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DISSERTATION ON

FINANCIAL STATEMENT ANALYSIS

CARRIED OUT AT

Mangalam Cement Ltd.

UNDER THE GUIDANCE OF Mr. V. G.HARKUT

PRESTIGE INSTITUTE OF MANAGEMENTAND

RESEARCH.INDORE

SUBMITTED BY:Vineet kimteeB.B.A. 5TH SEM.

ROLL NO.90400

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ACKNOWLEDGMENT

I acknowledge with thanks the valuable advice and immense

guidance rendered to me by my company guide, Mr. R.C. Gupta,

President (F&A) and Company Secretary of Mangalam Cement Ltd.

In spite of his busy schedule, he spared and spent time to help me

execute this project.

Mr. V.G. Harkut, Manager (Finance), Mangalam Cement Ltd,

provided me various information and data in compiling this project,

to whom I express my grateful thanks. An authority in financematters and company affairs, his wholehearted help would always

remain an unfading light in my thoughts and actions.

I also thank my faculty guide, Ms. Priyanka Jain whose advice and

encouragement throughout, stood as a moving spirit behind

compilation of the project, Financial statement Analysis ofMangalam Cement Ltd.

My grateful thanks are also due to Mr. A.S.Dadhich and Mr.

S.K.Shringi of Stores department, Mr.Anil Mandot and Mr. Ashok Jain

of Accounts Department and Mr. Ajit Singhvi of Purchase

Department of Mangalam Cement Ltd., for their sincere, cordial and

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unstinted guidance and support throughout the course of this

project.

INDEX

S.No.

Particulars PageNo.

1. Introductiona. Cementb. Types of Cementc. Domestic players

About MCL

2. Introduction of the report

b. Need and significance of the study

3. Research methodologya. Typology of the studyb. Sources of data

4. Calculation and interpretation

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Abstract:

The Project is being conducted at Mangalam Cement Ltd. Morak, a company of B.K. Bola Group of Companies. Theproject concentrates on the financial statement analysis of theorganization.

The project is all about analysis of the companys financialstatements. The project demands for a thorough study ofvarious tools and techniques involved in analysis of financialstatements, understanding of the various financialstatements. The project also includes interpretation of thefinancial results to derive meaningful information from thestatements.

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CHAPTER 1INTRODUCTION

Cement

Cement is a fine, soft, powdery-type substance. In the most

general sense of the word, cement is a binder, a substance

that sets and hardens independently, and can bind other

materials together.The name cement goes back to the Romans

who used the term opus caementitium to describe masonry which

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resembled concrete and was made from crushed rock with burnt

lime as binder. Cement is a hydraulic powder material, which reacts

with water to produce strength-bearing lattices. The mixture of

aggregates, cement and water is concrete. In simple terms, cementis a manmade mineral structure created at high temperatures,

mainly comprising lime (CaO), Silica (SiO2) and oxides of aluminium

and iron (Al2O3 and Fe2O3).

Four essential elements are needed to make cement. They are

calcium, silicon, aluminium and iron.

Cement is usually grey. White cement can also be found but it is

expensive.

Types of cement:

The types of cement in India have increased over the years with

the advancement in research, development, and technology.

Some of the various types of cement produced in India are:

Clinker Cement

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Ordinary Portland cement: it has 95 per cent clinker

and 5 per cent gypsum and other materials. It accounts

for 70 per cent of the total consumption.

Portland Blast Furnace Slag Cement: PBFSC consists of45 per cent clinker, 5 per cent gypsum and accountsfor 10 per cent of the total cement consumed, generallyused in the construction of dams and similar massiveconstructions

Portland Pozzolana Cement: PPC has 80 per centclinker, 15 per cent pozzolona and 5 per cent gypsumand accounts for 18 per cent of the total cementconsumption. It is manufactured because it uses flyash/burnt clay/coal waste as the main ingredient.

Rapid Hardening Portland cement: Rapid HardeningPortland Cement is similar to OPC, except that it isground much finer.

Water proof cement: Water Proof Cement is similar toOPC, with a small portion of calcium stearate ornon- saponifiable oil to impart waterproofingproperties.

White Cement: White cement is basically OPC -clinker using fuel oil (instead of coal) with ironoxide content below 0.4 percent to ensurewhiteness. A special cooling technique is used in itsproduction.

Sulphate Resisting Portland Cement

Portland Pozzolana Cement, Ordinary Portland cement, and

Portland Blast Furnace Slag Cement account for around 99%

of the total cement production.

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Leading Domestic Players

While the Cement Corporation of India, a central public sector

undertaking, comprises 10 units; the various State governments

own 10 large cement plants. Among the leading domestic

players in terms of cement manufacturing are:

1. Ambuja Cement

2. Birla Group

3. Associated Cement Companies Ltd

4. Binani Cement

5. J K Cement.

MAN GALAM CEMENT LIMITED:

Mangalam Cement Limited was incorporated on 25 October

1976, and was

promoted by Kesoram Industries, Century Textiles and Industries,

Grasim Industries, Rajasthan State Industrial and Mineral

Development Corporation and Pilani Investment Corporation in the

year 1978. It was started with an initial investment of 25 crores. It is

a professionally managed and well-established cement

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manufacturing company enjoying the confidence of consumers

because of its superior quality product and excellent customer

service. The company started its commercial production in March

1981 with an installed capacity of 4 lakh tonnes p.a. and is engagedin the manufacturing of Ordinary Portland cement, Pozzolana

Portland cement by the use of dry processes at the Morak facility

in Rajasthan.

The company sells the cement under the brand name Birla Uttam.

The company added one more feather to its cap in the year 1994;

by commissioning its state of the art new cement plant, with

German technology for producing 7 lakh tonnes p.a. cement at its

existing site at Morak, Distt. Kota, Rajasthan, under the name

Neer Shree Cement. The new plant is completely computerized.

Some of the latest equipments form the unique feature for the

plant:

Vibrating Screen, to ensure that only very clean limestone goes

into the process of manufacturing cement;

Stacker Reclaimer, to perfectly homogenize the main raw material

i.e. limestone;

Roller Mills, for coal and raw material grinding and roller press for

clinker grinding to ensure uniform particle size of cement for greater

strength;

X-Ray Analyser, for quick and accurate analysis of all raw

materials, clinker and cement and

Electronic Packers, for consistent results and prompt delivery.

A central control room (CCR) is there which controls the whole unit

electronically.

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The company has taken up various schemes for cost saving and

enhancement in the capacity in phased manner. With a view to

reducing power cost, the company has set up a coal based 17.5 MW

Captive Thermal Power plant, The company is operating its both theunits at more than 100% capacity. In order to increase the

production, the company has taken steps for up gradation of its

existing plants to increase clinker production capacity of Unit-I by

500 MT per day and of Unit-II by 200MT per day.

The company has enjoyed cordial relations with its

employees at all levels, which have accounted for acceleratedgrowth of the company.

The company is well aware of its social responsibilities

and thus has taken up a number of development projects in

the nearby villages.

The company is also taking steps to control pollution by

improving its environmental performance and controlling the

impact of its activities on the environment. The company also

creates environment awareness among employees by

celebrating Environment Day. Performance of all Pollution

Control Equipments is monitored by a qualified team having

latest monitoring equipments. All equipments are designed

and located to conform to the noise norms in order to avoid

noise pollution.

The company operates in northern region with a key presence in the

markets of Rajasthan, Western U.P., Gujarat and Delhi. The

company has a market share of 5.5% in northern India. It has

29 offices across five states of Haryana, Madhya Pradesh,

Rajasthan, Uttar Pradesh and Delhi.

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Corporate Vision:

The company belongs to B.K. Birla Group of Companies. The grouphas a corporate vision which is as follows:

Cement manufacturing process at Mangalam : using

advanced technology :

At MANGALAM (old plant): at NEER SHREE (new plant)

All processes controlled by CCR.

The raw materials mixture is prepared by mixing local limestone

(morak), high grade and latterite. The raw materials are next ground

together in a raw mill. Raw mill is the equipment used to grind raw

materials into raw mix during the manufacture of cement. Then

the material goes through following stages:

Storage silos in which raw material is fed (capacity

4000tonnes, 2 silos), at NEER SHREE (new plant) (capacity

8000 tonnes).

When air is introduced material comes out and through

conveyors and elevators fed to constant head feeder (a head

of material kept constant there).

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After that Weigh feeder then controls the amount to be fed to

pre-heaters with the help of chain conveyor which transfers

R/M to pre heaters through elevators.

In pre heater 4 cyclones are there having differenttemperatures to heat material before entering into kiln. The

temperature in the cyclones varies from 380C to 850C.

Finally the heated material enters into kiln. The cement kiln

consists of a tube made from steel plate, and lined with

firebrick. The tube slopes slightly (1-4) and slowly rotates on

its axis at between 30 and 250 revolutions per hour. The raw

mixture is heated up to a peak temperature of 1400-1450 C.

The mixture of raw materials enters at the high end of the

cylinder and slowly moves along the length of the kiln due to

the constant rotation and inclination. At the low end of the

kiln, a fuel is injected and burned, thus providing the heat

necessary to make the materials react. As the mixture moves

down the cylinder, it progresses through different stages of

transformation. Clinker is the solid material produced by

the cement kiln stage that has sintered into lumps or

nodules, typically of diameter,1-25 mm. Clinker is

discharged and on cooling, it is conveyed to storage

bins(gantry). In Neer shree those gantries are called

CSPs(bins)

Finally gypsum is added and grinded into clinkers to form

cement which is then packed through electronic packers.

The chemical composition for a typical Portland cement is asfollows:

Cement Compound WeightPercentage

ChemicalFormula

Tricalcium silicate 50 % 3CaO .SiO2Dicalcium silicate 25 % 2CaO.SiO2Tricalcium aluminate 10 % 3CaO .Al2O3

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Tetracalciumaluminoferrite

10 % 4CaO.Al2O3.Fe2O3

Gypsum 5 % CaSO4.2H2O

Cement mill is the equipment used to grind the hard,

nodular clinker into the fine grey powder that is cement.

FINANCIAL STATEMENT ANALYSIS

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Financial statements are prepared by the company for the purpose

of presenting a periodical review or report on the progress by

the management. According to Accounting Standards, the termfinancial statements covers balance sheets, income

statements or profit and loss accounts, notes and other

statements and explanatory material which are identified as

being part of the financial statements.

The financial statements based on accounting policies, vary from

enterprise to enterprise, and must be clear and understandable.

Financial statement analysis pinpoints the strong points and

weaknesses of a business unit, and provides scope for

understanding the liquidity, solvency, profitability and operational

efficiency of the business concerned. A number of parties and

bodies like banks, trade unions, important customers etc. have an

interest in the financial results of a company.

Financial analysis reduces reliance on guesses and thus helps

reducing uncertainty. Financial analysis does not lessen the need for

judgment rather establishes a sound and systematic basis for its

rational application.

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Need and significance of the study:-

This study would help to determine that how was this year as

compared to previous years because inflation, recession, capacity

expansion all happened this year. So this study would provide in

depth knowledge of how the companys financial figures were

affected and what all changes have occurred in financial

statements, finally whose analysis is done through ratios and

working capital which reveal the changes so far.

The project is all about analysis of the companys last five years

financial statements. The project demands for a thorough study of

various tools and techniques involved in analysis of financial

statements, understanding of the various financial statements to

derive meaningful information from the statements.

Financial statements (or financial reports) are formal records of

business financial activities. These statements provide an overview

of a business profitability and financial condition in both short and

long term.

There are three basic financial statements:

1.Balance Sheet - often described as a snapshot of the

companys financial condition (also referred to as statement

of financial condition)

2.Income Statement - also referred to as Profit or loss

statement, reports on a companys results of operations over a

period of time.

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3.Cash Flow Statement - reports on a companys cash flow

activities, particularly its operating, investing and financing

activities

Generally, users of financial statement are:

1. Internal Users : are owners, managers, employees and other

parties who are directly connected with a company.

2. External Users: are potential investors, banks, government

agencies and other parties who are outside the business but

need financial information about the business for a diverse

number of reasons.

Prospective investors make use of financial statements to

assess the viability of investing in a business. Financial

analysis are often used by investors and is prepared by

professionals (Financial Analysts), thus providing them with

the basis in making investment decisions.

Financial institutions (banks and other lending companies) use

them to decide whether to grant a company with fresh

working capital or extend debt securities to finance expansion

and other significant expenditures.

Government entities (Tax Authorities) need financial

statements to ascertain the propriety and accuracy of taxes

and other duties declared and paid by a company.

Media and the general public are also interested in financial

statements for a variety of reasons.

Financial analysis reduces reliance on guesses and thus

helps reducing uncertainty. Financial analysis does not

lessen the need for judgment rather establishes a sound and

systematic basis for its rational application.

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It also helps to understand how various tools can be used to

analyse the position of company.

Scope of the study:-

The primary focus of the study is on the financial statement analysis

of Mangalam Cement Limited. Among the tools used are: - ratio

analysis,

The reference period is five years for ratio analysis......

Ratio analysis

Meaning of ratio: Relationship between two figures, expressed in

arithmetical terms is called a ratio. In the words of R.N.

Anthony:

A ratio is simply one number expressed in terms of another. It is

found by dividing one number into the other.

Ratio may be expressed in the following four ways:

1.Proportion or pure ratio or simple ratio: - it is expressed by

simple division of one number by another.

2.Rate or so many times: - In this type, it is calculated how

many times a figure is, in comparison to another figure.

3.Percentage: - in this type, the relationship between two figure is

expressed in hundredth.

4.Fraction: - say, net profit is one- fifth of capital

Objective of ratio analysis:

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To locate the weak spots of business which need more

attention.

To provide deeper analysis of liquidity, solvency, activity and

profitability of the business. To provide information for making cross- sectional analysis i.e.

for making comparison with that of some selected firms in the

same industry.

To provide information for making time- series analysis i.e. for

making comparison of a firms present ratios with its past

ratios.

To provide information useful for making estimates and

preparing the plans for the future.

Classification of ratios:

Ratios may be classified into the four categories as follows:

Liquidity ratios

Solvency ratios

Activity or turnover ratios

Profitability ratios or income ratios

I. Liquidity ratios: liquidity refers to the ability of the firm to meet

its current liabilities. Also called as short term solvency ratios. They

indicate the firms ability to meet its current obligations out of

current resources.

Liquidity ratios include two ratios:-

1. Current ratio or working capital ratio: Current ratio may be

defined as the relationship between current assets and current

liabilities. This is a measure of general liquidity and is most widely

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used to make the analysis of a short-term financial position of a

firm.

Current ratio = current assets/current liabilities

2. Quick ratio or acid test ratio:

Quick ratio also known as acid test or liquid ratio is a more rigorous

test of liquidity than the current ratio. Quick ratio may be defined as

the relationship between liquid asset and current liabilities.

If a company looks good while testing it against current ratio, then

quick ratio should be the next test to apply. Companies with steadily

rising inventories may look good with the current ratio, but will have

a deteriorating effect on the quick ratio, since we subtract the

inventory out. Therefore it is more stringent test of liquidity.

The quick ratio rising over time is favourable.

Quick ratio = liquid assets/current liabilities

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II.Activity Ratios

These ratios help in commenting on the efficiency of thefirm in managing its assets. The speed with which assets are

converted into sales is captured by activity ratios. The activity of

any business enterprise is reflected by the volume of sales it is able

to generate. All assets are used by the business in the quest of

generating sales. So, one can comment on the efficiency of different

assets in relation to sales generated during a defined period. There

are four ratios in this group, which are:

1. Accounts Receivables Turnover Ratio

This ratio measures the efficiency with which the debtors are

converted into cash. This ratio indicates both the quality of debtors

and the collection efforts of the business enterprise. The ratio is

calculated as

Accounts Receivables turnover Ratio = Net credit sales /

average debtors

A high or increasing Accounts Receivable Turnover shows

the company is successfully executing its credit policies. A

possible negative aspect indicates the company may be too strict in

its credit policies and missing out on potential sales.

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2. Inventory Turnover Ratio

Inventory turnover ratio measures the efficiency with which

inventory has been converted into sales. The ratio is calculated as

Inventory Turnover Ratio = Cost of Goods Sold / Average

Inventory

A higher inventory turnover ratio is considered a positive

indicator of operating efficiency, since inventory that remains in

place produces no revenue and increases the cost associated with

maintaining those inventories. Carrying high inventory costs the

organization and reduces its profits. On the other hand, carrying

insufficient inventory saves the costs and creates opportunity cost

for lost sales because of stock out.

3. Working Capital Turnover Ratio

The Working Capital Turnover ratio measures the companys Net

Sales from the Working Capital generated. The ratio is calculated as

Working Capital Turnover Ratio = cost of goods sold /

Working Capital

A high or increasing Working Capital Turnover is usually a

positive sign, showing the company is better able to

generate sales from its Working Capital. Either the company

has been able to gain more Net Sales with the same or smaller

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amount of Working Capital, or it has been able to reduce its Working

Capital while being able to maintain its sales.

4. Fixed assets turnover ratio

This ratio is of particular importance in manufacturing firms where

the investment in fixed assets is quite high. This ratio reveals how

efficiently the fixed assets are being utilised. Compared with the

previous year, if there is increase in this ratio, it will indicate that

there is better utilisation of fixed assets. If there is a fall in this ratio,

it will show that fixed assets have not been used as efficiently, as

they had been used in the previous year.

Fixed assets turnover ratio = cost of good sold / net fixed assets

III. Profitability Ratios

Profit is important for every business enterprise. It is so because

without profits a business will find it difficult to attract capital, and

assure its creditors and owners regarding the safety of their funds.

Further, profit acts as a touchstone to comment on the soundness

(or otherwise) of the policies and decisions of the management.

These ratios measure the efficiency of the firms activities

and its ability to generate profits.

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1. Gross Profit Margin Ratio

Gross profit ratio is the ratio of gross profit to sales. The gross profitratio represents the excess of what the concern is able to charge as

sale price over the cost of purchasing/manufacturing the goods. This

excess is available to meet other operating expenses

(administrative, selling and distribution expenses), interest on

borrowings and income tax. The ratio is calculated as

Gross Profit Margin Ratio= Gross Profit / Net Sales

The higher the Gross Profit Margin, the better the company

is able to control costs - either by reducing the costs of

production of their products or services, or passing some of

the costs to the customer.

2. Net Profit Margin Ratio

The Net Profit Margin measures the Net Earnings in relation to theNet Sales. After all the bills are paid and expenses covered, this

ratio measures how much net profit remains out of each rupee of

sales. The ratio is calculated as

Net Profit Margin Ratio= Net Profit / Net Sales

As with the other margin ratios, the higher the Net ProfitMargin, the better. Taxes, Interest, and expenses not associated

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with operations will lower this ratio compared to the other margin

ratios.

3. Return on capital employed

This ratio reflects overall profitability of the business. It is calculated

by comparing the profit earned and the capital employed to earn it.

The term capital employed here refers to long-term funds deployed

in the enterprise.

Return on capital = profit after interest, tax and dividends / capital

employed * 100

It measures how efficiently the capital employed in the business is

being used. It can be used to judge the borrowing policy of

enterprise. Lenders like bankers and financial institutions will be

able to determine whether the enterprise is viable for giving credit

or extending loans or not. With its help shareholders can also find

out whether they will receive regular and higher dividend or not.

4. Return on total shareholders funds:

This ratio reveals how profitably the proprietors funds have been

utilised by the firm. A comparison of this ratio with that of similar

firms will throw light on the relative profitability and strength of the

firm.

Return on Equity = PAT / total shareholders funds *100

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5. Earnings per Share

This number represents the profit of the company equally split

among each share of the stock. In essence, if you own one share of

the company, how much of that profit is designated to your share.

The ratio is calculated as

Earnings per Share = Net Income (PAT) / no. of equityshares

As a companys earnings increase, Earnings per share will

look better, but certain things affect Earning Per Share: share

buybacks the company may conduct (resulting in less shares), or

the company releasing more shares, which increases the number oftotal shares further diluting the Net Earnings.

6. Price- Earnings Ratio

The P/E ratio (price-to-earnings ratio) of a stock is a measure of the

price paid for a share relative to the income or profit earned by the

firm per share. The ratio is calculated as

Price- Earnings Ratio = Market Price of the Share / earnings per

share

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By relating price and earnings per share for a company, one can

analyze the markets valuation of a companys shares relative to the

income the company is actually generating. A higher P/E ratiomeans that investors are paying more for each unit of

income.

IV. Leverage Ratios

These ratios analyses the long- term solvency of a firm. The

term solvency implies the ability of the enterprise to meet

its obligations on the due date. Long-term lenders are primarily

interested in this type of analysis. A long-term lender of funds is

basically interested in two things. The safety of principal which is to

be given by way of a loan, and regular servicing of the loan, in theform of payment of interest commitments and repayment of

instalment of loan. To capture these two aspects of long-term

liquidity these ratios are calculated.

1. Debt- Equity Ratio

Debt-equity ratio refers to the relationship of the long-term debt and

the equity of the enterprise. Long-term lender wants to know about

the status of outsiders long- term funds being used by a business

enterprise vis--vis owners funds. The ratio is calculated as

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Debt- Equity = Debt / equity

Or

Debt equity = long term loans / shareholders funds

Generally debt equity ratio of 2:1 is considered safe.

The higher is the ratio the more risky is the financial

position of the company from long term point of view (as it

indicates that more and more funds invested in the business areprovided by long term lenders). This ratio helps in measuring

the financial risk of the company as well as to forecast

future borrowing prospects.

2. Debt to total funds ratio:

In this ratio debt is expressed in relation to total funds.

Debt to total funds ratio = debt / equity + debt

Or

Debts to total funds ratio = long term loans / shareholders funds +

long term loans

Generally debt to total funds ratio of 0.67:1 is considered

satisfactory. In other words, the proportion of long term loans

should not be more than 67% of total funds. A higher ratio than this

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is generally treated an indicator of bad financial position from the

long term point of view, because it means that the firm depends too

much upon outside loans for its existence.

1. Proprietary ratio:

This ratio indicates the proportion of total assets funded by owners

or shareholders.

Proprietary ratio = shareholders funds / total assets

A higher ratio is generally treated an indicator of sound financial

position from long term point of view, because it means that a

proportion of total assets is provided by equity and hence the firm is

less dependent on external sources of finance. On the contrary, a

low proprietary ratio is a dangerous for long term lenders as it

indicates a low margin of safety available to them. Lower the ratio,

the less secured are the long term loans and they face the risk of

losing their money.

4. Interest Coverage Ratio

The Interest Coverage Ratio measures how readily the company canpay its Interest Expense payments on its debt obligations. The ratio

is calculated as

Interest Coverage Ratio = net profit before interest and tax / fixed

interest charges

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A high or increasing Interest Coverage Ratio is usually a positive

sign, showing the company is better able to pay its Interest Expense

with its earnings.

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RESEARCH METHODOLOGY

It is a scientific and systematic search for pertinent information on a

specific topic.

TYPOLOGY OF THE STUDY

This study is appraising the financial position of the firm by using

various tools for financial statement analysis. Therefore it has an

evaluative component. It also contains statistical analysis of

quantitative data; therefore it is an analytical study also.

SOURCES OF THE DATA

Our method of study was primarily based on the collection of

companys financial statements therefore source was basically

secondary data.

The secondary data is that data which has already been collected by

some one else and which have already been passed through the

statistical process.

The source used for the purpose of collecting secondary data was:

The company executives told various details about companys

financial report, also gave us annual reports whose observation

made our task easy. We also met their manager of store, purchase,

marketing and personnel to have in depth knowledge of their

working and effect of all environmental changes on their working.

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Data processing and analysis plan

Several approaches were followed to make it a meaningful study.

These include informal discussions with finance manger of the firm

as well as with executives of other department.

For the quantitative data analysis is in the form of description and

interpretation. The quantitative data was statistically processed to

form frequency distribution line diagrams. Appropriate statistical

measures were employed to arrive at presentable formats, mostly

charts.

For ratio analysis first the data was processed then line diagram was

made and finally it was interpreted to draw useful information for

the study and firm as well.

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LIQUIDITY RATIOS:

a. CURRENT RATIO

YEAR CURRENT ASSETS CURRENT

LIABILITIES

RATIO (C.A. /

C.L.)

2010 22051.31 14758.16 1.49

2009 18417.53 10668.55 1.73

2008 11183.62 5766.89 1.93

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2007 8256.20 3857.03 2.14

2006 5990.15 2641.89 2.27

Current ratio for the year 2009-2010 has decreased as compared to

previous year. Current ratio is constantly falling since 2007 because

of increase in current liabilities. Before that it was above 2:1 which

is an ideal one. No doubt current assets have also increased over

the years but because of proportionate increase in current liabilities

this ratio has fallen indicating not so good short term financial

position of company.

b. QUICK RATIO

YEAR LIQUID ASSETS

(C.A.- stock)

CURRENT

LIABILITIES

RATIO (L.A.

/C.L.)

2010 17426.19 14758.16 1.18

2009 9925.35 10668.55 0.93

2008 6865.39 5766.89 1.19

2007 4838.95 3857.03 1.25

2006 3044.66 2641.89 1.15

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shortcoming by excluding the amount of stock.

Quick ratio of the company is showing remarkable improvement

if compared with last year. The more it is, the better it is as it

indicates sound financial position of company, relief for

companys short term creditors.

Turnover ratios:

a. INVENTORY TURNOVER RATIO

Year Cost of goods

sold

Average stock Ratio

2010 40214.07 4625.12 8.69

2009 34938.09 8492.18 4.11

2008 31680.24 4318.23 7.33

2007 32232.02 3417.25 9.43

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y

ea

r

2

0

0

6

y

ea

r

2

0

0

7

y

ea

r

2

0

0

8

y

ea

r

2

0

0

9

y

ea

r

2

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1

0

Y

ea

r

R

at

io

R

at

i

o

2006 26463.79 2945.49 8.98

This ratio has shown improvement when compared with last

years score. But the highest value during these 5 yrs was in the

year 2006 indicating stocks efficient utilisation. It shows the

frequency with which the stock is rotated into sales. In 2010,

situation is better than 2009 which means stock is selling quickly.

This also means that stock policy of the management is efficient.

b. WORKING CAPITAL TURNOVER RATIO

Year Cost of goods

sold

Working

capital

Ratio

2010 40214.07 7293.15 5.51

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W

o

r

k

i

n

g

C

a

p

i

t

a

l

Tu

r

n

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v

e

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a

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7.9

7.32

5.84

4.51

5.51

0123456789year20

06

year200

7

year200

8

year200

9

year201

0

Year

R

a

t

i

o

Ratio

2009 34938.09 7748.99 4.51

2008 31680.24 5416.73 5.84

2007 32232.02 4399.17 7.32

2006 26463.79 3348.26 7.90

This years working capital turnover ratio is better than last year

meaning more efficient use of working capital. It shows that this

FY working capital has been rotated more no. of times in

producing sales. The least working capital ratio is in the year

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2009 which means under-utilisation of working capital. This

means most efficiently working capital was used in FY 2006.

c. FIXED ASSETS TURNOVER RATIO

Year Cost of goods

sold

Net fixed

assets

Ratio

2010 40214.07 28131.33 1.42

2009 34938.09 25785.89 1.35

2008 31680.24 19417.38 1.63

2007 32232.02 12853.12 2.50

2006 26463.79 11272.75 2.34

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F

i

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e

d

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6

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2

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1

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A

m

o

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n

t

R

a

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This ratio is of particular importance in manufacturing firms

where the investment in fixed assets is quite high. This ratio

reveals how efficiently the fixed assets are being utilised. This

years ratio is higher than previous year thereby meaning that

fixed assets are being efficiently utilised than last year. Highestvalue was in FY 2007. This means after that fixed assets are not

as efficiently utilised as in 2007.

Leverage ratios:

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D

e

b

t

-

E

q

u

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ty

R

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1

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2

8

0

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a. DEBT EQUITY RATIO

Year Long-term

loans

Net worth Ratio

2010 1551.39 29433.19 0.052

2009 7239.34 22206.52 0.326

2008 7656.17 15269.19 0.50

2007 4370.07 11242.47 0.39

2006 10370.46 8104.81 1.28

Ideal debt-equity ratio is 2:1. Lower values indicate better position

of firm from long term lenders point of view. High debt-equity ratio

is a danger signal for them. This firms lower values since 2007

indicate less of funds invested in business are provided by long term

lenders. It shows long term financial position of company is sound.

This means more funds provided by the owners i.e. shareholders.

b. DEBT TO TOTAL FUNDS RATIO

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D

eb

t

t

o

T

o

t

a

l

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n

d

s

R

a

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0.

56

0.

28

0.

33

0.

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0.

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00.

1

0.

2

0.

3

0.

4

0.

5

0.

6

ye

ar2006

ye

ar2007

ye

ar2008

ye

ar2009

ye

ar2010

Ye

ar

Am

ount

Ra

tio

Year Long-term

loans

Net worth +long

term loan

Ratio

2010 1551.39 30984.58 0.050

2009 7239.34 29445.86 0.25

2008 7656.17 22925.36 0.33

2007 4370.07 15612.54 0.28

2006 10370.46 18475.27 0.56

Satisfactory value of this ratio is 0.67:1(67%). A higher ratio than

this is considered bad because it means firm is dependent too much

upon outside loans for its existence. This implies proportion of long

term loans should not be more than 67% of total funds. In the year

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P

r

o

pr

i

e

t

a

r

y

R

at

i

o

0.47

0.53

0.5

0.49

0.58

00.1

0.2

0.3

0.4

0.5

0.6

0.7

year

2006

year

2007

year

2008

year

2009

year

2010

Year

RatioRati

o

2010 it is very less, only 5%. During all these 5 years the value was

well below 67%. It is good from long term solvency point of view.

c. PROPRIETARY RATIO

Year Shareholders

funds

Fixed assets +

C.A.

Ratio

2010 29433.19 50990.74 0.58

2009 22206.52 44800.41 0.49

2008 15269.19 30711.25 0.50

2007 11242.47 21219.57 0.53

2006 8104.81 17373.15 0.47

A higher proprietary ratio is generally treated an indicator of

sound financial position from long term point of view, because it

means that firm is less dependent on external sources of finance.

This FY firm has highest proprietary ratio thereby meaning that

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firm took least amount of loans and more proportion of assets

provided by equity.

d. INTEREST COVERAGE RATIO

Year PBIT Fixed interest

charges

Ratio

2010 16200.86 317.66 51.0

2009 16049.80 294.64 54.47

2008 13918.60 129.00 107.89

2007 10717.25 860.32 12.45

2006 3828.01 1072.97 3.56

This ratio indicates how many times the interest charges are

covered by the profits available to pay interest charges. This ratio

measures margin of safety for long term lenders. The higher the

ratio, more secure the lender is in respect of payment of interest

regularly. This ratio is satisfactory for this firm. Its values are higher

and improving indicating firm is able to pay the interest on long

term loans regularly. Long term solvency position of the firm is quitesatisfactory. The firm also is less dependent on external sources of

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finance, therefore has to give less of interest. Therefore this ratio of

the firm appears satisfactory.

PROFITABILITY RATIOS:

a) GROSS PROFIT RATIO

YEAR GROSS PROFIT NET SALES RATIO (G.P.

/N.S.)

2010 16200.86 56414.93 28.72%

2009 16049.8 50987.89 31.5%

2008 13918.60 45598.84 30.52%

2007 10717.25 42949.27 24.95%

2006 3828.01 30291.8 12.64%

Gross profit ratio has declined in 2009-2010 if we compare it with

last 2 years. There is increase in net sales in 2010 as compared

to previous year but gross profit has not increased in proportion.

No ideal standard is fixed for this ratio but it should be sufficient

enough to cover the operating expenses as well as interest on

loans (which was least this year), depreciation, dividends. If gross

profit has declined this year reason may be the hike in prices of

materials purchased (like fuel, raw material etc. because of

inflation), freight, wages, direct charges etc. but the selling price

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may not have gone up(because of a bit slowdown in demand due

to recession) in proportion to the increase in costs.

b) NET PROFIT RATIO

YEAR NET PROFIT NET SALES RATIO (N.P. /

N.S.)

2010 9716.4 56414.93 17.22%

2009 11354.97 50987.89 22.27%

2008 8385.74 45598.84 18.39%

2007 6902.36 42949.27 16.07%

2006 1677.33 30291.80 5.54%

Net profit ratio has also declined as compared to previous year. This

means decrease in the profitability and efficiency of business. Net

profit was less this year as compared to last year. In the year 2009

net sales as well as net profit increased proportionately as

compared to last year which led to its very good performance in the

last 5 years.

c) RETURN ON CAPITAL EMPLOYED

YEAR Profit before int., tax

& div.

Capital

employed

Ratio

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R

O

C

E

25.98

61.7

54.7

47.02

44.7

010203040506070year

2006

year

2007

year

2008

year

2009

year

2010

Year

R

a

t

i

o

Ratio

2010 16200.86 36232.58 44.71%

2009 16049.80 34131.86 47.02%

2008 13918.60 25444.36 54.70%

2007 10717.25 17362.54 61.7%

2006 3828.01 14731.26 25.98%

ROCE ratio is falling since 2008 after having a peak value in the year

2007. In the year 2010 it is lower than previous year. It measures

how efficiently the capital employed in the business is being used.

Though the value has decreased but is still satisfactory to conclude

that shareholders will receive regular dividends.

d) Return on total shareholders funds

Year Net profit after

int & tax

Total

shareholders

funds

Ratio

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R

O

T

S

F

20.7

61.4

54.91

51.13

33.01

010203040506070year

2006

year

2007

year

2008

year

2009

year

2010

Year

Amoun

t

Ratio

2010 9716.40 29433.19 33.01%

2009 11354.97 22206.52 51.13%

2008 8385.74 15269.19 54.91%

2006 6902.36 11242.47 61.4%

2005 1677.33 8104.81 20.7%

This ratio reveals how profitably the proprietors funds have been

utilised. This value is also satisfactory for the firm but the highest

value is in the year 2007 i.e. best utilisation of their funds was in

2007 followed by 2008. In the current year this value is quite low

than last year decreasing the amount of dividend that can be

offered to the shareholders because of decrease in net profit.

e) Earning per share

Year Net profit- div. No. of equity

shares

Ratio

2010 971640000 28033198 34.7

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E

P

S

5.9

24.

4

29.

7

40.

2

34.

7

051015202530354045yea

r2006

yea

r2007

yea

r2008

yea

r2009

yea

r2010

Yea

r

Rat

io

rat

io

2009 1135497000 28246758 40.2

2008 838574000 28246758 29.7

2007 690236000 28246758 24.4

2006 167733000 28246758 05.9

Because of decrease in net profit as seen in above case also EPS

has decreased for this FY 2010 in spite of buy back of shares. It

was at its peak during last year. It means the capacity of firm has

decreased in declaring dividends on equity shares.

INTERPRETATION:

Companys short term liquidity position is sound as

shown by its quick ratio indicating company is in

position to pay off its liabilities, if required, within a

year.

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Turnover ratios for the year 2007 are very good

indicating efficient utilisation of resources or assets to

produce sales.

For the current year inventorys utilisation to producesales is satisfactory but working capital is under

utilised.

Long term solvency position of the firm is quite

satisfactory. Firm is less dependent on external sources

of finance. Proprietary ratio is highest this year

indicating more proportion of assets provided by equity.

Gross profit ratio as well as net profit ratio has declined

this year as compared to last year decreasing the return

on capital employed, return on total shareholders funds

and earning per share.

This shows more of expenditure in producing sales

because the firm has undergone capacity expansion this

year (more than 1 lacs MT)

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APPENDIX

Balance Sheet of Mangalam cement Ltd.

Schedule31st march ,2010

Rs. Inlacs Rs. In lacs

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I. Sources of funds

1 Shareholders' Funds

a. Capital 1 2803.32b. Reserves & Surplus 2 26629.87

29433.19

2. Loan Funds

a. Secured Loans 3 654.65b. Unsecured Loans 4 896.74

1551.39

Deferred Tax Liabilities (Net) 5248

Total 36232.58

II. Application of funds

1. Fixed Assets

a. Gross Block 5 50151.86b. Less: Dep./ Amortisation 22498.04c. Net Block 27653.82d. Capital work in progress 477.51

28131.33

2. Investments 6 808.1

3. Current Assets, Loans & Advancesa. Interest Accrued onInvestment 0.15b. Inventories 7 4625.12c. sundry debtors 8 576.35d. cash and bank balances 9 4407.79e. loans and advances 10 12441.9

22051.31

Less: Current liabilities &Provisions 11a. Liabilities 5065.11b. Provisions 9693.05

14758.16

Net current assets 7293.15

Total 36232.58

Profit and Loss Account of Mangalam Cement Ltd.

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Profit & Loss AccountFor the year ended 31st March,2010

Schedule31stMarch,2010

Rs. In Lacs

I. Income

sales (Gross) 64631.05Less: Excise Duty 8216.12Sales (Net) 56414.93Other Income 12 2575.98Increase/ (Decrease) instock 13 -1313.8

TOTAL 57677.11

II. Expenditure

Raw Materials consumed 14 7412.11Manufacturing, Selling and Admin.expenses 15 34064.14

TOTAL 41476.25

Profit before depreciation & interst 16200.86Interest and financial

charges 16 317.66Profit after interest 15883.2

Depreciation 2436.14LESS: Recouped from RevaluationReserve 9.19

2426.95

Profit afterDepreciation 13456.25

Exceptional items

Loss on sale ofinvestment 255.57

Profit before tax 13200.68

Provision for tax 3450ADD: Fringe benefit tax Refund 0.37Fringe benefit tax 34.65

Profit after tax 9716.4

Profit brought forward from previous yr. 14742.88

Profit available for appropriations 24459.28

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III. Appropriations

General Reserve 2000proposed div. on equity shares 1541.83

corporate div. tax 262.03Surplus carried to balance sheet 20665.42

24459.28

Basic and diluted EPS(in Lakhs) 34.41

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http: // www.mangalamcement.com

http://www.buildeazy.com/newplans/eazylist/cement.html

http:// business.mapsofindia.com/cement/types/

Management Accounting and Financial Control: byS.N.Maheshwari.

Management Accounting: by Shashi K. Gupta

Financial Management: by M.R.Agrawal
http://www.mangalamcement.com/http://www.buildeazy.com/newplans/eazylist/cement.htmlhttp://www.buildeazy.com/newplans/eazylist/cement.htmlhttp://www.mangalamcement.com/

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