liquidity position of lanco

LANCO INDUSTRIES LIMITED

1. INTRODUCTION

Liquidity

The liquidity ratios are key to understanding financial statements. Our ratio

calculation spreadsheets reduce time and effort in calculating decision making ratios.

They reduce risk for lenders and investors and enable owners, managers and consultants

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The liquidity ratios are the basic bank financial ratios. Liquidity ratios are the

financial statements ratios which measure the ability of a business to meet its short term

financial obligations on time.

What does liquidity mean?

1. The degree to which an asset or security can be bought or sold in the market with

out affecting the asset’s price. Liquidity is characterized by a high level of trading

activity. Assets that can by easily bought or sold, are known as liquid assets.

2. The ability to convert an asset to cash quickly. Also known as “marketability”.

The term liquidity refers to how fast something can be turned into cold, hard cash

( the kind you stick in your wallet). Liquid assets are those that are thought to be

turned to cash immediately. On one extreme of the scale are the dollar bills and

change you have stuffed in a cookie jar or matters at home. These are the liquid

assets (meaning you can immediately spend them),but the least safe. On the other

end of the scale are assets such as real estate, which can take months or even

years to convert into cash.

What do liquidity ratios measure?

Liquidity ratios work with cash and near-cash assets (together called

“current” assets) of a business on one side, and the immediate payment

obligations include dues to suppliers, operating and financial expenses that must

be paid shortly and maturing installments under long-term debt.

Page | 1APGCS, RAJAMPET


Liquidity ratios measure a business’ ability to meet the payment

obligations by comparing the cash and near-cash with the payment obligations. If

the coverage of the latter by the former is insufficient, it indicates that the

business might face difficulties in meeting its immediate financial obligations.

This can, in turn, affect the company’s business operations and profitability.

The near-cash assets are not all equal in their nearness to cash. Inventories

are farthest from cash (apart from advance payments and such minor items) as

they typically become receivables can also be very far from cash if customers are

given several months to pay their dues.

It is thus the speed of converting the different near-cash assets into cash

that is important. The cash conversion cycle measures this speed, and is used

along with liquidity ratios to asses a business’ short-term financial prospects.

Liquidity is the ability to repay short-term debt. We measure liquidity by

comparing the firm’s liquid assets cash or assets that will be turned into cash in

the operating cycle to the amount of short-term debt outstanding, which is the

measurement provided by the current ratio and the quick or acid-test ratio. We can

also measure liquidity by comparing how quickly accounts receivables turn over (

how long it takes to collect them on average) and how quickly inventories turn

over. The more quickly these assets can be turned over, the more liquid the firm

is.

Profitability: a measure of the amount by which a company’s revenues exceeds

its relevant expenses.

The profit of a business is the difference between its revenues and its cost. It is

important to consider two main types of profit:

Using these profitability calculations you are to compare business profits in one

year compared with others, and also compare the profitability of sufficient

businesses.

Another important measure of how well a business is being run is how liquid it is.

To do this you need to look at the current assets and current liabilities in the

blance-sheet.



The profitability ratios are the basic bank financial ratios. Profitability ratios are

the financial statements ratios which focus on how well a business is performing

in terms of profit.

Profitability ratios serve as overall measures of the effectiveness of the firm’s

management relative to sales and/or to investment. Examples of profitability

ratios include the net profit margin, return on total assets, operating profit margin,

operating income return on investment, and on common equity.

Calculating profitability ratios

Gross profit – this is calculated by deducting the cost of sales of a business from

its sales revenue (turn over).

operating profit – is calculated by then taking away overhead expenses from

gross profit.

Profit margin measure how much a company earns relative to its sales. A

company earns relative to its sales. A company with a higher profit margin than

its competitor is more efficient. There are two profit margin ratios: operating

profit margin and net profit margin.

Net profit margin measures earnings after taxes and is calculated as follows:

Net profit margin = earnings after taxes

Sales

While it seems as if these both measure the same attribute, their results can be

dramatically different due to the impact of interest and tax expenses. Similarly,

the next two ratios appear to be similar but they tell different stories. As an

investor, you are interested in getting a return on your investment. So is a

corporation.

Return on assets (ROA): tells how well management is performing on all the

firm’s resources. However, it does not tell how well they are performing for the

stock holders. It is calculated as follows:

Return on equity= earnings after taxes

Total assets



Return on equity (ROE) measures how well management is doing for you, the

investor, because it tells how much earnings they are getting for each of your

invested dollars. It is calculated as follows:

Return on equity = earnings after taxes

Equity

These ratios are easy to calculate and the information is readily available in a

company’s annual report. All you need do is review the income statement and

balance sheet to come up with the data to plug into the formulas.

When is an increase in earnings a loss?

Sometimes an increase in company earnings can disguise an operating loss. If a

company’s operating expenses exceed its operating income, it has an operating

loss. If it also has income from investments and tax benefits, this income can

offset the loss and show an increase in earnings per share. However, if these other

sources of non-operating income are not recurring, the unsuspecting investor may

come to an erroneous conclusion about the company’s overall financial health.

The lesson to be learned here is to carefully scrutinize the financials especially

when operating income is negative.

How to use profitability ratios to make investment decisions:

When considering a company as a prospective investment you should review its

financial statements. Pay particular attention to the profitability ratios. If you can,

calculate the ratios for the same company over several successive years to see if

the company earnings are consistent, growing, or declining.

The liquidity versus profitability principle: there is a tradeoff between

liquidity and profitability; gaining more of one ordinarily means giving up some

of the other

Picture “liquidity” as being on one end of a straight line and “profitability” on the

other end of the line. If you are on the line and move toward one, you



automatically move away from the other. In other words, there is the trade-off

between liquidity and profitability.

This is easy to illustrate with a simple example. The items on the asset side of a

company’s balance sheet are listed are listed in order of liquidity, i.e., the ease

with which they can be converted into cash. In order, the most important of these

assets are:

Cash

Marketable securities

Accounts receivable

Inventory

Fixed assets

Notice that as we go from the top of the bottom, the liquidity decreases. However,

as we go from top to bottom, the profitability increases. In other words, the most

profitable investment for company is normally in its fixed assets; the least

profitable investment is cash.

Profitable ratios serve as overall measures of the effectiveness of the firm’s

management relative to sales and/or to investment. Examples of profitability

ratios include the net profit margin, return on total assets, operating profit margin,

operating income return on investment, and return on common equity.

1. Measuring profitability and liquidity

Whereas definition and discussion of the concepts are activities beloved by

academics, their practical day to day expression and measurement is a matter for

business personnel and accountants. Large organizations may employ accountants

or, like smaller firms, hire the services from independent professionals. There is

an associated profession whose skills overlap, namely of auditing, whose function

is to validate the work of the accountant through an independent evaluation of the

accounts.

Such expressions and such measurements require care, routine and administration

as well as an understanding of the principles involved. All the levels of profit

(gross, operating, net and retained) are expressed in the various sections of the



profit and loss account my definition being “a structured statement of income and

expenses”). The measurement of profit is, in fact, very difficult and it is to cut

through the problems of principle that accountants adopt a number of “rules of

thumb”, such as deprecation in equal installments over the estimated useful life of

the project.

2. Achieving adequate profitability and liquidity

The achievement of adequate profitability is specific to each situation and outside

the scope of this digest. The problem of liquidity is less dependent on particular

circumstance and it is easier to make useful generalizations. In my opinion there

are two distinct requirements for liquidity, firstly, profitability and secondly, care

and thoroughness in administration.

It is only if a form is profitable that in the long run it will receive in cash more

than it pays out. This is most clearly imaginable in the case of a trading business

which buys and sells exclusively on a cash basis. If such a firm makes losses it is

paying out in cash more than it coming in from sales. It can only sustain its cash

balances by injections of capital or by selling off its assets, processes which

cannot be continued indefinitely.

Profitability may be necessary but it is not sufficient. A firm must be careful to

ensure that it does not commit itself to payments that it cannot cover. thus detailed

records require to be kept, ideally on a “ real time “ basis, of case in hand and

expected and cash to be paid. The accounting statement shoeing this detail is the

cash budget every item will be tracked in terms of the time of flow, and the whole

managed so that there is never a time when payments cannot be made when due.

This requires the study exercise of the bureaucratic virtues of thoroughness,

reliability and accuracy, together with contingency planning to cope with

uncertainties:

Whatever the immediate situation, profitability and liquidity also to be seen in

their strategic context i.e. In the light of market growth, market share and progress

through the product and industry life cycles.



INDUSTRY PROFILE

INTRODUCTION:

Cement industry is one of the major and oldest established manufacturing

industries in the modern sector of Indian economy. It is an indigenous industry in which

the company is well endowed with the necessary raw materials, skilled manpower and

equipment & machinery technology.

“Cement is a mixture of lime stone, clay, silicon and gypsum. It is a fine powder

which when mixed with water sets to a hard mass as a result of hydrogen of the

constituent compounds. It is the most commonly used construction material”.

The first cement factory was established around 1890 by Jinn both in Canada and

Australia, while it was found in 1884 at New Zealand.

The first cement industry in India was produced at washermanpet in Madras in

1904 by, South India industries limited.

Cement is required by firms, bridges, buildings, water supply projects, dams,

roads, hydroelectric power projects, seaports, airports and irrigation schemes. It is thus a

vital industry which assumes a crucial part in the economic development of the country,

thus it regards as major nation building industry wise importance in a developing

economy never be over emphasized.

CEMENT DIVISION:

Lanco Industries Limited as setup a Portland Slag Cement (PSC) plant of

70,000 TPA capacities at Rachagunneri. The cement plant utilizing as raw materials –

slag, coke breeze and iron are time being generated by the pig iron plants as by product

and waster.

By this cement plant LANCO INDUSTRIES LIMITED adding values to by-

products waste generated from pig iron, in addition to solving the problem of storing slag

in the plant premises.



The main plant and machinery installed are lime stone crusher, a raw mill

system for blending and grinding iron are, clay, limestone and coke breeze, a vertical

shift kiln, a cement mill for grinding slag, clinker and gypsum and slag drying system.

CEMENT INDUSTRY HIGHLIGHTS:

The Indian cement industry has high Return on Investment. There exists a

large markets which are not yet been completely tapped. With the existing levels of

supply and growing demand the prices tend to rise. But, the Industry being a fast growing

one, many players are attracted. Every year new capacities are added raising the supply

levels, price stability is thus maintained and the high profits are observed by new

entrants.

The percapita consumption of manufacture commodities like steel,

power and cement are indicators of the economic state of a country. Of the total output

nearly 95% is accounted for by the private sector.

However, in terms of usage, the private sector, accounts for only 90%

while the Government sector accounts for 10% . The housing activity accounts for 55%

of total consumption. Nearly 47% of the costs, most of which are administrated prices are

beyond the control of cement units. The cost elements include limestone, coal, transport,

freight, power consumption and excise duty.

CEMENT MANUFACTURING PROCESS:

In wet process, lime stone is crushed and grounded and mixed with

water to form slurry which is fed in to the kiln. The slurry has a water content of 30-40%.

Before the mineralogical process commence, the water content in the slurry has to be

evaporated. This process consumes high energy and power.

On the other hand, the dry process is more energy efficient. The raw

materials are dried in a combined drying and grinding plant to reduce the moisture

content to less than 1% .



Due to regular shifts from wet and semi dry process nearly 89% of

the total industries kiln capacity is at dry process. Of the remaining, 9% is wet process

and 2% is semi-dry process. The main advantage of shifting to any process is the 50%

saving of coal consumption. The energy costs reduces by 30-40% and the kiln output also

increases for a given size kiln, the output for dry process is 250-300 /- as compared to

130-150 /- for semi dry and 100% for wet process. The capacity utilization is also higher

for dry process plants.

CEMENT BRANDING:

Cement has emerged as a commodity product. Brands play an

important role especially in metros like Delhi, Mumbai, Calcutta, Chennai etc., where the

established brands suppress the success of small brands.

In order to build up their brand loyalty, companies have tie-ups

with real estate agents and construction companies. Some manufacturers also organize

work shops, training and seminars to educate the consumers on the maximum use of a

bag full of cement.

RAW MATERIALS:

The basic raw material for manufacturing cement is limestone. This is available in

plenty in the form of limestone deposits in nature. Limestone is excavated for mines by

mechanical equipment with the help of stocker & reclaimed the correct blending of

limestone is ensured. The same is passed through crushers to bring it to the required size.

The raw materials consist of limestone, iron ore & bauxite. The correct

proportions are fed into a grinding mill where they are reduced to a very fine of

compressed air. The power from the storage ribs is fed into rotator kiln; the material is

subjected to a temperature of about 15000C chemical reaction takes place between the

various materials resulting in the formation of cement compound like Tri Calcium silicate

(about 24%) die-calcium silicate (about 20%) Tri Calcium aluminal (about 7 to 10%) and

albumin ferrite (about 10 to 12%).



CAPACITY & PRODUCTION:

The cement industry compresses of 125 large. Cement plants with an installed

capacity of 148.28 million tones & more than 300 mini cement plants with an estimated

capacity of 11.10 million tones per annum. The cement corporation of India, which is a

central public sector undertaking, has 10 units. There are 10 large cement plants owned

by various state Government.

The total installed capacity in the country as a whole is 159.38 million tones.

Actual cement production in 2006-07 was 171.95million tones as against a production of

178.60million tones in 2007-08, registering a growth rate of 6.75%.

EXPORTS:

The industry is also exporting cement and clinker. The export of cement during

2006-07 & 2007-08 was 5.14 million stones and 6.92 million tones respectively. Export

during April – May, 2007 was 1.35 tones, Major exports were Gujarat Ambuja Cement

Limited and ultratech.

TECHNOLOGICAL CHANGE:

Cement industry has made tremendous strides in technological up gradation and

assimilation of latest technology. At present 93% of the total capacity in the industry is

based on modern and environment friendly dry process technology and only 7% of the

capacity is based on old wet & semi-dry process technology.

India is also producing different varieties of cement take ordinary Portland

cement (OPC), Portland pozzolana cement (PPC), Portland Blast Furnace slag cement

(PBFS), oil will cement rapid hardening Portland cement, sulphate resisting Portland

cement white cement etc., production of these varieties of cement conform to the BIS

specification. It is worth mentioning that some cement plants have set up dedicated jetties

for promoting bulk transportation and export.



COMPANY PROFILE

LANCO industries Ltd., is the one of the eleven mini-blast furnace pig iron

manufacturing units in our country, and it was the 5th plant under TATA KORF Technology. The

company was incorporated on November 1st 1991 under Companies Act – 1956, in the name of

LANCO FERRO LTD.

The company started construction work in August 1993. The entire construction work

was completed in a record time of 12 months. This was achieved by teamwork of Lanco

collectives and the best efforts of the contractors. With this achievement the company started

commercial production in September 1994. The name LANCO FERRO LTD. Was changed to

LANCO industries Ltd., on July 6th, 1994.

Lanco industries Ltd., is located in between Tirupati and Srikalahasti with an access of

about 30kms from Tirupati and about 10kms from Srikalahasti. The reasons for localization of

Lanco Industires at Rachagunneri Village, Srikalahasti mandal of Chittoor District A.P. are as

follows:

Chep availability fo required land

There is more water resources

The distance between the harbour and present work spot is less

Proximately to Raw materials

To have financial subsidy

Nearer to the railway sidings

Well connected to the road, rail and port

Availability of labour

Lanco industries are importing coke from Chine, Japan and Australia because;

there is scarcity of prime cooking coal, which is the raw material for producing coke.



The coke, which is imported, comes to Chennai port, which is approximately

100kms away from the site. And from where it is brought to the site. And also fluxes

which are required to produce pig iron like Limestone, Dolomite, Quartzite and

Manganese are available in near by districts.

PLANTS UNDER THE GROUP The pig iron plant and Lanco Cement Plant are two plants, which are presently under the name of M/s. Lanco Industires Ltd., and Lanco constructions Limited are the sister of concern of it.ADMINISTRATION The general administration of the company is carried out by the Chairman,

Managing Director, the Vice-President and General Managers of Finance, Commercial

operations and Administration. They were assisted by Manager Immunization and some

other Managers.

The Chairman and Managing Director are holding overall control on administration

in all aspects, with the help of Vice-President and other General Managers. The board

consists of 5 members Directors, Vice-Chairman, a Managing Director and a Company

Secretary.

For a corporation totally itself with a great purpose, it must have courage,

conviction, discipline and endurance qualities which engender organizational growth and

all round success.

LANCO, a name represents a rare synergy strength in the core industries sector.

For Lanco, the great purpose if to build infrastructure strong India. Leaping tongues of

fire, the logo of Lanco has come to symbolize the display of a fiery spirit along a

creatively engineered span of operations.

ESTABLISHMENT The Lanco group of companies was seeded in 1998. When it is started,

founded by two young technocrats it was with a vision and resolution to aspire for youth

and synergies that would make LANCO a leader in the core sector.

The study foundation of the company is constituted of a dynamic term of

managers; young technocrats’s who are in turn fortified with the expertise of a term of

highly experienced professionals. Three youthful technocrat’s Sri L. Rajagopal, Sri L.

Madhusudhan Rao and Sri G. Bhaskar Rao over the last decade have partnered and

partnered and promoted all the ventures of Lanco Group.



LOCATIONLanco Industries Limited is a rural based factory sprawling over many areas of

land with deep resources and congenial soil. It is located in Rachagunneri village near

Tirupati. Nearly 50% of the consumption of electrical power is maintained by the

company owned DG sets and power plants. Since it is a rural area labor potential is

available an also company is enjoying the subsidies from state government.

The Lanco Group is a diversified multifaceted conglomerate, with business

interests in PG Iron, Cement, Power Graded Castings, spun pipes. Real Estate

Development, Information Technology a past from infrastructure use development

prompted by entrepreneurial skills and the agenda to put the group on the global

corporate map during the next 10 years.

Lanco industries Ltd., established in the year of 1993. As ISO 9002 company, it

had set up a state of the art, integrated manufacturing facility for pig iron through mini

blast. Furnace route conforming to the latest international technology with initial capacity

of 1,00,000 TPA. Its quality products of SGGrade pig iron are being supplied to

foundries in the south. As a forward integration, it has utilized the slag produced in the

pig iron manufacturing of 90,000 TPA. The uninterrupted power requirement for the

energy intensive plant is being met through 2.5mw co-generation power plant.

LANCO CONSTRUCTIONS LIMITED This group company was established in the year 1993 and has executed most

demanding and difficult projects in the field of civil construction engineering on

schedule essaying repute as a world class construction company in a very short time span.

The company is mainly executing prestigious work in the fields of irrigation, pipeline

projects highways, housing and industrial construction project an successfully compared

several housing complexes roads, irrigation canals, bridges and industrial complexes at

Lanco diverse dimensions of growth I achieved through converging rays of vision rays of

vision creating dimensions.



KALAHASTI CONSINGS LIMITED Establish in 1997 and strategically located in alone proximity to the mini blast

furnace of the Big iron plants it has a clear economics mileage over other castings sites.

The molten metal from the blast cone is directly loosed as basic raw material to produce

graded castings. Cast iron span pipes and iron spun gradually expanded further to meet

the scaring demand of the products. The UPS to the pipe plant will be met through

10MW capture power plant.

LANCO PIG-IRON DIVISION It is located at Rachagunneri. The pig iron is commissioned in a record time of

eleven months, drawing on the group’s expertise in Civil Engineering and Industrial

construction. Highlights:

State of art mini blast furnace

Strategic location with easy access

One of the few plants with its own railway siding

High quality is from the neighboring Donimalai deposits

Access to best grade coke from China

90,000 tpa capacity

Proximity to end-users

Manufacturing all grades of Pig iron with the highest rating quality.

CEMENT DIVISION The slag from pig –iron plant is used for producing 90,000 tpa cement, reflecting

an approach that transforms the by-product into productive inputs, in value added finish

product.

High quality port land slag cement in various grades of universal application Quality

consistent composition, competitive pricing



2. RESEARCH METHODOLOGY

NEED FOR THE STUDY

The Liquidity and Profitability plays a key role in the organization. In this direction

in this present study an analysis is made to know.

How the liquidity and profitability of the LANCO COMPANY during the study

period.

2.1 OBJECTIVES OF THE STUDY

To examine the liquidity position of LANCO INDUSTRIES

LIMITED During the study period.

To measure the extent of the relationship between liquidity and

profitability by using spearman’s rank correlation coefficient. And also

to test the significance of such correlation coefficient.

To compare the liquidity position of LANCO INDUSTRIES

LIMITED From year to year by applying mottal’s comprehensive test.

2.2 SCOPE OF THE STDY

T he study is based upon the data collected and complied from the

annual reports of “LANCO INDUSTRIES LIMITED”, company. The period of the study

is seven years 2002-2009.

2.3 SOURCE OF DATA

Annual financial reports of the company.



RATIOS USED FOR ANALYSIS:

1. CURRENT RATIO

The ratio of current assets to current liabilities is called “current ratio”. The term current

assets includes debtors, stock, bills receivables, bank and cash balance, repaid expenses,

income due to short term investments. The term current liabilities include creditors, bank

overdraft, bills payable, outstanding expenses, income received in advance etc. standard

current ratio is 2:1 i.e. current assets shall be two times to current liabilities.

Current assets

CURRENT RATIO = --------------------------

Current liabilities

2.QUICK RATIO (QR)

This ratio is called “LIQUID” or” ACID TEST” RATION. It is calculated by comparing

the quick assets with current liabilities. Quick or liquid assets refer to assets which are

quickly convertible into cash. Current assets other than stock and prepaid expenses are

considered as quick assets.

The ideal ratio or the generally accepted “norm” for liquid or quick ratio is1:1.

Quick ratio

QUICK RATIO =---------------------------------

Current liabilities

3.CASH POSITION RATION (CPR):

This ration is also know as super quick ration. This is still a more rigorous test of

liquidity position of a concern. Absolute liquid assets (cash in hand, cash at bank and

marketable securities)are divided by current liabilities for computation of this ration. The

CPR is interpreted in respected of current obligations. A high CPR is good from the

management point of view it indicates poor investment policy.

Cash& bank balance



Cash position Ratio = --------------------------------------------

Current liabilities

4.CURRENT ASSET TO TOTAL ASSETS RATIO

This ratio indicates the extent of total funds invested for working capital purpose. This

ratio shows the relationship between the current asset and total assets.

Current assets

C.T.T.R = -------------------------------------

Total assets

5.DEBTORS TURNOVER RATIO (DTOR)

Debtor turnover ratio is also called “Receivables turnover ratio”. A business concern

generally adopts different method of sales. One of them is selling on credit. Goods are

sold on credit policy adopted by the firm. Debtor’s turnover ratio measures the number of

times the receivables are rotated in terms of sales. This ratio also indicates the efficiency

of credit collection and efficiency of a credit policy.

Net credit sales

DEBTORS TURN OVER RATIO = --------------------------------------------

Average debtor

6. INVENTORY TURNOVER RATIO

The inventory turnover ratio focuses light on the inventory control policy adopted by a

concern. These ratios show the relationship between the cost of goods sold during a

particular tear and inventories kept by a concern during that year. Higher ITR show

higher efficiency of the management and vice versa.

Net sales

INVENTORY TURN OVER RATIO = ------------------------------------------

Average inventory cost



7.NET WORKING CAPITAL TO CURRENT ASSETS RATIO

This ratio focuses light on the networking capital. This ratio shows the relationship the

networking capital to assets.

Net working capital

NETWORKING CAPITAL TO CURRENT ASSET RATIO = ---------------------------

Current assets

8.INVENTORY TO CURRENT ASSETS RATIO (ITCAR)

This ratio focuses light on the inventory control policy adopted by a concern.

This ratio shows the relationship between the inventories to current assets.

Inventory

INVENTORY TOCURRENT ASSETS RATIO = -------------------------------

Current assets

9. LIQUID ASSETS TO CURRENT ASSETS RATIO (L.A.T.C.A.R):

Liquidity refers to the shot-term financial strength of company. This ratio

shows the relationship between the liquid assets to current assets ratio.

Liquid assets

Liquid Assets To current Assets ratio = ---------------------------

Current assets

10. LOANS AND ADVANCES TO CURRENT ASSETS RATIO (L&A to C.A.R)

This ratio shows the relationship between the liquid assets to current ratio.

Loans & advances

LOANS ANDADVANCES TO CURRENT ASSETS RATIO -----------------------------

Current assets

11. RETURN ON CAPITAL EMPLOYED



This ratio show the relationship between the profit after tax and capital employed.

Hear the capital employed consists of share capital plus reserves and surplus.

Profit after tax

Return On Capital Employed = -------------------------

Capital employed

1. CURRENT RATIOThe ratio of current assets to current liabilities is called “current ratio”. The term current assets includes debtors, stock, bills receivables, bank and cash balance, repaid expenses, income due to short term investments. The term current liabilities include creditors, bank overdraft, bills payable, outstanding expenses, income received in advance etc. standard current ratio is 2:1 i.e. current assets shall be two times to current liabilities. Current assetsCURRENT RATIO = ------------------------------- Current liabilities

Table no:1 Calculation of Current Ratio during 2005-200 (Rs in lakhs)



Year Current assets Current liabilities Ratio2005 16137.54 8676.59 1.85:12006 18321.76 9556.53 1.91:12007 26196.98 10726.59 2.44:12008 26616.98 10030.68 2.65:12009 35973.84 10883.33 3.30:1

SOURCE: compiled from the annual reports of “LANCO INDUSTRIES LIMITED” Graph:1

INTERPRETATION: From the above table it is observed that both current assets and current liabilities were increased with that the current ratio was increased during the study period. In the year 2005 and 2006 the ratio was less than standard norms and in the year 2007,200, 2009 the ratio was more than standard norms(2:1).

2. QUICK RATIO (QR)This ratio is called “LIQUID” or” ACID TEST” RATION. It is calculated by comparing the quick assets with current liabilities. Quick or liquid assets refer to assets which are quickly convertible into cash. Current assets other than stock and prepaid expenses are considered as quick assets.The ideal ratio or the generally accepted “norm” for liquid or quick ratio is1:1. Quick assetsQUICK RATIO =---------------------------------------- Current liabilities Table no:1 Calculation of Current Ratio during 2005-2009 (Rs in lakhs)



Years Quick Ratios Current liabilities RATIO2005 9062.36 8676.59 1.04:12006 9127.68 9556.53 0.95:12007 15559.97 10726.59 1.45:12008 14524.07 10030.68 1.44:12009 21537.36 10883.33 1.97:1

SOURCE :Compiled from the annual report of “LANCO INDUSTRIES LIMITED” Graph no:2

INTERPRETATION: In the above table 2 reveals that the quick ratio was increased during study period. Because of increase of current assets. The quick ratio during the study was more than standard norms (1:1).

3. CASH POSITION RATION (CPR):This ration is also know as super quick ration. This is still a more rigorous test of liquidity position of a concern. Absolute liquid assets (cash in hand, cash at bank and marketable securities)are divided by current liabilities for computation of this ration. The CPR is interpreted in respected of current obligations. A high CPR is good from the management point of view it indicates poor investment policy. Cash& bank balanceCash position Ratio = -------------------------------------------- Current liabilities

Table3: Calculation of C.P.R during 2005-2009 (Rs in lakhs)



Years Cash& Bank balances

Current liabilities Ratio

2005 247.72 8676.59 0.02:12006 350.67 9556.53 0.03:12007 2650.37 10726.59 0.24:12008 420.10 10030.68 0.04:12009 3463.66 10883.33 0.31:1

SOURCE: Compiled from the annual report of “LANCO INDUSTRIES LIMITED” Grapah:3

INTERPRETATION: from the above table 3 it is observed that both cash and bank balance, current liabilities were decreased in the year 2008. With that cash position ratio was also decreased in that years.

4.CURRENT ASSET TO TOTAL ASSETS RATIOThis ratio indicates the extent of total funds invested for working capital purpose. This ratio shows the relationship between the current asset and total assets. Current assetsC.T.T.R = ------------------------------------- Total assets

Table 4: Calculation of C.T.T.R during 2005-2009 (Rs in lakhs) Year Current assets Total assets Ratio



2005 16137.54 28680.37 0.5622006 18321.76 32901.40 0.5562007 26196.83 40386.36 0.6482008 26616.98 43836.66 0.6072009 35973.84 53755.86 0.669

SOURCE: Compiled from the annual report of “LANCO INDUSTRIES LIMITED” Graph4:

INTERPRETATION: from the above table 4 it was observed that both current assets and total assets were increased hence the ratio was increased and the value of current assets to total assets was very low.

5.DEBTORS TURNOVER RATIO (DTOR)Debtor turnover ratio is also called “Receivables turnover ratio”. A business concern generally adopts different method of sales. One of them is selling on credit. Goods are sold on credit policy adopted by the firm. Debtor’s turnover ratio measures the number of times the receivables are rotated in terms of sales. This ratio also indicates the efficiency of credit collection and efficiency of a credit policy. Net credit salesDEBTORS TURN OVER RATIO = -------------------------------------------- Average debtor



Table 5: Calculation of D.T.O.R during 2005-2009 (Rs in lakhs)Years Net sales Avg. Debtors Ratio2005 28607.79 7197.89 3.972006 30295.60 6706.59 4.522007 36936.65 7667.92 4.822008 46365.63 8814.31 5.262009 64471.61 11966.16 5.39


INTERPRETATION: from the above table it is observed that with the increase of sales ,average debtors was also increased with that the debtors turnover ratio was increased during the study period.

6. INVENTORY TURNOVER RATIOThe inventory turnover ratio focuses light on the inventory control policy adopted by a concern. This ratio show the relationship between the cost of goods sold during a particular tear and inventories kept by a concern during that year. Higher ITR show higher efficiency of the management and vice versa. Net salesINVENTORY TURN OVER RATIO = ------------------------------------------ Average inventory cost

Table 6: Calculation of I.T.R during 2005-2009 (Rs in lakhs)



Year Net sales Avg. inventory cost Ratio2005 28607.79 1360.61 21.022006 30295.60 1282.52 23.622007 36936.65 2151.12 12.522008 46365.63 2131.57 21.732009 64471.61 2015.24 31.99


INTERPRETATION: from the above table 6, it is observed that both net sales and average inventory cost was moving in same direction (except in 2009). Hence the inventory turnover ratio was also increased during the study periods.

7. NET WORKING CAPITAL TO CURRENT ASSETS RATIOThis ratio focuses light on the networking capital. This ratio shows the relationship the networking capital to assets. Net working capitalNETWORKING CAPITAL TO CURRENT ASSET RATIO = --------------------------------------- Current assets

Table 7. Calculation of N.W.C to C.A.R during 2005-2009 (Rsin lakhs)Years Net working capital Current assets Ratio2005 7460.95 16137.54 0.46



2006 8765.23 18321.76 0.472007 15470.24 26196.83 0.592008 16586.03 26616.98 0.622009 25090.51 35976.87 0.69

SOURCE: Compiled from the annual report of “LANCO INDUSTRIES LIMITED”Graph 7:

INTERPRETATION: from the above table it is observed that working capital was increased during the study period hence the net working capital to current assets ratio was increased during the study period.

8. INVENTORY TO CURRENT ASSETS RATIO (ITCAR) This ratio focuses light on the inventory control policy adopted by a concern. This ratio shows the relationship between the inventory to current assets.

InventoryINVENTORY TOCURRENT ASSETS RATIO = -------------------------------

Current assets

Table:8 calculation of I.T.C.A.R during 2005-2009 (Rs in lakhs)



Year Inventory C.A’s RATIO2005 7075.18 16137.54 0.432006 9194.08 18321.76 0.502007 10636.86 26196.83 0.402008 12092.91 26616.98 0.452009 14436.48 35973.84 0.40

SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES LIMITED

Graph8:

INTERPRETATION: from the above table, it is observed that the proportionate increased of inventory is less than the proportionate increase of current assets hence the inventory to current assets ratio was low during the study period.

9. LIQUID ASSETS TO CURRENT ASSETS RATIO (L.A.T.C.A.R):

Liquidity refers to the shot-term financial strength of company. This ratio shows the relationship between the liquid assets to current assets ratio.

Liquid assetsLiquid Assets To current Assets ratio = ---------------------------------

Current assets

Table 9:Calculation of L.A.T.C.R during 2005-2009 (Rs in lakhs)



Years Liquid assets Current assets Ratio2005 9062.36 16137.54 0.562006 9127.68 18321.76 0.492007 15559.97 26196.83 0.592008 14524.07 26616.98 0.542009 21537.36 35937.84 0.59

SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES IMITED”

Graph9:

INTERPRETATION: from the above table it is observed that the liquid assets was decreased in the year 2008 hence the ratio vale was decreased in this year.

10. LOANS AND ADVANCES TO CURRENT ASSETS RATIO (L&A to C.A.R) This ratio shows the relationship between the liquid assets to current ratio.

Loans & advancesLOANS ANDADVANCES TO CURRENT ASSETS RATIO -----------------------------

Current assets

Table 10. Calculation of L&A to C.A.R during 2005-2009 (Rs in lakhs)

Years Loans&Advances Current Assets Ratio2005 1616.75 16137.54 0.10



2006 2070.42 18321.76 0.112007 5241.68 26196.83 0.202008 5289.66 26616.98 0.192009 6107.54 35973.84 0.16

SOURCE: Compiled from the annual reports of “LANCO INDUSTRIELIMITED”

Graph10:

INTERPRETATION: from the above table, it is observed that both loans and advances, a current asset was increased hence the ratio also increased upto 2007 there after it was decreased in the years 2008 & 2009.

11. RETURN ON CAPITAL EMPLOYED

This ratio show the relationship between the profit after tax and capital employed. Hear the capital employed consists of share capital plus reserves and surplus.

Profit after taxReturn On Capital Employed = ------------------------- Capital employed

Table 11. Calculation of R.O.C.E during 2005-2009 (Rs in lakhs)

Year PAT Capital employed Ratio2005 2094.17 28256.02 0.07



2006 415.02 32283.34 0.012007 1580.80 39201.57 0.042008 2591.74 41259.71 0.062009 1835.29 50632.13 0.04

SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES LIMITED”

Graph11:

INTERPRETATION: from the above table it is observed that the return on capital employed was very low and also it was decreased from 0.7% to0.4% during the study period.

12.Ratios Relating to Liquidity management of Lanco industry Ltd

Years C.R Q.R C.P.R ITR DTR2005 1.85 1.04 0.02 2.11 3.972006 1.91 0.95 0.03 2.57 4.522007 2.44 1.45 0.24 12.52 4.822008 2.65 1.44 0.04 21.75 5.262009 3.30 1.97 0.31 31.99 5.39AVG 2.43 1.37 0.134 14.88 4.79S.D 0.53 0.37 0.16 1.59 0.51

Grapah:12



INTERPRETATION: the above table reveals that the average current ratio during the study period was 2.435:1 with a standard deviation of 0.530 and the average quick ratio was 1.375 with a standards deviation of 0.371 and average cash position ratio was 0.134 with a standard deviation of 0.169. the average inventory turnover ratio was 14.188 with a standard deviation of 1.59 and average debtors ratio was 4.792 with a standard deviation of 0.516 with this we clearly state that the variation in DTR was more in current ratio and DTR followed by quick ratio, cash position ratio and inventory turnover ratio.

FINDINGS

The current ratio of the company is higher than the standard norm 2:1 during the study period 2007-2009.

The quick ratio of the company was also more than the standard norm 1:1 during the entire study period

Cash position ratio of the company is fluctuating continuously. Because of changes in cash and bank balances.



The portion of current assets is less when compared with total assets this indicates the fixed assets are not utilized properly.

Inventory turnover ratio is fluctuating during the study period. It is very low in the year 2003. This indicates that outstanding stock is more in this year.

Debtor’s turnover ratio of the company was increasing in all the years. This indicates increase of debt portion on part of the company because of current assets are more that the current liabilities.

Net working capital ratio is showing positive during the study period.

Liquid assets to current assets ratio is showing fluctuating during the study period.

Return on capital employed was widely fluctuated during the study period this is because of proportionate increase of PAT is less than the proportionate increase of capital employed.

Suggestions: The current ratio and quick ratio both are more than the standard norm (2:1). That means additional blockage of short term funds in the businesses, so try to release the blocked funds and invests in short term securities to get some return on ideal funds.

The debtor’s turnover ratio was increasing during the study period. This means a chance to get bad debts. Hence try to minimize the debtor’s turnover ratio and increase the cash sales portion than of credit sales.



In the current assets, loans and advances portion was more. Hence try to reduce the usage of debt funds in current assets.

The cash position ratio is very low. To meet the contingencies in the business cash in hand or cash at bank is necessary. So try to maintain the optimal level of cash in hand or cash at bank.

The ROCE is very low and also it was fluctuating. So, try to increase the sales revenue for maximizing profits so that the ROCE may increase.

CONCLUSION

The current ratio, the quick ratio both are more than the standard norm and The cash position ratio was very low debtors turnover ratio was increasing year after year and return on capital employed was fluctuated and also the values are low.

That means both liquidity and profitability performance is not satisfactory.


liquidity position of lanco

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