Working Capital

A STUDY ON WORKING CAPITAL MANAGEMENT AT LANCO INDUSTRIES

INTRODUCTION TO THE STUDY:

One of the most important areas in

the day to day management of the firm is the management of working capital.

Working capital management is the functional area of finance that covers all the current

accounts of the firm. Working capital management includes the management of all the

types of current assets and current liabilities.

It also includes the decisions as to the

appropriate amount of long term financing used in financing the current

assets of the enterprise. All the current asset decisions are related. Not only are those,

current assets and current liability decisions are interrelated in nature. These

complex interactions are managed using tools of financial analysis.

It is concerned with management of the level

of individual Current Assets as well as the management of total working capital. The

management of Current Assets is similar to that of Fixed Assets in the sense that in both

cases a firm analyses their effects on its return and risk. The management of Fixed and

Current Assets however differs in three important ways. First, in managing Fixed Assets

time is a very important factor; consequently,discounting and compounding techniques

play a significant role in capital budgeting and a minor one in the management of Current

Assets. Second, the large holding of the Current Assets, especially cash, strengthens the

firms liquidity position (and reduces risk) but also reduces the overall profitability. Thus,

a risk-return trade off, is involved in holding Current Assets. Third, levels of Fixed as

well as Current Assets depend upon expected sales, but it is only current assets, which

can be adjusted with sales fluctuations in the short run. Thus, the firm has a greater

degree of flexibility in managing Current Assests.

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NEED FOR THE STUDY:

This project work is an attempt to get

acquainted with various facts of short-term finance management. This project work aims

at encompassing working capital management practices that prevail in the organization

upon which the study was undertaken. working capital is the difference between current

assets and current liabilities. Though this concept of working capital is commonly used, it

is an accounting concept with little economic meaning. It makes little sense to say that a

company manages its net working capital. What a company really does is to take

decisions with respect to various current assets and current liabilities. Working capital

management is a significant facet of financial management. In fact, this simply reflects

the repetitive nature of investment commitments with relatively short life expectancy and

rapid transformation from one investment form to another.

Financial analysis recognizes that all working

capital investments do not enjoy the same life expectancy, nor are they transformed into

useable liquidity flows at the same speed. There is need to study the factors influencing

the working capital, the components of working capital, level of operations and length of

the operating cycle. Monitoring the duration of the operating cycle is an important

ingredient of working capital.

OBJECTIVES OF THE STUDY:

The main objectives of the study of Working Capital Management in Lanco

Industries Ltd. Are as follows:

Primary Objective:

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To study the working capital management in Lanco Industries.

Secondary Objectives:

.

To determine the changes in the Working Capital of the Firm over 5 years.

To determine the short term solvency position.

To give suggestions to the Company to improve its performance, if any.

SCOPE OF THE STUDY:

The contents of the total evaluation of current

assets and current liabilities and their percentage contribution in the total turnover. The

yearly increase or decrease of current assets or current liabilities in the budget of Lanco

Industries Limited is being reviewed. From this one would be in a position to glance the

performance of current assets and current liabilities of the Company.

This project greatly deals with the working

capital requirements of Lanco Industries Ltd &. And emphasizes on the yearly

composition of Working Capital in the total turnover of the Company. This also deals

with key ratios to obtain a clearer picture of different resources available and at the

disposal of the organization, which will enable one to give appropriation suggestion to

the Company to improve its performance, if any.

Importance of Working Capital:

Investment in fixed assets only is not sufficient

to run the business. Therefore working capital or investment in current assets is a must

for the purchase of raw materials and for meeting the day-to-day expenditure on salaries,

wages, rents etc. The main advantages of adequate working capital are as follows:

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If proper cash balance is maintained a Company can avail the advantage of cash

discounts by paying cash for the purchase of raw materials in the discount period,

which results in reducing the cost of production.

Adequate working capital creates a sense of security, confidence and loyalty not

only through out the business itself but also its customers, creditors and business

associates.

A firm can raise funds from the market, purchase of goods on credit and borrow

short-term funds from banks etc. If investors and borrowers are confident that

they will get their due interest and payment of principle in time.

Certain contingencies like financial crises due to heavy losses; business

oscillation etc. can be easily overcome, if the company maintains adequate

working capital.

A continuous supply of raw material, research programs, innovation and technical

developments and expansion programs can successfully be carried out if working

capital is maintained in the business. It will increase the production efficiency,

which in turn increase the efficiency and morale of the employees, lower the cost

and create image in the community.

REVIEW OF LITERATURE:

MEANING OF WORKING CAPITAL:

Working capital in simple terms is the amount

of funds which business concerns have to finance its day-to-day operations. It can also be

regarded as that proportion of company’s total capital which is employed in short-term

operations. Working capital refers to the funds invested in Current Assets i.e. Investment

in Stock, Sundry Debtors, Cash and Other Current Assets. Current Assets are essential to

use Fixed Assets profitably.

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CONCEPTS OF WORKING CAPITAL:

Working capital can be defined through its two concepts, namely:

(a) Gross working capital (b) Net working capital.

Gross Working Capital:

Gross working capital refers to the firm’s investment in current assets.

Current assets are the assets which can be converted into cash within an accounting year and

include cash, short term securities, debtors, (accounts receivable or book debts) bills receivable

and stock (inventory).

Net Working Capital:

Net working capital refers to the difference between current

assets and current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors (accounts payable), bills

payable, and outstanding expenses. Net working capital can be positive or negative. A

positive net working capital will arise when current assets exceed current liabilities. A

negative net working capital occurs when current liabilities are in excess of current

assets.

IMPORTANCE OF ADEQUATE WORKING CAPITAL:

The importance of adequate working capital in commercial

undertakings can never be over emphasized. A concern needs funds for its day to day

running. Adequacy or inadequacy of these funds would determine the efficiency with

which the daily business may be carried on. Management of working capital is an

essential task of the finance manager. He has to ensure that the amount of working capital

available with his concern is neither too large nor too small for its requirements. A large

amount of working capital would mean that the company has idle funds. Since funds

have a cost, the company has to pay huge amount as interest on such funds.

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TYPES OF WORKING CAPITAL:

Working capital can be classified as ,

(a) permanent working capital

(b) Temporary working capital

Permanent Working Capital:

It also refers to the hardcore working capital. It is that minimum

level of investment in the Current Assets that is carried by the business at all times, to carry out

minimum level of its activities.

Amount of

Working

Capital Temporary

Fixed

Time

Temporary Working Capital:

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It refers to that part of total working capital that is required

by a business over and above Permanent working capital. It is also called variable

working capital. Since the volume of Temporary working capital keeps on fluctuating

from time to time according to the business activities, it may be financed from Short term

sources.

Amount of

Working

Capital Temporary

Fixed

Time

DETERMINANTS OF WORKING CAPITAL:

A large number of factors, each having a different

importance, influence working capital needs of firms. Also, the importance of factors

changes for a firm over time. Therefore, an analysis of relevant factors should be made in

order to determine total investment in working capital. The following are the factors

which generally influence the working capital requirements of the firm.

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Nature of the business

Credit policy

Abnormal factors

Market conditions

Conditions of supply

Business cycle

Growth and expansion

Levels of taxes

Dividend policy

Price level changes

Operating efficiency

Nature of the business:

The shorter the manufacturing process, the lower is the

requirement for the working capital. This is because in such a case inventories have to

be maintained at a low level. Longer the manufacturing process,s the higher would be

the requirements of working capital.

This is the reason why highly capital-intensive industries

require a large amount of working capital to run their sophisticated and long

production process. Similarly, a trading concern requires lower working capital than a

manufacturing concern.

Credit policy:

The credit policy of the company also determines the

requirements of working capital. A company, which allows liberal credit to its

customers, may have higher sales but consequently will have large amount of funds

tied up in sundry debtors. Similarly, a company which has very efficient debt

collection machinery and offers strict credit terms may require less amount of

working capital than the one where debt collection system is not so efficient or where

the credit terms are liberal.

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The credibility of a company in the market also has an effect

on the working capital requirements. Reputed and established concerns can purchase raw

material on credit and enjoy many other services also like door delivery, after sales

service etc. This would mean that they can easily have large current liabilities, and

therefore, the required working capital may not be very high.

Abnormal factors:

Abnormal factors like strikes and lockouts also require

additional working capital. Recessionary conditions necessitate a higher amount of stock

of finished goods. Similarly, inflationary conditions necessitate more funds for working

capital to maintain the same amount of current assets.

Market conditions:

Working capital requirements are also affected by market

conditions like degree of competition. Large inventory is essential as delivery has to be

off the shelf or credit has to be extended on liberal terms when market competition is

fierce or market is not very strong or is a buyer’s market.

Conditions of supply:

If prompt and adequate supply of raw materials, spares,

stores, etc.., is available it is possible to manage with small investment in inventory or

work on just in time (JIT) inventory principles. However if supply is erratic, scant,

seasonal, channelized through government agencies etc.., it is essential to keep larger

stocks, increasing working capital requirements.

Business cycle: Business fluctuations lead to cyclical and seasonal changes in production

and sales and affect the working capital requirements.

Growth and expansion:

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The growth in volume and growth in working capital go hand

in hand. However, the change may not be proportionate and the increased need for

working capital is felt from the initial stage of growth.

Levels of taxes:

The amount of taxes paid depends on taxation laws. These

amounts usually have to be paid in advance. Thus need for working capital varies with

tax rates and advances tax provisions.

Dividend policy: Payment of dividend utilizes each while retaining profits acts as a

source of working capital. Thus dividend policies affect working capital.

Price level changes: Inflationary trends in the economy necessitate more working capital

to maintain the same level of activity.

Operating efficiency: Efficient and co-ordinate utilization of capital reduces the amount of working capital required to be invested.

METHODS OF ESTIMATING WORKING CAPITAL:

There are two methods, which are usually followed in determining working capital

requirements. These are:

Conventional method: According to the conventional method, cash inflows and

outflows are matched with each other. Greater emphasis is laid on liquidity and greater

importance is attached to current ratio, liquidity ratio, etc., which pertain to the liquidity

of a business.

Operating cycle method: In order to understand what gives rise to difference in the

amount of timing of cash flows, we should know the length of time which is required to

convert cash into final product, the final product into receivables and receivables into

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cash. The length of the operating cycle is a function of the nature of a business. There are

four major components of the operating cycle of a manufacturing company. These are

The cycle starts with free capital in the form of cash and credit,

followed by investment in materials, manpower and the services.

Production phase

Storage of the finished products terminating at the time finished

product is sold.

Cash or accounts receivable collection period, which results in, and

ends at the point of dis-investment of the free capital originally

committed. New liquid capital then becomes available for productive

reinvestment. When new liquid capital becomes available for

recommitment to productive activity, a new operating cycle begins

ISSUES IN WORKING CAPITAL MANAGEMENT:

Working capital management refers to the administration of

all aspects of current assets namely cash, marketable securities, debtors and stock and

current liability. The financial manager must determine levels and compositions of

current assets. He must see that right sources are tapped to finance current assets and that

current liability paid in time.

There are many aspects of working capital management, which make it an important

function of the financial manager.

Time: Working capital management requires much of the finance managers time.

Investment: Working capital management has great significance for all firms but it’s

very critical for small firms.

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Growth: The need for working capital is directly related to the firm’s growth.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT:

Principles of risk variation:

Risk here refers to the inability of a firm to maintain sufficient

current assets to pay for its obligations. If working capital is varied relative to sales, the

amount of risk that a firm assumes is also varied, and the opportunity for gain or loss is

increased.

Principle of cost of capital:

This principle emphasizes the different sources of finance, for

each source has a different cost of capital. It should be remembered that the cost of

capital moves inversely with risk. Thus, additional risk capital results in the decline in the

cost of capital.

Principle of equity position:

According to this principle, the amount of working capital

invested in each component should be adequately justified by a firm’s equity position.

Every rupee invested in the working capital should contribute to the net worth of the firm.

Principle of maturity of payment:

A company should make every effort to relate maturities of

payment to its flow of internally generated funds. There should be the least disparity

between the maturities of a firm’s short-term debt instruments and its flow of internally

generated funds because a greater risk is generated with greater disparity. A margin of

safety should, however be provided for short term debt payments.

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SOURCES OF WORKING CAPITAL:

The various sources for the financing of working capital are as follows:

Sources of working capital

Permanent or fixed Temporary or variable

1. Share 1.Trade credit

2. Debentures 2. Bank loans

3. Long term public deposits (a) Overdraft

4. Retained earnings (b) Cash credit

5. Loans from financial institutions (c) Discounting of bills

(d) Letter of credit

(e) Working

capital

3. Commercial paper

4. Factoring

Financial of permanent/ fixed working capital:

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1. Shares:

Issue of shares is the most important source for raising the permanent or

long term capital. A company can issue equity or preferences shares to raise the funds.

2. Debentures:

It’s also an important source of raising permanent working capital. A

debenture is an instrument issued by the company acknowledging its debt to its holder.

3. Long-term public deposits:

Long term public deposits also have become important sources of

long term finance.

4. Retained earnings:

Retained earnings refer to re-investment of a part of the profits in the

business. It is an internal sources of finance and suitable for an established firm for its

expansion.

5. Loans and financial institutions:

Financial institutions such as industrial finance corporations,

commercial banks, IDBI, state finance corporations, IFCI, ICICI, etc. provides long term

and short term and medium term loans for the business.

Financing of temporary or short term working capital :

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1.Trade credit:

It refers to the credit that a company gets from suppliers of goods.

The buying firms do not have to pay cash immediately for the purchases made. The

supplier will allow the credit period to the firm for the repayment of cash. It is easy and

flexible source of finance for the short-term working capital.

2.Bank loans:

Bank credit is the primary and main institutional source of working

capital finance.

Forms of bank finance

a. Over draft

Under overdraft facility, the borrower is allowed to withdraw funds

in excess of the balance in his current account up to a certain specified limit

during a stipulated period. Through overdrawn amount is repayable on demand.

b. Cash credit:

The cash credit facility is similar to the OD facility. Under this credit

facility a borrower is allowed to withdraw funds from the bank up to the

sanctioned credit limit.

c. Purchase or discounting of bills:

Under the purchase or discounting of bills a borrower can obtain credit

from a bank against its bills. The bank discounts the borrower bills and provides

credit facility to the firm.

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d. Letter of credit:

The purchaser of goods on credit obtains a letter of credit from a bank.

A bank opens a L/C in favour of a customer to facilitate his purchases of goods. If

the customer does not pay to the supplier within the credit period, the bank makes

the payment under the L/C arrangements.

e. Working capital loan:

A borrower may sometimes require ad hoc or temporary

accommodation in excess of sanctioned credit limit to meet unforeseen

contingencies. Banks provide such accommodation through a ‘demand loan’

account or a separate ‘non-operable’ cash credit account.

3.Commercial paper:

Commercial paper is a short term unsecured negotiable instrument,

consisting of promissory notes with a fixed maturity. It is also a source of working capital

finances, popular in India as well as many foreign nations.

4.Factoring of bills of receivables:

Factoring is a systematic and sophisticated way to get advances against

receivables. Here a firm sells its receivables to a third party called ‘factor’ which is

usually a financial institution or a commercial bank.

The factor purchases these receivables immediately and assumes

all credit risks and collection efforts in exchange of a factoring commission.

OPERATING CYCLE:

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Operating Cycle is the time duration required to convert sales, after the conversion of

resources into inventories, into cash. The operating cycle of a manufacturing company

involves three phases:

They are,

Acquisition of resources such as raw material, labour, power and fuel etc.

Manufacture of the product which includes conversion of raw material into work-

in-progress into finished goods

Sale of the product either for cash or on credit. Credit sales create account

receivable for collection.

The firm is required to invest in current assets for smooth,

uninterrupted functioning. It needs to maintain liquidity to purchase raw materials and

pay expenses such as wages, salaries and other manufacturing, administrating and selling

expenses as there is hardly a matching between cash inflows and outflows.

Stocks of raw material and work-in-process are kept to ensure

smooth production and to guard against non-availability of raw material and other

components. The firm holds stock of finished goods to meet the demands of customers on

continuous basis and sudden demand from some customers. Debtors are crated because

goods are sold on credit for marketing and competitive reasons.

The operating cycle can be measured as follows:

RMCP – Raw material Conversion Period

WIPCP – Work-in-progress Conversion Period

FGP – Finished Goods Conversion Period

SDCP= Sundry Debtors Conversion Period

SCCP= Sundry Creditors Conversion Period

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Working capital cycle/operating cycle

Cash

Debtors Raw- Receivables Materials

Finished Work-in-Goods process

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DEBTORS MANAGEMENT :

Receivables occupy the second place among the various

components of working capital in any manufacturing concern. Effective management of

the receivable investments is a required characteristic of successful and growing

enterprise.

The main purpose of maintaining receivables is to push up the sales

and also profit by giving credit to the customers who find it difficult to purchase on cash.

This process involves so much risk, which is called credit risk. While giving credit to any

customer, credit manager has to consider the five Cs of credit: Character, Capacity,

Capital, Collateral and Conditions, otherwise loss of bad debts will increase. The

receivable improve the liquidity position of an enterprise as it is a near cash item, and the

receivables should be at the satisfactory level.

The receivable in the strict accounting sense, arise out delivery of

goods or rendering of services on credit. According to this, receivables mean only a trade

debtor. But in the present context, the term receivable has been in its broader sense, i.e.,

to include trade debts, loans and advances in this preview.

The sale of the products against cash would be an ideal situation

to eliminate a stage in the working capital cycle thus achieving the objective of drastic

reduction in its length and the requirement of Working Capital. The existence of

numerous competitors in the era of globalization and liberalized economy, such sales on

cash could only be next to impossibility if growth of the organization is any aspiration. In

the present complex market scenario one leads the other, in offering more value for

money to their customers and extending credit has been one such major step.

This encounters the organization with substantial blockage of

Working capital. Indiscriminant extension of credits in the name of growth could erase

the entire profitability and as stated above non-extending of credit would keep the

organization out of business. A great deal of planning and efficiency is warranted to keep

the receivables at optimum level. A little elaboration is needed in this level. There are

two measures in this regard.

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LAYING DOWN CREDIT POLICY:

The organization specifying applicability of general credit policy i.e., the period

of credit extendable as a thumb rule would fall short of its effort in controlling the

receivables. The credit policy required to be more selective and should bare the growth,

the recoverability, the product strength, the distribution network etc., in its upper most

mind. The variation in credit policy could also be on customer based. As we would

observe there would be two sets of organizations, one looking for a lower margin with

reasonable growth through a conservative credit policy.

The credit policy should not only lay down the period of credit but also a well

thought out procedures for extending credit in order to prevent or minimize the debts

going bad. A systematic evaluation of customers’ credibility, financial.

Strength and their usefulness to the organization in terms of quantum of sales etc.,

would fetch desired results. The credit policy should specify fairly senior personnel could

take the level of management authorized to extend general credit and instead of

decentralizing the power of extending any further dispensation such decisions, few in

number. Depending upon the market conditions the policy could also specify incentives

for early payments like cash discounts, so also interest on delayed payments.

MONITORING RECEIVABLES:

Monitoring the receivables areas important, if not more, as laying down the credit

policy. It has to be constant and continuous in order to bring down the level of

receivables to an optimum level in conformity with the laid down credit policy of the

organization. When we talk about the monitoring of receivables, two ready indicators are

remembered-a. the collection period and b. the age of the book debts.

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a. COLLECTION PERIOD:

The collection period would be in terms of number of days average credit sale.

Such a calculation area wise, marketing personnel wise at frequent intervals would

provide information’s for selective credit control. An application of incentive for faster

collection in certain selective areas also would render possible, the collection faster.

b. AGING OF BOOK DEBTS:

The collection efforts could be intensified on greater analysis of receivables from

the point of view of the number of days it is outstanding. Higher the number of days the

debt is outstanding, the probability of it becoming doubtful of recovery is higher. Earlier

detection of such outstanding from customers would facilitate taking hard decisions of

stoppage of further sales, in order to minimize bad debts. Collection of book debts just as

per credit policy would enable the organization to achieve planned profitability.

It would be an art and efficiency of marketing personnel in an organization, which

enables overall monitoring of receivables effective and to keep at an optimum level.

INVENTORY MANAGEMENT:

Inventories constitute the most significant part of current assets of a

company. Inventory refers to the stock of good yet to be sold by a firm. Inventory

includes raw material, work in progress and finished goods.

Nature of inventories

The various forms in which inventories exist in a manufacturing company are

Raw materials: Basic inputs that are converted into finished product through the

manufacturing process. These inventories are purchased and stored for the future

productions.

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Work in progress: WIP inventories are semi finished products. They represent

products that need more work before they become finished products for sale.

Finished goods: These inventories completely manufacture products which are

ready for sale. Inventories serve as a link between the production and

consumption of goods.

REVIEW OF LITERATURE THROUGH JOURNALS:

Impact of Working Capital Management on Corporate Performance- An Empirical

study

Sushma Vishnani, Bhupesh Kr.Shah (2007)

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 company desires to

take a greater risk for bigger profits and losses, it reduces the size of its working 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. In this paper an effort has been made to make an

empirical study of Indian Consumer Industry for accessing the impact of Working Capital

Policies & practices on profitability during the period 1998-95 to 2004-05. The impact of

working capital policies on profitability has been examined by computing coefficient of

correlation and regression analysis between profitability ration and some key working

capital policy indicator ratios.

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Working Capital Management: A study on British American Tobacco Bangladesh

Company Ltd.

Md. Sayaduzzaman (2007)

The efficiency of working Capital Management of British American Tobacco Bangladesh

Ltd Is highly satisfactory due to the positive cash inflows, planned approach in managing

the major elements of working capital. Applications of multi-dimensional models of

current assets mix may have positive impact on the continuous growth & development of

this multinational enterprise. This depends on co-operation of the stakeholders and

business environment in the context of globalization.

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

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

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

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 receivable period, Inventory period and leverage

affect firm profitability negatively; while growth (in sales) affects firm profitability

positively.

Working Capital Management, Growth and Performance of New Public Companies

By Beneda, Nancy, Zhang, Yilei (2008)

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The current study contributes to the literature by examining impact of working capital

management on the operating performance and growth of new public companies. The

study also shed light on the relationship of working capital with debt level, firm risk and

industry. Using a sample of initial public offerings (IPO’s), the study finds a significant

positive association between higher levels of accounts receivable and operating

performance. The study further finds the maintaining control (i.e. lower amounts) over

levels of cash and securities, inventory, fixed assets, and accounts payables appears to be

associated with higher operating performance, as well. We find that IPO firms which are

experiencing unusually high growth tend not to perform as well as those with low to

moderate growth. Further firms which are experiencing high growth tend to hold higher

levels of cash and securities, inventory, fixed assets and accounts payables. These

findings tend to suggest that firms are willing to sacrifice performance (accept low or

negative operating returns) to increase their growth levels. The higher level of growth is

also associated with higher operating and financial risk. The findings of this study

suggest that perhaps IPO firms should stay more focused on their operating performance

than on maintaining high growth levels.

Working Capital and Financial Management Practices in the Small Firm sector

Michael J.Peel, Nicholas Wilson (2008)

MICHAEL J. PEEL is a Lecturer in accountancy and finance at Cardiff Business School,

University of wales and Nicholas Wilson in Professor of credit Management at the

University of Bradford, England. Very little research has been conducted on the capital

budgeting and working capital practices of small firms.

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The purpose of this paper is to present the result of a preliminary study

on the working capital and financial management practices of a sample of small firms

located in the north of England. In general, the result of the survey indicated that a

relatively high proportion of small firms in the sample claimed to use quantitative capital

budgeting and working capital techniques and to review various aspects of the

companies’ working capital.

In addition, the firms which claimed to use the more sophisticated

discounted cash flow capital budgeting techniques, or which had been active in respect of

capital working management practices. It is hoped that the issues raised will stimulate

further theoretical and empirical contributions on this neglected and important area of

small business research.

RESEARCH METHODOLOGY:

Research design:

In this project Analytical research is used,because it is already existing in

nature.

Primary Data:

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The primary data for this project is collected from personal interviews and

discussions with executives and the officials of the Company.

Secondary Data:

The secondary data is collected from the following sources

Annual Financial Reports of the Company

Internal Reports of the Company

Relevant research articles from financial journals.

Financial newspapers

TOOLS UESD FOR ANALYSIS OF THE DATA:

FUNDFLOW STATEMENTS:

Funds flow analysis design effective management tool to study how

funds have been procured for the business and how they have been employed. The

statement of variation in working capital is based fundamentally on the same approach

used for the preparation of funds flow statement.

STATEMENT OF CHANGES IN WORKING CAPITAL:

This technique helps to analyses changes in working capital

between dates of two balance sheets. The comparison of current assets and current

liabilities as shown in the balance sheet at the beginning and the ending of a specific

period.

RATIO ANALYSIS:

1. Current Ratio :

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The current ratio establishes the relationship between current assets and current

liabilities. The objective of computing this ratio is to measure the ability of the firm to

meet its short term financial strength/solvency of a firm. If a firm having high degree of

liquidity funds is unnecessarily toed up in current assets. The satisfactory current ratio

2:1. In other words, the objective is to measure the safely margin available for short term

indicators. This ratio is expressed as under.

Current assets

CURRENT RATIO= ----------------------------------

Current liabilities

2. Quick Ratio:

Quick ratio also known as Acid test ratio or liquid ratio is more rigorous test of

liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its

short term obligations as and when they become due. Generally a quick ratio is of 1:1 is

considered to represent a satisfactory ratio. A company with a high value of quick ratio

can suffer from the shortage of funds it is has slow-playing, doubtful and long-duration

out-standing book debts. On the other hand a company with a low value of quick ratio

may really be prospering and paying its current obligation in time if it has been turning

over its inventories efficiently. This ratio may express as under:

Quick assets

QUICK RATIO= ----------------------------------

Quick liabilities

3. Cash Ratio:

It is suggested that it would be useful, for the management if the liquidity measure

also takes into account reserve borrowing power as the firm’s real debt paying ability

depends not only on cash resources available with it but also on its capacity on its

capacity on borrow from the market at short notice. Absolute liquid assets include cash in

hand and at bank and marketable securities or temporary investment. This ratio may be

expressed as under:

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Absolute liquid assets

ABSOLUTE LIQUID RATIO= ----------------------------------

Current liabilities

4. Net Working Capital Ratio:

The difference between Current Assets and Current Liabilities excluding short

term bank borrowings is called net working capital. It is sometimes used as a measure of

a firm’s liquidity. It is considered that, between two firms, the one having the larger Net

working capital has the greater ability to meet its current obligations. This is no necessary

so; the measure of liquidity is a relationship, rather than the difference between Current

Assets and Current Liabilities.

Net working capital

NETWORKING CAPITAL RATIO= ----------------------------------

Net Assets

Net working capital= Current Asset – Current Liabilities

5. Total Assets Turnover Ratio:

Net assets turnover can be computed simply dividing sales by total assets.

sales

TOTAL ASSETS TURNOVER RATIO= ----------------------------------

Total assets

6. Fixed Assets Turnover Ratio

This ratio can be calculated for purposes of finding relationships between the

fixed assets and with sales. This ratio is calculated by using the following formulae,

28

sales

FIXED ASSETS TURNVOER RATIO= ------------------------

Fixed assets

7. Net Profit Ratio

Net profit ratio establishes a relation ship between net profit and sales, and

indicates the efficiency of the management in controlling expenditure in selling,

administrative and other activities of the firm. This ratio is the overall measure of the

firm’s profitability and is calculated as:

Net profit

NET PROFIT RATIO= ----------------- * 100

Net sales

29

OPERATING CYCLE CALCULATIONS:

Raw Material Conversion Period

Work in Process conversion period

Finished goods Conversion Period

Debtors collection Period

Creditors collection period

INDUSTRY PROFILE

ABOUT THE INDUSTRY

India, in 1994 has become the 4th largest producer of

cement in the world. This impressive record owes its origin to the progressive of the

government since late 70’s and enabled on assured 12% post tax return on Net worth. The

economic reforms of July ‘91 gave a further fillip by abolishing the licensing system for

setting up cement plants. Since then, innumerable technological development took place

in cement production enabling cost reduction and mass production. The wet kilns of the

late 70’s were replaced by dry kilns which reduced the fuel cost by 30%. Thermal

efficiency was improved by installing pre-heaters, followed by the addition of pre-

calcinatory. Optimal usage of fuel and power we achieved through computerization and

quality control of raw materials.

In a developing country like India, the requirement of

housing and infrastructure is high and so the demand elasticity of cement with respect to

G.D.P OF 1.6% is also high.

Plant under the Group

30

The pig iron plant and LANCO cement plant are two

plants which are presently under the name of M/s LANCO industrial Limited and

LANCO construction Limited.

LANCO PIG-IRON DIVISION

It is located at RACHAGUNNERI. The pig iron is

commissioned in a record time of eleven months, drawing on the group’s expertise in

civil Engineering and industrial construction.

HIGHLIGHTS

State of art mini blast furnace

Strategic location with easy access

One of the few plants with its own railway siding

High quality is from the neighboring

Donimalai Deposits

Access to best grade coke from china

90,000 TPA Capacity

Proximity to end users

Manufacturing all grades of pig iron with the highest rating quality

CEMENT DIVISION

31

LANCO Industries limited as setup a Portland Slag

Cement (PSC) plant of 70,000 TPA Capacity at RACHAGUNNERI. The cement

plant utilizing as raw materials-slag, coke breeze & iron are time being generated by

the pig iron plants as by product & waster. By this cement plant LANCO Industries

limited adding values to by products/waste generated from pig iron, in addition to

solving the problem of storing slag in the plant premises.

The main plant and machinery installed are

lime stone crusher, a raw mill system for blending and grinding iron ore, clay,

limestone & coke breeze, a vertical shift kiln, a cement mill for grinding slag. Clinker

& gypsum & slag drying system.

“Economy builds the nation and industry builds the Economy”.

LANCO Industries limited is one of the best mini-blast

furnace pig iron manufacturing units in our country, and it was the 5th plant under

TATA-KORE Technology. The company was in corporated on November 1st 1991

under companies Act-1956, I the name if LANCO FERRO LTD.

To company started construction work in august

1993. The entire construction work was completed in a record time of 12 months. This

was achieved by team work of LANCO collective ad the best efforts of the contractors.

With this achievement the company started commercial productions September 1994.

The name LANCO FERRO LIMITED was changed to LANCO INDUSTRIES

LIMITED on July 6th 1994.

32

LANCO INDUSTRIES LIMITED is located in

between TIRUPATHI and SRIKALAHASTI with an access of about 30 KMS

from TIRUPATHI and about 10 KMS for SRIKALAHASTI. The reasons for location

of LANCO INDUSTRIES at RACHAGUNNERI village, SRIKALAHASTI Mandal

of chittoor district, Andhra Pradesh are as follows.

Cheap availability of required Land.

There is more water resource

The distance between the harbor and present work spot is less.

Proximity Raw materials.

Proximity to marketing.

To have financial subsidy.

Nearer to the Railway sidings.

Well connected to the road, rail, and port.

Availability of labour.

33

COMPANY PROFILE

INTRODUCTION

For a corporation totally itself with a great purpose, it must have courage,

conviction, discipline and endurance qualities which engender organizational growth and

all round success.

LANCO, a name represents a rare synergy of strength in the core industries

sector. For LANCO, the great purpose is to build infrastructure strong India. Leaping

tongues of fire, the logo of LANCO has come to symbolize the display of a fiery spirit

along a creatively engineered span of operations.

ESTABLSHMENT

The LANCO Group of companies was seeded in 1998. When it is started,

founded by two young technocrats it was with a vision and solution to aspire for youth

and synergies that would make LANCO a leader in the core sector.

The study foundation of the company is constituted of a dynamic term of

managers; young technocrat’s who are in turn fortified with the expertise of a term of

highly experienced professionals. Three youthful technocrat’s Sri L.Rajagopal, Sri

L.Madhusudhan Rao and Sri G.Bhaskar Rao over the last decade have partnered and

promoted all the ventures of LANCO Group.

LOCATION

LANCO Industries limited is a rural based factory sprawling over many areas of

land with deep resources and congenial soil. It is located in RACHAGUNNERI Village

near TIRUPATHI. Nearly 50% of the consumption of electrical power is supplied by

34

APSEB, Government of Andhra Pradesh and other 50%of power is maintained by the

company owned DG sets and power plants. Since it is a rural area labor potential is

available an also company is enjoying the subsidies from state Government.

The LANCO group is a diversified multifaceted conglomerate, with business

interests in pig iron, cement, power graded castings, spun pipes, real estate development,

information technology a past from infrastructure use development prompted by

entrepreneurial skills and the agenda to put the group on the global corporate map during

the next 10 years.

LANCO Industries limited established in the year of 1993. As ISO 9002

company, it had set up a state of the art, integrated manufacturing facility for pig iron

through mini blast. Furnace route conforming to the latest international technology with

initial capacity of 1,00,000 TPA. Its quality products of SG-Grade pig iron are being

supplied to foundries in the south. As a forward integration, it has utilized the slag

produced in the pig iron manufacturing of 90,000 TPA. The uninterrupted power

requirement for the energy intensive plant is being met through 2.5 mw co-generation

power plant.

LANCO CONSTRUCTIONS LIMITED

This group company was established in the year 1993 and has executed most

demanding and difficult projects in the field of civil construction engineering on schedule

essaying repute as a world class construction company in a very short time span. The

company is mainly executing prestigious work in the fields of irrigation, pipeline projects

compared several housing complexes roads, irrigation canals, bridges and industrial

complexes at LANCO diverse dimensions of growth is achieved through converging rays

of vision rays of vision creating dimensions.

KALAHASTI CASTING LIMITED

35

Establish in 1997 and strategically located in alone proximity to the mini blast

furnace of the pig iron plants it has a clear economics mileage over other castings sites.

The molten metal from the blast cone is directly loosed as basic raw material to produce

graded castings. Cast iron span pipes and iron spun gradually expanded further to meet

the scaring demand of the products. The UPS to the pipe plant will be met through 10

MW capture power plant.

PIG IRON DIVISION

Established in the year of 1993.An ISO-9002 Company, with a state of the art,

integrated manufacturing facility for pig iron through mini blast furnace route

conforming to the latest international technology with initial capacity of 1,00,000 TPA

and subsequently expanded and modernized to 1.75 LTPA. Its quality products of SG-

Grade pig iron are being supplied to foundries in the southern India. The uninterrupted

power requirement for the energy intensive plant is being met through a 2.5 MW co-

generation power plant.

CEMENT DIVISION:

Established in the year of 1996 the basic raw materials is slag produced in the pig

iron manufacturing process to install the cement plant with a capacity of 90,000 TPA.

SPUN PIPE DIVISION

Established in 1997 and strategically located in lose proximity to the mini blast

furnace of the pig iron plant, it has a clear economic mileage over other castings sites.

The molten metal from the blast furnace is directly used as basic raw material to produce

graded castings , cast iron pipes and ductile iron pipes with a capacity of 90,000 TPA.

COKE OVEN DIVISION:

36

Established in 2005 the basic raw materials for the mini blast furnace , the coke

oven plant capacity of 9,000 plant.

POWER PLANT DIVISION:

It has proposed to setup a power plant of 12 MW. Power plant will be setup in the

existing land coke oven plant.

Waste heat of flue gas from coke oven will be utilized in waste heat recovery

boiler to produce steam.

Steam produced in the above process will be utilized to run on T.G. Set for

generating power.

Power generated from the power plant will be used for in – house consumption

and balance power will be fed into the APSEDB grid.

37

ANALYSIS & INTERPRETATION

Statement of changes in working capital – 2006-2007(Rs.in.Lacs)

Particulars 2006 2007 Increase +

Decrease -

A. Current Assets:Inventories 9194.08 10636.86 1442.78 -

Sundry Debtors 6706.59 7667.92 961.33 -Cash and Bank Balances 350.67 2650.37 2299.7 -

Loan and Advances 2070.42 5241.68 3171.26 -Total of Current Assets (A) 18321.76 26196.83

B. Current LiabilitiesCurrent Liabilities 9202.11 10188.34 - 986.23

Provisions 354.42 538.25 - 183.83Total of Current Liabilities(B) 9556.53 10726.59

Working Capital (A-B) 8765.23 15470.24Increasing in working capital 6705.01 6705.01

Total 15470.24 15470.24 7875.07 7875.07

INTERPRETATION:

From the above table it could be seen that the working capital of the firm for the year

2007 is 15470.24 whereas for the previous year 2006 the working capital was 8765.23.

while comparing the working capital for the two years ie 2006 & 2007, we find that there

is an increase in the working capital of about 6705.01. This was due to increase in the

inventories, sundry debtors, cash & bank balances, loan and advances, decrease in current

liabilities and provisions of the firm.

38

Statement of changes in working capital – 2007-2008(Rs.in.Lacs)

Particulars 2007 2008 Increase +

Decrease -

A. Current Assets:Inventories 10636.86 12092.91 1456.05 -

Sundry Debtors 7667.92 8814.31 1146.39 -

Cash and Bank 2650.37 420.10 - 2230.27

Loan and Advances 5241.68 5289.66 47.98 -

Total of Current Assets (A)

26196.83 26616.98

B. Current Liabilities

Current Liabilities 10188.34 9319.38 868.96 -

Provisions 538.25 711.30 - 173.05

Total of Current Liabilities(B)

10726.59 10030.68

Working Capital (A-B) 15470.24 16586.3

Increasing in working capital

1116.06 1116.06

Total 16586.3 16586.3 3519.38 3519.38

INTERPRETATION:

From the above table it could be seen that the working capital of the firm has shown an

increase in working capital of about 1116.06 for the year 2008 when compared to that of

the previous year 2007. This is due to the increase in the inventories, sundry debtors,

cash & bank balances, loan and advances, decrease in current liabilities and provisions of

the firm.

39

Statement of Changes in Working Capital – 2008-2009(Rs.in.Lacs)

Particulars 2008 2009 Increase

+

Decrease

-

A. Current Assets:

Inventories 12092.91 14436.48 2344.27 -

Sundry Debtors 8814.31 11966.16 3151.85

Cash and Bank 420.10 3463.66 3043.56 -

Loan and Advances 5289.66 6107.54 817.88 -

Total of Current Assets (A) 26616.98 35973.84 - -


Current liabilities 9319.38 10108.38 - 789

provisions 711.30 774.95 - 63.65

Total of current liabilities 10030.68 10883.33 - -

Net working capital (A-B) 16586.3 25090.51 - -

Increasing in working capital 8504.91 8504.91

Total 25090.51 25090.51 9357.56 9357.56

INTERPRETATION:

From the above table it could be seen that the working capital of the firm for the year

2009 is 25090.51 whereas for the previous year 2008 the working capital was 16586.3.

While comparing the working capital for the two years ie., 2008 & 2009, we find that

there is an increase in the working capital of about 8504.91 due to increase inventories,

sundry debtors, cash and bank balances and loan and advances and decrease in current

liabilities and provisions.

40

Statement of Changes in Working Capital – 2009-2010(Rs.in.Lacs)

Particulars 2009 2010 Increase

+

Decrease

-

A. Current Assets:

Inventories 14436.48 11519.19 - 2917.29

Sundry Debtors 11966.16 11845.80 - 120.36

Cash and Bank 3463.66 1516.42 - 1947.24

Loan and Advances 6107.54 5581.47 - 526.07

Total of Current Assets (A) 35973.84 30462.88 - -


Current liabilities 10108.38 6853.94 3254.44 -

provisions 774.95 1066.74 - 291.79

Total of current liabilities 10883.33 7920.68 - -

Net working capital (A-B) 25090.51 22542.2 - -

Increasing in working capital 2548.31 2548.31 -

Total 25090.51 25090.51 5802.75 5802.75

INTERPRETATION:

From the above table it could be seen that the working capital of the firm has shown an

decrease in working capital of about 2548.31 for the year 2010 when compared to that of

the previous year 2009. This is due to the decrease in inventories, sundry debtors, cash

and bank balances, loan and advances and provisions and increase in current liabilities.

41

a. Current Ratio

Year Current Assets Current Liabilities Ratio

2006 18321.76 9556.53 1.91

2007 26196.83 10726.59 2.44

2008 26616.98 10030.68

2.65

2009 35973.84 10883.33 3.30

2010 30462.88 7920.68 3.84

Interpretation:

The above table shows that the current ratio of the firm is in increasing trend every year

ie. 1.91, 2.44, 2.65, 3.30 and 3.84 for 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10

respectively. This shows that the firm has an increasing ability to meet its short term

financial strength.

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b. Quick Ratio:

Year Current Assets Inventory Quick Assets Current Liabilities Ratio

2006 18321.76 9194.08 9127.68 9556.53 0.95

2007 26196.83 10636.86 15559.97 10726.59 1.45

2008 26616.98 12092.91 14524.07 10030.68 1.44

2009 35973.84 14436.48 21537.36 10883.33 1.97

2010 30462.88 11519.19 18943.69 7920.68 2.39

Interpretation:

The above table shows that the quick ratio of the firm is in increasing trend ie. 0.95, 1.45,

1.44, 1.97 and 2.39 for the year 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10

respectively. This increase in the value of quick ratio shows that the firm can suffer from

shortage of funds where it has slow-playing, doubtful and long-duration out-standing

book debt.

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c. CASH RATIO:

Year Cash & Bank Current Liabilities Ratio

2006 350.67 9556.53 0.03

2007 2650.37 10726.59 0.24

2008 420.10 10030.68 0.04

2009 3463.66 10883.33 0.31

2010 1516.42 7920.68 0.19

Interpretation:

The above table shows that cash ratio of the firm is in fluctuating rate year by year ie.,

0.03 , 0.24, 0.04, 0.31 and 0.19 for the year 2005-06, 2006-07, 2007-08, 2008-09 and

2009-10 respectively. This shows the firms liquidity capacity position on paying the

firms debt.

d. Net Working Capital Ratio:

.

44

Year Net Working Capital Net assets Ratio

2006 8765.23 18525.70 0.473

2007 15470.24 24158.08 0.640

2008 16586.3 26388.35 0.62

2009 25090.51 28239.98 0.88

2010 22542.50 27759.09 0.81

Interpretation:

The above table shows that the movement of the net working capital ratio of the firm is in

fluctuating trend year by year ie., 0.473 , 0.640, 0.62, 0.88 and 0.81 for the year 2005-06,

2006-07, 2007-08, 2008-09 and 2009-10 respectively. This fluctuating trend in Net

working capital shows that firms ability on paying its financial obligation is not stable

and this is due to the changes in the net working capital of the firm.

45

e. Total Assets Turnover Ratio:

Year Sales Total Assets Ratio

2006 30295.60 18321.76 1.65

2007 36936.65 26196.83 1.40

2008 46365.63 26616.98 1.74

2009 64471.61 35973.84 1.79

2010 69057.96 30462.18 2.26

Interpretation:

The above table shows that the total asset turnover of the firm has been increasing

from the year 2006-07 to 2009-2010 from 1.40 to 2.26. This shows that the firm is

successful in increasing its profits and thereby increasing its assets of its business.

46

f. Fixed Assets Turnover Ratio:

Year Sales Fixed Assets Ratio

2006 30295.60 24129.72 1.25

2007 36936.65 24912.53 1.48

2008 46365.63 27250.36 1.70

2009 64471.61 28665.35 2.24

2010 69057.96 31200.30 2.21

Interpretation:

The above table shows that the fixed asset turnover of the firm has been increasing year

by year ie., 1.25 , 1.48, 1.70 and 2.24 for the year 2005-06, 2006-07, 2007-08 and 2008-

09 respectively, wheras for the year 2009-10 the fixed assets turnover decreased with the

turnover of 2.21. This shows that the firm had established a good relationship between its

net profit and sales and has increased its profitability of the business till 2008-09

compared to the decrease in turnover during 2009-10.

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g. Net Profit Ratio:

Year Net Profit Sales Ratio

2006 1163.79 30295.60 3.84

2007 2417.89 36936.65 6.54

2008 3395.20 46365.63 7.32

2009 3077.77 64471.61 4.77

2010 7755.76 69057.96 11.2

Interpretation:

The above table shows that the net profit of the firm has been increasing year by year ie.,

3.84 , 6.54 and 7.32 for the year 2005-06, 2006-07 and 2007-08 respectively, whereas for

the year 2008-09 the net assets of the firm decreased to 4.77 and gradually increased to

11.2 in the year 2009-10. This shows the firms establishment in maintaining good

relationship between its net profit and sales in increasing its profits.

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OPERATING CYCLE CALCULATIONS

RAWMATERIAL CONVERSION PERIOD:

Raw Material Conversion Period 2006 2007 2008 2009 2010

a.Raw Material Consumption 18264.94 19232.45 24779.93 39775.51 37578.14b.Raw Material Consumption per day

50.73 53.42 68.83 110.48 104.38

c. Raw Material Inventory 5159.44 6050.08 7452.40 9662.19 5778.80d. Raw Material Inventory Holding days

101d 113d 108d 87d 55d

2.Work in process Conversion Period=Work in process inventory

----------------------------------------

[cost of production]/360

Work in Process conversion period 2006 2007 2008 2009 2010a.cost of production 3356.25 3985.64 4587.29 4975.12 5573.46b.cost of production per day 9.32 11.0 12.7 13.8 15.4c. .Work in Process inventory 873.02 870.88 927.17 998.48 1396.49d. Work in Process inventory holding days

93d 79d 73d 72d 90d

49

3. Finished goods Conversion Period=Finished goods inventory

-------------------------------------

[cost of goods sold]/360

Finished goods Conversion Period 2006 2007 2008 2009 2010a.cost of goods sold 276.09 644.45 659.16 607.33 640.58b.cost of goods sold per day 9.20 21.4 21.9 20.2 21.3

c.Finished goods inventory 780.23 1253.61 1211.48 893.35999.33

d.finished goods inventory holding days

84d 58d 55d 44d 46d

50

Debtors

4 . Debtors collection period= -------------------------------------

[credit sales]/360

Debtors collection Period 2006 2007 2008 2009 2010a.credit sales 30295.60 36936.65 46365.63 64471.61 69057.96

b.sales per day 84.1 102.6 128.7 179.0 191.8

c.debtors 6706.59 7667.92 8814.31 11966.16 11845.80

d.debtors outstanding days 79d 74d 68d 66d 61d

51

creditors

5 . Creditors collection period= -------------------------------------

[credit purchases]/360

creditors collection Period 2006 2007 2008 2009 2010a.Credit Purchases 24604.40 29964.01 39508.89 43977.19 49330.19

b.purchase per day 68.3 83.2 109.7 122.1 137.0

c.creditors 6461.20 6972.95 7421.6 8385.27 9052.83

d.creditors outstanding days 94d 84d 67d 69d 66d

52

ITEMS 2006 2007 2008 2009 2010

1.Raw Material Conversion Perioda.Raw Material Consumption 18264.94 19232.45 24779.93 39775.51 37578.14b.Raw Material Consumption per day

50.73 53.42 68.83 110.48 104.38

c. Raw Material Inventory 5159.44 6050.08 7452.40 9662.19 5778.80d. Raw Material Inventory Holding days

101d 113d 108d 87d 55d

53

2.Work in Process conversion perioda.cost of production 3356.25 3985.64 4587.29 4975.12 5573.46b.cost of production per day 9.32 11.0 12.7 13.8 15.4c. .Work in Process inventory 873.02 870.88 927.17 998.48 1396.49d. Work in Process inventory holding days

93d 79d 73d 72d 90d

3.Finished goods Conversion Perioda.cost of goods sold 276.09 644.45 659.16 607.33 640.58b.cost of goods sold per day 9.20 21.4 21.9 20.2 21.3

c.Finished goods inventory 780.23 1253.61 1211.48 893.35999.33

d.finished goods inventory holding days

84d 58d 55d 44d 46d

4.collection Perioda.credit sales 30295.60 36936.65 46365.63 64471.61 69057.96

b.sales per day 84.1 102.6 128.7 179.0 191.8

c.debtors 6706.59 7667.92 8814.31 11966.16 11845.80

d.debtors outstanding days 79d 74d 68d 66d 61d

5.Creditors Deferral period

a.Credit Purchases 24604.40 29964.01 39508.89 43977.19 49330.19

b.purchase per day 68.3 83.2 109.7 122.1 137.0

c.creditors 6461.20 6972.95 7421.6 8385.27 9052.83

d.creditors outstanding days 94d 84d 67d 69d 66d

OPERATING CYCLE CALCULATIONS (NUMBER OF DAYS)

2006 2007 2008 2009 2010

Gross Operating cycle1.Inventory conversion perioda.Rawmaterial 101 113 108 87 55b.work in process 93 79 73 72 90c.finished goods 84 58 55 44 46Total 278 250 236 203 191

54

2.Debtors conversion period 79 74 68 66 61

3.Gross operating cycle(1+2) 357 324 304 269 252

4.payment deferral period 94 84 67 69 66

5.Net operating cycle(3-4) 263 240 237 200 186

Fundflow analysis for the year 2006-2007

Source of Funds 2006 2007

1. Share Holder Funds

a. Share Capital 1 3976.36 3976.36

b. Reserve & Surplus 2 3993.06 5108.64

2. Loan Funds

a. Secured Loans 3 9244.81 16382.92

b. unsecured Loans 4 15069.11 13733.65

Deferred Tax Liability [Net]

----

618.06 1184.79

Total 32901.40 40386.36

Application for Funds

Fixed Assets

a. Gross Black 5 25035.99 31824.32

b. Less Depreciation 6510.29 7666.24

c. Net Block 18525.70 24158.08

d. Capital Work in Progress 5604.02 754.45

Total fixed assets 24129.72 24912.53

Investments 6 ---- ----

Current Assets

Loans and Advances

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a. Inventories 7 9194.08 10636.86

b. Sundry Debtors 8 6706.59 7667.92

c. Cash & Bank Balances 9 350.67 2650.37

d. Loans and Advances 10 2070.42 5241.68

Total Current Assets 18321.76 26196.83

Current Liabilities

1a. Current Liabilities 11 9202.11 10188.34

b. Provisions 354.42 538.25

Total Current Liabilities 9556.53 10726.59

Net Working Capital 8765.23 15470.24

Total 32901.40 40386.36




a. Share Capital 1 3976.36 3976.36


2. Loan Funds

a. Secured Loans 3 16382.92 17832.92



----

1184.79

2576.95

Total 40386.36 43836.66

I. Application for Funds

Fixed Assets

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a. Gross Black 5 31824.32 35516.23


c. Net Block 24158.08 26388.35




Current Assets

Loans and Advances

a. Inventories 7 10636.86 12092.91

b. Sundry Debtors 8 7667.92 8814.31




Current Liabilities





Total 40386.36 43836.66

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a. Share Capital 1 3976.36 3976.36


2. Loan Funds

a. Secured Loans 3 17832.92 22645.54



---- 2576.95 3123.73

Total 43836.66 53,755.86


Fixed Assets

a. Gross Black 5 35516.23 38974.86


c. Net Block 26388.35 28239.98




Current Assets

Loans and Advances

a. Inventories 7 12092.91 14436.48

b. Sundry Debtors 8 8814.31 11966.16

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Current Liabilities





Total 43836.66 53,755.86




a. Share Capital 1 3976.36 3976.36


2. Loan Funds

a. Secured Loans 3 22645.54 16308.395



---- 3123.73 3435.754

Total 53,755.86 53742.814


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Fixed Assets

a. Gross Black 5 38974.86 41994.86


c. Net Block 28239.98 30259.98




Current Assets

Loans and Advances

a. Inventories 7 14436.48 11519.19

b. Sundry Debtors 8 11966.16 11845.80




Current Liabilities


b. Provisions 774.95 1880.89



Total 53,755.86 53742.814

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Working Capital

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