abdulla projects capital budget
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A
Project report on
“CAPITAL BUDGETING, HYDERABAD”
MASTER OF BUSINESS ADMINISTRATION
By
M.ABDULLA
Regd No: 10901210024
MASTER OF BUSINESS ADMINISTRATION
SREE SAI MBA COLLEGE
(AFFILIATED TO RAYALASEEMA UNIVERSITY KURNOOL)
NANDIKOTKUR, KURNOOL (Dist).
2010 -2012
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DECLARATION
I hereby declare that this project report entitled ‘‘ CAPITAL BUDGETING’’
has been prepared by me during the year 2010 - 2012 in partial fulfilment of the
requirements for the award of degree of MASTER OF BUSINESS ADMINISTRATION of
RAYALSEEMA UNIVERSITY, KURNOOL.
I also declare that this project work is the result of my own efforts and
this has been not submitted to any other University or Institute for the award
of any degree or diploma.
Date:(M.ABDULLA)
Place: KURNOOL
CERTIFICATE FROM THE GUIDE
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This is to certify that Mr. Y. MANOJ KUMAR submits the project report
entitled ‘‘CAPITAL BUDGETING, HYDERABAD’’ in fulfilment for the award of the
degree of MASTER OF BUSINESS ADMINISTRATION of RAYALASEEMA UNIVERSITY,
KURNOOL, during the year 2010 – 2012, is a record of bonafied work carried out
by him/her under my guidance and supervision.
The results embodied in this project have not been submitted to any
other University or Institute for the award of any degree or diploma.
Mr. DR. R. RAVI KANTH, MBA (Ph.D)
Assistant Professor
Project Guide
Dept. of MBA
Sree Sai MBA College
Nandikotkur
Kurnool (Dist).
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MASTER OF BUSINESS ADMINISTRATION
Sree Sai MBA College
(AFFILIATED TO RAYALASEEMA UNIVERSITY, KURNOOL,)
Nandikotkur
KURNOOL - 518360 (A.P).
This is to certify that the project report entitled ‘‘CAPITAL
BUDGETING’’ has been submitted by Mr. M. ABDULLA in partial fulfilment
of the requirements for the award of degree of MASTER OF BUSINESS
ADMINISTRATION of RAYALASEEMA UNIVERSITY, KURNOOL, for the academic year
2010 – 2012.
Head of the Department
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ACKNOWLEDGEMENT
All endeavours over a long period can be successful only with the advice and
support of many well-wishers. I take this opportunity to express our gratitude and
appreciation to all of them.
I am also thankful to Mr. G. Anup Kumar, Finance Manager of GENETING
LANCO (INDIA) PVT. LTD, Hyderabad, for his valuable suggestions during the
project work in their esteemed organization.
I extend my profound gratitude to our principal Dr. R. Ravi Kanth, S.S.PG.C. for
providing good working environment.
I express my heart full thanks to Mr. Dr. R. Ravi Kanth,, Assistant Professor of
MBA Department and my project guide for his valuable guidance and moral support.
At the outset, I sincerely acknowledge my deep sense of gratitude toMr. Dr. R. Ravi Kanth,, Assistant Professor and Incharge of MBA Department.
We have great pleasure in expressing our thanks to the teaching and non-
teaching staff for helping us in completing this project. We would like to thanks to all
our friends who provided the normal support for this project.
Finally, I express my heartful thanks for all those who are concerned directly and
indirectly in successfully completing my project.
M. ABDULLA
CONTENTS
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CHAPTERS
Chapter 1:1.1 Introduction
1.2 Objectives of the Study
1.3 Need for the Study
1.4 Scope of the study
1.5 Research Methodology
Data Collection
1.6 Limitations.
Chapter 2: Industry Profile
Chapter 3: Company Profile
Chapter 4: Theoretical framework
Chapter 5: Data Analysis and Interpretation
Chapter 6: Findings, Suggestions and Conclusion
Bibliography
Appendix
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CHAPTER – 1
INTRODUCTION
OBJECTIVES OF THE STUDY
NEED FOR THE STUDY
SCOPE OF THE STUDY
RESEARCH METHODOLOGY
LIMITATIONS OF THE STUDY
INTRODUCTION
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Budgeting is an All-Pervasive and Dynamic Process. It ties together Goals,
Plans, Decision making and Employee performance evaluation. It is a versatile
Manager Tool in that it aims to anticipate change in an advantageous way. It allows a
review of operations. In any formal programme of Profit Planning and Control in
business Budget comes to the forefront. It forms the heart of the planning function and
every enlightened Management deals with long and short ranges Budgets. They
constitute the principle instrument for projecting the future costs and revenues, which
are an essential aspect of management accounting and the foundation of the firm’s
Financial Control. Budgeting undoubtedly offers immanence potentialities for
efficiently conducting the affairs of the business. Budgeting in common parlance is
understood as planning for expenditure.
Budgets were first used extensively in Government, but business has since
developed them to the point where they have become extremely valuable tools of
Management. In the most Governmental Agencies today Budgets have languished and
are employed primarily to restrict expenditures. In business budget emphasise
Revenues.
A Budget could be seen as a statement of intention. A statement of expected
income and expense under certain anticipated operating conditions it is in the nature of
an estimate, rather framework, of future transactions of a business as a whole.
Due to the importance of this study can done in the “LANCO GROUP”. Which
is located at Hyderabad.
OBJECTIVES OF THE STUDY
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To study different sources of finance available with the firm far its
operations.
To know the total value of the firm.
To analyze earnings per share under different Capital Budgeting.
To analyze the liquidity and ability of the firm to service charges through
Traditional methods and Time-adjusted methods.
To give guidelines for Capital Budgeting planning.
To analyze the Capital Budgeting in Lanco group.
To determine the quantum of Capital Budgeting used in Lanco group.
To study the impact of liquidity on profitability of the Lanco group.
NEED FOR THE STUDY
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Knowing the relationship between Capital Budgeting and firm value.
To analyze the reason for low stock prices of the company.
Studying relationship between Capital Budgeting and cost of capital. To assess the impact of alternative Capital Budgeting on return on equity.
Capital Budgeting means planning for capital assets. Capital Budgeting
decisions are vital to any organization as they include the decisions as to.
a) Whether or not funds should be invested in long term projects such as setting of
an industry purchase of plant and machinery etc.
b) Analyze the proposal for expansion or creating additional capacities.
c) To decide the replacement of permanent assets such as building and
equipment’s.
d) To make financial analysis of various proposals regarding capital investments
so as to choose the best out many alternative proposals.
The importance of capital budgeting can be well understood from the fact the
unsound investment decision may prove to be fatal to the very existence of the
concern. The need, significance or importance of capital budgeting arises mainly
due to the following.
a) Large investments
b) Long-term commitment of funds
c) Irreversible Nature
d) Long-term effect on profitability
e) Difficulties of Investment decision
f) National Importance
SCOPE OF THE STUDY
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The scope and period of study is restricted to the following:
The scope of is limited to the operation of Lanco group.
The information has been obtained from the primary and secondary sources and
is limited to Lanco group.
The working result from the last five years.
Decrease of current assets or current liabilities in the budget the contents
of the total evaluation of current assets and current liabilities and their
percentage contribution in the total turn over. The yearly increase or decrease
of current assets or current liabilities in the budget of Lanco group is being
reviewed from this one would be in a position to glance the performance of
current assets and current liabilities of the capital budgeting requirements of
Lanco Group and emphasizes on the company. This project greatly deals with
key ratios to obtain a clearer picture of different resources available and at thedisposal of the organization which will enable one to give appropriation
suggestion to the company to improve its performance if any.
RESEARCH METHODOLOGY
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Collection of data is a first step in any statistical investigation. It is the basis for
any analysis and their interpretation, planning for data collection refers to thinking or
preparing before doing the actual task of data collection. The technique and sources of
data are the important consideration in planning the data collection.
The data may be collected from primary & secondary.
Tools used for analysis
The collected data is arranged according to the requirement to meet the
objective of the study by bringing together various components under each cluster per
example the value of the firm will not be directly given in the Balance sheet in the
identify in accordance with the principles and formulas in accounting in financesimilarly all other elements too. Further this data analyzed with the help of Traditional
methods and Time-adjusted methods.
Data Collection
Data has been gathered through personal interaction with the financial
executives of the Organization.
Secondary Data
Data collected is secondary in nature. It was gathered mainly from the Balance
sheets and Profits & Loss account of the organization. Required data was gathered firm
various reports and other documents and data were analyzed with help of guide. The
secondary data is calculated from the following sources
Annual financial reports of the company.
Brochures and books of the company.
Period of study:
Total four years of data has been considered ending with 2008-2009.
LIMITATIONS OF THE STUDY
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The study is conducted is short period during the limited time. The study may
not be detailed in all aspects.
The study is conducted with the available data from annual reports, internal
reports, etc., of Lanco group and analysis was made accordingly.
Figures whatever appearing is too rounded to the nearest rupee thousands.
The data is secondary in nature being the records and statements, which
experiences its own limitations in preparation.
Capital budgeting techniques suffer from the following limitations
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1. All the techniques of capital budgeting presume that various investment
proposals under consideration are mutually exclusive which may not practically
be true in some particular circumstances.
2. The techniques of capital budgeting require estimation of future cash in flows
and out flows. The future is always uncertain and the data collected for future
may not be exact obviously the results based upon wrong data may not be good.
3. There are certain factors like morale of the employees, good will of the firm,
etc., which cannot be currently quantified but which other wise substantially
influence the capital decision.
4. Urgency is another limitation in the evaluation of capital investment decision.
5. Uncertainty and risk pose the biggest limitation to the techniques of capital
budgeting.
The major problem in completing the project is the time of 8 weeks
which ever less in order to know about the overall objectives of the
study.
More dependency on secondary data.
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CHAPTER – 2
INDUSTRY PROFILE
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OVERVIEW OF CAPITAL BUDGETING
In 1997 Federal Bank Ltd., a leading private sector bank in Kerala, was evaluating a
loan proposal from Cochin International Airport promoted by Cochin International
Airport Authority. Federal Bank was incorporated in 1931 as Travancore Federal Bank
Ltd to cater to the banking needs of Travancore province by a small group of local
citizens. In 1949 the board of directors of the bank reconstituted and the bank was
renamed as The Federal Bank Ltd. The operations of the bank were confined to Kerala
till 1972. After 1972, the bank expanded its operations to all the metros. The bank
became an authorized dealer in foreign exchange in 1972. Since 1989, the bank has
been active in Merchant Banking.
The bank's credit portfolio is well distributed over several sectors and sub sectors
within prudential limits. Through careful monitoring of clients and timely initiatives in
dealing with delinquency, the bank is able to contain its NPA (non performing assets) to
low levels.
COCHIN INTERNATIONAL AIRPORT LIMITED
The project is a brainchild of the district collector of Ernakulum, Mr V J Kurian. He
undertook a program to uplift the infrastructure facilities in Cochin. The increase in
number of non-resident Indians travelling from Gulf countries to Kerala necessitated an
airport in Cochin. Although there are two international airports in Kerala to cater to a
growing traffic (8%) the need for another airport was felt. In particular, a large number
of passengers travel to Kottayam and Pattanamthitta districts close to Cochin. The chief
promoter of CIAL is Cochin International Airport Society registered under the
Travancore Cochin literary, scientific and charitable society registration act of 1955.
Other promoters of the venture are Cochin Chamber of Commerce and Industry, Indian
Chamber of Commerce and Industry, (late) Sri Madhavan Nair, Sri C V Jacob and Sri B
Govinda Rao.
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THE CIVIL AVIATION INDUSTRY IN INDIA
The Indian aviation industry can be broadly classified into two main segments - civil
and cargo. Indeed mail and air cargo played a more important role in air carrier
services than passengers. The Indian aviation sector till recently was highly regulated
by the government. The government introduced new initiatives like Air taxi in the 80s
to boost tourism. Domestic and international traffic is expected to grow at 12.5 % and 7
% respectively over the next decade. By 2005, Indian airports are likely to handle 60
million international passengers and 300,000 tons of domestic and 1.2 m tons of
international cargo.
The civil aviation activities can be classified into three areas: operational,
infrastructural and regulatory. On the operational front Indian Airlines and Air India
provide domestic and international air services. Airports Authority of India formed in
April 1995 by the merger of separate airport authorities that existed till then provides
the infrastructure facility. In 1999 the aviation industry's turnover was Rs 90 billion.
The demand for aviation is seasonal in nature with the demand being high during April-May and again in November-December.
AIRPORT INFRASTRUCTURE
There are a total of 449 airports / airstrips in the country. Airports are classified as
domestic and international .The domestic airports (71) like those in Bangalore,
Hyderabad and Ahmadabad have custom and immigration facilities for limited
international operations by national carriers and for foreign tourist and cargo charter
flights. The international airports in Mumbai, Delhi, Chennai, Calcutta and
Tiruvanathapuram are available for scheduled international operations by Indian and
foreign carriers. The Airports Authority of India was formed after the merger of
International Airport Authorities of India and the National Airports Authority in 1994-
1995. AAI manages 5 international airports, 87 domestic airports and 28 civil enclaves.
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The current aviation policy allows private sector to build airports. Some airports to be
developed by the private sector are in Hassan (Karnataka), Mumbai, Goa and
Bangalore.
PUBLIC - PRIVATE SECTOR PARTNERSHIPS
Till recently, much of the financing of infrastructure development in many countries
came from government sources, multilateral institutions and export financing agencies.
Quite often, governments in emerging markets lack the financial capacity or credit
worthiness to support the volume of infrastructure projects required to develop their
economies.
In case of large infrastructure projects it is becoming inevitable for public and private
sector to come together and jointly apply their skills and strengths to develop the
project more quickly and efficiently. The joint venture between Rail track and British
Rail in U.K to set up a high-speed rail project is an example of such a partnership. Such
partnerships try to involve the private sector in the process of designing, building,
financing and operating public utilities. The government defines the services required,
makes an arrangement which enables the private sector to be the service provider and
ensures that public services will be delivered at a specified quality at competitive
prices. A number of public – private financing structures exist. Some of the schemes
which can achieve the objectives are:
Build – Operate - Transfer Model
Build- Transfer- Operate Model Buy – Build – Operate Model
In a BOT model, a private entity gets the mandate to finance, build and operate the
project (which is otherwise a public sector project) for a specified period of time (say
25 years) at the end of which ownership reverts to the local government. Typically, the
sponsoring organization makes an equity investment of 20 to 30% of the project cost
and the rest is raised from International Banks, Multilateral agencies and domestic
Financial Institutions .The host government generally gives a concession to carry out
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the construction and operation of the project and credit support for project borrowings.
The licence agreement clearly spells out the commercial and financial terms. The BOT
concept has been used in transportation (Ex: roads), Energy (Power projects), Sewage
& water treatment plants and hospitals.
In a BTO model, the private entity transfers the facility to the government soon after the
project clears the completion test and leases it back for a specified period of time. The
project company runs the facility and collects revenues during the lease term. At the
end of the lease term the title passes on to the government (or the public sector entity).
In a BBO Model, a private entity buys an existing facility, modernizes it, and operates it
as for– profit, public use facility. In many developing countries where existing facilities
require modernization / expansion, BBO model is ideal. Roads and bridges are
candidates for this model.
Since the Cochin airport project involves a huge outlay, the Government of Kerala was
not keen to set up another airport. Consequently, the airport is being set up on a Build-
Own-Operate basis with equity being contributed by people who benefit from the
project. As a first step a society was formed. Mr Kurian and his team convinced the
NRIs in Gulf that an airport in Cochin is desirable and raised (interest free) deposits
from them. The government supported the effort by offering Indira Vikas Patra for 50
% of the amount deposited. A company was formed there after in 1994 with an
authorized capital of Rs 90 cr to construct, own and operate an international airport with
public participation and the support of Government of Kerala.
The airport is Cochin is expected to boost trade and tourism. The interest free deposits
provided by people were later converted into shares. Initially Federal bank had provided
a loan that was later replaced by a loan from HUDCO. The state government
contributed Rs 1 cr and Federal Bank contributed Rs 2 cr in equity. Bharat petroleum,
the airport service provider, contributed Rs 25 L in equity.
The project is being set up at a cost of Rs 204.48 cr in two phases, the first phase being
pre-operative. Further expansion at Rs 89.83 cr has been planned after 5 years. Exhibit
8-1 provides the break up of the project cost.
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Exhibit -1: Project Cost (Rs L)
Phase 1 Phase 2 Total
Land 5500Civil Works 5965 1980
Buildings 4270 6576
Contingency 511.75 427.8
Preliminary
Expenses 1256
Pre-operative
Expenses 2780
Margin money for
Working capital 165.36
20448.11 8983.80 29431.91
Contingency has been provided at 10 % of project cost to provide for escalation of
prices, change in duty structure, and devaluation of currency and so on. CIAL's cost is
lower when compared to other airports at Bangalore and Hyderabad because:
Traffic control and navigational aid systems are being provided by AAI without any
cost to CIAL
The state government is providing roads and other utilities.
The aviation fuel hydrant station is being set up by BPCL without any cost to CIAL
The project is being financed by a mix of debt and equity. Equity is from NRIs and
service providers at the airport apart from a few banks and financial institutions. Term
loan to the extent of 75.5 % of fixed assets has been provided by HUDCO and Federal
Bank. The debt-equity ratio for the project is fixed at 1.5. The Rs 89.83 cr required for
Phase 2 is being entirely from internal accruals.
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CHAPTER – 3
COMPANY PROFILE
COMPANY PROFILE
The Lanco odyssey began more than two decades ago in civil engineering and the core
sector. The challenges and opportunities in a resurgent India following economic
liberalization saw Lanco reengineer and consolidate itself under a single apex entity,
Lanco Infratech Ltd.
Lanco’s operations have always been marked by creation of synergies, backward and
forward integrations and strategic innovations for competitive edge. Today, Lanco
Infratech, through twenty-two subsidiaries has operations across a synergistic span of
verticals.
In power generation, Lanco has a presence in thermal, hydro, wind and renewable.
Projects in operation and those underway represent over 8000 MW. The operations in
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power generation draw deep strengths from its own EPC, entry into O&M and the
capabilities of its Construction wing. Lanco’s presence in power extends to being a
leader in power trading. Multiple synergies are being leveraged for a strategic presence
in transmission and distribution. In wind energy, Lanco’s first line of turbines will roll
out in 2009. Wind project developments are underway in India, Europe and the
Americans.
Lanco’s admired expertise in civil engineering has been displayed across the years in
the execution of dams, railways, roads, industrial structures, residential and commercial
construction, canals and other areas across the length and breadth of India. These
competencies and depth of resources are unfolding a new roadmap in the Indian
infrastructure sector. Lanco is already executing projects in ports, highways, airports
and other areas.
In property development, Lanco has emerged as a trend setter with Lanco Hills, which
has also drawn international attention. Lanco Hills, in the Indian metropolis of
Hyderabad, is coming up as one of the world’s largest mixed property development
with thirty million square feet of built-up area, including the world’s tallest residential
tower.
Lanco Infratech is built on a tradition and culture of trust within and without. Lanco
draws the best professionals who see growth in an environment underscored by good
corporate governance and the melding of individual aspirations and organizational
goals.
A member of the UN Global Compact, Lanco’s Corporate Social Responsibility begins
at home with facility audits and volunteerism of its people across all CSR initiatives.
Lanco is spearheading CSR interventions and programmes have touched the lives of
individuals and communities in the vicinity of Lanco facilities and across the country in
areas where assistance is most needed. Demand driven, participatory CSR initiatives
by Lanco exemplify the larger corporate vision that Lanco Infratech represents….
of Inspiring Growth.
Vision Statement
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To empower, enable and enrich partners, businesses and associates
To be a chosen vehicle of growth for all stakeholders and a source of inspiration
to society
Corporate Structure
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Founder Chairman
L Rajagopal, a technocrat-turned industrialist, is the Founder Chairman of LANCO
Group. In addition to his entrepreneurial spirit, Rajagopal has a strong sense of social
responsibility. He established LANCO Foundation (formerly LIGHT), a Charitable
Trust, in the year 2000 to reach out to the needy and has been involved in various
philanthropic activities. After one-and-a-half decades of outstanding contribution to the
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industry, Rajagopal chose to enter public life in 2003. He is a Member of Parliament,
India. His avowed mission is to make a difference in the life of the common man.
Key Executives
Lagadapati Madhusudhan Rao is the Executive Chairman of Lanco Infratech Ltd. He is
also a Trustee in the Lanco Foundation, the CSR arm of Lanco Group.
Madhusudhan Rao obtained his M Tech degree in India and went to do his MS from
Wayne State University in Detroit, USA. Following this he did a stint at the Waggner
Corporation, obtaining practical training in various aspects of Quality Management.
Returning to India in 1989, Madhusudhan Rao joined the core team which established
the integrated metallurgy complex, Lanco Industries Ltd, at Sri Kalahasthi in the Indian
state of Andhra Pradesh. Becoming the Managing Director of Lanco Industries Ltd in
1992, he further strengthened the industrial complex’s end-to-end integrations. He also
led the expansion of the enterprise, leveraging its long experience and expertise in civil
and industrial engineering and project management.
He became the Chairman of the consolidated new entity, Lanco Infratech Ltd in 2002.
His keen reading of business and technology trends, vast domain knowledge and ability
to build inspired and outstanding professional teams and forge strategic alliances and
partnerships have been a driving force in achieving the span and scale of the Lanco
conglomerate.
G. Bhaskara Rao is one of the founder members of the Lanco Group of enterprises. He
is currently the Executive Vice-Chairman of Lanco Infratech Ltd and heads the
Construction Division of Lanco Infratech.
Bhaskara Rao holds a Bachelor’s degree in engineering with Production as
specialisation. He also holds an M.E degree in Machine Design from the prestigious
Indian Institute of Science, Bangalore.
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G. Bhaskara Rao is respected for his expertise and achievements in the Construction
industry. His commended experience in project planning and execution continues to
give a firm direction to Lanco’s strategic growth, especially in the Construction and
Infrastructure segments.
L Sridhar comes with a few years of experience at Acon Building Constructions in
Sanjose, the United States. He worked as Joint Managing Director of LANCO Infratech
Ltd, formerly LANCO Constructions Ltd, from 1997 to 2003.
Sridhar is also Director and Promoter of LANCO Kondapalli Power Pvt Ltd, Rithwik
Energy Systems Ltd, Clarion Power Corporation Ltd, ABAN Power Company Ltd,
LANCO Amarkantak Power Pvt Ltd and LANCO Green Power Pvt Ltd. He has done
his BE (Civil Engineering) from Siddaganga Institute of Engineering in Tumkur,
Karnataka and MS (Construction Management in Civil Engineering) from University of
Eastern Michigan in the United States.
G. Venkatesh Babu, the Managing Director of Lanco Infratech Ltd, also directly
oversees the group’s Infrastructure initiatives.
A Graduate in commerce from the Madras Christian College, he is a Chartered
Accountant and Cost Accountant. He has over fifteen years of experience in
Commercial Banking, Corporate Advisory, Mergers & Acquisitions, Project Finance
and Equity Capital Markets. Before moving to Lanco, Venkatesh Babu held senior
positions in leading Indian and Multinational Organisations
DV Rao, the Joint Managing Director of Lanco Infratech Ltd, has over nineteen years
of experience in Project Implementation, Engineering & Consultancy Services, and
International Marketing.
A Graduate in Mechanical Engineering from the Mysore University, DV Rao has had
rich and varied experience across different sectors. As Joint Managing Director, DV
Rao also heads the Power business vertical of Lanco.
J Suresh Kumar is the Chief Financial Officer of Lanco Infratech Ltd.
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A Graduate in Commerce from DG Ruparel College, Mumbai, Suresh Kumar is a
Chartered Accountant. He did his articleship with CC Chokshi & Co (now Deloitte
Haskins and Sells)
With vast experience in Mergers & Acquisitions, Restructuring Advisory, Strategic
Advisory, Fund Raising Advisory, Business Development and Equity Capital Market,
Suresh Kumar also plays a key role at Lanco in resource mobilisation, Mergers &
Acquisitions and Investor Relations.
Panduranga Rao heads the gas based power projects of Lanco Infratech ltd. In this
capacity he is the Director & CEO of Lanco Kondapalli Power Pvt Ltd and a Director
of ABAN Power Company Ltd and Udupi Power Corporation Ltd.
A commerce graduate from SV University, Tirupati, India, Panduranga Rao is a
qualified Chartered Accountant and simultaneously completed the Inter of Company
Secretary course. He did his articleship with Brahmayya & Co, Chennai. He has more
than 28 years of rich experience across diverse industries.
K Raja Gopal is the Chief Executive Officer of the Thermal Power Business of Lanco
Infratech Ltd. He is also the Director & CEO of Lanco Anpara Power Pvt Ltd.
Raja Gopal holds an ME degree in Electrical Engineering and MBA in Marketing from
Osmania University, Hyderabad, India. He has over twenty-two years of experience in
Project Development and various functional disciplines of manufacturing and power
industries. Raja Gopal currently looks after the development, execution, commissioning
and operations of Lanco Amarkantak Thermal Power Station in Chhattisgarh and Lanco
Anpara Thermal Power Station in Uttar Pradesh, India.
Pradeep Lenka is the Chief Executive Officer – Thermal, of Lanco Infratech Ltd. In
addition to this he also plays a key role in strategic planning and technology.
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Predeep Lenka is a Mechanical Engineer with Finance Management Certification
Course from IIM, Bangalore. He has more than 30 years of experience in power
projects as Original Equipment Manufacturer and also as Independent Power Project
Developer. He has led the implementation of over 15 power projects based on coal, oil
and gas in public and private sectors.
Pochendar Shenigarapu is the Director & CEO of Lanco Hills Technology Park Pvt
Ltd.
Pochendar Shenigarapu holds a B Tech in Civil Engineering and M Tech in
Environmental Engineering and has over 26 years of experience in the construction of
residential & commercial space, water supply & sanitation project execution, operation
& maintenance works, turnkey execution of combined cycle power projects and
marketing infrastructure projects.
Prasad holds a Masters Degree with Specialisation in energy & Systems and a
Bachelors Degree in Mechanical Engineering. He is also a certified Project
Management Professional (PMP). He has professional experience in the areas of
financial services, Information Technology, and Management Consultancy spanning
several countries.
He leads Lanco’s growth plans in wind turbine equipment manufacturing and wind-
project development activities in global markets.
Sreenivas Veluri is Lanco Infratech Ltd’s Director, Corporate Affairs. A management
Graduate with Marketing as specialisation, Sreenivas Veluri has two decades of
experience in key positions in the print and electronic media.
Ravi Shankar is a Fellow Member of the Institute of Cost and Works Accountants of
India and Certified Associate of Indian Institute of bankers, Mumbai. He did his M
Com in Business Administration with specialisation in financial management. He holds
Postgraduate Diplomas in Corporate Laws & Management, Tax Laws from Indian Law
Institute, New Delhi and Postgraduate Diploma in Industrial Relations and Personnel
management from Bhartiya Vidya Bhavan, New Delhi.
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At Lanco, he is responsible for developing strategies to carry out trading, transmission,
distribution and other power-related activities. He is also entrusted with structuring the
power information systems for Lanco Infratech Ltd.
SC Manocha is the Chief Executive Officer – EPC of Lanco Infratech Ltd. He is a
Mechanical Engineer and a Management Graduate. He has several additional
qualifications including project management, financial management, labour laws,
welding engineering, construction and planning of thermal power plants, planning
management and project management from reputed Institutes across India. He has over
35 years of rich experience in key positions with leading corporate. His expertise
includes pre-project planning, project planning, key negotiations, departmental
clearances, finalising equipment and service providers, financial modelling, business
strategy, marketing intelligence and strategic alliances.
Sanjay Kumar Mittal is the Director & CEO, Hydro of Lanco Infratech Ltd. He is an
Electrical Engineer. He has over 25 years of rich experience in all areas of Hydro
Power Projects having been part of major projects including Teesta, Lachen, Rangit and
Nathpa Jhakri to name a few.
He holds Mechanical Marine Engineering degree, MBA and PhD in Management from
Andhra University.
He has over three decades of experience in the fields of Maintenance, Production and
Human Resources Development. Before moving to Lanco, he held senior managerial
positions in Marine, Heavy Engineering, Industrial Development, Fertilizer, Cement
and Poultry sectors.
Investors
Lanco Infratech Limited became a listed entity in November 2006 following
the Initial Public Offering of shares. Of the total outstanding 222.36 million shares
73.58% is held by the founder promoters of the company, 20% is available with the
Public and the balance is held by Employee Stock Option Trust.
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Corporate Governance
At LANCO, our objective is to create value for our stakeholders, including our
shareholders, clients, employees, and communities. Good corporate governance
standards that promote the principles of integrity, transparency, and accountability will
protect and likely enhance our stakeholder value. Thus, we believe that good business
practices, transparency in corporate financial reporting, and the highest levels of
corporate governance are essential components of our success.
Consistent with this belief, today at LANCO:
Excluding the CEO, all Board members are independent.
Board committees that address auditing, compensation, corporate governance,
and nominating functions are comprised solely of independent directors.
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Committee charters clearly establish the committees' roles and responsibilities.
Corporate Governance Guidelines are regularly reviewed and updated in response to
changing regulations and stakeholder concerns.
Our bylaws have recently been updated to provide for majority voting in
uncontested director elections.
The company will continue to take any steps the Board believes will further
improve our standards, controls, and accountabilities and, as additional regulations and
recommendations on corporate governance are announced, will continue to make
required changes to our policies.
“LANCO's corporate governance has been, and continues to remain, an
important area of focus for LANCO's senior executives and Board of Directors. We
have a track record of judiciously managing the business and disclosing our
performance to investors. We will not only run our operations in accordance with
Government of India regulations but also within the spirit of those regulations.
Corporate governance needs and practices continue to change, and I am proud
that LANCO proactively amends its policies and oversight to keep current with, or
remain ahead of, such change. We believe that keeping our policies and practices
current and our oversight strong make us a better and more successful company.”
L. Madhusudhan Rao, Chairman
CORPORATE SOCIAL RESPONSIBILITY
Lanco considers CSR as a ‘business vertical’. Lanco Foundation is our CSR arm.
Lanco Foundation works through coherent and integrated strategies in seven sectors:
Education, Health, Livelihoods, Community Development, Environment, Relief &
Rehabilitation and sports & culture.
Lanco Foundation takes the lead in ensuring that Lanco’s CSR policy, strategies and
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goals are internalised across the organisation and is a fundamental element of the way
we do things in every area of operations.
Lanco Foundation focuses on sustainability and demand driven delivery of
developmental resources besides influencing public policy based on its learning’s.
Aligned to Millennium Development Goals, Lanco Foundation benchmarks itself and
measures Lanco’s CSR performance against the best of international standards. As a
member of the UN Global Compact we pursue best practices in relation to human
rights, environment, labour and anti-corruption.
OBJECTIVES
To align Lanco in all its activities with Millennium Development Goals and aims and
purposes of the UN Global Compact.
To internalise the multifaceted responsibilities at individual and organisational levels in
addressing poverty, climate change and social issues.
To improve human development indices through projects and programmes at local,
state and national levels.
To partner with Indian and international organisations and institutions to deliver aid,
assistance and developmental resources effectively.
To translate learning’s into policy advocacy and promote forums and communicationsfor positive social transformation.
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To nature all the elements of our CSR policy as a value system.
MEDIA
Welcome to the Lanco Group Media Information Centre. Here we have high
resolution pictures of our key executives, plants, sites, events and recent press releases
for download. For any further clarification/information please feel free to contact us.
Lanco Magazine
July-September 2008 April-June 2008
Issue 26 Issue 25
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CAREERS
Lanco believes that people management is a matter of creating, nurturing and sustaining
an environment conducive to optimal use of employee potential. Lanco is home to more
than 3500 committed, talented and ambitious professionals. As one of the preferred
employers in the industry, LANCO attracts and retains the best talents. Lanco has
adopted some of the best people practices and policies from around the world to delight
its people.
Lanco helps its people stay at the fore front of cutting edge technology and skills by
providing regular exposure to world class training programs in some of the most
reputed academies in the country.
Lanco has openings across a wide range of skills and professions. Come explore the
challenging opportunities at Lanco.
AWARDS
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IKU II
IEEMA award for "Excellence in Fast Track Commissioning of Small Hydro
Projects" February 2009
PRSI Confers Golden Jubilee Award
For the “Most Impressive Public Relations Initiatives” August 2008.
Clarion Power Corporation Ltd
FAPCCI Award for Excellence in Renewable Energy 2007.
Construction World NICMAR Awards2007 for the Second Fastest Growing
Construction Company (Medium Category) in India.
LANCO Institute of General Humanitarian Trust (LIGHT)
TERI Award 2006-07 for Excellence in Corporate Social Responsibility.
PRSI National Award for House Journal (English) - First Prize
PRSI Confers Golden Jubilee Award
For the “Most Impressive Public Relations Initiatives”
LANCO Infratech Limited
Award for Excellence in Bridge Engineering 1999 from the Indian Institute of Bridge
Engineers.
LANCO Kondapalli Power Pvt Ltd
OHSAS 18001:1999 Certification in respect of Environmental Management System by
Lloyd's Register Quality Assure
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CAPTAL BUDGETING AND BUDGETING CONTROL IN
LANCO HYDERABAD
In LANCO INFRATECH Budgeting process is done in two phases:
1. Long range budgets in the form of Ten-Year plans and broad objectives for
the next two years.
2. Short range budgets in the form of Yearly- Annual Budgets broken down to
month wise.
The present study is limited to the yearly budgets.
In LANCO INFRATECH, Industry Sector, Power Sector, and International
Operation Division of LANCO INFRATECH mainly procure orders. The respective
sector allocates the scope of work and corresponding order value to various
manufacturing divisions. In the unit level commercial department receives orders from
various business sectors
In addition, where the scope of work relates to a particular unit and department
of that unit gets orders from customers.
ORDER BOOK
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Since the products are tailors made to customer’s requirements, budgeting
mainly depends upon the orders on hand and orders likely to be received, either based
on already quoted or otherwise.
PHYSICAL TURNOVER
Depending upon the shop load, capacity and the delivery schedule of the customer
physical turnover budget is first prepared
Physical turnover budget takes into account the commitments made to customers,
and backlogs if any in previous year. Physical turnover is made product wise, shop wise
month wise for better follow-up and control.
FINANCIAL TURNOVER
Once the physical turnover is finalized financial turnover is arrived at based on the
sale value allocated by corporate office like physical turn over. Financial turnover is
also arrived shop wise, month wise etc.
MATERIALS BUDGET
Materials Budget is prepared based on physical and financial turnover proposed to
be executed during budget period.
Based on the physical budget and delivery schedule planned by PPC material
estimate of each product to be executed in the year is worked out. The factors that areconsidered are the latest purchase price, foreign exchange rate fluctuations and the
Prevailing customs duty/ excise duty structure.
In addition to the material required for current year equipment to be dispatched,
MPC has to estimate for the projects of next year first quarter also. Hence, the total
requirement of materials is based on material estimate for production and material
requirement work in progress (WIP).
PRODUCT MANAGER’S BUDGET
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Since the units is having multi products and follows responsibility centre
accounting each product is considered as a profit centre that necessitates a preparation
of budget to the level of net profit of a product.
Budget is made for each product wise following Actual:
a) Physical and Financial Turnover.
b) Material Budget.
c) Value added Statement
d) Inventory.
Each product will prepare all the above said budgets and finally arrives at the
value added for each product. All these product wise budget are consolidated and
common expenses and allocation, by corporate office are added to find out the
budgeting profit of the u nit as a whole.
The corporate sector will play an important role in dealing with customers. It will
clearly check the customer’s orders etc. As it is a multi product company it receives
different types of orders and it will make all estimates for the future period.
EXPENSE BUDGET
Expenses budget consists of various elements like Personnel Payment
Depreciation other expenses like Interest, Power & fuel, Excise Duty, Share of Service
Divisions like corporate office, R&D etc.
Detailed working are made to arrive at the various expenses by collecting likely
expenses from various executing departments the requirement of each department in
fully scrutinized by finance department in consultation with the department concerned.
Thus, a total expense under each head of account is arrived and the same is compared
with previous year actually and any major deviation needs to be explained.
CASH FLOW STATEMENT
CASH IN-FLOW
Cash In-flow statement is prepared with the following information
1) Cash is recovered from customer for the following
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a) Advance from the customer for the equipment to be manufactured.
b) Payments for the supplies already made/being made.
c) Payments against deferred debts.
2) Export benefits from government in respect of deemed exports, company has to
pay excise duty for the equipment dispatched, where as the customer will not
reimburse such excise duty. Hence, government reimburses such excise duty
already paid.
3) Scrap Sale: - By selling the scrape also there will be a cash inflow.
CASH OUTFLOW
Cash out flow consists of
(1) Materials: Payments to suppliers either as advance or for supplies made/ being
made.
(2) Personal Payments: Payments made to the employees and workers in the form of
salaries and wages and other benefits.
(3) Excise Duty: Payments made on the equipment manufactured and dispatched.
(4) Sales Tax: Sales Tax Payments made on the equipment sold.
(5) Other expenses: Payments towards laboratory payments, repairs and maintenance,
computer hire charges, sub-contract payments etc.
(6) Interest: Interest paid to banks etc.
(7) Repayment of Loan.
(8) Capital Expenditure etc.
INVENTORY TURNOVER
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Inventory budget is prepared to know the inventory turnover with the following
information:
(1) Raw materials
(2) Components
(3) Indirect material
(4) Material in transit
(5) Material with fabrication.
(6) Work in progress.
(7) Scrape and others.
All these are estimated based on order to be executed during the next
financial year. This is prepared product wise also for follow up. Revised estimates for the current year are also made. By preparing this actual inventory in number of days of
turnover can also be prepared.
SUNDRY DEBTORS
Gross debtors can be prepared with the following information:
(I) Collectable: The amount collectable immediately from the customers is
prepared.
Contract Management
Electrical Machines
Heat Exchangers
Pumps
Oil Rigs
Switch Gear
Spares
Erection etc.
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(II) Deferred debts: the debts, which are collectable after a certain period like after
completion of project work. And this is also prepared product wise. These all
are compared with the past actual current year estimates to know the trend.
BALANCE SHEET
The balance sheet is prepared with the following information:
A) Utilization of funds.
a) Fixed assets: opening balance, additions, and deletions and closing balance and also
depreciation is valued.
B) Working Capital:
a) Current assets: inventories, book debts, cash and bank balances, loans and advances
inter unit balances.
C) current liabilities:
a) Advance from customers, sundry creditors other liabilities, provisions.
To get net working capital B – C
Management Information Report (MIR)
Once the detailed budget is prepared it is sent to corporate office for approval.
On the approval the yearly budget is broken down in to monthly budget for all-
important criteria like turn over operating results, cash flows, inventory debtor’s etc.
Month wise budgets are prepared product wise also. The month wise budget helps the
management to exercise control and take necessary actions to achieve the targets. For
this purpose, MIRs are prepared periodically - Daily, Weekly, and Monthly etc. These
MIRs highlight the previous year’s actual, current year budget, for the year, for the
month and up to the month and current year actual previous year actual up to
corresponding period. These reports are sent to corporate office and submitted to local
management for follow up. These will be discussed at the highest level of the
management committee meetings. In addition to various results meeting at the unit
level.
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Some of the reports are:
1) Operating Results - Monthly
2) Turnover Detail - Weekly / Monthly
3) Billing Detail - Daily / Weekly / Monthly.
4) Cash Flow Statements
5) a) Inventory - Monthly
b) Work in Progress and Finished Goods
6) Debtors.
MANAGEMENT INFORMATION REPORT
Mirno Mir description agency responsible frequency
1.1 Physical turnover planning & development weekly
1.2 Turnover & billing commercial co-ordination
(cc)
weekly
2.0 Financial turnover summary
-do-
weekly
2.1 Order book receipt -do- weekly
4.1 Order book outstanding physical
and financial
-do- weekly
6.1 Operating results finance budget monthly
6.2 Miscellaneous expenses budget monthly
6.3 Miscellaneous income budget monthly
8.01 Debtors outstanding at the start
billing, collection, bal bars
commercial co-ordination monthly
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8.02 Age wise analysis of the above -do- monthly
8.03 Advances out standing receipts
adjusted & balance
-do-
monthly
8.04 Deferred debts -do- monthly
13.0 Foreign currency wise
commitments and cash out flows
material budgeting and
control
monthly
13.1 Inventory report material budgeting and
control
monthly
13.11 Finished goods more than one
year old
material budgeting and
control
monthly
13.12 Wipe more than one year old material budgeting and
control
monthly
13.3 Sating steel receipts physical material budgeting andcontrol
monthly
13.31 Sating steel inventory material budgeting and
control
monthly
13.5 Inventory planning for material budgeting and
control
monthly
Imp 1 Listing pos placed during the
month more than rupees five lakhs
material budgeting and
control
monthly
mir20
.
1 machine utilisation report for machines costing more than
rupees five lakhs
finance monthly
cf1 Daily cash collection report commercial co-ordination daily
cf2 Weekly net billing -do- weekly
cf3-a Details of customer collection
through regional operation
division (rod) & its allocation to
units
collection agency weekly
cf3-b Details of customer collection
through bank and its allocation
collection agency weekly
cf3-c Details of credit sent from bank to
corporate office centralised cash
credit (ccc) account
unit cash management weekly
cf3-d Weekly statement of bank debit to
ccc a/c
unit cash management weekly
cf3-e Statement of bank transfer of
more than 50,00,000 on a single
day
each unit cash manager exception
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cf4 Actual cash inflow & outflow each unit cash manager weekly
cf5 Outstanding nonfund based units.
letter of credit bank guarantee
each unit cash manager monthly
cf6 Management committee on billing
collection & outstanding one lineinformation
commercial word monitory
cell
monthly
cf Details of billing collection & o/c
verification statutory of bills o/s
commercial coordinate
finance monitoring
monthly
cf8-a Statutory collection and
verification for bills o/s up to 31.
3 of each year
finance monitoring monthly
8-b Statutory collection and
verification
finance monitoring monthly
cf9 Details of liquidation of old &withheld o/s
commercial coordination monthly
cf10 Details of pre-shipment & post
shipment credit
cash manager monthly
cf11 Cash flow forecast (weekly) cash manager monthly
cf12 Statement of bills pending & lc
bills pending
cash manager weekly
cf13 Statement of bills o/s discounted
under idbi / icici schemes.
cash manager monthly
CHAPTER – 4
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THEORETICAL
FRAMEWORK
INTRODUCTION
The term Capital Budgeting refers to long term planning for proposal capital
outlay and their financial. It includes raising long term funds and their utilization. It
may be defined as a firm’s formal process of acquisition and investment of capital.
Capital Budgeting may also be defined as “It involves firm’s decision to invest
its current funds for addition, modification and replacement of fixed assets”.
Its deals exclusively with investment proposals, which are essentially long term
projects and are concerned with the allocation of firm’s scarce financial resources
among the available market opportunities.
Some of the examples of capital expenditure are
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I. Cost of acquisition of permanent assets as land and buildings.
II. Cost of additions, expansion, and improvement as alteration in the fixed
assets.
III. R&D projects cost, etc.,
Definition:
It is “The process of investment of firm’s current funds most efficiently in long
term assets with a view to earn profits over a series of fears.
“Capital Budgeting is long term planning for financing proposed capital outlays.
“Capital budgeting is concerned with allocation of the firm’s scare financial
resources among the available market opportunities”.
The consideration of investment opportunities involves the comparison of the expected
future steams of earning from a project with immediate and subsequent of expenditure
for it.
In any grouping concern, capital budgeting is more as less a continuous process and it is
carried out by different functional areas of management such as production, marketing
engineering, financial management etc all the relevant functional departments play a
crucial role in the capital budgeting decision are considered.
In role of a finance manager in the capital budgeting basically lies in the process of
critically and in depth analysis and evaluation of various alternatives proposals and then
to select one out of these. As already stated, the basic objective of financial
management is to maximize the wealth of the share holders, therefore the objectives to
capital budgeting is to select those long term investment projects the are expected to
make maximum contribution to the wealth of the share holders in the long run.
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FEATURES OF CAPTAL BUDGETING
The important features, which distinguish capital budgeting decision in other
day to day decisions, are
Capital budgeting decision involves the exchange of current funds for the
benefits to be achieved in future.
The future benefits are expected and are to be realized over a series of year.
The funds are invested in non-flexible long term funds.
They have a long term and significant effect on the profitability of the concern.
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They involve huge funds they are irreversible decisions. They are strategic
decision associated with high degree of risk.
IMPORTANCE OF CAPITAL BUDGETING
The importance of capital budgeting can be understood from the facts that an
unsound investment decision may prove to be fatal to the very existence of the
organization.
The importance of capital budgeting arises mainly due to the following.
1. Large investment
Capital budgeting decision, generally involves large investment of funds. But
the funds available with the firms are scare and the demand for funds for
exceeds resources. Hence, it is very important for a firm to plan and controls its
capital expenditure.
2. Long term commitment of funds
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Capital expenditure involves not only large amount of funds but also funds for
long term or a permanent basis. The long term commitment of funds increase
the financial risk involved in the investment decision.
3. Irreversible nature
The capital expenditure decisions are of irreversible nature. Once, the decision
for difficult to impose of these asset without incurring heavy losses.
4. Long term effect on profitability
Capital budgeting decisions ha a long term and significant effect on the
profitability of a concern. Not only the present earning of the firm are affected
by the investment in capital assets but also the future growth and investment
decision taken today. Capital budgeting decision has almost has importance to
avoid over or under investment in fixed assets.
5. Difference of investment decisionThe long term investment decision are difficult to be taken because uncertainties
of future and higher degree of risk.
6. Importance
Investment decision through taken individual concern is of national importance
because it determines important, economic activities and economic growth.
KINDS OF CAPITAL BUDGETING
Every capital budgeting decision is a specific and with given parameters and
there fare, almost infinite number of types or forms of capital budgeting decision may
occur. Ever if the same decision being considered by the same firm at two different
point of time, the decision considerations may change as a result of change in any of the
variable. However, the different type of capital budgeting under taken from time to
time by different firms can be classified on a number of dimension. Some projects
affect other projects of the firms is considering and analyzing. At the other extreme,
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some proposals are prerequisite for other projects. The projects may also be classified
as revenue generating or cost reducing projects can be categorized as follow:
From the point of view of the firm’s existence:
The capital budgeting decision may be taken by a newly incorporated firm or by
an already existing firm.
New firm:
A newly incorporated firm may be required to take different decision such as
selection of a plant to be installed, capacity utilization at initial stage, to set up or not
simultaneously the ancillary unit etc.
a) Existing firm:
A firm which already exists may be required to take various decisions from time
to time meet the challenge of competition or changing Environment. These
decisions may be
i) Replacement and Modernization decision
This is a common type of a machineries eventually required replacement. If the
existing plant to be replaced because of the economic life of the plant is over, then the
decision. However, if an existing plant to be replaced because of the economic life of
the plant is over, then the decisions. However, if an existing plant to be replaced
because it has become technologically out dated (through the economic life may not be
over) the decision any be know as a modernization decision. In case of a replacement
decision, the objective is to restore the same as higher capacity where as in case of
modernization decision, the objectives is to increase the efficiency and/or cost
reductions. In general, the replacement decision and the modernization are also known
as cost reduction decisions.
ii) Expansion
Some times, the firms may be interested in increasing the installed production
capacity so as to increase the market share. In such a case, the finance manager is
required to evaluate the expansion program in term of marginal costs and marginal
benefits.
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iii) Diversification
Some times, the firm may be interested to diversity into new product lines, new
markets production of spares part etc. in such a case, the finance manager is required to
evaluate the only the marginal cost and benefits, but also the effect of diversification on
the existing market share and profitability. Both the expansion and diversification
decisions may be also known as revenue increasing decisions.
II. From the point of view of Decision situation
The capital budgeting may also be classified from the point of view of the
decision situation as follows:
i) Dependent project decision
This is a fundamental decision in capital budgeting. It is also called as accept
reject criterion. If the project is accepted, the firms invest in it. In general all these
proposals, which field at rate of return grater than certain required rate of return on cost
of capital are accepted and the rest are rejected. By applying this criterion all
independent projects with one in such a way that the acceptance of one precludes the
possibility of the acceptance of another. Under the accept reject decision all
independent projects that satisfy the minimum investment criterion should be
improvement.
ii) Mutually Exclusive project decision
Mutually exclusive project are those, which complete with other projects in
such a way that the acceptance of one will exclude the acceptance of the other projects.
The alternatively are mutually exclusive and only one may be chosen. Suppose a
company is intending to buy each with a different initial investment adopting costs.
The three machines represent mutually exclusive alternatives ads only one of these can
be selected. It may be rated hear that the mutually exclusive project decisions are not
independent of the accept reject decisions.
iii) Capital rationing decision
In a situation where the firm has unlimited funds all independent investment
proposals yielding return greater than some pre determined levels are accepted.
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However this situation does not prevail in most of the business firms in actual practice.
They have a fixed capital budget.
A large number of investment proposals complete for these limited funds, the
firm must therefore ration them. The firm allocates funds to project in a manner that it
maximizes long run returns, this rationing refers to a situation in which a firm has more
acceptance investment than it can finance. It is concerned with the accept – reject
decision capital rationing employees ranking of the acceptable investment projects.
The project can be ranked on the basis of a predetermined criterion such as the
rate of return. The project is ranked in the descending order of the rate of return.
Problems and Difficulties in Capital Budgeting:
The problems in capital budgeting decision may be as follows:
a) Future uncertainty
Capital budgeting decision involves long term commitments. However there is
lot of uncertainty in the long term uncertainty may be with reference to cost of the
project, future expected returns, future competition, legal provision, political situation
etc.
b) Time Element
The implication of a capital budgeting decision are scattered over long period.
The cost and benefit of a decision may occur at different point of time. The cost of
project is incurred immediately. However the investment is recovered over number of
fears. The future benefit has to be adjusted to make them comparable with the cost.
Long the time period involved, greater would be the uncertainty.
c) Difficulty in Qualification of impact
The finance manager may face difficulties in measuring the cost and benefits of
projects in quantitative term. For example, the new product proposed to be launched by
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a firm may result in increase or decrease in sale of other products already being sold by
the firm. It is very difficult to ascertain the extent of impact very difficulty to ascertain
the extent of impact as the sales of the other than the launch of the new products.
Assumption in Capital budgeting
The Capital budgeting decision process is a multi-faceted and analytical
process. A number of assumptions are required to be made. The assumptions constitute
a general set of condition with in which the financial aspects of different proposals are
to be evaluated. Some of these assumptions are
1. Certainty with respect to cost and benefits
It is very difficult to estimate the cost and benefit of a proposal beyond 2-3
years in future. However, for a Capital budgeting decision, it is assumed that the
estimate of cost and benefits are reasonably accurate and certain.
2. Profit motive
Another assumption is that the capital budgeting decisions are taking with a
primary motive of increasing the profit of the firm. No other motive or goal influences
the decision of the finance manager.
3. No capital Rationing
The capital budgeting decision in the present chapter assume that is no scarcity
of capital. It assumes that a proposals will be accepted or rejected in the strength of its
merits alone. The proposals will not be considered in combination with other proposals
to the maximum utilization of available funds.
Capital budgeting process
Capital budgeting is complex process as it involves decision relating to the
investment of current funds for the benefits for the benefits to be achieved in future and
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the future are always uncertain. However, the following procedure may be adopted in
the process of capital budgeting.
i) Identification of investment proposals
The capital budgeting process begins with the identification of investment
proposals. The proposals about potential investment opportunities may originate either
from top management or from any officer of the organization. The departmental head
analysis various proposals in the light of the corporate strategies and submit proposals
to the capital expenditure planning.
ii) Screening proposals
The expenditure planning Committee screens the various proposals received
form different departments. The committee reviews these proposals from various
angles to ensure that these are in accordance with the corporate strategies or selection
criterion of the firm and also do not lead departmental imbalances.
iii) Evaluation of various proposals
The next step in the capital budgeting process is to various proposals. The
method which may be used for this purpose such as payback period method, Rate of
return method, N.P.V and I.R.R. etc.
iv) Fixing priorities
After evaluating various proposals, the unprofitable uneconomical proposals
may be rejected and it may not be possible for the firm to invest immediately in all the
acceptable proposals due to limitation of funds. Therefore, it essential to rank the
project/proposals after considering urgency risk and profitability involved in there.
Final Approval and Preparation of Capital Expenditure Budget
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Proposals meeting the evaluation and other criterion are approver to be
including in the capital expenditure budget. The expenditure budget lays down the
amount o9f estimated to be incurred of fixed assets during the budget period.
Implementing proposals
Preparation of a capital expenditure budget and incorporated of a particular
proposal in the budget doesn’t authorize to go a head with the implementation of the
project.
A request for the authority to spend the amount should be mode to be capital
expenditure committee, which reviews the profitability of the project in the changed
circumstances. Responsibilities should be assigned while implementing the project in
orders avoid unnecessary delays and cost over runs. Net work techniques like PERT
and CPM can be applied to control and monitor the implementation of the project.
Performance Review
The lost stage in the process of capital budgeting is the evaluation of the
performance of the project the evaluation is made by comparing actual and budgetexpenditures and also by comparing actual anticipated returns. The unfavourable
variances, if any should be looked in to and the causes of the same be identified so that
correctives action may be taken in future.
Methods for Techniques of Capital Budgeting
There are many methods for the evaluating the profitability of investment
proposals the various comm0odity used methods are
Techniques of capital budgeting
Traditional Method Modern Method
1. Pay back period 1. N.P.V
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2. Accounting Rate of Return 2. I.R.R
3. P.I
Traditional Methods
1. Pay back period method (P.B.P)
2. Accounting Rate of return method (A.R.R)
Modern or Discounting techniques
1. Net present value method (N.P.V)
2. Internal Rate of Return method (I.R.R)
3. Profitability index method (P.I)
1. Pay back period method (PBP)
The number of years required to recover the initial out lay of the investment is
called payback.
Cash out lay
PBP = ---------------------------------------
Annual net cash inflows
This formula can be applicable when the cash in flows are even are equal for a
given period of time.
Acceptance rule
Accept if PB < Standard payback
Reject if PB > Standard payback
Merits Demerits
1. East to understand and compute 1. Ignores the time value of money
and inexpensive to use
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2. Emphasizes liquidity 2. Ignores cash flows occurring after
the payback period
3. East and crude way to cope with Risk 3. Net Measure of profitability
4. Uses cash flows information 4. No objective way to determine
the standard payback
5. No relation with the wealth
Maximization principle
Discount pay back
The number of year required in recovering the cash out lay on the present value
basis is the discounted payable period. Except using discounted the demerits of
payback method.
2. Accounting rate of return (A.R.R)
An Average rate of return found by dividing the average net operating profit by
the average investment. The Accounting rate of return is also known as called Average
rate of return it is a superior method then payback period method. This method uses
certain accounting information. In the problem the minimum required rate (or) cost of
capital will be given by using the data given the problem we have to calculate A.R.R
This calculated A.R.R is compared with the minimum required rate.
Average income
Average rate of return = -------------------------------------- X 100
Average investment
Acceptance rule
Average if ARR > minimum rate
Reject if ARR < minimum rate
Average Income
Original X ½ (or) half the original investment
Merits Demerits
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1. Uses accounting date with which 1. Ignores the time value of money
Executives are familiar
2. Easy to understand and calculate 2. Does not use cash flows
3. Gives more weightage 3. No objective way to determine the
minimum acceptable rate of
return
Discounted cash flow techniques
For evaluating the projects, most of the organizations are preparing to use
discounted cash flow techniques. The techniques are very qualitative because they have
strong theoretical base while calculating the cash in flows generated by the projects for
different years, their future value is discounted. According to a given discount value is
considered for calculating and decision making.
Types
They are three of discounted cash flow techniques are in practice. They are
i) Net present value method (N.P.V)
ii) Profitability index (P.I)
iii) Internal rate of return (I.R.R)
i) Net present value method (N.P.V)
This is the most widely and company used method to evaluate the projects
under this method the given cash in flows are discounted according to the given
discounted factor value either the rupee realization value is given it is multiplied with
the cash in flows. In that respect to year. Later these values are to be added to arrive
the value of total of net present value of cash in flows.
The difference between P.V of cash flows and P.V of cash out flows in equal to
NPV the firm’s opportunity cost of capital being the discount rate.
Net present value = P.V. Cash in flows - P.V. Cash out flows
Acceptance rule
Accept if NPC > 0 (i.e., NPV is Positive)
Reject if NPV < 0 (i.e., NPV is Negative)
Project may be accepted if NPV = 0.
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Merits Demerits
1. Considered all cash flows 1. Requires estimates of cash flows
which is a tedious task?
2. True measure of profitability 2. Requires competition of the
opportunity cost of capital which
poses practical difficulties
3. Based on the concept of the time 3. Sensitive to discount rates value
of money
4. Satisfies the value additively principle
(i.e., NPV & two or more projects
can be added)
5. Consistent with the share holder’s wealth
Maximization principal.
ii) Profitability Index (P.I)
Another important technique under discounted cash flow techniques is
profitability index method per taking decision by using this method. By taking decision
by using this method required the net values of both P.V. of cash in flows and P.V. of
cash out flows. It is an expansion to N.P.V method. The nature of data used in both the
methods is same, the only differences is in the made of uses of such data.
The ratio is the present value of the cash flows to be initial out lay is
Profitability Index or benefit cost ratio.
P.I = P.V. of cash in flows ÷ P.V. of cost out flows.
Acceptance rule
Accept if PI > 1.0
Reject if PI < 1.0
Project may be accepted if PI = 1.0
Merits Demerits
1. Considers all cash flows 1. Requires estimates of the cash
flows which is a tedious task
2. Recognizes the time value of money 2. At times falls indicate correct
choice between mutually
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exclusive projective
3. Relative measure of profitability
4. Generally consistent with wealth
Maximization principle
iii) Internal rate of return (I.R.R)
The Internal rate of return method is another discounted cash flow techniques,
which takes account of the magnitude and timing of cash flows. Another terms used to
describe the I.R.R method are field on an investment marginal efficiency of capital rate
of return over cost, time adjusted rate of Internal return and so on. The concept of
internal rate of a one period project.
The discounts rate which equates the present value of an investment’s cash in
flows and out flows is its internal rate of return.
Cash in flows – investment
Positive value
I.R.R = Lower rate + --------------------------------------- X Difference in discount
Difference value
Cash in flows cash in flows
Higher value lower value
----------------------------
OR
Investment
Factor identification = ---------------------------------------
Average cash in flows
Merits Demerits
1. Considers all cash flows 1. Requires estimates of the cash
flows which is a tedious task
2. True measure of Profitability 2. Does not hold the value additivity
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principle (i.e., IRR & of two or
more projects do not add)
3. Based on the concept of the time value 3. At times fails to indicate correct
of money choice between mutually
exclusive projects
4. Generally consistent with wealth 4. At times fields multiple rates
Maximization principle
5. Relatively difficult to compute
Capital Budgeting Methods in Practice
In a study of the Capital Budgeting practices of fourteen medium to large size
companies in India. It was found that all companies, except one, used payback
with payback and/or other techniques about two-thirds of companies used IRR
and about two-fifths NPV, IRR was found to the second most popular method.
The reasons for the popularity of payback in order of significance were stated to
be its simplicity to use and understand its emphasis on the early recovery of
investment and focus on risk.
It was also found that one-third of companies always insisted on the
computation of payback for all projects, one-third for majority of projects and
remaining for some of the projects for about two thirds of companies standard
payback ranged between 3 and 5 years.
Reasons for the secondary role of DCF techniques in India included difficulty in
understanding and using these techniques lack of qualified professionals and
unwillingness of top management to use DCF techniques. One large
manufacturing and marketing organization mentioned that conditions of its
business were such that discounted cash flow techniques were not needed. Yet,
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another company stated that replacement projects were very frequent in the
company and it was not considered necessary to use discounted cash flow
technique for evaluating such projects.
CHAPTER – 5
DATA ANALYSIS AND
INTERPRETATION
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ANALYSIS ON CAPITAL BUDGETING
Evaluation of investment proposal
At each point of time a business firm has a number of proposals regarding
various projects in which it can invest funds. But the funds available with the firm are
always limited and it is not possible to invest funds in all the proposals at a time.Hence, it is very essential to select from amongst the various competing proposals,
those which give the highest benefits. The crux of the capital budgeting is the
allocation of available non-economic, which influence he capital budgeting decisions.
The crucial factor that influences the capital budgeting decision is the profitability of
the prospective investment. Yet the risk involved in the proposal cannot be ignored
because profitability and risk are directly related, i.e. higher profitability, the risk and
vice-versa.
There are many evaluating profitability of capital investment proposals. The
various commonly used methods are as follows:
A. Traditional methods
1. Pay-back period method
2. Average Rate of Return method
B. Time-adjusted methods
1. Net present value method
2. Profitability Index method
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3. Internal Rate of Return method
NON-DCF CRITERIA
Pay back period Method (PB)
The pay back period (PB) is one of the most popular and widely recognized
traditional methods of evaluation investment proposals. Pay back is the number of
years required to recover the original cash outlay invested in a project.
If the project generates constant annual cash inflows, the pay back period can be
computed by dividing cash outlay buy the annual cash inflow.
` Cash outlay of the project OR Original cost of the Asset
Pay back period = ------------------------------------------------------------------------------
Annual cash inflows
Co = Initial investment
C = Annual cash inflows
In case of unequal cash inflows, the pay back period can be found out by adding
up the cash inflows until the total is equal to the initial cash outlay.
Years Cost of the Asset Annual cash inflows Pay back period
2005-06 146017 6871 21.25
2006-07 165358 19847 8.33
2007-08 177623 12623 14.07
2008-09 195471 16926 11.54
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Pay back period
0
50000
100000
150000
200000
250000
2 0 0 5 - 0
2 0 0 6 - 0
2 0 0 7 - 0
2 0 0 8 - 0
Years
R u p e Cost of the
Asset
Annual cash
inflows
Pay back
period
Criteria for evaluation
The pay back period computed for a project is less than the pay back period set
by management of the company, it would be accepted. A project actual pay back
period is more than the determined period by the management, it will be rejected.
INTERPRETATION OF PAY BACK PERIOD
The cost of asset for the year 2005-06 is 146017 and the actual annual cash
inflows is 6871, the cost of asset for the year 2006-07 is 165358 and the actual cash
inflows is 19847, the cost of asset for the year 2007-08 is177623 and the actual cash
inflows is 12623, and the cost of asset for the years 2008-09 is 195471 and the actual
cash inflows is 16926 after analysing the values by interpreting the pay back period, the
annual pay back period values were fluctuating year by year. Which are having the
values 21.25, 8.33, 14.07, 11.54 respectively.
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Accounting Rate of Return method (ARR)The accounting rate of return (ARR) also known as the return on investment
(ROI) uses accounting information, as revealed by financial statements, to measure the
profitability of an investment. The Accounting rate of return is the ratio of the average
after tax profit divided by the average investment would be equal to half of the original
investment if it were depreciated constantly.
Average income
A R R = ------------------------------------ X 100
Average investment
Years Total profit Net investment A R R
2005-06 14479 28937 50.03%
2006-07 19374 21435 90.38%
2007-08 9879 18493 53.41%
2008-09 15339 38733 39.60%
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Criteria for evaluation
According to this method ARR is higher than minimum rate of return
established by the management are accepted. It reject the project have less ARR than
the minimum rate set by the management.
INTERPRETATION OF ACCOUNTING RATE OF
RETURN
The Total profit for the year 2005-06 is 14479 and the actual Net investment is
28937, the Total profit for the year 2006-07 is 19374 and the actual Net investment is
21435, the Total profit for the year 2007-08 is 9879 and the actual Net investment is
18493, and the Total profit for the years 2008-09 is 15339 and the actual Net
investment is 38733 after analysing the values by interpreting the Accounting rate of
return, the accounting rate of return values were increasing for next year and diminishes
for next further years. Which are having the values 50.03%, 90.38%, 53.41%, 39.60%
respectively.
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Accounting Rate of Return
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2005-06 2006-07 2007-08 2008-09
Years
R u p e e s Total profit
Net investment
A R R
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The ARR standard set by the management is 32%. The values after interpreting in ARR
method is more than the values of percentage. Hence we accept the project, which is
having higher ARR.
DCF CRITERIANet Present Value Method (NPV)
The Net Present Value (NPV) method is the classic economic method of
evaluating the investing proposals. If is a DCF technique that explicitly recognizes the
time value at different time periods differ in value and are comparable only when their
equipment present values are found out.
C1 C2 C3 Cn
N.P.V = ---------- + --------- + --------- + ------- + ---------- - Co
(1 + K) (1 + K)2 (1 + K)3 (1 + K)ⁿ
n C1
NPV= ∑ --------- - Co
i=0 (1 + K)1
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Where
NPV = Net Present Value
Cf = Cash flows occurring at timeK = Discount rate
n = life of the project in years
Years Cash inflows DCF (10%) Present value
2005-06 6871 0.909 6245.74
2006-07 19847 0.826 16393.62
2007-08 12623 0.751 9479.87
2008-09 16926 0.683
Total
11560.46
44679.69
Net Present Value
0
5000
10000
15000
20000
25000
2 0 0 5 -
2 0 0 6 -
2 0 0 7 -
2 0 0 8 -
Years
R u p e Cash inflows
DCF (10%)
Present value
NPV = Cash outflows – Cash inflows
NPV = 44679.69 – 56267
= - 11587.31
Criteria for evaluation
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In case of calculated NPV is positive or Zero, the project should be accepted. If the
calculated NPV is negative, the project is rejected
INTERPRETATION OF NET PRESENT VALUEThe Cash inflows for the year 2005-06 is 6871 and the DCF(10%) is 0.909,
after multiplying both the cash inflows with DCF the present value is 6245.74, the Cash
inflows for the year 2006-07 is 19847 and the DCF is 0.826 after multiplying, the
present value is 16393.62, the Cash inflows for the year 2007-08 is 12623 and the DCF
is 0.751 after multiplying, the present value is 9479.87, and the cash inflows for the
years 2008-09 is 16926 and the DCF is 0.683 after multiplying, the present value is
11560.46. After analysing the values by interpreting the Net present value, the NetPresent value is Negative. Hence project is rejected due to calculated NPV is Negative.
Profitability Index Method (PI)
Yet another time-adjusted method of evaluating the investment proposals is the
benefit-cost (B/C) ratio or Profitability Index (PI) Profitability Index is the ratio of the present valued of cash inflows, at the required rate of return, to the initial cash out flow
of the investment.
PV of Cash inflow
PI = ----------------------------------------
Initial Cash outflow
Where PV = Present Value
Years Cash inflow Cash outflow Profitability index
2005-06 137700 144571 0.95
2006-07 162323 142476 1.13
2007-08 146832 134209 1.09
2008-09 162802 145876 1.11
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Profitability Index
0
50000
100000
150000
200000
2 0 0 5 - 0
2 0 0 6 - 0
2 0 0 7 - 0
2 0 0 8 - 0
Years
R u p e Cash inflow
Cash outflow
Profitability
index
Criteria for evaluation
A project can be accepted if its PI is greater than 1. If the PI is less than 1 we
should reject the project.
INTERPRETATION OF NET PRESENT VALUE
The Cash inflows for the year 2005-06 is 137700 and the actual Cash outflows
is 144571, the Cash inflows for the year 2006-07 is 162323 and the actual Cash
outflows is 142476, the Cash inflows for the year 2007-08 is146832 and the actual Cash
outflows is 134209, and the Cash inflows for the years 2008-09 is 162802 and the
actual Cash outflows is 145876 after analysing the values by interpreting the
Profitability Index, the value of 2005-06 is <1 i.e. 0.95, so the project is rejected, and
the further year values were >1 i.e. 1.13, 1.09, 1.11 respectively. Which is having
higher PI, Those projects will be accepted.
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Internal Rate of Return (IRR)
The Internal rate of return (IRR) method is another discounted cash flows
technique which takes account of the magnitude and thing of cash flows, other terms
used to describe the IRR method are yield on an investment, marginal efficiency of
capital, rate of return over cost, time-adjusted rate of internal return and so on.
PBP - PVFHR
IRR = HR - -------------------------------------------------- X R
PVFLR - PVFHR
PVFLR - PBP
IRR = HR - -------------------------------------------------- X R
PVFLR - PVFHR
HR LR PBP PVFLR PVFHR Return
17% 16% 146017 478060 467108 29.31%
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17% 16% 146017 478060 467108 46.31%
INTERPRETATION OF INTERNAL RATE OF RETURN
From the above calculations we can infer that the IRR for the factors were
29.31% and 46.31%.
The project has to be ranked according to highest IRR. Hence the project 2 is to
be rank first as it is having the highest IRR & the second rank is given to project 1. The
second project is accepted, having higher IRR and the first project will be rejected,
which is having low IRR.
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Internal Rate of Return
0
100000
200000
300000
400000
500000
600000
PBP PVFLR PVFHR Return
Factor
R u p e e s
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CHAPTER – 6
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FINDINGS,
SUGGESTIONS ANDCONCLUSION
FINDINGS
Budgeting in LANCO is mainly a performance based i.e., based on the
performance, where as zero-based budgeting is ideal for the company like
LANCO.
There should be a proper budgeting control system.
To reduce the cash crunch it is necessary for LANCO to revamp the existing
credit and budgeting policies.
ABC Analysis of inventing control should be adopted in LANCO.
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A thorough review of operation on frequent intervals is required. These reviews
should be made with the request of changing environment.
Orders received should be dispatched at proper time.
Job sequencing should be pre-determined and should follow up the sequential
process, until the end of the job. Thus, the lead-time can be reduced.
There should be a proper communication between various departments and
responsibility centers.
There should be well-organized manpower planning, especially with regard to
production.
The out-standing number of days of turnover should be reduced to nearly 120-
100 days; this will help to ease the burden of borrowed working capital.
SUGGESTIONS
Budgeting in LANCO INFRATECH is mainly a performance based i.e., based on the
performance, where as zero-based budgeting is ideal for the company like LANCO
INFRATECH.
1) There should be effective coordination between the different departments like
Production sales, Purchase, Finance, Marketing etc., this will enhance the efficiency
of the organization.
2) There should be a proper budgeting control system.
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3) To reduce the cash crunch it is necessary for LANCO INFRATECH to revamp the
existing credit & budgeting policies.
4) ABC analysis of inventing control should be adopted in LANCO INFRATECH.
5) A thorough review of operations on frequent intervals is required. These reviews
should be made with the request to changing environment.
6) Orders received should be dispatched at proper time.
7) Job sequencing should be pre-determined & should follow up the sequential
process, until the end of the job. Thus the lead-time can be reduced.
8) There should be proper communication between various departments and
responsibility centers.
9) There should be well-organized manpower planning, especially with regard to
production.
10) Education about the importance of budgeting should be communicated to all
concerned authorities, involved directly or indirectly to work according, for the
growth of the company.
11) The outstanding number of days of turnover should be reduced to nearly 120 – 100
days. This will help to ease the burden of borrowed working capital.
12) Miscellaneous expenses have to be reduced. Mainly the collaboration charges. Tie
up with Indian collaborations or brining in effective foreign technology will help
reduce the expenses. Bringing the computers to the home place can reduce
computer hire charges.
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CONCLUSION
On critically examining the budgeting and budgetary control practices in LANCO it has
been observed that there is an adequate system of budget estimation and budget control.
It was also found that one-third of companies always insisted on the computation of
payback for all projects, one-third for majority of projects and remaining for some of
the projects for about two thirds of companies standard payback ranged between 3 and
5 years.
Mechanism commensurate with the size of the company. Budgets are prepared
involving almost all the departments’ functions. And they are scrutinized in minute
details by various agencies, both at unit and corporate levels. The board of directors
approves budgets, which is ultimate body for the policy making of the company.
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Like wise the actual are compared with budget/targets periodically and reviewed
thoroughly and at various levels to embers and the targets are achieved both in physical
and financial terms. To enthuse the employs to achieve the targets in physical terms
also there is a system of awarding employees annually in the form of “plant
performance payment”, in addition to statutory bonus, which is based on profit in
financial terms.
Reasons for the secondary role of DCF techniques in India included difficulty in
understanding and using these techniques lack of qualified professionals and
unwillingness of top management to use DCF techniques. One large manufacturing and
marketing organization mentioned that conditions of its business were such that
discounted cash flow techniques were not needed. Yet, another company stated that
replacement projects were very frequent in the company and it was not considered
necessary to use discounted cash flow technique for evaluating such projects.
The review of actual with budget monthly at the highest level of management known as
Management Committee, consisting of all the heads of units/regions etc., directors
indicate the support given by management. This, Budgeting and Budgetary Control
mechanism in LANCO GROUP are felt as excellent.
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BIBLIOGRAPHY
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BIBLIOGRAPHY
FINANCIAL MANAGEMENT R.K.SHARMA &
S.K.GUPTA
FINANCIAL MANAGEMENT I.M. PANDEY
COST AND MANAGEMENT
ACCOUNTING JAYANTA MITRA
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APPENDIX
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LANCO BALANCE SHEET
LANCO PROFIT AND LOSS ACCOUNT
LANCO PROFIT AND LOSS ACCOUNT Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Income:Operating income 1,574.55 541.67 151.46 167.56 114.58
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BALANCE SHEET Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sources of funds
Owner's fund
Equity share capital 219.79 219.79 30.77 7.69 7.69
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 1,373.31 1,159.47 56.75 70.06 60.19
Loan funds
Secured loans 227.88 124.51 32.71 13.20 20.75
Unsecured loans 324.98 35.00 20.00 53.17 59.08
Total 2,145.97 1,538.78 140.23 144.12 147.72
Uses of funds
Fixed assets
Gross block 202.30 90.86 20.84 19.61 34.67
Less : revaluation reserve - - - - -
Less : accumulated depreciation 23.48 12.17 8.53 6.65 8.38
Net block 178.82 78.70 12.31 12.96 26.28
Capital work-in-progress 81.42 1.90 - - -
Investments 1,653.55 1,342.65 126.28 62.25 82.40
Net current assets
Current assets, loans & advances 2,603.92 952.47 192.42 96.45 67.77Less : current liabilities & provisions 2,371.73 836.94 190.79 27.53 28.74
Total net current assets 232.18 115.53 1.63 68.92 39.03
Miscellaneous expenses not written - - - - -
Total 2,145.97 1,538.78 140.23 144.12 147.72
Notes:
Book value of unquoted investments 1,654.33 1,342.65 123.80 59.15 79.96
Market value of quoted investments 1.08 0.48 9.09 7.90 -
Contingent liabilities 4,055.68 4,762.61 638.96 734.89 914.19
Number of equity shares outstanding (Lacs) 2223.62 2223.62 307.69 76.92 76.92
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Expenses
Material consumed - - - 7.29 -8.94
Manufacturing expenses 1,147.73 398.31 125.85 143.07 104.98
Personnel expenses 61.43 13.91 1.91 4.05 2.34
Selling expenses 4.44 5.01 0.05 1.01 2.07
Administrative expenses 46.63 10.32 2.40 2.22 2.30
Expenses capitalized - - - - -
Cost of sales 1,260.24 427.55 130.21 157.65 102.74
Operating profit 314.31 114.12 21.26 9.92 11.85
Other recurring income 27.60 11.73 1.28 8.70 3.73
Adjusted PBDIT 341.91 125.85 22.53 18.62 15.57
Financial expenses 34.47 21.17 3.63 4.29 5.76
Depreciation 11.62 3.69 1.89 2.13 2.30
Other write offs - - - - -
Adjusted PBT 295.82 100.98 17.02 12.20 7.50
Tax charges 96.91 27.77 3.34 -0.70 1.69
Adjusted PAT 198.91 73.21 13.68 12.90 5.81
Non recurring items 0.43 -0.04 -0.02 -2.76 -1.59
Other non cash adjustments 0.83 -0.12 -3.90 -0.27 -0.07
Reported net profit 200.18 73.06 9.76 9.87 4.16
Earnings before appropriation 320.51 120.34 51.57 41.81 31.94
Equity dividend - - - - -
Preference dividend - - - - -
Dividend tax - - - - -
Retained earnings 320.51 120.34 51.57 41.81 31.94
CASH FLOWS
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CASH FLOW Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Profit before tax 297.08 100.95 13.10 9.44 5.91
Net cash flow-operating activity 682.84 279.24 44.98 0.57 -11.26
Net cash used in investing activity -747.09 -1,551.90 -62.81 36.29 -29.95
Net cash used in fin. activity 372.74 1,305.81 16.30 -17.56 35.84
Net inc/dec in cash and equivalent 308.50 33.15 -1.54 19.31 -5.37
Cash and equivalent begin of year 63.10 29.95 31.48 12.18 17.55
Cash and equivalent end of year 371.60 63.10 29.95 31.48 12.18
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ANNUAL RESULTS IN BRIEF
ANNUAL RESULTS IN DETAILS Mar ' 09 Mar ' 08 Mar ' 07
Other income 29.08 11.73 1.28
Stock adjustment -48.02 - -
Raw material 1,181.96 - -
Power and fuel - - -
Employee expenses 61.43 11.74 1.62
Excise - - -
Admin and selling expenses - 17.53 2.76
Research and development expenses - - -
Expenses capitalized - - -
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ANNUAL RESULTS IN BRIEF Mar ' 09 Mar ' 08 Mar ' 07
Sales 1,574.55 541.67 151.46
Operating profit 314.09 114.08 21.24
Interest 34.47 21.17 3.63
Gross profit 308.70 104.64 18.89
EPS (Rs) 9.11 3.32 4.44
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Other expenses 65.08 398.31 125.85
Provisions made - - -
Depreciation 11.62 3.69 1.89
Taxation 96.91 27.89 3.34
Net profit / loss 200.18 73.06 13.66
Extra ordinary item - - -
Prior year adjustments - - -3.90
Equity capital 219.79 219.79 30.77
Equity dividend rate - - -
Agg.of non-prom. shares (Lacs) 585.22 555.90 8.00
Agg.of non prom. To Holding (%) 26.32 25.00 2.60
OPM (%) 19.95 21.06 14.02
GPM (%) 19.25 18.91 12.36
NPM (%) 12.48 13.20 8.94
SHARE HOLDING
Share holding pattern as on : 31/12/2009 30/09/2009 30/06/2009
Face value 10.00 10.00 10.00
No. Of Shares% HoldingNo. Of Shares% HoldingNo. Of Shares% Holding
Promoter's holding
Indian Promoters 48565284 21.84 48565284 21.84 48565284 21.84
Foreign Promoters 108582202 48.83 108582202 48.83 108649193 48.86
Sub total 157147486 70.67 157147486 70.67 157214477 70.70
Non promoter's holding
Institutional investorsBanks Fin. Inst. and Insurance 6285348 2.83 5958622 2.68 4724316 2.12
FII's 26059309 11.72 22922840 10.31 28435523 12.79
Sub total 35222822 15.84 33121220 14.90 36102315 16.24
Other investors
Private Corporate Bodies 1627617 0.73 3232913 1.45 2155239 0.97
NRI's/OCB's/Foreign Others 2726519 1.23 2735778 1.23 2804547 1.26
Directors/Employees 6457914 2.90 6457914 2.90 6457914 2.90
Others 11621828 5.23 12430677 5.59 11570878 5.20
Sub total 22433878 10.09 24857282 11.18 22988578 10.34General public 7557719 3.40 7235917 3.25 6056535 2.72
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Grand total 222361905 100.00 222361905 100.00 222361905 100.00