears Written Back/Provided

-- -- -- -- --

Dividend -- -- -- -- --Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --Earnings Per Share(Rs) 32.90 37.07 36.48 23.66 41.50

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Book Value(Rs) -- -- -- -- --Equity 58.52 117.53 120.44 120.99 121.77Reserves -- -- 18,142.82 -- 21,702.36Face Value(Rs) 2.00 2.00 2.00 2.00 2.00

NINE MONTHLY RESULT:

Larsen and Toubro

Nine Months ------------------- in Rs. Cr. -------------------

Dec '06 Dec '07 Dec '08 Dec '09 Dec '10

Sales Turnover 11,330.60 16,387.83 23,208.03 23,448.28 28,617.53Other Income 258.15 335.67 639.99 661.07 840.53Total Income 11,588.75 16,723.50 23,848.02 24,109.35 29,458.06Total Expenses 10,393.90 14,688.18 21,069.06 20,764.15 25,351.31Operating Profit 936.70 1,699.65 2,138.97 2,684.13 3,266.22Profit On Sale Of Assets -- -- -- -- --Profit On Sale Of Investments -- -- -- -- --



Total ExtraordinaryIncome/Expenses -- -- 916.33 1,109.81 106.14


Gross Profit 1,194.85 2,035.32 2,778.96 3,345.20 4,106.75Interest 27.60 72.80 204.77 369.75 511.20PBDT 1,167.25 1,962.52 3,490.52 4,085.26 3,701.69Depreciation 100.20 143.43 217.05 298.38 363.45Depreciation On RevaluationOf Assets -- -- -- -- --

PBT 1,067.05 1,819.09 3,273.47 3,786.88 3,338.24Tax 364.80 612.43 790.33 849.46 1,066.56Net Profit 702.25 1,206.66 2,483.14 2,937.42 2,271.68

Prior Years Income/Expenses -- -- -- -- --Depreciation for Previous -- -- -- -- --

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Years Written Back/ProvidedDividend -- -- -- -- --Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --Earnings Per Share 25.03 41.35 42.42 48.94 37.38Book Value -- -- -- -- --Equity 56.11 58.37 117.07 120.05 121.56Reserves -- -- -- -- --Face Value 2.00 2.00 2.00 2.00 2.00

YEARLY RESULTS:

Larsen and ToubroYearly Results ------------------- in Rs. Cr. -------------------


Sales Turnover 17,578.84 24,854.70 33,926.37 37,034.80 43,904.91

Other Income 462.29 587.87 739.78 910.25 1,194.85Total Income 18,041.13 25,442.57 34,666.15 37,945.05 45,099.76Total Expenses 15,832.30 22,040.07 30,069.53 32,219.25 38,282.33Operating Profit 1,746.54 2,814.63 3,856.84 4,815.55 5,622.58Profit On Sale Of Assets -- -- -- -- --Profit On Sale Of Investments -- -- -- -- --



Total ExtraordinaryIncome/Expenses -- 87.23 772.46 1,210.50 332.91


Gross Profit 2,208.83 3,402.50 4,596.62 5,725.80 6,817.43Interest 33.93 122.66 350.22 505.31 647.37PBDT 2,174.90 3,367.07 5,018.86 6,430.99 6,502.97

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Depreciation 170.01 211.60 305.99 414.60 599.22Depreciation On RevaluationOf Assets -- -- -- -- --

PBT 2,004.89 3,155.47 4,712.87 6,016.39 5,903.75

Tax 601.87 982.05 1,231.21 1,640.87 1,945.86Net Profit 1,403.02 2,173.42 3,481.66 4,375.52 3,957.89Prior Years Income/Expenses -- -- -- -- --Depreciation for PreviousYears Written Back/Provided

-- -- -- -- --

Dividend -- -- -- -- --Dividend Tax -- -- -- -- --Dividend (%) -- -- -- -- --Earnings Per Share 49.53 74.34 59.44 72.66 65.01Book Value -- -- -- -- --Equity 56.65 58.47 117.14 120.44 121.77Reserves 5,683.85 9,470.71 12,317.96 18,142.82 21,702.36Face Value 2.00 2.00 2.00 2.00 2.00

CAPITAL STRUCTURE:

Larsen and ToubroCapital Structure

Period Instrument --- CAPITAL (Rs. cr) --- - P A I D U P -From To Authorised Issued Shares (nos) Face Value Capital2009 2010 Equity Share 214.75 120.44 602195408 2 120.44

2008 2009 Equity Share 214.75 117.14 585687862 2 117.142007 2008 Equity Share 214.75 58.47 292327390 2 58.47

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2006 2007 Equity Share 214.75 56.65 283270748 2 56.652005 2006 Equity Share 214.75 27.48 137385777 2 27.482004 2005 Equity Share 214.75 25.98 129924182 2 25.982003 2004 Equity Share 214.75 24.88 124401796 2 24.88

2002 2003 Equity Share 214.75 214.75 248668756 10 214.752001 2002 Equity Share 214.75 214.75 248660346 10 214.752000 2001 Equity Share 214.75 214.75 248650346 10 214.751999 2000 Equity Share 214.75 214.75 248545098 10 214.751998 1999 Equity Share 214.75 214.75 248516393 10 214.751997 1998 Equity Share 214.75 214.75 248502885 10 214.751996 1997 Equity Share 214.75 214.75 248488155 10 214.751995 1996 Equity Share 214.75 214.75 248472703 10 214.751994 1995 Equity Share 214.75 214.75 228798916 10 214.75

1993 1994 Equity Share 214.75 213.24 211481630 10 211.481992 1993 Equity Share 214.75 213.24 209943247 10 209.941991 1992 Equity Share 214.75 129.61 129613652 10 129.611990 1991 Equity Share 115 75.42 75419968 10 75.421989 1990 Equity Share 80 68.08 68084408 10 68.081987 1989 Equity Share 74.98 60.75 60748844 10 60.751986 1987 Equity Share 74.98 51.99 51993354 10 51.991985 1986 Equity Share 74.98 51.99 51993354 10 51.991984 1985 Equity Share 38.83 32.5 27079675 10 27.081982 1984 Equity Share 38.83 24.02 24019714 10 24.021981 1982 Equity Share 28.83 23.07 23065344 10 23.071979 1981 Equity Share 18.83 14.42 14415840 10 14.421978 1979 Equity Share 13.83 11.53 11532672 10 11.531975 1978 Equity Share 8.5 7.45 7453395 10 7.451973 1975 Equity Share 8.5 5.96 5962716 10 5.961972 1973 Equit

working capital management project repot

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