34054652-project-report-in-finance

8/7/2019 34054652-Project-Report-in-finance

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OVERVIEW OF INDIAN CEMENT INDUSTRY

The cement industry is one of the vital industries for economic development in acountry. The total utilization of cement in a year is used as an indicator of

economic growth.

Cement is a necessary constituent of infrastructure development and a key rawmaterial for the construction industry, especially in the governmentsinfrastructure development plans in the context of the nations socio-economicdevelopment.

India is the world's second largest producer of cement with total capacity of 219million tones (MT) at the end of FY 2009, according to the Cement ManufacturesAssociation.

According to the Cement Manufacturers Association, cement dispatches during2009-10 were 159.43 million tones (MT) increasing by 12 per cent over 142.23 in2008-09. Cement production during 2009-10 was 160.31 MT an increase of12.37 per cent over 142.65 MT in 2008-09.

Moreover, the governments continued thrust on infrastructure will help the keybuilding material to maintain an annual growth of 9-10 per cent in 2010,according to Indias largest cement company, ACC.

In January 2010, rating agency Fitch predicted that the country will add about 50million tone cement capacity in 2010, taking the total to around 300 million tones.

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the

housing sector boom and urban development, continue being the maindrivers of growth for the Indian cement industry.

Increased infrastructure spending has been a key focus area. In the UnionBudget 2010-11, US$ 37.4 billion has been provided for infrastructuredevelopment.

The government has also increased budgetary allocation for roads by 13per cent to US$ 4.3 billion.

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Future Trends:-

The cement industry is expected to grow steadily in 2009-2010 andincrease capacity by another 50 million tons in spite of the recession anddecrease in demand from the housing sector.

The industry experts project the sector to grow by 9 to 10% for the current

financial year provided India's GDP grows at 7%. India ranks second in cement production after China.

The major Indian cement companies are Associated Cement CompanyLtd (ACC), Grasim Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltdand Madras Cement Ltd.

The major players have all made investments to increase the productioncapacity in the past few months, heralding a positive outlook for theindustry.

The housing sector accounts for 50% of the demand for cement and thistrend is expected to continue in the near future.

PORTERS FIVE FORCE MODEL:- It is useful for analyzing the industry overalland determining the level of competition among different existing players .It canbe understood under different topics .Along with the industry we will try to pointout the conditions for ACC too.i) THREAT OF NEW ENTRANTS:-

ACC has threat from new entrants like TATA; Reliance etc can enter into thisindustry.But there are certain barriers to their entry. These are:-

Availability of raw material

Restrictions on entry by government into cement industry

Cement industry requires a huge investment

Switching costs are high in cement industry

ii) BARGAINING POWER OF SUPPLIERS:-Suppliers have very much impact on cement industry because of the following

reasons:-

Raw materials used in cement are gypsum, fly ash and slag. There arefew suppliers of these materials.

Quality of finished goods i.e. cement is very important for ACC ltd.

As already said, there are high switching costs in cement industry.

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There is no substitute to the raw material used in cement.

iii) BARGAINING POWER OF BUYER:- ACC ltd plays the role of buyer. It hasfollowing bargaining powers:

There are only few buyers of raw material of cement.

ACC has major stake in cement industry i.e. 11% of the world.

iv) THREAT OF SUBSTITUTES:- It has threat from its competitors like Ambujacements, Birla cements, Binani cements ,Grasim etc.

V) RIVALRY AMONG THE COMPETING FIRMS IN INDUSTRY:In spite of huge stake in cement industry, it is difficult to be on the top because ofthe other competing companies i.e. Ambuja, Birla, and Binani etc. Thecompetitors are using different promotional strategies to attract buyers. So, allthe leading players in the industry have to analyze the situation frequently & theyhave to keep changing them too.

SWOT ANALYSIS

Strengths: -

1. The industry is likely to maintain its growth momentum and continuegrowing at about 9 10% in the foreseeable future.2. Government initiative in the infrastructure sector such as thecommencement of the second phase of the National Highway Developmentproject, freight carriers, rural roads and development of the housing sector(Bharat Nirman Yojana) are likely to be the main drivers of growth.3. In the coming few years the demand for the cement will increase whichwill be booming news for cement manufactures. As capacity utilization isover 90% now.4. Huge potential for export.

Weakness: -

1. Cement Industry is highly fragmented & regionalized.2. Low value commodity makes transportation over long distances un-

economical.

3. High capital cost and investment cost for each and every project.4. The complex Excise Duty structure based on the category of buyer and

end use of the cement has caused at lot of confusion in the industry.

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Threats: -

1. The recent moves by the Central Government in making the import ofthe cement total duty free, is a cause of worry for the Indian cementindustry.

2. Further recent changes in the Central Excise Duty structure by way ofintroduction of multiple slabs of Excise Duty is also a cause of worry forthe industry.

3. Almost all the major players in the industry have announced substantialincrease in the capacity and the possibility of over supply situation

cannot be ruled out.

4. Increased railway freight, coal prices and dispatch bottlenecks onaccount of truck Loading restrictions imposed by various StateGovernments

5. Scarcity of good quality Coal is some other factors which are cause ofconcern for the industry.

Competitor analysis (Overall industry):-

ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share inIndia, which with its total installed capacity of 207 MTPA, India is the secondlargest cement producing country in the world. ACCs nation-wide presence andbrand image ensures a competitive edge and helps it to withstand regionalfluctuations in prices and also to adapt its distribution to market place needs. Itskey competitors are as follows:-

ACC Ltd is the market leader with the capacity of 22.63 MTPA .The top tencompanies are given below with the details:-

Name ACC Limited

Production 17,902

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Installed Capacity 18,640

Net Profit (Quarter ended Sep 30, 2009) 41,550.89 lakhs

Name Gujarat Ambuja Cements Limited

Production 15,094


Net Profit (Quarter ended on Sep 30, 2009) 31,848 lakhs

Name Ultratech

Production 13,707


Net Profit (in 2008-09) 97,700 lakhs

Name Grasim

Production 14,649


Net Profit (in 2008-09) 1,64,800 lakhs

Name India Cements

Production 8,434



Name JK Cement Ltd

Production 6,174


Net Profit (in 2008-09) 14,234.40 lakhs

Name Jaypee Group

Production 6,316


Name Century Cement

Production 6,636


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Name Madras Cement

Production 4,550



Name Birla Corp.

Production 5,150



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Introduction of the Company

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete.ACC's operations are spread throughout the country with 14 modern cementfactories, 19 Ready mix concrete plants, 19 sales offices, and several zonaloffices. It has a workforce of about 9000 persons and a countrywide distributionnetwork of over 9,000 dealers. ACC's research and development facility has aunique track record of innovative research, product development and specializedconsultancy services. Since its inception in 1936, the company has been a

trendsetter and important benchmark for the cement industry in respect of itsproduction, marketing and personnel management processes. Its commitment toenvironment-friendliness, its high ethical standards in business dealings and itson-going efforts in community welfare programs have won it acclaim as aresponsible corporate citizen. In the 70 years of its existence, ACC has been apioneer in the manufacture of cement and concrete and a trendsetter in manyareas of cement and concrete technology including improvements in raw materialutilization, process improvement, energy conservation and development of highperformance concretes.

ACCs brand name is synonymous with cement and enjoys a high level of equity

in the Indian market. It is the only cement company that figures in the list ofConsumer Super Brands of India.

The company's various businesses are supported by a powerful, in-houseresearch and technology backup facility - the only one of its kind in the Indiancement industry. This ensures not just consistency in product quality but alsocontinuous improvements in products, processes, and application areas.

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ACC has rich experience in mining, being the largest user of limestone, and it isalso one of the principal users of coal. As the largest cement producer in India, itis one of the biggest customers of the Indian Railways, and the foremost user ofthe road transport network services for inward and outward movement ofmaterials and products.

ACC has also extended its services overseas to the Middle East, Africa, andSouth America, where it has provided technical and managerial consultancy to avariety of consumers, and also helps in the operation and maintenance ofcement plants abroad.

ACC is among the first companies in India to include commitment toenvironmental protection as one of its corporate objectives, long before pollutioncontrol laws came into existence. The company installed pollution controlequipment and high efficiency sophisticated electrostatic precipitators for cementkilns, raw mills, coal mills, power plants and coolers as far back as 1966. Every

factory has state-of-the art pollution control equipment and devices.

History & Profile of ACC Cement Works:

ACC was formed in 1936 when ten existing cement companies came togetherunder one umbrella in a historic merger the countrys first notable merger at atime when the term mergers and acquisitions was not even coined. The history ofACC spans a wide canvas beginning with the lonely struggle of its pioneer F EDin Shaw and other Indian entrepreneurs like him who founded the Indiancement industry. Their efforts to face competition for survival in a small butaggressive market mingled with the stirring of a countrys nationalist pride that

touched all walks of life including trade, commerce and business.

The first success came in a move towards cooperation in the countrys youngcement industry and culminated in the historic merger of ten companies to form acement giant. These companies belonged to four prominent business groups Tatas, Khataus, Killick Nixon and F E Din Shaw groups. ACC was formallyestablished on August 1, 1936. Sadly, F E Din Shaw, the man recognized as thefounder of ACC, died in January 1936. Just months before his dream could berealized.

The ACC Board comprises of 13 persons. These include executive, non-

executive, and nominee directors. This group is responsible for determining theobjectives and broad policies of the Company - consistent with the primaryobjective of enhancing long-term shareholder value.

The Board meets once a month. Two other small groups of directors - comprisingShareholders'/Investors' Grievance Committee and Audit Committee of the Boardof Directors - also meet once a month on matters pertaining to the finance andshare disciplines. During the last decade, there has been a streamlining of the

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senior management structure that is more responsive to the needs of theCompany's prime business. A Managing Committee - comprising, in addition tothe Managing Director and the two executive directors, the presidentsrepresenting multifarious disciplines: finance, production, marketing, researchand consultancy, engineering and human resources meets once a week.

A Strategic Alliance:The house of Tata was intimately associated with the heritage and history ofACC, right from its formation in 1936 up to 2000. The Tata group sold all 14.45%of its shareholdings in ACC in three stages to subsidiary companies of GujaratAmbuja Cements Ltd. (GACL), who are now the largest single shareholder inACC.This enabled ACC to enter into a strategic alliance with GACL; a companyreputed for its brand image and cost leadership in the cement industry.Holcim A New Partnership:A new association was formed between ACC and The Holcim group of

Switzerland in 2005. In January 2005, Holcim announced its plans to enter intolong term alliances with Ambuja Group by acquiring a majority stake in AmbujaCements India Ltd. (ACIL), which at the time held 13.8% of total equity shares inACC. Holcim simultaneously announced its bid to make an open offer to ACCshareholders, through Holdcem Cement Pvt. Ltd. and ACIL, to acquire a majorityshareholding in ACC. An open offer was made by Holdcem Cement Pvt. Ltd.along with ACIL, following which the shareholding of ACIL increased to 34.69%of Equity share capital of ACC. Consequently, ACIL has filed declarationsindicating their shareholding and declaring itself as a promoter of ACC.

Holcim is the world leader in cement aswell as being large supplier of concrete, aggregates and certain constructionrelated services. Holcim is also a respected name in information technology andresearch and development. The group has its headquarters in Switzerland withworldwide operations spread across more than 70 countries.

Plants & Their Capacity:

S.No.

Units State Capacity (MTPA)

1 BargarhBargarh Cement Works

0.96

2 ChaibasaChaibasa Cement Works

0.87

3 ChandaChanda Cement Works

1.00

4 Damodhar Damodar Cement Works

0.53

5 GagalGagal Cement Works 4.40

(Gagal I and II)

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6 JamulJamul Cement Works

1.58

7 KymoreKymore Cement Works

2.20

8 LakheriLakheri Cement Works

1.50

9 MadukkaraiMadukkarai Cement Works

0.96

10 SindriSindri Cement Works

0.91

11 WadiWadi Cement Works

2.59

12 New Wadi PlantWadi Cement Works

2.60

13 TikariaTikaria Cement Grinding and

Packing Plant 2.31

Vision of ACC:To be one of the most respected companies in India; recognized for challengingconventions and delivering on our promises

Mission:

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LeadershipMaintain our leadership of the Indian cement industry through thecontinuous modernization and expansion of our manufacturingfacilities and activities, and through the establishment of a wide andefficient marketing network.

Profitability Achieve a fair and reasonable return on capital by promotingproductivity throughout the company.

GrowthEnsure a steady growth of business by strengthening our positionin the cement sector.

QualityMaintain the high quality of our products and services and ensuretheir supply at fair prices.

EquityPromote and maintain fair industrial relations and an environmentfor the effective involvement, welfare and development of staff at alllevels.

PioneeringPromote research and development efforts in the areas of product

development and energy, and fuel conservation, and to innovateand optimize productivity.

ResponsibilityFulfill our obligations to society, specifically in the areas ofintegrated rural development and in safeguarding the environmentand natural ecological balance.

Few Achievement of ACC Limited:

YEAR Achievements

1936 The Associated Cement Companies Limited incorporated on August 1

1947 India's first entirely indigenous cement plant installed at Chaibasa.

1955ACC Sindri uses waste material - calcium carbonate sludge -from fertilizer factory atSindri to make cement

1956 Bulk Cement Depot established at Okhla, Delhi

1961Blast furnace slag, (a waste by-product from steel) from TISCO used at ACCChaibasa to manufacture Portland Slag Cement.

1961 Manufacture of Hydrophobic (waterproof) cement at ACC Khalari.

1965Manufacture of Portland Pozzolana Cement using naturally available materials. AnEco-friendly cements using an eco-friendly process.

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1966ACC inducts use of pollution control equipment and high efficiency sophisticatedelectrostatic precipitators for its cement plants and captive power plants decadesbefore it becomes mandatory to do so.

1978Introduction of the energy efficient pre-calcinations technology for the first time in

India.

1982 Commissioning of the first 1 MTPA plant in the country at Wadi, Karnataka.

1987ACC develops a new binder, working at sub-zero temperature, which is successfullyused in the Indian expedition to Antarctica.

1992Incorporation of Bulk Cement Corporation of India, a JV with the Government ofIndia.

1993 Commercial manufacture of ready-mixed concrete at Mumbai.

2001Commissioning of the new Wadi plant of 2.6 MTPA capacity in Karnataka, thelargest in India, and among the largest sized kilns in the World.

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Awards & Accolades

IMC Ramkrishna Bajaj National Quality Award - Gagal wins CommendationCertificate and New Wadi Plant wins Special Award for Performance Excellence in the

Manufacturing Sector, 2007.

National Award for outstanding performance in promoting rural and agriculturaldevelopment by ASSOCHAM

Sword of Honour- by British Safety Council, United Kingdom for excellence in safetyperformance.

Indira Priyadarshini Vrikshamitra Award--- by The Ministry of Environment andForests for "extraordinary work" carried out in the area of afforestation.

FICCI Award--- for innovative measures for control of pollution, waste management &

conservation of mineral resources in mines and plant.

Subh Karan Sarawagi Environment Award- by The Federation of Indian MineralIndustries for environment protection measures.

Drona Trophy- By Indian Bureau Of Mines for extra ordinary efforts in protection ofEnvironment and mineral conservation in the large mechanized mines sector.

Indo German Greentech Environment Excellence Award

Golden Peacock Environment Management Special Award- for outstanding efforts in

Environment Management in the large manufacturing sector.

Indira Gandhi Memorial National Award- for excellent performance in prevention ofpollution and ecological development

Excellence in Management of Health, Safety and Environment : Certificate of Meritby Indian Chemical Manufacturers Association

Vishwakarma Rashtriya Puraskar trophyfor outstanding performance in safety andmine working

Good Corporate Citizen Award- by PHD Chamber of Commerce and Industry

Jamnalal Bajaj Uchit Vyavahar Puraskar- Certificate of Merit by Council for FairBusiness Practices

Greentech Safety Gold and Silver Awards - for outstanding performance in Safetymanagement systems by Greentech Foundation

FIMI National Award- for valuable contribution in Mining activities from the Federationof Indian Mineral Industry under the Ministry of Coal.

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ACC was the first recipient of ASSOCHAMs first ever National Award foroutstanding performance in promoting rural and agricultural developmentactivities in 1976.

Decades later, PHD Chamber of Commerce and Industry selected ACC as

winner of its Good Corporate Citizen Award for the year 2002.

Over the years, there have been many awards and felicitations for achievementsin Rural and community development, Safety, Health, Tree plantation,Aforestation, Clean Mining, Environment Awareness and Protection.

HIGHILIGHTS OF FINANCIAL PERFORMANCE of ACC LTD:

Rs. CroreParticulars *2005 2006 2007 2008 2009

NET SALES 3,221 5,803 6,991 7,283 8,027PBT 684 1,620 1,930 1,737 2,294OPERATINGPROFIT

616 1,717 1,993 1,899 2,643

PAT 544 1,232 1,439 1,213 1,607CapitalEmployed

3,502 4,234 4,791 5,746 6,932

Basic Earnings

per Share (Rs.)

30.02 66.02 76.75 64.63 85.60

An Introduction To Working Capital Management

Working capital means the part of the total assets of the business that change fromone form to another form in the ordinary course of business operations.

Concept of working capital:-

The word working capital is made of two words Working and CapitalThe word working means day to day operation of the business, whereas the wordcapital means monetary value of all assets of the business.

Working capital : -Working capital may be regarded as the life blood of business. Working capital isof major importance to internal and external analysis because of its closerelationship with the current day-to-day operations of a business. Every businessneeds funds for two purposes.

* Long term funds are required to create production facilities through purchase

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of fixed assets such as plants, machineries, lands, buildings & etc

* Short term funds are required for the purchase of raw materials, payment ofwages, and other day-to-day expenses.. It is other wise known as revolving or circulating capital

It is nothing but the difference between current assets and current liabilities. i.e.

Working Capital = Current Asset Current Liability.Businesses use capital for construction, renovation, furniture, software,equipment, or machinery. It is also commonly used to purchase inventory, or tomake payroll. Capital is also used often by businesses to put a down paymentdown on a piece of commercial real estate. Working capital is essential for anybusiness to succeed. It is becoming increasingly important to have access tomore working capital when we need it.

Concept of working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over CurrentLiability.

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Current Assets Current Liabilities

Cash in hand / at bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary investment

Prepaid expenses

Accrued incomes

Bills Payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over draft


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Working capital in terms of five components:

1. Cash and equivalents: - This most liquid form of working capital requiresconstant supervision. A good cash budgeting and forecasting system providesanswers to key questions such as: Is the cash level adequate to meet currentexpenses as they come due? What is the timing relationship between cash inflowand outflow? When will peak cash needs occur? When and how much bankborrowing will be needed to meet any cash shortfalls? When will repayment beexpected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If

we do, is the amount of accounts receivable reasonable relative to sales? Howrapidly are receivables being collected? Which customers are slow to pay andwhat should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's currentassets, so naturally it requires continual scrutiny. Is the inventory levelreasonable compared with sales and the nature ofour business? What's the rate of inventory turnover compared with othercompanies in our type of business?4. Accounts payable: - Financing by suppliers is common in small business; it isone of the major sources of funds for entrepreneurs. Is the amount of moneyowed suppliers reasonable relative to what we purchase? What is our firm'spayment policy doing to enhance or detract from our credit rating?

5. Accrued expenses and taxes payable: - These are obligations of ourcompany at any given time and represent a future outflow of cash.

Two different concepts of working capital are:-

Balance sheet or Traditional concept

Operating cycle concept.

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Balance sheet or Traditional concept:- It shows the position of the firm at certainpoint of time. It is calculated in the basis of balance sheet prepared at a specificdate. In this method there are two type of working capital:-

Gross working capital

Net working capital

Gross working capital:- It refers to the firms investment in current assets. The sumof the current assets is the working capital of the business. The sum of the currentassets is a quantitative aspect of working capital. Which emphasizes more onquantity than its quality, but it fails to reveal the true financial position of the firmbecause every increase in current liabilities will decrease the gross working capital.

Net working capital:- It is the difference between current assets and currentliabilities or the excess of total current assets over total current liabilities.

Working capital= current assets - current liabilities.

It also can be defined as that part of a firms current assets which is financedwith long term funds. It may be either positive or negative. When the current assetsexceed the current liability, the working capital is positive and vice versa.

Operating cycle concept: - The duration or time required to complete thesequence of events right from purchase of raw material for cash to the realizationof sales in cash is called the operating cycle or working capital cycle.

Types of Working Capital:-

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RAW MATERIAL

WORK IN PROGRESS

FINISH GOODSSALES

DEBTORS & BILLSRECEIVABLES

CASH

OPERATING

CYCLE


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SIGNIFICANCE OF WORKING CAPITAL:-

Factors requiring consideration while estimating working capital.

The average credit period expected to be allowed by suppliers.

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TYPES OFWORKINGCAPITAL

ON THE BASIS OF

B/S CONCEPT

ON THE BASIS OF

TIME

GROSS WORKINGCAPITAL

NET WORKINGCAPITAL

REGULARWORKING

CAPITAL

TEMPORARYWORKING

CAPITAL

SEASONALWORKING

CAPITAL

SPECIFICWORKING

CAPITAL

EASY LOAN FROMBANKS

INCREASE

EFFECIENC-Y

INCREASE IN FIX

ASSETS

INCREASE DEBT

CAPACITY

DIVIDENDDISTRIBUTI-ON

PAYMENT TOSUPPLIERS

SIGNIFICAN--CE OF

WORKING

CAPITAL


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Total costs incurred on material, wages. The length of time for which raw material are to remain in stores before

they are issued for production. The length of the production cycle (or) work in process. The length of sales cycle during which finished goods are to be kept

waiting for sales. The average period of credit allowed to customers The amount of cash required to make advance payment

Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the efficiencywith which working capital is being used in the enterprise. The following are theimportant ratios to measure the efficiency of working capital. The following, easilycalculated, ratios are important measures of working capital utilization.

Key Working Capital Ratios:

The following, easily calculated, ratios are important measures of working capitalutilization.

Ratio Formulae Result Interpretation

StockTurnover(in days)

Average Stock* 365/

Cost of GoodsSold

= xdays

On average, we turn over the value of ourentire stock every x days. We may needto break this down into product groups foreffective stock management.Obsolete stock, slow moving lines willextend overall stock turnover days.Faster production, fewer product lines,just in time ordering will reduce average

days.

ReceivablesRatio(in days)

Debtors * 365/Sales

= xdays

It takes on average x days to collectmonies due to we. If were official creditterms are 45 day and it takes 65 days...why?One or more large or slow debts can dragout the average days. Effective debtormanagement will minimize the days.

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PayablesRatio

(in days)

Creditors *365/

Cost of Sales

(or Purchases)

= xdays

On average, we pay our suppliers every xdays. If we negotiate better credit termsthis will increase. If we pay earlier, say, toget a discount this will decline. If wesimply defer paying our suppliers (without

agreement) this will also increase - butour reputation, the quality of service andany flexibility provided by our suppliersmay suffer.

CurrentRatio

Total CurrentAssets/

Total Current

Liabilities

= xtimes

Current Assets are assets that we canreadily turn in to cash or will do so within12 months in the course of business.Current Liabilities are amount we are dueto pay within the coming 12 months. Forexample, 1.5 times means that we shouldbe able to lay our hands on $1.50 for

every $1.00 we owe. Less than 1 timee.g. 0.75 means that we could haveliquidity problems and be under pressureto generate sufficient cash to meetoncoming demands.

Quick Ratio

(Total CurrentAssets -

Inventory)/Total Current

Liabilities

= xtimes

Similar to the Current Ratio but takesaccount of the fact that it may take time toconvert inventory into cash.

WorkingCapitalRatio

(Inventory +

Receivables -Payables)/

Sales

As %Sales

A high percentage means that workingcapital needs are high relative to oursales.

Note:- Once ratios have been established for our business, it is important to trackthem over time and to compare them with ratios for other comparable businessesor industry sectors.

The working capital needs of a business are influenced by numerousfactors. The important ones are discussed in brief as given below :

Nature of Enterprise:-The nature and the working capital requirements ofan enterprise are interlinked. While a manufacturing industry has a longcycle of operation of the working capital, the same would be short in an

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enterprise involved in providing services. The amount required also variesas per the nature; an enterprise involved in production would require moreworking capital than a service sector enterprise.

Manufacturing/Production Policy:-Each enterprise in the manufacturing

sector has its own production policy, some follow the policy of uniformproduction even if the demand varies from time to time, and others mayfollow the principle of 'demand-based production' in which production isbased on the demand during that particular phase of time. Accordingly,the working capital requirements vary for both of them.

Working Capital Cycle :-In manufacturing concern, working capital cyclestarts with the purchase of raw materials and ends with realization of cashfrom the sale of finished goods. The cycle involves the purchase of rawmaterials and ends with the realization of cash from the sale of finishedproducts. The cycle involves purchase of raw materials and stores, its

conversion in to stock of finished goods through work in progress withprogressive increment of labor and service cost, conversion of finishedstick in to sales and receivables and ultimately realization of cash and thiscycle continuous again from cash to purchase of raw materials and so on.

Operations:-The requirement of working capital fluctuates for seasonalbusiness. The working capital needs of such businesses may increaseconsiderably during the busy season and decrease during the slackseason. Ice creams and cold drinks have a great demand duringsummers, while in winters the sales are negligible.

Market Condition:-If there is high competition in the chosen productcategory, then one shall need to offer sops like credit, immediate deliveryof goods etc. for which the working capital requirement will be high.Otherwise, if there is no competition or less competition in the market thenthe working capital requirements will be low.

Credit Policy:-The credit policy is concerned in its dealings with debtorsand creditors influence considerably the requirements of the workingcapital. A concern that purchases its requirements on credit and sells itsproducts/services on cash requires lesser amount of working capital. Onthe other hand a concern buying its requirements for cash and allowing

credit to its customers, shall need larger amount of funds are bound to betied up in debtors or bills receivables.

Business Cycle:-Business Cycle refers to alternate expansion andcontraction in general business activities. In a period of born i.e. when thebusiness is prosperous there is a need for larger amount of workingcapital due to increase in sales, rise in prices, optimistic expansion ofbusiness etc. On the country at he time of depression i.e. when there is a

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down swing of the cycle, business contracts, sales decline, difficulties arefaced in collections from debtors and firms may have a large amount ofworking capital lying ideal

Availability of Raw Material:-If raw material is readily available then one

need not maintain a large stock of the same, thereby reducing the workingcapital investment in raw material stock. On the other hand, if raw materialis not readily available then a large inventory/stock needs to bemaintained, thereby calling for substantial investment in the same.

Growth and Expansion:-Growth and expansion in the volume ofbusiness results in enhancement of the working capital requirement. Asbusiness grows and expands, it needs a larger amount of working capital.Normally, the need for increased working capital funds precedes growth inbusiness activities.

Earning Capacity and Dividend policy:-Some firms have more earningcapacity than others due to the quality of their products, monopolyconditions etc. Such firms with high earning capacity may generate cashprofits from operations and contribute to their capital. The dividend policyof a concern also influences the requirements of the working capital. Afirm that maintains steady high rate of cash dividend irrespective of itsgeneration of profits needs more capital than the firm retains larger part ofits profits and does not pay high rate of cash dividend.

Price Level Changes:-Generally, rising price level requires a higher

investment in the working capital. With increasing prices, the same level ofcurrent assets needs enhanced investment.

Manufacturing Cycle:-The manufacturing cycle starts with the purchaseof raw material and is completed with the production of finished goods. Ifthe manufacturing cycle involves a longer period, the need for workingcapital would be more. At times, business needs to estimate therequirement of working capital in advance for proper control andmanagement. The factors discussed above influence the quantum ofworking capital in the business. The assessment of working capitalrequirement is made keeping these factors in view. Each constituent of

working capital retains its form for a certain period and that holding periodis determined by the factors discussed above. So for correct assessmentof the working capital requirement, the duration at various stages of theworking capital cycle is estimated. Thereafter, proper value is assigned tothe respective current assets, depending on its level of completion.

Other Factors:-Certain other factors such as operating efficiency,management ability, irregularities a supply, import policy, asset structure,

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importance of labor, banking facilities etc. also influences the requirementof working capital.

Component of Working Capital Basis of Valuation:-

Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is lower Stock of finished goods Cost of production

Debtors Cost of sales or sales value

Cash Working expenses:-

WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets andcurrent liabilities. The major thrust of course is on the management of currentassets .This is understandable because current liabilities arise in the context of

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current assets. Working Capital Management is a significant fact of financialmanagement. Its importance stems from two reasons:-

Investment in current assets represents a substantial portion oftotal investment.

Investment in current assets and the level of current liabilities have to begeared quickly to change in sales. To be sure, fixed asset investment andlong term financing are responsive to variation in sales. However, thisrelationship is not as close and direct as it is in the case of working capitalcomponents.

The importance of working capital management is effected in the fact thatfinancial manages spend a great deal of time in managing current assets andcurrent liabilities. Arranging short term financing, negotiating favorable creditterms, controlling the movement of cash, administering the accounts receivable,and monitoring the inventories consume a great deal of time of financial

managers.

The problem of working capital management is one of the best utilization of ascarce resource.

Thus the job of efficient working capital management is a formidable one, since itdepends upon several variables such as character of the business, the lengths ofthe merchandising cycle, rapidity of turnover, scale of operations, volume andterms of purchase & sales and seasonal and other variations.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL:

o Growth may be stunted. It may become difficult for the enterprise toundertake profitable projects due to non-availability of working capital.

o Implementation of operating plans may become difficult and consequently

the profit goals may not be achieved.

o Cash crisis may emerge due to paucity of working funds.

o Optimum capacity utilization of fixed assets may not be achieved due to

non availability of the working capital.

o The business may fail to honor its commitment in time, thereby adverselyaffecting its credibility. This situation may lead to business closure.

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This is a major source for raising short-term funds. Banks extend loans tobusinesses to help them create necessary current assets so as to achieve therequired business level. The loans are available for creating the following currentAssets:

Stock of Raw Materials

Stock of Work in Process

Stock of Finished Goods

DebtorsBanks give short-term loans against these assets, keeping some security margin.The advances given by banks against current assets are short-term in nature andbanks have the right to ask for immediate repayment if they consider doing so.Thus bank loans for creation of current assets are also current liabilities.

iii. Promoters FundIt is advisable to finance a portion of current assets from the promoters funds.They are long-term funds and, therefore do not require immediate repayment.

These funds increase the liquidity of the business.

MANAGEMENT OF INVENTORY:

Inventories constitute the most significant part of current assets of a largemajority of companies in India. On an average, inventories are approximately 60% of current assets in public limited companies in India.

Because of the large size of inventories maintained by firms maintained by firms,a considerable amount of funds is required to be committed to them. It is,

therefore very necessary to manage inventories efficiently and effectively in orderto avoid unnecessary investments. A firm neglecting a firm the management ofinventories will be jeopardizing its long run profitability and may fail ultimately.

The purpose of inventory management is to ensure availability of materials insufficient quantity as and when required and also to minimize investment ininventories at considerable degrees, without any adverse effect on productionand sales, by using simple inventory planning and control techniques.

Need to hold inventories:-

Transaction motive emphasizes the need to maintain inventoriesto facilitate smooth production and sales operation.

Precautionary motive necessities holding of inventories to guard againstthe risk of unpredictable changes in demand and supply forces and otherfactors.

Speculative motive influences the decision to increases or reduceinventory levels to take advantage of price fluctuations and also for savingin re-ordering costs and quantity discounts etc.

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Objective of Inventory Management:-

The main objectives of inventory management are operational and financial. Theoperational mean that means that the materials and spares should be availablein sufficient quantity so that work is not disrupted for want of inventory. The

financial objective means that investments in inventories should not remain idealand minimum working capital should be locked in it. The following are theobjectives of inventory management:-

To ensure continuous supply of materials, spares and finished goods. To avoid both over-stocking of inventory.

To maintain investments in inventories at the optimum level as required bythe operational and sale activities.

To keep material cost under control so that they contribute in reducingcost of production and overall purchases.

To eliminate duplication in ordering or replenishing stocks. This is possible

with the help of centralizing purchases. To minimize losses through deterioration, pilferage, wastages and

damages.

To design proper organization for inventory control so that management.Clear cut account ability should be fixed at various levels of theorganization.

To ensure perpetual inventory control so that materials shown in stockledgers should be actually lying in the stores.

To ensure right quality of goods at reasonable prices.

To facilitate furnishing of data for short-term and long term planning andcontrol of inventory

MANAGEMENT OF CASH:

Cash is the important current asset for the operation of the business. Cash is thebasic input needed to keep the business running in the continuous basis, it isalso the ultimate output expected to be realized by selling or productmanufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage willdisrupt the firms manufacturing operations while excessive cash will simplyremain ideal without contributing anything towards the firms profitability. Thus amajor function of the financial manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any restriction.The term cash includes coins, currency and cheques held by the firm andbalances in its bank account. Sometimes near cash items such as marketingsecurities or bank term deposits are also included in cash. Generally when a firmhas excess cash, it invests it is marketable securities. This kind of investmentcontributes some profit to the firm.

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Management of Receivables:

A sound managerial control requires proper management of liquid assets andinventory. These assets are a part of working capital of the business. An efficientuse of financial resources is necessary to avoid financial distress. Receivables

result from credit sales.

A concern is required to allow credit sales in order to expand its sales volume. Itis not always possible to sell goods on cash basis only. Sometimes otherconcern in that line might have established a practice of selling goods on creditbasis. Under these circumstances, it is not possible to avoid credit sales withoutadversely affecting sales.

The increase in sales is also essential to increases profitability. After a certainlevel of sales the increase in sales will not proportionately increase productioncosts. The increase in sales will bring in more profits. Thus, receivables

constitute a significant portion of current assets of a firm. But for investment inreceivables, a firm has to insure certain costs. Further, there is a risk of baddebts also. It is therefore, very necessary to have a proper control andmanagement of receivables.

Needs to hold cash:

Receivables management is the process of making decisions relating toinvestment in trade debtors. Certain investments in receivables are necessary toincrease the sales and the profits of a firm. But at the same time investment inthis asset involves cost consideration also. Further, there is always a risk of bad

debts too.

Thus, the objective of receivable management is to takea sound decision as regards investments in debtors. In the words of Bolton, S.E.,the need of receivables management is to promote sales and profits untilthat point is reached where the return of investment in further funding ofreceivables is less than the cost of funds raised to finance that additionalcredit.

Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use thecash flow to generate profits. If a business is operating profitably, then it should,in theory, generate cash surpluses. If it doesn't generate surpluses, the businesswill eventually run out of cash and expire. The faster a business expands themore cash it will need for working capital and investment. The cheapest and bestsources of cash exist as working capital right within business. Good management

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of working capital will generate cash will help improve profits and reduce risks.Bear in mind that the cost of providing credit to customers and holding stocks canrepresent a substantial proportion of a firm's total profits.

There are two elements in the business cycle

that absorb cash - Inventory (stocks and work-in-progress) and Receivables(debtors owing our money). The main sources of cash are Payables (ourcreditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables)has two dimensions ........TIME ......... and MONEY. When it comes to managingworking capital - TIME IS MONEY. If we can get money to move faster aroundthe cycle (e.g. collect monies due from debtors more quickly) or reduce theamount of money tied up (e.g. reduce inventory levels relative to sales), thebusiness will generate more cash or it will need to borrow less money to fund

working capital. As a consequence, we could reduce the cost of bank interest orwe'll have additional free money available to support additional sales growth orinvestment. Similarly, if we can negotiate improved terms with suppliers e.g. getlonger credit or an increased credit limit; we effectively create free finance to helpfund future sales.

If we....... Then......

Collect receivables (debtors) faster We release cashfrom the cycle

Collect receivables (debtors)slower

Our receivablessoak up cash

Get better credit (in terms ofduration or amount) from suppliers

We increase ourcash resources

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Shift inventory (stocks) faster We free up cash

Move inventory (stocks) slower We consume morecash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant,vehicles etc. If we do pay cash, remember that this is now longer available forworking capital. Therefore, if cash is tight, we should consider other ways offinancing capital investment - loans, equity, leasing etc. Similarly, if we paydividends or increase drawings, these are cash outflows and, like water flowingdowns a plug hole, they remove liquidity from the business.

More businesses fail for lack of cash than for want ofprofit.

Sources of Additional Working Capital:-

Existing cash reserves Profits (when we secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders

Bank overdrafts or lines of credit Long-term loans

If we have insufficient working capital and we try to increase sales, we can easilyover-stretch the financial resources of the business. This is called overtrading.Early warning signs include:

Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early

cash payment Bank overdraft exceeds authorized limit

Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages,pending receipt of a cheque).

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Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business arecollected faster. Every business needs to know.... who owes them money.... howmuch is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to baddebts.

If we don't manage debtors, they will begin to manage our business as wewill gradually lose control due to reduced cash flow and, of course, we couldexperience an increased incidence of bad debt.

The following measures will help manage debtors:

1. Have the right mental attitude to the control of credit and make sure that it

gets the priority it deserves.2. Establish clear credit practices as a matter of company policy.3. Make sure that these practices are clearly understood by staff, suppliers

and customers.4. Be professional when accepting new accounts, and especially larger ones.5. Check out each customer thoroughly before we offer credit. Use credit

agencies, bank references, industry sources etc.6. Establish credit limits for each customer... and stick to them.7. Continuously review these limits when we suspect tough times are coming

or if operating in a volatile sector.8. Keep very close to our larger customers.

9. Invoice promptly and clearly.10.Consider charging penalties on overdue accounts.11.Consider accepting credit /debit cards as a payment option.12. Monitor our debtor balances and ageing schedules, and don't let any

debts get too large or too old.

Recognize that the longer someone owes we, the greater the chance we willnever get paid. If the average age of our debtors is getting longer, or is alreadyvery long, we may need to look for the following possible defects:

weak credit judgment

poor collection procedures lax enforcement of credit terms

slow issue of invoices or statements

errors in invoices or statements

Customer dissatisfaction.

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Debtors due over 90 days (unless within agreed credit terms) should generallydemand immediate attention.

Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasonsand therefore put on the long finger because they convince themselves there issomething more urgent or important that demands their attention now. There isnothing more important than getting paid for our product or service. A

customer who does not pay is not a customer.

Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managedcarefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function cancreate liquidity problems. Consider the following:

Who authorizes purchasing in our company - is it tightly managed orspread among a number of (junior) people?

Are purchase quantities geared to demand forecasts? Do we use order quantities which take account of stock-holding and

purchasing costs? Do we know the cost to the company of carrying stock? Do we have alternative sources of supply? If not, get quotes from major

suppliers and shop around for the best discounts, credit terms, and reducedependence on a single supplier.

How many of our suppliers have a returns policy? Are we in a position to pass on cost increases quickly through priceincreases to our customers?

If a supplier of goods or services lets we down can we charge back thecost of the delay?

Can we arrange (with confidence!) to have delivery of supplies staggeredor on a just-in-time basis?

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There is an old adage in business that if we can buy well then we can sellwell. Management of our creditors and suppliers is just as important as themanagement of our debtors. It is important to look after our creditors - slowpayment by we may create ill-feeling and can signal that our company isinefficient (or in trouble!).

Remember, a good supplier is someone who will work with us to enhancethe future viability and profitability of our company.

ANALYSIS OF FINANCIAL STATEMENT OF ACC LIMITED

Common size statement Analysis (vertical Analysis):-A financial statement that has variables expressed in percentages rather than in

dollar amounts. For example, items on an income statement are shown as apercentage of revenue or sales, and balance sheet entries are displayed as apercentage of total assets. Common-size statements are used primarily forcomparative purposes so that firms of various sizes can be equated. Also calledone hundred percent statement.Advantages:-

The statement reveals the sources of funds & the distribution orapplication of the total funds in the asset of a business enterprise.

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Comparison of the common size statement over a number of years willclearly indicate the changing proportion of the various components ofassets, liabilities, cost, net sales & profits.

It will assist corporate evaluation & ranking.Limitations:-

It doesnt show variations in the different account items from period toperiod.

Less useful due to lack of established standard proportion of an asset tothe total asset & so on.

Common size statement analysis of ACC cements Ltd. from 2005-2009

2005 (%) 2006(%) 2007(%) 2008(%) 2009(%)

SOURCES OFFUNDS:

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Shareholders

Funds:-

46.96 71.76 83.84 85.77 86.78

Loan Funds: 44.36 20.91 9.47 8.39 8.18

Deferred TaxLiabilities (Net)

8.68 7.32 6.69 5.84 5.04

TOTAL FUNDS 100 100 100 100 100APP. OF FUNDS:---Fixed Assets: - 84.16 79.48 80.03 88.29 91.08Investments:- 9.60 11.50 17.06 11.82 21.28Net Current Assets(Curr Assests-

current liabilities &provision)

5.62 9.00 2.92 (0.11) (12.37)

MISC EXP.(to the extent notwritten off oradjusted)

0.61 0.02 0.00 0.00 0.00

Interpretation:-

(a) There is a significant increase in shareholders fund & decrease inloan funds continuously over a period of time.

(b) There is also a significant increase in the amount invested by thecompany for the purpose of future growth.

(c) There is a significant decrease in current asset over a period oftime.

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Trend Analysis (Horizontal):- Trend percentage analysis moves in onedirection either progression or regression (upward or downward).This methodinvolves the calculation of percentage relationship that each statements bear tothe same item in the base year .Mostly the earliest period is taken as the baseyear.

Advantages:-

It indicates the increase in an accounted item along with the magnitude ofchanges in percentages which is more effective then absolute data.

It facilitates an efficient comparative study of the financial performance ofa firm over a period of time.

Limitations:-

Any one trend by itself is not very analytical & informative.

During the inflationary periods the data becomes incomparable ,unless theabsolute rupee data is adjusted.

There is always the danger of selecting the base year which may not berepresentative, normal & typical.

The calculated percentages having no logical relationship with oneanother.

Precautions to be taken:-

Consistency in the principles & practices followed by the organizationthroughout the calculated period.

The base year should be normal.

Trend percentages should be calculated only for the items which arehaving logical relationship with each other.

Figures of the current year should be adjusted according to the changes inprice levels.

2006* 2007 2008 2009

SOURCES OF FUNDS: Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

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Shareholders Funds:- 100 132.06 156.79 191.42

Loan Funds 100 51.21 52.62

61.9

Deferred Tax Liabilities 100 103.4 104.7 108.9

TOTAL FUNDS 100 113.1 131.2 158.3

APP. OF FUNDS:-

Fixed Assets 100 113.9 145.7 181.4

Investments 503.5 167.8 134.9 293.1

Curr Assets,Loans & Adv:---

100 114.7 143.6 119.4

(Less):-Current Liabilities&Prov.MISC EXP.(to the extent not writtenoff or adjusted)

100

100

134.8

0.00

181.1

0.00

206.4

0.00

TOTAL ASSETS (Net) 100 113.1 131.2 158.3

*Base year:-2006 Value (100)

Working Capital calculation:-

Statement showing change in working capital for ACC Ltd:- ( Rs.in Crore)Particulars Dec09 Dec08 Increase ( + ) Decrease (- )Current AssetsInventories 778.98 793.27 (14.29)Sund. Debtors 203.70 310.17 (106.47)Cash & Bank Bal 746.38 984.24 (237.86)Loan & Advances 554.42 651.28 (96.86)

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Other CA 10.99 20.67 (9.68)Total ( A ) 2294.47 2759.63

Current Liabilities

C.L. 2060.34 1801.79 258.55

Provisions 1091.88 963.93 127.95Total ( B ) 3152.22 2765.72

(851.66)( A-B ) (857.75) (6.09) (465.16) (465.16)Changes inworking capital

(851.66)

Total (857.75) (857.75) (465.16) (465.16)

Similarly the calculation of WC for the year 2005 to 2009 as given below:-(Rs.in Crore)

2005 2006 2007 2008 2009(A)Current assets 1,421 1,921 2,203 2,760 2,294(B)CurrentLiabilities

1,335 1,672 2,221 2,766 3,152

Working capital 86 249 (18) (6) (858)

Interpretation:-While looking into the changes, we will look into the variouscomponents of working capital& analyze the changes in that.

-1000

-800

-600

-400

-200

0

200

400

2005 2006 2007 2008 2009

Working capital

Changes

INVENTORY ANALYSIS

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0

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009

By analyzing the 5 years data we can see that the value of inventories isincreasing over a no of year. It indicates that the company is growing rapidly incement sector. A company uses inventory when they have demand in market.From other point of view we can say that the liquidity of firm is blocked ininventories but it is important to keep stocks due to uncertainty of availability ofraw material in time.

SUNDRY DEBTORS ANALYSIS

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009

Debtors will arise only when credit sales are made. The above graph depicts thatthere is continuous rise in the debtors of ACC Ltd in the successive years otherthan 2009.. It represents an extension of credit to customers. The reason forincreasing credit is competition and company liberal credit policy.

Cash & Bank Bal, Loans & adv ANALYSIS:-

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0

200

400

600

800

1000

2005 2006 2007 2008 2009

Cash & Bank Bal

Loans & Adv

Others

Significant increase in Cash & bank balance, which shows the financialstrengths of the company. Though there is a slight fall in the FY 2009 .Cash is basic input or component of working capital. Cash is needed tokeep the business running on a continuous basis. So the organizationshould have sufficient cash to meet various requirements.

After analyzing the table, we can say that the pattern of loans & advance

is not static in nature. It shows upwards & downwards movement as therequirements influence it.

CURRENT LIABILITIES & PROVISIONS ANALYSIS:-

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009

After analyzing the bar-chart, we can say that the amount of currentliabilities is increasing significantly over years .An increase current

liabilities indicates that company is using its credit facilities to themaximum extent for operating purpose.

From the above table we can see that provision shows an increasing trendand the huge amount is being kept in these provisions. This is kept to paythe taxes, interest & other facilities or benefits to the employee. It is justkept for meeting future short-term liabilities.

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RATIO ANALYSIS

(A) Overview:-Financial ratios are measures of the relative health, or sometimes the relativesickness of a business. A physician, when evaluating a persons health, will

measure the heart rate, blood-pressure and temperature; whereas, a financialanalyst will take readings on a companys growth, cost control, turnover,profitability and risk. Like the physician, the financial analyst will then comparethese readings with generally accepted guidelines. Ratio analysis is an effectivetool to assist the analyst in answering some basic questions, such as:-1. How well is the company doing?2. What are its strengths and weaknesses?3. What are the relative risks to the company?Although an analysis of financial ratios will help identify a companys strengthsand weaknesses, it has its limitations and will not necessarily provide thesolutions or cures for the problems it identifies.

B. APPLICATION OF RATIO ANALYSIS:-Integral tool in trend analysis

Compares the companys own ratios to itself over time

Identifies the companys strengths and weaknesses

Assists in establishing appropriate capitalization rates (helps to identifyrisk factors particular to the subject company)

WORKING CAPITAL RATIOS AND ITS INTERPRETATION :-Dec05 Dec06 Dec07 Dec08 Dec09

Liquidity Ratio

Current Ratio 0.58 0.77 0.86 0.89 0.67

Quick Ratio 0.42 0.61 0.55 0.61 0.42

Solvency RatioDebt-equity ratio. 0.50 0.25 0.07 0.10 0.09

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0

0.1

0.20.3

0.4

0.5

0.6

0.7

0.8

0.9

2005 2006 2007 2008 2009

Current ratio

Quick Ratio

Debt-equity ratio

Interpretation: - As we know that ideal current ratio for any firm is 2:1.Thecurrent ratio of company is less than the ideal ratio. This depicts thatcompanys liquidity position is not sound. Its current assets are less thanits current liabilities.

Generally a QR of 1:1 is considered to represent satisfactory currentfinancial position. The trend of quick ratio is uneven & the ratio is around0.5:1 over a period of time. A quick ratio is an indication that the firm isliquid and has the less confidence to meet its current liabilities in time.This shows company has liquidity problem.

Debt-equity ratio shows relationship between borrowed funds and ownerscapital is a popular measure of the long term financial solvency of the firm.For ACC it was the highest around 0.5:1 in 2005.After that it showsfluctuation.

Activity/mgmt efficiency Ratio:-

Dec,05 Dec06 Dec07 Dec08 Dec09Inventory TurnoverRatio

5.37 9.33 24.85 27.51 25.22

Debtor TurnoverRatio

16.34 27.75 27.40 24.12 31.22

Investment

Turnover Ratio

12.29 22.40 24.85 27.51 25.22

Work cap turn. (27.93) (6.96) (18.25) (17.02) (54.17)

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0

10

20

30

40

50

60

2005 2006 2007 2008 2009

Inventory turnover ratio

Debtor Turnover Ratio

Investment Turnover Ratio

Working capital Turnover

ratio

It shows increasing trend which is favorable for the company. As itindicates how rapidly the inventory is turning into receivable throughsales. A high ratio is good from the view point of liquidity. A low ratio wouldsignify that inventory does not sell fast.

A high ratio is indicative of shorter time lag between credit sales and cashcollection. The higher the value ofdebtors turnover the more efficient isthe management of debtors or more liquid the debtors are. A low ratioshows that debts are not being collected rapidly. As the graph reveals thatthe debts are collected in time & the process is improving consistently.This shows that company is utilizing its debtors efficiently as compare toprevious year.

This ratio indicates high net working capital requires for sales. Thiscompany having negative working capital because, they have morecurrent liabilities over current assets. It shows that the short term loans arenot sufficient and more money are invested in the purchase of fixedassets. Thus this ratio is helpful to forecast the working capitalrequirement on the basis of sale.

Profitability & Investment turnover Ratio:-

ProfitabilityRatio

Dec,05 Dec06 Dec07 Dec08 Dec09

Gross ProfitRatio

17.32 28.97 23.72 20.59 27.68

Net Profit Ratio 16.85 21.16 20.44 16.29 19.69

InvestmentValuation RatioFace value 10.00 10.00 10.00 10.00 10.00Dividend per 8.00 15.00 20.00 20.00 23.00

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Share

0

5

10

15

20

25

30

2005 2006 2007 2008 2009

Gross profit ratio

Net profit ratio

Dividend per share

As it shows the dividend per share ratio is increasing over years. Itmeans that the investors have faith in the company.

G/P margin ratio shows the profit relative to sales. A high ratio of grossprofits to sales is a sign of good management as it implies that the costof production of the firm is relatively low. For ACC it is uneven but it wasgood in FY06 & FY09.

The net profit margin is indicative of management ability to operate thebusiness with sufficient success not only to recover from revenues, butalso to leave a reasonable margin to the owners. A high net profit marginwould ensure adequate return to the owners as well as enable a firm to

face adverse economic conditions. It is significant & satisfactory for thecompany.

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SUGGESTIONS

It is suggested that the company has to increase its current assets to

meet its short-term obligations.

Company has to improve debtors collection period continuously so

that effective receivable management will possible.

Reserves should be utilized for the growth of the company.

While forecasting cash flow, the management should take into account

the impact of unforeseen events, market cycles and actions by

competitors. The effect of unforeseen demands of working capital

should be factored in.

Collaborating with the customers & suppliers instead of being focusedonly on own operations will also yield good results. If feasible, helpingthem to plan their inventory requirements efficiently to match theirproduction with their consumption will help reduce inventory levels.

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BIBLIOGRAPHY

www.google.com

INVESTOPEDIA.com

www.Moneycontrol.com

www.cmaindia.org

www.acclimited.com
http://www.google.com/http://www.moneycontrol.com/http://www.cmaindia.org/http://www.acclimited.com/http://www.google.com/http://www.moneycontrol.com/http://www.cmaindia.org/http://www.acclimited.com/

34054652-project-report-in-finance

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