A

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

Submitted to
LEENA PATIL
Elecon Engineering Ltd.
Submitted by
AVISHEK KAREL
(2010-2011)
PADMASHREE DR. D.Y.PATIL
ARTS,COMMERCE & SCIENCE
COLLEGE,PUNE

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. LEENA PATIL faculty guide

for
Finance project, and my H.O.D B.S.PAWAR 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.

AVISHEK KAREL

3
 DECLARATION

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

- Operating cycle

5
 - 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

RESEARCH METHEDOLOGY

6
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
8
cannot earn profits and increase its turnover. With this primary
objective of the study, the following further objectives are framed
for a depth analysis.

1. To study the working capital management of Elecon

Engineering Ltd.

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

liabilities of the company.

3. To study the liquidity position through various working capital

related ratios.

4. To study the working capital components such as receivables

accounts, cash management, Inventory position

5. To 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

9
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.

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
10
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.

• 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

11
 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.

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-

12
 up. They offer India as a low-cost destination for
multinationals looking to reduce cost for high level work as
Research and Development. India has been especially
successful in putting her engineers to work in several back –
office functions.

Many of them are employed in technical support. A lot of

Indian companies also send their engineers on assignments to
Europe and North America because they provide low-age
alternative to local engineers.

This helps the Indian companies to win contracts due to the

price differential. This advantage has helped the software
industry in carrying out a niche for itself as a low cost, quality
provider of technical work.

Civil engineering is also gaining ground in India because of

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

However, some other fields of engineering are not developed

such as offshore, nuclear etc. The reason is a lack of private
participation in these industries.

• 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

13
 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.

14
 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.
15
 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.

 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.
16
 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.

17
 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,
18
 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

19
Logo of the company:

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.

20
 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.

21
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:

22
 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.

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).

23
 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.

24
 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.

25
 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

26
 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 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.

27
 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.

 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,

28
 Grain silos, cattle and poultry feeds.

 1993

The Company proposed to dispose of the Chennai division in

view of poor performance of the unit.

 1994

The Company had successfully implemented the Alternate

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

The Company has entered into a technical collaboration

agreement with HMZ Belgium N. V. Balgium for manufacture
of wind master, wind Energy Generators, which is one of the
best available in the world with larger energy generation.

 1995

The liquidity and profitability of the company was adversely

affected on account of large overdue receivables.

11 Wind Mills were commissioned which already started

generating power. The Company had decided to abandon
diversification into shrimp feed production, in view of the
recessionary conditions in shrimp farms, all over India.

 1996

29
 Efforts to realize large overdue receivables from State

Electricity Board and Central Government Corporation were

partly successful. The Company secured an order from
Naively Lignite

Corporation Ltd. for manufacture, erection and

commissioning of 2400 MM Drive Heads and conveyors for its
Mine-III.

The diversification programmed in the field Alternate non-

conventional energy source continued. The company
installed eight additional wind mills during the year raising
the total to twenty two.

 1997

Eleven wind mills erected in Gujarat for captive consumption

were lost due to severe cyclone. The installed seven
additional Wind Mills during the year.

The Company's sales and other services declined 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.

30
 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

 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

31
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.

32
 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.

33
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.

34
 Capacity up to 24,000 tph. Guaranteed for minimum 25,000
working hours.

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

35
 Ship Loader is for handling coal, clinker, cement, iron ore, and
bulk materials for ocean going ships and barges.

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.

36
1. WAGON MARSHALLIING EQUIPMENTS

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.

37
 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.

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)

38
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

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

39
 Circular Stockpile is for handling coal, limestone, iron ore, in
pre homogenization and blending stockyard

4. BRIDHE TYPE SCRAPER

Bridge Type Scraper Reclaimer is for handling coal, lignite,

limestone in a liner stockyard.

5. SHIP LOADER

40
 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.

• 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

41
 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.

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.

42
• 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

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

43
 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.

4. CABBLE REELING DRUM

Cable Reeling Drum is for using on the mobile equipment for

power supply.

5. ROLLER SCREEN

44
 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.
 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.

45
 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

• WORM GEAR BOXES

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

46
• 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

• MARINE GEAR BOXES

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

47
• 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

48
• 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

49
 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.

1. WIND TURBINE & WIND FARMS

Elecon manufactures Wind Turbines in 60 and 50 hertz

frequencies with globally recognized technologies.

50
 • 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

51
 reduction of unnecessary blocking of capital in order to bring
down the cost of financing.

• Meaning of Working Capital

 Working capital is the amount of capital that a business has

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

 In simple words, working capital refers to that part of the

firm’s capital, which is required for financing short-term or
current assets such as cash, marketable securities, debtors
and inventories.

 Working capital is a valuation metric that is calculated as

current assets minus current liabilities. Working capital is also
known as operating capital.

 Current Assets

52
 This is any cash or assets that can be quickly turned into
cash. Current assets are assets, which can be converted into
cash within an accounting year.

 Constituents of Current Assets:

 Cash in hand and bank balance

 bills receivables

 Sundry debtors (provision for bad debts)

 Short term loans and advances

 Inventories of stocks.

 Raw material.

 Work in progress.

 Stores and spares.

 Finished goods.

 Prepaid expenses.

 Accrual incomes.etc

• Current Liabilities

Current liabilities are those claims of outsiders, which are

expected to mature for payment within an accounting year.

 Constituents of current Liabilities:

Bills payable

53
 Sundry creditors or account payable

Short term borrowings

Dividend payable

Bank overdraft

Provisions

Outstanding expenses

Unaccrued income

• 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
54
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.

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

55
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.

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

56
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.

• 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.

57
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.

• Working capital is needed for the following purpose:

58
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"

59
• 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

60
61
 • 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.

62
 • 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.

63
 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

64
 WPCP = Average Work-in-progress × 365

Total cost of production

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

65
• 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

66
• 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

67
 = 13 days

• 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

68
• 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
69
• 2008______________

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

=23960.88

Credit purchase =59906.12

CCP =23960.88 \ 59906.12 * 365

=145 days

70
• 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
Collect receivables (debtors)
faster
Collect receivables(debtors)
faster
Get better credit(in terms of
duration or
amount from suppliers)
Shift inventory(stocks)faster
Move inventory(stocks) slower
THEN
We release cash from cycle
Our receivables soak up cash
We increase our cash resources
We free up cash
We consume more cash

71
• 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).

72
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.

73
• 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.

74
• 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:

75
 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.

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:

76
 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.

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

77
 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.

• 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

78
4. Seeking greater overdrafts or lines of credit

5. Part paying suppliers or there creditor.

6. Management pre occupation with surviving rather than

managing.

79
• 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.

80
• 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.

81
• STATEMENT SHOWING WORKING CAPITAL
REQUIREMENT (RS IN lacs)

82
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05

CURRENT ASSETS,
LOANS AND ADVANCES

(A) Current Assets :

(I) Stock of Stores, Loose 1,461.36 1,272.71 1,185.70 760.21 577.14

Tools, 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 14,317.9 10,226.3 6,784.72 6,784.72 4,732.51
of 4 0
cost or net realisable value)

(ii) Semi-Finished Goods (at 21,378.8 12,282.4 8,136.52 5,980.13 5,152.96

lower of 5 5
cost or net realisable value)

(iii) Finished Goods (at 2,758.11 1,304.87 740.80 1,926.75 994.98

lower of
cost or net realisable value)

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

Cost)

(v) Land as Stock in Trade ---------- --------- --------- ----------- ---------

(For Wind Mill)

(III) Sundry Debtors

(Unsecured,
Considered Good) :

(i) Outstanding for a period 11,959.5 13,965.1 6,312.86 3,714.84 3,162.09

Exceeding six month 3 2
83
(ii) Others 35,214.0 35,266.4 32,485.7 17,702.7 8,234.66
5 9 4 5
(IV) Cash and Bank
• 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.

84
 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.

85
PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05
37,490.1
MHE 3 30812.56 35102.13 15743.86 5810.2
Gear (Transmission 36,132.0 35,873.7
Equipments) 5 0 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
78,961. 73,067. 66646.5 39877.5
TOTAL SALES 32 58 4 9 27102.1

SALES

(Sources– annual reports of elecon engineering

• INTERPRETATION:

86
 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.

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.

87
 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%).

88
 INVENTORIES

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

(i) Raw Materials (at lower
of 14,317.9 10,226.3
6,784.72 6,784.72 4,732.51
cost or net realizable value) 4 0

(ii) Semi-Finished Goods (at

lower of 21,378.8 12,282.4
8,136.52 5,980.13 5,152.96
cost or net realizable value) 5 5

(iii) Finished Goods (at

lower of
2,758.11 1,304.87 740.80 1,926.75 994.98
cost or net realizable value)

(iv) Goods-in-Transit (at

Cost) 158.40 174.04 48.00 1,080.36 537.96

Total 38,613.2 23,987.6 15,710.4 15,627.3 11,418.4

9 6 0 9 1

• 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.

89
CURRENT ASSETS

90
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 14,317.9 10,226.3 6,784.72 6,784.72 4,732.51
cost or net realizable value) 4 0

(ii) Semi-Finished Goods (at

lower of 21,378.8 12,282.4 8,136.52 5,980.13 5,152.96
cost or net realizable value) 5 5

(iii) Finished Goods (at

lower of 2,758.11 1,304.87 740.80 1,926.75 994.98
cost or net realizable value)

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

Cost)

(III) Sundry Debtors

(Unsecured,
Considered Good) :

(i) Outstanding for a period 11,959.5 13,965.1 6,312.86 3,714.84 3,162.09

Exceeding six month 3 2

(ii) Others 35,214.0 35,266.4 32,485.7 17,702.7 8,234.66

5 9 4 5
(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

91
(3) Unpaid Dividend Bank 32.59 20.56 19.53 10.29 9 .59
Account
Total 93,354.1 75,244.2 56970.24 40,279.8 24,239.4
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.

92
 SUNDARY DEBTORS

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

(I) Outstanding for a period 11,959.5 13,965.1 6,312.86 3,714.84 3,162.09
Exceeding six month 3 2

(ii) Others 35,214.0 35,266.4 32,485.7 17,702.7 8,234.66

5 9 4 5
Total 47,173.5 49,229.6 38,798.6 21,417.5 11,396.7
8 1 0 9 5

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.

93
 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 1,938.34 1,834.06 830.88 792.41 516.81

of Custom,
Port Trust, Excise etc.

(4) Advance Payment of 1,038.67 196.48 ------------ ------------- -------------

Income 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.

94
 CURRENT LAIBILITIES

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

(1)Sundry Creditors 28,167.8 27,526.2 20,395.5 15,281.0 10,369.1
1 3 3 9 0
(2)Advance from Customer 12,569.4 5,185.15 4,544.00 5,874.94 4,951.02
9
(3) Dividend Warrants 32.59 20.56 19.53 11.56 9.59
issued
but not encashed (Unpaid)

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

TOTAL 40,867.0 32,894.7 25,016.2 21,222.8 15391.86

5 9 5 6

• 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.

95
 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 236.73 236.73 78.83 42.99 19.80

Dividend

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.

96
 • 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

97
 • 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.

98
 • 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.

99
 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.

100
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

101
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,

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
102
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.

CALCULATION OF CURRENT RATIO

(Rupees in
lacs)

YEAR 2009 2008 2007 2006 2005

CURRENT 100,845.9 80,963.70 60,871.21 43,341.26 36,780.06
ASSETS 0
CURRENT 43,177.28 35,003.64 25,558.94 21,670.43 15,840.46
LIABILITIE
S
CURRENT 2.33 2.31 2.38 2.00 2.32
RATIO

103
 (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.

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

104
 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.

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.

105
 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 43,177.2 35,003.6 25,558.9 21,670.4 15,840.4
LIABILITIE 8 4 4 3 6
S
QUICK 1.41 1.63 1.77 1.28 0.97
RATIO

(Sources: Annual Report 2005-2009)

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

106
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. 80,963.7 60,871.2 43,341.2 36,780.0
LIABILITIE 90 0 1 6 6
S

ABSOLUTE 1.36 1.24 1.22 1.20 1.25

LIQUID
RATIO

107
 (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.

108
 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

109
 AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the

stock is converted into sales. Usually a high inventory ratio
indicates an efficient 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

(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
INVENTOR
Y
INVENTOR 4.68 4.51 5.04 3.58 3.31
Y Times Times Times Times Times
TURNOVE
R RATIO

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 (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

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 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
CONVERSI
ON PERIOD

InventoryConversionPeriod (Days)
120

100

80

60 inventoryconversion 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

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 the efficiency of management to convert the inventory into
cash.

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

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 YEAR 2009 2008 2007 2006 2005
SALES 283913. 252646. 136690. 84496. 47530.

25 67 75 92 35
AVERAGE 48202.5 44015.1 30108.0 16407. 11316.
DEBTORS
9 0 95 17 75
DEBTORS 5.89 5.74 4.54 5.15 4.20
TURNOVER
Times Times Times Times Times
RATIO

114
 Sources: Annual Reports 2005 -2009

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
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 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

YEAR 2009 2008 2007 2006 2005

DAYS 365 365 365 365 365
DEBTORS 5.89 5.74 4.54 5.15 4.20
TURNOVER

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 RATIO
AVERAGE 62 Days 64 Days 80 Days 71 Days 87 Days
COLLECTIO
N 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)

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

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 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.

The formula for this ratio is:

Creditors’ Turnover= Cost of Sales

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 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

CREDITOR 28167.81 27526.23 20395.53 15281.09 10369.10

S

CREDITOR 2.62 2.18 2.44 2.05 1.78

S
TURNOVER
RATIO

(Sources: Annual Report 2005 - 2009)

Interpretation:

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 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

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 YEAR 2009 2008 2007 2006 2005
SALES 177619.3 110304.1 57912.12 34239.91 16846.98
4 4
NET 57,668.6 45,960.0 35,312.2 21,670.8 10939.60
WORKING 2 6 7 3
CAPITAL
WORKING 3.08 2.4 1.64 1.58 1.54
CAPITAL
TURNOVE
R RATIO

WorkingCapital Turnover Ratio

3.5

2.5

2
WorkingCapital Turnover
1.5 Ratio

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.

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 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.

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

The overall performance of Elecon Engineering Company Limited

is going on good track. The turnover has been increased by
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.

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 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.

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

125
 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

126