elecon engg ltd

					              A
       PROJECT REPORT
             ON
“WORKING CAPITAL MANAGEMENT”
             OF
  ELECON ENGINEERING CO. LTD




                               1
                                   PREFACE



To start any business, First of all we need finance and the success of that
business entirely depends on the proper management of day-to-day finance
and the management of this short-term capital or finance of the business is
called working capital management.


Working Capital is the money used to pay for the everyday trading activities
carried out by the business - stationery needs, staff salaries and wages, rent,
energy bills, payments for supplies and so on.

I have tried to put my best effort to complete this task on the basis of skill that
I have achieved during the last one year study in the institute.

I have tried to put my maximum effort to get the accurate statistical data.
However I would appreciate if any mistakes are brought to my by the reader.




                                                                                  2
                        ACKNOWLEDGEMENT


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


I am greatly indebted to my guide MS XYZ faculty guide for
Finance project, and my H.O.D XYZ for their constant guidance, advice and
help which enabled me to finish this project report properly in time.
Last but not the least, I would like to forward my gratitude to my friends &
other faculty members who always endured me and stood with me and
without whom I could not have completed the project.




                                                       XYZ



                               DECLARATION




                                                                               3
I do hereby declare that this piece of project report entitled “A Study on
Working capital Management practices in ELECON Engineering ltd” for partial
fulfilment of my project work on finance specialization.These is a record of
original work done by me under the supervision and guidance of mrs.Leena
patil.This project work is my own and has neither been submitted nor
published elsewhere.



PLACE:

                                   SIGNATURE OF THE STUDENT


DATE:




                                                                           4
           PARTICULARS                    PAGE NO.

Chapter 1. RESEARCH METHEDOLOGY            7 to 15

    -   Introduction

    -   Types of research methodology

    -   Objectives of study

    -   Scope and limitations of study

   Chapter 2. INTRODUCTION OF              16 to 45
             COMPANY

    -   History of engineering in india

    -   History of Elecon engineering

    -   Company Profile

    -   Mission and Vision

    -   Employee benefits and services

    -   Social welfare

    -   Overview of company

    -   Products of company

   Chapter 3. WORKING CAPITAL              46 to 89
          MANAGEMENT

    -   Introduction

    -   Determinants of working capital

    -   Inadequate or excess working
        capital

    -   Need for working capital

    -   Estimation of working capital



                                                      5
   -   Operating cycle

   -   Time and money concept in
       working capital

   -   Types of working capital

   -   Sources of working capital

   -   Statement of working capital and its
       analysis

   Chapter 4. RATIO ANALYSIS                  90 to 111

   -   Introduction to ratios

   -   Types of ratio analysis

Chapter 5. CONCLUSION, FINDINGS               112 to 115
      AND BIBILOGRAPHY




                                                           6
                         RESEARCH METHEDOLOGY

INTRODUCTION
      Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying now research is done
systematically. In that various steps, those are generally adopted by a
researcher in studying his problem along with the logic behind them. It is
important for research to know not only the research method but also know
methodology. ”
      The procedures by which researcher go about their work of describing,
explaining and predicting phenomenon are called methodology.”

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

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

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

TYPE OF DATA COLLECTED
There are two types of data collection methods available.
1. Primary data collection
2. Secondary data collection

1) Primary data

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



                                                                                   7
2) Secondary data collection method

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

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

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

1.    Annual report of Elecon 2004-05

2.    Annual report of Elecon 2005-06

3.    Annual report of Elecon 2006-07

4.    Annual report of Elecon 2007-08

5.    Annual report of Elecon 2008-09



OBJECTIVES OF THE STUDY

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

                                                                                8
1.   To study the working capital management of Elecon Engineering Ltd.

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

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

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

5. To study the way and means of working capital finance

6. To estimate the working capital requirement of Elecon

7. To study the operating and cash cycle of the company.


SCOPE & LIMITATIONS OF THE STUDY

Scope of the study

The scope of the study is identified after and during the study is conducted.
The study of working capital is based on tools like trend Analysis, Ratio
Analysis, working capital leverage, operating cycle etc.

Further the study is based on last 5 years Annual Reports of Elecon
Engineering Ltd and even factors like Competitor’s analysis, industry analysis
were not considered while preparing this project.

Limitations of the study
Following limitations were encountered while preparing this project:

1) Limited data:-

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

                                                                                  9
2) Limited period:-

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

3) Limited area:-

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




            HISTORY OF ENGINEERING COMPANY IN INDIA
                         The 21st century has seen a different trend. With the
onset of technical outsourcing to India and other cheap foreign destination
from the USA and Europe, engineering degrees and careers have taken a
whole new meaning in India. The last ten years has seen a lot of low skilled as
well as software testing work shift to destinations like India due to the lower
cost of labor. Several engineers of Indian origin in the USA are electing to go
back as more and more opportunities emerge in India due to rapid
globalization and shifting of technology related work to low cost destination
such as India.




                                                                                 10
   History of engineering in India

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

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



   Current state of Engineering in India

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




   Engineering Education

    Engineering education in India has long been dominated by the Indian
    Institutes of Technology and the Regional Engineering Collages. The
    Indian institute of Technology has earned a reputation for graduating
    outstanding engineers who have risen to the top of their profession
    globally. However, critics call it more a phenomena of admitting the best
    and not necessarily the institutes having top-notch professors.

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



                                                                               11
    There is an increasing awareness that the Engineering education system
    has to be revamped. Reports reveal that only 25% of the engineering
    graduates are employable. Several companies have set-up their own
    training institutes to fill the gap between what the education system
    delivers and what is needed in the market place. Also there is a dearth of
    engineers in areas other than software engineering. Because of
    opportunities and prevailing trends, most engineers gravitate towards
    computer engineering.

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



   Engineering in India compared to engineering in North America and
    Europe

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

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

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

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

                                                                               12
    However, some other fields of engineering are not developed such as
    offshore, nuclear etc. The reason is a lack of private participation in these
    industries.



   Challenges facing engineers in India

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



   Opportunities for Engineers

    Opportunities for engineers are increasing at exponential rate. Besides
    opportunities in software and civil engineering, demands are being felt in
    other engineering fields such as bio-medical, petroleum and automotive
    engineering. As industries related to these fields evolve and grow. So
    people are giving more interest that field.

   Products and Services being developed in Indian Market

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




                                                                                13
           HISTORY OF ELECON ENGINEERING COMPANY


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

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

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

     After India’s independence, Elecon starting making it’s presence felt in
    industrial scenario in most productive and enriching manner. This
    process has its root as far back as 1951.

    A small beginning that was destined to have a glorious present and
    spectacular future was made in 1951 in Bombay by a dynamic visionary
    late Shri Ishwarbhai B Patel. A small firm indigenously manufacturing
    conveying equipments started spreading its wings in the area so far
    unexplored, resulting in valuable savings in foreign exchange outflow.
    With obvious increase in business operations, it was converted into a
    Private Limited Company on 11th January 1960.

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

                                                                                14
   Elecon has played a pioneering role by way being first in design,
    manufacturing and supplying many of the above products in India, and
    thereby adhering to the motto of “ALWAYS A STEP AHEAD IN
    TECHNOLOGY”.

   The company has gone a long way from a moderate beginning at
    Goregaon in Bombay, in the early fifties to a sprawling workshop area
    spanning over 1, 17,051 sq. meters. The present manufacturing facilities
    are equipped with latest computerized machine tools, and quality control
    equipments.

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

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

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

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




                                                                              15
                       COMPANY’S PROFILE




Name of the Company:       Elecon Engineering Co. Ltd.

Registered office:         Elecon Engineering Co. Ltd.

                           Anand Sojitra Road,

                           Vallabh- Vidhyanagar -388120

                           Gujarat, India.



Contacts:                  Phone: +91(2692)237016, 236469,236521

                           Fax: + 91(2692)236457, 236527

                           Website: www.elecon.com


Chairman of the company: Mr. Prayashvin B Patel.

Division of the company:   1.Material Handling Equipments

                           2. Gear division

                           3. Alternative energy division



Size of the firm:          Large scale industry



Bankers:                   State Bank of India,

                           Bank of Baroda,

                                                                   16
                                EXIM Bank,

                                Axis Bank Limited,

                                Citi Bank,

                                HDFC Bank.



Auditors:                  Thacker Butala Desai Chartered Accountants Navsari.



Board of directors:             1. Shri Prayasvin .B. Patel,

                                2. Shri Hasmukhlal .S. Parikh,

                                3. Dr. Amritlal .C. Shah,

                                4. Shri Chirayu Amin,

                                5. Shri Prashant Amin,

                                6. Shri Upendra .M. Patel,

                                7. Shri Ashok .J. Patel



Chief financial officer:        Shri Hemendra .C. Shah



Company secretary:              Shri Paresh .M. shukla



Certificates:                   ISO 9000:2001



Logo of the company:


                                                                             17
Employess in the company:     850(approx)



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

                              2. TRF Ltd.,

                              3. Menally Bhatt Engineering Ltd.,

                              4. Metso,

                              5. Praj industries.




                                                                   18
                   MISSION AND VISION OF ELECON
MISSION



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



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



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



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



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




                                                                             19
VISION



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

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


                  EMPLOYEES BENEFITS AND SERVICES


     Employees are the best assets for any organization. Satisfy employees’
     means successful organization. For employees’ satisfaction and welfare
     Elecon gives various services to its employees which are as follow:



1.   CANTEEN :

     Elecon provides canteen facilities to employees, in which employees have
     to pay 30 % of total cost. Elecon is also having the facility of garden and
     guest room for relaxation and for taking rest.

2.   BONOUS:

     Elecon gives proper attention towards their employees and also gives
     bonus to them as well as promotions to employees as per their working
     capabilities and progress.




                                                                              20
3.   WORKING CONDITIONS AND SAFETY:

     Elecon is also maintaining separate safety division for workers safety and
     provides medical facilities for emergency. 5 S training Programme was
     held from 17th Sep’ 07 to 20th Sep’07 at Gear Division of Elecon
     engineering company Ltd which was conducted by Shri Hemendra K
     Varma, director of 5 S Institute Of India.

     The 5 S Programme focuses on achieving visual order, organization,
     cleanliness and standardization. Following 5 S mantras are in reduction
     in search time, improvement in housekeeping, improvement in efficiency
     and profit, cost savings, quality and safety.

      The 5 S Mantras is about ‘Seiri’ (segregate), ‘Seiton’ (set in order), Seiso
     (super clean), Seiketsu (standarise) and Shitsuke (self
     discipline/sustain).




                                                                                     21
              CONTRIBUTION TOWARS SOCIETY BY ELECON


Elecon emphasis on the quality of life for the community in which they live
and work. They maintain a holistic approach to make a difference by engaging
in social issues of health, education, livelihood and environment. Following
are such work done by Elecon in society.

1.   A dialysis and cardiac centre has been set up in the name of Bhanubhai I
     Patel at Shree Krishna Hospital karamsad.

2.   Elecon took up expansion program of I. B. Patel School.

3.   Elecon provided financial assistance to enhance livelihood of the hearing
     and speech impaired children at the P. C. Bhatt Deaf and Dumb School at
     Sojitra.

4.   Elecon has created and promoted a TRUST which provides scholarship to
     engineering students.

5.   Elecon has built and maintain three large public parks including I.B.Patel
     Memorial park and Shanta Baa Park in local community.




                                                                              22
                  COMPANY OVERVIEW AT GLANCE


   1960

    The Company was incorporated as a Private Limited Company and
    converted into a public limited company on 26th September,



   1961

    The company manufactures all kinds of mechanical handling equipments
    such as bucket elevators, belt conveyors, gravity rollers, conveyors, bag
    filling machines, bag stacking machines, overhead chair conveyors etc.



   1965

    There was Issued 12,000 Right Equity shares at par in the prop. 1:5, 425
    No. of Equity shares forfeited. 6,824 shares issued for consideration
    other than cash during 1960.



   1974

    24,000 - 9.8% Pref. shares issued to the public. Pref. shares redeemable
    during 30.6.1982/84 at 3 months' notice.



   1976

    36,000 Right Equity shares issued at par in prop. 1:2.




                                                                               23
   1977

    54,000 Bonus Equity shares issued in prop. 1:2.



   1979

    Chitraj Engineering Co. (P) Ltd. became a wholly owned subsidiary of the
    Company from 9th November.



   1981

    Equity shares sub-divided on 15.6.1981. 8, 10,000 Bonus Equity Shares
    of Rs 10 issued in prop, 1: 2 on 29.06.1981.



   1982

    The name of this subsidiary was changed to Elecon (Chennai) Ltd., with
    effect from 2nd February. The subsidiary's working was affected by
    paucity of orders and natural calamities during



   1984

    In January, the Company issued to the public 5, 50,000-13.5% convertible
    secured debentures of Rs 100 each.



   1983

    During March, consequent upon conversion of 55% of the face value of
    convertible debentures, the Company issued equity shares of Rs 10 each
    credited as fully paid-up at a premium of Rs 17.50 per share in the prop 2



                                                                             24
    No. of equity shares for every debenture shares were allotted on 12th
    March.

    The Preference shares were redeemed on 31.12.1983.

    10, 99,632 number of equity shares allotted on conversion of debentures
    on 12.3.1983.



   1984

    Authorized capital reclassified.



   1987

    21, 17,778 Bonus shares issued in prop. 3: 5



   1988

    A letter of registration was received for the manufacture of new articles
    viz., shearer and continuous miner with an annual capacity of 10 units.



   1989

    The High Courts of Chennai and Gujarat by their orders dated

    14th February, and 22nd March, 1990 respectively approved the scheme
    of amalgamation of the wholly owned subsidiary Elecon (Chennai) Ltd.
    with the Company effective from 1st January, 1987.

    Accordingly, Elecon (Chennai), Ltd. was dissolved without winding up
    effective from 1st January, 1987. The Company's sales declined to
    Rs.99.75 crores mainly due to irregular inflow of orders because of
    severe competition which led to uneven load in the workshops.

                                                                                25
   1990

    The Company has issued 5, 00,000-14% secured redeemable non-
    convertible debentures of Rs 100 each by private placement of SBI
    Capital Markets Ltd., and Canara Bank in equal prop. To meet the long-
    term working capital needs of the Company. These debentures are
    redeemable at a premium of 5% in three equal annual installments
    between 19th September, 1996 to 19th September, 1998.



    The Company's profits were low due to non-receipt of export benefits
    worth Rs.113 lakhs from the export order of EGAT which was already
    completed and higher tax liability.



   1991

    The working results were adversely affected due to increased interest
    rates, large overdue receivables from Electricity

    Boards, execution of contracts with lower margins, etc.

    The Company proposed to diversify into the business relating

    To vegetable and fruit processing, food processing and processing of
    edible oil seeds, extraction and refining of edible oil,

    Grain silos, cattle and poultry feeds.



   1993

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



                                                                             26
   1994

    The Company had successfully implemented the Alternate Energy
    System. It installed 7 wind mills, out of these 5 were sold to outside
    parties and 2 were retained by the company for its own consumption.



    The Company has entered into a technical collaboration agreement with
    HMZ Belgium N. V. Balgium for manufacture of wind master, wind Energy
    Generators, which is one of the best available in the world with larger
    energy generation.



   1995

    The liquidity and profitability of the company was adversely affected on
    account of large overdue receivables.

    11 Wind Mills were commissioned which already started generating
    power. The Company had decided to abandon diversification into shrimp
    feed production, in view of the recessionary conditions in shrimp farms,
    all over India.



   1996

    Efforts to realize large overdue receivables from State

    Electricity Board and Central Government Corporation were partly
    successful. The Company secured an order from Naively Lignite



    Corporation Ltd. for manufacture, erection and commissioning of 2400
    MM Drive Heads and conveyors for its Mine-III.




                                                                             27
    The diversification programmed in the field Alternate non-conventional
    energy source continued. The company installed eight additional wind
    mills during the year raising the total to twenty two.



   1997

    Eleven wind mills erected in Gujarat for captive consumption were lost
    due to severe cyclone. The installed seven additional Wind Mills during
    the year.

    The Company's sales and other services declined to Rs.159.80 crores due
    to the recessionary conditions.



   1998

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



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



   2004

    Elecon Engineering produces gear boxes for Stealth Frigate battle ships



   2005

    Elecon Engg gets Rs 26 cr order from APGenco



                                                                              28
   2007

    Elecon Engineering Company Ltd has signed a Memorandum of
    Understanding (MoU) with the Government of Gujarat (GoG) at the
    Vibrant Global Investors' Summit 2007 held on January 13, 2007.

    Elecon Engineering Company Ltd has informed that the Company has
    been awarded a contract worth Rs 229.09 Crores for supply and
    installation of Coal Handling Plant Package for National Capital Thermal
    Power Project (NCTPP); Dadri, Stage II (2 x 490MW) from NTPC Ltd.

    Elecon Engineering receives order of Rs 57.70 crores from BHEL.

    The Company has issued Bonus Shares in the Ratio of 2:1.



   2008

    Elecon Engineering Company Ltd has informed that the Board of
    Directors of the Company at its meeting held on July 29, 2008, Shri.
    Prashant C Amin appointed as Additional Director of the Company.

    Elecon Engineering Company Ltd has bagged three orders worth Rs

    51.74 crore from Techpro Systems, Chennai and SAIL- Durgapur Steel
    Plant, Durgapur.




                                                                           29
                       PRODUCTS OF ELECON


MATERIAL HANDELING EQUIPMENTS

    From elevators, conveyors and gears to material handling plants. For
    over 5 decades, Elecon has supplied hi-tech equipment to core sectors
    such as steel, fertilizer, cement, coal, lignite and iron are mines, power
    stations and port mechanization in India and abroad.



MININING INDUSTRY


   Elecon provides custom engineered solutions for movement and storage
    of bulk materials in the Mining and Metallurgy industry.

    Typical applications are the movement and storage of bulk materials
    using modular designs in conveyors. Elecon offers an extensive range of
    rail mounted Single or Twin Boom Stackers, Portal and Bridge type
    Scraper Reclaimers for longitudinal and circular storage systems for
    handling iron ore, coal, minerals or coke in mining and metallurgy
    projects.

   MHEs used in mining & metallurgy industry: Shift able Conveyors, Idlers,
    Pulleys, Trawler Mounted Trippers, Spreaders, Mobile Transfer
    Conveyors, etc.

   Elecon provides the following solutions for the Mining & Metallurgy
    industry and also provides custom engineered solutions for specific
    requirements.




                                                                              30
1.   SHIFTABLE CONVEYER




     The shift able conveyors are used at open-caste mines. Capable of
     handling materials at the rate of 20,000 tph and is suitable for belt widths
     up to 2,400 mm.



2.   CONVEYER




     Conveyor System is suitable for belt widths up to 2,400 mm. and capable
     of handling materials at the rate of 20,000 tph.


3.   IDLERS




     Idlers are impact idlers, troughing idlers, garland idlers.

     Capacity up to 24,000 tph. Guaranteed for minimum 25,000 working
     hours.

                                                                               31
4.    PULLY




     Pulley is suitable for conveyors of belt width ranging from 400 mm. to
     2400 mm. for capacities up to 24,000 tph.



PORT MECHANIZATION

Elecon material handling solutions for ports and terminals cover various aspects of dry bulk
cargo handling for import, export and storage including intake from rail wagons.

Elecon provides an extensive range of bucket elevators, heavy duty feeders and conveyors and
Wagon Tippers for discharging wagons.

Port mechanization equipments: Ship Loader & Unloader, Rail Pusher Car, Wagon Tipplers,
Wagon Marshalling Equip., Conveyor Systems.

Elecon provides the following solutions for Port mechanization and also provides custom
engineered solutions for specific requirements.




SHIP LOADERS




     Ship Loader is for handling coal, clinker, cement, iron ore, and bulk
     materials for ocean going ships and barges.


                                                                                               32
WAGON TRIPPLERS




     Wagon Tippler is designed for unloading broad-guage open rail wagons



RAIL PUSHER CARS




     Rail Pusher Car for hauling of rake wagons and placement of wagons on
     wagon tippler table.




1.   WAGON MARSHALLIING EQUIPMENTS

                                                                            33
     Wagon Marshalling Equipment is for charging and spotting of wagon on
     tippler table by beetle charger


FERTILIZER INDUSTRY


    The Fertilizer industry recognizes Elecon Material Handling Solutions as
     technology centric, innovative solutions that cater to all their material
     handling needs. Solutions from Elecon assure robust, dependable and
     economical operations. Customers rely on Elecon to provide solutions for
     storing, blending and movement of raw material, finished product and
     other bulk materials.


     Elecon provides the following solutions for the Fertilizer industry and
     also provides custom engineered solutions for specific requirements



1.   SCRAPPER RECLAIMER




     Portal Scraper Reclaimer is full portal, semi portal, bi-rail scraper
     reclaimer for handling fertilizer, limestone, coal, qypsum, clinker, etc.




                                                                               34
2.   WAGON LOADER




     Mobile Wagon Loader is suitable for handling iron ore, coal, limestone for
     loading to railway wagons.



CEMENT INDUSTRY
Elecon has been providing bulk material handling technology and solutions for various
applications in the Cement industry for over 50 years. These include (products & solutions)



MHEs used in Cement industry: Stacker Reclaimers, Conveyors, Twin Boom Stackers,
Impactors, Circular Stock Piles, Bridge Type Scrapers, etc.



Elecon provides the following solutions for the Cement industry and also provides custom
engineered solutions for specific requirements




1.   TWIN BOOM STACKER




                                                                                              35
     Twin Boom Stacker is suitable for handling limestones, iron ore,
     dolomite, coal, etc.

2.   IMPACTOR




     Impactor is for crushing hard and medium hard rock’s such as limestone,
     basalt, blast furnace slag etc.

3.   CIRCULAR STOCK PILE




     Circular Stockpile is for handling coal, limestone, iron ore, in pre
     homogenization and blending stockyard



4.   BRIDHE TYPE SCRAPER


                                                                          36
     Bridge Type Scraper Reclaimer is for handling coal, lignite, limestone in a
     liner stockyard.


5.   SHIP LOADER




     Ship Loader is for handling coal, clinker, cement, iron ore, and bulk
     materials for ocean going ships and barges.



STEEL INDUSTRY

    Elecon Material Handling Solutions caters to the requirements of the
     Steel industry through the various stages of innovative concept
     application, design, manufacture, and onsite erection and commissioning.




                                                                              37
    Elecon provides the following solutions for the Steel industry and also
     provides custom engineered solutions for specific requirements

1.   WAGON TRIPPLERS




     Wagon Tippler is designed for unloading broad-guage open rail wagons.




2.   STACKER RECLAIMER




     Stacker Reclaimer is for stacking and wheel on boom reclaimer for
     handling bulk materials like coal, iron ore, limestone, etc. Combined
     bucket wheel stacker reclaimer and reversible type bucket wheel stacker
     reclaimer are also manufactured to suit particular application.




                                                                          38
3.   BARREL TYPE RECLAIMER




     Barrel Type Blender Reclaimer for handling coal, iron ore, lime stone in a
     homogenisation stock yard in steel plant, thermal power station and
     cement plants.



     POWER GENERATION / COAL HANDLING

     Elecon is known for its robust concepts and technical designs which take
     into account individual projects and customer requirements. Elecon's
     strong track record coupled with skilled engineers and industry process
     technology in the Power industry for coal handling makes it the ideal
     solution provider for all bulk material handling solutions. Customers rely
     on Elecon to provide solutions for storing, blending and reclaiming of
     coal and other bulk materials.



1.   SIDE ARM CHARGER




                                                                             39
     The Side Arm Charger for hauling rake of wagons, placement of wagons
     on tippler table and evacuation of empty wagons from tippler table.

2.   APRON FEEDER




     Apron Feeder is rugged and dependable designed to receive and control
     the flow of material from bins and hoppers.



3.   PADDLE FEEDER




     Paddle Feeder is for reclaiming bulk material from bunkers, silos and
     stockpiles.




                                                                        40
4.   CABBLE REELING DRUM




     Cable Reeling Drum is for using on the mobile equipment for power
     supply.

5.   ROLLER SCREEN




     Roller Screen is suitable for separating coarse, wet and sticky and clay
     raw material.



     POWER TRANSMISSION SOLUTIONS



    Driven by excellence since 1951, Elecon is Asia’s largest gear
     manufacturing company enjoying a significant presence in India and
     abroad. Elecon’s proven expertise in technology and innovation has
     enabled it successfully decipher the changing requirements of the
     industry and churn out technologically superior products from time to
     time. Apart from being the first to introduce modular design concept,
     case hardened and ground gear technology in India.


                                                                             41
    Elecon also has a proven track record in the design and manufacture of
     worm gears, parallel shaft and right angle shaft, helical and spiral bevel
     helical gears, fluid, geared & flexible couplings and planetary gear boxes.
     And when it comes to special gears, Elecon is the supplier of choice to
     core sectors like Sugar, Cement, Chemical, Fertilizer, Steel, Plastic
     Extrusion and Rubber.



    Elecon also enjoys the rare distinction of begin the first Indian gear
     company to receive the coveted ISO 9001:2000 certification. With
     significant investments in manufacturing facilities, technology and
     innovation, Elecon promises a long-term alliance with all its customers in
     the long run.



    Today, Elecon boasts of state-of-the-art manufacturing facilities that
     include fully automated machining lines, comprehensive production
     capacity and a dedicated task force aptly supported with expedite after
     sales services. With customer footprint across the nation and in Australia,
     Africa, South East Asia, Middle East, Europe and products comparable
     with the bet in the world



     Elecon manufactures the following equipments in gear division

    HELICAL & BEVEL HELICAL GEAR BOXES

1.   ET – Series
2.   Cooling Tower Gear Boxes
3.   Dual Tandem Gear Boxes
4.   Loose Gears - Spiral Bevel Pair
5.   Custom Built Gear Boxes




                                                                               42
    WORM GEAR BOXES

1.   ER - Series
2.   Special Worm Gears
3.   Super NU Series


    COUPLINGS

1.   Elflex Flexible
2.   Elign Gear
3.   Fluid
4.   Scoop Fluid
5.   Torison Shaft


    WINDMILL GEAR BOXES

1.   Small & Medium Wind Turbine Gear Box
2.   High Capacity Wind Turbine Drive Gear Box


    ELEVATOR TRACTION MACHINES

1.   L 115 Elevator Traction Machine
2.   EH Series - EH 180K
3.   EH Series - EH 130
4.   EH Series - EH 150G
5.   EH Series - EH 250K
6.   Tube Mill Worm Reduction Gear Boxes - Type - FSUO


    PLANETARY GEAR BOXES

1.   Sugar Mill Drive
2.   Bucket Wheel Drive
3.   Slew Drive




                                                         43
    MARINE GEAR BOXES

1.   Reverse Reduction Gearbox
2.   Reduction Gearbox
3.   CODOG Marine Gear Box


    HIGH SPEED GEAR BOXES

1.   Turbo Gear Unit

    GEARED MOTORS

1.   Helical Gear Motor with Solid Shaft
2.   Helical Geared Motor
3.   Helical Bevel Geared Motor
4.   Helical Gear Motor with Hollow Shaft
5.   PBL Geared Motor




                                            44
    ALTERNATIVE ENERGY



   In the world of Global Warming, it becomes necessary to SAVE &
    PROTECT our mother Earth. World has become conscious and people
    now work for reducing the Global Warming by one or the other way. As a
    part of this initiative, ELECON take the opportunity to help the world in
    reducing the Global Warming by providing the solution to generate the
    GREEN POWER by harnessing energy through renewables, mainly
    through Wind.

   As per the present study and situation, Wind Power installation is
    growing at a faster pace of 17.4 % worldwide and expected to maintain
    the same growth rate in next 10 years.

   Elecon having the prior experience in the field of Wind Power, installed
    around 50 Nos. Wind Turbines of 300 KW rating during 1995 to 1998 in
    Gujarat. During the year 2001, ELECON decided to diversify the Wind
    Turbine Business and installed 2 WTGs of 600 KW in Gujarat and 2 WTGs
    in T.N as a prototype turbine. Elecon is now planning to expand its Wind
    Turbine business all over the world with it expertise in the field of
    manufacturing and strong infrastructure available at their plants at
    Vallabh Vidynagar, a town near Anand in Gujarat, India.


   With diversed focus, Elecon has decided to produce the Quality Wind
    Turbines in technical collaboration with TURBOWIND n.v of Belgium.
    With wide experience in the field Turbowind has worldwide installation
    of 600KW* Wind Turbines in many countries in Europe, India, Canada,
    Ukraine etc. working in diverse climatic conditions.

   With buoyancy in the Wind Energy Sector, Elecon contemplates
    introduction of Multi-Megawatt range of Wind Turbines in their
    manufacturing range in near future, besides the present range of 600 KW.


                                                                            45
1.   WIND TURBINE & WIND FARMS




     Elecon manufactures Wind Turbines in 60 and 50 hertz frequencies with
     globally recognized technologies.




                                                                         46
               WORKING CAPITAL MANAGEMENT


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



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


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


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




                                                                          47
                          Meaning of Working Capital



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

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

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



   Current Assets

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



   Constituents of Current Assets:

          Cash in hand and bank balance

        bills receivables

        Sundry debtors (provision for bad debts)

        Short term loans and advances

        Inventories of stocks.
                                                                                 48
     Raw material.

     Work in progress.

     Stores and spares.

     Finished goods.

     Prepaid expenses.

     Accrual incomes.etc



 Current Liabilities

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



 Constituents of current Liabilities:

      Bills payable

      Sundry creditors or account payable

      Short term borrowings

      Dividend payable

      Bank overdraft

      Provisions

      Outstanding expenses

      Unaccrued income




                                                                            49
     Determinants of working capital:

     Working capital requirements of a concern depends on a number of
     factors, each of which should be consider carefully for determining the
     proper amount of working capital. It may be however be added that these
     factors affect differently to the different units and these keeps varying
     from time to time.

     In general, the determinants of working capital which are common to all
     organization’s can be summarized as under:



1.   Nature of Business:

Need for working capital is highly depends on what type of business, the firm
in. there are trading firms, which needs to invest a lot in stocks, ills
receivables, liquid cash etc. public utilities like railways, electricity, ete., need
much less inventories and cash. Manufacturing concerns stands in between
these two extends. Working capital requirement for manufacturing concerns
depends on various factors like the products, technologies, marketing policies.

2.   Production Policies:

Production policies of the organization are effects working capital
requirements very highly. Seasonal industries, which produces only in specific
season requires more working capital. Some industries which produces round
the year but sale mainly done in some special seasons are also need to keep
more working capital.

3.   Size of Business:

Size of business is another factor to determines the need for working capital

4.   Length of Operating Cycle:

Operating cycle of the firm also influence the working capital. Longer the
orating cycle, the higher will be the working capital requirement of the
organization.

                                                                                   50
5.   Credit Policy:

Companies; follows liberal credit policy needs to keep more working capital
with them. Efficiency of debt collecting machinery is also relevant in this
matter. Credit availability form suppliers also effects the company’s working
capital requirements. A company doesn’t enjoy a liberal credit from its
suppliers will have to keep more working capital.

6.   Business Fluctuation:

Cyclical changes in the economy also influencing the working capital. During
boom period, the tendency of management is to pile up inventories of raw
materials and finished goods to avail the advantage of rising prove. This
creates demand for more capital. Similarly during depression when the prices
and demand for manufactured goods. Constantly reduce the industrial and
trading activities show a downward termed. Hence the demand for working
capital is low.

7.   Current Asset Policies:

The quantum of working capital of a company is significantly determined by
its’ current assets policies. A company with conservative assets policy may
operate with relatively high level of working capital than its sales volume. A
company pursuing an aggressive amount assets policy operates with a
relatively lower level of working capital.

8.   Fluctuations of Supply and Seasonal Variations:

Some companies need to keep large amount of working capital due to their
irregular sales and intermittent supply. Similarly companies using bulky
materials also maintain large reserves’ of raw material inventories. This will
be increase the need of working capital. Some companies manufacture and
sell goods only during certain seasons. Working capital requirements of such
industries will be higher during certain season of such industries period.




                                                                                 51
9.   Other Factors:

Effective co ordination between production and distribution can reduce the
need for working capital. Transportation and communication means. If
developed helps to reduce the working capital requirement.



     EXCESS OR ADEQUATE WRKING CAPITAL



Every business concern should have adequate working capital to run its
business operations. It should not have either redundant / excess working
capital or inadequate/ shortage of working capital. Both excess as well as
shortage of working capital situations are bad for any business. However, out
of the two, inadequacy or shortage of working capital is more dangerous from
the point of view of the firm.

     Disadvantages of Redundant or Excess Working Capital:

1.    Idle funds, non-profitable for business, poor ROI.

2.    Unnecessary purchasing & accumulation of inventories over required
      level.

3.    Excessive debtors and defective credit policy, higher incidence of B/D.

4.    Overall inefficiency in the organization.

5.    When there is excessive working capital, Credit worthiness suffers.

6.    Due to low rate of return on investments, the market value of shares
      may fall.




                                                                                52
     Disadvantages or Dangers of Inadequate or Short Working Capital:

1.    Cannot pay off its short-term liabilities in time.

2.    Economies of scale are not possible.

3.    Difficult for the firm to exploit favorable market situations.

4.    Day-to-day liquidity worsens.

5.    Improper utilization the fixed assets and ROA/ROI falls sharply.




     Need for working capital



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

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

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

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




                                                                                53
      Working capital is needed for the following purpose:



1.     for the purchase of raw material, components and spares.

2.     To incur day to day expenses and overhead costs such as fuel, power
       and office expenses, etc.

3.     To meet selling costs as packing, advertisement etc.

4.     To provide credit facilities to the customers.

5.     To maintain the inventories of raw material, work in progress, stores
       and spare and finished goods.

6.     To pay wages and salaries.



      Meaning of working capital management



      Working Capital Management is concerned with the problems that arise
       in attempting to manage the Current Assets, Current Liabilities and the
       inter-relationship that exists between them. Working Capital
       Management means the deployment of current assets and current
       liabilities efficiently so as to maximize short-term liquidity.

      Working capital management entails short term decisions - generally,
      relating to the next one year periods - which are "reversible"




                                                                               54
      Steps involved in working capital management

I.    Forecasting the Amount of Working Capital

II.   Determining the Sources of Working



      Objectives of Working Capital Management

I.    Deciding Optimum Level of Investment in various WC Assets

II.   Decide Optimal Mix of Short Term and Long Term Capital

III. Decide Appropriate means of Short Term Financing



      Forecasting /Estimation of Working Capital Management
      Requirement Factors to be considered:

     Total costs incurred on materials, wages and overheads. The length of
      time or which raw materials remain in stores before they are issued to
      production.

     The length of the production cycle or WIP, i.e., the time taken for
      conversion of raw material into finished goods.

     The length of the sales cycle during which finished goods are to be kept
      waiting for sales.

     The average period of credit allowed to customers.

     The amount of cash required to pay day to day expenses of the business.

     The amount of cash required for advance payments if any.

     The average period of credit to be allowed by suppliers.

     Time – lag in the payment of wages and other overheads



                                                                                 55
                                 OPERTING CYCLE



The working capital requirement of a firm depends, to a great extent upon the
operating cycle of the firm. The operating cycle may be defined as the time
duration starting from the procurement of goods or raw material and ending
with the sales of realization.

The length and nature of the operating cycle may differ from one firm to
another depending upon the size and nature of the firm. In a trading concern,
there is a series of activities starting from procurement of goods (saleable
goods) and ending with the realization of sales revenue (at the time of sale
itself in the case of cash sales and at the time of debtors realization in case of
credit sales).similarly in case of manufacturing concern, this series starts from
the procurement of raw materials and ending with the sales realization of
finished goods. In both the cases, however, there is a time gap between the
happening of the first event and the happening of the last event. This time gap
is called the operating cycle.

     Thus, the operating cycle of a firm consists of the time required for the
completion of the chronological sequences of some or all of the following:



1.    Procurement of raw material and services.

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

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

4.    Sale of finished goods (cash or credit)

5.    Conversion of receivable into cash.




                                                                                 56
                             Operating cycle period



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

1.   Inventory conversion period:

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



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




                                                                             57
    The work-in-progress conversion period (WPCP) refers to the period
     for which the raw material remains in the production process before it is
     taken out as finished units.



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



2.   Receivable conversion period (RCP):

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

            NOC =TOCP-DP

                 =ICP+RCP-DP

For calculating total operating cycle period (TOCP) and net operating cycle
(NOC), the following formula is being used:



      RMCP         = Average Raw material stock       × 365

                     Total Raw material consumption



      WPCP         = Average Work-in-progress × 365

                       Total cost of production
                                                                                58
     FGCP        = Average Finished Goods × 365

                     Total Cost of goods sold



     RCP         =       Average Receivable × 365

                           Total Credit sales



     DP          =       Average Creditors      × 365

                          Total Credit purchase



    Average Raw Material \ Raw Material Conversion Period



    2009______________

Average raw material = opening stock of raw material + closing stock of raw
                       material \ 2

                          = 14,317.94 + 10,226.30 \ 2..

                          =12272.12

Raw material Consumption = 63198.04 \ 365 = 173

     RMCP                       = 12272.12 \ 173

                                = 70 day




                                                                              59
     2008 ______________________

Average raw material = opening stock of raw material + closing stock of raw
                       material\ 2

                         = 10226.30 + 6784.72 \ 2

                          = 8505.5

Raw material consumption = 55196.12 \ 365 = 151

       RMCP               = 8505.5 \ 151

                          = 56 day



     Average Work in Progress \ Cost of Production Per Day



     2009__________________

Average work in progress = op. Stock of work in progress + clo. Stock of work
in progress \ 2

                          = 12,282.45 + 21,378.85 \ 2

                          = 16830.65

Cost of pro. Per day = sales - transaction cost

                   = 86,538.48 - 158.40 = 86380.08

WICP               =16830.65 \ 86380.08 *365

                   = 71 day




                                                                              60
     2008__________________________

Average work in progress = op. Stock of work in progress + closing Stock of
work in progress \ 2

                 = 8136.52 + 12282.45 \ 2

                 = 10209.48

Cost of pro. Per day     = sales - transaction cost

                         = 83,209.29 - 174.04 = 83035.25

WICP                     = 10206.48 \ 83035.25*365

                         = 45 day



     Avg. finish good inventory \ cost of goods sold



     2009____________________________

Avg. finish good inventory = op. stock of finish stock + closing Stock of finish
stock \ 2

                          = 2,758.11 + 1,304.87 \ 2

                         = 2031.47

Cost of goods sold        = 57981.11



FGCP                      = 2031.47 \ 57981.11 * 365

                         = 13 days




                                                                                   61
    2008______________

Average finish good inventory = opening stock of finish stock + closing Stock
                                 of finish stock \ 2

                              = 1304.87 + 740.80 \ 2

                              = 1022.84

Cost of goods sold            = 66995.33



FGCP         = 1022.87 \ 66995.33 * 365

             = 6 days



    Average Debtors \ Credit Sales



       2009______________



Avg. debtors = 47,173.58 +49231.61 \ 2

              = 48202.59

Credit sale = 78961.32



BDCP         = 48202.59 \ 78961.32 * 365

             = 222 day




                                                                                62
      2008______________



Avg. debtors = 49,231.61 + 38198.60 \ 2

              = 43715.10

Credit sale = 73067.57



BDCP         = 43715.10 \ 73067.57 *365

             = 218 day



      Average Creditor’s \ Credit Purchase



      2009_______________



Average Creditors           = 28,167.81 + 27526.23 \ 2

                            =27847.02



Credit purchase             = 73747.68



CCP          = 27847.02 \ 73747.68 * 365

             = 135 days




                                                         63
      2008______________



Average Creditors          =27,526.23 + 20,395.53 \ 2

                           =23960.88



Credit purchase            =59906.12



CCP                        =23960.88 \ 59906.12 * 365

                           =145 days




                                                        64
     Time and Money concept in Working Capital Cycle



     Each component of working capital (namely inventory, receivables and
payables) has two dimensions .TIME and MONEY, when it comes to managing
working capital.

     Time is Money:

If we can get money to move faster around the cycle (e.g. collect money due
from debtors more quickly) or reduce the amount of money tied up (e.g.
reduce inventory levels relative to sales), the business will generate more
cash or it will need to borrow less money to fund working capital. As a
consequence, we can reduce the cost of bank interest or will have additional
free money available to support additional sales growth or investment.
Similarly, we can also negotiate the improved terms with suppliers.

E.g. get longer credit or an increased credit limit; we effectively create free
finance to help future sales.


                IF WE                                     THEN
Collect receivables (debtors) faster      We release cash from cycle
Collect receivables(debtors) faster       Our receivables soak up cash
Get better credit(in terms of duration    We increase our cash resources
or
amount from suppliers)
Shift inventory(stocks)faster             We free up cash
Move inventory(stocks) slower             We consume more cash




                                                                                  65
     TYPE OF WORKING CAPITAL




     On the basis of Concept



1.   Gross working capital: the gross working capital refers to the firm’s
     investment in all the assets taken together. The total of investment in all
     the individual current assets is the gross working capital.

     For example: if a firm has a cash balance of Rs. 50,000 ,debtors of
     Rs.70,000 and inventory of raw material and finished goods has been
     assessed at Rs.1,00,000,then the gross working capital of the firm is
     Rs.2,20,000 (i.e. ,Rs 50,000+Rs.70,000+Rs.1,00,000).




                                                                               66
2.   Net working capital: the term net working capital may be defined as the
     excess of total current assets over total current liabilities. Current
     liabilities refer to those liabilities which are payable within a period of 1
     year. The net working capital may either be positive or negative. If the
     total current assets are more than total current liabilities, then the
     difference is known as positive net working capital, otherwise the
     difference is known as negative net working capital. The net working
     capital measures the firm’s liquidity. The greater the margin, the better
     will be the liquidity of the firm.



     Net working capital= total current assets – total current liabilities

WORKING CAPITAL

 A financial manager must consider both (gross and net working capital)
because they provide different interpretation. The gross working capital
denotes the total working capital or the total investment in current assets.
This will help avoiding 1.the unnecessarily stoppage of work or chance of
liquidation due to insufficient working capital, and 2.effects on profitability
(over flowing working capital implies cost).The gross working capital also
gives an idea of total funds required for maintaining current assets.

On the other hand, net working capital refers to the amount of funds that
must be

Invested by firm, more or less are regularly in current assets. The net working
capital also denotes the net liquidity being maintained by the firm.




                                                                                  67
     On the basis of time



1.   Permanent /fixed working capital: Permanent working capital may be
     defined as the minimum level of current assets, which is required by a
     firm to carry on its business operations. Every firm has to maintain a
     minimum level of raw materials, work-in-progress, finished goods and
     cash balances.

     For example-extra inventory of finished goods will have to be maintained
     to support the peak periods of sale. Permanent working capital is
     permanently needed for the business and therefore, it should be financed
     out of long term funds.

2.   Fluctuating /variable working capital: It is the extra working capital
     needed to support the changing production and sales activities of the
     firm. The amount of temporary working capital keeps on fluctuating on
     time to time on the basis of business activity. Both kind of working capital
     – permanent and fluctuating (temporary) are necessary to facilitate
     production and sales through the operating cycle. The amount over and
     above permanent working capital is temporarily variable or fluctuating.




                                                                               68
     SOURCES OF WORKING CAPITAL



The company can choose to finance its current assets by

1.    Long term sources

2.    Short term sources

3.    A combination of them.



     Long term sources of permanent working capital include equity and
     preference shares, retained earnings, debentures and other long term
     debts from public deposits and financial institution. The long term
     working capital needs should meet through long term means of financing.
     Financing through long term means provides stability, reduces risk or
     payment. And increases liquidity of the business concern. Various types
     of long term sources of working capital are summarized as follow:



1.   Issue of shares:

     It is the primary and most important sources of regular or permanent
     working capital. Issuing equity shares as it does not create and burden on
     the income of the concern. Nor the concern is obliged to refund capital
     should preferably raise permanent working capital.



2.   Retained earnings:

     Retain earning accumulated profits are a permanent sources of regular
     working capital. It is regular and cheapest. It creates not charge on future
     profits of the enterprises.




                                                                               69
3.   Issue of debentures:

     It creates a fixed charge on future earnings of the company. Company is
     obliged to pay interest. Management should make wise choice in
     procuring funds by issue of debentures.

4.   Long term debt:

     Company can raise fund from accepting public deposits, debts from
     financial institution like banks, corporations etc. the cost is higher than
     the other financial tools.



5.   Other sources:

     Sale of idle fixed assets, securities received from employees and
     customers are examples of other sources of finance.



     Short term sources of temporary working capital



Temporary working capital is required to meet the day to day business
expenditures. The variable working capital would finance from short term
sources of funds. And only the period needed. It has the benefits of, low cost
and establishes closer relationships with banker. Some sources of temporary
working capital are given below:



1.   Commercial bank:

     A commercial bank constitutes significant sources for short term or
     temporary working capital. This will be in the form of short term loans,
     cash credit, and overdraft and though discounting the bills of exchanges.




                                                                                   70
2.   Public deposits:

     Most of the companies in recent years depend on this source to meet
     their short term working capital requirements ranging from six month to
     three years.



3.   Various credits:

     Trade credit, business credit papers and customer credit are other
     sources of short term working capital. Credit from suppliers, advances
     from customers, bills of exchanges, etc helps to raise temporary working
     capital.



4.   Reserves and other funds:

     Various funds of the company like depreciation fund. Provision for tax
     and other provisions kept with the company can be used as temporary
     working capital. The company should meet its working capital needs
     through both long term and short term funds.

     It will be appropriate to meet at least 2/3 of the permanent working
     capital equipments form long term sources, whereas the variables
     working capital should be financed from short term sources. The working
     capital financing mix should be designed in such a way that the overall
     cost of working capital is the lowest, and the funds are available on time
     and for the period they are really required.




                                                                              71
     SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following-

1.    Existing cash reserves

2.    Profits (when you secure it as cash)

3.    Payables (credit from suppliers)

4.    New equity or loans from shareholder

5.    Bank overdrafts line of credit

6.    Long term loans

If we have insufficient working capital and try to increase sales, we can easily
over stretch the financial resources of the business. This is called overtrading.
Early warning signs include



1.    Pressure on existing cash

2.    Exceptional cash generating activities. Offering high discounts for clear
      cash payment

3.    Bank overdraft exceeds authorized limit

4.    Seeking greater overdrafts or lines of credit

5.    Part paying suppliers or there creditor.

6.    Management pre occupation with surviving rather than managing.




                                                                               72
    TRADE OFF BETWEEN PROFITABILITY AND RISK



    In evaluating the firm’s working capital position an important
    consideration is the trade-off between profitability and risk. In other
    words, the level of NWC has a bearing on profitability and risk. The term
    profitability used in this context is measured by profit after expenses.

    The term risk is defined as the profitability that a firm will become
    technically insolvent so that it will not be able to meet its obligation when
    they become due for payment. It is assured that greater amount of NWC,
    the less risk prone the firm is, or greater the NWC, the more liquid is the
    firm, and therefore the less likely it is to become technically insolvent.
    Conversely lower level of NWC and liquidity are associated with
    increasing level of risk.

    A firm must have adequate WC. It should neither be excessive nor
    inadequate. Excessive WC means the firms has idle funds, which are in no
    profit for the firm. This situation decreases both risk and profitability of
    the firm. Inadequate WC means the firm doesn’t have sufficient funds for
    running its operation which ultimately results in production interruption,
    and lowering down the profitability.

    The Lower level of WC increases the risk but has the potentiality of
    increasing the profitability also.

The above principle is based on the following assumption:

1. There is direct relationship between profitability and risk.

2. Current assets are less profitable than fixed assets

3. Short term funds are less expensive than long term funds.




                                                                               73
    Effect of level of CA on Profitability-Risk Trade Off



The effect of level of CA’s on profitability risk trade-off can be shown using the
ratio of CA to TA. This ratio indicates the percentages of TA’s that are in form
of CAs. An increase in the ratio will lead to decline in profitability because CAs
is less profitable than FAs. It would also increase risk of technical insolvency
because increase in CA assuming no change in CL will increase NWC.
Conversely a decrease in ratio will result in increase in profitability as well as
risk.



    Effect of level of CL on risk profitability trade-off:

The effect of CL can be demonstrated by using the ratio of CL to TAs. This
portion of the short term financing is which is less expensive as compared to
long term financing. These will therefore, be a decline in cost and
corresponding rise in profitability.

The increased ratio will also increase risk because assuming no change in CA,
this would decrease in NWC. The consequence of decrease in the ratio is
exactly opposite to the result of an increase. Thus it will lead to decrease in
profitability and risk.




                                                                                74
      STATEMENT SHOWING WORKING CAPITAL REQUIREMENT
                        (RS IN lacs)




PARTICULARS                         2008-09      2007-08     2006-07     2005-06       2004-05

CURRENT ASSETS,
LOANS AND ADVANCES



(A) Current Assets :

(I) Stock of Stores, Loose Tools,   1,461.36     1,272.71    1,185.70    760.21        577.14
Dies
Mechanical, Electrical and
Electronic
Spares (as taken, valued and
certified
by the Management) at lower of
cost or net realizable value

(II) Stock-in-Trade (as taken,
valued and
Certified by the Management)

(i) Raw Materials (at lower of      14,317.94    10,226.30   6,784.72    6,784.72      4,732.51
cost or net realisable value)

(ii) Semi-Finished Goods (at        21,378.85    12,282.45   8,136.52    5,980.13      5,152.96
lower of
cost or net realisable value)

(iii) Finished Goods (at lower of   2,758.11     1,304.87    740.80      1,926.75      994.98
cost or net realisable value)

(iv) Goods-in-Transit (at Cost)     158.40       174.04      48.00       1,080.36      537.96




                                                                                       75
(v) Land as Stock in Trade (For     ----------   ---------   ---------   -----------   ---------
Wind Mill)
(III) Sundry Debtors (Unsecured,
Considered Good) :

(i) Outstanding for a period       11,959.53   13,965.12   6,312.86       3,714.84         3,162.09
Exceeding six month

(ii) Others                        35,214.05   35,266.49   32,485.74      17,702.75        8,234.66

(IV) Cash and Bank Balances

(a) Cash on Hand                   5.40        7.48        7.19           7.30             7.83

(b) Balance with Scheduled
Banks:

(1) In Current Account             745.24      468.52      532.18         563.10           544.17

(2) Bank Deposit                   5,322.64    255.68      717.00         1,890.00         285.59

(3) Unpaid Dividend Bank           32.59       20.56       19.53          10.29            9 .59
Account

(B) Loans and Advances
(Unsecured Considered Good)


(1) Loans to Staff                 11.47       17.08       15.73          14.86            8.82

(2) Advances recoverable in        4,503.31    3,671.86    3117.02        2255.11          2014.95
Cash or in
Kind or for value
to be received

(3) Balance with Collector of      1,938.34    1,834.06    830.88         792.41           516.81
Custom,
Port Trust, Excise etc.

(4) Advance Payment of Income      1,038.67    196.48      ------------   --------------   --------------
Tax
(Net of Provision)

TOTAL (A)                          100,845.9   80,963.70   60,871.21      43,341.26        36,780.06




                                                                                           76
CURRENT LIABILITIES
AND PROVISIONS



   (A) Current Liabilities

   (1) Sundry Creditors            28,167.81   27,526.23   20,395.53     15,281.09   10,369.10

   (2) Advance from Customer       12,569.49   5,185.15    4,544.00      5,874.94    4,951.02

(3) Dividend Warrants issued       32.59       20.56       19.53         11.56       9.59
but not encashed (Unpaid)

(4) Interest accrued but not due   97.16       162.85      57.19         55.27       62.15


   (B) Provisions


(1)Provision for Gratuity          680.58      479.20      -----------   98.06       287.61

(2)Proposed Dividend               1,392.92    1,392.92    4 63.86       306.52      141.19

(3)Tax on Proposed Dividend        236.73      236.73      78.83         42.99       19.80

TOTAL (B)                          43,177.28   35,003.64   25,558.94     21,670.43   15,840.46


W.C required (A-B)                 57,668.62   45,960.06   35,312.27     21,670.83   10939.60




                                                                                     77
    INTERPRETATION:



   Working capital is the funding that a company needs to support
    its accounts receivable and inventory, and is offset by the amount of
    funding it obtains from its suppliers through accounts payable.



   Working capital can have a much greater impact on a company’s cash
    flows than the results of its operations. One of the best ways to positively
    impact the amount of cash flow that a company spins off is to take tight
    control of its working capital and eliminate much of the investment in
    this area.



   After analysis the 5 year data we can conclude that the Working Capital
    requirement is increasing year by year. We are looking increasing pattern
    in working capital.



   The company is managing working capital very precisely as we know that
    Elecon Engineering is high working capital oriented organization. The
    sale is increasing year by year which results into increase in working
    capital requirement. Elecon is getting new order at regular interval as it
    gives importance to quality.



   Investment in the current asset is also increasing with increase in the
    span. On the other hand there is also increase in the current liabilities.
    From the above statement we can say that current assets and current
    liabilities go hand in hand.
                                                                                 78
PARTICULARS                            2008-09         2007-08       2006-07     2005-06     2004-05

MHE                                    37,490.13         30812.56     35102.13    15743.86         5810.2
Gear (Transmission
Equipments)                              36,132.05      35,873.70     28423.36    21017.08        18893.6

WTG & Electricity Generation                605.24        1,960.53      123.31        665          635.54

Export Sales                              4,064.98        3,703.30      2430.7     2190.08        1629.17

Miscellaneous Sales                         668.92          717.49      567.04      261.57         133.52

TOTAL SALES                             78,961.32      73,067.58     66646.54    39877.59      27102.1


       SALES




               (Sources– annual reports of elecon engineering

     INTERPRETATION:

               Here we have the sales figure of last 5 years. From the available data we can
say that the sale is increasing with increasing span.



                                                                                             79
There should Sales increasing by 47, 67, 9, and 8 % in each every consecutive year. By this
growth we can say that the company is growing very rapidly in engineering sector. With
increasing sales the company is trying to make a great presence in the market. Elecon is
also entering in new business which results into increase in sales revenue.




              Material Handling Equipment Sales Industry wise




                                                                (Sources - Annual Report 2010)




Interpretation:

The sales of Material handling equipment from different industries, the highest sales in the
Power sector (55.83%), Steel (20.80%) and the lowest sales in wind mill (1.72%)
industries.




                                                                                                 80
                               GEAR SALES INDUSTRY WISE




                                                                 (Sources - Annual Report 2010)

Interpretation:

The sales in Gear with different industries, the highest sales in the material handling
equipment (23%), Steel Conversion (15%), Sugar (10%), and the lowest sales in the
Chemical & Fertilizers industry (3%), mining industry (3%).




                                                                                                  81
                                     INVENTORIES

         PARTICULARS                2008-09      2007-08       2006-07       2005-06       2004-05
 (i) Raw Materials (at lower of
  cost or net realizable value)     14,317.94    10,226.30     6,784.72      6,784.72      4,732.51

 (ii) Semi-Finished Goods (at
           lower of
                                    21,378.85    12,282.45     8,136.52      5,980.13      5,152.96
 cost or net realizable value)

(iii) Finished Goods (at lower of
   cost or net realizable value)    2,758.11     1,304.87       740.80       1,926.75      994.98

(iv) Goods-in-Transit (at Cost)
                                     158.40       174.04         48.00       1,080.36      537.96
             Total
                                    38,613.29    23,987.66    15,710.40     15,627.39     11,418.41



    Interpretation:

    In the first category, raw materials, an inventory increase can be caused by over
    purchasing by a company, the elimination of a finished good that used to require
    specific raw materials, or deliberate over purchasing by a company because of a very
    low level of inventory accuracy that requires a company to keep excessive stocks on
    hand in order to avoid stock-out problems.

         By analyzing 5 year data we can about inventories we can say that the levels of
     inventories are increasing year by year. There is an increasing trend in the inventory
       level. As compare d to last year the level of inventory has been increased by 60 %
      which indicates the growth of the company in engineering sector. It is fact that the
      company uses more inventories when there is demand in the market and elecon is
     having in great demand when quality comes first than other things. From other point
      of view we can say that the liquidity of the firm is blocked in inventories but proper
      inventory on other side is good due to uncertainty of availability of raw material in
                                               time.




                                                                                          82
                                      CURRENT ASSETS




PARTICULARS                         2008-09     2007-08     2006-07     2005-06     2004-05
(I) Stock of Stores, Loose Tools,
Dies
Mechanical, Electrical and
Electronic                          1,461.36    1,272.71    1,185.70     760.21      577.14
Spares (as taken, valued and
certified
by the Management) at lower of
cost or net realizable value

(II) Stock-in-Trade (as taken,
valued and
Certified by the Management)

(i) Raw Materials (at lower of
cost or net realizable value)       14,317.94   10,226.30   6,784.72    6,784.72    4,732.51

(ii) Semi-Finished Goods (at
lower of                            21,378.85   12,282.45   8,136.52    5,980.13    5,152.96
cost or net realizable value)

(iii) Finished Goods (at lower of
cost or net realizable value)       2,758.11    1,304.87     740.80     1,926.75     994.98

(iv) Goods-in-Transit (at Cost)      158.40      174.04      48.00      1,080.36     537.96

(III) Sundry Debtors (Unsecured,
Considered Good) :

(i) Outstanding for a period        11,959.53   13,965.12   6,312.86    3,714.84    3,162.09
Exceeding six month

(ii) Others                         35,214.05   35,266.49   32,485.74   17,702.75   8,234.66

(IV) Cash and Bank Balances

(a) Cash on Hand                      5.40        7.48        7.19        7.30           7.83

(b) Balance with Scheduled
Banks:
                                                                                    83
(1)In Current Account                 745.24       468.52        532.18        563.10          544.17

(2) Bank Deposit                     5,322.64      255.68        717.00       1,890.00         285.59

(3) Unpaid Dividend Bank              32.59         20.56         19.53        10.29           9 .59
Account
Total                               93,354.11     75,244.22     56970.24     40,279.88    24,239.48


Interpretation:
                      Current assets are important to businesses because they are the
assets that are used to fund day-to-day operations and pay ongoing expenses and
depending on the nature of the business.

                      From the above table of 5 year current assets we can say that there is
increasing trend in current assets as the business is of such nature there is increase in
blockage of money in current assets more as compared to fixed assets. The level of current
assets has been increased by 24% as compared to last year which is a good symptom of
growth.




                                                                                           84
                                  SUNDARY DEBTORS


PARTICULARS                          2008-09       2007-08      2006-07       2005-06          2004-05

(I) Outstanding for a period        11,959.53     13,965.12     6,312.86      3,714.84         3,162.09
Exceeding six month

(ii) Others                         35,214.05     35,266.49     32,485.74    17,702.75         8,234.66

Total                               47,173.58     49,229.61     38,798.60    21,417.59     11,396.75




Interpretation:


                       In the above table five years debtors’ information is given I which we
can see that there is increase in debtors except last year. The change might be occurred due
to change in collection policy, credit policy and others.

                A simple logic is that debtors increases only when sales increases. More and
more debtors higher the chances of bad debts. When sales are increases the profit also
increases. If company decreases the debtors they can use the spare money in many
investment plans.




                                                                                           85
                                  LOANS AND ADVANCES


PARTICULARS                            2008-09      2007-08       2006-07        2005-06          2004-05

(1) Loans to Staff                      11.47         17.08        15.73           14.86              8.82

(2) Advances recoverable in            4,503.31     3,671.86      3117.02        2255.11          2014.95
Cash or in
Kind or for value
to be received

(3) Balance with Collector of          1,938.34     1,834.06       830.88         792.41           516.81
Custom,
Port Trust, Excise etc.

(4) Advance Payment of Income          1,038.67      196.48      ------------   --------------   --------------
Tax
(Net of Provision)

Total                                  7,491.79     5,719.48      3963.63        3,062.38         2,540.58




        Interpretation:
        If we analyze the above table we can say that there is increase in loans and advances
        in more or less percentage.

        The company is providing loans to staff which is good symptoms. Most of the
        advances are given to the government for the purpose of taxes and other duties. From
        the above table we can say that company is sincere in paying taxes and duties. The
        advances recoverable are high which is good for the company. In the year 2008-09
        the loans and advances are increased by 30 % as compared to previous year which
        contribute highly to the current assets.




                                                                                                 86
                                   CURRENT LAIBILITIES



         PARTICULARS                 2008-09    2007-08     2006-07     2005-06     2004-05

(1)Sundry Creditors                 28,167.81   27,526.23   20,395.53   15,281.09   10,369.10

(2)Advance from Customer            12,569.49   5,185.15    4,544.00    5,874.94    4,951.02

(3) Dividend Warrants issued          32.59      20.56       19.53       11.56           9.59
but not encashed (Unpaid)

(4) Interest accrued but not due      97.16      162.85      57.19       55.27       62.15

             TOTAL                  40,867.05   32,894.79   25,016.25   21,222.86   15391.86




     Interpretation:

     The obligations are such as deferred dividend, trade credit, and unpaid
     taxes, arising in the normal course of a business and due for payment
     within a year.

     If we analyze the above table we can say that each and every item in the
     current liabilities reveals uneven trend. But at aggregate level it shows an
     increasing trend elecon is charging 50 % of advance from the customer
     which increases the current liabilities of the company. In 2008-09
     current liabilities has been increased by 24% the main reason behind
     that is increase in advances from the customer. It indicates change in
     sales policy .While in 2007-08 current liabilities has been increased
     because of increase in other liabilities by 32%. The company having
     minimum liability has good prestige in the market.




                                                                                    87
                                      PROVISIONS

         PARTICULARS                 2008-09      2007-08       2006-07       2005-06       2004-05
(1)Provision for Gratuity             680.58       479.20       -----------    98.06        287.61

(2)Proposed Dividend                 1,392.92     1,392.92       4 63.86       306.52       141.19

(3)Tax on Proposed Dividend           236.73       236.73         78.83        42.99            19.80

             TOTAL                   2,310.23     2,108.85       542.69        447.57       448.60




Interpretation:
       Above table indicates that company is making provision of only 3 things i.e. gratuity,
       dividend and dividend tax. Company is continuously paying dividend to its
       shareholders each and every year. Company is also providing more emphasis on
       paying gratuity to their employees it shows company‘s awareness.

       The provisions increases with increases in time span. The provisions are increased
       by 10% in 2008-09 while it increased by nearly 300% which indicates the
       company’s presence in the market by providing regular dividend.




                                                                                           88
                          WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the firm
is totally effected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This
involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of
devices, such as:

1.    RATIO ANALYSIS

2.    FUND FLOW STATEMENT

3.    BUDGETING




                                                                             89
                                  RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The
technique of ratio analysis can be employed for measuring short-term
liquidity or working capital position of a firm. The following ratios can be
calculated for these purposes:

      1.    Current ratio.

      2.    Quick ratio

      3.    Absolute liquid ratio

      4.    Inventory turnover.

      5.    Receivables turnover.

      6.    Payable turnover ratio.

      7.    Working capital turnover ratio.

      8.    Working capital leverage

      9.    Ratio of current liabilities to tangible net worth.




                                                                          90
                              FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source
from which additional funds were derived and the use to which these sources
were put.

     The fund flow analysis consists of:

    Preparing schedule of changes of working capital
    Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position
(working capital) business enterprise between beginning and ending of the
financial dates.




                         WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and
polices to be pursued in the future period time. Working capital budget as a
part of the total budge ting process of a business is prepared estimating future
long term and short term working capital needs and sources to finance them,
and then comparing the budgeted figures with actual performance for
calculating the variances, if any, so that corrective actions may be taken in
future. He objective working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these resources.




                                                                                91
     The successful implementation of working capital budget involves the
     preparing of separate budget for each element of working capital, such as,
     cash, inventories and receivables etc.




     ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF
      LIQUIDITY

-     The short –term creditors of a company such as suppliers of goods of
      credit and commercial banks short-term loans are primarily interested to
      know the ability of a firm to meet its obligations in time.
-     The short term obligations of a firm can be met in time only when it is
      having sufficient liquid assets. So to with the confidence of investors,
      creditors, the smooth functioning of the firm and the efficient use of fixed
      assets the liquid position of the firm must be strong but a very high
      degree of liquidity of the firm being tied – up in current assets.
-     Therefore, it is important proper balance in regard to the liquidity of the
      firm. Two types of ratios can be calculated for measuring short-term
      financial position or short-term solvency position of the firm.

1.     Liquidity ratios.

2.     Current assets movements ‘ratios.




                                                                                 92
A)   LIQUIDITY RATIOS

     Liquidity refers to the ability of a firm to meet its current obligations as
     and when these become due. The short-term obligations are met by
     realizing amounts from current, floating or circulating assts. The current
     assets should either be liquid or near about liquidity. These should be
     convertible in cash for paying obligations of short-term nature. The
     sufficiency or insufficiency of current assets should be assessed by
     comparing them with short-term liabilities. If current assets can pay off
     the current liabilities then the liquidity position is satisfactory. On the
     other hand, if the current liabilities cannot be met out of the current
     assets then the liquidity position is bad. To measure the liquidity of a
     firm, the following ratios can be calculated:

      1.    CURRENT RATIO

      2.    QUICK RATIO

      3.    ABSOLUTE LIQUID RATIO




1.   CURRENT RATIO

     Current Ratio, also known as working capital ratio is a measure of
     general liquidity and its most widely used to make the analysis of short-
     term financial position or liquidity of a firm. It is defined as the relation
     between current assets and current liabilities. Thus,



                                                                                93
        CURRENT RATIO = CURRENT ASSETS

                          CURRENT LIABILITES




The two components of this ratio are:

      1)    CURRENT ASSETS

      2)    CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry
debtors, inventories and work-in-progresses. Current liabilities include
outstanding expenses, bill payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time. On the hand a low current
ratio represents that the liquidity position of the firm is not good and the firm
shall not be able to pay its current liabilities in time. A ratio equal or near to
the rule of thumb of 2:1 i.e. current assets double the current liabilities is
considered to be satisfactory.




                                                                                94
                          CALCULATION OF CURRENT RATIO

                                                         (Rupees in lacs)



YEAR             2009            2008            2007            2006                2005
CURRENT        100,845.90      80,963.70       60,871.21       43,341.26           36,780.06
ASSETS
CURRENT        43,177.28       35,003.64       25,558.94       21,670.43           15,840.46
LIABILITIES
CURRENT            2.33           2.31            2.38             2.00                2.32
RATIO




                                                         (Sources: Annual Report 2005 - 2009)


Interpretation:-

      A conventional rule is that a current ratio of 2:1 or more is considered satisfactory.
      The current ratio of Elecon is more than 2:1.So it is sufficient and good for Elecon.


                                                                                                95
      It has more current asset then current claim so unit is able to meet current
      obligation in full and it can be said that its liquidity position is sound.




2.   QUICK RATIO

      Quick ratio is a more rigorous test of liquidity than current ratio. Quick
      ratio may be defined as the relationship between quick/liquid assets
      and current or liquid liabilities. An asset is said to be liquid if it can be
      converted into cash with a short period without loss of value. It
      measures the firms’ capacity to pay off current obligations immediately.

             QUICK RATIO = QUICK ASSETS / CURRENT LIABILITES

Where Quick Assets are:

       1) Marketable Securities

       2) Cash in hand and Cash at bank.

       3) Debtors

A high ratio is an indication that the firm is liquid and has the ability to meet
its current liabilities in time and on the other hand a low quick ratio
represents that the firms’ liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally
thought that if quick assets are equal to the current liabilities then the concern
may be able to meet its short-term obligations.



                                                                                     96
However, a firm having high quick ratio may not have a satisfactory liquidity
position if it has slow paying debtors. On the other hand, a firm having a low
liquidity position if it has fast moving inventories.




                            CALCULATION OF QUICK RATIO

                                         (Rupees in lacs)

YEAR             2009          2008         2007               2006                 2005
QUICK          60929.64      57055.93     45239.32           27738.15             15365.24
ASSETS
CURRENT       43,177.28     35,003.64     25,558.94         21,670.43             15,840.46
LIABILITIES
QUICK            1.41          1.63          1.77               1.28                0.97
RATIO




                                             (Sources: Annual Report 2005-2009)




                                                                                              97
Interpretation:

Generally quick – ratio of 1:1 is considered to represent a satisfactory to current financial
condition and this ratio is sufficient. Elecon has ability to pay its current claim quickly. So,
Elecon has sufficient current assets which convert in the cash immediately.




3.   ABSOLUTE LIQUID RATIO

     Although receivables, debtors and bills receivable are generally more
     liquid than inventories, yet there may be doubts regarding their
     realization into cash immediately or in time. So absolute liquid ratio
     should be calculated together with current ratio and acid test ratio so as
     to exclude even receivables from the current assets and find out the
     absolute liquid assets. Absolute Liquid Assets includes:

         ABSOLUTE LIQUID RATIO =               ABSOLUTE LIQUID ASSETS

                                               CURRENT LIABILITES

         ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

                                                                                 (Rupees lacs)

   YEAR           2009            2008             2007           2006            2005
 ABSOLUTE       137150.42       100394.99        74262.88       52009.51        45975.075
  LIQUID
  ASSETS
 CURRENT        100,845.90      80,963.70       60,871.21       43,341.26       36,780.06
LIABILITIES

ABSOLUTE            1.36            1.24           1.22            1.20            1.25
 LIQUID
  RATIO



                                                                                             98
                                              (Source: annual reports 2005 to 2010)




B) CURRENT ASSETS MOVEMENT RATIOS

    Funds are invested in various assets in business to make sales and earn
    profits. The efficiency with which assets are managed directly affects
    the volume of sales. The better the management of assets, large is the
    amount of sales and profits. Current assets movement ratios measure
    the efficiency with which a firm manages its resources. These ratios are
    called turnover ratios because they indicate the speed with which assets
    are converted or turned over into sales. Depending upon the purpose, a
    number of turnover ratios can be calculated.




                                                                                      99
      These are:

      1.    Inventory Turnover Ratio

      2.    Debtors Turnover Ratio

      3.    Creditors Turnover Ratio

      4.    Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets
include high amount of debtors due to slow credit collections and moreover if
the assets include high amount of slow moving inventories. As both the ratios
ignore the movement of current assets, it is important to calculate the
turnover ratio.

1.   INVENTORY TURNOVER OR STOCK TURNOVER RATIO:

     Every firm has to maintain a certain amount of inventory of finished
     goods so as to meet the requirements of the business. But the level of
     inventory should neither be too high nor too low. Because it is harmful to
     hold more inventory as some amount of capital is blocked in it and some
     cost is involved in it. It will therefore be advisable to dispose the
     inventory as soon as possible.

     INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

                                            AVERAGE INVENTORY

     Inventory turnover ratio measures the speed with which the stock is
     converted into sales. Usually a high inventory ratio indicates an efficient

                                                                              100
management of inventory because more frequently the stocks are sold;
the lesser amount of money is required to finance the inventory. Whereas
the low inventory turnover ratio indicates the inefficient management of
inventory. A low inventory turnover implies over investment in
inventories, dull business, poor quality of goods, stock accumulations and
slow moving goods and low profits as compared to total investment.

  AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

                                    2

                                        (Rupees in lacs)

YEAR           2009        2008         2007       2006      2005
COGS          6397.72     5543.69    4903.67      2393.83   1763.28
AVERAGE       1367.035    1229.20       972.95     668.67   532.715
INVENTORY
INVENTORY    4.68 Times 4.51 Times 5.04 Times 3.58 Times 3.31 Times
TURNOVER
RATIO




                                                                       101
                                                        (Sources: Annual Reports 2005 to 2009)




Interpretation:

This ratio shows how rapidly the inventory is turning into receivable through sales. In
2007 the company has high inventory turnover ratio but in 2008 and 2009 it has reduced.
This shows that the company’s inventory management technique is less efficient as
compare to last year.


2.   INVENTORY CONVERSION PERIOD:

     INVENTORY CONVERSION PERIOD = 365 (net working days)

                                                 INVENTORY TURNOVER RATIO




                                                                                                 102
   YEAR            2009          2008              2007           2006             2005
    DAYS           365               365           365             365              365
INVENTORY          4.68          4.51              5.04            3.58             3.31
 TURNOVER
   RATIO
INVENTORY         78 Days       81 Days           72 Days       102 Days         110 Days
CONVERSION
PERIOD




                  Inventory Conversion Period (Days)
   120

   100

    80

    60                                                              inventory conversion period
                                                                    (Days)
    40

    20

      0
           2009        2008   2007         2006    2005
                                                   (Sources: Annual Report – 2005 to 2009)


 Interpretation:

   Inventory conversion period shows that how many days inventories takes to
convert from raw material to finished goods. In the company inventory conversion
period is decreasing. This shows the efficiency of management to convert the
inventory into cash.



                                                                                           103
3.   DEBTORS TURNOVER RATIO:

     A concern may sell its goods on cash as well as on credit to increase its
     sales and a liberal credit policy may result in tying up substantial funds of
     a firm in the form of trade debtors. Trade debtors are expected to be
     converted into cash within a short period and are included in current
     assets. So liquidity position of a concern also depends upon the quality of
     trade debtors. Two types of ratio can be calculated to evaluate the quality
     of debtors.



     a)     Debtors Turnover Ratio

     b)     Average Collection Period



(A) DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

                                     AVERAGE DEBTORS

     Debtor’s velocity indicates the number of times the debtors are turned
     over during a year. Generally higher the value of debtor’s turnover ratio
     the more efficient is the management of debtors/sales or more liquid are
     the debtors. Where as a low debtors turnover ratio indicates poor
     management of debtors/sales and less liquid debtors. This ratio should
     be compared with ratios of other firms doing the same business and a
     trend may be found to make a better interpretation of the ratio.

      AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

                                            2




                                                                               104
  YEAR       2009      2008        2007          2006           2005

 SALES     283913.25 252646.67 136690.75 84496.92 47530.35

AVERAGE    48202.59   44015.10   30108.095 16407.17 11316.75
DEBTORS
DEBTORS      5.89       5.74       4.54           5.15           4.20
TURNOVER
            Times      Times      Times          Times         Times
 RATIO




                                   Sources: Annual Reports 2005 -2009




                                                                        105
Interpretation:

     This ratio indicates the speed with which debtors are being converted or turnover
     into sales the higher the values or turnover 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 decreasing year to year. This shows that company is not
     utilizing its debtor’s efficiency. Now their credit policy becomes liberal as compare to
     previous years.




(B) AVERAGE COLLECTION PERIOD:

             Average Collection Period = No. of Working Days

                                             Debtors Turnover Ratio



The average collection period ratio represents the average number of days for
which a firm has to wait before its receivables are converted into cash. It
measures the quality of debtors. Generally, shorter the average collection
period the better is the quality of debtors as a short collection period implies
quick payment by debtors and vice-versa.

Average Collection Period = 365 (Net Working Days)

                              Debtors Turnover Ratio




                                                                                          106
  YEAR        2009            2008         2007            2006           2005

  DAYS         365            365           365             365            365

 DEBTORS      5.89            5.74         4.54             5.15           4.20
TURNOVER
  RATIO
 AVERAGE     62 Days      64 Days        80 Days         71 Days         87 Days
COLLECTION
  PERIOD




             Average Collection Period (Days)
 90
 80
 70
 60
 50
                                                              Average Collection Period
 40                                                           (Days)
 30
 20
 10
  0
      2009   2008      2007     2006      2005



                                 (Sources: Annual Report 2005 to 2009)




                                                                                          107
Interpretation:

      The average collection period measures the quality of debtors and it helps in
      analyzing the efficiency of collection efforts. It also helps to analysis the credit policy
      adopted by company. In the firm the average collection period is increasing year to
      year. It shows that the firm has Liberal Credit policy. These changes in policy are
      due to competitor’s credit policy.




3.   CREDITOR TURNOVER RATIO:

     Creditors are the businesses or people who provide goods and services in
     credit terms. That is, they allow us time to pay rather than paying in cash.
     There are good reasons why we allow people to pay on credit even
     though literally it doesn't make sense! If we allow people time to pay
     their bills, they are more likely to buy from your business than from
     another business that doesn't give credit. The length of credit period
     allowed is also a factor that can help a potential customer deciding
     whether to buy from your business or not: the longer the better, of
     course.

     In spite of what we have just said, creditors will need to optimize their
     credit control policies in exactly the same way that we did when we were
     assessing our debtors' turnover ratio - after all, if you are my debtor I am
     your creditor.




                                                                                             108
    The formula for this ratio is:



Creditors’ Turnover=     Cost of Sales

                               Creditors




   YEAR        2008-09       2007-08       2006-07    2005-06    2004-05

 COST OF      73747.68       59906.12      49862.03   31281.65   18481.65
  SALES

CREDITORS     28167.81       27526.23      20395.53   15281.09   10369.10

CREDITORS        2.62          2.18          2.44       2.05       1.78
TURNOVER
  RATIO




                                                                          109
                                                         (Sources: Annual Report 2005 - 2009)


Interpretation:

      It signifies the credit period enjoyed by the firm in paying creditors. Accounts
      payable include both sundry creditors and bills payable. Higher the payable period
      lower the working capital requirement, but on the other hand it may affect the
      prestige of the firm so the company has to frame creditor’s policy in such manner.
      The creditors’ ratio is improving as compare to the last years. This situation
      enhances the credit worthiness of the company.




 4. WORKING CAPITAL TURNOVER RATIO:

     Working capital turnover ratio indicates the velocity of utilization of net
     working capital. This ratio indicates the number of times the working
     capital is turned over in the course of the year. This ratio measures the
     efficiency with which the working capital is used by the firm. A higher
     ratio indicates efficient utilization of working capital and a low ratio
     indicates otherwise. But a very high working capital turnover is not a
     good situation for any firm.

             Working Capital Turnover Ratio =                 Cost of Sales

                                                          Net Working Capital




                                                                                                110
              YEAR        2009           2008         2007          2006          2005
              SALES    177619.34     110304.14      57912.12      34239.91      16846.98
              NET       57,668.62     45,960.06     35,312.27     21,670.83     10939.60
         WORKING
             CAPITAL
         WORKING           3.08          2.4           1.64          1.58          1.54
             CAPITAL
        TURNOVER
             RATIO



                        Working Capital Turnover Ratio
       3.5

        3

       2.5

        2
                                                                       Working Capital Turnover
       1.5                                                             Ratio

        1

       0.5

        0
                2009    2008      2007      2006      2005

Interpretation:

      This ratio indicates low much net working capital requires for sales. In 2008, the
      reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the company
      requires 60 paisa as working capital. Thus this ratio is helpful to forecast the
      working capital requirement on the basis of sales.


                                                                                           111
                               CONCLUSION




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

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

Elecon is continuously trying to maximize the wealth of share holders.

As per my knowledge Elecon is running successfully and in Asia it is on
number one position in Gear division.

At last I wish bright future of Elecon, and may got first rank in all over world



                                                                               112
The overall performance of Elecon Engineering Company Limited is going on
good track. The turnover has been increased by 15.57% while the profit is
increased by 14.19%. With the increase in capacity on account of the
expansion projects being undertaken by the company.

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

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




                                                                                 113
                  SUGGESTIONS AND FINDINGS


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

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

    Elecon is investing more and more money in subsidiary companies for its
     faster growth.

    Company’s working capital us enough to maintain company’s sales and
     other operations easily. Due to high goodwill the company is not getting
     any problem in getting short term finance.

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

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

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




                                                                            114
                              BIBILOGRAPY

   www.elecon.com

   www.netmba.com

   www.bizmove.com

   Financial Management – I.M.Pandey

   Financial Management – Prasanna Chandra

   Financial Statement Analysis – Dr. Anjan Bhattacharya

   Annual Reports of Elecon Engineering Ltd of last 5 years




                                                               115

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:60
posted:4/14/2012
language:English
pages:115