INSTITUTIONAL TRAINING REPORT 2009 ± 2010 UNDERGONE AT LARSEN & TOUBRO LIMITED
Submitted to GURUNANAK COLLEGE (EVENING)
Affiliated to UNIVERSITY OF MADRAS
In partial fulfillment of the Degree of B.COM (CORPORATE SECRETARYSHIP)
Under the guidance of Mrs. P.ABIRAMI (M.COM [C.S]. M.PHIL)
NAME: K. SIVA KUMAR
Register No.: CS81225
GURUNANAK COLLEGE (EVENING) Velachery Main Road, Velachery Chennai ± 600 042.
PREFACE
The University of Madras has introduced the Institutional Project for the department of Corporate Secretaryship. This Institutional training gives practical knowledge and experience of working in a company. I am glad to submit this project report which I had done in the department of Finance&Accounts of L&T Ltd ± ECC Division, Chennai. This report contains all the information about the company and its financial position till previous financial year 2008-09. I hope this project will gives me good response from all the persons who view this report. I dedicated this report to all my teachers who gives me immense knowledge to complete this project.
ACKNOWLEDGEMENT
If the words are considered as symbol of love and token of acknowledgement, then let the words play the heralding role of expressing my gratitude to all those who have helped me directly and indirectly during the research r esearch work. I thank Dr. Y. Hari Prasad Reddy (M. Com., M. Phil., Ph. D) Head of the Department of corporate secretaryship, Guru Nanak College and Ms .P. Abirami for their motivation and encouragement to complete this project successfully. My sincere thanks to Mr. P. JAYAPRAKASH, Assistant Finance Manager, Larsen & Toubro Ltd (ECC), Chennai for giving me the opportunity to do the project
in his department and my project guide Mr. P.K. Bharath Raj for providing the much needed practical insights and guidance. I want to thank all the faculty members of L&T Finance & Accounts Department who gave me valuable input, advice, constant support and motivated me to complete the project successfully. successfully. I express my thanks to L&T ECC DIVISION - Chennai, for providing me an opportunity to work on this project. Last but not the least; I would like to thank my parents and my friends who helped me in completing my project.
A SHORT NOTE ON TRAINING
The University of Madras expects all the student s who are studying B.Com Corporate Secretaryship course to undergo training tr aining in a public limited Company. Therefore, I have undergone training at Larsen & To ubro Limited at Chennai for a period o f 45 days. Institutional Training is a progress which enables the students to know about day-today operation in the company. This training programme eliminates the gap between theory and practical knowledge in the company. Training eliminates the fear of working in a new environment and also enables the candidates to build up their communication skills. I am very grateful to the management for providing wonderful information required in preparation of this project. This training session have taught me many useful things for my future.
A BRIEF HISTORY OF THE COMPANY
HISTORY
Larsen & Toubro Limited is the biggest legacy of two Danish engineers, who built a world-class organization that is professionally managed and a leader in India¶s engineering and construction industry. It was the business of cement that brought the young Mr. Henning Holck- Larsen and Mr. S.K. Toubro into India. They arrived on Indian shores as representatives of the Danish engineering firm F L Smidth & Co in connection with the merger of cement companies that later grouped into the Associated Cement Companies. Together, Mr. Holck-Larsen and Mr. Toubro founded the partnership firm of L&T in 1938, which was converted into limited company on February 7, 1946. Today, this was metamorphosed into one of India¶s biggest success stories. The company has grown from humble origins to a large conglomerate spanning engineering and construction. ECC was conceived as Engineering Construction Corporation Limited in April 1944 and incorporated as wholly owned subsidiary of Larsen & Toubro for ECC. It has today emerged as India¶s leading construction organization. Larsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies co mpanies in India's private sector.
ECC ± the Engineering Construction and Contracts Division o f L&T is India¶s largest construction organisation with over 60 years o f experience and expertise in the field. ECC figures among the World¶s Top Contractors and ranks 35th among top global contractors and 60th among international contractors as per the survey conducted by Engineering News Record USA(August 2008).
Many of the country¶s prized landmarks ± its exquisite buildings, tallest structures, largest airports/ industrial projects, longest flyovers, highest viaducts, longest pipelines including many other benchmark projects have been built by ECC. ECC¶s leading edge capabilities cover every discipline of construction: c ivil, mechanical, electrical and instrumentation engineering and services extend to all core sector industries and infrastructure projects.
ECC is equipped with the requisite expertise and wide-ranging experience to undertake Engineering Procurement and Construction (EPC) projects with single source responsibility. Contracts are executed using state of the art design tools and project management techniques from concept to commissioning.
ECC today is organised in to four Operating Companies to allow for more in-depth technology and business development as well as to focus attention on domestic and international project execution. Each Operating Company is further split into different Business Units (BUs) to take care of the specific needs of various customers. The Operating Companies (OC) includes:
o
Buildings & Factories Operating Company (B&F OC)
o
Infrastructure (Infra OC)
o
Metallurgical, Material Handling & Water (MMH &W OC)
o
Electrical & Gulf Projects (E&GP OC)
Vision of the company L&T shall be a professionally-managed Indian multinational, committed
to total customer satisfaction and enhancing shareho lder value. L&T-ites shall be an innovative, entrepreneurial and empowering team
constantly creating value and attaining global benchmarks. L&T shall foster a culture of caring, trust and continuous expectation of
employees, stakeholders and society.
AWARDS AND ACCOLADES
SGCCI Golden Jubilee Memorial Trust Award - for outstanding
performance in Export of Engineering Goo ds for 2004-05. This Award highlights L&T's export of high-tech, custom-built equipment worldwide.
Greentech Safety Awards (2005) - by the New Delhi-based non-profit
organization, Greentech Foundation, for the effort in industrial safety and environmental management.
Ethics is Good Business award - from the New Delhi based PHD Chamber
of Commerce & Industry (PHDCCI).
India Manufacturing Excellence Award from Frost & Sullivan, 2004.
Environment Excellence Award 2003-04, Greentech Foundation.
Business world¶s survey on "India's Most Respected Companies", ranked
L&T first in infrastructure sector.
L&T was ranked first in "India's Best Managed Companies" in a 2008
survey published by Business Today, India's leading business periodical. Forbes Global 2000 Ranking - 2008 The Forbes Global 2000 list for the year 2008 ranked Larsen & Toubro at 961[2]. Also in last year Mr.A.M.Naik has got businessman of year award in Delhi. This year Mr.A.M.Naik received Padma Bhusha n from President of India
MANAGEMENT AND ADMINISTRATION Board of Directors
DESIGNATION
A.M.Naik
Chair man& Managing Director
J.P.Nayak
Whole-time Director & President (Machinery & Industrial Products)
Y.M.Deosthalee
Whole-time Director & chief financial officer
K. Venkataramanan
Whole-time Director & President (Engineering & Construction Projects)
R.N.Mukhija
Whole-time Director & President (Electricals & Electronics)
K.V.Rangaswami
Whole-time Director & President (Construction)
V.K.Magapu
Whole-time Director & Senior Executive Vice President (IT & Technology Services)
M.V.Kotwal
Whole-time Director & Senior Executive Vice President (Heavy Engineering)
S.Rajgopal
Non-Executive Director
S.N.Talwar
Non-Executive Director
M.M.Chitale
Non-Executive Director
Thomas Mathew T.
Nominee-LIC
N.Mohan Raj
Nominee-LIC
ORGANISATION STRUCTURE
OFFICE LAYOUT
FUNCTIONS OF DEPARTMENTS A company will comprises of many departments which includes Purchase department, Production Department, Sales Department, Personnel Department, Finance Department, Secretarial Department, Planning Depart ment, Quality Department etc., Each Department will defer from the nature of the company. Some companies will have Purchase department but will not have production works. Some companies will buy finished goods from other companies and sell it to the customers. The following are the departments which prevail in L&T. 1. Production Department 2. Personnel Department 3. Finance Department 4. Secretarial Department 5. R&D Department
1. PRODUCTION DEPARTMENT Production is the functional area responsible for turning inputs into finished outputs through a series of production processes. The Production Manager is responsible for making sure that raw materials are provided and made into finished goods effectively. He or she must make sure that work is carried out smoothly, and must supervise procedures for making work more efficient and more enjoyable.
The index of Industrial Production for 2008-09 showed a growth of around 2.3% as compared to the growth of 8.5% in the previous year.
Design and Engineering strengths in the sphere o f manufacturing constitute a major competitive advantage for L&T. It is these strengths that enable L&T to set new benchmarks in terms of scale, sophistication and speed. The company has dedicated engineering centres at each o f the manufacturing locations of process plant equipment and defence related equipment. Two technology Development Centres have been setup, tasked with development of new products and of new manufacturing technologies. L&T also has collaboration agreements with the India Space Research Organization as we ll as other niche players to bolster its capabilities in the strategic sectors of aerospace, defence and nuclear power.
L&T¶s rich technology base secures widespread p ublic recognition successfully manufactures equipment that set bold new precedents. Recently, for instance, L&T manufactured one of the world¶s largest FCC regenerators, with an internal diameter of 16.3 metres and weight o f over 1320 tonnes. Earlier, L&T engineers had a lso
manufactured the world¶s largest reactors in the metal co mposition of chrome Molybdenum Vanadium.
Manufacturing facilities of the company and its Groups are located at Ahmednagar, Bangalore, Chennai, Coimbatore, Faridabad, Hazira (Surat), Kansbahal (Rourkela), Mumbai, Mysore, Pithampur, Puducherry, Pune, Vadodara and Visakhapatnam; and in Australia, China, Indonesia, Malaysia, Oman, Saud i Arabia and U.A.E.
2. PERSONNEL DEPARTMENT Talent Management has been a pr ime mover in the company¶s ambitious business plans. The HR Strategy doveta ils personal growth aspirations of employees with business needs. A variety of HR interventions give the division a strong competitive edge. A menu of career growth options and training are offered to young aspiring professionals for achieving excellence in engineering and project management skills. Setting up of L&T Project Management Institute at Vadodara complemented by the GLOPAT programme, mentoring of new joinees, recognition of excellence, strategy workshops and team building programs are some important initiatives undertaken dur ing the year.
PERSONNEL DEPARTMENT IN ECC DIVISION: ECC recognizes that people are the real source of competitive advantage. It is
through people that ECC delivers total customer satisfaction. These values are reflected in our Human Resources practices which have earned national recognition several times.
ECC-ites go through a process of continuous learning, assisted by training programmes.
Apart from on-the-job training and technical training, over 100
programmes on general management and behavioral topics are conducted each year. Interactive CD-ROM based programmes have enabled employees learn at their pace.
ECC has always believed in experimentation with and implementation of new ideas. HR practices such as collaborative performance appraisal, career & succession planning, team rewards have been institutionalized.
An extensive and rigorous recruitment process ensures quality induction.
L&T's
Graduate Engineer Trainee recruitment process covers India's major engineering colleges and institutions. Programmes, plant visits and comprehensive information-sharing facilitate induction.
ECC Division has an ongoing organization development programme, which is one of the longest sustaining OD efforts in India.
HR Policy:
The basic principles of ECC's Human Resources p olicies include
y
Recruitment based solely on merit by following well-defined and systematic selection procedures without discrimination
y
Sustain motivated and quality work force through appropriate and fair performance evaluation, reward and recognition systems
y
Identify training needs within the Organisation and design and implement those need based training programmes resulting in continuous upgradation of knowledge, skills and attitudes of the employees
3.
FINANCIAL DEPARTMENT
FINANCIAL STATEMENT ANANLYSIS: Financial statements are final result of accounting work done during the accounting period. Financial statements normally include Trading, Profit and loss Account and Balance sheet. The users of accounting information may not be able to get direct reply to certain questions from the above statements. However, by expressing the items in the financial statements, in relation to each other we can get meaningful information. Analysis of financial statement has been defined as ³a process of evaluating the relationship between the component parts of the financial statements to obtain a better understanding of a firm¶s position and performance´. Financial statement analysis is an important part of the overall financial assessment. The different users look at the business concern from their respective view point and are interested in knowing about its profitability and financial condition. A detailed cause and effect study of the profitability and financial condition is the overall objectives of financial statement analysis.
Significance of Financial Statement Analysis: Judging the earning capacity or profitability of a business concern. Analysing the short term and long term solvency of the business concern. Helps in making comparative studies between vario us firms. Assists in preparing budgets.
Limitations of Financial Statement Analysis: Analysis of financial statements helps to ascertain the strength and weakness o f the business concern, but at t he same time it suffers from the following limitations.
y
It analyses what has happened t ill date and does not reflect the future.
y
It ignores price level changes.
y
Financial analysis takes into consideration only mo netary matters, qualitative aspects are ignored.
y
The conclusion of the analysis is based o n the correctness of the financial statements.
y
Analysis is a means to an end and not the end itself.
y
As there is variation in accounting practices fo llowed by different firms a valid comparison of their financial analysis is not po ssible.
RATIO ANALYSIS: Ratio is an expression of one number in relation to another. Ratio analysis is the process of determining and interpreting the numerical relationship between figures of financial statements. A ratio is a mathematical relationship between two items expressed in a quantitative form. An absolute figure does not convey much meaning. Generally, with the help of other related information the significance of the absolute figure could be understood better.
For example Nila earns Rs.50, 000 profits in her business while Nivedita earns Rs.40, 000 profits. Whose business is more profitable? Instantly we may say that as Nila earns more profit, her business is more profitable. But in order to answer this question we must know what was the sale made by both of them. Suppose Nila has made a sale of Rs.4, 00,000 and Nivedita Rs.3, 00,000. Now we can calculate the percentage of profit earned on the sales to know whose business is more profitable.
Nila = 50,000/4, 00,000 *100 = 12.5%
Nivedita = 40,000/3, 00,000*100 = 13.33%
From the above calculations it is clear that the profitability of Nivedita is more than Nila, because, she is getting 13.33% return and Nila is getting only 12.5%. Thus, the above example explains that absolute figures by themselves may not communicate meaningful information. Hence, business results are understood properly only when the relevant figures are considered together.
Definition: In the words of Kennedy and Mc Millan´ the relationship of an item to another expressed in simple mathematical form is known as rat io´.
OBJECTIVES: The objectives of using ratios are to test the profitability, financial position and the operating efficiency of a concern.
ADVANTAGES: Ratio analysis is an important technique in financial analysis. It is a means for judging soundness of the concern. The advantages of accounting ratios are as follows: It is a useful device for analysing the financial statements. It simplifies, summarizes the accounting figures to make it understandable. It helps in financial forecasting. It facilitates interfirm and intrafirm comparisons.
Ratio analysis is useful in finding the strength and weakness of a business concern. After identifying the weakness, the ratios are a lso helpful in determining the causes of the weakness.
CLASSIFICATION OF RATIOS:
RATIO
LIQUIDY
SOLVENCY
PROFITABILITY
ACTIVITY (TURNOVER)
CURRENT RATIO
DEBT-EQUITY RATIO
GROSS PROFIT RATIO
CAPITAL TURNOVER RATIO
LIQUID RATIO
PROPRIETARY RATIO
NET PROFIT RATIO
FIXED ASSET TURNOVER RATIO
OPERATING PROFIT RATIO
STOCK TURNOVER RATIO
OPERATING RATIO
DEBTORS TURNOVER RATIO
ABSOLUTE LIQUID RATIO
CREDITORS TURNOVER RATIO
LIQUIDITY RATIOS: Liquidity ratios measure the firm¶s ability to pay off current dues.i.e, repayable within a year. Liquidity ratios are otherwise called sho rt term Solvency ratios. The Important liquidity ratios are 1. Current ratio 2. Liquid ratio 3. Absolute liquid ratio
1. CURRENT RATIO: This ratio is used to assess the firm¶s ability to meet its current liabilities. The relationship of current assets to current liabilities is known as current ratio. The ratio is calculated as:
Current Ratio = Current Assets/Current Liabilities
Current assets are those assets which are easily convertible into cash w ithin one year. This includes cash in hand, cash at bank, sundry debtors, bills receivable, short term investment or marketable securities, stock and prepa id expenses. Current liabilities are those liabilities which are payable within one year. This includes bank overdraft, sundry debtors, bills payable and outstanding expenses.
TABLE: 1 CURRENT RATIO YEAR
CURRENT
CURRENT
RATIO
ASSETS
LIABILITIES
2004-05
8838.23
5599.39
1.57
2005-06
9536.52
6911.62
1.38
2006-07
11884.66
9337.26
1.27
2007-08
16313.52
13683.84
1.19
2008-09
23448.02
17842.41
1.31
CHART: 1
CURRENT RATIO 1.6
1.57
1.38 1.4
1.31
1.27 1.19 1.2
1
0.8
RATIO 0.6
0.4
0.2
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:-
As we know that ideal current ratio for any firm is 2:1. The current ratio for 2004-05 is 1.578 and in 2008-09 is 1.314 times. The current ratio of company is more than the ideal ratio. This depicts that company¶s liquidity position is sound. Its current assets are more than its current liabilities
2. LIQUID RATIO: This ratio is used to assess the firm¶s short term liquidity. The relationship of liquid assets to current liabilities is known as Liquid ratio. It is otherwise called as Quick Ratio or Acid Test Ratio. The ratio is calculated as:
Liquid Ratio = Liquid Assets/Current liabilities
Liquid Assets means current assets less stock and prepaid expenses.
TABLE: 2 CALCULATION OF LIQUID RATIO YEAR
LIQUID
CURRENT
RATIO
ASSETS
LIABILITIES
2004-05
6527.39
5599.39
1.16
2005-06
7326.25
6911.62
1.06
2006-07
8883.52
9337.26
0.95
2007-08
12007.61
13683.84
0.87
2008-09
17642.97
17842.41
0.98
CHART: 2
LIQUID RATIO 1.2
1.16 1.06 0.98
0.95
1
0.87 0.8
0.6
RATIO 0.4
0.2
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
A quick ratio is an indication that the firm is liquidity and has the ability to meet its current liabilities in time. The ideal quick ratio is 1:1. Company¶s quick ratio is equal to ideal ratio. This shows company has no liquidity problem.
3.
ABSOLUTE LIQUID RATIO: It is a modified form of liquid ratio. The relationship of absolute liquid assets to liquid liabilities is known as Absolute liquid ratio. This ratio is also ca lled as µSuper Quick Ratio¶. The ratio is calculated as: Absolute Liquid Ratio = Absolute liquid Assets/Liquid liabilities
An absolute liquid asset means cash, bank and short term investments. Liquid liability means current liabilities less bank overdraft.
TABLE:
3
CALCULATION OF ABSOLUTE LIQUID RATIO YEAR
ABSOLUTE
LIQUID
RATIO
LIQUID ASSETS
LIABILITIES
2004-05
839.21
5599.39
0.15
2005-06
1347.81
6911.62
0.24
2006-07
2254.89
9337.26
0.24
2007-08
5247.11
13683.84
0.38
2008-09
5654.96
17842.41
0.31
CHART: 3
ABSOLUTE LIQUID RATIO 0.38
0.4
0.35 0.31 0.3 0.24
0.25
0.24
0.2
RATIO
0.15 0.15
0.1
0.05
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
An ideal cash position ratio is 0.75:1. It is slow down by 0.06 while comparing to previous year. This ratio is a more rigorous measure of a firm¶s liquidity position
SOLVENCY RATIOS Solvency refers to the firm¶s ability to meet its long term indebtedness. Solvency ratio studies the firm¶s ability to meet its long term obligations. The following are the important solvency ratios: 1. Debt-Equity Ratio 2. Proprietary Ratio
1. DEBT-EQUITY RATIO: This ratio helps to ascertain the soundness of the long term financial position of the concern. It indicates the proportion between total long term debt and shareho lders¶ funds. This also indicates the extent which the firm depends upon outsiders for its existence. The ratio calculated as: Debt Equity Ratio = Total long term debt/shareholders funds
Total long term debt includes debentures, long term loans from banks and financial institutions. Shareholders¶ funds include Equity share capital, preference share cap ital, Reserves and surplus.
TABLE: 4 CALCULATION OF DEBT-EQUITY RATIO YEAR
TOTAL
SHARE
RATIO
LONGTERM
HOLDERS
DEBT
FUNDS
2004-05
1859.06
3369.13
0.55
2005-06
1453.57
4640.17
0.31
2006-07
2077.75
5768.43
0.36
2007-08
3583.99
9555.08
0.37
2008-09
6556.03
12459.69
0.52
CHART: 4
DEBT-EQUITY RATIO 0.6
0.55 0.52
0.5
0.4
0.36
0.37
0.31 0.3
RATIO 0.2
0.1
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
Debt equity ratio for 2004-05 is 0.55 and 2008-09 is 0.526 times. So there is no much change in the ratio.
2. PROPRIETARY RATIO: This Ratio shows the relationship between proprietors or shareholders funds and total tangible assets. The ratio is calculated as: Proprietary Ratio = Share holders funds/Total tangible assets
Tangible assets will include all assets except goo dwill, preliminary expenses etc.
TABLE: 5 CALCULATION OF PROPRIETARY RATIO YEAR
SHARE
TOTAL
RATIO
HOLDERS
TANGIBLE
FUNDS
ASSETS
2004-05
3369.13
10882
0.31
2005-06
4640.17
13060.7
0.36
2006-07
5768.43
17213.79
0.33
2007-08
9555.08
26881.22
0.36
2008-09
12459.69
36926.34
0.33
CHART: 5
PROPRIETARY RATIO 0.36
0.36
0.36 0.35 0.34 0.33
0.33
0.33 0.32
RATIO
0.31 0.31 0.3 0.29 0.28 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION :
From the above table it is clear that t he proprietary ratio in the year 2005-06 and 2007-08 was 0.36 per cent, in 2006-07 and 2008-09 ratio slightly decreased to 0.34 per cent, in 2004-05 ratio was 0.31 per cent.
PROFITABILITY RATIO Efficiency of a business is measured by profitability. Profitability ratio measures the profit earning capacity of the business concer n. The important profitability ratios are discussed below: 1. Gross profit Ratio 2. Net profit Ratio 3. Operating Profit Ratio 4. Operating Ratio
1. GROSS PROFIT RATIO: This Ratio indicates the efficiency of trading act ivities. The relationship of Gross profit to Sales is known as gross profit ratio. This ratio is calculated as: Gross Profit Ratio = Gross Profit/Sales *100
Gross profit is taken from the Trading account of the bu siness concern. Otherwise Gross
profit can be calculated by deducting cost of goods sold from
sales. Sales mean Net Sales. Gross Profit = Sales ± Cost of goods sold
Cost of Goods Sold = Opening Stock + Purchases - Closing Stock (or) Sales ± Gross Profit
TABLE: 6 CALCULATION OF GROSS PROFIT YEAR
GROSS PROFIT
SALES
RATIO IN %
2004-05
1265.50
13091.82
9.66
2005-06
1312.16
14652.92
8.95
2006-07
2003.45
17578.84
11.39
2007-08
3153.44
24854.70
12.68
2008-09
3939.10
33646.57
11.70
CHART: 6
GROSS PROFIT RATIO 14
12.68
10
11.7
11.39
12 9.66 8.95
8
RATIO
6
4
2
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION :
The gross profit ratio for 2004-05 is 9.66 and 2008-09 is 11.7 times. This shows increase in the sales which indicates gro ss profit has been increased.
2. NET PROFIT RATIO: This ratio determines the overall efficiency of the business. The re lationship of Net profit to Sales is known as Net Profit Ratio. The ratio is calculated as: Net Profit Ratio = Net profit/sales *100
Net profit is taken from the Profit and Loss account of the business concern or the gross profit of the concern less administration expenses, selling and distribution expenses and financial expenses.
TABLE: 7 CALCULATION OF NET PROFIT RATIO YEAR
NET PROFIT
SALES
RATIO IN %
2004-05
1035.24
13091.82
7.90
2005-06
1063.34
14652.92
7.25
2006-07
1403.02
17578.84
7.98
2007-08
2173.42
24854.70
8.74
2008-09
2709
33646.57
8.05
CHART: 7
NET PROFIT RATIO 8.74
9
8.05
7.98
7.9 8
7.25
7 6 5 4
RATIO IN %
3 2 1 0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
The net profit ratio for 2004-05 is 7.9 and 2008-09 is 8.05 times. This shows increase in the net profit. It is good sign for the growth of the co mpany.
3.
OPERATING PROFIT RATIO:
This ratio is an indicator of the operational efficiency of the management. It establishes the relationship between Operating profit and sales. The rat io is calculated as: Operating Profit Ratio = Operating profit/sales *100
Where operating profit is Net profit + Non- o perating expenses ± Non-operating income. Where, Non-operating expenses are interest on loan and loss on sale of assets. Non-operating incomes are dividend, interest received and p rofit on sale of asset. Operating Expenses include administration, selling and distribution expenses. Financial expenses like interest on loan are excluded for this purpose.
TABLE: 8 CALCULATION OF OPERATING PROFIT RATIO YEAR
OPERATING
SALES
RATIO IN %
PROFIT
2004-05
1267.04
13091.82
9.69
2005-06
1313.65
14652.92
8.96
2006-07
2004.89
17578.84
11.40
2007-08
3155.47
24854.70
12.69
2008-09
3940.41
33646.57
11.71
CHART: 8 OPERATING PROFIT RATIO 14 12.69
10
11.71
11.4
12 9.69 8.96
8
RATIO IN %
6
4
2
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
The Operating profit ratio for the year 2005-06 is 8.96. there was a increase in the ratio to 11.40 in 2006-07. In the year 2007-08 was 12.69 and in the year 2008-09 it was 11.71. There was a slight decrease over the period from 12.69 to 11.71%
4. OPERATING RATIO: This ratio determines the operating efficiency of the business concern. Operating ratio measures the amount of expe nditure incurred in production, sales and distribution of output. The relationship between operating cost to Sales is known as Operating Ratio. The ratio is calculated as: Operating Ratio = Operating Expenses/Sales *100
TABLE: 9 OPERATING RATIO YEAR
OPERATING
SALES
RATIO IN %
EXPENSES
2004-05
10516.05
13091.82
80.32
2005-06
11590
14652.92
79.09
2006-07
13078.24
17578.84
74.03
2007-08
19130.46
24854.70
76.96
2008-09
26232.01
33646.57
77.96
CHART: 9
OPERATING RATIO 81
80.32
80
79.09
79
77.96
78 76.96 77 76 75
RATIO IN %
74.03
74 73 72 71 70 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
The Operating profit ratio for the year 2005-06 is 8.96. there was a increase in the ratio to 11.40 in 2006-07. In the year 2007-08 was 12.69 and in the year 2008-09 it was 11.71. There was a slight decrease over the period from 12.69 to 11.71%
ACTIVITY RATIOS Activity ratios indicate the performance of the business. The per formance of a business is judged with its sales (turnover) or cost of goods so ld. These ratios are thus referred to as Turnover ratios. A few important act ivity ratios are discussed below: 1. Capital turnover ratio 2. Fixed assets turnover ratio 3. Stock turnover ratio 4. Debtors turnover ratio 5. Creditors turnover ratio
1. CAPITAL TURNOVER RATIO: This shows the number of times the capital has been rotated in the process of carrying on business. Efficient utilization of capital would lead to higher profitability. The relationship between sales and Capital employed is known as Capital Turnover Ratio. The ratio is calculated as: Capital Turnover Ratio = Sales/Capital Employed
Where Sales means sales less sales returns and Capital employed refers to tot al long term funds of the co ncern i.e., Equity share capital, preference share cap ital, Reserves and surplus and long term borrowed funds.
TABLE: 10 CALCULATION OF CAPITAL TURNOVER RATIO YEAR
SALES
CAPITAL
RATIO
EMPLOYED
2004-05
13091.82
5323
2.45
2005-06
14652.92
6171
2.37
2006-07
17578.84
7931
2.21
2007-08
24854.70
13200
1.88
2008-09
33646.57
19064
1.76
CHART: 10
CAPITAL TURNOVER RATIO 2.45 2.5
2.37 2.21 1.88
2
1.76
1.5
RATIO
1
0.5
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETAION: This ratio shows the efficiency of usage of capital with the sales. The ratio of capital turnover ratio has reduced from 1.88 to 1.76 that is by 0.12. This is because of the decrease in the sales in percentage when compared to last year showing that 41% in 2007-08 to 35% in 2008-09.
2. FIXED ASSET TURNOVER RATIO: This shows how best the fixed assets are being ut ilized in the business concern. The relationship between Sales and fixed assets is known as fixed assets turnover ratio. The ratio is calculated as: Fixed Assets Turnover Ratio = Sales/Fixed Assets Fixed assets mean Fixed Assets less depreciation.
TABLE: 11 CALCULATION OF FIXED ASSET TURNOVER RATIO YEAR
SALES
FIXED ASSETS
RATIO
2004-05
13091.82
1082.83
12.09
2005-06
14652.92
1604.52
9.13
2006-07
17578.84
2225.72
6.82
2007-08
2485.72
3645.44
6.82
2008-09
33646.57
5194.6
6.48
CHART: 11
FIXED ASSET TURNOVER RATIO 14 12.09 12
10
9.13
8
6.82
6.82
6.48
RATIO
6
4
2
0 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION :
The fixed asset turnover has in year 2004-05 is 12.09times and in 2008-09 it is 6.48 times. It shows difference of 5.61 times. There is an under utilization of fixed asset by the company.
3.
STOCK TURNOVER RATIO: This ratio is otherwise called as Inventory turnover ratio. It indicates whether stock has been efficiently used or not. It establishes a relationship between the cost of goods sold during a particular period and t he average amount of stock in the concern. The ratio is calculated as:
Stock Turnover ratio = Cost of goods sold/Average stock
Average stock = Opening stock+ closing stock/2 If information to calculate average stock is not given then closing stock may be taken as average stock.
TABLE: 12 CALCULATION OF STOCK TURNOVER RATIO YEAR
COST OF
AVERAGE
RATIO
GOODS SOLD
STOCK
2004-05
11826.32
2061.57
5.73
2005-06
13340.76
2235.76
5.96
2006-07
15575.39
2605.70
5.97
2007-08
21701.26
3653.52
5.93
2008-09
29707.47
5055.48
5.87
CHART: 12
STOCK TURNOVER RATIO 6
5.96
5.97 5.93
5.95 5.9
5.87
5.85 5.8
RATIO 5.75
5.73
5.7 5.65 5.6 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
This ratio shows how rapidly the inventory is turning into receivable through sales. In 2007-08 the co mpany has high inventory turnover ratio but in 2008-09 it has reduced to 0.10 times. This shows that the company¶s inventory management technique is less efficient as compare to last year.
4. DEBTORS TURNOVER RATIO: This establishes the relationship between credit sales and average acco unts receivable. Debtors¶ turnover ratio indicates the efficiency of the business concern towards the collection of amount due from debtors. The ratio is calculated as: Debtors turnover ratio = Credit Sales/Average accounts Receivable
Average Accounts Receivable = Opening + Closing Debtors/2 In case credit sales is not given, total sales can be taken as credit sales
TABLE: 13 CALCULATION OF DEBTORS TURNOVER RATIO YEAR
CREDIT SALES
AVERAGE
RATIO
ACCOUNTS RECEIVABLE
2004-05
13091.82
3639.09
3.59
2005-06
14652.92
4420.86
3.31
2006-07
17578.84
5159.4
3.40
2007-08
24854.70
6434.82
3.86
2008-09
33646.57
8710.2
3.86
CHART: 13
DEBTORS TURNOVER RATIO 3.86
3.9
3.86
3.8 3.7 3.59 3.6 3.5 3.4 3.4
RATIO
3.31
3.3 3.2 3.1 3 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION:
This ratio indicates the speed with which debtors are being converted into sales. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is increased by year to year. This shows that company is utilizing its debtor¶s efficiency.
5. CREDITORS TURNOVER RATIO: This establishes the relationship between credit purchases and average accounts payable. Creditors¶ turnover ratio indicates the period in which the payments are made to creditors. The ratio is calculated as: Creditors turnover ratio = Credit purchase/Average Accounts Payable
Average Accounts Payable = Opening + Closing Creditors/2
TABLE: 14 CALCULATION OF CREDITORS TURNOVER RATIO YEAR
CREDIT
AVERAGE
PURCHASES
ACCOUNTS
RATIO
PAYABLE
2004-05
10516.05
2479.66
4.24
2005-06
11590.33
2968.40
3.90
2006-07
13078.24
3505.34
3.73
2007-08
19130.46
4700.83
4.06
2008-09
26232.01
6152.86
4.26
CHART: 14
CREDITORS TURNOVER RATIO 4.3
4.26
4.24
4.2 4.06
4.1 4 3.9 3.9 3.8
RATIO
3.73
3.7 3.6 3.5 3.4 2004-05
2005-06
2006-07
2007-08
2008-09
INTERPRETATION :
The creditor turnover ratio for 2004-05 is 4.24 and 2008-09 is 4.26. The collection period for 2008-09 is 95 days when compare to 2004-05 103 days.
4. SECRETARIAL DEPARTMENT
The company¶s Secretarial Department which pro vides secretarial services and investor services for the company and its subsidiary and Associate companies is ISO 9001:2000 certified.
As stipulated by SEBI, a Qualified Practicing Co mpany Secretary carries out Secretarial Audit to reconcile the total admitted capital with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited(CSDL) and the total issued and listed capital. This audit is carried out every quarter and the report thereon is submitted to the stock Exchanges. The Audit confirms that the tot al listed and paid up capital is in agreement with the aggregate of the total number of shares in dematerialized form and in physical form.
FUNCTIONS: To participate in formulation of the Company strateg y and objectives To organize and provide secretarial support to full board, all board co mmittee,
management committee and Annual General Meet ing. To ensure Company compliance with statutory and regulatory Requirements
including good corporation governance pract ices. To maintain minutes book, statutory register and execut ing instruction of the
board. To deal with all matters relating to registration transfer, transmission and disposal
of shares.
To manage communication on behalf of the company as directed by the board and
the Chief Executive Officers. To ensure effective suppo rt for public and investor relations and thus to coordinate activities of public relations and social responsibilities. To Co-ordinate all administrative functions of the co mpany related to purchasing
and stores, transport and maintenance.
The Company secretary of Larsen & Toubro Limited at present is Mr. N. HARIHARAN.
5. R&D DEPARTMENT
The R&D Group set up in July 1998, was formed to address the developmental needs
of the organisation. Its cardinal mission centers on a t heme that calls for continuous improvement in efficiency, productivity and econo my. Poised to ensure continuous value addition to our services, this department, since its inception has effectuated significant improvements and automation in design pro cesses for all major disciplines of the organisation. OBJECTIVES y
Identify Potential Areas for Development
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Delineate Existing Processes needing Improvements.
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Infuse State of the Art Technology in Business Processes.
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Develop Efficient Tools to address the development needs in totality.
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Highlight achievements in various national & international forums.
The mission of R&D department is to translate technological development into design and process innovations that will not o nly answer but also exceed customer expectations. The Product Development Department has introduced several products which combine indigenous design and international techno logical features. L&T was the first switchgear
manufacturer in the private sector to build a full-fledged short circuit test station in India.
Testing facilities at L&T's Electrical R&D Centre include :
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70kA short circuit test station.
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On-line data acquisition system for automatically acquiring and analyzing test results
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Temperature-rise test facilities for currents up to 6400A
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Environment chambers to test performance in hostile en vironment
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Electrical and mechanical endurance testing facilities
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Extensive prototype making and testing facilities
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CAD workstations with 3D capability
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EMI test facilities.
Integration of computer-aided designing and co ncurrent engineering has led to the development of designs, which keep pace with the changing demands of industry. L&T also collaborates with the Bureau of Indian Standards (BIS) and the International Electro technical Commission (IEC) in developing standards for t he industry.
EXPENDITURE ON R&D: 2008-2009
2007-2008
(a) Capital
5.01
6.61
(b) Recurring
75.18
60.64
(c) Total
80.19
67.25
0.24%
0.27%
(d) Total R&D expenditure as apercentage of total turnover
FOREIGN COLLABORATIONS
L&T is globalising its operations, with increasing focus on international business opportunities. Over the years, L&T has outgrown its national barriers and extended its activities into the outstretched arms of the Indian Ocean Rim countries. L&T¶s international presence is increasing, with worksites in 20 countries that encompass South Asia, South East Asia, the Middle East, Russia, CIS countries including African countries.
L&T INTERNATIONAL FZE
Larsen & Toubro International FZE (LTIFZE) is a wholly owned subsidiary of Larsen & Toubro Limited (L&T) incorporated in 2 001 at The Hamriyah Free Zone, Sharjah, United Arab Emirates. It is the investment arm of L&T for all International Joint Ventures and provides resource for International projects. LTIFZE is licensed to carry out activities like hiring of Plant & Mac hinery, repairs & maintenance of Plant & Machinery, project consultancy services and general trading.
LARSEN & TOUBRO (OMAN) LLC
Larsen & Toubro (Oman) LLC (LTO) is a Jo int Venture between L&T International FZE and The Muscat Trading Co. LLC, one of the leading business
groups in the Sultanate of Oman. This ISO 9001 accredited company commenced its operations in 1994 and offers quality products and services in the construction field, with specialisation in turnkey pro jects.
LARSEN & TOUBRO READYMIX CONCRETE INDUSTRIES LLC
Larsen & Toubro Ready-Mix Concrete Industries LLC (L&T RMC) is a JV between L&T International FZE and Mr.Shukr i Saleh Yahya Al Braik, an UAE National.
L&T RMC was incorporated in the year 2006 in order to capture the vast boom of the construction/Ready Mix Concrete industry in Dubai. The company offers the complete design solutions for all the grades of co ncrete including specialized concrete such as HPC, SCC and Colored Concrete.
LARSEN & TOUBRO CAMP FACILITIES LLC, DUBAI
Larsen & Toubro Camp Facilities was formed in assoc iation with Al-Berek Investments in the year 2007. Main objective of this company is to Own / Take on Lease labour camps and provide accommodation facilities to the group companies of L&T and AL-Berek. As on December 31, 2009, L&T had the following Associate Companies:
1. Audco India Limited 2. Ewac Alloys Limited
3. L&T-Chiyoda Limited 4. L&T-Komatsu Limited 5. L&T-Ramboll Consulting Engineers Limited 6. L&T-Case Equipment Pvt. Ltd. 7. L&T-Crossroads Private Limited 8. Gujarat Leather Industries Limited 9. The Dhamra Port Company Limited 10. Vizag IT Park Limited 11. NAC Infrastructure Equipment Limited 12. International Seaports (Haldia) Private Ltd 13. Second Vivekananda Bridge Tollway Company Private Ltd. 14. TNJ Moduletech Private Limited 15. Salzer Electronics Limited 16. Feedback Ventures Private Limited 17. L&T Camp Facilities LLC 18. Larsen & Toubro Qatar & HBK Contracting LLC 19. L&T Arun Excello Realty Private Limited 20. L&T Bombay Developers Private Limited 21. JSK Electricals Private Limited 22. Asia Alloys Precicasters Private Limited 23. Rishi Consfab Private Limited
24. International Seaport Dredging Limited
SPECIAL ACHIEVMENTS L & T has consistently demonstrated the ability to set and surpass industry bench marks. Here is a glimpse of some of the records set by L & T. the list is by no means exhaustive and only serves to indicate the diversity of L & T achievement in engineering, construction and manufacturing across several industry sectors.
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India¶s largest single-stream PTA plant built for Indian oil corporation¶s refinery in Panipat
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The world¶s largest continuous catalyst Reactor for the world¶s largest refinery
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The world¶s biggest fluid catalytic cracking regenerator
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India¶s biggest marine equipment an oil and gas process platform
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The world¶s longest LPG pipeline from Jamnagar in Gujarat to Loni in Uttar Pradesh, across a distance of 1270 km
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India¶s widest range of low tension switchgear
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The world¶s lightest contactor
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The first power distribution products and system engineered for a tropical environment
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India¶s longest coal conveyor
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India¶s first open sea jetty
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India¶s first IT park built by L&T at Bangalore
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Construction of Asia¶s largest blast furnace at Visakhapatnam
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Construction of a cold rolling mill for a steel plant in Jamshedpur 26 months
