Larsen and Toubro Limited – Managing Working Capital for Improved Returns
Authors
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Sanjay Dhamija
Professor, IMI Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi - 110 016
https://orcid.org/0000-0002-7746-7448
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Reena Nayyar
Professor (Corresponding Author), IMI Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi - 110 016
https://orcid.org/0000-0003-4921-8388
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Shikha Bhatia
Associate Professor, IMI Delhi, B-10, Qutab Institutional Area, Tara Crescent, New Delhi - 110 016
https://orcid.org/0000-0001-9969-4150
DOI:
https://doi.org/10.17010/pijom/2026/v19i8/174736Keywords:
financial management, financial performance, working capital management, return on equity.JEL Classification Codes :G31, M41
Publishing Chronology: Paper Submission Date : September 5, 2025 ; Paper sent back for Revision : May 19, 2026 ; Paper Acceptance Date : June 5, 2026 ; Paper Published Online : August 17, 2026.
Abstract
Purpose : The case analyzed the association between working capital management (WCM) and profitability, measured by return on equity (ROE), using Larsen and Toubro Limited (L&T) as the context.
Methodology : The case analysis examined L&T's WCM ratios and cash conversion cycle over four years. It also employed the DuPont analysis to illustrate interconnections among efficiency, profitability, and leverage ratios.
Findings : The case highlighted the importance of efficient WCM in improving L&T's liquidity and, in turn, profitability. The case detailed various initiatives undertaken by the CFO to efficiently manage the components of working capital, namely, cash, inventories, and receivables, and the challenges he faced while implementing these initiatives.
Practical Implications : The case study provided important implications for companies in general, and for companies engaged in Engineering, Procurement, and Construction (EPC) in particular. It established a strong link between profitability, as measured by ROE, and efficient WCM. The case recommended critical evaluation and management of each component of the operating cycle to shorten it, while keeping the risk-return trade-off in mind. Particularly in an EPC business, where project execution was long, managing working capital was critical to improving ROE.
Originality : The case provided students with an opportunity to analyze the WCM strategies of a large, listed EPC company and focused on different components of the cash conversion cycle. It would specifically enable students to evaluate the significance of efficient WCM for L&T in achieving its target ROE.
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References
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