l&T- Wrkng Capital

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A Project Report

on

ANALYSIS

OF

WORKING CAPITAL MANAGEMENT

BY

BHAWNA KALRA

D.A.V.INSTITUTE OF MANAGEMENT

FARIDABAD

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Location: M/

Location: M/s.

s. Larsen

Larsen & Toubr

& Toubro Limi

o Limited

ted

Switchgear Factory, Faridabad

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A

SUMMER TRAINING

REPORT

ON

ANALYSIS OF WORKING CAPITAL MANAGEMENT

CONDUCTED AT

LARSEN & TOUBRO PVT. LTD.

IN PARTIAL FULFILMENT FOR THE DEGREE OF

MASTERS OF BUSINESS ADMINISTRATION (M.B.A.)

(SESSION 2006-2008)

SUBMITTED

SUBMITTED TO: TO: SUBMITTED SUBMITTED BY:BY: Controller

Controller of of Examination Examination Bhawna Bhawna KalraKalra Maharishi

Maharishi Dayanand Dayanand MBA MBA IIIrd IIIrd Sem.Sem. University,

University, Rohtak Rohtak Regn. Regn. No. No. 06-DAVM-30206-DAVM-302

DAV INSTITUTE OF MANAGEMENT

Faridabad

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CERTIFICATION

This is to certify that the Project Report title Analysis of Working Capital submitted in partial This is to certify that the Project Report title Analysis of Working Capital submitted in partial ful

fulfilfillmelment nt for for the the awaaward rd of of MBA MBA DegDegree ree of of UniUniverversitsity y SchSchool ool of of ManManageagemenment t StuStudiedies,s, Mahar

Maharishi Dayanaishi Dayanand Universind University, was carriety, was carried out d out by Bhawna Kalra under my guidance. by Bhawna Kalra under my guidance. ThisThis ha

has s nonot t bebeen en susubmbmititteted d to to anany y ototheher r UnUniviverersisity ty or or InInststititututioion n fofor r ththe e awawarard d of of ananyy degree/diploma/certificate.

degree/diploma/certificate.

Signature of the Guide

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BRIEF HISTORY

LARSEN & TOUBRO LIMITED

LARSEN & TOUBRO LIMITED was established in 1938, and a today India’s largest multi-was established in 1938, and a today India’s largest multi-dimensional engineering and construction company involved in manufacturing and supplying dimensional engineering and construction company involved in manufacturing and supplying

various types of industrial and household equipment. various types of industrial and household equipment. Two Danish young men,

Two Danish young men,

Mr. HOLCK LARSEN & Mr. S. KRISTIAN

TOUBRO

attended the same college and passed out as chemical and civilattended the same college and passed out as chemical and civil engineers respectively decided to work in the same company, F.L. Smith engineers respectively decided to work in the same company, F.L. Smith and Co, Copenhagen, Denmark. Mr. Toubro was sent to India in 1934 to and Co, Copenhagen, Denmark. Mr. Toubro was sent to India in 1934 to help, erect & commission machinery supplied for a cement plant by F.L. help, erect & commission machinery supplied for a cement plant by F.L. Smith and Co. Fortunately Mr. Larsen was also sent to India in 1935 to assess the cement Smith and Co. Fortunately Mr. Larsen was also sent to India in 1935 to assess the cement manufacturing capabilities of various manufacturing groups. In 1938, the two Danes decided to manufacturing capabilities of various manufacturing groups. In 1938, the two Danes decided to seek their fortunes in postwar India and so came together in that age of entrepreneur to set up seek their fortunes in postwar India and so came together in that age of entrepreneur to set up Larsen & Toubro, as a pa

Larsen & Toubro, as a partnership firm by setting up a small office in downtown Mumbai (thenrtnership firm by setting up a small office in downtown Mumbai (then Bombay). Initially they began marketing Danish dairy equipment, which was a great success. Bombay). Initially they began marketing Danish dairy equipment, which was a great success. A year later, when World War II broke out, the fledgling Company’s genius for innovation A year later, when World War II broke out, the fledgling Company’s genius for innovation came to the fore. It began to make the products it used to import. In 1945, L&T was appointed came to the fore. It began to make the products it used to import. In 1945, L&T was appointed dealers of Caterpillar, the American earthmoving machinery giant. In 1946, the firm became a dealers of Caterpillar, the American earthmoving machinery giant. In 1946, the firm became a limited company, and soon a nationwide network of offices was set up. L&T had set out a limited company, and soon a nationwide network of offices was set up. L&T had set out a charter for itself: the company would meet the needs of India’s emerging core sector. ‘In charter for itself: the company would meet the needs of India’s emerging core sector. ‘In Service Lies Success’ was enshrined as a corporate motto. Very soon L&T came to be known Service Lies Success’ was enshrined as a corporate motto. Very soon L&T came to be known for its quality and thus began the creation of one of the largest Indian company. The firm for its quality and thus began the creation of one of the largest Indian company. The firm became a public limited company in 1950. L&T steadily climbed the list of the top 200 Indian became a public limited company in 1950. L&T steadily climbed the list of the top 200 Indian companies - from 72 in 1966 to 25 in 1973. By then, it had developed a vast repertoire of skills companies - from 72 in 1966 to 25 in 1973. By then, it had developed a vast repertoire of skills and a reputation for high quality goods and services. Over the next decade, most of L&T’s and a reputation for high quality goods and services. Over the next decade, most of L&T’s activities had crystallized into products and services involving high technology and advanced activities had crystallized into products and services involving high technology and advanced product development programmes.

product development programmes. It has now come a long

It has now come a long way from its little office in Mumbai of 1938. In India, they way from its little office in Mumbai of 1938. In India, they are a visibleare a visible and vibrant presence. Some of India’s most sophisticated projects and most complex industrial and vibrant presence. Some of India’s most sophisticated projects and most complex industrial equipment carry the L&T insignia of excellence.

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Mr. TOUBRO passed away in 1982 &. Mr. HOLCK LARSEN the CHAIRMAN EMERITUS Mr. TOUBRO passed away in 1982 &. Mr. HOLCK LARSEN the CHAIRMAN EMERITUS of

of company, passed away in 2003. He was awarcompany, passed away in 2003. He was awarded with Padma Bhushan on 26th Jan ded with Padma Bhushan on 26th Jan 2002.2002. Mr. A.M.NAIK

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Company Profile

Lar

Larsen sen & & TouToubro bro LimLimiteited d (L&(L&T) T) is is a a tectechnohnologlogy-dy-dririven ven engengineineeriering ng and and conconstrstructuctionion organization, and one of the largest companies in India's private sector. It has additional organization, and one of the largest companies in India's private sector. It has additional interests in manufacturing, services and Information Technology.

interests in manufacturing, services and Information Technology.

A strong, customer-focused approach and the constant quest for top-class quality have enabled A strong, customer-focused approach and the constant quest for top-class quality have enabled the Company to attain and sustain leadership in its major lines of business across seven the Company to attain and sustain leadership in its major lines of business across seven decades.

decades.

L&T has an international presence, with a global spread of offices. A thrust on international L&T has an international presence, with a global spread of offices. A thrust on international business over the last few years has seen overseas earnings growing to 18 per cent of total business over the last few years has seen overseas earnings growing to 18 per cent of total revenue. With factories and offices located around the country, further supplemented by a wide revenue. With factories and offices located around the country, further supplemented by a wide marketing and distribution network, L&T's image and equity extends to virtually every district marketing and distribution network, L&T's image and equity extends to virtually every district of India.

of India.

Record of Achievements

L&T's signature of excellence is evident on:

•

• India's first indigenous hydrocracker reactor India's first indigenous hydrocracker reactor •

• Oil and gas platform projects executed to Oil and gas platform projects executed to global benchmarksglobal benchmarks •

• The world's largest continuous catalyst regeneration reactor The world's largest continuous catalyst regeneration reactor •

•

The simultaneous execution of clean fuel projects at eight The simultaneous execution of clean fuel projects at eight refineries around India

refineries around India

•

• The world's biggest fluid catalytic cracking regenerator The world's biggest fluid catalytic cracking regenerator •

• The world's longest product splitter The world's longest product splitter •

• Asia's highest viaduct - built for the Konkan Asia's highest viaduct - built for the Konkan RailwayRailway •

• The world's longest LPG pipelineThe world's longest LPG pipeline •

• The world's longest cross country conveyor The world's longest cross country conveyor •

• Building an international class football stadium in 260 daysBuilding an international class football stadium in 260 days

MARKET CAPITALISATION OF L&T TILL DATE

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EXCHANGE

BSE

OPEN

2600.00

HIGH

2600.00

LOW

2438.00

TRADED QUATITY

228991

CURRENT

2450.45

% CHANGE

-1.69

MARKET CAPITALISATION(in billions)

649.91

L&T has been ranked 5

L&T has been ranked 5thth _{among the Super Ten out of 20 Top admired Corporation in India.}_{among the Super Ten out of 20 Top admired Corporation in India.}

L&T ranks first in the Engineering Business L&T ranks first in the Engineering Business

OPERATING DIVISIONS

LARSEN & TOUBRO LIMITED has four main operating divisions along with Information LARSEN & TOUBRO LIMITED has four main operating divisions along with Information Technology.

Technology.

ENGINEERING & CONSTRUCTION:

L&T’s Engineering & Construction i.e. EPC project business constitutes a critical part of L&T’s Engineering & Construction i.e. EPC project business constitutes a critical part of L&T’s engineering core. L&T has integrated its strengths in process technology, basic and L&T’s engineering core. L&T has integrated its strengths in process technology, basic and detailed engineering, equipment fabrication, procurement, project management, erection and detailed engineering, equipment fabrication, procurement, project management, erection and const

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schedules. Strategic alliances with world leaders enable L&T to access technical know-how schedules. Strategic alliances with world leaders enable L&T to access technical know-how and execute process intensive large-scale turnkey projects to

and execute process intensive large-scale turnkey projects to maintain its leadership position.maintain its leadership position.

ELECTRICAL & ELECTRONICS

ELECTRICAL & ELECTRONICS::

Electrical & Electronics division (EBG) is organized into two sectors, Electrical & Electronics, Electrical & Electronics division (EBG) is organized into two sectors, Electrical & Electronics, comprising eight Strategic Business Units (SBUs). The Electrical business comprises Electrical comprising eight Strategic Business Units (SBUs). The Electrical business comprises Electrical Standard Products, Electrical Systems & Equipment &

Standard Products, Electrical Systems & Equipment & Petrol Dispensing Pumps & Systems.Petrol Dispensing Pumps & Systems. The Electronics business comprises Metering & Protection Systems, Control & Automation, The Electronics business comprises Metering & Protection Systems, Control & Automation, Medical Equipment & Systems, Embedded Software & Systems and Enterprise Networking Medical Equipment & Systems, Embedded Software & Systems and Enterprise Networking business.

business.

L&T’s Electrical Sector has a comprehensive Quality, Environment and Safety management L&T’s Electrical Sector has a comprehensive Quality, Environment and Safety management system. The quality management system for design, development, production, marketing and system. The quality management system for design, development, production, marketing and servicing has received ISO 9001 certification from BVQI, UK. The environment management servicing has received ISO 9001 certification from BVQI, UK. The environment management system at its Works has been certified for con

system at its Works has been certified for conformity to ISO 14001 by BVQI. The formity to ISO 14001 by BVQI. The Division hasDivision has implemented Enterprise Resource Planning solution of SAP AG, Germany and went live at 35 implemented Enterprise Resource Planning solution of SAP AG, Germany and went live at 35 locations across the country simultaneously in the ‘Big Bang’ mode in

locations across the country simultaneously in the ‘Big Bang’ mode in 1999.1999.

HEAVY ENGINEERING:

L&T

L&T’s ’s HeavHeavy y EngEngineineeriering ng busbusineiness ss actactiviivitieties s are are orgorganianized zed undeunder r selself-rf-relieliant ant StrStrateategicgic Business Units (SBUs), each specializing in different product lines. They meet the needs of Business Units (SBUs), each specializing in different product lines. They meet the needs of major industr

major industries: chemical, petrochemiies: chemical, petrochemical, cal, refirefinery, fertilinery, fertilizer, zer, oil & oil & gas, man-made gas, man-made fiberfiber,, power, iron & steel, paper & pulp, minerals & metals, cement, food & dairy, plastic & rubber. power, iron & steel, paper & pulp, minerals & metals, cement, food & dairy, plastic & rubber. Plant and equipment are designed and manufactured to customer specifications and various Plant and equipment are designed and manufactured to customer specifications and various stringent international codes as well as L&T’s own standards. Materials of construction: carbon stringent international codes as well as L&T’s own standards. Materials of construction: carbon steel, low alloy steel, stainless steel, duplex steel, clad steel, nickel, monel, inconel, steel, low alloy steel, stainless steel, duplex steel, clad steel, nickel, monel, inconel, cupro-nickel, copper, hastelloy, aluminium, titanium, zirconium, tantalum as well as composites

nickel, copper, hastelloy, aluminium, titanium, zirconium, tantalum as well as composites

.L&T has supplied equipment to almost all process industries in India, and has exported .L&T has supplied equipment to almost all process industries in India, and has exported various critical equipment for the hydrocarbon industry abroad.

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CONSTRUCTION:

L&T offers turnkey construction services and engineered turnkey industrial and infrastructure L&T offers turnkey construction services and engineered turnkey industrial and infrastructure projects in civil, mechanical, electrical and instrumentation engineering through ECC – its projects in civil, mechanical, electrical and instrumentation engineering through ECC – its Engineering, Construction and Contracts Division. The Headquarters of the Division is located Engineering, Construction and Contracts Division. The Headquarters of the Division is located at Chennai. ECC’s track record is built upon timely completion, safety, quality and reliability. at Chennai. ECC’s track record is built upon timely completion, safety, quality and reliability. Many of its Business Units, departments and facilities are accredited with ISO certificates. Many of its Business Units, departments and facilities are accredited with ISO certificates. Well-structured quality assurance systems ensure quality, safety and reliability at every stage Well-structured quality assurance systems ensure quality, safety and reliability at every stage of

of conconstrstructuctionion. . RegRegionional al offofficeices s at at AhmAhmedaedabad, bad, BanBangalgaloreore, , ChenChennainai, , DelDelhi, hi, HydHyderaerabad,bad, Kolkata, and Mumbai carry out the execution of domestic projects. Area offices at Delhi, Kolkata, and Mumbai carry out the execution of domestic projects. Area offices at Delhi, Kolkata, Mumbai and Chennai carry out execution of overseas projects.

Kolkata, Mumbai and Chennai carry out execution of overseas projects.

INFORMATION TECHNOLOGY

INFORMATION TECHNOLOGY:

LARSEN & TOUBRO INFOTECH LIMITED (L&T Infotech) offers comprehensive, LARSEN & TOUBRO INFOTECH LIMITED (L&T Infotech) offers comprehensive, end-to-end software solutions and services. Leveraging the heritage and domain expertise of the end software solutions and services. Leveraging the heritage and domain expertise of the parent company, its services encompass a broad

parent company, its services encompass a broad technology spectrum.technology spectrum.

SOLUTIONS & SERVICES

••

Domain Solutions:

Financial services, Telecom, Utilities & Manufacturing.Financial services, Telecom, Utilities & Manufacturing.

••

Ent

Enterpr

erprise

ise App

Applic

licati

ation

on Syst

Systems:

ems:

EntEnterperprisrise e ResResourource ce PlPlannianning ng (ER(ERP)P). . CusCustomtomer er Rel

Relatiationsonship hip ManManageagemenment t (CR(CRM), M), e-Pe-Procrocureuremenment t & & SupSupply ply ChaiChain n ManaManagemgement ent (S(SCM)CM),, Collaborative Product Commerce (CPC) and

Collaborative Product Commerce (CPC) and Enterprise Information Portals (EIP).Enterprise Information Portals (EIP).

••

Technology Solutions:

MobilMobile e computcomputing, ing, EmbeddEmbedded ed softsoftware ware and and serviservices; ces; EnterEnterpriseprise Application Integration & Geographic

Application Integration & Geographic Information Systems Solutions, WebInformation Systems Solutions, Web

Electrical & Electronics Division (EBG)

Electrical & Electronics Division (EBG) is one of the core businesses of Larsen & Toubro Electrical & Electronics Division (EBG) is one of the core businesses of Larsen & Toubro Limited (L&T) - India’s largest engineering and construction conglomerate. This division is Limited (L&T) - India’s largest engineering and construction conglomerate. This division is

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engaged in the business of low

engaged in the business of low voltage Switchgear products, Electrical systems, Energy meters,voltage Switchgear products, Electrical systems, Energy meters, Medical equipment, Petroleum dispensing pumps and Automation

Medical equipment, Petroleum dispensing pumps and Automation solutions.solutions.

This division is the largest manufacturer of low voltage switchgear and controlgear in India This division is the largest manufacturer of low voltage switchgear and controlgear in India and enjoys market leadership amidst competition from international players. A countrywide and enjoys market leadership amidst competition from international players. A countrywide net

networwork k of of StoStockickists take sts take carcare e of of proproductducts’ s’ disdistritributbution ion aloalong ng witwith h a a widwidespesprearead d serservicvicee net

networwork. k. OffOfficeices s of of the the L&T L&T GroGroup up comcompanpaniesies, , loclocateated d aroaround und the the worworld, ld, supsupporport t thethe requirements from export market.

requirements from export market.

E

EB

BG

G P

Peerrffoorrm

maannccee

((IIn

n C

Crroorreess))

20 200505-2-2000066 20200404--20200505 20200303-2-2000044 Gross Revenue Gross Revenue

11558822

11222200

11001199

EBITDA / Revenue % EBITDA / Revenue %

1155..55

1122..77

1122..99

Export Earnings Export Earnings

117733

9977

6622

The division has a comprehensive Quality, Environment and Safety management system. The The division has a comprehensive Quality, Environment and Safety management system. The Qua

Qualitlity y manmanagemagement ent syssystem tem for for desdesign ign & & devedeveloplopmenment, t, proproducductiotion, n, salsales, es, marmarketketing ing andand servicing has received ISO 9001:2000 certification from BVQI. In addition, its manufacturing servicing has received ISO 9001:2000 certification from BVQI. In addition, its manufacturing fac

faciliilitities es havhave e been been cercertiftified ied for for conconforformitmity y to to ISO ISO 14014001 01 (En(Envirvironmonmentental al ManManageagemenmentt System) & OHSAS 18001 (Occupational Health and Safety Management System) by BVQI. System) & OHSAS 18001 (Occupational Health and Safety Management System) by BVQI. We have implemented Enterprise Resource Planning (ERP) solution of SAP AG, Germany and We have implemented Enterprise Resource Planning (ERP) solution of SAP AG, Germany and went live at 35 locations across the country simultaneously in the ‘Big Bang’ mode in 1999. went live at 35 locations across the country simultaneously in the ‘Big Bang’ mode in 1999. ERP provides end-to-end integration across all business functions from suppliers to customers ERP provides end-to-end integration across all business functions from suppliers to customers over Internet and it is India’s first installation upgrade to Version 4.6C.

over Internet and it is India’s first installation upgrade to Version 4.6C.

Strategic Business Units

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Strategic Business Units (SBUs) of the division have operations at five locations in India –

two in Mumbai and one each in Ahmednagar, Mysore and Faridabad. One of the SBU Of

EBG is operating in Faridabad

Electrical Systems & Equipment

(Operations at Faridabad)

L&T Faridabad division manufactures custom-built switchboards with conventional as well as L&T Faridabad division manufactures custom-built switchboards with conventional as well as intelligent protection, control and communication to meet the power distribution and motor intelligent protection, control and communication to meet the power distribution and motor control needs of key industries. L&T FSW continue to be the largest supplier of switchboard control needs of key industries. L&T FSW continue to be the largest supplier of switchboard panels in India and these switchboards hav

panels in India and these switchboards have been installed at many prestigious plants in India.e been installed at many prestigious plants in India. The range of custom-built switchboards comprises fully drawout power control centres and The range of custom-built switchboards comprises fully drawout power control centres and motor control centres, distribution boards and control panels – all conforming to IEC 60439-1 motor control centres, distribution boards and control panels – all conforming to IEC 60439-1 and IS 8623. Its Power Control Centre (PCC) type TF is rated up to 6000A and houses and IS 8623. Its Power Control Centre (PCC) type TF is rated up to 6000A and houses L&T-made ACBs to take care of power distribution. The L&T-L&T-made Motor Control Centre (MCC) made ACBs to take care of power distribution. The L&T-made Motor Control Centre (MCC) type TQ is rated up to 5000A.

type TQ is rated up to 5000A.

L&T FSW offer fixed distribution boards, Intelligent Relays integrated with the PCCs and L&T FSW offer fixed distribution boards, Intelligent Relays integrated with the PCCs and MC

MCCs Cs alalonong g wiwith th cucuststomomizized ed HumHuman an MaMachichine ne InInteterfrfacace e sosoftftwaware re anand d PoPowewer r QuaQualilityty Management Systems from the business associates. Also offered are allied equipment like Management Systems from the business associates. Also offered are allied equipment like busducts, transformers, MV switchgear, industrial batteries and cables, and undertakes turnkey busducts, transformers, MV switchgear, industrial batteries and cables, and undertakes turnkey

co

contntraractcts s fofor r cocompmprerehehensnsivive e sysyststem em enengigineneererining, g, susupppplyly, , ininststalallalatitionon, , teteststining g anandd com

commismissiosioninning g of of swiswitchtchboarboards ds and and allallied ied equiequipmepment. nt. L&T L&T offoffers ers assassististancance e in in proproductduct selec

selection, tion, applicapplication ation engineengineering ering and and detaidetailed led engineengineeringering, , instinstallatallation ion & & commicommissiossioning,ning, retrofitting and upgradation of switchboards, after-sales service and training. L&T also designs retrofitting and upgradation of switchboards, after-sales service and training. L&T also designs and manufactures enclosures in flat pack systems for switchboard assemblers world-wide. and manufactures enclosures in flat pack systems for switchboard assemblers world-wide. Retrofitting solutions are offered for a wide range of LV

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ORGANIZATION

AL SET-UP

Of FARIDABAD UNIT

ORGANIZATION

ORGANIZATIONAL SET-UP

AL SET-UP Of FARIDABAD UNIT

Of FARIDABAD UNIT

DEPARTMENTAL STRUCTURE AT FSW

1. Marketing & Sales Department.

1. Marketing & Sales Department. 2. Design Department.

2. Design Department.

3. Production, Planning, Control & Materials Department 3. Production, Planning, Control & Materials Department 4. Production Department

4. Production Department

Assembly

Assembly Fabrication Fabrication Paint Shop Paint Shop MaintenanceMaintenance

5.

5. SwSwititchchgegear qar quaualility & rty & releliaiabibilility (ty (SQSQR) DR) Depeparartmtmenent.t. 6.

6. PPererssononnenell, HR & A, HR & Admdmininiiststraratition Don Depeparartmtmenentt

Personnel

Personnel & & HR HR Reception Security Reception Security Computer CommunicationComputer Communication &

& canteen canteen facilitiesfacilities

7.

7. Finance Finance and and account account departmentdepartment 8.

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FLOWCHART SHOWING THE CONNECTIVITY

BETWEEN ALL THE

DEPARTMENTS

BETWEEN ALL THE

BETWEEN ALL THE DEPARTMENTS

DEPARTMENTS

CUSTOMER CUSTOMER SALES & SALES & MARKETING MARKETING ENGINEERING & ENGINEERING & DESIGN DESIGN PLANNING PLANNING SHOP SHOP SQR SQR STORES STORES DISPATCH DISPATCH

PURCHASE

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ACKNOWLEDGEMENTS

I would like to take this opportunity to thank all the people who helped me in completion of I would like to take this opportunity to thank all the people who helped me in completion of my management training and in the compilation of this report.

my management training and in the compilation of this report.

I would like to thank Mr. S. M. Saini (Deputy General Manager, L&T-Faridabad Switchgear I would like to thank Mr. S. M. Saini (Deputy General Manager, L&T-Faridabad Switchgear Works) for providing me with this unique opportunity of undergoing

Works) for providing me with this unique opportunity of undergoing my training at L & T.my training at L & T. I extend sincere thanks to Mr. J. P. Kedia (Manager- Finance and Accounts Department) for I extend sincere thanks to Mr. J. P. Kedia (Manager- Finance and Accounts Department) for providing me guidance at each and every step of the training. I would always be obliged to him providing me guidance at each and every step of the training. I would always be obliged to him because he shared his real-life experiences with

because he shared his real-life experiences with me.me.

I am thankful to the other members of the finance department who explained me finance work, I am thankful to the other members of the finance department who explained me finance work, solving queries and being there to help me whenever required.

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2.5.2 Credit Credit ControlControl 2.6 Channel Financing 2.6 Channel Financing 3. Payable Management 3. Payable Management 3.1 Discounting of Bills 3.1 Discounting of Bills 4. Inventory Management 4. Inventory Management 4.1 Types of Inventory 4.1 Types of Inventory 4.2 Need for Inventory 4.2 Need for Inventory

4.3 Objectives of Inventory Management 4.3 Objectives of Inventory Management

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4.4 Cost of holding Inventory 4.4 Cost of holding Inventory

4.5 Techniques for Inventory Management 4.5 Techniques for Inventory Management

4.5.1 Perpetual Inventory

4.5.1 Perpetual Inventory VerificationVerification 4.5.2 ABC Analysis

4.5.2 ABC Analysis

4.5.3 Economic Order Quantity 4.5.3 Economic Order Quantity 4.5.4 Reorder Point 4.5.4 Reorder Point 4.5.5 Safety Stock 4.5.5 Safety Stock 4.5.6 Lean manufacturing 4.5.6 Lean manufacturing a.

a. JuJust st In In TiTime me (J(JITIT)) b

b.. KaKanbnban an SSysystetemm cc.. KKaaiizzeenn

d.

d. SiSingngle Ple Pieiece Fce Flolow Syw Syststemem e.

e. GeGembmba a WWalalkikingng f.

f. ViVirtrtuaual l SSttororagagee 5. Cash management

5. Cash management

5.1 Need of Cash 5.1 Need of Cash

5.2 Objectives of Cash management 5.2 Objectives of Cash management 5.3 Cost of Holding Cash

5.3 Cost of Holding Cash

5.5 Benefits of Cash management 5.5 Benefits of Cash management 5.6 Cash Budget

5.6 Cash Budget

5.7 Techniques of managing Cash in L&T 5.7 Techniques of managing Cash in L&T 6. Conclusion

6. Conclusion 7. Refrences 7. Refrences

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ABSTRACT

The project titled

‘Analysis Of Woking Capital Management’

aims at understanding andaims at understanding and analy

analyzing zing thethe

Working Capital Structure

of of ththe e plplantant,,

Faridabad Switchgear Works

(FSW)

,,

a a mamanufnufacactuturiring ng ununit it of of

La

Larse

rsen

n &

& To

Toubr

ubro

o Li

Limi

mited

ted

(L&T)(L&T)

..

WorkiWorking ng capitcapitalal ma

mananagegemement nt cocompmpririseses s of of fofour ur mamajojor r papartrts s – – InvInvententory ory manmanageagementment, , RecReceiveivableabless man

managemagement, ent, PayPayablable e ManManageagemenment t and and CasCash h manmanageagemenment. t. TheThere re are are aa numnumber ber of of tootoolsls available for a proper working capital management. Most of them are

available for a proper working capital management. Most of them are studied as a part of thestudied as a part of the project.

project.

As a part of

inventory management

, , variovarious us inventinventory management techniques are ory management techniques are studistudied.ed. Most of these are being implemented in the plant (like

Most of these are being implemented in the plant (like

PIV, ABC Analysis,

PIV, ABC Analysis, JIT, Single Piece

JIT, Single Piece

Flow System

etc). Even those tools, which are not practically implemented (likeetc). Even those tools, which are not practically implemented (like

Reorder

Point, Safety Stock

etc) are studied. These methods, along with their working and importance,etc) are studied. These methods, along with their working and importance, are studied in detail.

are studied in detail.

As fa

As far r asas

receiv

receivables

ables managem

management

ent

is is conconcercerned,ned,

Cre

Credit

dit Ter

Terms,

ms, Cred

Credit

it Pol

Policy

icy,,

andand

Collection Policy and Procedure

are understood, giving special focus on how they are beingare understood, giving special focus on how they are being im

impleplementmented ed prapracticticalcally. ly. AlsAlso, o, thethere re is is an an inninnovatovative ive tectechnihnique que beibeing ng useused d by by L&T L&T for for managing its receivables efficiently. This technique, known as

managing its receivables efficiently. This technique, known as

Channel

Channel Financing

Financing

makes suremakes sure that the receivables are collected almost instantly. Just like any other firm, even L&T is trying that the receivables are collected almost instantly. Just like any other firm, even L&T is trying to minimize its debtors, as far as possible. Collections are tried to be made as fast as they can, to minimize its debtors, as far as possible. Collections are tried to be made as fast as they can, and all these tools are very much focused and effective in doing so.

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Apart from this, I did

Discounting of Bills

as a part of as a part of

Payable management

technique. It’stechnique. It’s an easy way to check the savings a firm can make by paying its suppliers early.

an easy way to check the savings a firm can make by paying its suppliers early. An

Anotother her prpromomininent ent totool ol bebeining g imimplplemementented ed at at L&L&T T isis

Sweepi

Sweeping

ng Facil

Facility

ity

for for

Cash

Management

. It makes sure that the cash is not lying idle, and is being used efficiently, and. It makes sure that the cash is not lying idle, and is being used efficiently, and moreover, is invested wisely, in case opportunities are there.

moreover, is invested wisely, in case opportunities are there.

INTRODUCTION

PURPOSE: PURPOSE:

The purpose of the report,

‘Analysis of Working Capital Management’

, is to understand and, is to understand and analyze the working capital structure of the manufacturing unit of

analyze the working capital structure of the manufacturing unit of

L&T Limited,

that is,that is,

Faridabad Switchgear Works

(FSW)(FSW)

..

The objective was also to check the the real life situations in an industry as differing from The objective was also to check the the real life situations in an industry as differing from theories. The project will throw a light on how to link theory with the business world. Working theories. The project will throw a light on how to link theory with the business world. Working Capital Management is a part of Corporate Finance, and to understand it, one has to get Capital Management is a part of Corporate Finance, and to understand it, one has to get involved with it. Working with professionals gives us a feeling o

involved with it. Working with professionals gives us a feeling o f how our future life would be,f how our future life would be, and how we are supposed to behave in the business world.

and how we are supposed to behave in the business world.

LIMITATIONS: LIMITATIONS:

The report covers the practices followed at one plant of the company, so the study that is being The report covers the practices followed at one plant of the company, so the study that is being carried, may be useful for just one factory, and not for others, as there may be difference in the carried, may be useful for just one factory, and not for others, as there may be difference in the business module from one factory to another. Therefore, a generalization of this report, to business module from one factory to another. Therefore, a generalization of this report, to judge the efficiency of L&T Limited as a whole, cannot be done.

judge the efficiency of L&T Limited as a whole, cannot be done.

In addition, the project -span of 9-weeks, was insufficient for understanding, and analyzing the In addition, the project -span of 9-weeks, was insufficient for understanding, and analyzing the working capital structure of a plant completely. Apart from this, the suggestions being made in working capital structure of a plant completely. Apart from this, the suggestions being made in this report may or may not be practically applicable in

this report may or may not be practically applicable in the all types of industries.the all types of industries.

SCOPE: SCOPE:

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The report comprises of various suggestions, regarding the proper management of the working The report comprises of various suggestions, regarding the proper management of the working capital, at each and every step of the processes that are taking place at the FSW factory. capital, at each and every step of the processes that are taking place at the FSW factory. Suggestions for improving the overall efficiency of the plant, by improving the working capital Suggestions for improving the overall efficiency of the plant, by improving the working capital structure of the plant, have been provided. This is be done by suggesting ideas to improve structure of the plant, have been provided. This is be done by suggesting ideas to improve inventory management, receivables management and cash management processes; separately, inventory management, receivables management and cash management processes; separately, as well as collectively.

as well as collectively.

METHODS OF COLLECTING DATA AND THEIR SOURCES:

In most of the cases, the data is collected on the spot from the persons involved in the different In most of the cases, the data is collected on the spot from the persons involved in the different processes. As far as possible, I have tried to collect data by myself. I also tried to get involved processes. As far as possible, I have tried to collect data by myself. I also tried to get involved with people from various departments, right from Accounts & Finance Department to Planning with people from various departments, right from Accounts & Finance Department to Planning & Purchase Department, Stores Department, Marketing Department, Fabrication Department & Purchase Department, Stores Department, Marketing Department, Fabrication Department and Personnel Department.

and Personnel Department.

Apart from self-experimenting and observing, I constantly interacted with various employees Apart from self-experimenting and observing, I constantly interacted with various employees of the Company and gathered useful information on related matters, which were used in the of the Company and gathered useful information on related matters, which were used in the report as well as for my personal knowledge.

report as well as for my personal knowledge.

Various books and internet sites, including that of L&T itself, have also helped me a lot in Various books and internet sites, including that of L&T itself, have also helped me a lot in collecting data and understanding concepts.

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Working Capital Management

Every business needs investment to procure fixed assets, which remain in use for a longer

period. Money invested in these assets is called ‘Long

period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’. Businessterm Funds’ or ‘Fixed Capital’. Business

also needs funds for short-term purposes to finance current operations. Investment in short

ter

term m assassets ets lilike ke cascash, h, invinvententoriories, es, debdebtortors s etcetc., ., is is calcalled led ‘Sh‘Shortort-te-term rm FunFunds’ ds’ or or ‘Wo‘Workirkingng

Capital’.

The ‘Working Capital’ can be categorized, as funds needed for carrying out day-

The ‘Working Capital’ can be categorized, as funds needed for carrying out

day-to-day operations of the business smoothly.

to-day operations of the business smoothly.

The management of the working capital isThe management of the working capital is

equally important as the management of long-term financial investment.

Every running business needs working capital. Even

Every running business needs working capital. Even a business which is fully equipped with alla business which is fully equipped with all

types of fixed assets required is likely to collapse, if it does not

types of fixed assets required is likely to collapse, if it does not have;have;

a)

a) AdequatAdequate suppe supply oly of raf raw matw materialerials for s for procesprocessing;sing;

b)

b) Cash Cash to pay to pay for for wages, wages, power power and otand other cher costs;osts;

c)

c) Creating a stock of finished goods to Creating a stock of finished goods to feed the market demand regularly; and,feed the market demand regularly; and,

d)

d) The abThe abilitility to y to grant grant credicredit to t to its its customcustomers.ers.

Working capital is thus like the lifeblood of a business.

The business will not be able toThe business will not be able to

carry on day-to-day activities without the availability of adequate working capital.

Working Capital management is concerned with the problems that arise in attempting to Working Capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the relationship that

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The current assets refers to those assets which in the ordinary course of business can be, or will The current assets refers to those assets which in the ordinary course of business can be, or will be converted into cash within one year without undergoing diminution in the value and without be converted into cash within one year without undergoing diminution in the value and without

disrupting the operations of firm. The major current assets disrupting the operations of firm. The major current assets

are:-

 CashCash



 Marketable SecuritiesMarketable Securities



 Accounts ReceivablesAccounts Receivables



 InventoryInventory

The Current Liabilities are those liabilities which are intended, at their inception, to be paid in The Current Liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of current assets or earnings of the concern. the ordinary course of business, within a year, out of current assets or earnings of the concern. The basic current liabilities

The basic current liabilities

are:-

 Accounts PayableAccounts Payable



 Bills PayableBills Payable



 Bank OverdraftBank Overdraft



 Outstanding ExpensesOutstanding Expenses

The term Working Capital may be used

The term Working Capital may be used in two different ways.in two different ways.



Gross Working Capital (or total Working Capital):

The gross working capital refersThe gross working capital refers to the firm’s investment in all the current assets taken together. For example, if a firm to the firm’s investment in all the current assets taken together. For example, if a firm has a cash balance of Rs. 50000, debtors of Rs. 70000 and inventory of raw material has a cash balance of Rs. 50000, debtors of Rs. 70000 and inventory of raw material and finished goods has been

and finished goods has been assesassessed at sed at Rs. 100000, then the Rs. 100000, then the gross workigross working capital of ng capital of the firm is Rs. 220000.

the firm is Rs. 220000.



Net Working Capital:

The term net working capital may be defined as the excess of The term net working capital may be defined as the excess of total current assets over total current liabilities. The extent, to which these current total current assets over total current liabilities. The extent, to which these current liabilities are delayed, the firm gets availability of funds for that period.

liabilities are delayed, the firm gets availability of funds for that period.

Gross Working Capital= Sum Total of Current Assets

= RM + WIP + FG + Debtors + Cash and Bank Balance = RM + WIP + FG + Debtors + Cash and Bank Balance

Net Working

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Liabilities

RM + WIP + FG + Debtors + Cash and

RM + WIP + FG + Debtors + Cash and Bank BalanceBank Balance - Creditor

- Creditors – s – Direct wages Direct wages - - OverheadsOverheads

The Operating Cycle and Working Capital Needs

The working Capital requirement of firm depends, to a great extent upon the operating cycle of The working Capital requirement of firm depends, to a great extent upon the operating cycle of the firm.

the firm.

The operating cycle may be defined as the time duration starting from the

procurement of goods or raw materials and ending with the sales realization.

The lengthThe length and nature of the operating cycle may differ from one firm to another depending upon the size and nature of the operating cycle may differ from one firm to another depending upon the size and nature of the firm.

and nature of the firm.

In case of manufacturing concern, this series starts from procurement of raw materials and In case of manufacturing concern, this series starts from procurement of raw materials and ending with the sales realization of finished goods. There is a time gap between happening of ending with the sales realization of finished goods. There is a time gap between happening of the first event and happening of the last event. This time gap is called the

the first event and happening of the last event. This time gap is called the

operating cycle

..

Thus, the operating cycle of a firm consists of the time required for the completion of the Thus, the operating cycle of a firm consists of the time required for the completion of the chronological sequence of some or

chronological sequence of some or all of the following:all of the following:

i.

i. PrPrococururememenent ot of f raraw mw matatereriaials ls anand sd sererviviceces.s. ii

ii.. CoConvnverersision of ron of raw maw matatererialials ins into wto worork-k-inin-p-prorogrgresess.s. ii

iii.i. CoConvnverersision of won of worork-k-inin-pr-progrogresess ins into fito fininishshed goed goodods.s. iv

iv.. SaSale ole of ff fininisishehed god goodods (s (cacash osh or crr crededitit).). v.

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Figure:1 – Working capital Cycle

Explanation of diagram

Working capital cycle involves conversions and rotation of various constituents/components of

the working capital. Initially ‘cash’ is converted into raw materials. Subsequently, with the

usage of fixed assets resulting in value additions, the raw materials get converted into work in

process and then into finished goods. When sold on credit, the finished goods assume the form

of debtors who give the business cash on due date. Thus ‘cash’ assumes its original form again

at the end of one such working capital cycle but in the course it passes through various other

forms of current assets too. This is how various components of current assets keep on changing

their forms due to value addition. As a result, they rotate and business operations continue.

Thus, the working capital cycle involves rotation

Thus, the working capital cycle involves rotation of various constituents of the working capital.of various constituents of the working capital.

Finished Goods Finished Goods

Debtors

Debtors _{Raw material}_{Raw material}

Cash Cash Working Working Expenses Expenses Creditors Creditors Value Value Addition Addition Value Value Addition Addition Work in Process Work in Process

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L&T’s Operating Cycle

The operating cycle of L&T is as The operating cycle of L&T is as

follows:-



Procurement of raw material

The operating cycle for a company primarily begins with the purchase of raw materials, which The operating cycle for a company primarily begins with the purchase of raw materials, which are paid for after a delay representing the creditor's payable period

are paid for after a delay representing the creditor's payable period.. L&T is a capital goodsL&T is a capital goods manufacturer. Some raw materials are procured from outside, some manufactured

manufacturer. Some raw materials are procured from outside, some manufactured by its own.by its own. So

Somemetitimemes s it it mamay y hahappppen en ththat at cocompmpanany y neneededs s prprododucuct t in in ththe e foform rm of of raraw w mamateteririalal manufactured by its own SBU’s. In this case stock is transferred within the company but it manufactured by its own SBU’s. In this case stock is transferred within the company but it won’t be considered as actual sale and no sale tax levied but it is liable to pay excise duty since won’t be considered as actual sale and no sale tax levied but it is liable to pay excise duty since excise duty is paid on production a

excise duty is paid on production and it is the liability of manufacturer.nd it is the liability of manufacturer.



Conversion of Raw material into finished goods

These purchased raw materials are then converted by the production unit into finished These purchased raw materials are then converted by the production unit into finished goods and then sold. The time lag between the purchase of raw materials and the sale of goods and then sold. The time lag between the purchase of raw materials and the sale of finished goods is known as the

finished goods is known as the inventory period.inventory period.

Labor

Labor is vital for conversion of inputs into finished goods. Labor is vital for conversion of inputs into finished goods. There are three types of labour here

There are three types of labour here

Skilled Labor

Here a lob our hour rate is fixed and the number of hours required to perform that work Here a lob our hour rate is fixed and the number of hours required to perform that work is determined and on the basis of this labor expenses are determined. This is treated as is determined and on the basis of this labor expenses are determined. This is treated as fixed overheads.

fixed overheads.

Casual labor

This is not permanent labor. They are paid on daily basis to perform work of a This is not permanent labor. They are paid on daily basis to perform work of a non-recurrent nature. They are sourced from the Co

recurrent nature. They are sourced from the Contractors of the Company.ntractors of the Company.

Vendoring

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When there is a

When there is a capacicapacity constraty constraint then a int then a part of the work is part of the work is done by vendors and thedone by vendors and the parts manufactured by these vendors are assembled.

parts manufactured by these vendors are assembled. This is also called job work This is also called job work



Conversion of Work-in-progress into finished goods



Sale of Finished Goods

Goo

Goods ds are sold either on are sold either on cascash h basbasis is or credit basior credit basis. s. UpoUpon n salsale e of finisof finished hed googoods ds onon cr

crediedit t tetermrms, s, ththerere e exexisists ts a a titime me lalag g bebetwtween een ththe e sasale le of of fifininishshed ed googoods ds anand d ththee collection of cash on sale. This period

collection of cash on sale. This period is known as the accounts is known as the accounts receivables periodreceivables period



Conversion of Receivables into Cash

There are basically two ways available to vendo

There are basically two ways available to vendors to pay their dues to L&T. These rs to pay their dues to L&T. These are:-

are:-Cash Payment method

Cash Payment method

In this a vendor is supposed to clear his dues within a limited amount of time and mode In this a vendor is supposed to clear his dues within a limited amount of time and mode of payment must be highly liquid. The vendors can pay by demand drafts, pay orders, of payment must be highly liquid. The vendors can pay by demand drafts, pay orders, or cheques of party which are

or cheques of party which are subject to realization.subject to realization.

Channel Financing

Channel financing is used to receive fast money from debtors. Most of the firms Channel financing is used to receive fast money from debtors. Most of the firms generally sells goods or services on credit and it takes a little time to realize. Hence, generally sells goods or services on credit and it takes a little time to realize. Hence, receivables form an important part of working capital management.

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Liquidity versus Profitability- A Risk-Return Trade off

Net Working Capital has bearing on Profitability as well as risk.

The termThe term

Profitability

used in this context

is measured by profits after

is measured by profits after expenses

expenses

. The term. The term

Risk

is defined as theis defined as the

probability that a firm

probability that a firm will become technically insolvent

will become technically insolvent

so that it will not be able to meetso that it will not be able to meet its obligations when they become due

its obligations when they become due for payment.for payment. It is said that greater the amount of working

It is said that greater the amount of working capital the less risk prone the firm iscapital the less risk prone the firm is

The decision on how much working capital be maintained involves a trade-off because having The decision on how much working capital be maintained involves a trade-off because having a large working capital may reduce the liquidity risk faced by the firm, but it can have a a large working capital may reduce the liquidity risk faced by the firm, but it can have a negative effect on the cash flows. Therefore, the net effect on the value of the firm should be negative effect on the cash flows. Therefore, the net effect on the value of the firm should be used to determine the optimal amount of

used to determine the optimal amount of working capital.working capital.

The goal of Working Capital Management is to manage current assets and liabilities in

such a way that a satisfactory level of working Capital is maintained.

The assessment of the working capital should be accurate even in the case

of small and micro enterprises where business operation is not very large. We know that

wor

workinking g capcapitaital l has has a a ververy y cloclose se relrelatiationsonship hip witwith h dayday-to-to-da-day y operoperatiations ons of of a a busbusineiness.ss.

Negligence in proper assessment of the working capital, therefore, can affect the

day-to-day operations severely. It may lead to cash crisis and ultimately to liquidation. An

day operations severely. It may lead to cash crisis and ultimately to liquidation. An

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

over-assessment of the working capital and both of them are dangerous.

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CONSEQUEN

CES OF

UNDER ASSESSMENT OF WORKING CAPITAL

•

• GroGrowth may wth may be be stustuntented. d. It It may become may become difdiffificulcult t for the for the ententerperprisrise e to to undeundertartakeke

profitable projects due to non-availability of working Capital.

•

• Implementation of operating plans may become difficult and consequently the profitImplementation of operating plans may become difficult and consequently the profit

goals may not be achieved.

•

• Cash crisis may emerge due to paucity of working funds.Cash crisis may emerge due to paucity of working funds.

•

• OpOptitimumum m cacapapacicity ty ututililisisatatioion n of of fifixexed d asassesets ts mamay y nonot t be be acachihieveeved d due due to to nonon-

n-availability of the working capital.

availability of the working capital.

•

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

credibility. This situation may lead to business closure.

•

• The business may be compelled to buy raw materials on credit and sell finished goodsThe business may be compelled to buy raw materials on credit and sell finished goods

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

selling prices by offering discounts. Both these situations would affect profitability

adversely.

•

• Non-availability of stocks due to non-availability of funds may result in production Non-availability of stocks due to non-availability of funds may result in production

stoppage.

While underassess

ment of

worki

ng

capital has

disastro

us

impli

cations on

busines

s,

over

assessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL

•

• Excess of working capital may result in unnecessary accumulation of Excess of working capital may result in unnecessary accumulation of

inventories. inventories.

•

• It may lead to offer too liberal credit terms to buIt may lead to offer too liberal credit terms to bu yers and very poor yers and very poor

recovery system and cash management. recovery system and cash management.

•

• It may make management complacent leading to its inefficiency.It may make management complacent leading to its inefficiency. •

• Over-investment in working capital makes capital less productive andOver-investment in working capital makes capital less productive and

may reduce return on investment. may reduce return on investment.

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Working Capital: Policy

The

There re is is an an ineinevitvitable relatable relationionshiship, p, betbetweeween n the the salsales es and and curcurrenrent t assassetsets. . The The actactual ual andand forecasted sales have major impact on the amount of current assets which the firm must forecasted sales have major impact on the amount of current assets which the firm must maintain. So, depending upon the sales forecast, the financial manager should also estimate the maintain. So, depending upon the sales forecast, the financial manager should also estimate the requirement of current assets.

requirement of current assets.

There are three types of working capital policies which a firm may adopt i.e. moderate working There are three types of working capital policies which a firm may adopt i.e. moderate working capital policy, conservative working capital policy, and aggressive working capital policy. capital policy, conservative working capital policy, and aggressive working capital policy. These policies describe the relationship between sales level

These policies describe the relationship between sales level and the level of current assets.and the level of current assets.

Figu

Figure 2

re 2 : Dif

: Differe

ferent ty

nt types of

pes of work

working Ca

ing Capital

pital

Policies

Current assets Current assets Sales level Sales level Conserva

Conservativetive

Moderate Moderate

Aggresive Aggresive

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In case of moderate working capital policy, the increase in sales level will be

coupled with proportionate increase in level of current assets

also e.g. if the salesalso e.g. if the sales increase or expected to increase by 10%, then the level of current assets will also be increase or expected to increase by 10%, then the level of current assets will also be increased by 10%.

increased by 10%.

In case of conservative working capital policy

, the firm does not like to , the firm does not like to take risk.take risk.

For

every increase in sales, the level of current assets will be increased more than

proportionately

. Such a policy tends to. Such a policy tends to reduce the risk of shortage of working ca

reduce the risk of shortage of working capital by increasing the safety component of pital by increasing the safety component of current assets. The conservative working capital policy also reduces the risk of non current assets. The conservative working capital policy also reduces the risk of non payment to liabilities.

payment to liabilities.

In case of aggressive working capital policy the increase in sales does not result in

proportionate increase in current asset.

For example, for 10% increase in sales theFor example, for 10% increase in sales the level of current asset is increased by 7% only.

level of current asset is increased by 7% only. This aggressive policy has many This aggressive policy has many

implications-•

• The risk of insolvency of the firm increases as the The risk of insolvency of the firm increases as the firm maintains low liquidity.firm maintains low liquidity. •

• The firm is exposed to greater risk as it may not be able to face unexpected change, inThe firm is exposed to greater risk as it may not be able to face unexpected change, in

the market the market

•

• Reduced investment in current assets will result in increase in profitability of the firmReduced investment in current assets will result in increase in profitability of the firm

L&T and its Working Capital policy

L&T follows conservative working capital policy i.e. for every increase in sales

level the level of

level the level of current assets will be

current assets will be increa

increased more

sed more than proportiona

than proportionately.

tely.

Such aSuch a policy tends to reduce the risk of shortage of working capital by increasing the safety policy tends to reduce the risk of shortage of working capital by increasing the safety

component of current assets.