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TRANSCRIPT
Summer training Report
ON
“Working Capital Management”
A report SubmittedA report Submitted in partial fulfilment of the requirement of
the award of degree of Master of Business Administration
(Session: - 2010 – 11)
SUBMITTED TO: SUBMITTED BY:CONTROLLER OF SONAM GUPTAEXAMINATION ROLL NO.2163M.D.UNIVERSITY ROHTAK
INSTITUTE OF MANAGEMENT STUDY AND RESEARCH
M. D. U. [ROHTAK]
ACKNOWLEDGEMENT
“A work is never of an individual. It is more a combination of ideas, suggestion,
contributions and work involved in many folks.”
This Project report comes into existence with great efforts and help from organization’s
employees, my friends and teachers of my institute.
Special thanks to Mr. SHRI NIWAS BANSAL (Senior Accountant), they
guided me for this project. It has been a pleasure working with them and I could learn
the characteristics of an efficient professional. And they have provided me the
necessary practical knowledge and information about “Working Capital”.
I am thankful to my entire faculty member as without there co-operation this
project report could not reach to its fulfilment.
I am thankful to the Lakshmi Precision Screws Management for being
transparent sharing their views and company related information which all has given
me a holistic approach in doing the project work.
I am deeply indebted to all the employees of Lakshmi Precision Screws for their
guidance and encouragement.
I am extremely thankful to god who is the ultimate Guide providing me with
valuable, insight, courage and determination at every doorstep with deep regard
always.
(SONAM GUPTA)
PREFACE
Practical training constitutes an integral part of management studies. Training gives an
opportunity to the students to expose themselves to the industrial environment, which
is quit different from the classroom teachings. One cannot rely on theoretical
knowledge. It has to be coupled with practical to be fruitful. Training also enables the
management students to see themselves the working condition under which they have
to work in the future. It thus enables the students to undergone those experiences,
which will help them later when they join any organization.
After liberalization the Indian economic sense is changed. Industrial activity in India
has become a thing to watch & I really wanted to be a part of it &it is essential for me
being a finance student.
I underwent eight weeks of training at LAKSHMI PRECISION SCREWS LTD. I
consider myself lucky to get my summer training in such a big Company. It really
helped me to get a practical insight into actual business environment & provide me an
opportunity to make my financial management concepts more clear.
(SONAM GUPTA)
TABLE OF CONTENTS
CHAPTER 1 Introduction of company and the topic
CHAPTER 2 Objective, scope and limitation of the study
CHAPTER 3 Research Methodology
(Research design, Types of data)
CHAPTER 4 Data collection & Analysis
CHAPTER 5 Conclusions
CHAPTER 6 Recommendations and Suggestions
CHAPTER 7 Appendix
Bibliography
INTRODUCTION
Growth of a successful venture depends on efficient overall management of a
business unit. It is a collective effort of technical, marketing and finance personals.
Working capital is an important aspect of financial management. Till recently,
working capital management was neglected in India by both private and public sector
companies. This was to some extent a reflection of comparative ease in availability of
funds from the capital market or commercial and development bands in case of public
sector, funds were made available to the government. Due to the development in the
recent years, situation has completely changed. With the commercial and industrial
development in the recent years, need for working capital management is hard felt.
No longer it is possible for even a very big and well established company to get funds
from financial institutions, the dependence on which is fast growing without most
detailed security of its requests. In a developing country like India where sources are
limited, they should be put to best possible use. Exceptional care is needed for
managing unit so that the organization can without ups and downs and there should be
reasonably adequate resources available for its day -to-day operations. Thus the need
of working capital.
Working capital refers to the excess of current assets over current liabilities.
Management of working capital therefore, is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the inter
relationship that exists between them. Any financial control or planning can be
effective only with the active participation of entire managerial group of organization.
If a new project has to come up the civil mechanical project engineers have to do their
job well. All are equal partner in achieving goal fined by the management.
Responsibility of finance is to keep a close watch on various financial operations and
act as a mental and catalytic agent. For this the financial people must have a modicum
of technical knowledge, even as modern technical people have knowledge of the basic
aspects of finance. Public sector units also cannot take it granted that govt. will give
them all the money they need. They must learn to rely increasingly on internal
resources by maximising their surplus.
Working capital management is the lifeblood of the business. Keeping all
these in view not only a sound working capital management is required for every
business but also a sound sense of working capital management should be cultivated
among all the executives technical, finance executive’s help not only ineffective
running of business but it creates a close relationship at all management level to
achieve desired objectives and goals.
Industry profile
INDUSTRY PROFILE
MEANING OF FASTENERS AND TYPES
A fastener is a broad term for nut, bolds & screws. It is an alternate of
welding and riveting. Fasteners can be classifying broadly in to two categories:
-
1. Depending on their tensile
2. Mild Steel (MS) & high tensile fasteners.
USES
Mile steel fasteners are used in general application & produced by the
SSI & unorganized sector.
On the other trend (HT) fasteners that are relatively technology advance,
are manufactured by organized sector.
In India fasteners are used in textiles, machine tools, pumps automobiles &
general engineering largest consumer 50% HT fasteners.
MAJOR MANUFACTURES
In India there are 4 major players in fasteners industries:
1. Sundaram fasteners
2. Sterling tools
3. Precision fasteners
4. LPS
A Sundaram fastener Industries (SFI) is a leader of automotive fasteners.
While, precision fasteners limited (PFL) leads in industrial fasteners. Both are
trying to enter in the each other segment industry.
IMPROVED INPUT FRONT
Until a few years ago producer of HT fasteners had to input as much as 60%
of their Raw Material like careful steel & cold heading quality steel due to poor
quality. But availability of good steels in India also has changed the scenario. Now
days Bihar alloys, Shri SR alloys, Steel Authority of India Ltd, Salam Steel
Corporation are producing the special steel for fasteners.
The automobile boom is the major reason for continuous growth of fasteners
industry because the total sale of automobile ( passenger cars, 2& 3 wheelers,
multiutility vehicles, sport utility vehicles) has achieved the total figure of 10 lakhs
figures and commercial vehicles sales has also earned a growth of continuous increase
in total sale.
The engineering segment has also registered 25 % growth, which is also a
major consumer of fasteners.
PRODUCTION
Near about 200000 metric ton of fasteners are being produced by various fasteners
manufactures in organized and unorganized sector.
Sundaram fastener is the largest manufacturer of HT fasteners. Which
produces approximately 48000 metric tons of high quality HT fasteners and it crossed
the sales figures of Rs. 800 crore in year 2000-2001.
Precision fasteners also have done well. It’s sales went up 32% to Rs. 251
Crore in 2000-2001.
LPS has also come in a long way. It crossed the 4475 tones mark of
production in 2000-2001 years and total sales of 8640 Lakh.
EXPORT OPPORTUNITY
The concept of outsourcing fasteners is under going a sea change globally.
Auto giants around the world have identified countries to buy a particular component
depending upon technology and cost. Arun Sharma, president PFL explains ‘India has
very good scope in this of globalize purchase and many auto giants are looking at
India as a sourcing lease’.
Quality is an important factor in export but not the only criterion; what is more
important is timely deliveries and after sales service through there is a vast potential
to export fasteners to DEMs abroad, it has not been exploited due to difficulties in
setting up service points near each of the DEM manufacture. Hence the domestic
producer foray abroad is limited to the replacement market.
To the successful in exports, Indian companies don’t require foreign technical
collaboration, as a fastener is not a very hi-tech item. What is required is a foreign tie
up for marketing and after sales service. This is evident from the fact that recently the
market leader, Sundaram fastener tied up with kamax – were Rudolf Kellies,
Germany for marketing. As India prepares to join the international economic
mainstream, there will be many such tie-ups.
CompanyProfile
COMPANY PROFILE2010
LAKSHMI PRECISION SCREWS LTD.46/1 MILE STONE, HISSAR ROAD
ROHTAK-124001, HARYANA
Tel.: +91-1262-248288/248289/249920/249921Fax.: +91-1262-248297/249922
Email: [email protected] /[email protected]
Website: www.lpsindia.com
INTRODUCTION
Lakshmi Precision Screws is a prominent engineering unit of Rohtak. The company is
one of the leading manufacturers and exporters of high tensile automotive and
industrial fasteners in India. The company has well-established state-of-art
manufacturing facilities and enjoys very good reputation in domestic as well as in the
international market for the quality of its products.
LPS group of companies started in 1968 and subsequently started its activities in
1972. Lakshmi Precision Screws(LPS) was converted into a public limited company
in 1971. Initially manufacturing high-tensile fasteners, its product range has increased
steadily to cater to different industrial sectors including automobiles, machine tools,
refrigeration, textile machinery etc. for the export and domestic markets. The
company is one of the leading exporters of industrial fasteners in India. It has been
awarded the Certificate of Export Excellence by the Engineering Export Promotion
Council(EEPC) twice in succession in 1992-93 and 1993-94,in recognition of its
export performance.
The public issue in 1983 part financed the expansion of installed capacity from
2800tpa to 6000tpa, which was later revised to5000tpa. A right issue funded the
installation of a modern plant in 1993, near the existing one, increasing the capacity to
7500tpain 1995-96; the company envisaged an expansion /modernisation scheme
involving a capital outlay of Rs.16.55cr with an installed capacity of 2700tpa. The
present installed capacity of LPS is about 12200 tones per annum. The company’s
annual turnover is Rs.70crore.
LPS has more than one hundred range of machines and has capacity to produce over
10000 types of industrial and automotive fasteners conforming to national and
international standards, to meet the needs of domestic as well as inter-national
customers.
The quality products of the company are not only patronized by customers in India
but also abroad. About 30%products are exported to U.S.A., Europe, Japan and other
South East Asian Countries.
The company has a team of technically qualified and experienced professionals in the
field of manufacturing, quality management, marketing, finance, materials, personnel
and administration
LPS has been certified with the coveted ISO-9002 certification by Bureau of Indian
Standards. Also, the company has now received QS-9000 certification. The company
is conforming to the international standards in all endeavours.
The company offers a wide range of products including cold forged high tensile
socket head & hex head screws, special nuts & bolts for automobile sector and
construction sector, stainless steel fasteners etc.
The company has entered into a joint venture agreement with the Brossard
International AG, Switzerland for development of software and marketing/distribution
of new range of fasteners for niche market of electrical and electronics etc. In 2001-
2002 the company was awarded the Golden Peacock Environment Management
award which was given by WEF.
BOARD OF DIRECTORS
Chairman & Managing Director Mr.Lalit Kumar Jain
Vice chairman & Managing Director Mr.Dinesh Kumar Jain
Whole Time Director Mr. Vijay Kumar Jain
Non Executive Director Mr. Rajesh Jain
Non Executive Director Smt. Sushila Devi Jain
Non Executive Independent Director Mr. Jamshedji Rustomji Desai
Non Executive Independent Director Mr. Babulal S. Aggarwal
Non Executive Independent Director Mr. Keshwa Nand Rattan
Non Executive Independent Director Mr. Dharmendra Bhandari
Non Executive Independent Director Mr. Deepak Jain
Non Executive Independent Director Mr. Ajay Kumar Chakra borty
MANAGEMENT TEAM
Marketing Manager Sudesh Kumar Jain
Marketing Manager Gagan Jain
Marketing Manager Niklesh Jain
Works Manager(Plant-2) R.P.Khanna
Works Manager(Plant-1) Pradeep Dhawan
Marketing Manager(Plant-1) B.R.Patnayak
Marketing Manager(Plant-2) R.K.Rawat
Tools &Die Store Manager R.K.Arya
Manager(UPS) Amit Jain
COMPANY ORAGNISATION
Board of Directors
Chairman & Managing Director
Quality Management Corporate Strategy
Marketing R & D Planning Production QA General
D S D L C P P P P P F H EE A E A E R L L L U I R DV L V B N O A A A R N D PE E E O T D N N N C AL S L R R U N T T H NO O A A C I A CP P T L T N I II S E
M M O I G EE E R ON N Y NT T
CHRONOLOGICAL HISTORY OF LPS
1959 Established Nav Bharat Industries as small parts
manufacturer.
1972 Established Lakshmi Precision Screws Pvt Ltd as Socket Head
Screws Manufacturer.
1973 Technical tie-up with the German firm M/s Richard Bergner.
1977 Acknowledged quality source of fastener.
1978 Technical tie-up with M/s Richard Bergner expires.
1983 Secured self certification status from FORD.
1984 Declared Public Limited Company.
1986 Secured self certification status from M/s Lakshmi Machine Works.
1988 Established as manufacturer-exporter.
1991 Received Regional Export Award from Engineering Export
Promotion Council, (EEPC) India.
1992 Received Regional Export Award from EEPC for
the second Consecutive year.
1993 Received Regional Export Award from EEPC for the third
consecutive year.
1993 Established Plant - II.
1994 Received Employment Generation Award from Director of
Industries, Haryana State.
1995 Accredited in Mechanical & Chemical Testing by A2LA, USA
to meet Fastener Quality Act of US.
1995 Accredited in Mechanical Measurement, Mechanical & Chemical
Testing by National Accreditation Board for Calibration & Testing
Laboratories (NABL). Government of India.
1996 Certified to ISO-9002.
1998 Installed Bolt Maker (AF 2525) to add production capacity
to 12200 MT.
- Self Certification status from TELCO.
- Technical Tie-up with Sunil Machinery Corporation, Korea.
- Joint Venture with Bossard AG-Switzerland.
1998 Licensed Manufacturers of TORX Screw from Camcar Co. –USA.
1999 QS 9000 Certification.
2001 ISO/TS-16949 Certification.
- ISO-14001 Certification.
2002 Implemented ERP–SAP R/3.
- Golden Peacock Award.
2003 Approved Volvo Global Suppliers
2003 ISO/TS16949 (version2002) Certification
2004 Recommended for OHSAS 18001 Certification
2005 License to manufacture fasteners with Doerken® Proprietary
Delta® & Delta-Tone® Finishing Technology
2005 Marketing tie up with Wiha Werkzeuge GmbH Germany for
Their Quality Tools
2005 OHSAS 18001 Certification
2006 Achieved Export Excellence Award from EEPC India
2006 Silver Award for Manufacturing Excellence in Engineering-
Emerging Category
2007 Udyog Rattan Award from Haryana Government
2007 DOL (Direct on Line) Certificate from Hero Honda Motors.
JOINT VENTURE/COLLABORATION AGREEMENT
LPS-BOSSARD Pvt. Ltd. - LPS-BOSSARD Pvt. Ltd. is a joint
venture company of gives state of the art fastening solution/technology
to customer in India. Has entered into a joint venture agreement on 26 th
June 1997 with Bossard AG. Bossard is a company subsisting under
the laws of Switzerland and has its principal office at
Steinhausertrasse, 70 Postfach, CH-6305, Zug, Switzerland. In the
joint venture 51% share capital is held by Bossard and 49% is held by
LPS. The present directors of the company are Mr. Ramesh Jain, Mr.
Lalit Kumar Jain and Mr. Scott Wright Mac Meekin. The latest
inventory management technique through logistic support is also
provided by this company.
RECOIL BUSINESS DIVISION of ‘LPS’- The company has
entered into a distributor agreement dated 26/11/1996 with Recoil PTY
Ltd a corporation existing under the laws of commonwealth of
Australia. Recoil has appointed LPS to sell and promote its products as
given hereunder on an exclusive basis with the exception of
Panchsheel fasteners for delhi territory. The product include are
Recoil, Fix-a-thread, Plugsaver, Keysert, Re-grip Amd Drill-out.
Textron Inc. U.S.A.- ‘LPS’ has entered into a licensing agreement
with Textron Inc, USA for manufacturing and marketing ‘Torx’ brand
of proprietary products. Textron is 10 billion USD multi- specialty
companies, with 1.8 billion USD as revenue from fastening division.
Torx drive systems improve assembly line productively thereby reducing
cost.“Torx is the registered trademark of acument intellectual properties,
LLC.”
PRODUCTS OF COMPANY
Company produces two type of product:
1. Standard Product
2. Special Product
Standard Product: A wide range of standard cold forged high
tensile fasteners over 6000 varieties covering the diameter range 3mm
to 30mm and the length range of 6mm to 300mm.
Standard products cover most of international standards ISO,
ANSI/ASME, BS, DIN etc, and engineered as per respective standards.
These standard products cover a very wide range of industries like
Automobile sector, standard/special m/c building sectors, Textile
sectors, Printing machineries, Software sectors etc.
Products:
Socket head cap screws
Socket low head cap screws
Socket counter Sunk head screw
Socket button head cap screws
Socket set screws knurled cup point/special point
Hex head Bolt/Screws
Hex Nuts
Dowel pins
Stainless steel fastener
Special Automotive fastener
Slotted/ Hex/ Shoulder screws
Hex/Bi Hex Flange Screws
Special product: A very comprehensive range of special high
tensile Bolts/Screws, Studs, Nuts, and special cold forged components
in the size range of 3mm to 30mm are manufactured. These special
products are made to satisfy very exacting engineering standards .LPS
range of special products covers the automobile, tractor heavy earth
moving equipments,
Textile machineries and machine building industries. To name a few of
the special products in which LPS is the undisputed leaders are:
Products:
Durlock Bolts
Wheel/Hub Bolt
Flange Bolt
Connecting Rod Bolt
Gear shaft
Axles
Stud
Torx and Clamp
Compressor Blot
Con rod Bolts
Collar Bolts and Axles
Ball pins, Ball rod
Cylinder Head Bolt
C.R. Bolt
Pivot Pin Transmission Bolt
MISSION OF LPS
To be a growth-oriented professional company promoting high standards
of business ethics and producing best quality products thereby
achieving international standards of excellence.
To make each member of the company feel proud and empowered by fostering
a culture of participation and innovation
To strive for reduction in defects and achieve 6 sigma and beyond so as
to make quality a way of life in LPS.
To reduce cycle time in all processes as a step towards over-all improvement.
To provide prompt and excellent service to customers anywhere in the world.
VISION OF LPS Be recognised as the best and preferred supplier of national/international
standard.
Maximise the shareholder’s wealth
Establish strong R& D facility and innovate continuously.
MANUFACTURING PROCESS
The company has been manufacturing the high tensile fasteners for the
past 37 years and over the period has developed expertise in the
production, planning, and control of the process. The brief description
of the manufacturing process followed by the company is as per the
chart given below:
PROCESS CHART
Wire Processi
ngng
Packing
Despatch
WireDrawing
ColdForging
Trimming
Pointing
Thread Rolling
Heat Treatme
nt
Finishing
Inspection
ISO 9002 (Quality Management Systems)
Lakshmi Precision Screws Ltd is committed to produce Quality High Tensile
Precision Fasteners. The most important criterion of Quality is the satisfaction of
customer, both National & International.
The company is registered to the BSI and to the ISO 9002: 1994 & ISO
14001:1996 for its quality assurance of international standards.
Quality is the way of life at LPS we follow strict norms of quality when it Comes to
resource management production, services, commitment and working environment
we believe the quality- consciousness in a panacea for all economic and social ill’s.
May it be quality of life quality of business; we revere it in all spheres of our job.
Each lot that moves out of our production facilities undergoes mechanical, Chemical
and metallurgical inspection at over 20 inspection nodes, beginning from raw material
receipt to packaging.
A2LA, USA and NABL, India have accredited LPS test facilities. We are certified
ISO-9002, QS-9000, ISO-14001 & TS-16949 company. The ‘Advanced Product
Quality (APQP), Production Part Approval Process (PPAP) and Failure Mode Effect
Analysis (FMEA) have already been implemented. Strict on- line visual SPC
techniques to monitor product quality on a real time basis have also been
incorporated.
Research & Development activities at LPS,
The R&D division at LPS, Rohtak plays a pivotal role in retaining and consolidating
company's leadership role in screws business by continuous up gradation of quality,
process and services, and innovating development strategies to come up with new
products with cost competitiveness. Cross-fertilization of knowledge between
production, quality control and commercial units in order to maintain world class
standard has been the guiding principle of R&D functions. To clear understand our
process capabilities and the customer requirements our team gives new product at the
rate of one per day.
An integrated engineering team and high technology input have been instrumental in
producing world class fasteners. The fastener you can rely on. Because LPS fastener
has always set itself the highest standard.
To name a few our team has successfully developed critical component for customers
like John deer, ford,Daewoo,Carraro, Volvo, hero Honda motor cycle, Honda Siel,
Matsusita, New Holland tractors and most of the other automotive multinational joint
venture.
In the domestic market we have achieved a long standing business relationship with
all the major players like Tisco, Bajaj auto, Maruti Suzuki, escorts, Yamaha, hero-
Honda, ISRO, BHEL, LML, Mico-Bosch, TVS Suzuki etc.
Major tasks
1. Developments of high value products to serve niche market.
2. Quality up gradation of existing products enabling global acceptance.
3. Cost reduction by process development, optimization and refinement
to improve competitive edge.
4. Technology enhancement to increase production with quality.
5. Market segment improvement by interacting and sharing knowledge
with customers and assisting them in trouble shooting operation.
In addition to the above, R&D division closely interacts with reputed
national and international laboratories/scientific institution/universities
to avail expert services for critical investigation.
CERTIFICATES
LOGISTICS:
The product that is shipped to the client always meet the zero defects standards and
ensure Just-in-time deliveries, so that the client’s production plans are not disturbed.
Over the years, LPS has perfected the art of servicing. To further augment the
logistics’ of product delivery, automated weighing & packing machines are installed
and VCM has been achieved in transaction automation. Logistics support through
national and international carriers is also available. And for the Indian customer, four
warehouses with dedicated stocks attached o it’s regional offices make for quicker
deliveries. All proving that LPS can seamlessly integrated into the supply chain of
any manufacturing industry
.
VALUE ADDED SERVICE:
The state of our customer friendliness goes beyond and translates into strong benefits.
Some tangible value additions that LPS offers are traceability to the supplier’s lot
since each warehouse is lot and location controlled. Bar coding can be done as per
customer requirements and dedicated stock can be reserved for particular customers
to ensure ‘Just-in-time’ deliveries.
CLIENTS OF THE COMPANY
DOMESTIC CLIENTS
FOREIGN CLIENTS
Domestic clients:
Heavy Commercial Vehicle
VOLVO
TATA
HINDUSTAN MOTORS
EICHER
MAHINDRA
Light Commercial Vehicles:
TATA
MARUTI SUZUKI
SWARAJ MAZDA
Tractors:
ESCORT
EICHER
HMT
MAHINDRA
L & T JOHN DEERE LTD
Cars:
MARUTI SUZUKI
REVA
TATA
HM AMBASSADOR
Tow Wheelers:
KINETIC
LML
HERO HONDA
YAMAHA
TVS
BAJAJ AUTO LTD
Earthmoving Equipment:
HM
BHEL
TVS
Textile Machinery:
LMW
Machinery Tools:
KIRLOSKAR
KOMASTU
JYOTI LTD
Hydraulic Equipment:
TATA
KIRLOSKAR
Heavy Electrical Equipment:
BHEL
GREAVE’S
Refrigration/Air cond. :
GODREJ
CARRIER INDIA
SUBROS LTD
Indian Railway
INTERNATIONAL CLIENTS:
Bremick PTY Ltd.(Australia)
Muller & Wilde (Austria)
Hussaini Brothers (Austria)
Bossard France (south Africa)
Berner France Sarl (France)
Nestinox B.V (Holland)
China Crystal Metal ware Limited (Hong Kong)
Nuova Ferro and Acciaio SRI (Italy)
National Socket Screw Company (South Africa)
L & W fasteners Co. (USA)
Heads and Threads Company (USA)
Lindstrom Metric.Inc (USA)
Bangkok Salakphon Ltd. (Australia)
LAKSHMI PRECISION SCREWS LIMITED
HEAD OFFICE & FACTORY 46/1, MILE STONE, HISSAR ROAD,
ROHTAK-124 001, HARYANA (INDIA)Tel.: +91-1262-248288/248289/249920/249921
Fax : +91-1262-248297/249922Email.: [email protected]; [email protected],
BANGALORE OFFICE305 A, Mittal Tower, 3rd floor, M G Road
Bangalore - 560 001 (India)Phone : +91-80-25588587Fax : +91-80-25597232
Email.: [email protected]
MUMBAI OFFICE153-A, Mittal Tower, Nariman Point
Bombay - 400 021 (India)Phone : +91-22-22821918/22843864/22325061/22325062
Fax : +91-22-22834492Email : [email protected]. in
KOLKATA OFFICE8, Canning Street,
3rd floor, Room No.303,KOLKATA-700 001.
Phone :+91-33-2210754Fax : +91-33-4739087/ 2107269 / 2210754
Email: [email protected]
NEW DELHI OFFICE146, New Cycle Market, Jhandewalan Extn.
New Delhi – 110 055 (India)Phone : +91-11-23527642/23532135
Fax : +91-11-27532138Email: [email protected]
LPS-RECOIL DIVISION505, 5th Floor, Ansals Majestic Tower,
G-17, Community Centre, Vikas Puri, New Delhi-110018Phone :+91-11-25617894Fax: +91-11-25514043E-mail: [email protected]
Objective
OBJECTIVES OF THE STUDY
There is always an objective of every study and there is no exception. Working capital
is one of the most important tools in the hands of the company for the successful
operation of the business. It is imperative for the finance manager to properly assess
the future requirements of the working capital in the company. Keeping in view this
objective in mind, the company assigned me this challenging project of estimating the
future needs of working capital of the company. The project itself speaks for the
importance of the study.
To study organization’s working capital financial mix.
To assess the working capital requirements.
To know about the length of operating cycle.
To study the financial pattern of LPS Ltd.
To study the earning and payments of the organization.
To find the current assets and current liabilities of LPS Ltd.
To know about the optimum maintainable.
To study the growth and the performance of LPS Ltd.
To locate weakness and suggest various suggestion.
Limitations
LIMITATIONS OF THE STUDY
The Study of competitive firms could not be made. Thus comparative study
could not be possible.
The secret policy of LPS does not allow us to use more data.
At some places approximate figures had been taken as per instruction of
company officers.
The data could have been analyzed and probed from different angles, interpreted
and studied up to a certain limit. A deeper insight could have revealed more and
better results.
Non-availability and restricted access to the various confidential
information of the organization has also proved as limitation.
Research Methodology
RESEARCH METHODOLOGY
PROBLEM
To know the working capital requirements of the LPS Ltd. and to give
some suggestion in this regard.
Types of Research
This research consists of four types of research:-
Descriptive Research
Analytical Research
Qualitative Research
Quantitative Research
DESCRIPTIVE RESEARCH
To conduct the research work accurately , we conducted descriptive research.
It includes surveys and fact-finding inquiries of different kinds.
It is done to know the following facts:
The LPS sales are more influenced by quality.
Frequency of using Products.
Media for awareness of schemes.
ANALYTICAL RESEARCH
In this, we have to use facts and information already available and
analyse them.
QUALITATIVE RESEARCH
In selecting the appropriate research design of the study and the types of
data needed, the choice of data collection techniques is four grouped. It is done for:
Consumer Needs
Consumer Preferences
Availability of consumer
QUANITATIVE RESEARCH
Quantitative research is obtained to rate the different aspect on
parameters.
Image of brands
Brand Loyalty
Switch ability of customers
Awareness among consumer
Steps of Methodology
1.Collection of Data
2.Organisation of data
3. Presentation of Data
4. Analysis of Data
5.Interpretation of Data
a) Collection of Data: Both the primary and secondary data has been collected
from the company. The secondary data was provided through the annual
report; website etc. of the company and the primary data was collected
through the medium of face-to-face interactions/interviews with the
businesspersons in the market.
b) Organisation of Data: Data once collected needed to organize for further
processing. Data collected by me was carefully gone through then the relevant
and useful matter was assorted and properly organized.
c) Presentation of data: The data is of no use unless and until it is given in a
presentable form. Thus, after proper organisation, the data is given in a
presentable form with complete details with the help of bar diagrams, pie
charts etc.
d) Analysis of Data: The data is carefully analysed keeping in consideration
both the pros and cons for the purpose of arriving at concrete conclusion.
e) Interpretation of Data: After carefully analyzing the data, it has been aptly
interpreted in order to give concrete conclusion and proper recommendations.
Introduction to
Project
Management of working capital
Working capital management is an important aspect of financial management. In
business, money is required for fixed assets and working capital. Fixed assets include
land and building, plant and machinery, furniture and fittings etc. Fixed assets are
required to be retained in the business for a long period and yield returns over the life
of such assets. Working capital, on the other hand is required for the efficient and
effective use of fixed assets. The main objective of working capital management is to
determine the optimum amount of working capital required.
Definition of working capital
There are two concept of working capital:
1. Gross working capital
2. Net working capital
(I) Gross Working Capital Concept:-
According to this concept
working capital means gross working capital, which is the total of all the current
assets of a business.
Gross working capital = Total Current Assets
Definition favouring this concept is:
1. “Working capital means total of current assets.”
---Mead, Mallott and Field
2. “Any acquisition of funds which increase the current assets increases working
capital, for they are one and the same.”
---Bonneville and Dewey
Persons acknowledging the total of current assets as working capital give the
Following arguments in their favour:
1. Just as fixed assets are considered as the symbol of fixed assets, current assets
must also be considered as the symbol of working capital.
2. Any acquisition of funds increases the working capital. This statement proves
true according to this concept whereas it does not hold true according to the
second concept.
3. Most of the managers plan their business operations according to the current
assets concept because these are the assets used in day-to-day business
operations.
4. Utility of current assets remains the same whether financed from long term
loans or short-term loans. Hence the total amount of current assets must be
treated as working capital.
(II) Net Working Capital Concept:-
According to this concept working
capital means net working capital, which is the excess of current assets over the
current liabilities.
Net working capital = Current assets--Current liabilities
Persons favouring this concept give the following argument in their favour:
1. This concept gives the true information about the liquidity of a concern.
According to this concept the working capital appears to be increased
merely by taking a short-term loan whereas in the second concept working
capital remains unchanged by doing so. Thus the second concept looks
more logical. In actual sense, working capital increases only by ploughing
back of profits or when a long term loan is obtained.
2. Excess of current assets over current liabilities will indicate whether
or not the concern will be able to meet its current liabilities when
they fall due. First concern does not disclose this fact.
2. It is on the basis of this concept that the short-term lenders bankers etc.
calculate the safety margin regarding the timely payment of their debt.
3. Excess of current assets over current liabilities will determine whether or
not the concern will be able to face the depression or any other contingent
need of the business.
4. According to this concept a comparison can be made between the
financial positions of the two firms whose assets are equal.
As discussed net working capital is the excess of current assets over current liabilities.
If current assets are equal to current liabilities, net working capital will be zero and if
current liabilities are more than current assets, net working capital will be negative.
Current assets mean those assets which are converted into cash within a short period
of time not exceeding one year, e.g. cash, bank balance, debtors, bills receivable,
stock, accrued income etc.
Current liabilities means those liabilities those liabilities which have to be paid
within a short period of time in no case exceeding one year, e.g. creditors, bills
payable, outstanding expenses, short term loans etc.
Types of working capital
Working capital can be classified in two ways, firstly, on the basis of concept and
secondly on the basis of its need.
(I) On The Basis Of Concept: on this basis working capital may be of two types:
1. Gross working capital
2. Net working capital
(II) On The Basis Of Need : on the basis also working capital may be of
two types:
1. Permanent working capital
2. Temporary working capital
Need For Working Capital
Along with the fixed capital almost every business requires working capital through
the extent of working capital requirement differs in different business. Working
capital is needed for purchasing raw materials. The raw material is then converted into
finished goods by incurring some additional costs on it. Now goods sold. Sales do not
covert into cash instantly because there is invariably some credit sales. Thus, there
exits a time lag between sales of goods and receipt of cash. For this purpose working
capital is needed which shall be involved from the purchases of the raw material to
the realizations of cash. The time period which is required to convert raw material to
the realization of cash. The time period to convert raw material into, finished goods
and then into cash is known as operating cycle or cash cycle. The need for working
capital can also be explained with the help of operating cycle. Operating cycle of a
manufacturing concern involves five phases:
i. Conversion of cash into raw material
ii. Conversion of raw material into work in progress
iii. Conversion of work in progress into finished goods
iv. Conversion of finished goods into debtors by credit sales
v. Conversion of debtors into cash by realizing cash from them.
Working Capital Cycle
Cash flows in a cycle into, around and out of a business. It is the business's life blood
and every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory,
generate cash surpluses. If it doesn't generate surpluses, the business will eventually
run out of cash and expire. The faster a business expands the more cash it will need
for working capital and investment. The cheapest and best sources of cash exist as
working capital right within business. Good management of working capital will
generate cash will help improve profits and reduce risks. Bear in mind that the cost of
providing credit to customers and holding stocks can represent a substantial
proportion of a firm's total profits.There are two elements in the business cycle that
absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors
owing you money). The main sources of cash are Payables (your creditors) and Equity
and Loans.
Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME .........
and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster
around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce
inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund
working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money
available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers
e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.
If you ....... Then ......
Collect receivables (debtors) faster You release cash from the
cycle
Collect receivables (debtors) slower Your receivables soak up
cash
Get better credit (in terms of duration or amount)
from suppliers You increase your cash
resources
Shift inventory (stocks) faster You free up cash
Move inventory (stocks) slower You consume more cash
Permanent and Temporary Working Capital
Working capital in a business is needed because of operating cycle. But the
need for working capital does not come to an end after the cycle is completed. Since
the operating cycle is a continuous process there remains a need for continuous supply
of working capital. However, the amount of working capital required is not constant
throughout the year but keeps fluctuating. On the basis of this concept, working
capital is classified into two types:
(a) Permanent working capital: The working capital or current assets fluctuates
from time to time. However, to carry on day to day operations of the business without
any obstacles, a certain minimum level of raw materials, work in progress, finished
goods and cash much be maintained on a continuous basis. The amount needed to
maintain current assets on their minimum level is called permanent or regular working
capital. The involved as permanent working capital has to be met from long term
sources of finance e.g. debentures, long term-loans etc.
(b) Temporary Or Variable Working Capital : Any amount over and above the
permanent level of working capital is called temporary, fluctuating or variable
working capital. Due to seasonal changes, level of business activities is higher than
normal during some months of the year and therefore additional working capital will
be required along with the permanent working capital. It is so because during peak
season, demand rises and more due to excessive sales. Additional working capital thus
needed is known as temporary working capital because once the season is over, the
additional demand will be no more. Need for temporary working capital should be
met from short term sources of finance e.g. short term loans etc so that is can be
refunded when it is not required.
Working capital Financing at LPS Ltd .
For financing temporary requirement of working capital, the organization goes for
many sources, Such as:
Trade Credit- When the company buys the raw material from the suppliers on credit
basis, it gets the raw material for utilization immediately with the facility to make the
payment at a delayed time. By accepting the delayed payment, the suppliers of raw
material finance the requirement of working capital.
Bank Guarantees- Bank guarantees are the most commonly used source of financing
working capital in LPS
Letter of Credit- It is regularly used in the company to pay the exporter or accept the
bills or drafts drawn by the exporter on the exporter fulfilling the terms and conditions
specified in the letter of credit.
In addition to above, company also uses cash credit, bills purchase/discounted,
working capital term loans and packing credit facilities of the bank.
Factors affecting working capital requirements
In order to determine the proper need of working capital the following factors should
be carefully considered:
1. Nature of business
The nature and volume of business is an important factor in deciding the needed
working capital. Public utility service (like railway companies) as compared to
manufacturing concerns requires a lesser amount of working capital. A larger amount
of working capital is required for trading or merchandising institutions.
2. Size of business unit
The general principal in this connection is that the bigger the size of the unit, the
more will be the amount of working capital required. But it is quite likely that the
bigger sized business unit, i.e., a consumers’ goods industry may require a larger
amount of fixed capital than working capital.
3. Time consumed manufacture
The longer the period of manufacture, the larger the inventory required. However, if
the flow of product is quite steady, although the value of goods in process is large, the
working capital will not vary much from time to time.
4. Need to stock pile raw materials
Those concerns where there is the need to stock pile raw materials require larger
amount of working capital. The necessity for stock piling increases the extent of funds
tied up in inventories.
5. Need to store finished goods
In business like retail stores, where unit is required to store finished goods, (because
in the absence of adequate stocks, customer may return disappointed) naturally more
working capital is required.
6. Cost and time involved in the manufacturing process
If the manufacturing process in an industry entails high cost because of its complex
nature, more working capital will be required to finance that process and also for
other expense which vary with the cost of production. Moreover, the longer the period
of manufacture, higher the amount of cash needed.
7. Turnover of circulating capital
The speed with which the circulating capital completes its round, i.e., conversion of
cash into book debts or bills receivables, and book debts or bills receivables into cash
again plays an important role.
8. Terms and conditions of purchase and sale
The place given to credit by a concern in its dealings with creditors and debtors may
also be considered to assess the adequacy of working capital. A business unit, making
purchase on credit basis and selling its finished products on cash basis, will require
lower amount of working capital than a concern having no credit facilities and which
may further be forced to grant credit to its customers.
9. Conversions of current assets into cash
A company having ample stock of liquid current assets will require lesser amount of
working capital, because adequate funds can easily be procured by disposed of current
assets is much more than the current liabilities.
10. Impact of cyclical and seasonal variation
In periods of the boom and depression, more working capital is needed than during
the other stages of cyclical fluctuations.
For arriving at a satisfactory working capital position in time of prosperity the firm
should conserve current capital by avoiding wasteful expenditure. When inflationary
pressure has been created during a period of emergency like a war, unnecessary
hoarding should be avoided because such periods of rising prizes are temporary.
During a period of recession, production is disturbed due to scarcity of materials. The
current assets should be converted into cash without creating new financial
obligations by borrowing at a high rate of interest. During periods of long lasting
depression, excessive stocks are accumulated and fund of the companies are locked
up. As a result, any addition to working capital by way of borrowing is undesirable.
Attempts should be directed to convert current assets into cash.
ADEQUACY OF WORKING CAPITAL
The firm should maintain a sound working capital position. It should have adequate
working capital to run its business operations. Both excessive as well as inadequate
working capital positions are dangerous from firm’s point of view.
The dangerous of excessive working capital are as follow:
It results in unnecessary accumulation of inventories. Thus chance of inventory
mishandling, waste, theft and losses increase.
It is indication of defective credit policy and slack collection period. Consequently,
bigger incidence of bad debt results, which adversely affect profits.
Inadequate working capital is also bad and has following dangers:
It stagnates growth. It becomes difficult for the firm to undertake profitable projects
for non-availability of working capital funds.
It becomes difficult to implement operating plan and achieve the firm’s profit target.
Operating inefficiency creep in when it becomes difficult even to meet day-to-day
commitments.
Fixed assets are not efficiently utilized for the lack of the working capital funds. Thus,
the firms’ profitability would deteriorate.
Lack of working capital renders the firm unable to avail attractive credit
opportunities. The firm loses its reputation when it is not in position to honour its
short term obligations.
As a result, the firm faces the tight credit terms. An enlightened management should,
therefore, maintain a right amount of working capital. Lenders consider a positive
working capital as a measure of safety. All other things being equal, the more the net
working capital a firm has, the less risky that it will default in meeting its current
financial obligations. Lenders such as commercial banks insist that the firm should
maintain net working capital.
ADVANTAGES OF ADEQUATE WORKING CAPITAL
1. Solvency of the business: - Adequate working capital helps in maintain
solvency of the business by providing uninterrupted flow of production.
2. Goodwill: - Sufficient working capital enables a business concern to make
prompt payments and helps in creating and maintaining goodwill.
3. Easy loan: - A concern having adequate working capital can arrange loan
from banks and other sources on easy and favourable terms.
4. Cash discount: - Adequate working capital also enables a concern to avail
cash discounts on the purchases and hence it reduces cost.
5. Regular supply of Material: - Sufficient working capital ensures regular
supply of material and continuous production.
6. Regular payment of Salaries, Wages and other day-to-day commitments:-
A company which has adequate working capital can make regular payments
of salaries, wages and other day-to-day commitments .
Data collection & Analysis
Findings and Data Analysis
PROFIT AND LOSS ACCOUNT OF LPS LTD.
(For the year ended 31st March 2006 to 2008)
Particulars Shd.No.
Year Ending 31.03.2008 (Rs.)
Year Ending 31.03.2007(Rs.)
Year Ending 31.03.2006(Rs.)
A. INCOME Gross sales Less: Excise Duty Net Sales Job Work Receipts Other Income
Deferred Tax Liability written back
10
2303646831 2334853502070161481 896690 35722340
0
2147911967 2137023591934209608 1433953 17239550
5216029
1848849128 1813353571667513770 2402994 6318320
24022372106780511 1958599140 1678637321
B. EXPENDITURE Materials and Finished Goods Manufacturing Personnel Office and Adm. Selling and Dist. Interest and Financial Charges Managerial Rem. Mis.Exp. written off Depreciation Wealth Tax Income Tax -Current tax -Deferred Tax -Fringe Benefit Tax
C.PROFIT FOT THE YEAR CARRIED DOWN
D. PROFIT FOR APPROPRIATAION Balance as per last Balance sheet Profit for the year brought down
111213141516
1718
782790261 453189913 305977039 128662294 94127990 117325714
15837200 0 85334527 185400
36150604 5105226 4900000
703008396 508370762 252345754 114713258 84136507 83924902 11836800 0 80415367 95000
46320581 0 4250000
590053976 469244169 217857258 101169951 68009241 71809019 8548800 45815 61794284 30000
33307265 0 4250000
2029586168 1889417327 1626319780
77194343
287229887
77194343
69181813
246290241
69181813
52317541
213847716
52317541
364424230 315472054 266165257
Description ShdNo.
Year Ending 31.03.2008 (Rs.)
Year Ending 31.03.2007 (Rs.)
Year Ending 31.03.2006 (Rs.)
Transfer to General Reserve Proposed Dividend Corporate dividend Tax Balance carried over to Balance Sheet
E. EARING PER
2000000
13130000 2231444 347062786
5200000
19695001 3347165 287229887
2700000
15062500 2112516 246290241
364424230 315472053 266165257
7.06 6.76 6.60s
SHARE(FACE VALUE Rs.10 PER SHARE)
BALANCE SHEET OF LPS LTD. (For the year 31st March 2006 to 2008)
Description Shd.No.
As at 31.03.2008 (Rs.)
As at 31.03.2007 (Rs.)
As at 31.03.2006 (Rs.)
A. Sources Of Funds:
a) Shareholder’s funds Share capital Reserve and Surplus
1 2
109416670 702763197
109416670 640930298
100416670 510887709
812179867 750346968 611304379
b) Loan Funds Secured loans
Unsecured Loans
c) Deferred Tax liability
TOTAL
B. Application Of Funds
a) Fixed assets Gross Block Less: Accumulated
Depreciation Net Block
Add: Capital work in Progress
b) Investments c) Current Assets, loan Advances Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loan and advances
Less Current Liabilities And Provisions
Current Liabilities Provisions Total Current Liabilities Net Current Assets (d) Miscellaneous Expenditure TOTAL
3 4
5
6 7
8
9
1013165757 80788070
646382561 40807011
578716778 40618377
1093953827 687189572 619335155
24861745 19756519 25472548
1930995439 1457293059 1256112082
1232340039 718647794
1076319572 634387452
893865276 556042015
513692245 26090174
441932120 826717
337823261 38719906
539782419 442758837 41361581
42236580
1160949153 577401593 104460761
3707885 162008036
41361580
992640734 399605167 49663819 413807 117716337
41361580
832858713 369048925 49255153
582572 91740220
2008527428 1560039873 1343485583
606448827 56046844
519511707 72062166
458465182 54155016
662495671 591573873 512620198 1346031757 968466000 8308655385 2944683 4706642 7341950
19300995439 1457293059
1256112082
Cash Flow Statement
A cash flow statement is statement showing inflows and outflows of cash during a
particular period. It analyses the reasons for changing in balance of cash between the
two balance sheet dates. A cash flow statement provides information for planning the
short term financial needs of the firm. It becomes easier for the management to assess
the whether it will have adequate cash to meet day-to-day expenses and pay creditors
in time, whether it will have sufficient cash to pay the long term loans and interest
thereon and whether it has enough cash to pay for the purchase of fixed assets or not.
Description Year Ending 31.03.2008 (Rs.)
Year Ending 31.03.2007 (Rs.)
A. Cash Flow From Operating Activities Net profit after Tax Adjustments for: Tax
Net profit before tax and extraordinary items Adjustments for:Depreciation Deferred payment interest and technical know Fee written off Rent and interest received Income tax Refund Dividend Income Interest and financial charges Provision for bad debts and doubtful debts Profit/loss on sale of assets
Operating profit before working capital changes Adjustments for:Trade payable Trade and other receivables Inventories
Cash generated from operations
Interest and financial charges Direct Taxes Net cash from operating activities
B Cash flow from Investing activities Purchase of Fixed Assets Proceeds from sale of fixed assets Purchase of investments Rent and interest received Dividend Income Income tax Refund
77194343
46341230
1235335573
85334527
2062459
-4466790 0 0 117325714 104380 8003
69181813
44949552
114131365
80415367 3491904 -3278661 -98112 -4704038 83924902 275196 654915
323903866
53387097 -225486583 -168308409
274812838
37829798 -56638749 -159782030
-166504029 96221857
-116515929 -16000000
-83928927 -15000000
-149019958 -2707070
-182901542 535436 -875000 3142367 0 0 -300500
-147717815 431877 0 2652951 4704038 98112 -856596
Deferred payment interest and technical Know Fee provided during the year
Net cash used in investing activities
C. Cash Flow From Financing ActivitiesProceeds from issue of Share capital Preferential issue expenses Proceeds from short term borrowings Repayment of short term borrowings Proceeds from long term borrowings Repayment of long term borrowings Proceeds from Directors and others Dividend paid
D. Net Increase In Cash And Cash Equivalents (A+B+C)
Cash &Cash Equivalents(Opening Balance)Cash &Cash Equivalents(Closing Balance)
-180399239
0 0 277163858 -20018941 229867728 -80248391 0 -22548114
-140687433
93078000 -175057 18815775 0 136046633 -87196626 188634 -16954191
384216140 143803168
54796943
49663818 104460761
408665
49255153 49663818
Ratio Analysis
It is defined as the systematic use of ratio to interpret the financial statement so that
the strength and weakness of a firm as well as its historical performance and current
Financial Condition can be determined. The term Ratio refers to the numerical or
quantitative relationship between two items/variables. This relationship can be
expressed as (1) percentages, say net profits are 25% of sales (assuming net profits of
Rs.50000/- and sales of Rs.200000/-), (2) Fraction (Net Profit is one fourth of sales)
and (3) proportion of numbers (the relationship between net profits and sales is 1:4).
The term “Accounting Ratio” is used to describe the important relationship that exists
between figures shown in profit and loss account and the figures in the balance sheet.
They also help the budgetary control system and in other parts of the organization.
Financial ratios are useful because they summaries briefly the results of detailed and
complicated computations. They help in making a relative study, presenting data in a
concise form and in analyzing business activities.
Objectives and Significance Of Ratio Analysis
Ratio analysis is an important technique of analysis of
financial statements. Ratio analysis helps determine the efficiency of the business as
well as short-term and long-term financial soundness of the business on basis of
which management can take various important decisions. Ratio analysis is not only
significant for management, but it is also significant to all the parties including
creditors, investors, and financial institutions. They can easily take decisions about
the profitability and financial position of business with the help of ratios.
Main uses of ratio analysis:
1. Useful in analyzing the financial statement: Ratio analysis simplifies the
complex and large figures of financial statements which enable to
understand their relative importance. Bankers, creditors, investors, etc.
analysis the profit and loss account and balance sheet through ratios.
2. Helpful in controlling: By comparing the ratios regarding efficiency and
financial position with the standard ratios, unfavorable results can be controlled.
3. Helpful in determining trends: By the use of ratio analysis, the trend in profit,
sales, cost, etc. of the previous year can be determined by analyzing the
financial statements and future forecasts can be made accordingly.
4. Helpful in locating weak spots: At times business may be showing over all
profit but when comparisons are made in respect to various department or
products weak spots may come to light. Management may pay more attention to
these weak spots and make the business more profitable.
5. Overall Profitability: Overall profitability can also be determined by the
management with the help of ratio analysis.
CLASSIFICATION OF RATIOS
Liquidity Ratio:
Liquidity ratio measures the ability of the firm to meet its current obligations. Lacks
of liquidity or excess liquidity, both conditions are harmful for the health of company.
If the company is having excess liquidity then in that case some funds remain idle, on
the other hand if the company is suffering from lack of liquidity then in that case it
might be possible that it will not be able to meet its obligations at time.
To find out the liquidity position of the company we generally use Current ratio or
Quick ratio, these are the most common ratios that indicate the extent of liquidity or
lack of it. There are some other ratios these are as follows:
Cash Ratio:
Cash ratio is the most liquid asset, it is very important for all firms. Cash ratio shows
that how much cash is available with the firms to meet its current obligations. Trade
investments or marketable securities are equivalent to cash; therefore it may also be
included in the computations of cash ratio.
Cash Ratio=Cash+ Marketable Securities\Current liabilities
For Lakshmi Precision Screws Ltd:
Particulars 2004 2005 2006 2007 2008
Cash ratio 0.09:1 0.27:1 0.44:1 0.19:1 0.17:1
Cash ratio
00.050.1
0.150.2
0.250.3
0.350.4
0.450.5
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
Cas
h R
atio
Cash ratio
This ratio of the company is fluctuating which is not a good indicator for the creditors
of the company. It is because of not availability of good cash balance and increase in
current liabilities. But as the company has good borrowing power therefore company
has to increase the cash balance.
Current Ratio:
This ratio explains the relationship between current assets and current liabilities of a
business. This ratio is used to assess the firm’s ability to meet its short term liabilities
on time. According to accounting principles, current ratio of 2:1 is supposed to be an
ideal ratio. The formula for calculating this ratio is:
Current Ratio =Current Assets\Current Liabilities.
For Lakshmi Precision Screws Ltd:
Particulars 2004 2005 2006 2007 2008
Current ratio
1.12:1 1.53:1 1.57:1 1.24:1 3.03:1
Current ratio
0
0.5
1
1.5
2
2.5
3
3.5
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
Cu
rren
t R
atio
Current ratio
Current Ratio: Generally a current ratio of 2:1 is considered
satisfactory. In earlier years ratio was much higher i.e. 3.64:1 but now there is
improvement in current ratio as it is decreasing over the years & shows good
policy.
Quick Ratio:
This ratio explains the relation between liquid asset and current liabilities. Liquid
asset means those assets which will yield cash very shortly. All current assets except
stock and prepaid expenses are included in liquid assets. Inventory normally require
some time for realizing into cash. So inventory consider being less liquid. An ideal
quick ratio is said to be 1:1. Quick ratio is calculated by dividing liquid assets by
current liabilities:
Quick Ratio =Liquid Assets\Current Liabilities
ForLakshmi Precision Screws Ltd:
Particulars 2004 2005 2006 2007 2008
Quick ratio
0.58 1 1.1 0.73 1.27
As the ratio of the company is again fluctuating and in two years it is more than its
ideal ratio .It is because of company’s good cash balance available and the other
reason for decreased quick ratio is increase in current liabilities of the company.
Quick ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
Qu
ick
Rat
io
Quick ratio
Quick Ratio: 1:1 satisfactory
LEVERAGE OR CAPITAL STRUCTURE RATIO
This ratio indicates the ability of a company to pay the interest
regularly as well as repay the principal when due. The leverage or capital structure
ratios are:
Debt equity ratio
Debt to total fund ratio
Proprietary ratio
Fixed assets to Proprietor’s fund ratio
Debt equity ratio
These ratios express the relationship between the long - term tax and
Shareholders funds. It indicates the proportion of funds, which are
acquired
By long – term borrowing in comparison to shareholder funds.
DEBT – EQUITY RATIO = LONG TERM LOANS SHARE HOLDER’S FUNDS
PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008 DEBT 7073.15 6193.35 6871.89 10939.53EQUITY 3775.02 6113.05 7503.46 8121.79DEBT EQUITY RATIO 1.87 1.01 0.91 1.34
DEBT EQUITY RATIO
00.20.40.60.8
11.21.41.61.8
2
2004-2005 2005-2006 2006-2007 2007-2008
YEARS
Deb
t E
qu
ity
Rat
io
DEBT EQUITY RATIO
Debt Equity Ratio: Ideal ratio is 2:1 in earlier years it shows a risky financial
position as ratio is more than 2: 1. it shows a decreasing trend now situation is
satisfactory as it is less than 2 : 1 thus co. has enough funds to pay its long
term loans
Debt to total fund ratioThis ratio indicates the ability of a firm to pay its long – term debts. In this ratio, debt
is expressed in relation to total funds.
DEBT TO TOTAL FUND RATIO = LONG TERM LOANSSHARE HOLDERS FUNDS+ LONG TERM LOANS
PARTICULARS 2004-2005 2005-2006 2006-2007 2007-2008
DEBT 7073.15 6193.35 6871.89 10939.53
TOTAL FUND 10848.17 12306.4 14375.37 19061.34
DEBT TO TOTAL FUND RATIO 0.65 0.5 0.47 0.57
DEBT TO TOTAL FUND RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2004-2005 2005-2006 2006-2007 2007-2008
YEARS
Deb
t T
o T
ota
l R
atio
DEBT TO TOTAL FUNDRATIO
Debt to Total funds Ratio: Long term loans are .67: 1 satisfactory.
It means debt capital should not be more than 67% of total capital. It indicates
that long term financial position of the co. is sound, as the long term loans of
co. according to acceptable standard should not be more than 67% of total
fund of the co.
EquityProprietary Ratio =
Total Assets
Particulars 2005 2006 2007 2008
Equity 3775.02 6113.05 7503.46 8121.79
Turnover Assets 15150.89 17613.91 20019.71 25222.19
Proprietary Ratio 0.249 0.347 0.374 0.32
Proprietary Ratio
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2005-06 2006-07 2007-08 2008-09
YEARS
Pro
pri
tary
Rat
io
Proprietary Ratio
Proprietary Ratio: Ratio is not satisfactory for the co. it needs to be
improved as it is not good from shareholders of view
Net Profits before Interest & Income taxInterest Coverage Ratio =
Fixed Interest Charges
Particulars 2005 2006 2007 2008
EBIT 1339.83 1619.14 2037.7 2408.59
F.I. Charges 674.20 718.09 839.24 1173.25
ICR 1.99 2.25 2.42 2.05
ICR
0
0.5
1
1.5
2
2.5
3
2005-06 200607 2007-08 2008-09
YEARS
ICR ICR
Interest coverage Ratio: Indicates how many times the interest charges are covered
by the profits available to pay interest charges.
It is satisfactory ratio is continuously improving.
Activity Ratio: Net Sales
Inventory Turnover Ratios = Average Inventory
Particulars 2006 2007 2008
Net Sales 18488.49 21479.11 23036.46
Average Inventory 7720.59 9127.49 10767.94
ITR (times) 2.39 2.35 2.13
ITR
2
2.05
2.1
2.15
2.2
2.25
2.3
2.35
2.4
2.45
2006-07 2007-08 2008-09
YEARS
RA
TIO
ITR (times)
Inventory Turnover Ratio: Measures the velocity of conversion of stock in to
sales. ITR is decreasing over the years (due to increase in inventory is more than
increase in sale) But in 2006 ITR has increased as increase in sales is nearly thrice
the inc. in inventory.
Turnover
Fixed Asset Turnover Ratio = Fixed Assets
Particulars 2006 2007 2008
Turnover 18488.49 21479.11 23036.46
Fixed Assets 3378.23 4419.33 5136.92
Fixed Assets Turnover Ratio 5.47 4.86 4.48
Fixed Assets Turnover Ratio
0
1
2
3
4
5
6
2006-07 2007-08 2008-09
YEARS
RA
TIO Fixed Assets Turnover
Ratio
Fixed Assets Turnover: This ratio reveals how efficiently the fixed assets
are being utilized. Increase in ratio over the years indicates the better
utilization of fixed asset
Net SalesWorking Capital Turnover Ratio =
Working Capital
Particulars 2006 2007 2008
Net Sales 18488.49 21479.11 23036.46
Working Capital 8308.65 9684.66 13460.32
Working Capital Turnover
Ratio
2.22 2.21 1.71
Working Capital Turnover Ratio
0
0.5
1
1.5
2
2.5
2006-07 2007-08 2008-09
YEARS
RA
TIO Working Capital Turnover
Ratio
Working Capital Turnover Ratio: Reveals how efficiently working capital turnover
ratio has been utilized in making sales. Increase in ratio over the years indicates the
better utilization of working capital.
Net SalesDebtors Turnover Ratio =
Debtors
Particulars 2006 2007 2008
Net Sales 18488.49 21479.11 23036.46
Debtors 3724.5 3843.26 4885.03
DTR (Times) 4.96 5.58 4.71
DTR
4.2
4.4
4.6
4.8
5
5.2
5.4
5.6
5.8
2006-07 2007-08 2008-09
YEARS
RA
TIO
DTR
Debtors Turnover Ratio: Ratio is continuously improving. It shows debtors are
managed by company in efficient manner this is why debt collection period has been
reduced from 99 days to 81 days.
PurchasesCreditors Turnover Ratio =
Creditors
Particulars 2006 2007 2008
CTR (Times) 2.01 2.24 2.58
CTR
0
0.5
1
1.5
2
2.5
3
2006-07 2007-08 2008-09
YEARS
RA
TIO
CTR
Creditors Turnover Ratio: It is satisfactory & average payment period has been
decreased from 159 to141 days. It is improving over the years.
Net ProfitsNet Profit Ratio = × 100
Net Sales
Particulars 2006 2007 2008
Net Profit 523.17 691.81 771.94
Net Sales 18488.49 21479.11 23036.46
Net Profit Ratios 2.82 3.22 3.14
Net Profit Ratios
2.6
2.7
2.8
2.9
3
3.1
3.2
3.3
2006-07 2007-08 2008-09
YEARS
Rat
io
Net Profit Ratios
Net Profit Ratio: Measures the rate of net profit earned on sales. An increase in the
ratio over the previous years shows improvement. But margins need to be improved
further.
Return on Capital Employed:
Particulars 2006 2007 2008
EBITD 901.04 2037.7 2408.59
Capital Employed 11686.88 14103.98 18597.23
Return on capital
employ.
7.70 14.44 12.95
Return on capital employ.
0
2
4
6
8
10
12
14
16
2006-07 2007-08 2008-09
YEARS
Rat
io
Return on capital employ.
Return on Capital Employed: Company is utilizing its capital in better way because
profit as percentage of capital employ is increasing over the years.
Conclusion
Conclusion
The results which I found in the study by using different methods are
as under:-
LPS at present occupy the 2nd position in the fastener industry due to
Modernization of production method.
Timely delivery of goods
Flexibility
Net Sales are continuously increasing during the year 2006 to 2008. Hence
profitability has increased over this time period.
Fixed assets are utilised properly as the fixed turnover ratio is increasing.
Working capital turnover ratio was increasing in the year 2006 to 2007.Hence
proper utilisation in making the sales.
Inventory turnover ratio was increasing in the years 2006 to 2007.It indicates
that stock is selling quickly.
Liquidity position of the company is good as its current ratio and quick ratio
for the year 2008 is 3.03:01 and 1.27:1 respectively which meet the standard.
Suggestions
Suggestions
Keeping in view of detailed analysis and study of data of LPS Ltd., the following
suggestions shall be helpful in increasing the efficiency in Working Capital
Management.
Estimation of working capital requirement should be done on the basis of length
of operating cycle of different products.
W.C requirement = Avg. daily requirement of WC * Length of operating cycle
Since the competition is increasing the company must come up with the new
techniques of selling so that profit will be increased.
The old machinery which need constant repair should be replaced with the new
one as it would decrease the cost further.
The maximum and minimum level of each item should be indicated to avoid
over stock or under stock situation.
Internal performance report on inventory on at least monthly basis should be
prepared to study the material price variance, material usage variance and
inventory level variance from the estimated figures.
Worker participation should be encouraged. Training should be given to
Them so as to make aware of new technology.
Full freedom must be given to employees and also means of motivation should
be increased.
Bibliography
Bibliography
www.lpsindia.com
www.lpsboi.com
www.google.com
Audit Report of LPS
Management accounting & Financial Management by D.K.Goel,Rajesh
Goel,Shelly Goel