Summer training Report

ON Working Capital Management

A report Submitted in partial fulfilment of the requirement of the award of degree of Master of Business Administration
(Session: - 2010 11) SUBMITTED TO: CONTROLLER OF EXAMINATION M.D.UNIVERSITY ROHTAK SUBMITTED BY: SONAM GUPTA ROLL NO.2163

INSTITUTE OF MANAGEMENT STUDY AND RESEARCH M. D. U. [ROHTAK]

ACKNOWLEDGEMENT
A work is never of an individual. It is more a combination of ideas, suggestion, contributions and work involved in many folks. This Project report comes into existence with great efforts and help from organizations employees, my friends and teachers of my institute. Special thanks to Mr. SHRI NIWAS BANSAL (Senior Accountant), they guided me for this project. It has been a pleasure working with them and I could learn the characteristics of an efficient professional. And they have provided me the necessary practical knowledge and information about Working Capital. I am thankful to my entire faculty member as without there co-operation this project report could not reach to its fulfilment. I am thankful to the Lakshmi Precision Screws Management for being transparent sharing their views and company related information which all has given me a holistic approach in doing the project work. I am deeply indebted to all the employees of Lakshmi Precision Screws for their guidance and encouragement. I am extremely thankful to god who is the ultimate Guide providing me with valuable, insight, courage and determination at every doorstep with deep regard always.

(SONAM GUPTA)

PREFACE
Practical training constitutes an integral part of management studies. Training gives an opportunity to the students to expose themselves to the industrial environment, which is quit different from the classroom teachings. One cannot rely on theoretical knowledge. It has to be coupled with practical to be fruitful. Training also enables the management students to see themselves the working condition under which they have to work in the future. It thus enables the students to undergone those experiences, which will help them later when they join any organization. After liberalization the Indian economic sense is changed. Industrial activity in India has become a thing to watch & I really wanted to be a part of it &it is essential for me being a finance student. I underwent eight weeks of training at LAKSHMI PRECISION SCREWS LTD. I consider myself lucky to get my summer training in such a big Company. It really helped me to get a practical insight into actual business environment & provide me an opportunity to make my financial management concepts more clear.

(SONAM GUPTA)

TABLE OF CONTENTS

CHAPTER 1 CHAPTER 2 CHAPTER 3

Introduction of company and the topic Objective, scope and limitation of the study Research Methodology (Research design, Types of data)

CHAPTER 4 CHAPTER 5 CHAPTER 6 CHAPTER 7

Data collection & Analysis Conclusions Recommendations and Suggestions Appendix Bibliography

INTRODUCTION
Growth of a successful venture depends on efficient overall management of a business unit. It is a collective effort of technical, marketing and finance personals. Working capital is an important aspect of financial management. Till recently, working capital management was neglected in India by both private and public sector companies. This was to some extent a reflection of comparative ease in availability of funds from the capital market or commercial and development bands in case of public sector, funds were made available to the government. Due to the development in the recent years, situation has completely changed. With the commercial and industrial development in the recent years, need for working capital management is hard felt. No longer it is possible for even a very big and well established company to get funds from financial institutions, the dependence on which is fast growing without most detailed security of its requests. In a developing country like India where sources are limited, they should be put to best possible use. Exceptional care is needed for managing unit so that the organization can without ups and downs and there should be reasonably adequate resources available for its day -to-day operations. Thus the need of working capital. Working capital refers to the excess of current assets over current liabilities. Management of working capital therefore, is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter relationship that exists between them. Any financial control or planning can be effective only with the active participation of entire managerial group of organization. If a new project has to come up the civil mechanical project engineers have to do their job well. All are equal partner in achieving goal fined by the management. Responsibility of finance is to keep a close watch on various financial operations and act as a mental and catalytic agent. For this the financial people must have a modicum of technical knowledge, even as modern technical people have knowledge of the basic aspects of finance. Public sector units also cannot take it granted that govt. will give them all the money they need. They must learn to rely increasingly on internal resources by maximising their surplus.

Working capital management is the lifeblood of the business. Keeping all these in view not only a sound working capital management is required for every business but also a sound sense of working capital management should be cultivated among all the executives technical, finance executives help not only ineffective running of business but it creates a close relationship at all management level to achieve desired objectives and goals.

Industry profile

INDUSTRY PROFILE

MEANING OF FASTENERS AND TYPES

A fastener is a broad term for nut, bolds & screws. It is an alternate of welding and riveting. Fasteners can be classifying broadly in to two categories: 1. 2. Depending on their tensile Mild Steel (MS) & high tensile fasteners.

USES
Mile steel fasteners are used in general application & produced by the SSI & unorganized sector. On the other trend (HT) fasteners that are relatively technology advance, are manufactured by organized sector. In India fasteners are used in textiles, machine tools, pumps automobiles & general engineering largest consumer 50% HT fasteners.

MAJOR MANUFACTURES
In India there are 4 major players in fasteners industries: 1. Sundaram fasteners 2. Sterling tools 3. Precision fasteners 4. LPS A Sundaram fastener Industries (SFI) is a leader of automotive fasteners. While, precision fasteners limited (PFL) leads in industrial fasteners. Both are trying to enter in the each other segment industry.

IMPROVED INPUT FRONT

Until a few years ago producer of HT fasteners had to input as much as 60% of their Raw Material like careful steel & cold heading quality steel due to poor quality. But availability of good steels in India also has changed the scenario. Now days Bihar alloys, Shri SR alloys, Steel Authority of India Ltd, Salam Steel Corporation are producing the special steel for fasteners. The automobile boom is the major reason for continuous growth of fasteners industry because the total sale of automobile ( passenger cars, 2& 3 wheelers, multiutility vehicles, sport utility vehicles) has achieved the total figure of 10 lakhs figures and commercial vehicles sales has also earned a growth of continuous increase in total sale. The engineering segment has also registered 25 % growth, which is also a major consumer of fasteners.

PRODUCTION
Near about 200000 metric ton of fasteners are being produced by various fasteners manufactures in organized and unorganized sector. Sundaram fastener is the largest manufacturer of HT fasteners. Which produces approximately 48000 metric tons of high quality HT fasteners and it crossed the sales figures of Rs. 800 crore in year 2000-2001. Precision fasteners also have done well. Its sales went up 32% to Rs. 251 Crore in 2000-2001. LPS has also come in a long way. It crossed the 4475 tones mark of production in 2000-2001 years and total sales of 8640 Lakh.

EXPORT OPPORTUNITY

The concept of outsourcing fasteners is under going a sea change globally. Auto giants around the world have identified countries to buy a particular component depending upon technology and cost. Arun Sharma, president PFL explains India has very good scope in this of globalize purchase and many auto giants are looking at India as a sourcing lease. Quality is an important factor in export but not the only criterion; what is more important is timely deliveries and after sales service through there is a vast potential to export fasteners to DEMs abroad, it has not been exploited due to difficulties in setting up service points near each of the DEM manufacture. Hence the domestic producer foray abroad is limited to the replacement market. To the successful in exports, Indian companies dont require foreign technical collaboration, as a fastener is not a very hi-tech item. What is required is a foreign tie up for marketing and after sales service. This is evident from the fact that recently the market leader, Sundaram fastener tied up with kamax were Rudolf Kellies, Germany for marketing. As India prepares to join the international economic mainstream, there will be many such tie-ups.

Company Profile

COMPANY PROFILE 2010

LAKSHMI PRECISION SCREWS LTD.

46/1 MILE STONE, HISSAR ROAD ROHTAK-124001, HARYANA Tel.: +91-1262-248288/248289/249920/249921 Fax.: +91-1262-248297/249922
Website: www.lpsindia.com

Email: corp_aff@lpsboi.com /mktg@lpsboi.com

INTRODUCTION

Lakshmi Precision Screws is a prominent engineering unit of Rohtak. The company is one of the leading manufacturers and exporters of high tensile automotive and industrial fasteners in India. The company has well-established state-of-art manufacturing facilities and enjoys very good reputation in domestic as well as in the international market for the quality of its products. LPS group of companies started in 1968 and subsequently started its activities in 1972. Lakshmi Precision Screws(LPS) was converted into a public limited company in 1971. Initially manufacturing high-tensile fasteners, its product range has increased steadily to cater to different industrial sectors including automobiles, machine tools, refrigeration, textile machinery etc. for the export and domestic markets. The company is one of the leading exporters of industrial fasteners in India. It has been awarded the Certificate of Export Excellence by the Engineering Export Promotion Council(EEPC) twice in succession in 1992-93 and 1993-94,in recognition of its export performance. The public issue in 1983 part financed the expansion of installed capacity from 2800tpa to 6000tpa, which was later revised to5000tpa. A right issue funded the installation of a modern plant in 1993, near the existing one, increasing the capacity to 7500tpain 1995-96; the company envisaged an expansion /modernisation scheme involving a capital outlay of Rs.16.55cr with an installed capacity of 2700tpa. The present installed capacity of LPS is about 12200 tones per annum. The companys annual turnover is Rs.70crore. LPS has more than one hundred range of machines and has capacity to produce over 10000 types of industrial and automotive fasteners conforming to national and international standards, to meet the needs of domestic as well as inter-national customers.

The quality products of the company are not only patronized by customers in India but also abroad. About 30%products are exported to U.S.A., Europe, Japan and other South East Asian Countries. The company has a team of technically qualified and experienced professionals in the field of manufacturing, quality management, marketing, finance, materials, personnel and administration LPS has been certified with the coveted ISO-9002 certification by Bureau of Indian Standards. Also, the company has now received QS-9000 certification. The company is conforming to the international standards in all endeavours. The company offers a wide range of products including cold forged high tensile socket head & hex head screws, special nuts & bolts for automobile sector and construction sector, stainless steel fasteners etc. The company has entered into a joint venture agreement with the Brossard International AG, Switzerland for development of software and marketing/distribution of new range of fasteners for niche market of electrical and electronics etc. In 2001-2002 the company was awarded the Golden Peacock Environment Management award which was given by WEF.

BOARD OF DIRECTORS
Chairman & Managing Director Vice chairman & Managing Director Whole Time Director Non Executive Director Non Executive Director Non Executive Independent Director Non Executive Independent Director Non Executive Independent Director Non Executive Independent Director Non Executive Independent Director Non Executive Independent Director Mr.Lalit Kumar Jain Mr.Dinesh Kumar Jain Mr. Vijay Kumar Jain Mr. Rajesh Jain Smt. Sushila Devi Jain Mr. Jamshedji Rustomji Desai Mr. Babulal S. Aggarwal Mr. Keshwa Nand Rattan Mr. Dharmendra Bhandari Mr. Deepak Jain Mr. Ajay Kumar Chakra borty

MANAGEMENT TEAM
Marketing Manager Sudesh Kumar Jain

Marketing Manager Marketing Manager Works Manager(Plant-2) Works Manager(Plant-1) Marketing Manager(Plant-1) Marketing Manager(Plant-2) Tools &Die Store Manager Manager(UPS)

Gagan Jain Niklesh Jain R.P.Khanna Pradeep Dhawan B.R.Patnayak R.K.Rawat R.K.Arya Amit Jain

COMPANY ORAGNISATION

Board of Directors

Chairman & Managing Director Quality Management Corporate Strategy

Marketing

R&D

Planning

Production

QA

General

D E V E L O P M E N T

S A L E S

D E V E L O P M E N T

L A B O R A T O R Y

C E N T R A L

P R O D U C T I O N

P L A N N I N G

P L A N T I

P L A N T II

P U R C H A S E

F I N A N C E

H R D

E D P

CHRONOLOGICAL HISTORY OF LPS

1959 1972 1973 1977 1978 1983 1984 1986 1988 1991 1992 1993 1993 1994 1995 1995

Established Nav Bharat Industries as small parts manufacturer. Established Lakshmi Precision Screws Pvt Ltd as Socket Head Screws Manufacturer. Technical tie-up with the German firm M/s Richard Bergner. Acknowledged quality source of fastener. Technical tie-up with M/s Richard Bergner expires. Secured self certification status from FORD. Declared Public Limited Company. Secured self certification status from M/s Lakshmi Machine Works. Established as manufacturer-exporter. Received Regional Export Award from Engineering Export Promotion Council, (EEPC) India. Received Regional Export Award from EEPC for the second Consecutive year. Received Regional Export Award from EEPC for the third consecutive year. Established Plant - II. Received Employment Generation Award from Director of Industries, Haryana State. Accredited in Mechanical & Chemical Testing by A2LA, USA to meet Fastener Quality Act of US. Accredited in Mechanical Measurement, Mechanical & Chemical Testing by National Accreditation Board for Calibration & Testing Laboratories (NABL). Government of India.

1996 1998

Certified to ISO-9002. Installed Bolt Maker (AF 2525) to add production capacity to 12200 MT. Self Certification status from TELCO. Technical Tie-up with Sunil Machinery Corporation, Korea. Joint Venture with Bossard AG-Switzerland.

1998 1999 2001 2002 2003 2003 2004 2005 2005 2005 2006 2006 2007 2007

Licensed Manufacturers of TORX Screw from Camcar Co. USA. QS 9000 Certification. ISO/TS-16949 Certification. ISO-14001 Certification. Implemented ERPSAP R/3. - Golden Peacock Award. Approved Volvo Global Suppliers ISO/TS16949 (version2002) Certification Recommended for OHSAS 18001 Certification License to manufacture fasteners with Doerken Proprietary Delta & Delta-Tone Finishing Technology Marketing tie up with Wiha Werkzeuge GmbH Germany for Their Quality Tools OHSAS 18001 Certification Achieved Export Excellence Award from EEPC India Silver Award for Manufacturing Excellence in EngineeringEmerging Category Udyog Rattan Award from Haryana Government DOL (Direct on Line) Certificate from Hero Honda Motors.

JOINT VENTURE/COLLABORATION AGREEMENT

LPS-BOSSARD Pvt. Ltd. - LPS-BOSSARD Pvt. Ltd. is a joint

venture company of gives state of the art fastening solution/technology to customer in India. Has entered into a joint venture agreement on 26th June 1997 with Bossard AG. Bossard is a company subsisting under the laws of Switzerland and has its principal office at Steinhausertrasse, 70 Postfach, CH-6305, Zug, Switzerland. In the joint venture 51% share capital is held by Bossard and 49% is held by LPS. The present directors of the company are Mr. Ramesh Jain, Mr. Lalit Kumar Jain and Mr. Scott Wright Mac Meekin. The latest inventory management technique through logistic support is also provided by this company.

RECOIL BUSINESS DIVISION of LPS- The company has

entered into a distributor agreement dated 26/11/1996 with Recoil PTY Ltd a corporation existing under the laws of commonwealth of Australia. Recoil has appointed LPS to sell and promote its products as given hereunder on an exclusive basis with the exception of Panchsheel fasteners for delhi territory. The product include are Recoil, Fix-athread, Plugsaver, Keysert, Re-grip Amd Drill-out.

Textron Inc. U.S.A.- LPS has entered into a licensing agreement

with Textron Inc, USA for manufacturing and marketing Torx brand of proprietary products. Textron is 10 billion USD multi- specialty companies, with 1.8 billion USD as revenue from fastening division. Torx drive systems improve assembly line productively thereby reducing cost.Torx is the registered trademark of acument intellectual properties, LLC.

PRODUCTS OF COMPANY

Company produces two type of product: 1. 2. Standard Product Special Product

Standard Product: A wide range of standard cold forged high

tensile fasteners over 6000 varieties covering the diameter range 3mm to 30mm and the length range of 6mm to 300mm. Standard products cover most of international standards ISO, ANSI/ASME, BS, DIN etc, and engineered as per respective standards. These standard products cover a very wide range of industries like Automobile sector, standard/special m/c building sectors, Textile sectors, Printing machineries, Software sectors etc. Products: Socket head cap screws Socket low head cap screws Socket counter Sunk head screw Socket button head cap screws Socket set screws knurled cup point/special point Hex head Bolt/Screws Hex Nuts Dowel pins Stainless steel fastener Special Automotive fastener Slotted/ Hex/ Shoulder screws Hex/Bi Hex Flange Screws

Special product: A very comprehensive range of special high

tensile Bolts/Screws, Studs, Nuts, and special cold forged components in

the size range of 3mm to 30mm are manufactured. These special products are made to satisfy very exacting engineering standards .LPS range of special products covers the automobile, tractor heavy earth moving equipments, Textile machineries and machine building industries. To name a few of the special products in which LPS is the undisputed leaders are: Products: Durlock Bolts Wheel/Hub Bolt Flange Bolt Connecting Rod Bolt Gear shaft Axles Stud Torx and Clamp Compressor Blot Con rod Bolts Collar Bolts and Axles Ball pins, Ball rod Cylinder Head Bolt C.R. Bolt Pivot Pin Transmission Bolt

MISSION OF LPS

To be a growth-oriented professional company promoting high standards of business ethics and producing best quality products thereby achieving international standards of excellence. To make each member of the company feel proud and empowered by fostering a culture of participation and innovation To strive for reduction in defects and achieve 6 sigma and beyond so as to make quality a way of life in LPS. To reduce cycle time in all processes as a step towards over-all improvement. To provide prompt and excellent service to customers anywhere in the world.

VISION OF LPS
Be recognised as the best and preferred supplier of national/international standard. Maximise the shareholders wealth Establish strong R& D facility and innovate continuously.

MANUFACTURING PROCESS

The company has been manufacturing the high tensile fasteners for the past 37 years and over the period has developed expertise in the production, planning, and control of the process. The brief description of the manufacturing process followed by the company is as per the chart given below:

PROCESS CHART

Despatc h

Wire Processi ng ng Wire Drawing

Packing

Inspecti on

Cold Forging

Finishin g

Trimmin g

Heat Treatme nt

Pointing Thread Rolling

ISO 9002 (Quality Management Systems)

Lakshmi Precision Screws Ltd is committed to produce Quality High Tensile Precision Fasteners. The most important criterion of Quality is the satisfaction of customer, both National & International. The company is registered to the BSI and to the ISO 9002: 1994 & ISO 14001:1996 for its quality assurance of international standards. Quality is the way of life at LPS we follow strict norms of quality when it Comes to resource management production, services, commitment and working environment we believe the quality- consciousness in a panacea for all economic and social ills. May it be quality of life quality of business; we revere it in all spheres of our job. Each lot that moves out of our production facilities undergoes mechanical, Chemical and metallurgical inspection at over 20 inspection nodes, beginning from raw material receipt to packaging. A2LA, USA and NABL, India have accredited LPS test facilities. We are certified ISO-9002, QS-9000, ISO-14001 & TS-16949 company. The Advanced Product Quality (APQP), Production Part Approval Process (PPAP) and Failure Mode Effect Analysis (FMEA) have already been implemented. Strict on- line visual SPC techniques to monitor product quality on a real time basis have also been incorporated.

Research & Development activities at LPS,

The R&D division at LPS, Rohtak plays a pivotal role in retaining and consolidating company's leadership role in screws business by continuous up gradation of quality, process and services, and innovating development strategies to come up with new products with cost competitiveness. Cross-fertilization of knowledge between production, quality control and commercial units in order to maintain world class standard has been the guiding principle of R&D functions. To clear understand our process capabilities and the customer requirements our team gives new product at the rate of one per day. An integrated engineering team and high technology input have been instrumental in producing world class fasteners. The fastener you can rely on. Because LPS fastener has always set itself the highest standard. To name a few our team has successfully developed critical component for customers like John deer, ford,Daewoo,Carraro, Volvo, hero Honda motor cycle, Honda Siel, Matsusita, New Holland tractors and most of the other automotive multinational joint venture. In the domestic market we have achieved a long standing business relationship with all the major players like Tisco, Bajaj auto, Maruti Suzuki, escorts, Yamaha, hero- Honda, ISRO, BHEL, LML, Mico-Bosch, TVS Suzuki etc.

Major tasks
1. 2. Developments of high value products to serve niche market. Quality up gradation of existing products enabling global acceptance.

3.

Cost reduction by process development, optimization and refinement to

improve competitive edge. 4. 5. Technology enhancement to increase production with quality. Market segment improvement by interacting and sharing knowledge

with customers and assisting them in trouble shooting operation. In addition to the above, R&D division closely interacts with reputed national and international laboratories/scientific institution/universities to avail expert services for critical investigation.

CERTIFICATES

LOGISTICS:
The product that is shipped to the client always meet the zero defects standards and ensure Just-in-time deliveries, so that the clients production plans are not disturbed. Over the years, LPS has perfected the art of servicing. To further augment the logistics of product delivery, automated weighing & packing machines are installed and VCM has been achieved in transaction automation. Logistics support through national and international carriers is also available. And for the Indian customer, four warehouses with dedicated stocks attached o its regional offices make for quicker deliveries. All proving that LPS can seamlessly integrated into the supply chain of any manufacturing industry

VALUE ADDED SERVICE: The state of our customer friendliness goes beyond and translates into strong benefits. Some tangible value additions that LPS offers are traceability to the suppliers lot since each warehouse is lot and location controlled. Bar coding can be done as per customer requirements and dedicated stock can be reserved for particular customers to ensure Just-in-time deliveries.

CLIENTS OF THE COMPANY

DOMESTIC CLIENTS FOREIGN CLIENTS Domestic clients: Heavy Commercial Vehicle VOLVO TATA HINDUSTAN MOTORS EICHER MAHINDRA Light Commercial Vehicles: TATA MARUTI SUZUKI SWARAJ MAZDA Tractors: ESCORT EICHER HMT MAHINDRA L & T JOHN DEERE LTD Cars: MARUTI SUZUKI REVA TATA HM AMBASSADOR

Tow Wheelers: KINETIC LML HERO HONDA YAMAHA TVS BAJAJ AUTO LTD Earthmoving Equipment: HM BHEL TVS Textile Machinery: LMW Machinery Tools: KIRLOSKAR KOMASTU JYOTI LTD Hydraulic Equipment: TATA KIRLOSKAR Heavy Electrical Equipment: BHEL GREAVES Refrigration/Air cond. : GODREJ CARRIER INDIA SUBROS LTD

Indian Railway

INTERNATIONAL CLIENTS:
Bremick PTY Ltd.(Australia) Muller & Wilde (Austria) Hussaini Brothers (Austria) Bossard France (south Africa) Berner France Sarl (France) Nestinox B.V (Holland) China Crystal Metal ware Limited (Hong Kong) Nuova Ferro and Acciaio SRI (Italy) National Socket Screw Company (South Africa) L & W fasteners Co. (USA) Heads and Threads Company (USA) Lindstrom Metric.Inc (USA) Bangkok Salakphon Ltd. (Australia)

LAKSHMI PRECISION SCREWS LIMITED

HEAD OFFICE & FACTORY
46/1, MILE STONE, HISSAR ROAD, ROHTAK-124 001, HARYANA (INDIA) Tel.: +91-1262-248288/248289/249920/249921 Fax : +91-1262-248297/249922 Email.: corp_aff@lpsboi.com; mktg@lpsboi.com,

BANGALORE OFFICE
305 A, Mittal Tower, 3rd floor, M G Road Bangalore - 560 001 (India) Phone : +91-80-25588587 Fax : +91-80-25597232 Email.: lpsbgl@bgl.vsnl..net.in

MUMBAI OFFICE
153-A, Mittal Tower, Nariman Point Bombay - 400 021 (India) Phone : +91-22-22821918/22843864/22325061/22325062 Fax : +91-22-22834492 Email : Screws@bom2.vsnl.net. in

KOLKATA OFFICE
8, Canning Street, 3rd floor, Room No.303, KOLKATA-700 001. Phone :+91-33-2210754 Fax : +91-33-4739087/ 2107269 / 2210754 Email: lpsl@cal3.vsnl.net.in

NEW DELHI OFFICE

146, New Cycle Market, Jhandewalan Extn. New Delhi 110 055 (India) Phone : +91-11-23527642/23532135 Fax : +91-11-27532138 Email: lpsdel@ndb.vsnl.net.in

LPS-RECOIL DIVISION
505, 5th Floor, Ansals Majestic Tower, G-17, Community Centre, Vikas Puri, New Delhi-110018 Phone :+91-11-25617894 Fax: +91-11-25514043 E-mail: lkj@bol.net.in

Objective

OBJECTIVES OF THE STUDY

There is always an objective of every study and there is no exception. Working capital is one of the most important tools in the hands of the company for the successful operation of the business. It is imperative for the finance manager to properly assess the future requirements of the working capital in the company. Keeping in view this objective in mind, the company assigned me this challenging project of estimating the future needs of working capital of the company. The project itself speaks for the importance of the study. To study organizations working capital financial mix. To assess the working capital requirements. To know about the length of operating cycle. To study the financial pattern of LPS Ltd. To study the earning and payments of the organization. To find the current assets and current liabilities of LPS Ltd. To know about the optimum maintainable. To study the growth and the performance of LPS Ltd. To locate weakness and suggest various suggestion.

Limitations

LIMITATIONS OF THE STUDY

The Study of competitive firms could not be made. Thus comparative study could not be possible. The secret policy of LPS does not allow us to use more data. At some places approximate figures had been taken as per instruction of company officers. The data could have been analyzed and probed from different angles, interpreted and studied up to a certain limit. A deeper insight could have revealed more and better results. Non-availability and restricted access to the various confidential information of the organization has also proved as limitation.

Research Methodology

RESEARCH METHODOLOGY

PROBLEM
To know the working capital requirements of the LPS Ltd. and to give some suggestion in this regard.

Types of Research
This research consists of four types of research: Descriptive Research Analytical Research Qualitative Research Quantitative Research

DESCRIPTIVE RESEARCH
To conduct the research work accurately , we conducted descriptive research. It includes surveys and fact-finding inquiries of different kinds. It is done to know the following facts: The LPS sales are more influenced by quality. Frequency of using Products. Media for awareness of schemes.

ANALYTICAL RESEARCH
In this, we have to use facts and information already available and analyse them.

QUALITATIVE RESEARCH
In selecting the appropriate research design of the study and the types of data needed, the choice of data collection techniques is four grouped. It is done for: Consumer Needs Consumer Preferences Availability of consumer

QUANITATIVE RESEARCH

Quantitative research is obtained to rate the different aspect on parameters. Image of brands Brand Loyalty Switch ability of customers Awareness among consumer

Steps of Methodology

1.Collection of Data 2.Organisation of data

3. Presentation of Data 4. Analysis of Data 5.Interpretation of Data a) Collection of Data: Both the primary and secondary data has been collected from the company. The secondary data was provided through the annual report; website etc. of the company and the primary data was collected through the medium of face-to-face interactions/interviews with the businesspersons in the market.

b) Organisation of Data: Data once collected needed to organize for further processing. Data collected by me was carefully gone through then the relevant and useful matter was assorted and properly organized.

c) Presentation of data: The data is of no use unless and until it is given in a presentable form. Thus, after proper organisation, the data is given in a presentable form with complete details with the help of bar diagrams, pie charts etc.

d) Analysis of Data: The data is carefully analysed keeping in consideration both the pros and cons for the purpose of arriving at concrete conclusion.

e) Interpretation of Data: After carefully analyzing the data, it has been aptly interpreted in order to give concrete conclusion and proper recommendations.

Introduction to Project

Management of working capital

Working capital management is an important aspect of financial management. In business, money is required for fixed assets and working capital. Fixed assets include land and building, plant and machinery, furniture and fittings etc. Fixed assets are required to be retained in the business for a long period and yield returns over the life of such assets. Working capital, on the other hand is required for the efficient and effective use of fixed assets. The main objective of working capital management is to determine the optimum amount of working capital required.

Definition of working capital There are two concept of working capital: 1. Gross working capital 2. Net working capital (I) Gross Working Capital Concept:According to this concept working capital means gross working capital, which is the total of all the current assets of a business. Gross working capital = Total Current Assets Definition favouring this concept is: 1. Working capital means total of current assets. ---Mead, Mallott and Field 2. Any acquisition of funds which increase the current assets increases working capital, for they are one and the same. ---Bonneville and Dewey

Persons acknowledging the total of current assets as working capital give the Following arguments in their favour: 1. 2. Just as fixed assets are considered as the symbol of fixed assets, current assets must also be considered as the symbol of working capital. Any acquisition of funds increases the working capital. This statement proves true according to this concept whereas it does not hold true according to the second concept. 3. Most of the managers plan their business operations according to the current assets concept because these are the assets used in day-to-day business operations. 4. Utility of current assets remains the same whether financed from long term loans or short-term loans. Hence the total amount of current assets must be treated as working capital.

(II) Net Working Capital Concept:According to this concept working capital means net working capital, which is the excess of current assets over the current liabilities. Net working capital = Current assets--Current liabilities Persons favouring this concept give the following argument in their favour: 1. This concept gives the true information about the liquidity of a concern. According to this concept the working capital appears to be increased merely by taking a short-term loan whereas in the second concept working capital remains unchanged by doing so. Thus the second concept looks more logical. In actual sense, working capital increases only by ploughing back of profits or when a long term loan is obtained. 2. Excess of current assets over current liabilities will indicate whether or not the concern will be able to meet its current liabilities when they fall due. First concern does not disclose this fact.

2. 3.

It is on the basis of this concept that the short-term lenders bankers etc. calculate the safety margin regarding the timely payment of their debt. Excess of current assets over current liabilities will determine whether or not the concern will be able to face the depression or any other contingent need of the business.

4.

According to this concept a comparison can be made between the financial positions of the two firms whose assets are equal.

As discussed net working capital is the excess of current assets over current liabilities. If current assets are equal to current liabilities, net working capital will be zero and if current liabilities are more than current assets, net working capital will be negative. Current assets mean those assets which are converted into cash within a short period of time not exceeding one year, e.g. cash, bank balance, debtors, bills receivable, stock, accrued income etc. Current liabilities means those liabilities those liabilities which have to be paid within a short period of time in no case exceeding one year, e.g. creditors, bills payable, outstanding expenses, short term loans etc.

Types of working capital

Working capital can be classified in two ways, firstly, on the basis of concept and secondly on the basis of its need. (I) On The Basis Of Concept: on this basis working capital may be of two types: 1. Gross working capital 2. (II) Net working capital On The Basis Of Need : on the basis also working capital may be of two types: 1. 2. Permanent working capital Temporary working capital

Need For Working Capital

Along with the fixed capital almost every business requires working capital through the extent of working capital requirement differs in different business. Working capital is needed for purchasing raw materials. The raw material is then converted into finished goods by incurring some additional costs on it. Now goods sold. Sales do not covert into cash instantly because there is invariably some credit sales. Thus, there exits a time lag between sales of goods and receipt of cash. For this purpose working capital is needed which shall be involved from the purchases of the raw material to the realizations of cash. The time period which is required to convert raw material to the realization of cash. The time period to convert raw material into, finished goods and then into cash is known as operating cycle or cash cycle. The need for working capital can also be explained with the help of operating cycle. Operating cycle of a manufacturing concern involves five phases: i. ii. iii. iv. v. Conversion of cash into raw material Conversion of raw material into work in progress Conversion of work in progress into finished goods Conversion of finished goods into debtors by credit sales Conversion of debtors into cash by realizing cash from them.

Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits.There are two elements in the business cycle that absorb cash - Inventory (stocks

and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.

If you ....... Collect receivables (debtors) faster Collect receivables (debtors) slower

Then ...... You release cash from the cycle Your receivables soak up

cash Get better credit (in terms of duration or amount) You increase your cash from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower resources You free up cash You consume more cash

Permanent and Temporary Working Capital

Working capital in a business is needed because of operating cycle. But the need for working capital does not come to an end after the cycle is completed. Since the operating cycle is a continuous process there remains a need for continuous supply of working capital. However, the amount of working capital required is not constant throughout the year but keeps fluctuating. On the basis of this concept, working capital is classified into two types: (a) Permanent working capital: The working capital or current assets fluctuates from time to time. However, to carry on day to day operations of the business without any obstacles, a certain minimum level of raw materials, work in progress, finished goods and cash much be maintained on a continuous basis. The amount needed to maintain current assets on their minimum level is called permanent or regular working capital. The involved as permanent working capital has to be met from long term sources of finance e.g. debentures, long term-loans etc. (b) Temporary Or Variable Working Capital : Any amount over and above the permanent level of working capital is called temporary, fluctuating or variable working capital. Due to seasonal changes, level of business activities is higher than normal during some months of the year and therefore additional working capital will be required along with the permanent working capital. It is so because during peak season, demand rises and more due to excessive sales. Additional working capital thus needed is known as temporary working capital because once the season is over, the additional demand will be no more. Need for temporary working capital should be met from short term sources of finance e.g. short term loans etc so that is can be refunded when it is not required.

Working capital Financing at LPS Ltd.

For financing temporary requirement of working capital, the organization goes for many sources, Such as: Trade Credit- When the company buys the raw material from the suppliers on credit basis, it gets the raw material for utilization immediately with the facility to make the payment at a delayed time. By accepting the delayed payment, the suppliers of raw material finance the requirement of working capital. Bank Guarantees- Bank guarantees are the most commonly used source of financing working capital in LPS Letter of Credit- It is regularly used in the company to pay the exporter or accept the bills or drafts drawn by the exporter on the exporter fulfilling the terms and conditions specified in the letter of credit. In addition to above, company also uses cash credit, bills purchase/discounted, working capital term loans and packing credit facilities of the bank.

Factors affecting working capital requirements

In order to determine the proper need of working capital the following factors should be carefully considered: 1. Nature of business The nature and volume of business is an important factor in deciding the needed working capital. Public utility service (like railway companies) as compared to

manufacturing concerns requires a lesser amount of working capital. A larger amount of working capital is required for trading or merchandising institutions. 2. Size of business unit The general principal in this connection is that the bigger the size of the unit, the more will be the amount of working capital required. But it is quite likely that the bigger sized business unit, i.e., a consumers goods industry may require a larger amount of fixed capital than working capital. 3. Time consumed manufacture The longer the period of manufacture, the larger the inventory required. However, if the flow of product is quite steady, although the value of goods in process is large, the working capital will not vary much from time to time. 4. Need to stock pile raw materials Those concerns where there is the need to stock pile raw materials require larger amount of working capital. The necessity for stock piling increases the extent of funds tied up in inventories. 5. Need to store finished goods In business like retail stores, where unit is required to store finished goods, (because in the absence of adequate stocks, customer may return disappointed) naturally more working capital is required. 6. Cost and time involved in the manufacturing process If the manufacturing process in an industry entails high cost because of its complex nature, more working capital will be required to finance that process and also for other expense which vary with the cost of production. Moreover, the longer the period of manufacture, higher the amount of cash needed. 7. Turnover of circulating capital The speed with which the circulating capital completes its round, i.e., conversion of cash into book debts or bills receivables, and book debts or bills receivables into cash again plays an important role.

8. Terms and conditions of purchase and sale The place given to credit by a concern in its dealings with creditors and debtors may also be considered to assess the adequacy of working capital. A business unit, making purchase on credit basis and selling its finished products on cash basis, will require lower amount of working capital than a concern having no credit facilities and which may further be forced to grant credit to its customers. 9. Conversions of current assets into cash A company having ample stock of liquid current assets will require lesser amount of working capital, because adequate funds can easily be procured by disposed of current assets is much more than the current liabilities. 10. Impact of cyclical and seasonal variation In periods of the boom and depression, more working capital is needed than during the other stages of cyclical fluctuations. For arriving at a satisfactory working capital position in time of prosperity the firm should conserve current capital by avoiding wasteful expenditure. When inflationary pressure has been created during a period of emergency like a war, unnecessary hoarding should be avoided because such periods of rising prizes are temporary. During a period of recession, production is disturbed due to scarcity of materials. The current assets should be converted into cash without creating new financial obligations by borrowing at a high rate of interest. During periods of long lasting depression, excessive stocks are accumulated and fund of the companies are locked up. As a result, any addition to working capital by way of borrowing is undesirable. Attempts should be directed to convert current assets into cash.

ADEQUACY OF WORKING CAPITAL

The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from firms point of view. The dangerous of excessive working capital are as follow:

It results in unnecessary accumulation of inventories. Thus chance of inventory mishandling, waste, theft and losses increase. It is indication of defective credit policy and slack collection period. Consequently, bigger incidence of bad debt results, which adversely affect profits. Inadequate working capital is also bad and has following dangers:

It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. It becomes difficult to implement operating plan and achieve the firms profit target. Operating inefficiency creep in when it becomes difficult even to meet day-to-day commitments. Fixed assets are not efficiently utilized for the lack of the working capital funds. Thus, the firms profitability would deteriorate. Lack of working capital renders the firm unable to avail attractive credit opportunities. The firm loses its reputation when it is not in position to honour its short term obligations. As a result, the firm faces the tight credit terms. An enlightened management should, therefore, maintain a right amount of working capital. Lenders consider a positive working capital as a measure of safety. All other things being equal, the more the net working capital a firm has, the less risky that it will default in meeting its current financial obligations. Lenders such as commercial banks insist that the firm should maintain net working capital. ADVANTAGES OF ADEQUATE WORKING CAPITAL 1. 2. 3. Solvency of the business: - Adequate working capital helps in maintain solvency of the business by providing uninterrupted flow of production. Goodwill: - Sufficient working capital enables a business concern to make prompt payments and helps in creating and maintaining goodwill. Easy loan: - A concern having adequate working capital can arrange loan from banks and other sources on easy and favourable terms.

4. 5. 6.

Cash discount: - Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces cost. Regular supply of Material: - Sufficient working capital ensures regular supply of material and continuous production. Regular payment of Salaries, Wages and other day-to-day commitments:- A company which has adequate working capital can make regular payments of salaries, wages and other day-to-day commitments .

Data collection & Analysis

Findings and Data Analysis

PROFIT AND LOSS ACCOUNT OF LPS LTD.

(For the year ended 31st March 2006 to 2008)

Particulars
A. INCOME Gross sales Less: Excise Duty Net Sales Job Work Receipts Other Income Deferred Tax Liability written back

Shd. No.

Year Ending 31.03.2008 (Rs.) 2303646831 233485350 2070161481 896690 35722340 0 2106780511

Year Ending 31.03.2007 (Rs.) 2147911967 213702359 1934209608 1433953 17239550 5216029 1958599140

Year Ending 31.03.2006 (Rs.) 1848849128 181335357 1667513770 2402994 6318320 2402237 1678637321

10

B. EXPENDITURE Materials and Finished Goods Manufacturing Personnel Office and Adm. Selling and Dist. Interest and Financial Charges Managerial Rem. Mis.Exp. written off Depreciation Wealth Tax Income Tax -Current tax -Deferred Tax -Fringe Benefit Tax

11 12 13 14 15 16 17 18

782790261 453189913 305977039 128662294 94127990 117325714 15837200 0 85334527 185400 36150604 5105226 4900000 2029586168

703008396 508370762 252345754 114713258 84136507 83924902 11836800 0 80415367 95000 46320581 0 4250000 1889417327

590053976 469244169 217857258 101169951 68009241 71809019 8548800 45815 61794284 30000 33307265 0 4250000 1626319780

C.PROFIT FOT THE YEAR CARRIED DOWN D. PROFIT FOR APPROPRIATAION Balance as per last Balance sheet Profit for the year brought down

77194343

69181813

52317541

287229887 77194343 364424230

246290241 69181813 315472054

213847716 52317541 266165257

Description Transfer to General Reserve Proposed Dividend Corporate dividend Tax Balance carried over to Balance Sheet

Shd No.

Year Ending 31.03.2008 (Rs.) 2000000 13130000 2231444 347062786 364424230

Year Ending 31.03.2007 (Rs.) 5200000 19695001 3347165 287229887 315472053 6.76

Year Ending 31.03.2006 (Rs.) 2700000 15062500 2112516 246290241 266165257 6.60s

E. EARING PER SHARE(FACE VALUE Rs.10 PER SHARE)

7.06

BALANCE SHEET OF LPS LTD.

(For the year 31st March 2006 to 2008) Description Shd. No. As at 31.03.2008 (Rs.) As at 31.03.2007 (Rs.) As at 31.03.2006 (Rs.)

A. Sources Of Funds: a) Shareholders funds Share capital Reserve and Surplus b) Loan Funds Secured loans Unsecured Loans c) Deferred Tax liability TOTAL B. Application Of Funds a) Fixed assets Gross Block Less: Accumulated Depreciation Net Block Add: Capital work in Progress 1 2 109416670 702763197 812179867 1013165757 80788070 1093953827 24861745 1930995439 109416670 640930298 750346968 646382561 40807011 687189572 19756519 1457293059 100416670 510887709 611304379 578716778 40618377 619335155 25472548 1256112082

3 4

1232340039 718647794 513692245 26090174 539782419

1076319572 634387452 441932120 826717 442758837

893865276 556042015 337823261 38719906 41361581

42236580 b) Investments c) Current Assets, loan Advances Inventories Sundry Debtors Cash and Bank Balances Other Current Assets Loan and advances Less Current Liabilities And Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets (d) Miscellaneous Expenditure TOTAL 8 606448827 56046844 662495671 1346031757 2944683 19300995439 6 7 1160949153 577401593 104460761 3707885 162008036 2008527428

41361580

41361580

992640734 399605167 49663819 413807 117716337 1560039873

832858713 369048925 49255153 582572 91740220 1343485583

519511707 72062166 591573873 968466000 4706642 1457293059

458465182 54155016 512620198 8308655385 7341950 1256112082

Cash Flow Statement

A cash flow statement is statement showing inflows and outflows of cash during a particular period. It analyses the reasons for changing in balance of cash between the two balance sheet dates. A cash flow statement provides information for planning the short term financial needs of the firm. It becomes easier for the management to assess the whether it will have adequate cash to meet day-to-day expenses and pay creditors in time, whether it will have sufficient cash to pay the long term loans and interest thereon and whether it has enough cash to pay for the purchase of fixed assets or not.

Description

Year Ending 31.03.2008 (Rs.)

Year Ending 31.03.2007 (Rs.)

A. Cash Flow From Operating Activities Net profit after Tax Adjustments for: Tax Net profit before tax and extraordinary items Adjustments for: Depreciation Deferred payment interest and technical know Fee written off Rent and interest received Income tax Refund Dividend Income Interest and financial charges Provision for bad debts and doubtful debts Profit/loss on sale of assets Operating profit before working capital changes Adjustments for: Trade payable Trade and other receivables Inventories Cash generated from operations Interest and financial charges Direct Taxes Net cash from operating activities B Cash flow from Investing activities Purchase of Fixed Assets Proceeds from sale of fixed assets Purchase of investments Rent and interest received Dividend Income Income tax Refund Deferred payment interest and technical Know Fee provided during the year

77194343 46341230 1235335573 85334527 2062459 -4466790 0 0 117325714 104380 8003 323903866 53387097 -225486583 -168308409 -166504029 -116515929 -16000000 -149019958

69181813 44949552 114131365 80415367 3491904 -3278661 -98112 -4704038 83924902 275196 654915 274812838 37829798 -56638749 -159782030 96221857 -83928927 -15000000 -2707070

-182901542 535436 -875000 3142367 0 0 -300500

-147717815 431877 0 2652951 4704038 98112 -856596

Net cash used in investing activities C. Cash Flow From Financing Activities Proceeds from issue of Share capital Preferential issue expenses Proceeds from short term borrowings Repayment of short term borrowings Proceeds from long term borrowings Repayment of long term borrowings Proceeds from Directors and others Dividend paid

-180399239 0 0 277163858 -20018941 229867728 -80248391 0 -22548114 384216140 54796943 49663818 104460761

-140687433 93078000 -175057 18815775 0 136046633 -87196626 188634 -16954191 143803168 408665 49255153 49663818

D. Net Increase In Cash And Cash Equivalents (A+B+C) Cash &Cash Equivalents(Opening Balance) Cash &Cash Equivalents(Closing Balance)

Ratio Analysis
It is defined as the systematic use of ratio to interpret the financial statement so that the strength and weakness of a firm as well as its historical performance and current Financial Condition can be determined. The term Ratio refers to the numerical or quantitative relationship between two items/variables. This relationship can be expressed as (1) percentages, say net profits are 25% of sales (assuming net profits of Rs.50000/- and sales of Rs.200000/-), (2) Fraction (Net Profit is one fourth of sales) and (3) proportion of numbers (the relationship between net profits and sales is 1:4). The term Accounting Ratio is used to describe the important relationship that exists between figures shown in profit and loss account and the figures in the balance sheet. They also help the budgetary control system and in other parts of the organization. Financial ratios are useful because they summaries briefly the results of detailed and

complicated computations. They help in making a relative study, presenting data in a concise form and in analyzing business activities.

Objectives and Significance Of Ratio Analysis

Ratio analysis is an important technique of analysis of financial statements. Ratio analysis helps determine the efficiency of the business as well as short-term and long-term financial soundness of the business on basis of which management can take various important decisions. Ratio analysis is not only significant for management, but it is also significant to all the parties including creditors, investors, and financial institutions. They can easily take decisions about and financial position of business with the help of ratios. the profitability

Main uses of ratio analysis:

1. Useful in analyzing the financial statement: Ratio analysis simplifies the complex and large figures of financial statements which enable to understand their relative importance. Bankers, creditors, investors, etc. analysis the profit and loss account and balance sheet through ratios. 2. 3. Helpful in controlling: By comparing the ratios regarding efficiency and financial position with the standard ratios, unfavorable results can be controlled. Helpful in determining trends: By the use of ratio analysis, the trend in profit, sales, cost, etc. of the previous year can be determined by analyzing the financial statements and future forecasts can be made accordingly. 4. Helpful in locating weak spots: At times business may be showing over all profit but when comparisons are made in respect to various department or products weak spots may come to light. Management may pay more attention to these weak spots and make the business more profitable. 5. Overall Profitability: Overall profitability can also be determined by the management with the help of ratio analysis.

CLASSIFICATION OF RATIOS Liquidity Ratio:

Liquidity ratio measures the ability of the firm to meet its current obligations. Lacks of liquidity or excess liquidity, both conditions are harmful for the health of company. If the company is having excess liquidity then in that case some funds remain idle, on the other hand if the company is suffering from lack of liquidity then in that case it might be possible that it will not be able to meet its obligations at time. To find out the liquidity position of the company we generally use Current ratio or Quick ratio, these are the most common ratios that indicate the extent of liquidity or lack of it. There are some other ratios these are as follows:

Cash Ratio:
Cash ratio is the most liquid asset, it is very important for all firms. Cash ratio shows that how much cash is available with the firms to meet its current obligations. Trade investments or marketable securities are equivalent to cash; therefore it may also be included in the computations of cash ratio.

Cash Ratio=Cash+ Marketable Securities\Current liabilities

For Lakshmi Precision Screws Ltd: Particulars Cash ratio 2004 0.09:1 2005 0.27:1 2006 0.44:1 2007 0.19:1 2008 0.17:1

Cash ratio 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09

Cash Ratio

Cash ratio

This ratio of the company is fluctuating which is not a good indicator for the creditors of the company. It is because of not availability of good cash balance and increase in current liabilities. But as the company has good borrowing power therefore company has to increase the cash balance.

Current Ratio: This ratio explains the relationship between current assets and current liabilities of a business. This ratio is used to assess the firms ability to meet its short term liabilities on time. According to accounting principles, current ratio of 2:1 is supposed to be an ideal ratio. The formula for calculating this ratio is: Current Ratio =Current Assets\Current Liabilities. For Lakshmi Precision Screws Ltd: Particulars Current ratio 2004 1.12:1 2005 1.53:1 2006 1.57:1 2007 1.24:1 2008 3.03:1

Current ratio 3.5 3 Current Ratio 2.5 2 1.5 1 0.5 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 Current ratio

Current Ratio: Generally a current ratio of 2:1 is considered satisfactory. In earlier years ratio was much higher i.e. 3.64:1 but now there is improvement in current ratio as it is decreasing over the years & shows good policy.

Quick Ratio:
This ratio explains the relation between liquid asset and current liabilities. Liquid asset means those assets which will yield cash very shortly. All current assets except stock and prepaid expenses are included in liquid assets. Inventory normally require some time for realizing into cash. So inventory consider being less liquid. An ideal quick ratio is said to be 1:1. Quick ratio is calculated by dividing liquid assets by current liabilities: Quick Ratio =Liquid Assets\Current Liabilities ForLakshmi Precision Screws Ltd:

Particulars Quick ratio

2004 0.58

2005 1

2006 1.1

2007 0.73

2008 1.27

As the ratio of the company is again fluctuating and in two years it is more than its ideal ratio .It is because of companys good cash balance available and the other reason for decreased quick ratio is increase in current liabilities of the company.

Quick ratio 1.4 1.2 Quick Ratio 1 0.8 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 Quick ratio

Quick Ratio: 1:1 satisfactory

LEVERAGE OR CAPITAL STRUCTURE RATIO

This ratio indicates the ability of a company to pay the interest regularly as well as repay the principal when due. The leverage or capital structure ratios are: Debt equity ratio Debt to total fund ratio Proprietary ratio Fixed assets to Proprietors fund ratio

Debt equity ratio

These ratios express the relationship between the long - term tax and Shareholders funds. It indicates the proportion of funds, which are acquired By long term borrowing in comparison to shareholder funds. DEBT EQUITY RATIO = LONG TERM LOANS SHARE HOLDERS FUNDS

PARTICULARS DEBT EQUITY DEBT EQUITY RATIO

2004-2005 7073.15 3775.02 1.87

2005-2006 6193.35 6113.05 1.01

2006-2007 6871.89 7503.46 0.91

2007-2008 10939.53 8121.79 1.34

DEBT EQUITY RATIO 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004-2005 2005-2006 2006-2007 2007-2008 YEARS

Debt Equity Ratio

DEBT EQUITY RATIO

Debt Equity Ratio: Ideal ratio is 2:1 in earlier years it shows a risky financial position as ratio is more than 2: 1. it shows a decreasing trend now situation is satisfactory as it is less than 2 : 1 thus co. has enough funds to pay its long term loans

Debt to total fund ratio

This ratio indicates the ability of a firm to pay its long term debts. In this ratio, debt is expressed in relation to total funds. DEBT TO TOTAL FUND RATIO = LONG TERM LOANS SHARE HOLDERS FUNDS + LONG TERM LOANS
2004-2005 7073.15 10848.17 0.65 2005-2006 6193.35 12306.4 0.5 2006-2007 6871.89 14375.37 0.47 2007-2008 10939.53 19061.34 0.57

PARTICULARS DEBT TOTAL FUND DEBT TO TOTAL FUND RATIO

DEBT TO TOTAL FUND RATIO 0.7 Debt To Total Ratio 0.6 0.5 0.4 0.3 0.2 0.1 0 2004-2005 2005-2006 2006-2007 2007-2008 YEARS DEBT TO TOTAL FUND RATIO

Debt to Total funds Ratio: Long term loans are .67: 1 satisfactory. It means debt capital should not be more than 67% of total capital. It indicates that long term financial position of the co. is sound, as the long term loans of co. according to acceptable standard should not be more than 67% of total fund of the co.

Equity Proprietary Ratio = Total Assets

Particulars Equity Turnover Assets Proprietary Ratio

2005 3775.02 15150.89 0.249

2006 6113.05 17613.91 0.347

2007 7503.46 20019.71 0.374

2008 8121.79 25222.19 0.32

Proprietary Ratio 0.4 0.35 Propritary Ratio 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09 YEARS Proprietary Ratio

Proprietary Ratio: Ratio is not satisfactory for the co. it needs to be as it is not good from shareholders of view

improved

Net Profits before Interest & Income tax Interest Coverage Ratio = Fixed Interest Charges

Particulars EBIT F.I. Charges ICR

2005 1339.83 674.20 1.99

2006 1619.14 718.09 2.25

2007 2037.7 839.24 2.42

2008 2408.59 1173.25 2.05

ICR 3 2.5 2 ICR 1.5 1 0.5 0 2005-06 200607 YEARS 2007-08 2008-09 ICR

Interest coverage Ratio: Indicates how many times the interest charges are covered by the profits available to pay interest charges. It is satisfactory ratio is continuously improving.

Activity Ratio: Net Sales Inventory Turnover Ratios = Average Inventory Particulars Net Sales Average Inventory ITR (times) 2006 18488.49 7720.59 2.39 2007 21479.11 9127.49 2.35 2008 23036.46 10767.94 2.13

ITR
2.45 2.4 2.35 2.3 2.25 2.2 2.15 2.1 2.05 2 2006-07 2007-08 YEARS 2008-09

RATIO

ITR (times)

Inventory Turnover Ratio: Measures the velocity of conversion of stock in to sales. ITR is decreasing over the years (due to increase in inventory is more than increase in sale) But in 2006 ITR has increased as increase in sales is nearly thrice the inc. in inventory.

Turnover Fixed Asset Turnover Ratio = Fixed Assets Particulars Turnover Fixed Assets
Fixed Assets Turnover Ratio

2006 18488.49 3378.23 5.47

2007 21479.11 4419.33 4.86

2008 23036.46 5136.92 4.48

Fixed Assets Turnover Ratio 6 5 4 RATIO 3 2 1 0 2006-07 2007-08 YEARS 2008-09 Fixed Assets Turnover Ratio

Fixed Assets Turnover: This ratio reveals how efficiently the fixed assets are being utilized. Increase in ratio over the years indicates the better utilization of fixed asset

Net Sales Working Capital Turnover Ratio = Working Capital

Particulars Net Sales Working Capital Working Capital Turnover Ratio

2006 18488.49 8308.65 2.22

2007 21479.11 9684.66 2.21

2008 23036.46 13460.32 1.71

Working Capital Turnover Ratio 2.5 2 RATIO 1.5 1 0.5 0 2006-07 2007-08 YEARS 2008-09 Working Capital Turnover Ratio

Working Capital Turnover Ratio: Reveals how efficiently working capital turnover ratio has been utilized in making sales. Increase in ratio over the years indicates the better utilization of working capital.

Net Sales Debtors Turnover Ratio = Debtors

Particulars Net Sales Debtors DTR (Times)

2006 18488.49 3724.5 4.96

2007 21479.11 3843.26 5.58

2008 23036.46 4885.03 4.71

DTR 5.8 5.6 5.4 RATIO 5.2 5 4.8 4.6 4.4 4.2 2006-07 2007-08 YEARS 2008-09 DTR

Debtors Turnover Ratio: Ratio is continuously improving. It shows debtors are managed by company in efficient manner this is why debt collection period has been reduced from 99 days to 81 days.

Purchases Creditors Turnover Ratio = Creditors Particulars CTR (Times) 2006 2.01 2007 2.24 2008 2.58

CTR 3 2.5 2 RATIO 1.5 1 0.5 0 2006-07 2007-08 YEARS 2008-09 CTR

Creditors Turnover Ratio: It is satisfactory & average payment period has been decreased from 159 to141 days. It is improving over the years.

Net Profits Net Profit Ratio = Net Sales Particulars Net Profit Net Sales Net Profit Ratios 2006 523.17 18488.49 2.82 2007 691.81 21479.11 3.22 2008 771.94 23036.46 3.14 100

Net Profit Ratios 3.3 3.2 3.1 Ratio 3 2.9 2.8 2.7 2.6 2006-07 2007-08 YEARS 2008-09 Net Profit Ratios

Net Profit Ratio: Measures the rate of net profit earned on sales. An increase in the ratio over the previous years shows improvement. But margins need to be improved further.

Return on Capital Employed:

Particulars EBITD Capital Employed Return on capital employ. 2006 901.04 11686.88 7.70 2007 2037.7 14103.98 14.44 2008 2408.59 18597.23 12.95

Return on capital employ. 16 14 12 10 Ratio 8 6 4 2 0 2006-07 2007-08 YEARS 2008-09 Return on capital employ.

Return on Capital Employed: Company is utilizing its capital in better way because profit as percentage of capital employ is increasing over the years.

Conclusion

Conclusion
The results which I found in the study by using different methods are as under:LPS at present occupy the 2nd position in the fastener industry due to Modernization of production method. Timely delivery of goods Flexibility Net Sales are continuously increasing during the year 2006 to 2008. Hence profitability has increased over this time period. Fixed assets are utilised properly as the fixed turnover ratio is increasing. Working capital turnover ratio was increasing in the year 2006 to 2007.Hence proper utilisation in making the sales. Inventory turnover ratio was increasing in the years 2006 to 2007.It indicates that stock is selling quickly. Liquidity position of the company is good as its current ratio and quick ratio for the year 2008 is 3.03:01 and 1.27:1 respectively which meet the standard.

Suggestions

Suggestions
Keeping in view of detailed analysis and study of data of LPS Ltd., the following suggestions shall be helpful in increasing the efficiency in Working Capital Management. Estimation of working capital requirement should be done on the basis of length of operating cycle of different products. W.C requirement = Avg. daily requirement of WC * Length of operating cycle Since the competition is increasing the company must come up with the new techniques of selling so that profit will be increased. The old machinery which need constant repair should be replaced with the new one as it would decrease the cost further. The maximum and minimum level of each item should be indicated to avoid over stock or under stock situation. Internal performance report on inventory on at least monthly basis should be prepared to study the material price variance, material usage variance and inventory level variance from the estimated figures. Worker participation should be encouraged. Training should be given to Them so as to make aware of new technology. Full freedom must be given to employees and also means of motivation should be increased.

Bibliography

Bibliography
www.lpsindia.com www.lpsboi.com www.google.com Audit Report of LPS Management accounting & Financial Management by D.K.Goel,Rajesh Goel,Shelly Goel