Liquidity Position of LANCO

LANCO INDUSTRIES LIMITED
1. INTRODUCTION
Liquidity
The liquidity ratios are key to understanding financial statements. Our ratio
calculation spreadsheets reduce time and effort in calculating decision making ratios.
They reduce risk for lenders and investors and enable owners, managers and consultants
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The liquidity ratios are the basic bank financial ratios. Liquidity ratios are the
financial statements ratios which measure the ability of a business to meet its short term
financial obligations on time.
What does liquidity mean?
1. The degree to which an asset or security can be bought or sold in the market with
out affecting the asset’s price. Liquidity is characterized by a high level of trading
activity. Assets that can by easily bought or sold, are known as liquid assets.
2. The ability to convert an asset to cash quickly. Also known as “marketability”.
The term liquidity refers to how fast something can be turned into cold, hard cash
( the kind you stick in your wallet). Liquid assets are those that are thought to be
turned to cash immediately. On one extreme of the scale are the dollar bills and
change you have stuffed in a cookie jar or matters at home. These are the liquid
assets (meaning you can immediately spend them),but the least safe. On the other
end of the scale are assets such as real estate, which can take months or even
years to convert into cash.
What do liquidity ratios measure?
Liquidity ratios work with cash and near-cash assets (together called
“current” assets) of a business on one side, and the immediate payment
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obligations include dues to suppliers, operating and financial expenses that must
be paid shortly and maturing installments under long-term debt.
Liquidity ratios measure a business’ ability to meet the payment

obligations by comparing the cash and near-cash with the payment obligations. If
the coverage of the latter by the former is insufficient, it indicates that the
business might face difficulties in meeting its immediate financial obligations.
This can, in turn, affect the company’s business operations and profitability.
The near-cash assets are not all equal in their nearness to cash. Inventories
are farthest from cash (apart from advance payments and such minor items) as
they typically become receivables can also be very far from cash if customers are
given several months to pay their dues.
It is thus the speed of converting the different near-cash assets into cash
that is important. The cash conversion cycle measures this speed, and is used
along with liquidity ratios to asses a business’ short-term financial prospects.
Liquidity is the ability to repay short-term debt. We measure liquidity by

comparing the firm’s liquid assets cash or assets that will be turned into cash in
the operating cycle to the amount of short-term debt outstanding, which is the
measurement provided by the current ratio and the quick or acid-test ratio. We can
also measure liquidity by comparing how quickly accounts receivables turn over (
how long it takes to collect them on average) and how quickly inventories turn
over. The more quickly these assets can be turned over, the more liquid the firm
is.
Profitability: a measure of the amount by which a company’s revenues exceeds

its relevant expenses.
The profit of a business is the difference between its revenues and its cost. It is
important to consider two main types of profit:
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Using these profitability calculations you are to compare business profits in one
year compared with others, and also compare the profitability of sufficient
businesses.
Another important measure of how well a business is being run is how liquid it is.
To do this you need to look at the current assets and current liabilities in the
blance-sheet.
The profitability ratios are the basic bank financial ratios. Profitability ratios are
the financial statements ratios which focus on how well a business is performing
in terms of profit.
Profitability ratios serve as overall measures of the effectiveness of the firm’s
management relative to sales and/or to investment. Examples of profitability
ratios include the net profit margin, return on total assets, operating profit margin,
operating income return on investment, and on common equity.
Calculating profitability ratios
Gross profit – this is calculated by deducting the cost of sales of a business from
its sales revenue (turn over).
operating profit – is calculated by then taking away overhead expenses from
gross profit.
Profit margin measure how much a company earns relative to its sales. A
company earns relative to its sales. A company with a higher profit margin than
its competitor is more efficient. There are two profit margin ratios: operating
profit margin and net profit margin.
Net profit margin measures earnings after taxes and is calculated as follows:
Net profit margin = earnings after taxes
Sales
While it seems as if these both measure the same attribute, their results can be
dramatically different due to the impact of interest and tax expenses. Similarly,
the next two ratios appear to be similar but they tell different stories. As an
investor, you are interested in getting a return on your investment. So is a
corporation.
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Return on assets (ROA): tells how well management is performing on all the
firm’s resources. However, it does not tell how well they are performing for the
stock holders. It is calculated as follows:
Return on equity= earnings after taxes
Total assets
Return on equity (ROE) measures how well management is doing for you, the
investor, because it tells how much earnings they are getting for each of your
invested dollars. It is calculated as follows:
Return on equity = earnings after taxes
Equity
These ratios are easy to calculate and the information is readily available in a
company’s annual report. All you need do is review the income statement and
balance sheet to come up with the data to plug into the formulas.
When is an increase in earnings a loss?
Sometimes an increase in company earnings can disguise an operating loss. If a

company’s operating expenses exceed its operating income, it has an operating
loss. If it also has income from investments and tax benefits, this income can
offset the loss and show an increase in earnings per share. However, if these other
sources of non-operating income are not recurring, the unsuspecting investor may
come to an erroneous conclusion about the company’s overall financial health.
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The lesson to be learned here is to carefully scrutinize the financials especially

when operating income is negative.
How to use profitability ratios to make investment decisions:
When considering a company as a prospective investment you should review its

financial statements. Pay particular attention to the profitability ratios. If you can,
calculate the ratios for the same company over several successive years to see if
the company earnings are consistent, growing, or declining.
The liquidity versus profitability principle: there is a tradeoff between

liquidity and profitability; gaining more of one ordinarily means giving up some
of the other
Picture “liquidity” as being on one end of a straight line and “profitability” on the
other end of the line. If you are on the line and move toward one, you
automatically move away from the other. In other words, there is the trade-off
between liquidity and profitability.
This is easy to illustrate with a simple example. The items on the asset side of a
company’s balance sheet are listed are listed in order of liquidity, i.e., the ease
with which they can be converted into cash. In order, the most important of these
assets are:
• Cash
• Marketable securities
• Accounts receivable
• Inventory
• Fixed assets
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Notice that as we go from the top of the bottom, the liquidity decreases. However,
as we go from top to bottom, the profitability increases. In other words, the most
profitable investment for company is normally in its fixed assets; the least
profitable investment is cash.
Profitable ratios serve as overall measures of the effectiveness of the firm’s
management relative to sales and/or to investment. Examples of profitability
ratios include the net profit margin, return on total assets, operating profit margin,
operating income return on investment, and return on common equity.
1. Measuring profitability and liquidity
Whereas definition and discussion of the concepts are activities beloved by

academics, their practical day to day expression and measurement is a matter for
business personnel and accountants. Large organizations may employ accountants
or, like smaller firms, hire the services from independent professionals. There is
an associated profession whose skills overlap, namely of auditing, whose function
is to validate the work of the accountant through an independent evaluation of the
accounts.
Such expressions and such measurements require care, routine and administration
as well as an understanding of the principles involved. All the levels of profit
(gross, operating, net and retained) are expressed in the various sections of the
profit and loss account my definition being “a structured statement of income and
expenses”). The measurement of profit is, in fact, very difficult and it is to cut
through the problems of principle that accountants adopt a number of “rules of
thumb”, such as deprecation in equal installments over the estimated useful life of
the project.
2. Achieving adequate profitability and liquidity
The achievement of adequate profitability is specific to each situation and outside

the scope of this digest. The problem of liquidity is less dependent on particular
circumstance and it is easier to make useful generalizations. In my opinion there
are two distinct requirements for liquidity, firstly, profitability and secondly, care
and thoroughness in administration.
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It is only if a form is profitable that in the long run it will receive in cash more
than it pays out. This is most clearly imaginable in the case of a trading business
which buys and sells exclusively on a cash basis. If such a firm makes losses it is
paying out in cash more than it coming in from sales. It can only sustain its cash
balances by injections of capital or by selling off its assets, processes which
cannot be continued indefinitely.
Profitability may be necessary but it is not sufficient. A firm must be careful to
ensure that it does not commit itself to payments that it cannot cover. thus detailed
records require to be kept, ideally on a “ real time “ basis, of case in hand and
expected and cash to be paid. The accounting statement shoeing this detail is the
cash budget every item will be tracked in terms of the time of flow, and the whole
managed so that there is never a time when payments cannot be made when due.
This requires the study exercise of the bureaucratic virtues of thoroughness,
reliability and accuracy, together with contingency planning to cope with
uncertainties:
Whatever the immediate situation, profitability and liquidity also to be seen in
their strategic context i.e. In the light of market growth, market share and progress
through the product and industry life cycles.
INDUSTRY PROFILE
INTRODUCTION:
Cement industry is one of the major and oldest established manufacturing

industries in the modern sector of Indian economy. It is an indigenous industry in which
the company is well endowed with the necessary raw materials, skilled manpower and
equipment & machinery technology.
“Cement is a mixture of lime stone, clay, silicon and gypsum. It is a fine powder
which when mixed with water sets to a hard mass as a result of hydrogen of the
constituent compounds. It is the most commonly used construction material”.
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The first cement factory was established around 1890 by Jinn both in Canada and
Australia, while it was found in 1884 at New Zealand.
The first cement industry in India was produced at washermanpet in Madras in

1904 by, South India industries limited.
Cement is required by firms, bridges, buildings, water supply projects, dams,

roads, hydroelectric power projects, seaports, airports and irrigation schemes. It is thus a
vital industry which assumes a crucial part in the economic development of the country,
thus it regards as major nation building industry wise importance in a developing
economy never be over emphasized.
CEMENT DIVISION:
Lanco Industries Limited as setup a Portland Slag Cement (PSC) plant of

70,000 TPA capacities at Rachagunneri. The cement plant utilizing as raw materials –
slag, coke breeze and iron are time being generated by the pig iron plants as by product
and waster.
By this cement plant LANCO INDUSTRIES LIMITED adding values to by-

products waste generated from pig iron, in addition to solving the problem of storing slag
in the plant premises.
The main plant and machinery installed are lime stone crusher, a raw mill
system for blending and grinding iron are, clay, limestone and coke breeze, a vertical
shift kiln, a cement mill for grinding slag, clinker and gypsum and slag drying system.
CEMENT INDUSTRY HIGHLIGHTS:
The Indian cement industry has high Return on Investment. There exists a
large markets which are not yet been completely tapped. With the existing levels of
supply and growing demand the prices tend to rise. But, the Industry being a fast growing
one, many players are attracted. Every year new capacities are added raising the supply
levels, price stability is thus maintained and the high profits are observed by new
entrants.
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The percapita consumption of manufacture commodities like steel,

power and cement are indicators of the economic state of a country. Of the total output
nearly 95% is accounted for by the private sector.
However, in terms of usage, the private sector, accounts for only 90%
while the Government sector accounts for 10% . The housing activity accounts for 55%
of total consumption. Nearly 47% of the costs, most of which are administrated prices are
beyond the control of cement units. The cost elements include limestone, coal, transport,
freight, power consumption and excise duty.
CEMENT MANUFACTURING PROCESS:
In wet process, lime stone is crushed and grounded and mixed with
water to form slurry which is fed in to the kiln. The slurry has a water content of 30-40%.
Before the mineralogical process commence, the water content in the slurry has to be
evaporated. This process consumes high energy and power.
On the other hand, the dry process is more energy efficient. The raw
materials are dried in a combined drying and grinding plant to reduce the moisture
content to less than 1% .
Due to regular shifts from wet and semi dry process nearly 89% of
the total industries kiln capacity is at dry process. Of the remaining, 9% is wet process
and 2% is semi-dry process. The main advantage of shifting to any process is the 50%
saving of coal consumption. The energy costs reduces by 30-40% and the kiln output also
increases for a given size kiln, the output for dry process is 250-300 /- as compared to
130-150 /- for semi dry and 100% for wet process. The capacity utilization is also higher
for dry process plants.
CEMENT BRANDING:
Cement has emerged as a commodity product. Brands play an

important role especially in metros like Delhi, Mumbai, Calcutta, Chennai etc., where the
established brands suppress the success of small brands.
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In order to build up their brand loyalty, companies have tie-ups

with real estate agents and construction companies. Some manufacturers also organize
work shops, training and seminars to educate the consumers on the maximum use of a
bag full of cement.
RAW MATERIALS:
The basic raw material for manufacturing cement is limestone. This is available in
plenty in the form of limestone deposits in nature. Limestone is excavated for mines by
mechanical equipment with the help of stocker & reclaimed the correct blending of
limestone is ensured. The same is passed through crushers to bring it to the required size.
The raw materials consist of limestone, iron ore & bauxite. The correct
proportions are fed into a grinding mill where they are reduced to a very fine of
compressed air. The power from the storage ribs is fed into rotator kiln; the material is
subjected to a temperature of about 15000C chemical reaction takes place between the
various materials resulting in the formation of cement compound like Tri Calcium silicate
(about 24%) die-calcium silicate (about 20%) Tri Calcium aluminal (about 7 to 10%) and
albumin ferrite (about 10 to 12%).
CAPACITY & PRODUCTION:
The cement industry compresses of 125 large. Cement plants with an installed
capacity of 148.28 million tones & more than 300 mini cement plants with an estimated
capacity of 11.10 million tones per annum. The cement corporation of India, which is a
central public sector undertaking, has 10 units. There are 10 large cement plants owned
by various state Government.
The total installed capacity in the country as a whole is 159.38 million tones.
Actual cement production in 2006-07 was 171.95million tones as against a production of
178.60million tones in 2007-08, registering a growth rate of 6.75%.
EXPORTS:
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The industry is also exporting cement and clinker. The export of cement during
2006-07 & 2007-08 was 5.14 million stones and 6.92 million tones respectively. Export
during April – May, 2007 was 1.35 tones, Major exports were Gujarat Ambuja Cement
Limited and ultratech.
TECHNOLOGICAL CHANGE:
Cement industry has made tremendous strides in technological up gradation and

assimilation of latest technology. At present 93% of the total capacity in the industry is
based on modern and environment friendly dry process technology and only 7% of the
capacity is based on old wet & semi-dry process technology.
India is also producing different varieties of cement take ordinary Portland

cement (OPC), Portland pozzolana cement (PPC), Portland Blast Furnace slag cement
(PBFS), oil will cement rapid hardening Portland cement, sulphate resisting Portland
cement white cement etc., production of these varieties of cement conform to the BIS
specification. It is worth mentioning that some cement plants have set up dedicated jetties
for promoting bulk transportation and export.
COMPANY PROFILE
LANCO industries Ltd., is the one of the eleven mini-blast furnace pig iron
manufacturing units in our country, and it was the 5th plant under TATA KORF Technology. The
company was incorporated on November 1st 1991 under Companies Act – 1956, in the name of
LANCO FERRO LTD.
The company started construction work in August 1993. The entire construction work
was completed in a record time of 12 months. This was achieved by teamwork of Lanco
collectives and the best efforts of the contractors. With this achievement the company started
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commercial production in September 1994. The name LANCO FERRO LTD. Was changed to
LANCO industries Ltd., on July 6th, 1994.
Lanco industries Ltd., is located in between Tirupati and Srikalahasti with an access of
about 30kms from Tirupati and about 10kms from Srikalahasti. The reasons for localization of
Lanco Industires at Rachagunneri Village, Srikalahasti mandal of Chittoor District A.P. are as
follows:
 Chep availability fo required land
 There is more water resources
 The distance between the harbour and present work spot is less
 Proximately to Raw materials
 To have financial subsidy
 Nearer to the railway sidings
 Well connected to the road, rail and port
 Availability of labour
Lanco industries are importing coke from Chine, Japan and Australia because;
there is scarcity of prime cooking coal, which is the raw material for producing coke.
The coke, which is imported, comes to Chennai port, which is approximately

100kms away from the site. And from where it is brought to the site. And also fluxes
which are required to produce pig iron like Limestone, Dolomite, Quartzite and
Manganese are available in near by districts.
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PLANTS UNDER THE GROUP

The pig iron plant and Lanco Cement Plant are two plants, which are presently
under the name of M/s. Lanco Industires Ltd., and Lanco constructions Limited are
the sister of concern of it.
ADMINISTRATION
The general administration of the company is carried out by the Chairman,
Managing Director, the Vice-President and General Managers of Finance, Commercial
operations and Administration. They were assisted by Manager Immunization and some
other Managers.
The Chairman and Managing Director are holding overall control on administration
in all aspects, with the help of Vice-President and other General Managers. The board
consists of 5 members Directors, Vice-Chairman, a Managing Director and a Company
Secretary.
For a corporation totally itself with a great purpose, it must have courage,
conviction, discipline and endurance qualities which engender organizational growth and
all round success.
LANCO, a name represents a rare synergy strength in the core industries sector.
For Lanco, the great purpose if to build infrastructure strong India. Leaping tongues of
fire, the logo of Lanco has come to symbolize the display of a fiery spirit along a
creatively engineered span of operations.
ESTABLISHMENT
The Lanco group of companies was seeded in 1998. When it is started,
founded by two young technocrats it was with a vision and resolution to aspire for youth
and synergies that would make LANCO a leader in the core sector.
The study foundation of the company is constituted of a dynamic term of
managers; young technocrats’s who are in turn fortified with the expertise of a term of
highly experienced professionals. Three youthful technocrat’s Sri L. Rajagopal, Sri L.
Madhusudhan Rao and Sri G. Bhaskar Rao over the last decade have partnered and
partnered and promoted all the ventures of Lanco Group.
LOCATION
Lanco Industries Limited is a rural based factory sprawling over many areas of
land with deep resources and congenial soil. It is located in Rachagunneri village near
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Tirupati. Nearly 50% of the consumption of electrical power is maintained by the

company owned DG sets and power plants. Since it is a rural area labor potential is
available an also company is enjoying the subsidies from state government.
The Lanco Group is a diversified multifaceted conglomerate, with business
interests in PG Iron, Cement, Power Graded Castings, spun pipes. Real Estate
Development, Information Technology a past from infrastructure use development
prompted by entrepreneurial skills and the agenda to put the group on the global
corporate map during the next 10 years.
Lanco industries Ltd., established in the year of 1993. As ISO 9002 company, it
had set up a state of the art, integrated manufacturing facility for pig iron through mini
blast. Furnace route conforming to the latest international technology with initial capacity
of 1,00,000 TPA. Its quality products of SGGrade pig iron are being supplied to
foundries in the south. As a forward integration, it has utilized the slag produced in the
pig iron manufacturing of 90,000 TPA. The uninterrupted power requirement for the
energy intensive plant is being met through 2.5mw co-generation power plant.
LANCO CONSTRUCTIONS LIMITED

This group company was established in the year 1993 and has executed most
demanding and difficult projects in the field of civil construction engineering on
schedule essaying repute as a world class construction company in a very short time span.
The company is mainly executing prestigious work in the fields of irrigation, pipeline
projects highways, housing and industrial construction project an successfully compared
several housing complexes roads, irrigation canals, bridges and industrial complexes at
Lanco diverse dimensions of growth I achieved through converging rays of vision rays of
vision creating dimensions.
KALAHASTI CONSINGS LIMITED

Establish in 1997 and strategically located in alone proximity to the mini blast
furnace of the Big iron plants it has a clear economics mileage over other castings sites.
The molten metal from the blast cone is directly loosed as basic raw material to produce
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graded castings. Cast iron span pipes and iron spun gradually expanded further to meet
the scaring demand of the products. The UPS to the pipe plant will be met through
10MW capture power plant.
LANCO PIG-IRON DIVISION
It is located at Rachagunneri. The pig iron is commissioned in a record time of
eleven months, drawing on the group’s expertise in Civil Engineering and Industrial
construction. Highlights:
State of art mini blast furnace
Strategic location with easy access
One of the few plants with its own railway siding
High quality is from the neighboring Donimalai deposits
Access to best grade coke from China
90,000 tpa capacity
Proximity to end-users
Manufacturing all grades of Pig iron with the highest rating quality.
CEMENT DIVISION
The slag from pig –iron plant is used for producing 90,000 tpa cement, reflecting
an approach that transforms the by-product into productive inputs, in value added finish
product.
High quality port land slag cement in various grades of universal application Quality
consistent composition, competitive pricing
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2. RESEARCH METHODOLOGY
NEED FOR THE STUDY
The Liquidity and Profitability plays a key role in the organization. In this direction
in this present study an analysis is made to know.
How the liquidity and profitability of the LANCO COMPANY during the study
period.
2.1 OBJECTIVES OF THE STUDY
To examine the liquidity position of LANCO INDUSTRIES

LIMITED During the study period.
To measure the extent of the relationship between liquidity and

profitability by using spearman’s rank correlation coefficient. And also
to test the significance of such correlation coefficient.
To compare the liquidity position of LANCO INDUSTRIES

LIMITED From year to year by applying mottal’s comprehensive test.
2.2 SCOPE OF THE STDY
T he study is based upon the data collected and complied from the
annual reports of “LANCO INDUSTRIES LIMITED”, company. The period of the study
is seven years 2002-2009.
2.3 SOURCE OF DATA
 Annual financial reports of the company.
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RATIOS USED FOR ANALYSIS:
1. CURRENT RATIO
The ratio of current assets to current liabilities is called “current ratio”. The term current
assets includes debtors, stock, bills receivables, bank and cash balance, repaid expenses,
income due to short term investments. The term current liabilities include creditors, bank
overdraft, bills payable, outstanding expenses, income received in advance etc. standard
current ratio is 2:1 i.e. current assets shall be two times to current liabilities.
Current assets
CURRENT RATIO = --------------------------
Current liabilities
2.QUICK RATIO (QR)

This ratio is called “LIQUID” or” ACID TEST” RATION. It is calculated by comparing
the quick assets with current liabilities. Quick or liquid assets refer to assets which are
quickly convertible into cash. Current assets other than stock and prepaid expenses are
considered as quick assets.
The ideal ratio or the generally accepted “norm” for liquid or quick ratio is1:1.
Quick ratio
QUICK RATIO =---------------------------------
Current liabilities
3.CASH POSITION RATION (CPR):
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This ration is also know as super quick ration. This is still a more rigorous test of
liquidity position of a concern. Absolute liquid assets (cash in hand, cash at bank and
marketable securities)are divided by current liabilities for computation of this ration. The
CPR is interpreted in respected of current obligations. A high CPR is good from the
management point of view it indicates poor investment policy.
Cash& bank balance
Cash position Ratio = --------------------------------------------
Current liabilities
4.CURRENT ASSET TO TOTAL ASSETS RATIO

This ratio indicates the extent of total funds invested for working capital purpose. This
ratio shows the relationship between the current asset and total assets.
Current assets
C.T.T.R = -------------------------------------
Total assets
5.DEBTORS TURNOVER RATIO (DTOR)

Debtor turnover ratio is also called “Receivables turnover ratio”. A business concern
generally adopts different method of sales. One of them is selling on credit. Goods are
sold on credit policy adopted by the firm. Debtor’s turnover ratio measures the number of
times the receivables are rotated in terms of sales. This ratio also indicates the efficiency
of credit collection and efficiency of a credit policy.
Net credit sales
DEBTORS TURN OVER RATIO = --------------------------------------------
Average debtor
6. INVENTORY TURNOVER RATIO
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The inventory turnover ratio focuses light on the inventory control policy adopted by a
concern. These ratios show the relationship between the cost of goods sold during a
particular tear and inventories kept by a concern during that year. Higher ITR show
higher efficiency of the management and vice versa.
Net sales
INVENTORY TURN OVER RATIO = ------------------------------------------
Average inventory cost
7.NET WORKING CAPITAL TO CURRENT ASSETS RATIO

This ratio focuses light on the networking capital. This ratio shows the relationship the
networking capital to assets.
Net working capital
NETWORKING CAPITAL TO CURRENT ASSET RATIO = ---------------------------
Current assets
8.INVENTORY TO CURRENT ASSETS RATIO (ITCAR)

This ratio focuses light on the inventory control policy adopted by a concern.
This ratio shows the relationship between the inventories to current assets.
Inventory
INVENTORY TOCURRENT ASSETS RATIO = -------------------------------
Current assets
9. LIQUID ASSETS TO CURRENT ASSETS RATIO (L.A.T.C.A.R):

Liquidity refers to the shot-term financial strength of company. This ratio
shows the relationship between the liquid assets to current assets ratio.
Liquid assets
Liquid Assets To current Assets ratio = ---------------------------
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Current assets
10. LOANS AND ADVANCES TO CURRENT ASSETS RATIO (L&A to C.A.R)

This ratio shows the relationship between the liquid assets to current ratio.
Loans & advances
LOANS ANDADVANCES TO CURRENT ASSETS RATIO -----------------------------
Current assets
11. RETURN ON CAPITAL EMPLOYED

This ratio show the relationship between the profit after tax and capital employed.
Hear the capital employed consists of share capital plus reserves and surplus.
Profit after tax
Return On Capital Employed = -------------------------
Capital employed
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1. CURRENT RATIO
The ratio of current assets to current liabilities is called “current ratio”. The term current
assets includes debtors, stock, bills receivables, bank and cash balance, repaid expenses,
income due to short term investments. The term current liabilities include creditors, bank
overdraft, bills payable, outstanding expenses, income received in advance etc. standard
current ratio is 2:1 i.e. current assets shall be two times to current liabilities.
Current assets
CURRENT RATIO = -------------------------------
Current liabilities
Table no:1 Calculation of Current Ratio during 2005-200 (Rs in lakhs)

Year Current assets Current Ratio
liabilities
2005 16137.54 8676.59 1.85:1
2006 18321.76 9556.53 1.91:1
2007 26196.98 10726.59 2.44:1
2008 26616.98 10030.68 2.65:1
2009 35973.84 10883.33 3.30:1
SOURCE: compiled from the annual reports of “LANCO INDUSTRIES LIMITED”

Graph:1
INTERPRETATION: From the above table it is observed that both current assets and
current liabilities were increased with that the current ratio was increased during the
study period. In the year 2005 and 2006 the ratio was less than standard norms and in the
year 2007,200, 2009 the ratio was more than standard norms(2:1).
2. QUICK RATIO (QR)
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This ratio is called “LIQUID” or” ACID TEST” RATION. It is calculated by comparing
the quick assets with current liabilities. Quick or liquid assets refer to assets which are
quickly convertible into cash. Current assets other than stock and prepaid expenses are
considered as quick assets.
The ideal ratio or the generally accepted “norm” for liquid or quick ratio is1:1.
Quick assets
QUICK RATIO =----------------------------------------
Current liabilities
Table no:1 Calculation of Current Ratio during 2005-2009 (Rs in lakhs)

Years Quick Ratios Current RATIO
liabilities
2005 9062.36 8676.59 1.04:1
2006 9127.68 9556.53 0.95:1
2007 15559.97 10726.59 1.45:1
2008 14524.07 10030.68 1.44:1
2009 21537.36 10883.33 1.97:1
SOURCE :Compiled from the annual report of “LANCO INDUSTRIES LIMITED”

Graph no:2
INTERPRETATION: In the above table 2 reveals that the quick ratio was increased
during study period. Because of increase of current assets. The quick ratio during the
study was more than standard norms (1:1).
3. CASH POSITION RATION (CPR):
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APGCS, RAJAMPET
This ration is also know as super quick ration. This is still a more rigorous test of
liquidity position of a concern. Absolute liquid assets (cash in hand, cash at bank and
marketable securities)are divided by current liabilities for computation of this ration. The
CPR is interpreted in respected of current obligations. A high CPR is good from the
management point of view it indicates poor investment policy.
Cash& bank balance
Cash position Ratio = --------------------------------------------
Current liabilities
Table3: Calculation of C.P.R during 2005-2009 (Rs in lakhs)
Years Cash& Bank Current Ratio
balances liabilities
2005 247.72 8676.59 0.02:1
2006 350.67 9556.53 0.03:1
2007 2650.37 10726.59 0.24:1
2008 420.10 10030.68 0.04:1
2009 3463.66 10883.33 0.31:1
SOURCE: Compiled from the annual report of “LANCO INDUSTRIES LIMITED”

Grapah:3
INTERPRETATION: from the above table 3 it is observed that both cash and bank
balance, current liabilities were decreased in the year 2008. With that cash position ratio
was also decreased in that years.
4.CURRENT ASSET TO TOTAL ASSETS RATIO
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APGCS, RAJAMPET
This ratio indicates the extent of total funds invested for working capital purpose. This
ratio shows the relationship between the current asset and total assets.
Current assets
C.T.T.R = -------------------------------------
Total assets
Table 4: Calculation of C.T.T.R during 2005-2009 (Rs in lakhs)

Year Current assets Total assets Ratio
2005 16137.54 28680.37 0.562
2006 18321.76 32901.40 0.556
2007 26196.83 40386.36 0.648
2008 26616.98 43836.66 0.607
2009 35973.84 53755.86 0.669

Graph4:
INTERPRETATION: from the above table 4 it was observed that both current assets
and total assets were increased hence the ratio was increased and the value of current
assets to total assets was very low.
5.DEBTORS TURNOVER RATIO (DTOR)

Debtor turnover ratio is also called “Receivables turnover ratio”. A business concern
generally adopts different method of sales. One of them is selling on credit. Goods are
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APGCS, RAJAMPET
sold on credit policy adopted by the firm. Debtor’s turnover ratio measures the number of
times the receivables are rotated in terms of sales. This ratio also indicates the efficiency
of credit collection and efficiency of a credit policy.
Net credit sales
DEBTORS TURN OVER RATIO = --------------------------------------------
Average debtor
Table 5: Calculation of D.T.O.R during 2005-2009 (Rs in lakhs)

Years Net sales Avg. Debtors Ratio
2005 28607.79 7197.89 3.97
2006 30295.60 6706.59 4.52
2007 36936.65 7667.92 4.82
2008 46365.63 8814.31 5.26
2009 64471.61 11966.16 5.39

Graph5:
INTERPRETATION: from the above table it is observed that with the increase of
sales ,average debtors was also increased with that the debtors turnover ratio was
increased during the study period.
6. INVENTORY TURNOVER RATIO

The inventory turnover ratio focuses light on the inventory control policy adopted by a
concern. This ratio show the relationship between the cost of goods sold during a
particular tear and inventories kept by a concern during that year. Higher ITR show
higher efficiency of the management and vice versa.
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APGCS, RAJAMPET
Net sales
INVENTORY TURN OVER RATIO = ------------------------------------------
Average inventory cost
Table 6: Calculation of I.T.R during 2005-2009 (Rs in lakhs)

Year Net sales Avg. inventory Ratio
cost
2005 28607.79 1360.61 21.02
2006 30295.60 1282.52 23.62
2007 36936.65 2151.12 12.52
2008 46365.63 2131.57 21.73
2009 64471.61 2015.24 31.99

Graph6:
INTERPRETATION: from the above table 6, it is observed that both net sales and
average inventory cost was moving in same direction (except in 2009). Hence the
inventory turnover ratio was also increased during the study periods.
7. NET WORKING CAPITAL TO CURRENT ASSETS RATIO

This ratio focuses light on the networking capital. This ratio shows the relationship the
networking capital to assets.
Net
working capital
NETWORKING CAPITAL TO CURRENT ASSET RATIO =
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APGCS, RAJAMPET
---------------------------------------
Current
assets
Table 7. Calculation of N.W.C to C.A.R during 2005-2009 (Rsin lakhs)

Years Net working Current assets Ratio
capital
2005 7460.95 16137.54 0.46
2006 8765.23 18321.76 0.47
2007 15470.24 26196.83 0.59
2008 16586.03 26616.98 0.62
2009 25090.51 35976.87 0.69

Graph 7:
INTERPRETATION: from the above table it is observed that working capital was
increased during the study period hence the net working capital to current assets ratio was
increased during the study period.
8. INVENTORY TO CURRENT ASSETS RATIO (ITCAR)
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APGCS, RAJAMPET
This ratio focuses light on the inventory control policy adopted by a concern. This
ratio shows the relationship between the inventory to current assets.
Inventory
INVENTORY TOCURRENT ASSETS RATIO = -------------------------------
Current assets
Table:8 calculation of I.T.C.A.R during 2005-2009 (Rs in lakhs)
Year Inventory C.A’s RATIO

2005 7075.18 16137.54 0.43
2006 9194.08 18321.76 0.50
2007 10636.86 26196.83 0.40
2008 12092.91 26616.98 0.45
2009 14436.48 35973.84 0.40
SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES LIMITED
Graph8:
0.50 ITCAR
0.5 0.43 0.45
0.40 0.4
0.4
0.3
0.2
0.1
0
2005 2006 2007 2008 2009
years
INTERPRETATION: from the above table, it is observed that the proportionate

increased of inventory is less than the proportionate increase of current assets hence the
inventory to current assets ratio was low during the study period.
9. LIQUID ASSETS TO CURRENT ASSETS RATIO (L.A.T.C.A.R):
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APGCS, RAJAMPET
Liquidity refers to the shot-term financial strength of company. This ratio

shows the relationship between the liquid assets to current assets ratio.
Liquid assets
Liquid Assets To current Assets ratio = ---------------------------------
Current assets
Table 9:Calculation of L.A.T.C.R during 2005-2009 (Rs in lakhs)
Years Liquid assets Current assets Ratio

2005 9062.36 16137.54 0.56
2006 9127.68 18321.76 0.49
2007 15559.97 26196.83 0.59
2008 14524.07 26616.98 0.54
2009 21537.36 35937.84 0.59
SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES IMITED”
Graph9:
0.56 0.59 0.54 0.59
0.6
0.49
0.5
0.4
RATIO 0.3
0.2
0.1
0
2005 2006 2007 2008 2009
years
INTERPRETATION: from the above table it is observed that the liquid assets was
decreased in the year 2008 hence the ratio vale was decreased in this year.
10. LOANS AND ADVANCES TO CURRENT ASSETS RATIO (L&A to C.A.R)
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APGCS, RAJAMPET
This ratio shows the relationship between the liquid assets to current ratio.
Loans & advances

LOANS ANDADVANCES TO CURRENT ASSETS RATIO -----------------------------
Current assets
Table 10. Calculation of L&A to C.A.R during 2005-2009 (Rs in lakhs)
Years Loans&Advances Current Assets Ratio

2005 1616.75 16137.54 0.10
2006 2070.42 18321.76 0.11
2007 5241.68 26196.83 0.20
2008 5289.66 26616.98 0.19
2009 6107.54 35973.84 0.16
SOURCE: Compiled from the annual reports of “LANCO INDUSTRIELIMITED”
Graph10:
0.2 0.19
0.2
0.16
0.15
0.11
0.1
RATIO 0.1
0.05
0
2005 2006 2007 2008 2009
YEARS
INTERPRETATION: from the above table, it is observed that both loans and
advances, a current asset was increased hence the ratio also increased upto 2007 there
after it was decreased in the years 2008 & 2009.
11. RETURN ON CAPITAL EMPLOYED
This ratio show the relationship between the profit after tax and capital employed.
Hear the capital employed consists of share capital plus reserves and surplus.
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APGCS, RAJAMPET
Profit after tax

Return On Capital Employed = -------------------------
Capital employed
Table 11. Calculation of R.O.C.E during 2005-2009 (Rs in lakhs)
Year PAT Capital employed Ratio

2005 2094.17 28256.02 0.07
2006 415.02 32283.34 0.01
2007 1580.80 39201.57 0.04
2008 2591.74 41259.71 0.06
2009 1835.29 50632.13 0.04
SOURCE: Compiled from the annual reports of “LANCO INDUSTRIES LIMITED”
Graph11:
0.8 ROCEO
0.74
0.7 0.62
0.6
0.5
0.4 0.4
0.4
0.3
0.2
0.1
0.01
0
2005 2006 2007 2008 2009
YEARS
INTERPRETATION: from the above table it is observed that the return on capital
employed was very low and also it was decreased from 0.7% to0.4% during the study
period.
12.Ratios Relating to Liquidity management of Lanco industry Ltd
Years C.R Q.R C.P.R ITR DTR

2005 1.85 1.04 0.02 2.11 3.97
2006 1.91 0.95 0.03 2.57 4.52
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APGCS, RAJAMPET
2007 2.44 1.45 0.24 12.52 4.82

2008 2.65 1.44 0.04 21.75 5.26
2009 3.30 1.97 0.31 31.99 5.39
AVG 2.43 1.37 0.134 14.88 4.79
S.D 0.53 0.37 0.16 1.59 0.51
Grapah:12
INTERPRETATION: the above table reveals that the average current ratio during the
study period was 2.435:1 with a standard deviation of 0.530 and the average quick ratio
was 1.375 with a standards deviation of 0.371 and average cash position ratio was 0.134
with a standard deviation of 0.169. the average inventory turnover ratio was 14.188 with
a standard deviation of 1.59 and average debtors ratio was 4.792 with a standard
deviation of 0.516 with this we clearly state that the variation in DTR was more in
current ratio and DTR followed by quick ratio, cash position ratio and inventory turnover
ratio.
FINDINGS
 The current ratio of the company is higher than the standard norm 2:1 during the
study period 2007-2009.
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APGCS, RAJAMPET
 The quick ratio of the company was also more than the standard norm 1:1 during
the entire study period
 Cash position ratio of the company is fluctuating continuously. Because of

changes in cash and bank balances.
 The portion of current assets is less when compared with total assets this indicates
the fixed assets are not utilized properly.
 Inventory turnover ratio is fluctuating during the study period. It is very low in the
year 2003. This indicates that outstanding stock is more in this year.
 Debtor’s turnover ratio of the company was increasing in all the years. This
indicates increase of debt portion on part of the company because of current assets
are more that the current liabilities.
 Net working capital ratio is showing positive during the study period.
 Liquid assets to current assets ratio is showing fluctuating during the study period.
 Return on capital employed was widely fluctuated during the study period this is
because of proportionate increase of PAT is less than the proportionate increase of
capital employed.
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APGCS, RAJAMPET
Suggestions:
The current ratio and quick ratio both are more than the standard
norm (2:1). That means additional blockage of short term funds in
the businesses, so try to release the blocked funds and invests in
short term securities to get some return on ideal funds.
The debtor’s turnover ratio was increasing during the study period.
This means a chance to get bad debts. Hence try to minimize the
debtor’s turnover ratio and increase the cash sales portion than of
credit sales.
In the current assets, loans and advances portion was more. Hence
try to reduce the usage of debt funds in current assets.
The cash position ratio is very low. To meet the contingencies in

the business cash in hand or cash at bank is necessary. So try to
maintain the optimal level of cash in hand or cash at bank.
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APGCS, RAJAMPET
The ROCE is very low and also it was fluctuating. So, try to
increase the sales revenue for maximizing profits so that the ROCE
may increase.
CONCLUSION
The current ratio, the quick ratio both are more than the standard norm and The
cash position ratio was very low debtors turnover ratio was increasing year after year and
return on capital employed was fluctuated and also the values are low.
That means both liquidity and profitability performance is not satisfactory.
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APGCS, RAJAMPET

Liquidity Position of LANCO

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LANCO INDUSTRIES LIMITED

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

What do liquidity ratios measure?

Liquidity ratios measure a business’ ability to meet the payment

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

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

Return on equity= earnings after taxes

Return on equity = earnings after taxes

When is an increase in earnings a loss?

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

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

How to use profitability ratios to make investment decisions:

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

The liquidity versus profitability principle: there is a tradeoff between

Whereas definition and discussion of the concepts are activities beloved by

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

Cement industry is one of the major and oldest established manufacturing

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

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

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

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

CEMENT INDUSTRY HIGHLIGHTS:

The percapita consumption of manufacture commodities like steel,

CEMENT MANUFACTURING PROCESS:

Cement has emerged as a commodity product. Brands play an

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

CAPACITY & PRODUCTION:

Cement industry has made tremendous strides in technological up gradation and

India is also producing different varieties of cement take ordinary Portland

 Chep availability fo required land

 There is more water resources

 Proximately to Raw materials

 To have financial subsidy

 Nearer to the railway sidings

 Well connected to the road, rail and port

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

PLANTS UNDER THE GROUP

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

LANCO CONSTRUCTIONS LIMITED

KALAHASTI CONSINGS LIMITED

Strategic location with easy access

One of the few plants with its own railway siding

High quality is from the neighboring Donimalai deposits

Access to best grade coke from China

90,000 tpa capacity

NEED FOR THE STUDY

2.1 OBJECTIVES OF THE STUDY

To examine the liquidity position of LANCO INDUSTRIES

To measure the extent of the relationship between liquidity and

To compare the liquidity position of LANCO INDUSTRIES

2.2 SCOPE OF THE STDY

2.3 SOURCE OF DATA

 Annual financial reports of the company.

RATIOS USED FOR ANALYSIS:

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

2.QUICK RATIO (QR)

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

3.CASH POSITION RATION (CPR):

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

4.CURRENT ASSET TO TOTAL ASSETS RATIO

5.DEBTORS TURNOVER RATIO (DTOR)

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