Professional Documents
Culture Documents
A
PROJECT REPORT
ON
“Analysis of Indian cement Industry &
Financial performance of ACC LTD”
submitted to submitted by
MRS. NEHA DUBEY KRITIKA JHARIYA
mba iv sem.
PREFACE
1
Preparing a project of this nature is an arduous task and I
was fortunate enough to get support from a large number o
persons. I wish to express my deep sense of gratitude to all those
who generously helped in successful completion of this report by
sharing their invaluable time and knowledge.
KRITIKA JHARIYA
MBA IV SEM.
ACKNOWLEDGEMENT
2
Preparing a project of this nature is an arduous task and I was
fortunate enough to get support from a large number o persons. I wish to
express my deep sense of gratitude to all those who generously helped in
successful completion of this report by sharing their invaluable time and
knowledge.
KRITIKA JHARIYA
MBA IV SEM.
DELCLARATION BY THE
CANDIDATE
3
Date :
KRITIKA JHARIYA
MBA IV SEM.
4
CERTIFICATE
TABLE OF CONTENTS
5
2) Acknowledgement
3) Declaration
4) Executive Summary
6
12) Findings & Observed
13) Suggestions
14) Bibliography & Annexure
INTRODUCTION
Working Capital:-
The life blood of business, as is evident, signified funds required for day-to-day
operations of the firm. The management of working capital assumes great
importance because shortage of working 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 management to pay particular attention to the
planning and control for working capital. An attempt has been made to make
critical study of the various dimensions of the working capital management of
ACC.
Decisions relating to working capital and short term financing are referred to as
working capital management. These involve managing the relationship
between a firm's short-term assets and its short-term liabilities. The goal of
Working capital management is to ensure that the firm is able to continue its
operations and that it has sufficient money flow to satisfy both maturing short-
term debt and upcoming operational expenses.
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The following are the main objective which has been undertaken in the present
study:
Place of study:-
The project study is carried out at the Finance Department of ACC cements ltd
corporate office Situated at Wadi, Karnataka. The study is undertaken as a part
of the PGPM curriculum from 03 JUNE 2010 to 03 JULY 2009 in the form of
summer internship.
Scope: - The study has got a wide & fast scope. It tries to find out the players in
the industry & focuses on the upcoming trends. It also tries to show the financial
performance of the major player of the industry i.e.; ACC Ltd.
Limitations:-
There may be limitations to this study because the study duration (summer
placement) is very short and it’s not possible to observe every aspect of working
capital management practices. The data collected were mostly secondary in
nature.
Industry Overview:-
The cement industry is one of the vital industries for economic development in a
country. The total utilization of cement in a year is used as an indicator of
economic growth.
8
India is the world's second largest producer of cement with total capacity of 219
million tones (MT) at the end of FY 2009, according to the Cement Manufacture’s
Association.
Moreover, the government’s continued thrust on infrastructure will help the key
building material to maintain an annual growth of 9-10 per cent in 2010,
according to India’s largest cement company, ACC.
In January 2010, rating agency Fitch predicted that the country will add about 50
million tone cement capacity in 2010, taking the total to around 300 million tones.
Government Initiatives
Increased infrastructure spending has been a key focus area. In the Union
Budget 2010-11, US$ 37.4 billion has been provided for infrastructure
development.
The government has also increased budgetary allocation for roads by 13
per cent to US$ 4.3 billion.
Future Trends:-
The cement industry is expected to grow steadily in 2009-2010 and
increase capacity by another 50 million tons in spite of the recession and
decrease 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 Company
Ltd (ACC), Grasim Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltd
and Madras Cement Ltd.
The major players have all made investments to increase the production
capacity in the past few months, heralding a positive outlook for the
industry.
The housing sector accounts for 50% of the demand for cement and this
trend is expected to continue in the near future.
9
PORTER’S FIVE FORCE MODEL:- It is useful for analyzing the industry overall
and determining the level of competition among different existing players .It can
be understood under different topics .Along with the industry we will try to point
out the conditions for ACC too.
i) THREAT OF NEW ENTRANTS:-
ACC has threat from new entrants like TATA; Reliance etc can enter into this
industry.
But there are certain barriers to their entry. These are:-
Quality of finished goods i.e. cement is very important for ACC ltd.
iii) BARGAINING POWER OF BUYER:- ACC ltd plays the role of buyer. It has
following 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 Ambuja
cements, Birla cements, Binani cements ,Grasim etc.
10
SWOT ANALYSIS
Strengths: -
1. The industry is likely to maintain its growth momentum and continue
growing at about 9 – 10% in the foreseeable future.
2. Government initiative in the infrastructure sector such as the
commencement of the second phase of the National Highway Development
project, 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 which will
be booming news for cement manufactures. As capacity utilization is over
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.
5. The recent ban on export of cement clinker would increase the
availability of cement in the domestic market, which in turn would put
pressure on cement prices.
Opportunities: Demand–supply gap
1. Substantially low per capita cement consumption as compared to
developing countries (1/3 rd of world average) Per capita cement
consumption in India is 82 kgs against a global average of 255 kgs and
Asian average of 200 kgs.
2. Despite slightly lower economic growth, the construction and
infrastructure sector is expected to record healthy growth, which augurs
well for cement industry.
3. Additional capacity of 20 million tons per annum will be required to
match the demand.
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Threats: -
3. Almost all the major players in the industry have announced substantial
increase in the capacity and the possibility of over supply situation
cannot be ruled out.
5. Scarcity of good quality Coal is some other factors which are cause of
concern for the industry.
12
Competitor analysis (Overall industry):-
ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share in
India, which with its total installed capacity of 207 MTPA, India is the second
largest cement producing country in the world. ACC’s nation-wide presence and
brand image ensures a competitive edge and helps it to withstand regional
fluctuations in prices and also to adapt its distribution to market place needs. Its
key competitors are as follows:-
ACC Ltd is the market leader with the capacity of 22.63 MTPA .The top ten
companies are given below with the details:-
Name ACC Limited
Production 17,902
Installed Capacity 18,640
Net Profit (Quarter ended Sep 30, 2009) 41,550.89 lakhs
Name Gujarat Ambuja Cements Limited
Production 15,094
Installed Capacity 14,860
Net Profit (Quarter ended on Sep 30, 2009) 31,848 lakhs
Name Ultratech
Production 13,707
Installed Capacity 17,000
Net Profit (in 2008-09) 97,700 lakhs
Name Grasim
Production 14,649
Installed Capacity 14,115
Net Profit (in 2008-09) 1,64,800 lakhs
Name India Cements
Production 8,434
Installed Capacity 8,810
Net Profit (in 2008-09) 43,218 lakhs
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Name JK Cement Ltd
Production 6,174
Installed Capacity 6,680
Net Profit (in 2008-09) 14,234.40 lakhs
Name Jaypee Group
Production 6,316
Installed Capacity 6,531
Name Century Cement
Production 6,636
Installed Capacity 6,300
Name Madras Cement
Production 4,550
Installed Capacity 5,457
Net Profit (in 2008-09) 49,081 lakhs
Name Birla Corp.
Production 5,150
Installed Capacity 5,113
Net Profit (in 2008-09) 9,061 lakhs
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Introduction of the Company
ACC’s 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 of
Consumer Super Brands of India.
ACC has rich experience in mining, being the largest user of limestone, and it is
also one of the principal users of coal. As the largest cement producer in India, it
is one of the biggest customers of the Indian Railways, and the foremost user of
the road transport network services for inward and outward movement of
materials and products.
ACC has also extended its services overseas to the Middle East, Africa, and
South America, where it has provided technical and managerial consultancy to a
variety of consumers, and also helps in the operation and maintenance of
cement plants abroad.
15
History & Profile of ACC Cement Works
ACC was formed in 1936 when ten existing cement companies came together
under one umbrella in a historic merger – the country’s first notable merger at a
time when the term mergers and acquisitions was not even coined. The history of
ACC spans a wide canvas beginning with the lonely struggle of its pioneer F E
Din Shaw and other Indian entrepreneurs like him who founded the Indian
cement industry. Their efforts to face competition for survival in a small but
aggressive market mingled with the stirring of a country’s nationalist pride that
touched all walks of life – including trade, commerce and business.
The first success came in a move towards cooperation in the country’s 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, Khataus, Killick Nixon and F E Din Shaw groups. ACC was formally
established on August 1, 1936. Sadly, F E Din Shaw, the man recognized as the
founder of ACC, died in January 1936. Just months before his dream could be
realized.
The Board meets once a month. Two other small groups of directors - comprising
Shareholders'/Investors' Grievance Committee and Audit Committee of the Board
of Directors - also meet once a month on matters pertaining to the finance and
share disciplines. During the last decade, there has been a streamlining of the
senior management structure that is more responsive to the needs of the
Company's prime business. A Managing Committee - comprising, in addition to
the Managing Director and the two executive directors, the presidents
representing multifarious disciplines: finance, production, marketing, research
and consultancy, engineering and human resources – meets once a week.
A Strategic Alliance:
The house of Tata was intimately associated with the heritage and history of
ACC, 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 Gujarat
Ambuja Cements Ltd. (GACL), who are now the largest single shareholder in
ACC.
This enabled ACC to enter into a strategic alliance with GACL; a company
reputed 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 into
long – term alliances with Ambuja Group by acquiring a majority stake in Ambuja
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Cements India Ltd. (ACIL), which at the time held 13.8% of total equity shares in
ACC. Holcim simultaneously announced its bid to make an open offer to ACC
shareholders, through Holdcem Cement Pvt. Ltd. and ACIL, to acquire a majority
shareholding 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 declarations indicating
their shareholding and declaring itself as a promoter of ACC.
Holcim is the world leader in cement as
well as being large supplier of concrete, aggregates and certain construction
related services. Holcim is also a respected name in information technology and
research and development. The group has its headquarters in Switzerland with
worldwide operations spread across more than 70 countries.
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Vision:
“To be one of the most respected companies in India; recognized for challenging
conventions and delivering on our promises”
Mission of ACC
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Maintain our leadership of the Indian cement industry through the
Leadership continuous modernization and expansion of our manufacturing
facilities and activities, and through the establishment of a wide and
efficient marketing network.
Achieve a fair and reasonable return on capital by promoting
Profitability productivity throughout the company.
Ensure a steady growth of business by strengthening our position
Growth in the cement sector.
Maintain the high quality of our products and services and ensure
Quality
their supply at fair prices.
Promote and maintain fair industrial relations and an environment
Equity for the effective involvement, welfare and development of staff at all
levels.
Promote research and development efforts in the areas of product
Pioneering development and energy, and fuel conservation, and to innovate
and optimize productivity.
Fulfill our obligations to society, specifically in the areas of
Responsibility integrated rural development and in safeguarding the environment
and natural ecological balance.
YEAR Achievements
ACC Sindri uses waste material - calcium carbonate sludge -from fertilizer factory at
1955
Sindri to make cement
1956 Bulk Cement Depot established at Okhla, Delhi
Blast furnace slag, (a waste by-product from steel) from TISCO used at ACC
1961
Chaibasa to manufacture Portland Slag Cement.
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ACC inducts use of pollution control equipment and high efficiency sophisticated
1966 electrostatic precipitators for its cement plants and captive power plants decades
before it becomes mandatory to do so.
Introduction of the energy efficient pre-calcinations technology for the first time in
1978
India.
1982 Commissioning of the first 1 MTPA plant in the country at Wadi, Karnataka.
20
Awards & Accolades
21
National Award for Excellence in Water Management - by the Confederation of
Indian Industry (CII)
ACC was the first recipient of ASSOCHAM’s first ever National Award for
outstanding performance in promoting rural and agricultural development
activities in 1976.
Over the years, there have been many awards and felicitations for achievements
in Rural and community development, Safety, Health, Tree plantation, A
forestation, Clean Mining, Environment Awareness and Protection.
22
Investment in current assets and the level of current liabilities have to be
geared quickly to change in sales. To be sure, fixed asset investment and
long term financing are responsive to variation in sales. However, this
relationship is not as close and direct as it is in the case of working capital
components.
Thus the job of efficient working capital management is a formidable one, since it
depends upon several variables such as character of the business, the lengths of
the merchandising cycle, rapidity of turnover, scale of operations, volume and
terms of purchase & sales and seasonal and other variations.
o The business may fail to honor its commitment in time, thereby adversely
affecting its credibility. This situation may lead to business closure.
o The business may be compelled to buy raw materials on credit and sell
finished goods on cash. In the process it may end up with increasing cost
of purchases and reducing selling prices by offering discounts. Both these
situations would affect profitability adversely.
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CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL
o It may lead to offer too liberal credit terms to buyers and very poor
recovery system and cash management.
Working capital or current assets are those assets, which unlike fixed assets
change their forms rapidly. Due to this nature, they need to be financed through
short-term funds. Short-term funds are also called current liabilities. The following
are the major sources of raising short-term funds:
I. Supplier’s Credit
At times, business gets raw material on credit from the suppliers. The cost of raw
material is paid after some time, i.e. upon completion of the credit period. Thus,
without having an outflow of cash the business is in a position to use raw material
and continue the activities. The credit given by the suppliers of raw materials is
for a short period and is considered current liabilities. These funds should be
used for creating current assets like stock of raw material, work in process,
finished goods, etc.
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The advances given by banks against current assets are short-term in nature and
banks 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.
Management of Inventory
The main objectives of inventory management are operational and financial. The
operational mean that means that the materials and spares should be available
in sufficient quantity so that work is not disrupted for want of inventory. The
financial objective means that investments in inventories should not remain ideal
and minimum working capital should be locked in it. The following are the
objectives of inventory management:-
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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 by
the operational and sale activities.
To keep material cost under control so that they contribute in reducing cost
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 the
organization.
To ensure perpetual inventory control so that materials shown in stock
ledgers 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 and
control of inventory
Management of cash
Cash is the important current asset for the operation of the business. Cash is the
basic input needed to keep the business running in the continuous basis, it is
also the ultimate output expected to be realized by selling or product
manufactured by the firm.
The firm should keep sufficient cash neither more nor less. Cash shortage will
disrupt the firm’s manufacturing operations while excessive cash will simply
remain ideal without contributing anything towards the firm’s profitability. Thus a
major 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 and
balances in its bank account. Sometimes near cash items such as marketing
securities or bank term deposits are also included in cash. Generally when a firm
has excess cash, it invests it is marketable securities. This kind of investment
contributes some profit to the firm.
Management of Receivables
26
A concern is required to allow credit sales in order to expand its sales volume. It
is not always 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.
Under these circumstances, it is not possible to avoid credit sales without
adversely affecting sales.
Cash flows in a cycle into, around and out of a business. It is the business's life
blood and every manager's primary task is to help keep it flowing and to use the
cash 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 business
will eventually run out of cash and expire. The faster a business expands the
more cash it will need for working capital and investment. The cheapest and best
sources of cash exist as working capital right within business. Good management
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 can
represent a substantial proportion of a firm's total profits.
27
Each component of working capital (namely inventory, receivables and payables)
has two dimensions ........TIME ......... and MONEY. When it comes to managing
working capital - TIME IS MONEY. If we can get money to move faster around
the cycle (e.g. collect monies due from debtors more quickly) or reduce the
amount of money tied up (e.g. reduce inventory levels relative to sales), the
business 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 or
we'll have additional free money available to support additional sales growth or
investment. Similarly, if we can negotiate improved terms with suppliers e.g. get
longer credit or an increased credit limit; we effectively create free finance to help
fund future sales.
If we....... Then......
Collect receivables (debtors) We release cash
faster from the cycle
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 for
working capital. Therefore, if cash is tight, we should consider other ways of
financing capital investment - loans, equity, leasing etc. Similarly, if we pay
28
dividends or increase drawings, these are cash outflows and, like water flowing downs a
plug hole, they remove liquidity from the business.
If we have insufficient working capital and we try to increase sales, we can easily
over-stretch the financial resources of the business. This is called overtrading.
Early warning signs include:
Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed....
how long it is owing.... for what it is owed.
29
The following measures will help manage our 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 will
never get paid. If the average age of our debtors is getting longer, or is already
very long, we may need to look for the following possible defects:
Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention.
The act of collecting money is one which most people dislike for many reasons
and therefore put on the long finger because they convince themselves there is
something more urgent or important that demands their attention now. There is
30
nothing more important than getting paid for our product or service. A
customer who does not pay is not a customer.
Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position.
There is an old adage in business that if we can buy well then we can sell
well. Management of our creditors and suppliers is just as important as the
management of our debtors. It is important to look after our creditors - slow
payment by we may create ill-feeling and can signal that our company is
inefficient (or in trouble!).
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comparative purposes so that firms of various sizes can be equated. Also called
one hundred percent statement.
Advantages:-
The statement reveals the sources of funds & the distribution or
application of the total funds in the asset of a business enterprise.
Comparison of the common size statement over a number of years will
clearly indicate the changing proportion of the various components of
assets, liabilities, cost, net sales & profits.
It will assist corporate evaluation & ranking.
Limitations:-
It doesn’t show variations in the different account items from period to
period.
Less useful due to lack of established standard proportion of an asset to
the total asset & so on.
Interpretation:-
32
(b) There is also a significant increase in the amount invested by the
company for the purpose of future growth.
(c) There is a significant decrease in current asset over a period of
time.
Advantages:-
It indicates the increase in an accounted item along with the magnitude of
changes in percentages which is more effective then absolute data.
It facilitates an efficient comparative study of the financial performance of
a 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 the
absolute rupee data is adjusted.
There is always the danger of selecting the base year which may not be
representative, normal & typical.
The calculated percentages having no logical relationship with one
another.
Precautions to be taken:-
Consistency in the principles & practices followed by the organization
throughout the calculated period.
The base year should be normal.
Trend percentages should be calculated only for the items which are
having logical relationship with each other.
Figures of the current year should be adjusted according to the changes in
price levels.
33
Deferred Tax Liabilities 100 103.4 104.7 108.9
APP. OF FUNDS:-
Current Liabilities
C.L. 2060.34 1801.79 258.55
Provisions 1091.88 963.93 127.95
Total ( B ) 3152.22 2765.72
(851.66)
34
( A-B ) (857.75) (6.09) (465.16) (465.16)
Changes in (851.66)
working capital
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)Current 1,335 1,672 2,221 2,766 3,152
Liabilities
Working capital 86 249 (18) (6) (858)
Interpretation:-While looking into the changes, we will look into the various
components of working capital & analyze the changes in that.
INVENTORY ANALYSIS
35
By analyzing the 5 years data we can see that the value of inventories is
increasing over a no of year. It indicates that the company is growing rapidly in
cement 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 in
inventories but it is important to keep stocks due to uncertainty of availability of
raw material in time.
SUNDRY DEBTORS ANALYSIS
Debtors will arise only when credit sales are made. The above graph depicts that
there is continuous rise in the debtors of ACC Ltd in the successive years other
than 2009.. It represents an extension of credit to customers. The reason for
increasing credit is competition and company liberal credit policy.
Significant increase in Cash & bank balance, which shows the financial
strengths 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 to
keep the business running on a continuous basis. So the organization
should 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 the
requirements influence it.
36
After analyzing the bar-chart, we can say that the amount of current
liabilities is increasing significantly over years .An increase current
liabilities indicates that company is using its credit facilities to the
maximum extent for operating purpose.
From the above table we can see that provision shows an increasing trend
and the huge amount is being kept in these provisions. This is kept to pay
the taxes, interest & other facilities or benefits to the employee. It is just
kept for meeting future short-term liabilities.
RATIO ANALYSIS
(A) Overview:-
Financial ratios are measures of the relative health, or sometimes the relative
sickness of a business. A physician, when evaluating a person’s health, will
measure the heart rate, blood-pressure and temperature; whereas, a financial
analyst will take readings on a company’s growth, cost control, turnover,
profitability and risk. Like the physician, the financial analyst will then compare
these readings with generally accepted guidelines. Ratio analysis is an effective
tool 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 company’s strengths
and weaknesses, it has its limitations and will not necessarily provide the
solutions or cures for the problems it identifies.
37
Assists in establishing appropriate capitalization rates (helps to identify
risk factors particular to the subject company)
WORKING CAPITAL RATIOS AND ITS INTERPRETATION :-
Dec’05 Dec’06 Dec’07 Dec’08 Dec’09
Liquidity Ratio
Solvency Ratio
Debt-equity ratio. 0.50 0.25 0.07 0.10 0.09
Interpretation: - As we know that ideal current ratio for any firm is 2:1.The
current ratio of company is less than the ideal ratio. This depicts that
company’s liquidity position is not sound. Its current assets are less than
its current liabilities.
Generally a QR of 1:1 is considered to represent satisfactory current
financial position. The trend of quick ratio is uneven & the ratio is around
0.5:1 over a period of time. A quick ratio is an indication that the firm is
liquid 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 owners’
capital 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 shows
fluctuation.
38
Investment 12.29 22.40 24.85 27.51 25.22
Turnover Ratio
39
Investment
Valuation Ratio
Face value 10.00 10.00 10.00 10.00 10.00
Dividend per 8.00 15.00 20.00 20.00 23.00
Share
40
Suggestion:-
It is suggested that the company has to increase its current assets to
meet its short-term obligations.
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 focused
only on own operations will also yield good results. If feasible, helping
them to plan their inventory requirements efficiently to match their
production 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
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