wcm @ bevcon PVT LTD.,.doc

8/18/2019 wcm @ bevcon PVT LTD.,.doc

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STATEMENT OF THE PROBLAM

In order to maintain flows operations every firm needs certain amount of

current assets. For example cash is required to pay for expenses or to meet obligations

for services received or goods purchased etc, by a firm. On the identical plane

inventories are required to provide the link between production and sale. Similarly

accounts receivable generate when goods are sold on credit.

eedless to mention cash, bank, debtors, bills receivables closing stock !including raw materials, work in process, finished goods", prepayments and certain other

deposits and investments which are temporary in nature present current assets of a firm.

#conomists like $ead, $allet, %acker and Field are of the opinion that the

whole of these current assets forms the working capital of a firm. &nd this concept of

working capital of a firm is frequently termed as gross working capital, in the area of

financial management.

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CHAPTER -IINTRODUCTION

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INTRODUCTION

'he total capital employed in a business organi(ation can be categori(ed as fixed

capital and working capital. 'he fixed capital that part of the funds, which is invested in

current assets.

'he investment in fixed assets is represented by land and buildings !for factory,

office go down and stores", equipment such as machinery, furniture and fixtures,

intangible assets in the form of patents and goodwill etc. 'o employ these fixed assets

gainfully current assets are required. )urrent assets consists of raw materials, working

progress, finished goods, stores and spares accounts, receivables, and cash in hand and at

bank and marketable securities.

Balanced working cai!al o"i!ion#

'he firm should maintain a sound working capital position. It should have

adequate working capital to run its business operations. %oth excessive as well as

inadequate working capital positions are dangerous from the firm*s point of view.

#xcessive working capital means idle funds, which earn no profits for the firm. +aucity

of working capital not only impairs the firm*s profitability but also results in production

interruptions and inefficiencies.

$OR%IN& CAPITAL MANA&EMENT

orking capital management forms the inching of every business. &s

-ilberth arold puts the problems. /nfortunately, there is so much disagreement among

financiers, accountants, business men and economists as to the exact meaning of the term

orking )apital.

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De'ini!ion o' $orking Cai!al#

orking )apital or )irculating )apital indicates circular flow of funds in the

routine activities of business.

orking )apital can be defined as 0&ny acquisition of funds which increases the

current assets, increases working capital also, for they are one and the same1

Bonne(ille)

'he current assets are cash, marketable securities, accounts receivable and

inventory.

'he current liabilities are those liabilities which are intended at their inceptionto be paid in the ordinary course of business such as bills payable, bank overdraft and

outstanding expenses.

'he goal of working capital management to manage the firms* current assets

and current liabilities in such a way that a satisfactory level of working capital is

maintained. 'his is because if the firm cannot maintain a satisfactory level of working

capital, it is likely to become insolvent and may even be forced into bankruptcy.

IMPORTANTCE OF $OR%IN& CAPITAL

'he source of any enterprise depends on the proper management of working

capital aims at protecting the purchasing power of assets and maximi(ing the return on

investments, sales expansion, dividend declaration, plant expansion, increased salaries

and wages, rising price level etc., but added strain on working capital maintenance.

CONCEPTS OF $OR%IN& CAPITAL

'here are two concepts of orking )apital

-ross orking )apital

et orking )apital

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&ro"" $orking Cai!al#

It refers to the company*s investments in )urrent assets. )urrent &ssets are the

assets which can be converted into cash within an accounting year and include cash,

short2term securities, debtors, bills receivables and stock.

Ne! $orking Cai!al#

It refers to the difference between current assets and current liabilities. )urrent

3iabilities are those claims of outsiders, which are expected to mature for payment within

an accounting year and include creditors, bills payable, and outstanding expenses. etworking )apital can be positive or negative.

& positive net working capital will arise when current liabilities are in excess

of current liabilities. & negative net working capital occurs when current liabilities are in

excess of current assets.

'he two concepts of working capital 4 gross and networking capital are not

exclusive, rather they have equal significance from management view point, the gross

working capital concept focuses attention on two aspects of current assets management.

Optimum investment current assets and Financing of current assets.

et working capital being the difference between current assets and current

liabilities. It is a qualitative concept. It aims at the firms* liquidity position and financing

of current assets suggests the extent to which working capital needs may be financed by

permanent sources of funds.

'he consideration of the level of investment in current assets should avoid two

danger points.

)urrent assets have excessive and inadequate investments. Investment in

current assets should be 5ust adequate, not more not less to the needs of the business firm.

#xcessive investment in current assets should be avoided because it impairs the firm*s

profitability an ideal investments nothing. On the other hand inadequate amount of

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working capital can threaten solvency of the firm because of its inability to meet its

current obligations.

CHARACTERISTICS OF CURRENT ASSETS

In the management of working capital two characteristics of current assets

must borne in mind.

Short2term span

Swiftly transformation into other assets form )urrent assets has a short life span.

&ccounts receivable may have a life span of 67 to 87 days, inventories may be held for 67

days to 977 days and cash may be held idle for week or two.

#ach current asset is swiftly transformed into other assets form. )ash is used

for acquiring raw materials.

:aw materials are untransformed into finished goods !this transformation may

involve several stages of work in progress", finished goods, generally sold on credit, are

converted into accounts receivable and finally, accounts receivables, on reali(ation

generates cash.

'he need for current assets arises because of the operating cycle. 'he

operating cycle is a continuous process and therefore, the need for current assets is felt

constantly. %ut the magnitude of current assets needed in not always the same, it increases

and decreases over time.

owever, there is always a minimum level of current assets which time is

continuously required by the firm to carry on its business operations.

'his minimum level of current assets is referred to as permanent or fixed

working capital. ;epending upon the changes in production and sales, the need for

working capital, over and above permanent working capital will fluctuate.

'he extra working capital needed to support the changing production and sales

an activity is called fluctuating or variable or temporary working capital.

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DETERMINANTS OF $OR%IN& CAPITAL

'here are no set rules to determine the working capital requirements of firms.& large number of factors, each having a different importance, influence working capital

needs of firms. 'herefore, an analysis of relevant factors should be made in order to

determine total investment in working capital. 'he following is the description of factors,

which generally influence the working capital requirements of firms.

NATURE AND SI*E OF BUSINESS#

'he si(e of business also has an important impact on its working capital needs.

Si(e may be measured in terms of the scale of operations. & firm with large scale of

operations will need working capital than small term. 'he working capital requirements

of a firm are basically influenced by the nature of business trading and financial firm has

a very less investment in fixed assets, but require a large sum of money to be invested in

working capital.

TECHNOLO&+ AND MANUFACTURIN& POLIC+

'he manufacturing cycle starts with the purchase and use of raw materials and

completes with the production of finished goods. 3onger the manufacturing cycle, larger

will be the firms working capital requirements. &n extended manufacturing time span

means a larger tie2up of funds in inventories. 'hus if there are alternative technologies of

manufacturing a product, the technological process with the shortest manufacturing cycle

may be chooses.

FIRMS CREDIT POLIC+

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'he credit policy of the firm affects the working capital by influencing the

level of debtors. 'he credit term to be granted to customers may depend upon the forms

of the industry to which the firm belongs.

A,AILABILIT+ OF CREDIT

)reditors also affect the working capital requirements of a firm. & firm will

need less working capital if liberal credit terms are available to it.

OPERATIN& EFFICIENC+

'he operating efficiency of the firm relates to the optimum utili(ation of

resources at minimum costs. 'he firm will be effectively contributing in keeping the

working capital investment at a lower level if it is efficient to controlling operating costs

and utili(ing current assets. 'he use of working capital is improved and pace of a cash

conversion cycle is accelerated with operating efficiency.

BUSINESS FLUCTUATIONS

$ost firms experience seasonal and cyclical fluctuations in the demand for

their products and services. 'his business variation effects the working capital

requirements especially the temporary working capital requirement of the firm. hen

these is an upward swing in the economy, sales will increase and vice2versa.

PRODUCTION POLIC+

& steady production policy will cause inventories to accumulate during the

off2season periods and the firm will be exposed to greater inventory cost and risk. 'hus, if

the cost and risks of maintaining a constant production schedules are high, the firm may

adopt the policy of varying its production schedules in accordance with the change in

demand.

&RO$TH AND EPANSION ACTI,ITIES

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'he working capital needs of firm increases it growth in terms of sales of fixed

assets. If is difficult to precisely determine the relationship between volume of sales and

the working capital needs. 'he critical fact however is that the need for increased working

capital funds does not follow growth in business activities but precedes it.

PROFIT MAR&IN AND PROFIT APPROPRIATION

Firms differ in their capacity to generate profit from business operations.

Some firms en5oy a dominant position, due to quality product or good marketing

management or monopoly power in the market and earn a high profit margin. Some other

firms may have to operate in an environment of intense competition and may earn low

margin of profits. & high net profit margin contributes towards the working capital pool.

In fact the net profit is a source of working capital to the extent it has earned in cash.

DIMIENSIONS OF $OR%IN& CAPITAL MANA&EMENT

orking )apital $anagement refers to the administration of all aspects of current

assets namely cash, marketable securities, and debtors and are many aspects of working

capital management, which makes it an important function of the financial manager.

#mpirical observations show that the financial managers have to spend much

of their time to the daily internal operations, relating to the current assets and currentliabilities of the firms. Investments in current assets represents a very significant portion

of the total investment in assets. It is particularly very important for small firms to

manage their current liabilities in financing current assets is far significant incase of small

firms, as unlike large firms, the difficulties in raising long terms finances.

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'here is a direct relationship between sale and working capital needs. &s sales

grow, the firm needs to invest more in inventories and book debts. 'hese needs become

very frequent and fast when sales grow continuously.

It may thus be concluded that all precautions should be taken for the effective

and efficient management of working capital. 'o decide the levels and financing of

current assets, the risk return implications must be evaluated.

FINANCIN& CURRENT ASSETS

'he firm must find out the sources of funds to finance its current assets. It can

adopt different financing policies. 'hree types of financing be distinguished as follows.

3ong term financing

Short term financing

Spontaneous financing

'he important sources of long2term financing are shares, debentures, preference

shares, retained earnings and debt from financial institutions.

Short term financing refers to those sources of short credit that the firm must

arranged in advance. 'hese sources include short term bank loans, commercial papers and

factoring receivable.

Spontaneous financing refers to the automatic sources of short term funds. 'he

ma5or sources of such financing are trade credit !creditors and bill payable" and

outstanding expenses. Spontaneous sources of finance are cost free.

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TECHNI.UES FOR THE MANA&EMENT OF $OR%IN& CAPITAL

In this section a few important techniques of working capital are presented. &ll

techniques of working capital management can be divided into two parts. 'echniques

relevant for the management of working capital as a whole and the techniques relevant for

the management of each component of working capital cash account receivable and

inventory.

'echniques relevant for the management of working capital

One of the very important issues in the management of working capital is to

decide how much to invest in current assets. 'he investment in current assets is generally

influenced by sales volume. 'herefore before firm is able to decide about he quantum of working capital. It should be forecast its feature sales volume accurately or near

accurately. 'his is equal true about the components of working capital as well.

TIME SERIES MODELS

'he time series models are based on the assumptions that the past trend will

continue repeating in the future. In the construction of tikes series, models, historical

recordings of the factors to be forecasted is taken into the account and their pattern and

the relationship over the time is established on the basis of the pattern so established

future forecast is made.

ECONOMETRIC MODELS

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'he models here are the equations consisting of dependent and independent

variable. 'hese equations attempt to establish the nature of relationship between variables

enabling the analysts to study the value of the dependent variable on the basis of the value

of the independent variable. 'hese models are sophisticated, very useful techniques.

$OR%IN& CAPITAL FORECASTIN& TECHNI.UES

aving determined the sales accurately, steps can to taken to forecast working

capital and the various components of it. orking capital requirements can be,

determined into two.

+ercentage Sales method.

Operational )ycle method.

OB/ECTI,ES OF THE STUD+

'he following are the ob5ective of the study

9. 'o present the conceptual framework relating to management of working capital


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SCOPE OF THE STUD+

Since it will not be possible to conduct a micro level study of all infrastructure

industries in &ndhra +radesh, the study is restricted to %evcon ayors +vt 3td.

'he +ro5ect was done in only => days

'he study is focused on financial performance through comparative analysis of

%evcon ayors +vt 3td. 'he purpose the tools comparative and ratio analysis applied.

NEED FOR $OR%IN& CAPITAL

'he need for working capital to run the day2to2day business activities cannot

be overemphasi(ed. e will hardly find a business firm, which does not require any

amount of working capital. e know that a firm should aim at maximi(ing the wealth of

its shareholders. In its endeavor to do so, a firm should earn sufficient return from its

operations. 'he firm has to invest enough funds in current assets of generating sales.

)urrent assets are needed because sales do not convert into cash instantaneously. 'here is

always an operating cycle involved in the conversion of sales into cash.

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RESEARCH METHODLO&+

'he proposed study is carried with the help of both primary and secondary sources

of date. &nnual reports of the company and other 5ournals, maga(ines and manuals

published by %evcon ayors +vt 3td. Some of the information related to topic was

gathered from website related to %evcon ayors +vt 3td.

DATA SOURCES

'he information was collected through both primary and secondary

sources.

0) PRIMAR+ SOURCES#-

&dministering a questionnaire, conduction interviews and through

discussion with the employees, collected primary data.

1) SECONDAR+ DATA#-

Secondary data was collected by literature booklets, statically reports,

quarterly reports, annual reports, 5ournals and internet etc. on the basis of

above two sources the data was recorded and analy(ed for the purpose of

evaluating employee satisfaction.

Anal2"i" and re"en!a!ion

'he data is analy(ed by using comparative analysis between the two years

performance and financial data of the company. 'he former year is considered as a base

year values and later is considered as current year values. 'he current year values are

dividing with base year values the change between the two years are presented in change

n amount and change in percentage. If the revenue center information is treated as good.

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If the cost centers have negative charging it is considered with help of ration analysis and

a detailed interpretation for tables were presented in the report. In order to understand the

pictorial presentation is made with simple histograms.

LIMITATIONS OF THE STUD+

&vailability of the time is a serious constraint in the proposed survey.

Since the pro5ect will be completed with in a period of => days.

'he accuracy and correctness of Financial &nalysis on reliability of the data

contained in the next statement.

In the case of inter firm comparison two firms should have uniform accounting practices.

Inflation makes the comparative study complicated and measuring.

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CHAPTER -II

RE,IE$ OF LITERATURE

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TOOLS AND TECHNI.UES OF IN,ENTOR+MANA&EMENT

& proper inventory control not only helps in solving the acute problem of liquidity

but also increases profit and causes substantial reduction in the working capital of the

concern.

'he following are the important tools and techniques of inventory management

and control.

9. De!er3ina!ion o' "!ock le(el"#

)arrying of too much and too little of inventory is detrimental to the firm. If the

inventory level is too little, the firm will face frequent stock outs involving heavy

ordering cost and if the inventory level is too high it will be unnecessary tie up of

capital.

&n efficient inventory management requires that a firm should maintain anoptimum level of inventory where inventory costs are the minimum and at the

same time there is no stock out which may result in loss or sale or storage of

production.

a4 Mini353 "!ock le(el#

It represents the quantity below its stock of any item should not be allowed to fall.

3ead time@ a purchasing firm requires sometime to process the order and time is also

required by the supplying firm to execute the order. 'he time in processing the order and

then executing it is know as lead time

Ra!e o' con"53!ion@

it is the average consumption of materials in the factory. 'he rate of consumption

will be decided on the basis of past experience and production plans.

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ature of materials@ the mature of materials also affects the minimum level. If a

material is required only against the special orders of the customer then minimum stock

will not be required for such material

$inimum stock level can be calculated with the help of following formula.

Mini353 "!ock le(el-Re-ordering le(el#

6Nor3al con"53!ionANor3al re-order eriod4

74 Re-ordering Le(el

hen the quantity of materials reaches at a certain figure the fresh order is sent to

get materials again@ the order is sent before the materials reach minimum stock level.

:e2ordering level is fixed between minimum level maximum levels.

c4 Ma8i353 le(el

It is the quantity of materials beyond which a firm should not exceeds its stocks. If

the quantity exceeds maximum level limit then it will be over2stocking.

Overstocking will mean blocking of more working capital, more space for storingthe materials, more wastage of materials and more chances of losses from obsolescence.

Ma8i353 "!ock le(el 9 reordering le(el : reorder ;5an!i!2 9

6Ma8i353 con"53!ion < Mini353 reorder eriod4

d4 Danger "!ock le(el

It is fixed below minimum stock level. 'he danger stock level indicatesemergences of stock position and urgency of obtaining fresh supply at any cost.

Danger "!ock le(el = a(erage ra!e o' con"53!ion < e3ergenc2 deli(er2 !i3e

e4 A(erage "!ock le(el#

'his stock level indicates the average stock held by the concern.

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14 De!er3ina!ion o' "a'e!2 "!ock"#

Safety stock is a buffer to meet some unanticipated increase in usage. 'he demand

for materials may fluctuate and delivery of inventory may also be delayed and in such a

situation the firm can be face a problem of stock out.

In order to protect against the stock out arising out of usage fluctuations, firms

usually maintain some margin of safety stocks.

'wo costs are involved in the determination of this stock that is opportunity cost

of stock outs and the carrying costs.

.

>4 Econo3ic" Order .5an!i!2 6EO.4#

'he quantity of materials to be ordered at one time is known as economic orderingquantity. 'his quantity is fixed in such a manner as to minimi(e the cost of ordering and

carrying costs.

To!al co"! 3a!erial = Ac;5i"i!ion co"! : co"! : carr2ing co"!" : ordering co"!

Carr2ing co"!#

It is the cost of holding the materials in the store.

Ordering co"!#

It is the cost of placing orders for the purchase of materials.

#OB can be calculated with the help of the following formula.

#OB C D< )OEI

here )C consumption of the material in units during the year

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OCordering cost

ICcarrying cost or interest payment on the capital.

?4 A-B-C Anal2"i"# 6Alwa2" Be!!er Con!rol Anal2"i"4#

/nder &2%2) analysis the materials are divided into 6 categories vi(.., &, % and

).&lmost 97 of the items contribute to G7 of value of consumption and this category

is called H&* category.

&bout


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)ost of goods soldInventory turnover ratioC 22222222222222222222222222222222

&verage inventory at cost

Or

et sales

C 2222222222222222222222222222222

&verage invent

And

;ays in a year

inventory conversion period C 22222222222222222222222222222222

Inventory turnover ratio

4 Cla""i'ica!ion o' in(en!orie"#

'he inventories should first be classified can then code numbers should be

assigned for their identification. 'he identification of short names is useful for inventory

management not only for large concerns also for small concerns. 3ack of proper

classification may also lead to reduction in production.

-enerally, materials are classified accordingly to their nature such as construction

materials, consumable stocks, spearsJ lubricants etc. after classification the material are

given code numbers. 'he coding may be done alphabetically or numerically. 'he later

method is generally used for coding.

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'he class of materials is assigned two digits and then two or three digits are

assigned to the categories of items divided into 9> groups. 'wo numbers will be category

of materials in that class.

'he third distinction is needed for the quality of goods and decimals are used tonote this fact

4 ,al5a!ion o' in(en!orie"-3e!od o' (al5a!ion"#

FIFO $ethod!First 2In First2 Out $ethed "

3IFO $ethod ! 3ast 2In First 2Out $ethed "

%ase Stock $ethod

eighted &verage +rice $e

CRITERIA FOR /UD&IN& THE IN,ENTOR+ S+STEM

hile the overall ob5ective of the inventory system is to minimi(e the cost to the

firm at the risk level acceptable to management, the more proximate criteria for 5udging

the inventory system are@

)omprehensibility

&daptability

'imelines

AREA OF IMPRO,EMENT#

Inventory management in India can be improved in various ways. Improvements

could be affected through.

E''ec!i(e co35!eria!ion#

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)omputers should not be used merely for accounting purpose but also for improving

decision making.

Re(iew o' cla""i'ica!ion"#

&%) and FS classification must be periodically reviewed.

I3ro(ed coordina!ion@

%etter coordination among purchase, production, marketing and finance departments will

help in achieving greater efficiency in inventory management.

De(elo3en! o' long !er3 rela!ion"i#

)ompanies should develop long term relationship with vendors. 'his would help

in improving quality and delivery.

Di"o"al o' o7"ole!e G "5rl5" in(en!orie"#

+rocedures for disposing obsolete E surplus inventories must be simplified.

&doption of challenging norms@

)ompanies should set benchmarks with global competitors and use ideals like KI'

to improve inventory management.

IN,ENTOR+ ,ALUATION AND COST FLO$S#

$a! i" !e co"! o' in(en!or2

One can readily visuali(e the determination of inventory quantities by physical

count or by use of perpetual inventory records. hen this quantity is determined, it must

be multiplied by a unity cost in order to determine the inventory value that is used on

financial statement.

'rade and quantity discount are to be exclude from unit cost since these discountexist for the purpose of defining the true invoice cost of merchandise. )ash discounts, on

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the other hand, have been considered as a reward for early payment and as a penalty for

late payment. 'he 0reward1 has often been interpreted as a loss rather than as a part of

unit cost. 'hus in would not be difficult to find difference of opinion as to whether

invoice cost includes or excludes cash discount.

hen the 0current re plain frastracture cost1 of material on hand at the close of a

year is less than the actual cost, the inventory value is reduced to replainfrastracture cost

!current market price". 'hus the acceptable basis inventory valuation is he 0lower of cost

or marker1 or more properly the 0lower of actual cost or replainfra stracture cost1.

'he determination of inventory values is very important from the point of view of

the balance sheet and the income statement since costs not included in the inventory !the

balance sheet" are considered to be expensive and are thus included in the income

statement.

,al5a!ion o' in(en!orie" 9 3e!od o' de!er3ina!ion#

&lthough the prime consideration in the valuation of inventories is cost, there are

a number of generally accepted methods of determining the cost of inventories at the

close of an accounting period. 'he most commonly used methods are first in first out

!FIFO" average, and last in first out !3IFO". 'he selection of the method for determining

cost for inventories valuation is important for its has a direct bearing on the cost of goods

sold and consequently on profit. hen a method is selected, it must be used consequently

and cannot be change from year to year in order to secure the most favorable profit for

each year.

THE FIFO METHOD 6FIRST-IN FIRST- OUT METHOD4#

/nder this method it is assumed that the materials or goods first received are the

first to be issued or sold. 'hus, according to this method, the inventory on a particular

date is presumed to be composed of the items which were acquired most recently.

'he value inventory would remain the same even if the 0perpetual inventory

system1 is followed.

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Ad(an!age"#

'he FIFO method has the following advantages.

9" It values stock nearer to current market prices since stock is presumed to be

consisting of the most recent purchases.


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THE LIFO METHED 6LAST IN FIRST OUT METHED4

'his method is based on the assumption that last item of material or goods purchased are the first to be issued or sold. 'hus, according to this method, inventory

consists of items purchased at the earliest cost.

Ad(an!age"#

'his method has the following advantages.

9. It takes not account the current market conditions while valuing materials issued

to different 5obs or calculating the cost of goods sold.


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eighted average price method is very popular on account of its being based on

the total quantity and value of materials purchased besides reducing number of

calculations. &s a matter of fact the new average price is to be calculated only when a

fresh purchase of materials is made in place of calculating it every now then as is the case

with FIFO, 3IFO method. owever, in case of this method different prices of materials

are charged from production particularly when the frequency of purchase and issuesEsales

is quite large and the concern is following perpetual inventory system.

,ALUATION OF IN,ENTORIES 9 IMPACT ON THE FLO$ OF

COSTS#

&s should be quite evident, the different methods of calculating inventory valueswill all have their impact on the flow of costs through the balance sheet into the income

statement. 'he dollars that are paid to acquire inventory are always divided between the

%alance sheet !inventories" and the income statement !costs of goods sold", there is not

other place to put them. 'hus if the different methods of calculating inventory produce

differing inventory values, they will also produce differing cost of goods sold figures, and

the differing cost of goods sold will naturally produce differing profit figures.

In order show the impact of inventory valuation on cost flows, the preceding

exhibits are summari(ed. #ach method produces a different figure for the transfer of raw

materials to work in process. 'he differences appear small, but the only reason for this is

that the dollar amounts have been kept small to make the illustration workable.

ith the transfer of materials to work in process, the cost flow or transfer with

have its impact on the work in process inventory and the transfer of completed

merchandise to finished goods. /ltimately when goods are sold the varying methods of valuing inventories will have their impact on cost of goods sold and these profits. 'he

effects of the cost flows on cost of goods sold and profits can be accentuated further it the

differing methods of valuing inventories are applies to work in process and finished good

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CHAPTER -III

INDUSTR+ PROFILE

COMPAN+ PROFILE

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Co3an2 ro'ile#

%evcon ayors 3imited is a leading infrastructure development company that

operates out of yderabad, the )apital of South Indian State of '#3#-&&. 'his

particular unit has established in 9LL6, $)*s registered an exponential growth within the

first five years under the sterling leadership of the company*s chairman ).$. :amesh.

$)*s expertise is outstanding in following pro5ect areas@ masonry E )oncrete dams

spill ways, tunneling, formation of earth dams and bunds, canals, bridges, roads and

buildings. %efittingly, the company has the privilege of working for or on behalf of such

infrastructure ma5ors as the 'ehri ydro power ;evelopment )orporation, steel &uthority

of India 3imited, '+), +), :eliance, and #ngineering pro5ects India 3imited.

$)*s expertise, virtually in all areas of civil and engineering construction, is best

reflected in the successful execution of following pro5ects.

• :s.6>7 )ores ?oteshwar ;am for the 'ehri ydro #lectric power pro5ect in

/ttaranchal,

• :s.7 2 )rores pro5ect for transportation of iron ore form ?alta iron ore mines to

S&I3 in orissa state engaging an unprecedented workforce of =777 people.

• :s.9>72crores pro5ect for construction of %.-. single 3ine 'unnel o.> !%akkal 'unnel"

form ?m =6.7=7 to =M.L=7 on the ?atra23aole section of the /dahampur srinagar2

%aramulla :ail 3ink.

$r. :amesh plans to bank from when the change of

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• :s.M2crores Owk :eservoir )omplex in &ndhra +radesh, and

• :s


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+ower generation, irrigation and highways will dominate the development agendas

of the Indian -overnment at the center as ell as in States and /nion 'erritories.

)onsequently, the %evcon -roup*s business strategy too will revolve around these areas. In

the crucial power sector, %evcon*s associated company %evcon power pro5ects 3imited has

developed a successful 8 $% bio2mass based electricity pro5ect in ?hammam district of

&ndhra +radesh. %evcon -roup*s combined capabilities in civil engineeringJ power

generation and highway building provide an excellent platform for power pro5ect

development, particularly in Sikkim given the state -overnment*s progressive energy

policy.

'he central and provincial reali(e that hydroelectric power pro5ects established in

the Southern and western parts of India are increasingly becoming unviable primarily

because of poor river flows. 'herefore, the -overnment of India has decided to

encourage hydroelectric power pro5ects in the imalayan region that is endowed with

perennial rivers, so necessary to make power pro5ects meaningful to all from the

generator to the consumer.

'o make power pro5ects meaningful to all from the generator to the consumer. 'o

acquire an edge in the highly competitive infrastructure industry, %evcon ayors

3imited, entered into an $O/ with ational pro5ects constructions )orporation. 'he

$O/ entitles the company to 97 priceEpurchase preference in all bids submitted by

+)) on $)s behalf significantly done to be constructed by '+) and hydropower

pro5ects in

ortheast India shall constitute %* s thrust areas for the next three years. +articipation

in these pro5ects will call for extraordinary expertise and resource mobili(ation. %evcon

ayors has the confidence to generate both. eedless to stress, success in such mega

pro5ects could steer %evcon ayors to the company*s stated goal of industry leadership.

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%evcon Industries 3imited

details of works on hand as on 67.99.M.6< 96.69 =>.79

32


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%&:'I& SI:O$&I

+/:&S?&:

'his certificate of #xcellence for

#nhancing the image of India presented by

Dr.Bhishma Narain Singh

!on*ble Former -overnor of 'amil adu N &ssam"

'o

Be(con $a2or"

&warded by the 0Institute of #conomic Studies !I#S"1,

ew ;elhi at the time of the Seminar on

0#conomic ;evelopment1

held on 96th

February


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Par!ner"#

• +rogressive )onstructions 3imited

• -a India 3imited

• $ytas

• +))

Clien!"#

• ?onkan :ailway )orporation 3imited• 'ehri ydro ;evelopment )orporation

• Steel &uthority of India 3imited

• '+)

Mile"!one"#

• #ngaging =777 workers, executing the largest manual labor contract in India at

?alta Iron Ore mines in Orissa

• )onstruction of the district in &+ much ahead of the scheduled time. 'he

comprises at paleru, -ollaleru and 'himmara5u earth dams.

• #xecuting all subcontracts efficiently to become principal contractor with the

potential of bidding for awards worth :s.


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• :eservoir of trained, motivated and dedicated manpower to undertake pro5ects

of any complexity or magnitude.

CHAPTER -I,

DATA ANAL+SIS

INTERPREATION

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RATIO ANAL+SIS#

& ratio is a simple mathematical expression. It is number expressed in terms of

another number, expressing the quantitative relationship between the two :atio analysis is

the technique of interpretation of financial statements with help of various meaningful

rations. :atios do not add any information that is already available, but they show the

relationship between two items in a more meaningful way. 'hey help us to draw certain

conclusion. )omparison with related facts in the basis of ratio analysis.

:atio may be used for comparison in any of the following ways. )omparison of a firm

with its own performance in the past )omparison of one firm with another firm in the

industry. )omparison of one firm with the industry as a whole. )omparison of an

achieved performance with pre2determined standards. )omparison of one department of a

concern with other departments.

T+PES OF RATIOS#

Several ratios calculated from the accounting data can be grouped into various

classes according to the financial activity function to be evaluated. 'he parties which

generally interested in financial analysis are short and long term creditors owners and

management short term creditors are mainly interested in liquidity or short term solvency

of the firm.

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0) Li;5idi!2 Ra!io#

It is externally essential for a firm to the table to meet its obligation as they become due. 3iquidity ratios measure the ability of the firm to meet its current

obligations. In fact analysis of liquidity needs its current obligations. In fact analysis of

liquidity need the preparation of cash budgets and cash and funds flow statements but

liquidity ratio by establishing a relationship between cash and other assets to current

obligation provide quick measure of liquidity. & firm should ensure that it does not suffer

from lack of liquidity. &nd also that is not too much highly liquid. 'he failure of a

company to meet its obligations, due to lack of sufficient liquidity will result in bad creditimage loss of creditors of the company. & very high degree of liquidity is also bad ideal

assets earn current assets. 'herefore it is necessary to strike a proper balance between

liquidity and lack of liquidity.

'he most common ratio which indicated the extent of liquidity or lack of it is@

)urrent :atio

Buick :atio

0)0 CURRENT RATIO#

'he current ratio is calculated by dividing current assets and current liabilities.

C5rren! Ra!io# c5rren! a""e!"G c5rren! lia7ili!ie")

)urrent assets include cash and those assets, which can be converted into cash

with in a one year. Such as marketable securities, debtors and inventories prepaid

expenses are also include in current assets as they representing the payments that will

have not to make by the firm in the near future. &ll obligations maturing within one year

included in current liabilities.

'hus current liabilities include creditors, bills payable, accrued expenses short2

term loans income tax liability and long term debts maturing in the current year. 'he ratio

is a measure of the firm*s short2term solvency. It indicates the availability of current

37


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assets in rupees for every one rupee of current liability. & ratio greater than one means

that the firm has more current assets than current claims again them

0)1 .UIC% RATIO#

.5ick Ra!io = .5ick a""e!"GC5rren! lia7ili!ie"

'he ratio establishes a relationship between quick of liquid and current liabilities. &ssets

liquids if it can be converted into cash immediately or reasonably soon with a loss of cash

value. Other assets, which are considered to be relatively liquid and include in fixed

assets, are books debts means debtors and bills receivables and marketable securitieswhich are temporary quoted once. Inventories normally require some time for reali(ing

into cash their values also tendency to fluctuate.

'he quick ratio is found out by dividing the total of the quick assets by total current

liabilities.

1) LE,ERA&E RATIO#

FIED ASSETS TURNO,ER RATIO#

Fi8ed a""e!" i3l2 ne! 'i8ed a""e!" = &ro"" 'i8ed a""e!"-Derecia!ion

& high fixed assets turnover ratio indicates better utili(ation of firm*s fixed assets. & ratio

of around > is considered is ideal.

'his ratio establishes a relationship between net sales and fixed assets.

'he ob5ective of computing this ratio is determining the efficiency with which fixed

assets are utili(ed

Co3onen!" o' !i" ra!io i"

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et Sales, which means gross sales minus sales returns.

et Fixed !operating" assets, which mean gross fixed assets minus depreciation theorem

Co35!a!ion o' !i" ra!io i"

'his ratio is computed by dividing the net sales by the fixed assets. 'his is usually

expressed as HP* number of terms. In the form of formula, ratio may be expressed as

under@

Fixed assets turnover ratio C net salesEnet fixed assets

It indicates the firm*s ability to generate sales per rupee of investment in fixed

assets. In general, the ratio, the more efficient the management and utili(ation of fixedassets, and vice versa.

>) PROFITABLITI+ RATIO

NET PROFIT RATIO#

It indicates that the result of overall operation of the firm. hile the gross profitratio indicates the extent of profitability of core operations, net profit ratio tells us about

overall profitability.

'he ratio means the relationship between net profit and net sales the main

ob5ective of computing this ratio is to determine the overall profitability due to various

factors such as operational efficiency, trading on equity etc.

'he components if these ratios are net profits and sales.

'he ratio is computed by dividing the net profit by the net sales.

Ne! ro'i! ra!io = Ne! ro'i! G"ale"

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?) SOL,ENC+ RATIO

DEBT AND E.UIT+ RATIO#

'he ratio establishes a relationship between long 4term debts and shareholder funds.

It reflects the relative claim of creditors and share holders against the assets of the

business. ;ebt usually refers to long2term liabilities. #quity includes equity and

preference share capital and reserves .3ong2term debt, which means long2term loans.

Shareholder*s funds, which mean equity share capital plus preference share capital

plus reserves and surplus minus fictitious assets.

'his ratio is compared by dividing the long2term debts by the shareholders funds.

'his ratio is usually expressed as proportions,


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COMPARATI,E STATEMENT OF $OR%IN& CAPITAL FOR THE +EAR 1JJ-1JJ

41

Par!ic5lar 1JJ 1JJK A7"ol5!eCange

Cange in

C5rren! A""e!"

Inventories

Sundry ;ebtors

)ash N %ank %alance

Other current assets

3oans and &dvances

'otal )urrent &ssets !&"

)urrent 3iabilities !% "

orking )apital !&2%"

!Q" +rovisions

M7778>676

LL9G7>G9L

L9>78M79

MGM


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In!erre!a!ion

Interpretation of comparative working capital statement of %evcon ayors pvt ltd between the years


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COMPARATI,E STATEMENT OF $OR%IN& CAPITAL FOR THE +EAR 1JJK-1J0J

In!erre!a!ion#

Interpretation of comparative working capital statement of %evcon ayors pvt

ltdbetween the years


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In the year 6,LL,M7,>=8 and the year


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In!erre!a!ion

Interpretation of comparative working capital statement of %evcon ayors pvt ltd

between the years 6LLM7>=8

69>LM767<

67G8L96>=G=96M8696

M9976>L<

GM>GGL

=G7>6988>

==.>6

G.89

97.69

9L..LL

98.G7

et orking )apital 9M< >767666MM7 2996>7ML=L 268.68


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)ash and bank balance have been decreased in the year ,7M,L=L

Other )urrent assets of the year >,LM,7,76,76,66,MM7.

In the year of ,67< and in the year

of 8,8>6 'here is increase by :s


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In!erre!a!ion


ltdbetween the years 86988>6

68=GG

.MG

G.

G.

767666MM7 ML6M6G6LL 298M8L=6 298.G6


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)ash and bank balance have been decreased to :s =,=M,>8,


49/65

In!erre!a!ion


ltdbetween the years 6G>LM


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)ash and bank balance have been decreased to :s


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COMPARATI,E STATOF $OR%IN& CAPITAL FOR THE +EAR 1J01-1J0>

In!erre!a!ion


ltdbetween the years


52/65

)ash and bank balance have been increased to :s 96,


53/65

LM.7< 7.>L


54/65


55/65

In!erre!a!ion#

'he fixed assets turnover ratio was showing the fluctuating trend during the review

period.

'he fixed assets turnover ratio is high in the year

& high fixed turnover ratio includes better utili(ation of the firm fixed assets

'he firm fixed asset turnover ratio has to increase, these it is desirable.

?) PROFITABILIT+ RATIO

NET PROFIT RATIO

Ne! ro'i! ra!io = ne! ro'i!Gne! "ale"

ear et profit et sales :atio


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In!erre!a!ion

'he above ratio shows fluctuating trend during the review period.

In the year


57/65

In!erre!a!ion

'he above ratio was shown little fluctuating trend during review period 'he ideal

debt2equity ratio is


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FINDIN&SSU&&ESTIONS

CONCLUSION

FINDIN&S

• On the basis of the analysis and interpretations of various ratios and

financial statements in chapters = N>, the following findings and

suggestions are made.

• 'he profitability position of the company is good and it can be

improved by looking into the factors contributing to the company*s

profile.

• 'he current and quick ratio of the company is so far so good but further

reduction is advised.

•

'he company*s total assets and fixed assets turn over ratios are satisfactory, andcan be improved.

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• It is advised that the idle funds and investments be effectively utili(ed to have a

good profitable position.

•

'hough the financial position is considered to be strong, the company isadvised to maintain consistency in improving its reserve capacity.

• 'he company*s aim should be to strive for the maximi(ation of share holder*s

wealth.

• 'he credit management policy needs to be emended in order to reach the

idle debtors turnover ratio. 'he company is advised to further improvise its

policies in this matter.

• 'he company should reduce cost of production and spend more on

marketing their products to maximi(e their sales in indigenous market.

• 'he company should maintain loyal relationship with customers i.e.

doctors in order to create awareness regarding their products.

SU&&ESTIONS

it is suggested that the company has to maintain sufficient inventory and which should be

on par with the working capital requirement for strengthen it.

It is clear from the study liquidity position was increased which has satisfactory the

company has to maintain the same in future.

It is observed from the study that employ can more debt to take the advantage of leverage.

& high fixed turnover ratio indicates better utili(ation of the firm*s fixed assets. & ratio of

around > is considered ideal.

It is clears from the study the net profit ratio overall profitability. 'he higher the ratio the

more profitable is the business.

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It is observed from the study the company has to decrease its direct expenses to improve

its net profit. 'he company has to utili(e its current assets efficiently only it*s maintaining

as smooth liquid position.

CONCLUSIONS

It is clear from the study net working capital of %evcon ayors 2


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BIBLIO&RAPH+

A5!or" Na3e Ti!le o' !e Book P57li"er and Edi!ion

I.$.+andey Financial $anagement, ikas +ublisher Mth #dition

+rasanna )handra Financial $anagement, 'ata $c-raw ill >th #dition

:.?.Sharma N

Shashi ?.-upta $anagement &ccounting, ?alyani +ublishers, Mth#dition

S.+.Kain N

62


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?.3.arang Financial &ccounting N&nalysis, ?alyani +ublishers,

6rd#dition

APPENDICES

63


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OR&ANISATION STRUCTURE

BOARD OF DIRECTORS

CHAIRMAN

MANA&IN& DIRECTOR

DIRECTORS

• DIRECTORS

MANA&IN& DIRECTOR AD,ISOR

64

BE,CON $A+ORS

&ENERAL

MANA&ER

6Co33ercial4

FINANCE

ACCOUNTS

PURCHASE

STORES

DISPATCH


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CORPOREATE

OFFICE

CORPOREATE

PLANNIN&

OPERATIONS

INFORMATION S+STEMS

CENTRE

&ENERAL

MANA&ER

6RD4

RD

.UALIT+ASSURANCE

.UALIT+ CONTROLE.UIPMENT

DE,ELOPMENT

SECABL ASMBL+

DI,ISION

TRAININ&

&ENERAL

MANA&ER

6Sale"4

MAR%ETIN&SALES

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