Finance Project on ACC CEMENT

8/10/2019 Finance Project on ACC CEMENT

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A PROJECT REPORT SUBMITTED IN PARTIAL

FULFILLMENT OF AWARD OF PGDBA DEGREE

Analysis of IndianCement Industry& Financial

Performance ofACC LTD

SUBMITTED BY

NAME::SALOCHANA PESWANIReg. No: 200713378Cou!e: P"DBA#$INANCE%B&'():2007

SUBMITTED TO SMBIOSIS

CE!T"E FO" DISTA!CE

LEA"!I!#$SCDL%


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this short/term capital or finance of the business is called +or,in- ca.ital

$ana-ement6

or1ing %apital is the money used to pay for the everyday trading activities

carried out by the business / stationery needs. staff salaries and 'ages. rent. energy bills.payments for supplies and so on+

I have tried to put my best effort to complete this tas1 on the basis of s1ill that I have

achieved during the last one year study in the institute+ I have tried to put my ma2imum

effort to get the accurate statistical data+ #o'ever I 'ould appreciate if any mista1es are

brought to me by the reader+

P"6S676S88

$6C"$9 ::9 PGD

CETIICTE " G;IDE

3


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!ame of te Student' SALOC(A!A PES)A!I

!ame of te Pro*ect' Analysis of Indian CementIndustry & FinancialPerformance of ACC ltd

"e+ !o, ' -../0111/2

course' P#DBA$FI!A!CE%

BATC(' -../

Si+nature of te Student'

I declare tat te a3o4e 5articulars are true tote 3est of my 6no7led+e and 7illin+ to Su5er4isor

Miss SALOC(A!A PES)A!I P#DBA Student,

"ules and re+ulations of te institution for te

concerned 5ro+ramme 7ill 3e strictly a3ided.

Si+nature of te Su5er4isor

ADDRESS: B/3 HIMANI, LAD SOC. ROAD, VASTRAPUR,AHMEDABADEMAIL:shil!"#$%#&'(!il.)*(

DEC:TI"%

(


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This to declare that I have carried out this project 'or1

myself in part fulfillment of the P45"! 6-I7!7!%89 program of

S%5L+

The 'or1 is original. has not been copied from any'here else

and has not been submitted to other :niversity;institute for an

a'ard of any degree;diploma+

5ate < =,thSept. ,>== Signature

Place< !#M85!"!5 6S!LO%#!7! P8S!7I9

E/ECUTIE SUMMERY

The major objective of the study is to understand the 'or1ing capital of !%% $ tosuggest measures to overcome the shortfalls if any+

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:INTRODUCTION:

Wo*g C&'&4:

The life blood of business. as is evident. signified funds re*uired for day/to/day

operations of the firm+ The management of 'or1ing capital assumes great importance

because shortage of 'or1ing capital funds is perhaps the biggest possible cause of failure

of many business units in recent times+ There it is of great importance on the part of

B


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management to pay particular attention to the planning and control for 'or1ing capital+

!n attempt has been made to ma1e critical study of the various dimensions of the

'or1ing capital management of CC+

5ecisions relating to 'or1ing capital and short term financing are referred to as #or,in-

ca.ital mana-ement+ These involve managing the relationship bet'een a firmFs short/

term assets and its short/term liabilities+ The goal of or1ing capital management is to

ensure that the firm is able to continue its operations and that it has sufficient money flo'

to satisfy both maturing short/term debt and upcoming operational e2penses+

"=ective of te &tudy


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=>


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I%D;ST7 ">E>IE+

The cement industry is one of the vital industries for economic development in a

country+ The total utili@ation of cement in a year is used as an indicator of economic

gro'th+

%ement is a necessary constituent of infrastructure development and a 1ey ra'

material for the construction industry. especially in the governments infrastructure

development plans in the conte2t of the nations socio/

8conomic development+

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India is the 'orldFs second largest producer of cement 'ith total capacity of

,(=+>, million tones 6MT9 at the end of -D ,>==. according to the %ement Manufactures

!ssociation+

!ccording to the %ement Manufacturers !ssociation. cement dispatches during

,>>E/=> 'ere =(E+30 million tones 6MT9 increasing by =, per cent over =3,+,0 in ,>>B/

>E+ %ement production during ,>>E/=> 'as =?>+0= MT an increase of =,+0C per cent over

=3,+?( MT in ,>>B/>E+

Moreover. the governments continued thrust on infrastructure 'ill help the 1ey

building material to maintain an annual gro'th of E/=> per cent in ,>=>. according to

Indias largest cement company. CC6

In Hanuary ,>=>. rating agency -itch predicted that the country 'ill add about (>

million tone cement capacity in ,>==. ta1ing the total to around 0>> million tones+

Government Initiative&

4overnment initiatives in the infrastructure sector. coupled 'ith the housing

sector boom and urban development. continue being the main drivers of gro'th

for the Indian cement industry+

Increased infrastructure spending has been a 1ey focus area+ In the :nion "udget,>=>/==. :S 0C+3 billion has been provided for infrastructure development+

The government has also increased budgetary allocation for roads by =0 per cent

to :S 3+0 billion+

uture Trend&


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The industry e2perts project the sector to gro' by E to =>J for the current

financial year provided IndiaFs 45P gro's at CJ+

India ran1s second in cement production after %hina+

The major Indian cement companies are

SS"CITED CE$E%T C"$P%7 :TD CC)9

GSI$ I%D;STIES :TD9

$;? CE$E%TS :TD9

?6@ CE$E%T :TD %D

$DS CE$E%T :TD6

The major players have all made investments to increase the production capacity

in the past fe' months. heralding a positive outloo1 for the industry+

The housing sector accounts for (>J of the demand for cement and this trend is

e2pected to continue in the near future+

P"TEAS I>E "CE $"DE:


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16 T8ET " %E+ E%T%TS


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46 T8ET " S;STIT;TES:7 $"%G T8E C"$PETI%G I$S I% I%D;ST7J no'+

#uge potential for e2port+

+ea,ne&&< (

%ement Industry is highly fragmented $ regionali@ed+

Lo' ) value commodity ma1es transportation over long distances un/

economical+

#igh capital cost and investment cost for each and every project+

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The comple2 82cise 5uty structure based on the category of buyer and end use

of the cement has caused at lot of confusion in the industry+

The recent ban on e2port of cement clin1er 'ould increase the availability of

cement in the domestic mar1et. 'hich in turn 'ould put pressure on cementprices+

"..ortunitie&< Demand&u..ly -a.

Substantially lo' per capita cement consumption as compared to developing

countries 6=;0 rd of 'orld average9 Per capita cement consumption in India is

B, 1gs against a global average of ,(( 1gs and !sian average of ,>> 1gs+

5espite slightly lo'er economic gro'th. the construction and infrastructuresector is e2pected to record healthy gro'th. 'hich augurs 'ell for cement

industry+

!dditional capacity of ,> million tons per annum 'ill be re*uired to match the

demand+

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Treat&< (

The recent moves by the %entral 4overnment in ma1ing the import of the

cement total duty free. is a cause of 'orry for the Indian cement industry+

-urther recent changes in the %entral 82cise 5uty structure by 'ay of

introduction of multiple slabs of 82cise 5uty is also a cause of 'orry for the

industry+

!lmost all the major players in the industry have announced substantial

increase in the capacity and the possibility of over supply situation cannot beruled out+

Increased rail'ay freight. coal prices and dispatch bottlenec1s on account of

truc1 Loading restrictions imposed by various State 4overnments

Scarcity of good *uality %oal is some other factors 'hich are cause of concern

for the industry+

C"$PETIT" %:7SIS ">E:: I%D;ST7)


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CC :td i& te mar,et leader #it te ca.acity of 226!3 $TP

6

Te to. ten com.anie& are -iven elo# #it te detail&,

In&talled Ca.acity =B.?3>

%et Profit uarter ended Se. 309

200/)3=.((>+BE la1hs

%ame

Gu=arat mu=a Cement&

:imited

Production =(.>E3

In&talled Ca.acity =3.B?>

7et Profit 6Kuarter ended on Sep 0>.

,>>E90=.B3B la1hs

%ame ;ltratec

Production =0.C>C

In&talled Ca.acity =C.>>>

7et Profit 6in ,>>B/>E9 EC.C>> la1hs

%ame Gra&im

Production =3.?3E

In&talled Ca.acity =3.==(

7et Profit 6in ,>>B/>E9 =.?3.B>> la1hs

%ame India Cement&

Production B.303

In&talled Ca.acity B.B=>

=B


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7et Profit 6in ,>>B/>E9 30.,=B la1hs

%ame ?@ Cement :td

Production ?.=C3

In&talled Ca.acity ?.?B>

7et Profit 6in ,>>B/>E9 =3.,03+3> la1hs

%ame ?ay.ee Grou.

Production ?.0=?

In&talled Ca.acity ?.(0=

%ame Century Cement

Production ?.?0?

In&talled Ca.acity ?.0>>

%ame $adra& Cement

Production 3.((>

In&talled Ca.acity (.3(C

7et Profit 6in ,>>B/>E9 3E.>B= la1hs

%ame irla Cor.6

Production (.=(>

In&talled Ca.acity (.==0

7et Profit 6in ,>>B/>E9 E.>?= la1hs

=E


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,>


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I%T"D;CTI"%" T8E

C"$P%7

CC6!%% Limited9 is IndiaFs foremost manufacturer of cement and concrete+

!%%Fs operations are spread throughout the country 'ith =3 modern cement factories. =E

Ready mi2 concrete plants. =E sales offices. and several @onal offices+ It has a 'or1force

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of about E>>> persons and a country'ide distribution net'or1 of over E.>>> dealers+

!%%Fs research and development facility has a uni*ue trac1 record of innovative

research. product development and speciali@ed consultancy services+ Since its inception

in =E0?. the company has been a trendsetter and important benchmar1 for the cement

industry in respect of its production. mar1eting and personnel management processes+ Its

commitment to environment/friendliness. its high ethical standards in business dealings

and its on/going efforts in community 'elfare programs have 'on it acclaim as a

responsible corporate citi@en+ In the C> years of its e2istence. !%% has been a pioneer in

the manufacture of cement and concrete and a trendsetter in many areas of cement and

concrete technology including improvements in ra' material utili@ation. process

improvement. energy conservation and development of high performance concretes+

!%%s brand name is synonymous 'ith cement and enjoys a high level of e*uity

in the Indian mar1et+ It is the only cement company that figures in the list of %onsumer

Super "rands of India+

The companyFs various businesses are supported by a po'erful. in/house research

and technology bac1up facility / the only one of its 1ind in the Indian cement industry+

This ensures not just consistency in product *uality but also continuous improvements in

products. processes. and application areas+

!%% has rich e2perience in mining. being the largest user of limestone. and it is

also one of the principal users of coal+ !s the largest cement producer in India. it is one of

the biggest customers of the Indian Rail'ays. and the foremost user of the road transport

net'or1 services for in'ard and out'ard movement of materials and products+

!%% has also e2tended its services overseas to the Middle 8ast. !frica. and South

!merica. 'here it has provided technical and managerial consultancy to a variety of

consumers. and also helps in the operation and maintenance of cement plants abroad+

!%% is among the first companies in India to include commitment to

environmental protection as one of its corporate objectives. long before pollution control

la's came into e2istence+ The company installed pollution control e*uipment and high

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efficiency sophisticated electrostatic precipitators for cement 1ilns. ra' mills. coal mills.

po'er plants and coolers as far bac1 as =E??+ 8very factory has state/of/the art pollution

control e*uipment and devices+

8IST"7 F P"I:E " CC CE$E%T +"@S

!%% 'as formed in =E0? 'hen ten e2isting cement companies came together under one

umbrella in a historic merger ) the countrys first notable merger at a time 'hen the term

mergers and ac*uisitions 'as not even coined+ The history of !%% spans a 'ide canvas

beginning 'ith the lonely struggle of its pioneer E Din Sa# and other Indian

entrepreneurs li1e him 'ho founded the Indian cement industry+ Their efforts to face

competition for survival in a small but aggressive mar1et mingled 'ith the stirring of a

countrys nationalist pride that touched all 'al1s of life ) including trade. commerce and

business+

The first success came in a move to'ards cooperation in the countrys young cement

industry and culminated in the historic merger of ten companies to form a cement giant+

These companies belonged to four prominent business groups ) Tatas. Ahataus. Aillic1

7i2on and - 8 5in Sha' groups+ !%% 'as formally established on !ugust =. =E0?+

Sadly. - 8 5in Sha'. the man recogni@ed as the founder of !%%. died in Hanuary =E0?+Hust months before his dream could be reali@ed+

The !%% "oard comprises of =0 persons+ These include e2ecutive. non/e2ecutive. and

nominee directors+ This group is responsible for determining the objectives and broad

policies of the %ompany / consistent 'ith the primary objective of enhancing long/term

shareholder value+

The "oard meets once a month+ T'o other small groups of directors / comprising

ShareholdersF;InvestorsF 4rievance %ommittee and !udit %ommittee of the "oard of

5irectors / also meet once a month on matters pertaining to the finance and share

disciplines+ 5uring the last decade. there has been a streamlining of the senior

management structure that is more responsive to the needs of the %ompanyFs prime

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business+ ! Managing %ommittee / comprising. in addition to the Managing 5irector and

the t'o e2ecutive directors. the presidents representing multifarious disciplines< finance.

production. mar1eting. research and consultancy. engineering and human resources )

meets once a 'ee1+

STTEGIC ::I%CE>>+ The Tata group sold all =3+3(J of its

shareholdings in !%% in three stages to subsidiary companies of 4ujarat !mbuja

%ements Ltd+ 64!%L9. 'ho are no' the largest single shareholder in !%%+

This enabled !%% to enter into a strategic alliance 'ith 4!%LG a company reputed for its

brand image and cost leadership in the cement industry+

8":CI$ %E+ PT%ES8IP>(+ In Hanuary ,>>(. #olcim announced its plans to enter into long ) term alliances

'ith !mbuja 4roup by ac*uiring a majority sta1e in !mbuja %ements India Ltd+ 6!%IL9.

'hich at the time held =0+BJ of total e*uity shares in !%%+ #olcim simultaneously

announced its bid to ma1e an open offer to !%% shareholders. through #oldcem %ement

Pvt+ Ltd+ and !%IL. to ac*uire a majority shareholding in !%%+ !n open offer 'as made

by #oldcem %ement Pvt+ Ltd+ along 'ith !%IL. follo'ing 'hich the shareholding of

!%IL increased to 03+?EJ of 8*uity share capital of !%%+ %onse*uently. !%IL has filed

declarations indicating their shareholding and declaring itself as a promoter of !%%+

#olcim is the 'orld leader in cement as 'ell as being large supplier of concrete.

aggregates and certain construction related services+ #olcim is also a respected name in

information technology and research and development+ The group has its head*uarters in

S'it@erland 'ith 'orld'ide operations spread across more than C> countries+

P:%TS F T8EI CPCIT7th company to !%%. vi@+ 5e'ar1hand %ement%ompany. the formation of !%% is complete on October ,0. =E0C+

1/44 !%%s first community development venture near "ombay

1/4' Indias first entirely indigenous cement plant established at %haibasa in "ihar

1/52 &illage elfare Scheme launched

1/55 Sindri cement 'or1s used the 'aste product calcium carbonate sludge fromfertili@er factory at Sindri+

1/5! "ul1 %ement 5epot established at O1hla. 5elhi

1/5' Technical training institute established at Aymore. Madhya Pradesh+

1/5' Aatni Refractories

1/!1 "last furnace slag from TIS%O used at the %haibasa :nit to manufacturePortland Slag %ement for the first time in India+

1/!1 Manufacture of !ccocid %ement. 'hich resists the corrosive action of acids

and chemicals+

1/!1 Oil'ell %ement manufactured at !%% Shahabad %ement or1s in Aarnata1afor cementation of oil'ells upto a depth of ?.>>> feet+

1/!1 Manufacture of #ydrophobic 6'aterproof9 cement at !%% Ahalari %ementor1s in "ihar+

1/!2 Manufacture of !ccoproof. a 'aterproofing additive+

1/!5 !%%s %entral Research Station 6%RS9 established at Thane

1/!5 Manufacture of Portland Po@@olana %ement+

1/!5 Manufacture of %alundum. a #igh !lumina "inderG -irecrete. Lo' 5ensity!lumina %astables and #igh !lumina Refractory %ement+

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1/// %ommissioning of captive po'er plants at the Hamul and Aymore plants inMadhya Pradesh+

1/// Tata group sells C+,J of its sta1e in !%% to !mbuja %ement #oldings Ltd. asubsidiary of 4ujarat !mbuja %ements Ltd+ 64!%L9

2000 Tata 4roup sells their remaining sta1e in !%% to the 4!%L group. 'ho 'ith=3+3(J no' emerge as the single largest shareholder of !%%+

2001 %ommissioning of the ne' plant of ,+? MTP! capacity at adi. Aarnata1aplant. the largest in the country. and among the largest si@ed 1ilns in the'orld+

2002 !%% 'ins P#5%%I 4ood %orporate %iti@en !'ard

2003 I5%OL %ement Ltd becomes a subsidiary of !%%

2004 I5%OL %ement Limited is renamed as "argarh %ement Limited 6"%L9+

2004 !%% raises :S =>> million abroad through -oreign %urrency %onvertible"onds 6-%%"s9 for :S ?> million and 4lobal 5epository Shares 645Ss9for :S 3> million+ "oth offerings are listed on the London Stoc1 82change+

2004 !%% named as a %onsumer Superbrand by the Superbrands %ouncil of India.becoming the only cement company to get this status+

2004 4reenTech Safety 4old and Silver !'ards a'arded to Madu11arai %ementor1s and Aatni Refractory or1s by 4reentech -oundation for outstandingperformance in Safety Management System+

2005 !%% receives the %-"P Hamnalal "ajaj :chit &yavahar Puras1ar %ertificateof Merit ) ,>>3 from %ouncil -or -air "usiness Practices+

2005 #olcim group of S'it@erland enters strategic alliance 'ith !mbuja 4roup byac*uiring a majority sta1e in !mbuja %ements India Ltd+ 6!%IL9 'hich at thetime held =0+B J of the total e*uity shares in !%%+ #olcim simultaneouslyma1es an open offer to !%% shareholders. through #oldcem %ement Pvt+Limited and !%IL. to ac*uire a majority shareholding in !%%+ Pursuant tothe open offer. !%ILs shareholding in !%% increases to 03+?E J of the8*uity share capital of !%%+

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2005 %ommissioning of Modernisation and 82pansion project at %haibasa inHhar1hand. replacing old 'et process technology 'ith a ne' =+, MTP!clin1ering unit. together 'ith a captive po'er plant of =( M+

2005 -inancial accounting year of the company changed to calendar year Hanuary/5ecember

200! Subsidiary companies 5amodhar %ement $ Slag Limited. "argarh %ementLimited and Tarmac 6India9 Limited merged 'ith !%%

200! !%% announces ne' or1place policy for #I&;!I5S

200! %hange of name to !%% Limited 'ith effect from September =. ,>>? from

The !ssociated %ement %ompanies Limited+

200! !%% receives 4ood %orporate %iti@en !'ard ,>>(/>? from "ombay%hamber of %ommerce and Industry

200! 7e' corporate brand identity and logo adopted from October =(. ,>>?

200! !%% establishes !nti Retroviral Treatment %entre for #I&;!I5S patients atadi in Aarnata1a) the first ever such project by a private sector company inIndia+

200' !%% partners 'ith %hristian Medical %ollege for treatment of #I&;!I5S inTamil 7adu

200' Sumant Moolgao1ar Technical Institute completes (> years and reopens 'ithne' curriculum

200* Ready mi2ed concrete business hived off to a ne' subsidiary called !%%%oncrete Limited+

200* !%% %ement Technology Institute formally inaugurated at Hamul on Huly C+

200* -irst Sustainable 5evelopment Report released on Hune (+

200* !%% 'ins %7"%/T&=B India "usiness Leader !'ard in the category India%orporate %iti@en of the year ,>>B

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200* Project Orchid launched to transform our %orporate Office. %ement #ouseinto a green building+

200/ !%% received the Hamanalal "ajaj N:chit &yavahar Puras1arN of %ouncil for-air "usiness Practices

200/ !%% is allotted coal bloc1s in Madhya Pradesh and est "engal+

200/ !%%Fs ne' 4rinding plant of capacity =+?> million tonnes inaugurated atThondebhavi in Aarnata1a+

2010 Audithini %ement 4rinding Plant inaugurated in Aarnata1a on Hanuary 3.,>=> 'ith a capacity of =+= MTP! of Portland Slag %ement+

2010 !%% ac*uires =>> percent of the financial e*uity of 8ncore %ements $!dditives Private Limited 'hich is a slag grinding plant in &isha1hapatnamin coastal !ndhra Pradesh+ This company became a 'holly/o'ned subsidiaryof !%% in Hanuary ,>=>+

2010 !%% enters its platinum jubilee year / the first company in the cementindustry to achieve this status

2010 !%% receives -I%%I !'ard for Outstanding %orporate &ision Triple Impact

"usiness Performance Social $ 8nvironmental !ction $ 4lobalisation for,>>E/=> / a uni*ue a'ard received for the first time

2011 orldFs largest 1iln installed at !%% %ement Plant. adi. Aarnata1a 'ith acapacity of =,.(>> tonnes per day creating ne' landmar1s for cementindustry

2011 %entral %ontrol Room "uilding at !%% %handa Plant. Maharashtra set up asa 4reen building. the first of its 1ind in an industrial environment

+DS F CC":DES

%ational #ardfor 82cellence in ater Management by%onfederation of Indian Industry 6%II9

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"ut&tandin- Cor.orate >i&ion9 Tri.le Im.act ( u&ine&&

Performance Social F Environmental ction and Gloali&ation

for 200/(10from -ederation of Indian %hambers of %ommerce andIndustry

&ia Pacific Entre.reneur&i. #ardin t'o categories. 4reenLeadership and %ommunity 8ngagement by 8nterprise !sia+

Indira Priyadar&ini >ri,&amitra #ard/// by The Ministry of8nvironment and -orests for Ne2traordinary 'or1N carried out in thearea of afforestation+

Su @aran Sara#a-i Environment #ard/ by The -ederation ofIndian Mineral Industries for environment protection measures+

Drona Tro.y/ "y Indian "ureau Of Mines for e2tra ordinary effortsin protection of 8nvironment and mineral conservation in the largemechani@ed mines sector+

Indira Gandi $emorial %ational #ard/ for e2cellentperformance in prevention of pollution and ecological development

Excellence in $ana-ement of 8ealt9 Safety and Environment < %ertificate of Merit by Indian %hemical Manufacturers !ssociation

Good Cor.orate Citien #ard/ by P#5 %hamber of %ommerceand Industry

I$I %ational #ard/ for valuable contribution in Mining activitiesfrom the -ederation of Indian Mineral Industry under the Ministry of%oal+

a=ya Stariya Paryavaran Pura&,ar/ for outstanding 'or1 in

8nvironmental Protection and 8nvironment Performance by theMadhya Pradesh Pollution+ %ontrol "oard+

%ational #ard for ly & ;tili&ation (by Ministry of Po'er.Ministry of 8nvironment $ -orests and 5ept of Science $Technology. 4ovt of India / for manufacture of Portland Po@@olana%ement+

$a. of CC %et#or,

Cor.orate office( ,>>? ,>>C ,>>B ,>>E

%ET S:ES 39221 59*03 !9//1 '92*3 *902'

PT !*4 19!20 19/30 19'3' 292/4

"PETI%G

P"IT

!1! 19'1' 19//3 19*// 29!43

PT

544 19232 1943/ 19213 19!0'

Ca.ital

Em.loyed

39502 49234 49'/1 59'4! !9/32

a&ic Earnin-&

.er Sare &6)

30602 !!602 '!6'5 !46!3 *56!0

0(


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A* I*'o5u('o* To Wo*gC&'&4 M&*&ge6e*'

+)or6in+ ca5ital means te 5art of tetotal assets of te 3usiness tat can+e

from one form to anoter form in te

ordinary course of 3usiness o5erations,8

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C"%CEPT " +"@I%G CPIT:


38/87

estate+ or1ing capital is essential for any business to succeed+ It is becoming

increasingly important to have access to more 'or1ing capital 'hen 'e need it+

Conce.t of #or,in- ca.ital

4ross or1ing %apital Total of %urrent !sset

7et or1ing %apital 82cess of %urrent !sset over %urrent Liability+

+or,in- ca.ital in term& of five com.onent& for every =+>> 'e o'e+ Less than =

time e+g+ >+C( means that 'e could have

li*uidity problems and be under pressure to

generate sufficient cash to meet oncoming

demands+

Kuic1 Ratio

6Total %urrent

!ssets /

Inventory9;

Total %urrentLiabilities

2

times

Similar to the %urrent Ratio but ta1es account

of the fact that it may ta1e time to convert

inventory into cash+

or1ing

%apital

Ratio

6Inventory

Receivables /

Payables9;

Sales

!s J

Sales

! high percentage means that 'or1ing capital

needs are high relative to our sales+

7ote


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%ature of Enter.ri&e


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$ar,et Condition


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e2pands. it needs a larger amount of 'or1ing capital+ 7ormally. the need for

increased 'or1ing capital funds precedes gro'th in business activities+

Earnin- Ca.acity and Dividend .olicy


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ban1ing facilities etc+ also influences the re*uirement of 'or1ing capital+

Com.onent of +or,in- Ca.ital a&i& of >aluation


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+"@I%G

CPIT:

$%GE$E%T

(=


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or1ing %apital Management refers to management of current assets and current

liabilities+ The major thrust of course is on the management of current assets +This is

understandable because current liabilities arise in the conte2t of current assets+ or1ing

%apital Management is a significant fact of financial management+ Its importance stems

from t'o reasons


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4ro'th may be stunted+ It may become difficult for the enterprise to underta1e

profitable projects due to non/availability of 'or1ing capital+

Implementation of operating plans may become difficult and conse*uently theprofit goals may not be achieved+

%ash crisis may emerge due to paucity of 'or1ing funds+

Optimum capacity utili@ation of fi2ed assets may not be achieved due to non

availability of the 'or1ing capital+

The business may fail to honor its commitment in time. thereby adversely

affecting its credibility+ This situation may lead to business closure+

The business may be compelled to buy ra' materials on credit and sell finished

goods on cash+ In the process it may end up 'ith increasing cost of purchases and

reducing selling prices by offering discounts+ "oth these situations 'ould affect

profitability adversely+

7on/availability of stoc1s due to non/availability of funds may result in

production stoppage+

C"%SE;E%CES " ">E SSESS$E%T " +"@I%G

CPIT:

82cess of 'or1ing capital may result in unnecessary accumulation of inventories+

It may lead to offer too liberal credit terms to buyers and very poor recovery

system and cash management+

It may ma1e management complacent leading to its inefficiency+

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Over/investment in 'or1ing capital ma1es capital less productive and may reduce

return on investment+ or1ing capital is very essential for success of a business

and. therefore. needs efficient management and control+ 8ach of the components

of the 'or1ing capital needs proper management to optimi@e profit+

inancin- +or,in- Ca.ital

or1ing capital or current assets are those assets. 'hich unli1e fi2ed assets change their

forms rapidly+ 5ue to this nature. they need to be financed through short/term funds+

Short/term funds are also called current liabilities+ The follo'ing are the major sources ofraising short/term funds J of current assets

in public limited companies in India+

"ecause of the large si@e of inventories maintained by firms maintained by firms. a

considerable amount of funds is re*uired to be committed to them+ It is. therefore very

necessary to manage inventories efficiently and effectively in order to avoid unnecessary

investments+ ! firm neglecting a firm the management of inventories 'ill be jeopardi@ing

its long run profitability and may fail ultimately+

The purpose of inventory management is to ensure availability of materials in sufficient

*uantity as and 'hen re*uired and also to minimi@e investment in inventories at

considerable degrees. 'ithout any adverse effect on production and sales. by using simple

inventory planning and control techni*ues+

%eed to old inventorie&


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Precautionary motivenecessities holding of inventories to guard against the ris1

of unpredictable changes in demand and supply forces and other factors+

S.eculative motive influences the decision to increases or reduce inventory

levels to ta1e advantage of price fluctuations and also for saving in re/orderingcosts and *uantity discounts etc+

"=ective of Inventory $ana-ement


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$%GE$E%T " CS8

%ash is the important current asset for the operation of the business+ %ash is the basic

input needed to 1eep the business running in the continuous basis. it is also the ultimate

output e2pected to be reali@ed by selling or product manufactured by the firm+

The firm should 1eep sufficient cash neither more nor less+ %ash shortage 'ill disrupt the

firms manufacturing operations 'hile e2cessive cash 'ill simply remain ideal 'ithout

contributing anything to'ards the firms profitability+ Thus a major function of the

financial manager is to maintain a sound cash position+

%ash is the money. 'hich a firm can disburse immediately 'ithout any restriction+ The

term cash includes coins. currency and che*ues held by the firm and balances in its ban1

account+ Sometimes near cash items such as mar1eting securities or ban1 term deposits

are also included in cash+ 4enerally 'hen a firm has e2cess cash. it invests it is

mar1etable securities+ This 1ind of investment contributes some profit to the firm+

$%GE$E%T " ECEI>:ES

! sound managerial control re*uires proper management of li*uid assets and inventory+These assets are a part of 'or1ing capital of the business+ !n efficient use of financial

resources is necessary to avoid financial distress+ Receivables result from credit sales+

! concern is re*uired to allo' credit sales in order to e2pand its sales volume+ It is not

al'ays possible to sell goods on cash basis only+ Sometimes other concern in that line

might have established a practice of selling goods on credit basis+ :nder these

circumstances. it is not possible to avoid credit sales 'ithout adversely affecting sales+

The increase in sales is also essential to increases profitability+ !fter a certain level of

sales the increase in sales 'ill not proportionately increase production costs+ The increase

in sales 'ill bring in more profits+ Thus. receivables constitute a significant portion of

current assets of a firm+ "ut for investment in receivables. a firm has to insure certain

(C


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8ach component of 'or1ing capital 6namely inventory. receivables and payables9 has t'o

dimensions ++++++++TIM8 +++++++++ and MO78D+ hen it comes to managing 'or1ing capital

TI$E IS $"%E7+ If 'e can get money to move faster around the cycle 6e+g+ collect

monies due from debtors more *uic1ly9 or reduce the amount of money tied up 6e+g+

reduce inventory levels relative to sales9. the business 'ill generate more cash or it 'ill

need to borro' less money to fund 'or1ing capital+ !s a conse*uence. 'e could reduce

the cost of ban1 interest or 'eFll have additional free money available to support

additional sales gro'th or investment+ Similarly. if 'e can negotiate improved terms 'ith

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suppliers e+g+ get longer credit or an increased credit limitG 'e effectively create free

finance to help fund future sales+

If #e6666666 Ten666666

%ollect receivables 6debtors9 faster e release cash from

the cycle

%ollect receivables 6debtors9 slo'er Our receivables soa1

up cash

4et better credit 6in terms of duration

or amount9 from suppliers

e increase our cash

resources

Shift inventory 6stoc1s9 faster e free up cash

Move inventory 6stoc1s9 slo'er e consume morecash

It can be tempting to pay cash. if available. for fi2ed assets e+g+ computers. plant. vehicles

etc+ If 'e do pay cash. remember that this is no' longer available for 'or1ing capital+

Therefore. if cash is tight. 'e should consider other 'ays of financing capital investment

/ loans. e*uity. leasing etc+ Similarly. if 'e pay dividends or increase dra'ings. these are

cash outflo's and. li1e 'ater flo'ing do'ns a plug hole. they remove li*uidity from the

business+

$ore u&ine&&e& fail for lac, of ca& tan for #ant

of .rofit6

?>


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Source& of dditional +or,in- Ca.ital


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:ate .ayment& erode .rofit& and can lead to ad

det&6

If #e donJt mana-e detor&9 tey #ill e-in to mana-e our u&ine&& as 'e 'ill

gradually lose control due to reduced cash flo' and. of course. 'e could e2perience an

increased incidence of bad debt+

Te follo#in- mea&ure& #ill el. mana-e our detor&? &alue 6=>>9

+"@I%G CPIT: C:C;:TI"% 0=>+=C 6=>?+3C9

%ash $ "an1 "al C3?+0B EB3+,3 6,0C+B?9

Loan $ !dvances ((3+3, ?(=+,B 6E?+B?9

Other %! =>+EE ,>+?C 6E+?B9

Total 6 ! 9 22/464' 2'5/6!3

Current :iailitie&

%+L+ ,>?>+03 =B>=+CE ,(B+((

Provisions =>E=+BB E?0+E0 =,C+E(

Total 6 " 9 3152622 2'!56'2

6B(=+??9

6 !/" 9 6B(C+C(9 6?+>E9 63?(+=?9 63?(+=?9

Can-e& in #or,in-

ca.ital

*516!!)

Total *5'6'5) *5'6'5) 63?(+=?9 63?(+=?9

Similarly te calculation of +C for te year 2005 to 200/ a&

-iven elo#


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&6in Crore)

2005 200! 200' 200* 200/

)Current a&&et& 19421 19/21 29203 29'!0 292/4

)Current

:iailitie&

19335 19!'2 29221 29'!! 39152

+or,in- ca.ital *! 24/ 1*) !) *5*)

Inter.retation


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"y analy@ing the ( years data 'e can see that the value of inventories is increasing over a

no of year+ It indicates that the company is gro'ing rapidly in cement sector+ ! company

uses inventory 'hen they have demand in mar1et+ -rom other point of vie' 'e can say

that the li*uidity of firm is bloc1ed in inventories but it is important to 1eep stoc1s due to

uncertainty of availability of ra' material in time+

S;%D7 DET"S %:7SIS

C0


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5ebtors 'ill arise only 'hen credit sales are made+ The above graph depicts that there is

continuous rise in the debtors of !%% Ltd in the successive years other than ,>>E++ It

represents an e2tension of credit to customers+ The reason for increasing credit is

competition and company liberal credit policy+

Ca& F an, al9 :oan& F adv %:7SIS


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Significant increase in %ash $ ban1 balance. 'hich sho's the financial strengths

of the company+ Though there is a slight fall in the -D ,>>E + %ash is basic input

or component of 'or1ing capital+ %ash is needed to 1eep the business running on

a continuous basis+ So the organi@ation should have sufficient cash to meetvarious re*uirements+

!fter analy@ing the table. 'e can say that the pattern of loans $ advance is not

static in nature+ It sho's up'ards $ do'n'ards movement as the re*uirements

influence it+

C;E%T :II:ITIES F P">ISI"%S %:7SIS


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!fter analy@ing the bar/chart. 'e can say that the amount of current liabilities is

increasing significantly over years +!n increase current liabilities indicates that

company is using its credit facilities to the ma2imum e2tent for operating

purpose+

-rom the above table 'e can see that provision sho's an increasing trend and the

huge amount is being 1ept in these provisions+ This is 1ept to pay the ta2es.

interest $ other facilities or benefits to the employee+ It is just 1ept for meeting

future short/term liabilities+

C?


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TI" %:7SIS

CC


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) ">E>IE+


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+"@I%G CPIT: TI"S %D ITS I%TEPETTI"% ( 5ec>? 5ec>C 5ec>B 5ec>E

%urrent Ratio >+(B >+CC >+B? >+BE >+?C

Kuic1 Ratio >+3, >+?= >+(( >+?= >+3,

Solvency atio

5ebt/e*uity ratio+ >+(> >+,( >+>C >+=> >+>E

Interpretation< / !s 'e 1no' that ideal current ratio for any firm is ,+(>(+!fter that it sho's fluctuation+

ctivitym-mt efficiency atio


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5ec.>( 5ec>? 5ec>C 5ec>B 5ec>EInventory Turnover

Ratio

(+0C E+00 ,3+B( ,C+(= ,(+,,

5ebtor Turnover

Ratio

=?+03 ,C+C( ,C+3> ,3+=, 0=+,,

Investment Turnover

Ratio

=,+,E ,,+3> ,3+B( ,C+(= ,(+,,

or1 cap turn+ 6,C+E09 6?+E?9 6=B+,(9 6=C+>,9 6(3+=C9

It sho's increasing trend 'hich is favorable for the company+ !s it indicates ho'

rapidly the inventory is turning into receivable through sales+ ! high ratio is good

from the vie' point of li*uidity+ ! lo' ratio 'ould signify that inventory does not

sell fast+

! high ratio is indicative of shorter time lag bet'een credit sales and cash

collection+ The higher the value of detor&A turnover the more efficient is the

management of debtors or more li*uid the debtors are+ ! lo' ratio sho's that

debts are not being collected rapidly+ !s the graph reveals that the debts are

B>


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collected in time $ the process is improving consistently+ This sho's that

company is utili@ing its debtors efficiently as compare to previous year+

This ratio indicates high net 'or1ing capital re*uires for sales+ This company

having negative 'or1ing capital because. they have more current liabilities over

current assets+ It sho's that the short term loans are not sufficient and more

money are invested in the purchase of fi2ed assets+ Thus this ratio is helpful to

forecast the 'or1ing capital re*uirement on the basis of sale+

Profitaility F Inve&tment turnover atio( 5ec>? 5ec>C 5ec>B 5ec>E

4ross Profit Ratio =C+0, ,B+EC ,0+C, ,>+(E ,C+?B

7et Profit Ratio =?+B( ,=+=? ,>+33 =?+,E =E+?E

Inve&tment

>aluation atio

-ace value =>+>> =>+>> =>+>> =>+>> =>+>>

5ividend per Share B+>> =(+>> ,>+>> ,>+>> ,0+>>

B=


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!s it sho's the dividend per share ratio is increasing over years+ It means that

the investors have faith in the company+

4;P margin ratio sho's the profit relative to sales+ ! high ratio of gross profits

to sales is a sign of good management as it implies that the cost of production of

the firm is relatively lo'+ -or !%% it is uneven but it 'as good in -D>? $

-D>E+

The net profit margin is indicative of management ability to operate the business

'ith sufficient success not only to recover from revenues. but also to leave a

reasonable margin to the o'ners+ ! high net profit margin 'ould ensure

ade*uate return to the o'ners as 'ell as enable a firm to face adverse economic

conditions+ It is significant $ satisfactory for the company+

B,


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S;GGESTI"%


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S;GGESTI"%


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I:I"GP87

B(


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I:I"GP87

+E S;PP"T

Documents

Finance Project on ACC CEMENT