A

PROJECT REPORT

On

“WOKING CAPITAL MANAGEMENT”

OF

ELECON ENGINEERING COMPANY LIMITED

In Partial Fulfillment of the

Requirements for the degree of

Master of Business Administration

SUBMITTED TO

Late Smt. Shardaben Ghanshyambhai Patel Institute of Management Studies

DHARMAJ

Year: 2010-2012

Affiliated to

GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD

Faculty Guide: - Submitted By:-

Ms.Zarna Patel Madam Enrollment No:-107330592095 Name :- Patel Shirish B.

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DECLARATION

I do hereby declare this piece of project report entitled “A study on Working Capital Management practices in Elecon Engineering Company Ltd” for partial fulfillment of the requirements for the award of the degree of “Master Of Business Administration “Is a record of original work done by me under the supervision and guidance of Ms. Zarna Patel, Madam, Late Smt. Shardaben Ghanshyambhai Patel Institute of Management Studies.

This project work is my own and has neither been submitted nor published elsewhere.

PLACE:-Dharmaj

DATE:-15/07/2011

Signature of the Student

S.B.Patel

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PREFACE

M.B.A. is one of the professional courses available after graduation. Its abbreviation is master of business administration. This degree has its own peculiarity, which makes it different from other degree. We are accountable to the rules of Gujarat Technological University (G.T.U.) As our college is affiliated to G.T.U.

After the semester II, University Exams, We are supposed to undergo summer training in the company for 6 week. I have takes my summer training at “ELECON ENGINEERING COMPANY LIMITED”. I have to select the specialization, under which particular Topic is selected and on which data is gathered and analyzed. And so i have taken Working Capital Management as my primary study for the Elecon Engineering. It was very interesting to get acquainted with Working Capital Management, Inventory Management, Operating Cycle, ratio, the challenges faced by Company in the society. I also collected generate information, of Elecon Engineering Company. i.e. related to industry functional department etc.

Yes because of this summer training only, I get the chance to stay in large scale company Elecon Engineering Company, for few weeks and it enhanced my knowledge very much.

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ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude to the intelligence and co-operation of those people who had been so easy to let me understand what i needed from time to time for completion of this exclusive project.

I am also grateful to Mr. Romesh Prajapati And Nirmal Patel , Director of Late Smt. Shardaben Ghanshyambhai Patel Institute of Management, for permitting me to undertake this study. Last but not the least, I would like to forward my gratitude to my friends & other faculty member who always endured me and stood with me and without whom I could not have completed the project.

I am greatly indebted to my guides Ms. Zarna Patel Madam, over faculty guide for Finance (summer internship), Finance Department, corporate, office, Elecon Engineering Company Ltd, Vallabh Vidyanagar for their constant guidance, advice and help which enabled me to finish this project report properly in time.

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EXECUTIVE SUMMARY

The report consists of the details on “Elecon Engineering Company Ltd”. The project report is divided in seventh chapters. The first chapter of the report is for the

information about the company. The second chapter is department introduction. Thread chapter is literature review. Fourth chapter is Objective of study. Fifth chapter is Research Methodology. Six chapters are working capital management of the report is about the project study.

The chapter one of this report is done from the basic information of the company which includes General information about the company which consists of its history and development and the information about its all functional areas.

The second chapter entire functional department consists of HR Department, Finance Department Marketing department, Production Department.

Third chapter in Literature review of working capital management. Fourth chapter in objectives of the study in working capital management. The fifth chapters in company research and secondary data collection use. The six chapters of the specialization area. This part starts with back ground of the study

and importance of the study to the working capital. Now the important on working capital is the specialization area of the company

“Inventory Management, Operating cycle, Ratio Analysis” in that chapter’s seventh is that how Company makes order from the client and to finished goods.

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Index

Chapter No. Particulars Page No.1 Introduction of Company 9

1.1 Company Profile 101.2 History of Engineering

Company of India11

1.3 History of Elecon Engineering Company

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1.4 Mission & Vision 161.5 Quality Policy 171.6 Overview of Company 181.7 Group Company 20

2 Department Introduction 222.1 Finance department 232.2 Production department 262.3 Human Resource department 292.4 Marketing department 30

3 Literature Review 324 Objective 34

4.1 Objectives of study 355 Research Methodology 36

5.1 Introduction 375.2 Types of Data Collection 38

6 Working Capital Management 396.1 Introduction 406.2 Inventory Management 436.3 Operating Cycle 506.4 Ratio Analysis 57

7 Finding, Conclusion & Limitation

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7.1 Finding 617.2 Conclusion 627.3 Limitation 63

A Bibliography 64B Annexure 65

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1.1 COMPANY’S PROFILE

Name of the Company:-Elecon Engineering Co. Ltd. Registered office:-Elecon Engineering Co. Ltd.  Anand Sojitra Road, Vallabh- Vidhyanagar -388120 Gujarat, India.

Contacts:- Phone:- +91(2692)237016,236469,236521 Fax:- + 91(2692)236457, 236527

Website:-www.elecon.com

Chairman of the company:-Mr. Prayashvin B Patel.Division of the company:-1.Material Handling Equipments 2. Gear division 3. Alternative energy division

Size of the firm:- Large scale industry

Bankers:- State Bank of India, Bank of Baroda, Exim Bank, Axis Bank Limited, HDFC Bank, Standard Chartered Bank 

Auditors:- Thacker Butala Desai Chartered Accountants Navsari.

Board of directors:- 1. Shri Prayasvin .B. Patel, 2. Shri Hasmukhlal .S. Parikh, 3. Dr. Amritlal .C. Shah, 4. Shri Chirayu Amin, 5. Shri Prashant Amin, 6. Shri Upendra .M. Patel, 7. Shri Ashok.J. Patel

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Chief financial Officer:- Shri Hemendra .C. ShahCompany secretary:- Shri Paresh .M. shuklaCertificates:- ISO 9000:2001Employees in the company:- 850(approx)

Competitors of the company:- 1.Larson and Turbo Ltd.,

2. TRF Ltd., 3. Menally Bhatt Engineering Ltd., 4. Metso, 5. Praj industries.

1.2 HISTORY OF ENGINEERING COMPANY OF INDIA

Engineering in India compared to engineering in North America and Europe

Engineering profession in India is still evolving. Though Indian engineers are often considered the best in their mathematical abilities, R&D and high level engineering work still lags in India. The Indian industry recognizes this and is fast catching- up. They offer India as a low-cost destination for multinationals looking to reduce cost for high level work as Research and Development. India has been especially successful in putting her engineers to work in several back –office functions.

Many of them are employed in technical support. A lot of Indian companies also send their engineers on assignments to Europe and North America because they provide low-age alternative to local engineers.

This helps the Indian companies to win contracts due to the price differential. This advantage has helped the software industry in carrying out a niche for itself as a low cost, quality provider of technical work.

Civil engineering is also gaining ground in India because of the impetus on infrastructure; civil engineers are well in demand. However this demand is domestic only. Another emerging area is bio-medical engineering that is being pushed by the government.

However, some other fields of engineering are not developed such as offshore, nuclear etc. The reason is a lack of private participation in these industries.

The 21st century has seen a different trend. With the onset of technical outsourcing to India and other cheap foreign destination from the USA and Europe, engineering degrees and careers have taken a whole new meaning in India.

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The last ten years has seen a lot of low skilled as well as software testing work shift to destinations like India due to the lower cost of labor. Several engineers of Indian origin in the USA are electing to go back as more and more opportunities emerge in India due to rapid globalization and shifting of technology related work to low cost destination such as India.

History of engineering in India

Engineering in India picked up momentum in 1947 after India’s independence from British rule. Engineering was considered a well-respected and stable profession.

It was heavily dominated by men. The eighties saw a steady increase in women that took it up as a profession. The nineties saw a steady increase in computer engineering as more and more venues opened for Indian engineers in India and North America in the field of software programming.

Current state of Engineering in India

With the high economic growth rate in India and rapid globalization of technical services worldwide, engineering in India is poised to climb to the next level. Plans are under way to revamp the engineering education system and make it more answerable to emerging global demands.

Engineering Education

Engineering education in India has long been dominated by the Indian Institutes of Technology and the Regional Engineering Collages. The Indian institute of Technology has earned a reputation for graduating outstanding engineers who have risen to the top of their profession globally.

However, critics call it more a phenomena of admitting the best and not necessarily the institutes having top-notch professors.

Other engineering collages such as the regional Engineering collages have also made huge strides. But the majority of the Engineering collages in India rely on rote as the teaching methodology.

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There is an increasing awareness that the Engineering education system has to be revamped. Reports reveal that only 25% of the engineering graduates are employable.

Several companies have set-up their own training institutes to fill the gap between what the education system delivers and what is needed in the market place. Also there is a dearth of engineers in areas other than software engineering. Because of opportunities and prevailing trends, most engineers gravitate towards computer engineering.

This has exposed a gap in engineering skills for other professions – some that are just emerging as competitive areas.

Challenges facing engineers in India

Several challenges face engineers in India. The most important is access to state of the art engineering education that adheres to the international best practices. The other is the availability of well paying jobs in the field of Research and Development that help to propel innovations. Also as become more global, Indian engineers have to figure out a way in which to respond to challenges thrown by global economy and become accustomed to project management on global scale.

Opportunities for Engineers

Opportunities for engineers are increasing at exponential rate. Besides opportunities in

software and civil engineering, demands are being felt in other engineering fields such as bio-medical, petroleum and automotive engineering. As industries related to these fields evolve and grow. So people are giving more interest that field.

Products and Services being developed in Indian Market

Major industries of India include automobile, cement, chemicals, electronics, food processing, machinery, mining, petroleum, pharmaceuticals, steel, transportation equipments and textiles are developing and some are developed. Such industries decide the future of engineering companies.

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1.3 HISTORY OF ELECON ENGINEERING COMPANY

From the modest start of the design and manufacture of Elevators and Conveyors from which incidentally and the company derives its corporate identity. viz. "Elecon"

It has grown over the years to be known as a pioneer of the concept of mechanized way of Bulk Material Handling Equipment in India. During the span of more than 4 decades, Elecon has encompassed all the major core sectors through its supplies of highly sophisticated equipment bearing ample testimony of the symbolic mark of Elecon's unbeatable technology.

Elecon has thus, made its presence felt through consistent and satisfactory performance of its equipment in such core sectors as fertilizer, cement, coal/power generation, chemical, steel plant and port mechanization etc., across the country.

After India’s independence, Elecon starting making it’s presence felt in industrial scenario in most productive and enriching manner. This process has its root as far back as1951.

A small beginning that was destined to have a glorious present and spectacular future was made in 1951 in Bombay by a dynamic visionary late Shri.Ishwarbhai B Patel. A small firm indigenously manufacturing conveying equipments started spreading its wings in the area so far unexplored, resulting in valuable savings in foreign exchange outflow. With obvious increase in business operations, it was converted into a Private Limited Company on 11th January1960.

On formation of a separate Gujarat State in May 1960, with a view to contribute towards the development of home-land Gujarat, Elecon shifted its base to Vallabh Vidaynagar, and became a Public Limited Company soon after.

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Elecon has played a pioneering role by way being first in design, manufacturing and supplying many of the above products in India, and thereby adhering to the motto of “ALWAYS A STEP AHEAD IN TECHNOLOGY”.

The company has gone a long way from a moderate beginning at Gorega on in Bombay, in the early fifties to a sprawling workshop area spanning over1, 17,051sq.meters. The present manufacturing facilities are equipped with latest computerized machine tools, and quality control equipments.

After dawn of its Silver Jubilee Year in 1976, Elecon set up a separate Gear Division, having an area, spread 1, 73,098 sq. meters, equipped with state of the art manufacturing infrastructure. The Gear Division today provides a total solution to industries for power transmission equipments by designing, supplying and servicing products like – Worm Gears, Helical Gears, Sprial Bevel Helical Gears and different types of Couplings. While MHE division have an area of 117,000 sq. meter Equipped with a modern infrastructure.

A team of experts is geared up to serve customers for Specialized Gear requirement for various applications like Steel Rolling Mills, Marine application for Coast Guard, Space Applications etc. This Division has recently specialized in developing speed increasing application for Windmills as well.

Elecon has also set up an Alternate Energy Division in the year 1995 for manufacturing and supply of Wind Turbine Generators – a non – conventional source of producing energy. Under the technical know-how obtained from a Belgium Company

Elecon is the first industrial gear manufacturer in India to achive ISO 9001 in 1994 and again first to achieve ISO9001:2000 in 2001

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1.4 MISSION AND VISION OF ELECON

Mission

Be present in all the leading & emerging markets of the world by expanding, collaborating and associating with other partners and consolidating our presence in already penetrated markets.

Remain "Always a Step Ahead in Technology" by continuously investing in research and development to cater to new applications, industries and segments as well as improvement of our existing product ranges.

Empower human resources to promote entrepreneurship, team spirit leading to value enhancement for our Customers and Stakeholders.

Follow   environment friendly practices to protect environment and continuously review and improve products and processes throughout the supply chain.

Upliftment of society at large and well being of our employees.

Vision

Create global presence in power transmission by innovating and developing products to enhance value and satisfaction of our Customers.

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We adapt to the changes and meet the challenges by creative entrepreneurship, empowered teamwork, continuous improvements, and environment friendly practices and optimize profits to delight our stakeholders.

1.5 QUALITY POLICY

To be a customer focused organization at all times by

Understanding customer needs and providing optimum solution.

Fulfilling commitment made towards supply, reliability and trouble free usage.

Upgrading technology of products and services.

It will be our endeavor to continuously improve and exceed customer expectations through engineering excellence so that we are benchmarked amongst the very best.

We will ensure that, while we excel in our business operation, we also comply with all applicable standards & norms.

February 21, 2009

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1.6 OERVIEW OF COMPANY

1990 The Company has issued 5, 00,000-14% secured redeemable non-convertible debentures of Rs 100 each by private placement of SBI Capital Markets Ltd., and Canara Bank inequal prop. To meet the long-term working capital needs of the Company.  These debentures are redeemable at a premium of 5% in three equal annual installments between19th September, 1996 to 19September, 1998. The Company's profits were low due to non-receipt of export benefits worth Rs.113 lakhs from the export order of EGAT which was already completed and higher tax liability. 

1991 The working results were adversely affected due to increased interest rates, large overdue receivables from Electricity Boards, execution of contracts with lower margins ,etc .The Company proposed to diversify into the business relating To vegetable and fruit processing, food processing and processing of edible oil seeds, extraction and refining of edible oil ,Grain silos, cattle and poultry feeds. 

1993 The Company proposed to dispose of the Chennai division in view of poor performance of the unit. 

1994 The Company had successfully implemented the Alternate Energy System.  It installed 7 wind mills, out of these 5 were sold to outside parties and 2 were retained by the company for its own consumption .The Company has entered into a technical collaboration agreement with HMZ Belgium N. V. Balgium for manufacture of wind master, wind Energy Generators, which is one of the best available in the world with larger energy generation. 

1995 The liquidity and profitability of the company was adversely affected on account of large overdue receivables.11 Wind Mills were commissioned which already started generating power.  The Company had decided to abandon diversification into shrimp feed production, in view of there cessionary conditions in shrimp farms, all over India. 

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1996 Efforts to realize large overdue receivables from State Electricity Board and Central Government Corporation were partly successful.  The Company secured an order from Naively Lignite Corporation Ltd. for manufacture, erection and commissioning of 2400 MM Drive Heads and conveyors for its Mine-III. The diversification programmed in the field Alternate non-conventional energy source continued.  The company installed eight additional wind mills during the year raising the total to twenty two. 

1997 Eleven wind mills erected in Gujarat for captive consumption were lost due to severe cyclone.  The installed seven additional Wind Mills during the year .The Company's sales and other services declined toRs.159.80 crores due to the recessionary conditions. 

1998 The Company launched Super NU Universal Mounting Worm Gears which provide improved power ratings and are well accepted by industries. 

The Company launched POSIRED 2 Helical Bevel Gears for which the company has entered into a technical collaboration with P.I.V. Antrieb Werner Reimers GmbH & Co. KG, Germany. 

2004 Elecon Engineering produces gear boxes for Stealth Frigate battle ships  2005 Elecon Engineering gets Rs 26 cr order from APGen co  2007 Elecon Engineering Company Ltd has signed a Memorandum of Understanding

(MOU) with the Government of Gujarat(GOG) at the Vibrant Global Investors' Summit 2007 held on January 13, 2007.Elecon Engineering Company Ltd has informed that the Company has been awarded a contract worth Rs 229.09Crores for supply and installation of Coal Handling Plant Package for National Capital Thermal Power Project (NCTPP); Dadri , Stage II (2 x 490MW) from NTPC Ltd. Elecon Engineering receives order of Rs 57.70 crores from BHEL. The Company has issued Bonus Shares in the Ratio of 2:1.

2008 Elecon Engineering Company Ltd has informed that the Board of Directors of the Company at its meeting held on July 29, 2008, Shri. Prashant C Amin appointed as Additional Director of the Company. Elecon Engineering Company Ltd has bagged three orders worth Rs51.74 crore from Techpro Systems, Chennai and SAIL-Durgapur Steel Plant, Durgapur.

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1.7 GROUP COMPANY OF ELECON ENGINEERING

1. EIMCO ELECON.

2. POWER BUILD LTD.

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3. PRAYAS ENGINEERING LTD.

4. ELECON INFORMATION TECHNOLOGY LTD.

5. Radicon & Benzlers.

Radicon.

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Benzlers

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2.1 Finance Department

INTRODUCTIO

Finance is related as the lifeblood of a business organization. The finance management is

concern with procuring of financial resources and its judicious utilization with a view to

maximize the shareholder’s wealth. Financial management is concerned with the efficient use of

an important economic resource namely, capital funds.

Financial management is concerned with the managerial decisions that result in the acquisition and financing of long term credit for firm as such it deals with the situation that require selection of specific liabilities as well as the problem size and growth of an enterprise. The analyses of these decisions are based on the expected in flow of the funds and their effects upon managerial objectives.

The finance function is more vital and crucial to the organization. Hence there is need for sound and efficient organization for the finance function. A firm should give proper and due attention to organization of its finance department. Organization of finance function differs from firm to firm. It will depend on various factors such as size and nature of the firm’s business capacity of the persons handling the finance and financial philosophy of the organization.

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The designation of finance department also differs from firm to firm i.e. Vise President {finance}, Chief Executive {finance}, General Manager {finance}, etc. However, in most organization the vice president has under him two officers, the controller and the treasures. Finance management is indeed the key to successful business operation. Without proper administration and effective utilization of finance no business enterprise can utilize its potentials for growth and expansion.

ORGANIZATION STRUCTURE

CHART - 1 Organizational Structure of Finance

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Chairman and Managing Director

Vice President Commercial

Dy. General Manager {Account}

Sr. Manager {Administration}

Company Secretary

Sr. Manager

Manager

Dy. Manager {Mumbai office}

Manager {Imports}

Dy. General Manager {Excise}

SOURCES OF SHORT-TERM FINANCE AT ELECON

SPONTANEOUS SOURCES OF FINANCE

Trade credit

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Advance from customers

2. BANK FINANCE Cash credit Short term secured loan from banks Short term unsecured loan from banks Letter of credit Working capital demand loan Export packing credit

3. FINANCE FROM OTHERS

ELECON HAS OBTAINED FINANCE FROM:

State Bank of India Bank of Baroda State bank of Saurashtra AXIS bank

These banks provides following facilities to Elecon:

Cash credit PCFC & WCTL Working capital demand loan ( WCDL) Inland bills discounting under LC Letter of credit Bank guarantees Short term loan Term loan

2.2 Production Department

INTRODUCTION

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Among all the function of management production is considered to be a very crucial in

any industrial organization. Production is the process by which raw material other input are

converted in finished product. Another word synonym to production is manufacturing

management, which is the process of exploitation of resources to achieve desired goals.

Production management refers to the application of management principles to the production function functions in a factory. It deals with decision related with production process so that the resulted goods or services are produced according to specification in amount by the scheduler demanded at a minimum cost.

ELECON is one of the pioneers of first to manufacture material handling equipment and Gear division and also has been successful in that business during the period of last five decades. It is managed by highly qualified, trained & highly enthusiastic group of with long industrial experience.

ELECON has all the manufacturing facility like heavy fabrication shop modern up to date heavy & light machine shop of importable gear equipped with hobbling machine horizontal & vertical balling bill heat treatment facility etc these manufacturing facilities are farther backed with well knit testing & stringent duality control measure of every stage of manufacturing.

The production department is mainly classified in two centers.

Service center: It supplies mainly CNC program required size of raw material design of jigs & fixtures etc for providing support to the profit centers.

Profit center: The products are manufactured and dispatched to the site for erection by this center are closely related & depend on each other.

PRODUCTION PROCESS

Manufacturing operation convent input like material, labor & capital into some tangible outputs production process is a process of producing goods & service by combining of utilizing

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the service of factor of production. Production process is continues which has been going on since the drawn of economic history of will continue till this world last.

Production process is a continuous process of activity which enables flow of the service & their use for satisfaction of human wants. Human needs are unlimited & go on multiplying & are recurring in nature. The nature of human race changes occurs in change in production. The process has different concept in traditional economics & modern economy.

In ELECON the production process consist of several stages like:

Receiving production Making & machining billets & blanks. Making components Assembling unit Separate articles Painting. Packing Shipment

The success of each step depends upon its organization & also on an uninterrupted supply of materials. The proper tools efficient maintain & accrete stock taking.

Elecon Company Products

1. SHIFTABLE CONVEYER

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2. PULLY

3. SHIP LOADERS

2.3 Human Resource Department

INTRODUCTION

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Organizations are not mere bricks, mortar, machineries, or inventories. There are people who staff and manage organization. HRM involves the application of management function and principles. This functions and principles are applied to acquisitioning, developing, maintaining and remunerating employees in the organization. Decision relating to employees must be integrated. Decision made must influence the effectiveness of an organization. Effectiveness of an organization must result in betterment of services to customers in the form of high quality products, supplied at reasonable cost. HRM functions are not confined to business establishment only. They are applicable to non-business organization too, such as education, healthcare, recreation, and the like.

“Human resource management is the planning, organizing, directing and controlling of the procurement, development, compensation, integration, maintenance and separation of human resources to the end that individual, organizational and social objectives are accomplished”.

OBJECTIVES

Plan the human resource requirement for the company. Selection of effective and efficient employees for the company. Deciding proper remuneration for the employees. Giving appropriate tanning, motivation and development to increase the efficiency of the

employees. To facilitate proper coordination and co-operation between employees within the

organization. To ensure the welfare of employees, organization and whole society as well. To ensure smooth relationship between trade unions and management.

2.4 Marketing Department

Marketing is a Management Process by which individual and group obtain what they need and wants through creating, offering and exchanging the products of value with other.

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EMITIC Engineering Company Ltd. is the sole selling agent for the material handling equipment (MHE) division and Gear division. Marketing organization Management be defined of determining the branch of activities comprising. The marketing function growth them into sub-division.

To support their large rate of growth, Elecon group of companies is planning to set up a training institute for its employees and seminar executives in various aspects of business. This would help the employees to be understood dynamic and be multi functional. The share prices of Elecon and Eimco Elecon are likely to be better due to improved turnover profit ability and order booking position which all by better work of marketing department.

Advertising.

Advertisement can be defined as a media through which the customer can be aware of the products exiting in the market. In the present day marketing and advertising has become a ins pirate part of the business. It helps in promoting the project as the people of remote village also come to know about the product and usefulness through the advertising but these advertisements are made. Effective so that can easily satisfaction the customers to buy the product.

In Elecon Company there are three media for advertising given below.

1. Direct advertising through moving sending leaflets, literature, catalog etc.

2. Video films-like demonstration of machinery and Gear division.

3. Press advertising News papers, Journals, Periodic Magazines etc.

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3 Literature Review

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1. Profit maximization is the ultimate objective of firms as well as protecting liquidity is an important objective too. The difficulty of working capital management is to achieve the two objectives optimally within an operating period. If profit is increased at the cost of liquidity, this may create serious problem to firms.

Therefore, to solve such problem, there must be some compromise between these two objectives of firms.

Amit, Mallik, Debashish and Debdas (2005) in their study regarding the relationship between working capital and profitability of Indian pharmaceutical industry have found no clear relationship between liquidity and profitability.

2. Vishananiand Shah (2007) have studied the impact of working capital management policies on corporate performance of Indian consumer electronic industry by implementing simple correlation and regression models. They have found that there is no established relationship between liquidity and profitability for the industry as a whole; but various companies of the industry depict different types of relationship between liquidity and profitability. However, majority of the companies revealed positive association between liquidity and profitability.

3. Rehemanand Naser (2007) have found in their study negative relationship between profitability and liquidity of firms, Ganesan (2007) have studied working capital management efficiency in Telecommunication equipment industry, and their study revealed significant statistical evidence and negative relationship between profitability and liquidity. Lyroudi and Lazardis (2000) investigate the cash conversion cycle and liquidity position of the food industry in Greece. They have used cash conversion cycle as a liquidity level indicator of the food industry in Greece and tried to determine its relationship with the traditional liquidity measurement and profitability measurement of return on investment, return on equity and net profit margin.

In addition, the study reveals differences between the concept of cash conversion cycle in manufacturing, retail, wholesale and service industries. The advantage of modern liquidity measurement technique helps to evaluate working capital change. In addition, it facilitates the monitoring and controlling of its components, receivables, inventories and payables.

4. Lyroudis and Lazardis (2000). Mukhopadhyay (2004) has stated that firms are badly constrained to smoothly run the day to day operations if there is negative working capital

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and also difficult to settle short term obligations. Singh (2004) states that the liquidity position of any firm mainly depends upon accounts receivable collection and payables deferred policy as well as inventories conversion period of firms.

5. Kim, Mauer and Sherman (1998) have examined the determinants of corporate liquidity of 915 US industrial firms for the period of 1975 to 1994 by using panel data and different model. They have found that firms with large market to book ratio have significantly larger position in liquid assets. In addition, firm size tends to be negatively related to liquidity. Their finding revealed that positive relationship between liquidity and cost of external financing to the extent that market to book ratio and firm size are reasonable proxies for the cost of external financing.

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4.1 Objectives

Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover. With this primary objective of the study, the following further objectives are framed for a depth analysis.

1. To study the working capital management of Elecon Engineering Ltd.

2. To study the optimum level of current assets and current liabilities of the company.

3. To study the liquidity position through various working capital related ratios.

4. To study the working capital components such as receivables accounts, cash management, Inventory position

5. To estimate the working capital requirement of Elecon6. To study the operating and cash cycle of the company.

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5.1 INTRODUCTIO

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Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them. It is important for research to know not only the research method but also know methodology. ”

“The procedures by which researcher goes about their work of describing, explaining and predicting phenomenon is called methodology”.

Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem.

Data collection is important step in any project and success of any project will be largely depend upon now much accurate you will be able to collect and how much time, money and effort will be required to collect that necessary data, this is also important step. Data collection plays an important role in research work.

Without proper data available for analysis you cannot do the research work accurately.

5.2 TYPE OF DATA COLLECTED

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There are two types of data collection methods available.1 Primary data collection2 Secondary data collection

(1) Primary dataThe primary data is that data which is collected fresh or firsthand, and for first time which is original in nature. Primary data can collect through personal interview, questionnaire etc. to support the secondary data.

(2) Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance sheets, books etc.

This project is based on primary data collected through personal interview of head of account department, head of SQC department and other concerned staff member of finance department. But primary data collection had limitations such as matter confidential information thus project is based on secondary information collected through five years annual report of the company, supported by various books and internet sides.

The data collection was aimed at study of working capital management of the company Project is based on

1. Annual report of Elecon 2004-052. Annual report of Elecon 2005-063. Annual report of Elecon 2006-074. Annual report of Elecon 2007-085. Annual report of Elecon 2008-09

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6.1 INTRODUCION

“More business fails for lack of cash than for want of profit…

Efficient management of working capital is one of the pre-conditions for the success of an enterprise. Efficient management of working capital means management of various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of a firm and for fulfillment of twin objectives of liquidity and profitability.

While inadequate amount of working capital impairs the firm’s liquidity. Holding of excess working capital results in the reduction of the profitability. But the proper estimation of working capital actually required, is a difficult task for the management because the amount of working capital varies across firms over the periods depending upon the nature of business, production cycle, credit policy, availability of raw material, etc.

Thus efficient management of working capital is an important indicator of sound health of an organization which requires reduction of unnecessary blocking of capital in order to bring down the cost of financing.

Meaning of Working Capital

Working capital is the amount of capital that a business has available to meet the day to- day cash requirements of its operations, or more specially, for financing the conversion of raw material into finished goods, which the company sells for payment. Funds are also needed for short-term purposes for the purpose of raw materials, payment of wages and other day-to-day expenses, etc. These funds are known as working capital.

In simple words, working capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories.

Working capital is a valuation metric that is calculated as current assets minus current liabilities. Working capital is also known as operating capital.

Current Assets

40

This is any cash or assets that can be quickly turned into cash. Current assets are assets, which can be converted into cash within an accounting year.

Constituents of Current Assets: Cash in hand and bank balance bills receivables Sundry debtors (provision for bad debts) Short term loans and advances Inventories of stocks. Raw material. Work in progress. Stores and spares. Finished goods. Prepaid expenses. Accrual incomes.etc

Current Liabilities

Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year.

Constituents of current Liabilities

Bills payable Sundry creditors or account payable Short term borrowings Dividend payable Bank overdraft Provisions Outstanding expenses Un accrued income

Need for working capital  

41

The basic objective of financial management is to maximize shareholder’s wealth. For this it is necessary to generate sufficient profits.

The extent to It, which the profit can be earned, largely depends on the magnitude of sales. However sales do not convert into cash instantly.

There is invariable the time gap between the sales of goods and receipts of cash. There is, therefore, a need for working capital in the form of Current Assets to deal with the problem arising.

Out of the lack of immediate realization of cash again goods sold. Therefore, sufficient working capital is necessary to sustain sales activity.

Working capital is needed for the following purpose:

1. for the purchase of raw material, components and spares.2. To incur day to day expenses and overhead costs such as fuel, power and office expenses, etc.3. To meet selling costs as packing, advertisement etc.4. To provide credit facilities to the customers.5. To maintain the inventories of raw material, work in progress, stores and spare and finished goods.6. To pay wages and salaries.

Meaning of working capital management  

Working Capital Management is concerned with the problems that arise in attempting to manage the Current Assets, Current Liabilities and the inter-relationship that exists between them. Working Capital Management means the deployment of current assets and current liabilities efficiently so as to maximize short-term liquidity. Working capital management entails short term decisions -generally, relating to the next one year periods - which are "reversible"

6.2 INENTORY MANAGEMENT

42

Inventory management is inventory planning which cover the task of development and administration of policies, system and procedures which minimize total cost relating to inventory decision and related unction such as customer service requirement, production scheduling, purchasing and so on. Inventory control is the process where by the investment in materials and parts carried in stock are regulated within predetermined limits set in accordance with inventory policies established by management. The American production and inventory control society has also defined inventory control as “The technique of maintain stock, keeping items at desired level whether they are raw material, work-in-progress or finish good”. In this way inventory control is an integral part of inventory management.

Thus inventory management means efficient control and management of capital invested in raw material and supplies, work-in-progress and finished good for the purpose of obtaining maximum return from investment.

R.vishwanathan has rightly observed, “Inventory is nothing but a stock of good………… than we maintain to facilitate the continuous production of good & service “.

(1) Raw material :- Raw material is input converted into final product through production process.(2) Consumables :-

Consumables or those items at which we get consumed through production process. E.g. oil, grease, grinding of wheels etc.

(3) Spare parts :- Spare part are replaceable parts of machines, these part are needed at the time of any breakdown or overhauling.

(4) In process inventories :- This inventory consists of those items which are particularly processed and meant for future operations.

(5) Finished goods :-

Finished goods are the final products rely for sale. Those are held at factory awaiting dispatch to the customer. It is maintained to meet the market demand. Seasonal demand changes can be met by allowing inventory level to adjust if stock is not available. Customer may buy a substitute item and loss will be incurred on sale. (6) Components :-

Components include that part of inventories which are used in assembling the final product. E.g. Tire in a car manufacturing company.

Need to Hold Inventory :-

43

The question of managing inventories arise only when the company held inventories, maintain inventory involves tiding up to company’s funds and storage and handling cost. As it is expensive to maintain inventories. Why do companies hold inventories? There are general motives for holding inventories.

(a) Transaction motive emphasis the need to maintain inventories to facilitate smooth production and sale operation.

(b) Precautionary motive necessitates holding of inventories to guard against the risk unpredictable changes in demand and supply forces and other factors.

(c) Speculative motives influence the decision to increase in reduces inventory levels to take advantage of price fluctuations.

“Organisation” inventories are maintained to widen the latitude in planning and scheduling successive operation. Raw material is inventory enables a firm to decouple its purchasing and production activities to some extent. It provides flexibility in purchasing and production. The firm can wait for an opportune buying moment without affecting its production schedule likewise the production schedule need not be influenced by immediate purchasing activity. In process inventory provides flexibility in production scheduling so that an efficient schedule and high utilization of capacity may be attained. Without in process inventory, a bottleneck at any stage in the process renders idle the machines and facilities at subsequent stage. This results in delay and idle facilities.

Finished goods inventory enable a firm to decouple it’s production programs and marketing activities so that desirable results can be achieved on both the fronts. If adequate fished goods inventory is available, the marketing department can meet the needs of customer promptly, irrespective of the quantity and composition of goods flowing out of the production line currently.

Purpose of Inventory Management & Control :-

In holding different types of inventory, the capital of the firm is tied-up and it has to in cure some expenditure in the form of storage and transportation costs. In spite of it every business enterprise holds adequate inventories. By holding inventories, the firm is able to separate the process of purchasing, production and selling. If firm are not willing to hold adequate raw materials and finished goods then purchasing would take place only when immediate production and sells have anticipant. In brief, holding of inventory has many purposes that are explained as under.

(A) To stabilize production processes :-

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In the absence of adequate stock of raw materials, production would be has. It is not possible for a firm to produce raw materials whenever it is needed. There exists a time lag between placing and order and receiving goods. Sometimes, it becomes difficult to procure raw materials due to strikes, transport disruption and shortages of raw materials.

There for a firm has to hold adequate quantities of raw materials in stocks foe continuous supplier to the factory for an uninterrupted production.

(B) Reducing order costs :-

Every time a firm places and orders of materials then in cures certain costs. Forms must be typed, checked, approved and mailed when goods arrived, accepted, inspected and counted. The invoice must be checked with the goods and then send to the accounting de order so that the payment will be made to the suppliers. The costs which vary with individual orders can be reduces if the firm places few larger than numbers small orders.

(C) Gaining quantity discount :-

If a firm is willing to hold large inventories in selected products lines then it may be able to make bulk purchases of goods at large quantity discount. Suppliers usually offer a substantially reduced price if the firm want to purchase large order. By this firm will be to increase its profit as long as the cost of maintaining inventories is less than the amount of discount.

(D) Avoiding losses of sales :-

If the firm doesn’t have available goods for sales it will lose sales when customers requiring immediate delivery. Then customers will purchased their wanting goods from the firm’s competitors or will decide not to purchase at all instead of waiting for delivery. At any rate, the customer is to be maintained because a satisfied customer creates a new class of customers for selling and producing our final product. So by this we will maintain customer goodwill as well as increasing profit for any company.

(E) Full utilization of capacity :-

The firm has also to hold adequate quantity of stock of raw materials to use its unutilized production capacity. If the production capacity is not being fully utilized due to shortage of raw materials, it causes an increase in cost of production because some elements of cost are meant for production capacity. Partial utilization of capacity doesn’t result in reducing such cost. Therefore to protect the firm from such losses, holding of an adequate inventory is inevitable.

(F) Lower prices :-

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Raw materials, special prices and other components may be purchased in bulk quantity to take the advantage of a special offer at low prices. Similarly, it is anticipated that there will be large prices increase in near future, bulk purchases are made at current market prices to take the advantage of low cost materials. In both the cases of bulk purchases, the purpose is to reduce the cost of materials, input and thereby increase the profitability. However this is possible only when corrected cost of inventory do not exceed the benefits from lower prices.

Inventory Analysis of Elecon

46

(1) Inventory Level :- R.M. = Raw MaterialW.I.P. = Work-in-progressT.C.A. = Total current assetsF.G. = Finish goods

(1) Inventory level :- (Rs. In Lacks)particulars 2007-08 2008-09 2009-10Stock of stores 1272.71 1461.36 1683.06R.M. 1022.63 1431.79 3467.14W.I.P. 1228.25 2137.89 3286.32F.G. 1304.87 2758.11 3529.45Goods-in transit

174.04 158.40 169.55

Total 5002.50 7947.55 12135.52

Stock of stores

R.M. W.I.P. F.G. Goods-In Transit

0

500

1000

1500

2000

2500

3000

3500

4000

2007-082008-092009-10

Interpretation :-

Above table shows the inventory level components wise. There is clearly shown that in inventory of stores, raw-material and work-in-progress have consistently increases due to increases in the sales as well as more pending order which they have to finish in next coming year. Inventory of finished goods is reduced in 2009-10 respectively.

(2) Inventory and relative share in current assets :-

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(Rs. In lacks)Years T.C.A. Change over

base year (%)Total inventory

Change over base year (%)

Total inventory as % of T.C.A.

2007-08 80963.00 302.72 25086 218.95 30.982008-09 100845.90 377.06 39916.26 348.40 39.582009-10 84768.00 398.66 45677.18 379.89 48.65Average 88858.97 359.48 36893.15 315.75 39.74

2007-08 2008-09 2009-100

10

20

30

40

50

60

Total inventory as % of T.C.A.

Total inventory as % of T.C.A.

Interpretation :-

The above table shows the trends TCA and total inventory during the period from 2007-08 to 2009-10. It reveals that the TCA shown increasing trends during the study period. And TCA increase by 3.77 times from the base year 2007-08. In case total inventory, it ranged between Rs. 25086 Lacks in 2007-08 and Rs. 45677.18 Lacks in 2009-10.

(3)Component wise inventory to current assets Analysis :-

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(Rs. In Lacks)Years T.C.A. R.M. R.M.as %

of TCAW.I.P. W.I.P. as a

% of TCAF.G. F.G. as a

% of TCA2007-08 80963.00 10226 12.63 12282 15.17 1305 1.612008-09 100845.9

014318 14.20 21379 21.20 1758 2.73

2009-10 84768.00 34670 16.39 32862 24.93 3529 3.18Average 88858.97 19738 14.40 22174.33 20.43 2197.33 2.50

2007-08 2008-09 2009-100

5

10

15

20

25

30

R.M. as % of T.C.A.W.I.P.as % of T.C.A.F.G.as % of T.C.A.

Interpretation :-

The above table shows the component wise inventory to W.I.P. progress shoes increase trend in absolute term thought out the study period on the other hand W.I.P. progress show increasing T.C.A. shows a decline trend up to 2008-2009 year. It means the share of W.I.P.in TCA reducing continuously and corrective action of management to reduce the share of W.I.P. in TCA then again increased in 2009-10 year.

6.3 OPERATING CYCLE

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The working capital requirement of a firm depends, to a great extent upon the operating cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of goods or raw material and ending with the sales of realization. The length and nature of the operating cycle may differ from one firm to another depending upon the size and nature of the firm. In a trading concern, there is a series of activities starting from procurement of goods (saleable goods) and ending with the realization of sales revenue (at the time of sale itself in the case of cash sales and at the time of debtors realization in case of credit sales).similarly in case of manufacturing concern, this series starts from the procurement of raw materials and ending with the sales realization of finished goods. In both the cases, however, there is a time gap between the happening of the first event and the 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 chronological sequences of some or all of the following:

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Operating Cycle

1. Procurement of raw material and services.

2. Conversion of raw material into work-in-progress.

3. Conversion of work-in-progress into finished goods.

4. Sale of finished goods (cash or credit)

5. Conversion of receivable into cash.

Operating cycle period

The length of time duration of the operating cycle of any firm can be defined as the sum of its inventory conversion period and the receivable conversion period.

1. Inventory conversion period:-

It is the time required for the conversion of raw material into finished goods sales. In a manufacturing firm the inventory conversion period is consisting of raw material conversion period (RMCP), work-in-progress conversion period (WPCP) and finished goods conversion period (FGCP).

Raw material conversion period refers to the period for which the raw material is generally kept in stores before it is issued to the production department.

The work-in-progress conversion period (WPCP) refers to the period for which the raw material remains in the production process before it is taken out as finished units.

The finished goods conversion period refers to the period for which finished units remains in stores before being sold a customer.

2. Receivable conversion period (RCP):-

It is the time required to convert the credit sales into cash realization. It refers to the period between the occurrence of credit sales and collection from debtors. The total of Inventory conversion period (ICP) and Receivable conversion period (RCP) is also known as total operating cycle period (TOCP).the firm might be getting some credit facilities from supplier of raw material, wages earners etc. This period for which the payment to these parties are deferred or delayed is known as deferred period (DP).the net operating cycle (NOC) of the firm is arrived at by deducting the DP from TOCP.

NOC =TOCP-DP

=ICP+RCP-DP

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(1)Raw material conversion period:-

2008-09:- (Rs. In Lacks)

R.M.C.P. = Avg. Raw Material Raw Material Conversion Period

Avg. R.M. = Opening stock of R.M. + closing stock of R.M. 2 =1431.79 + 1022.630 2 =1227.21 R.M.C. = 58655.28 365 = 160R.M.C.P. = 1227.21 160 = 76 day

2009-10 :- Avg. R.M. = 3467.14 + 1431.79 2 = 2449.47R.M.C. = 57859.71 365 = 158R.M.C.P. = 2449.47 158 = 155 day

Interpretation :- From above calculation we show that R.M. Conversion Period is increased from year

2008-09 to 2009-10 increased up to155 day which is efficient of the management of inventory.

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(2)Work In Progress Conversion Period:-

2008-09:- (Rs. In Lacks)

W.I.P.C.P. = Avg. W.I.P. Cost of Production

Avg. W.I.P. = Op. stock of W.I.P. + Closing Stock of W.I.P. 2 = 2137.89 + 1228.25 2 = 1683.07Cost of production = 68448 365 = 187W.I.P.C.P. = 1683.07 187 = 90 day

2009-10 :- Avg. W.I.P. = 3286.32 + 2137.89 2 = 2712.10Cost of Production = 103263.08 365 = 282W.I.P.C.P. = 2712.10 282 = 96 day

Interpretation :- From the above calculation we can see the W.I.P. conversion period is increased from year

2008-09 to year 2009-10 increased up to 96 day which is effectives of the management of work in progress.

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(3)Finished Goods Conversion Period:-

2008-09:- (Rs. In Lacks)

F.G.C.P. = Finished goods Inventory Cost of Goods Sold

Avg. Finished goods = op. stock of finish stock + closing Stock of finish stock 2 = 2758.11 + 1304.87 = 2031.47

Cost of goods sold = 66995

Finish goods C.P. = 2031.47 * 365 66995

= 11day

2009-10 :-

Avg. F.G. = 1605.47 + 2758.11 2 = 2181.79Cost of goods sold = 89681.60F.G.C.P. = 2181.79 * 365 89681.60 = 8.88 day

Interpretation :- From the above calculation we show that F.G. conversion period is decreased from year

2008-09 to 2009-10 decreased up to 8.88 day which is efficient of the management of finished goods conversion period.

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(4) Book depth Conversion Period:-

2008-09:- (Rs. In Lacks)

B.D.C.P. = Avg. debtors Total Credit Sales

Avg. debtors = op. debtors + closing debtors 2 = 47173.58 + 49231.61 = 48202.59

Total Credit sales = 95506.48

B.D.C.P. = 48202.59 *365 95506.48 = 184 day

2009-10 :-

Avg. Debtors = 51758.54 + 47173.58 2 = 49466.06Total Credit sales = 97198.48B.D.C.P. = 49466.06 * 365 97198.48 = 186 day

Interpretation :- From the above calculation we show that Book Depth Conversion Period is increased from

year 2008-09 to2009-10 increased up to 186 day which is efficient of the management of Book Depth Conversion Period.

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(5)Credit Conversion Period:-2008-09:- (Rs. In Lacks)

C.C.P. = Avg. Creditors Total Credit Purchase

Avg. creditors = 28167.77 + 27526.23 2 = 27847Total Credit purchase = 73747.68

C.C.P. = 27847 * 365 73747.68 =138 day

2009-2010 :-

Avg. Creditors = 29469.51 + 28167.77

2

= 28818.64

Total Credit Purchase = 69376.92

C.C.P. = 28818.64 * 365

69376.92

= 152

Interpretation :-

From the above calculation we show that Credit Conversion Period is increased from year 2008-09 to 2009-10 increased up to 152 day which is efficient of the management of Credit Conversion Period.

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6.4 RATIO ANALYSIS Introduction :-

An investor is interested in information regarding the exact financial position of business, its earning capacity, the present position with regard to the profitability and the future possibility. He has only the published accounts of the company before him which would enable him to take any decision with respect to invest his money. The published account contains Profit & Loss account, Balance sheet, Auditor’s Report, Director’s Report and the Chairman’s Speech.

(1) Quick Ratio :-

Quick Ratio = Current assets – Closing inventory

Current Liability

(Rs. In Lacks)Years 2007-08 2008-09 2009-10Current Assets 80963.70 100845.9

084768

Closing Inventory

25086 39916.26 45677.18

Current Liability 35003.64 43177.28 44256.18Quick Ratio 1.60 1.41 0.88

2007-08 2008-09 2009-100

0.20.40.60.8

11.21.41.61.8

Quick Ratio

Quick Ratio

Interpretation :-

In Elecon Company we can see that Quick ratio is highest in 2007-2008 which in 1.60 and again better in 2008-09 and 2009-10 which is 1.41 and 0.88 the reason behind this decreased in

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Quick ratio is Company decrease most of it is current assets other than closing inventory which is not good for Company.

(2) Cash Ratio :-

Cash Ratio = Cash + Marketable Securities

Current Liability

(Rs. In Lacks)

Years 2007-08 2008-09 2009-10Cash 752.24 6105.87 3881.00Marketable Securities 305.72 305.72 305.72Current Liability 35003.6

443177.28 44256.18

Cash Ratio 0.030 0.148 0.095

2007-08 2008-09 2009-100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

Cash Ratio

Cash Ratio

Interpretation :-

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In Elecon Company cash ratio is highest in year 2008-09 as compare with previous year because company future increase its cash balance in current account, bank deposit and unpaid dividend bank account which show the positive side of the company because now Elecon Company can easily pay it’s day to day expenses.

(3)Solvency Ratio :- Debt / Equity Ratio :-

Debt / Equity Ratio = Debt

Equity

Years 2007-08 2008-09 2009-10Debt 40926.09 59208.20 6269.20Equity 23672.62 27540 28560.59Debt / Equity

1.729 2.15 2.19

2007-08 2008-09 2009-100

0.5

1

1.5

2

2.5

Debt / Equity Ratio

Debt / Equity Ratio

Interpretation :-

In Elecon Company Debt Ratio is continuously increased in last two years which show the Elecon Company to get funds from outside sources which increase the liability of company.

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7.1 FINDING

Elecon is the fastest growing company in engineering world. I have taken a summer internship programmers for my MBA project at Elecon Engineering Ltd. I have prepared a project on Working Capital Management of Elecon. Following are some findings of my project work.

Company’s main strength is its employees and company is properly taking care of that by providing safety working conditions, canteen facilities etc.

Elecon is investing more and more money in subsidiary companies for its faster growth. Company’s working capital is enough to maintain company’s sales and other operations

easily. Due to high goodwill the company is not getting any problem in getting short term finance.

Company gives 75% of dividend since last two years, instead of giving 75% dividend the company should give 60 to 65% and reinvest the balance amount in financing the working capital.

Company is targeting to increase foreign exchange transactions and also trying to avoid hedging risk.

Company should try to utilize cheap source of finance for financing working capital requirements.

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7.2 CONCLUTION

The mission of Elecon is providing best quality to customers. It is financially very sound organization.

The performance of the Elecon has been reasonably good. Due to constant work on the quality, better concentration on the material usage and proper prices the Elecon could improve maximum its performance. If Elecon give emphasis on human, it will useful in increasing production.

Elecon is continuously trying to maximize the wealth of share holders. As per my knowledge Elecon is running successfully and in Asia it is on number one

position in Gear division. At last I wish bright future of Elecon, and may got first rank in all over world The overall performance of Elecon Engineering Company Limited is going on good

track. The turnover has been increased by 17.06% while the profit is increased by 17.11%. With the increase in capacity on account of the expansion projects being undertaken by the company.

The recent boom in the engineering and technology sector has coupled with continuous thrust of government on infrastructure projects is expected to sustain healthy growth of engineering products demand. Almost all major players have announced substantial increase in capacity which results into increase in sales of Elecon.

An increase in tax rates, transportation charges, railway freight, and cost of coal can add worries for the company.

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7.3 LIMITATION

Limitations of the study

Following limitations were encountered while preparing this project:

(1) Limited data:-

This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were imitations for primary data collection because of confidentiality.

(2) Limited period:-

This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company

(3) Limited area:-

Also it was difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to get.

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(A) Bibliography

Books :-

(1) Financial Management by I.M. Pandey Ninth Edition, Vikas publishing House PVT. Ltd. (2) Stores Management by K.S.Menon Second Edition, MacMillan India Ltd.(3) Financial Management by Prusanna Chandra Seventh Edition, Tata McGraw Hill

Education. Pvt. Ltd.

Magazines, Journals and Other :-

(1) Elecon Engineering Co. Ltd’s Review and Literatures.(2) Elecon Engineering Co. Ltd’s Five Years Financial Highlights.(3) Annual Report of Elecon from Year 2007 to 2010.

Websites :-

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(1) WWW.ELECON.COM (2) WWW.MONEYCONTROL.COM

(B) Annexure

BALANCE SHEET

(Rs. In Crore)

Mar’

10

Mar’

09

Mar’

08

Sources of funds

Owner’s fund

Equity share capital 18.57 18.57 18.57

Share application money - - -

Preference share capital - - -

Reserves & surplus 307.53 256.83 218.15

Loan funds

Secured loans 332.88 523.61 320.91

Unsecured loans 188.70 68.47 88.35

Total 847.68 867.48 645.99

Uses of funds

Fixed assets

65

Gross block 509.42 427.74 300.56

Less: revaluation reserve - - -

Less: accumulated depreciation 165.08 144.83 123.41

Net block 344.34 282.91 177.15

Capital work-in-progress 17.88 28.11 15.92

Investments 5.68 10.87 9.46

Net current assets

Current assets, loan & advances 926.26 1008.65 811.18

Less: current liabilities & provisions 449.08 464.74 368.69

Total net current assets 477.18 543.91 442.49

Miscellaneous expenses not written 2.60 1.69 0.97

Total 847.68 867.48 645.99

Notes:

Book value of unquoted investments 2.95 7.81 6.40

Market value of quoted investments 38.87 29.40 58.91

Contingent liabilities 117.99 109.82 106.85

Number of equity share outstanding (Lacks) 928.62 928.62 928.62

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PROFIT & LOSS ACCOUNT

(Rs. In Crore)

Mar’10

Mar’09

Mar’08

IncomeOperating income 1045.10 956.56 825.21ExpensesMaterial consumed 626.92 503.02 490.04Manufacturing expenses 116.83 142.24 74.57Personnel expenses 43.52 43.83 34.28Selling expenses 62.73 52.31 49.45Administrative expenses 31.03 38.39 31.02Expenses capitalized - - -Cost of sales 881.02 799.79 679.35Operating profit 164.08 176.77 145.85Adjusted PBDIT 172.20 185.84 151.18Financial expenses 58.71 58.23 33.86Depreciation 33.12 22.15 14.20Other write offs 0.66 0.44 -Adjusted PBT 79.71 105.07 103.12Tax charges 24.14 30.65 31.47Adjusted PAT 55.57 74.42 71.65Nonrecurring items 10.60 -16.97 -4.44Other non cash adjustments 0.77 -2.48 -Reported net profit 66.95 54.97 67.20Earnings before appropriation 87.04 111.38 82.71Equity dividend 13.93 13.93 13.93Preference dividend - - -Dividend tax 2.31 2.37 2.37

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Retained earnings 70.79 95.09 66.41

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