PROJECT REPORT
ON
“RATIO ANALYSIS”
CONTENTS CHAPTER -1……………………… INDUSTRY OVERVIEW 1.1 CEMENT INDUSTRY IN INDIA 1.2 MAJOR PLAYERS IN INDIAN CEMENT INDUSTRY: 1.3 PROCESS TECHNOLOGY 1.4 PROCESS 1.5 TYPES OF CEMENT 1.6 SCALE OF OPERATIONS CHAPTER- 2……………….. RATIO ANALYSIS 2.1 INTRODUCTION CHAPTER – 3…………………… RESEARCH & METHODOLOGY 3.1 NEED FOR THE STUDY CHAPTER- 4……………………. 4.1 FINDINGS CHAPTER – 5…………………. 5.1 SUGGESTIONS CHAPTER – 6……………. CONCLUSION BIBLIOGRAPHY
CHAPTER -1
INDUSTRY OVERVIEW
1.1 CEMENT INDUSTRY IN INDIA
Cement industry is a capital intensive and cyclical industry. The demand for cement is linked to economic activity, can be categorized into two segments, household construction and infrastructure creation. The Indian Cement Industry today is the second largest in capacity and production with an installed capacity of around 157 mtpa after China. The Indian Industry charted a fast track growth of around 10% per year on an average during the last decade. Demand has shown an upward surge in recent times buoyed by housing sector, infrastructure development, and increase in capital expenditure by corporate and growing retail sector. The cement demand in the country is expected to grow at an annual rate of 8% for the next five years. The Indian cement industry is a mixture of mini and large capacity cement plants, ranging in unit capacity per kiln as low as 10 tonnes per day (tpd) to as high as 7500 tpd. Majority of the production of cement in the country (94%) is by large plants, which are defined as plants having capacity of more than 600 tpd. The Industry faces several bottlenecks in high cost of inputs like fuel and power, high taxes and duties and transportation cost. More than 70% of the input cost in cement manufacture is beyond the control of the industry and is administered by regulatory authorities. These include royalties and cess on limestone, tariff for coal, rail transport and power, duties on finished goods, namely, central excise, local sales tax, octroi, etc. 1.) Birla Corporation Limited 2.) UltraTech Cement
Binani Cement The only areas where industry can induce cost controls and economy are reduction in consumption of inputs like fuel and power through energy efficiency, improved productivity through planned maintenance and reduction of stoppages, etc. The continuous efforts by the industry in these areas have brought in good results. It is noteworthy that the energy consumption by the most efficient cement plants in India at the level of 665 Kcal per kg of clinker and 69 kWh per tonne of cement are comparable with the best achieved in the world. 1.2 Major Players in Indian Cement Industry: Domestic players:
ACC Limited
Ambuja Cements Limited
Shree Cements Limited
India Cements
J K Cement
Grasim
Jaypee Group
Madras Cements
Century Textiles
Major foreign players: 1.) Holcim 2.) Lafarge 3.) Italcementi
1.3 PROCESS TECHNOLOGY 1.3.1 Raw Materials for Cement Production Cement is usually used in mortar or concrete. Here it is mixed with inert material (called aggregate), like sand and coarse rock. Portland cement consists of compounds of lime mixed with oxides like silica, alumina and iron oxide. There are three major raw materials for cement:
1.) Limestone Limestone is the main raw material and is the source of calcium carbonate. Calcium carbonate is burnt to obtain calcium oxide (CaO). The other sources of calcium carbonate are marl, chalk, seashell and coral reef. Limestone is the most abundant source of CaO. The other user industries for limestone are iron & steel, fertilizer and chemicals. Cement is the biggest limestone user in India accounting for over 75-80% of limestone produced in India. The composition of limestone used by the various sectors varies. For cement, the CaO content of limestone should be a minimum of 44%. Typically, 1.4-1.5 tonnes of limestone are required per tonne of clinker. Thus, for a 1 million tonne cement plant, assured availability of cement grade limestone reserves of the order of 50-60 mt in the close vicinity is important.
2.) Gypsum Gypsum is used as a retarding agent. Ground clinker, on contact with water, tends to set instantaneously because of the very fast reaction between tri-calcium aluminates and water. In the presence of gypsum, the desired setting time can be achieved. Gypsum is added to the extent of 5% during the clinker grinding stage. Gypsum is naturally available in abundance in Haryana, Gujarat and Tamilnadu.
3.) Granulated Blast Furnace Slag (GBFS) and Fly Ash The other raw materials that are also used in the manufacture of cement are blast furnace slag (a waste product obtained from iron-smelting furnaces) and fly ash (leftover ash from a thermal power station). Limestone contains about 52% of lime and about 80% of this lime is lost during ignition of the raw materials. Similarly, Clay contributes about
57% silica of which about 25% is lost during ignition. GBFS is obtained by granulation of slag obtained as a by-product during the manufacture of steel. It is a complex calcium aluminium silicate and has latent hydraulic properties. That is why it is used in the manufacture of Portland blast furnace slag cement.
1.4 PROCESS
1.4.1 Stag es of Cement Production There are seven stages of cement production at a cement plant: 1. Procurement of raw materials 2. Raw Milling - preparation of raw materials for the pyroprocessing system 3. Pyroprocessing - pyroprocessing raw materials to form cement clinker 4. Cooling of cement clinker 5. Storage of cement clinker 6. Finish Milling 7. Packing and loading Figure 1.1: Cement manufacturing from the quarrying of limestone to the bagging of cement
While adding fresh capacities, the cement manufacturers are very conscious of the technology used. In cement production, raw materials preparation involves primary and secondary crushing of the quarried material, drying the material (for use in the dry process) or undertaking a further raw grinding through either wet or dry processes, and blending the materials.
Clinker production is the most energy-intensive step, accounting for about 80% of the energy used in cement production. Produced by burning a mixture of materials, mainly limestone, silicon oxides, aluminium, and iron oxides, clinker is made by one of two production processes: wet or dry; these terms refer to the grinding processes although other configurations and mixed forms (semi-wet, semi-dry) exist for both types. In the dry process, the raw materials are ground, mixed, and fed into the kiln in their dry state. In the wet process, the crushed and proportioned materials are ground with water, mixed, and fed into the kiln in the form of slurry. The choice among different processes is dictated by the characteristics and availability of raw materials. For example, a wet process may be necessary for raw materials with high moisture content (greater than 15%) or for certain chalks and alloys that can best be processed as a slurry. The dry process is the more modern and energy-efficient configuration. In general, the dry process is much more energy efficient than the wet process, and the semi-wet somewhat more energy efficient than the semi-dry process. The semi-dry process has never played an important role in Indian cement production and accounts for less than 0.2% of total production. In 1960, around 94% of the cement plants in India used wet process kilns. These kilns have been phased out over the past 46 years and at present, 96.3% of the kilns are dry process, 3% are wet, and only 1% are semidry process. Dry process kilns are typically larger, with capacities in India ranging from 300- 8,000 tonnes per day or tpd (average of 2,880 tpd). While capacities in semi-dry kilns do range from 600-1,200 tpd (average 521 tpd), capacities in wet process kilns range from 200-750 tpd (average 425 tpd). Over the last decade, increased preference is being given to the energy efficient dry process technology so as to obtain a cost advantage in a competitive market. Moreover, since the initiation of the decontrol process, many manufactures have switched over from the wet technology to the dry technology by making suitable modifications in their plants. Due to new, even more efficient technologies, the wet process is expected to be completely phased out in the near future. Due to the dominant use of carbon intensive fuels such as coal in clinker making, the cement industry has been a major source of
carbon dioxide (CO2) emissions. Besides energy consumption, the clinker making process also emits CO2 due to the calcining process.
1.5 TYPES OF CEMENT There are different varieties of cement based on different compositions according to specific end uses, namely, Ordinary Portland Cement, Portland Pozzolana Cement, White Cement, Portland Blast Furnace Slag Cement and Specialised Cement. The basic difference lies in the percentage of clinker used.
1.) Ordinary Portland Cement (OPC): OPC, popularly known as grey cement, has 95 per cent clinker and 5 per cent gypsum and other materials. It accounts for 70 per cent of the total consumption.
2.) Portland Pozzolana Cement (PPC): PPC has 80 per cent clinker, 15 per cent Pozzolana and 5 per cent gypsum and accounts for 18 per cent of the total cement consumption. It is manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient.
3.) White Cement: White cement is basically OPC - clinker using fuel oil (instead of coal) with iron oxide content below 0.4 per cent to ensure whiteness. A special cooling technique is used in its production. It is used to enhance aesthetic value in tiles and flooring. White cement is much more expensive than grey cement.
4.) Portland Blast Furnace Slag Cement (PBFSC): PBFSC consists of 45 per cent clinker, 50 per cent blast furnace slag and 5 per cent gypsum and accounts for 10 per cent of the total cement consumed. It has a heat of hydration even lower than PPC and is generally used in the construction of dams and similar massive constructions.
5.) Specialised Cement: Oil Well Cement is made from clinker with special additives to prevent any porosity.
6.) Rapid Hardening Portland cement: Rapid Hardening Portland Cement is similar to OPC, except that it is ground much finer, so that on casting, the compressible strength increases rapidly. Water Proof Cement is similar to OPC, with a small portion of calcium stearate or nonsaponifiable oil to impart waterproofing properties. In India, the different types of cement are manufactured using dry, semi-dry, and wet processes. In the production of Clinker Cement, a lot of energy is required. It is produced by using materials such as limestone, iron oxides, aluminium, and silicon oxides. Among the different kinds of cement produced in India, Portland Pozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag Cement are the most important because they account for around 99% of the total cement production in India. The Portland variety of cement is the most common one among the types of cement in India and is produced from gypsum and clinker. The Ordinary Portland cement and Portland Blast Furnace Slag Cement are used mostly in the construction of airports and bridges. The production of white cement in the country is very less for it is very expensive in comparison to grey cement. In India, while cement is usually utilized for decorative purposes, marble foundation work, and to fill up the gaps between tiles of ceramic and marble. The different types of cement in India have registered an increase in production in the last few years. Efforts must be made by the cement industry in India and the government of India to ensure that the cement industry continues innovation and research to come up with more and more varieties in the near future.
1.6 SCALE OF OPERATIONS The cement industry has witnessed a significant change in the scale of operations. In 1961, the largest kiln in operation had a capacity of 750 tpd. In 1970, of the total 119 kilns, 1 had over 1,000 tpd capacity, with 55 having less than 400 tpd capacity. In 1980, 11 of the total 141 kilns were over the 1000 tpd mark, with 1 kiln having a capacity larger
than 3,000 tpd (roughly 1 mtpa). The 1990s saw still higher capacity 4500-5000 tpd (or 1.5 mtpa) kilns. The recent practice for a large size plant is to have 6,500-7,000 tpd (or 2.5 mtpa) capacity. 1.6.1 Industrial production: The cement industry is enhancing its production levels as new homes and offices are being built, and in keeping with the economy’s annual growth rate. PRODUCTION SITES OF VARIOUS BRANDS OF CEMENT BRAND NAME
PRODUCTION SITE
Shree
Beawer Distt. Ajmer
Bangur
Rass Distt. Pali. Jetaran
Cemento
Rass Distt. Pali. Jetaran
Ambuja
Rabriyawas Distt. Pali. Jeteran
Binani
Pindwada Distt. Sirohi
Ultra Tack
Shambhupura Distt. Chittorgarh
Birla Chetak
Chittorgarh
Birla Uttam
Modak Distt. Kota
J.K. Laxmi
Banas Distt.Sirohi
J.K. Super
Nimbaheda Distt. Chittorgarh
ACC Indian cement industry – Major players
Lakheri, Distt. Bundi
9. 9
shree
Competition
Last Price
Ambuja Cements
54.20
Market
Cap.Sales
(Rs. cr.)
Turnover
8,252.38
5,704.84
Net Profit
Total Assets
1,971.10
4,991.67
ACC
418.50
7,853.31
6,878.00
1,438.59
4,459.12
UltraTechCement
324.95
4,045.17
5,509.22
1,007.61
4,437.49
India Cements
82.50
2,325.52
3,044.25
637.54
5,132.59
Shree Cements
439.95
1,532.66
1,367.98
177.00
1,942.92
Madras Cements
63.35
1,507.52
2,011.88
408.28
2,589.49
ChetinadCem
401.00
1,183.08
930.18
163.77
828.68
Rain Commoditie
116.00
835.60
--
-0.56
717.62
Birla Corp
98.00
754.65
1,724.78
393.57
1,232.47
Dalmia Cement
90.00
728.45
1,480.67
347.15
2,730.48
LOCATION In. The board consists of eminent persons with considerable professional expertise in Shree Cement Unit I & II is located at Beawar, 185 Kms. from Jaipur off the DelhiAhmedabad highway. Amongst the plants in the state it is nearest from its marketing centers. Bangur Cement Unit (III,IV,V& Vi) is lacated at RAS,28 Km from Beawar in pali Distt. Shree Cement Grinding Unit (KKGU) is located at KhushKhera Dist. Alwar Nearest to Delhi.
Regd. Office & Works: Shree Cement Ltd. Bangur Nagar, Post Box No. 33 Beawar 305901 Rajasthan India
Corp. Office:
21, Strand Road, Calcutta- 700001.
CEMENT PLANT
MISSION To sustain its reputation as the most efficient cement manufacturer in the world.
To drive down costs through innovative plant practices.
To increase the awareness of superior product quality through a realistic and convincing communication process with consumers.
To strengthen realisations through intelligent brand building.
VISION To register a strong consumer surplus through a superior cement quality at affordable prices.
HIOLOSOPHY Let noble thoughts come to us from all over the world. Shree Cement Ltd is a professionally managed company. The company always believes in complete transparency and discharge of the fiduciary responsibilities which has been assumed by Directors as well as by the Senior Management Executives and/or Staff. Therefore in order to ensure the continuity thereof though, not written but otherwise ingrained, the Board of Directors has approved of the following Code of Conduct for all
Directors as well as for the Senior Management Executive and/or personnel and other employees. All the Directors as well as Senior Management Executive and/or Personnel owe to the Company as well as to the shareholders : i)
"Fiduciary duty"
ii)
“Duty of skill and care”
iii)
“Social responsibility”
With the above objects in mind the following code of conduct has been evolved and it is expected that all Directors as well as Senior Management Executives and/or personnel will adhere to it. FIDUCIARY DUTIES All Directors as well as Senior Management Executives and/or personnel while dealing on behalf of the company will exercise the power conferred upon him / them and fulfill his / their duties honestly and in the best interest of the company. DUTY TO EXERCISE POWER FOR PROPER PURPOSES The Board from time to time shall determine the powers to be exercised by the Directors as well as the Senior Management Executives and/or Personnel and all such powers shall be exercised reasonably. CONFLICT OF INTEREST None of the Directors and/or Senior Management Executives and/or personnel will put himself in a position where there is potential conflict of interest between personal interest and his duty to the company. None of the Directors and/or Senior Management Executive and/or personnel will exploit an opportunity arising while associated with the Company for his personal gain either directly or indirectly. SECRET PROFITS The Director as well as Senior Management Executives and/or personnel while discharging their duties in a fiduciary capacity is precluded from making any personal profit from an opportunity which may arise being a Director and / or Senior Management Executive of the Company and should always ensure that he is acting for and on behalf and for the good of the Company. DUTY OF SKILL AND CARE
Since all the Directors as well as Senior Management Executives and / or personnel are acting in a fiduciary capacity and for the benefit of the company, being advocates of the business of the Company, none of them will do anything which is in conflict with the interest of the company. ATTENTION TO BUSINESS All Directors as well as Senior Management Executives and/or personnel will give proper attention to the business of the company. SECRECY AND CONFIDENTIALITY None of the Directors as well as Senior Management Executives and/or personnel while associated or working for the company will be entitled to disclose either directly or indirectly or make use of the confidential information which may come in their possession while acting on behalf of the company and shall not divulge the financial status and position of the company to any person or persons. INTERNAL TRADING None of the Directors as well as Senior Management Executives and/or personnel will directly or indirectly in the name of his family members and/or associates will indulge in any internal trading of the company’s shares and stocks. RISK AND PROPER PROCESS The Senior Management personnel and/or employees are expected to keep the Directors fully informed about the effect of the policies adopted by the company from time to time and also regarding the risk connected with such policies. Senior Management personnel and/or staff who have been entrusted with specific duties for ensuring compliance of statutory requirements including the rules and regulations shall forthwith comply with the same and keep the Board of directors fully informed about such compliance or non-compliance. Senior Management personnel will from time to time provide or cause to be provided a true and faithful account of the company’s working and effectiveness of the procedures adopted by the company from time to time. All Directors as well as Senior Management Executives and/or personnel are aware that while working with the company they have a social responsibility as well and therefore
from time to time will devote such time for the upliftment of the downtrodden, poor and needy persons in the locality.
PRODUCT & MARKET
Shree Ultra Cement 53 Grade
BIS
Specification
53 Shree Ultra Cement
Grade
53-Grade
225
385
Le chatelier expansion (mm)
Max. 10
1.0
Auto-clave expansion (%)
Max. 0.8
0.606
Initial
Min. 30
111
Final
Max. 600
166
3 days
27
41.3
7 days
37
54.7
28 days
53
67.6
Fineness (m2 / kg) Soundness
Setting Time (Mins)
Compressive Strength (MPa)
BIS specification Shree Ultra Cement -43 Grade
Shree Ultra Cement -43 Grade Fineness (m2 / kg)
225
355
Soundness
-
-
Le chatelier expansion (mm)
Max 1.0
.084
Auto-clave expansion (%)
Max. 0.8
.075
Setting Time (Mins)
-
-
Initial
Min. 30
115
Final
Max. 600
176
Compressive Strength (MPa)
-
-
3 days
Min 23
38
7 days
Min33
50
28 day
Min. 43
63.5
TUFF Cemento 3556
IS Specification 43 Grade
3556
Fineness
Min.330
406
Specific Surface (m2 / kg) Setting
Time(Minutes.) Min.30
110
(a)Intial (b)final Soundness
Min.600
175
Test Max. 10
1.0
(a)Le-Chatelier Method (mm) (a)AutoClave(%)
Max. 0.800
0.068
(MPa) Min.16
39
(b)7 days(Min.)
Min.22
49
(c)28 days(Min.)
Min. 33
59
Compressive
Strength
(a)3 days(Min.)
Quality Initiatives Shree Cement possesses one of the few R&D centres in the Indian cement industry. This center has been recognised by the DSIR, Government of India. The research team is headed by a highly qualified and experienced scientist. Shree's R&D center has directly contributed in the conservation of electrical and thermal energy, an improvement in product quality, cost reduction, mineral conservation through the intelligent use of fly ash and a waste reduction in mines through the use of low ash coal.
Computer Aided Mine Planning System
Stacker-Reclaimer for homogenization of lime stone
On-Line Sampling System by Auto Samplers
X Ray Analyzers
Automatic Raw Mix Design Controls by Ramco-Software
On Line Raw meal Blending Control in C.F. Silos
Coal homogenization (Stacker-Reclaimer)
Gypsum homogenization
Fuzzy Logic Control for Kiln operation
Roller Press Control & High Efficiency Separator for particle size distribution
Packing by Automatic Electronic Packers Markets classification Markets
States
Primary
Rajasthan
Secondary Delhi, Punjab, JK, Haryana, Western U.P. and Uttaranchal Tertiary
Gujarat, M.P. and Central U.P.
CHAPTER- 2
RATIO ANALYSIS
2.1 INTRODUCTION The ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyze and interpret the financial health of enterprise. With the help of ratios that the financial statements can be analyzed more clearly and decisions made from such analysis. Financial analysis is the process of identifying the financial strengths and weakness of the firm y properly establishing relationship between the items of balance sheet and the profit and loss account. There are various methods or techniques used in analyzing financial statements. By the use of ratio analysis one can measure the financial conditions of a firm and can point out whether the conditions is strong, good, questionable or poor. Analysis and interpretation of financial statement with the help of ratio is termed as Ratio analysis. It is process of identifying the financial strengths and weakness of the firm. This may be accomplished either through a trend analysis of the firm over a period of time or through a comparison of the firm ratios with its nearest competitors and with the industry averages Ratio analysis was pioneered by Alexander Wall, who presented a system of ratio analysis in the year 1909. Alexander’s contention was that interpretation of financial statements can be made either by establishing quantitative relationships between various items of financial statements.
Standards of comparison The ratio analysis involves comparison for a use of full interpretation. A single ratio in itself does not indicate favourable or unfavourable condition. It should be compared with some standards. Standards of comparison may consist. 1. Ratios calculated from the past financial statement of the firm. 2. Ratios developed using the projected, or proforma of financial statements of the same firm. 3. Ratios of some selected firm’s, especially the most progressive and successful, at same point in the time, and 4. Ratios of the industry to which the firm belongs. The easiest way to evaluate the performance of a firm is to compare its ratios with the past ratios. When financial ratios over a period of time are compared it is known as the time series. It gives an indication of the direction of change and reflects whether the firm’s financial performance has improved, deteriorated or remained constant over time. The analyst should not simply determine the change, but more importantly, he should understand why ratios have changed. The change may be affected by changes in the accounting polices without a material changes in the firm’s performance. Sometimes ratios are used as the standard of comparison. Future ratios can be developed from the projected or proforma of financial statements. The comparison of past ratios with future ratios shows the firm’s relative strengths and weakness in the past and future. If the ratios indicate weak financial position, corrective actions should be initiated. Another way of comparison is to compare ratios of firm with some selected firms in the same industry at the same point in time. This kind of comparison indicates the relative financial position and performance of the firm. To determine the financial condition and performance of a firm, its ratios compare with average ratios of the industry analysis, helps to ascertain the financial standing and capability of the firm in the industry to which it belong. Industry ratios are important standards in view of the fact that each industry has its characteristics, which influence the financial and operating relationship. Meaning of ratios A ratio is a mathematical relationship between two items expressed in a quantitative form. Ratio can be defined as “Relationship in quantization forms, between figures which
have cause and effect relationship or which are connected with each other in some manner or the other”. Ratio analysis is an age old technique of financial analysis. The information provided by the financial statements in absolute form is and conveying very little meaning to the users. Advantage or Importance of ratio analysis 1. The Ability of corporation to meet its current obligations i.e., liquidity position. 2. Ratio analysis provides data for inter firm comparison. Ratios highlights the factors associated with successful & unsuccessful firms corporations. 3. The efficiency of .the Corporation is. Utilizing its various assets in generating sales revenue. 4. The extent to which the firms has used its ling-term solvency for borrowing funds. 5. The overall operating efficiency & performance of the corporation
Limitations of ratio analysis 1. Comparison between two variables, prove worth provided their basis of valuation is identical. But in reality, it is not possible, such as method of valuation of stockin-trade, or charging different methods of depreciation of fixed assets etc. 2. Ratio depends on the figure of the financial statement. But in most cases, the figures are window dressed. 3. Ratio analysis became more meaningful and significant if trend analysis (i.e., the analysis over a number of years) is possible, but in practice, it is difficult all the time. 4. Ratio are calculated jointly on the basis of past result which may not be suited to implement to the present business polices. 5. It is very difficult to ascertain the normal or standard ratio in order to make proper comparison. Because, it differs from firm to firm, industry to industry. Types of ratios Several ratios, calculated from the accounting data, can be grouped into classes according to financial activity or function to be evaluated. The parties interested in financial analysis are short-term and long-term creditors, owners and management. Short-term creditor’s main interest is in the liquidity position or short-term solvency of the firm,
long-term solvency and profitability of the firm. Similarly, concentrate on the firm’s profitability and financial condition. Management is interested in evaluation of every aspect of the firm’s performance. They have to protect the interests of all parties and see that the firm grows profitably. The requirement of the various of ratios, we may classify them into the following four important categories. 1. Liquidity ratios 2. Leverage ratios 3. Activity ratios 4. Profitability ratios 1. Liquidity ratios It is extremely essential for a firm to meet its obligations as they become due. Liquidity ratios measure the ability of the firm to meet its current obligations. In fact, analysis of liquidity needs the preparation of cash budgets and fund flow statements, but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should ensure that if not suffer from lack of liquidity, and also it does not have excess liquidity. The failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit worthiness, loss of creditor’s confidence, or even legal tangles resulting in the closure of the company. A very high degree of liquidity is also bad, idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance between high liquidity and lack of liquidity.
The most common ratios, which indicate the extent of liquidity or lack of it, are:
Current ratio The current ratio is the ratio of the total current assets to total current liabilities. It is calculated as: Current ratio = current assets/current liabilities. The current assets of the firm include cash and bank balances and those assets which can be converted into cash within a year, such as marketable securities, debtors and
inventories. Pre-paid expenses, bills receivable accrued income are also included in current assets. Current liabilities include creditor’s bills payable, accrued expenses, short term bank loan, income tax liability and long debt maturing in current year.
Quick ratio or acid-test ratio Quick ratio established a relationship between quick or liquid assets and current liabilities. The quick ratio is found out by dividing quick assets by current liabilities. Quick assets includes assets which can be converted into cash immediately without a loss of value such as cash and bank balance, book debts (debtors and bills receivables) and marketable securities (temporary quoted investments). Inventories are not included in quick assets because they require time for converting into cash and also their value may fluctuate.
Quick Ratio = Current Assets – Inventories / Current Liabilities.
Cash ratio Cash ratio establishes a relationship between cash and cash equalent and current liabilities. To get the cash ratio only absolute liquid assets and readily realizable securities are taken into consideration. A cash ratio of 0.5 to 1 is considered as satisfactory. Cash ratio= cash & bank + marketable securities/current liabilities
Net working capital ratio Working capital ratio is the difference between the current assets and current liabilities. The amount of working capital in some times used as a measure of the firms liquidity. It is considered that if a firm has more working capital ratios has the greater ability to meet its current obligations. Working capital ratio= current assets-current liabilities / net asset
2. Leverage ratios The process of magnifying the shareholder’s return through the employment of debt is called “trading on equity”. To judge the long term financial position of the firm, financial leverage or capital structure ratios are calculated. The ratios indicate funds provided by owners and lenders. As a general rule there should be appropriate mix of debt and owners equity in financing the firm’s assets.
The use of debt magnifies the shareholders’ earning as well as increases their risk and firm’s ability of using debt for the benefit of shareholder. Basically these are prepares to know the extent which operating profits are sufficient to cover the fixed charges.
The following are the some of the important leverage ratios:
Debt-equity ratio The debt equity ratio is an important tool of financial analysis to appraise the financial structure of a firm. Debt equity ratio is the measure of relative claims of creditors and owners the firm’s assets. So it has an important implication form the creditor and owners point of view of the firm. The debt equity ratio cab be calculated by dividing total debt by net worth. Debt Equity Ratio = Total Debt / Net worth.
Total-debt ratio The total debt ratio can be calculated by dividing total debt by capital employed or total net assets. The total debt will include short and long term borrowings from financial institutions. Capital employed will include total debt and net worth or net assets consists of net fixed (long term) assets minus current liabilities excluding interest bearing short term debt.Total Debt Ratio= Total Debt/capital employed.
Capital employed to net worth ratio or Equity ratio The ratio can be calculated by dividing capital employed or net assets by net worthy. Network includes share capital and reserves and surplus. Generally, capital employed or net assets to net worth ratio should be more than one.Capital employed of NA = capital employed / Net worth 3. Activity ratios The funds of creditors and owners are invested in various assets to generate sales and profits, the better assets management, the large amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages andutilizes its assets. These ratios are also called as turnover ratios, because they indicate the speed with which assets are being converted or turned into sales.
The following are the important activity ratios, which will evaluate the efficiency of the firm:
Inventory turnover ratio This ratio indicates the efficiency of the firm in selling its product and also shows how rapidly the inventory is turning into receivables through sales. The ratio is calculated by dividing the cost of goods sold by the average inventory. Cost of goods sold is sales- gross profit of purchases + direct expenses+ opening stock+ manufacturing expenses – closing stock. Average inventory is the average of opening and closing balances of inventory. Generally a high inventory turnovers indicative of good inventory managementand a low inventory turnover suggests an inefficient inventory management. Further a low inventory turnover implies excessive inventory levels than warranted by production and sales activities, or a slow moving of obsolete inventory, a high level of sluggish inventory amounts to unnecessary tie up of funds, reduced profit and increased costs. Therefore a balance should be maintained between too high and too low inventory turnovers. Inventory Turnover Ratio = Cost of goods sold / Average Stock.
Working capital turnover ratio The ratio show the firm is able to generate sales by using its limited resources of working capital. The firm may also take the ratio relating to net current assets to sales. If the ratio is more it indicates efficient working capital management and if it is less we can say it is inefficient in working capital management. The networking capital turnover ratio can be computed by dividing sales by networking capital. Working capital is current assets minus current liabilities. Working Capital Turnover = Sales / Net Working capital.
Debtors turnover ratio A firm sells goods for cash and credit bases, when the firm extends credits to its customers, book debts (debtors or receivables) are created the firms account and they are expected to be converted into cash over a short period of time, so these are included in current assets. The liquidity of the firm depends on the quality of debtors to great extent.
To judge the quality of liquidity of debtors, we have to calculate the debt turnover ratio and average collection period. The debt turnover ratio is calculated by dividing credit sales by average debtors. When the information regarding credit sales and opening and closing balance of debtors may not be available, then debtor turnover ratio can be calculated by dividing total sales by the yearend balance of debtors. Generally the higher the value of debtor’s turnover, the more efficient is the management of credit. Average collection period is calculated to know the nature of the firm’s credit policy and the quality of the debtors more clearly. It can be calculated by days in a year divided by debtors turnover of debtors by sales multiplied by 360 days. The shorter the average collection period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors.
Debtors turnover ratio = sales/debtors
Debtors Collection period The average number of days for which debtors remain outstanding is called the average collection and can be computed as follows: Debtorscollection period = no. of days in a year / debtors turn over ratio (or) Avgdebtors /sales*365 The less collection period leads to the worthiness of the debtors.
4. Profitability ratios Profit is the difference between revenues and expenses over a period of time (usually one year). Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate the efficiency of the company in term of profits.
The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. This is possible only when the company earns enough profits. The following are the some of the important profitability ratios:
Gross profit ratio It is the first profitability ratio calculated in relation to sales. This ratio can be called as gross profit margin of gross margin ratio. This ratio establishes a relationship between gross profit and sales to measure the efficiency of the firm and it reflects its pricing policy. The ratio is calculated by dividing the gross profit by sales. A high gross profit margin indicates that the firm is able to produce at relatively lower cost and it is also a sigh of good management. Whereas as a low gross profit margin reflects a higher cost of goods sold due to the firm’s inefficient management. Gross Profit Margin = Gross Profit / Sales * 100
Net profit ratio Net Profit Margin Ratio establishes a relationship between net profit and sales of the firm. It indicates the management’s ability to earn sufficient profit on sales to cover all operating expenses, the cost of merchandising of servicing and also should have a sufficient margin to pay reasonable compensation to shareholders. A high ratio shows better and low ratio shows the opposite. The net profit is calculated by dividing the net profit after tax by sales, N.P. is obtained when operating expenses, interest and taxes are deducted from gross profit.
Net Profit Ratio = profit after tax / sales * 100
Operating profit ratio
The operating profit can be calculated by dividing operating profit by net sales. The operating profits includes net profit = non operating expenses (interest to be paid, income tax, loss on sale of assets) minus non operating income (interest on dividend, profit on sale of asset) or gross profit minus operating expenses (administrative and selling expenses).Operating profit ratio = operating profit / net sales.
CHAPTER – 3
RESEARCH & METHODOLOGY
3.1 OBJECTIVES To know the financial position of the SHREE CEMENT Ltd. To study the liquidity position of SHREE CEMENT Ltd. To Analyze the profitability, of SHREE CEMENT Ltd. To suggest a better way if any for the business growth.
3.2 SCOPE OF THE STUDY The purpose of the study was to know the financial performance of the unit. For this the ratio analysis tool was most suitable. This would reveal the solvency position of the unit. The trend of sales and profitability for the past 5 years was calculated to know if any deviation occurred and to know the reasons for it. However the study hard its own limitation like ratio analysis is a post-mortem analysis and the data utilized were secondary in nature etc. The scope of the present study is limited to the following aspects.
3. 3 LIMITATIONS OF THE STUDY The study is based on the information provided by the organization in the form of various annual reports. Detailed analysis could not be carried for the project work because of the limited time span. Less scope of gathering data The analysis was confined to Shree cement ltd. Only
3.4 NEED FOR THE STUDY Ratio analysis is a powerful tool of financial analysis. Financial analysis is the process of determining strength and weakness of the industry establishing a strategic relationship between the components of balance sheet and profit and loss account. Financial performance evaluation has great influences on the development and progress of the industry.
3.5 Source of data The study is purely based on the secondary data. The data of Shreecement limited for the year 2005 to 2009 is used in this study. The secondary data has been collected from the profit and loss account, balance sheet of Shree cement limited.
Financial tools Ratio analysis. Period of study 5 year annual reports are used that is 2007 to 2011.
CHAPTER 4
DATA ANALYSIS & INTERPRETATION
LIQUIDITY RATIOS Current ratio Current ratio is calculated by dividing the current assets by current liabilities. Current assets include cash and those assets that can be converted into cash within a year , such as marketable securities , debtors and inventories .prepaid expenses also includes in current assets .current liabilities include creditors , bills payable , arrived expenses , short term bank loan , income tax liability and long term debt maturing in the current year.
Curren ratio represents a margin of safety for creditors. Current ratio of 2 to 1 or more is considered satisfactory.
The higher the current ratio the greater the margin of safety. The larger the amount of current assets in ratio to current liabilities the more the firms ability to meet its current obligations.
Current assets Current ratio= ------------------------Current liabilities
Table Current ratio
Year
Current
assets Current liabilities Current
ratio
(Rs in lakhs)
(Rs in lakhs)
( in times )
2007-08
8879.5
3877.84
2.29
2008-09
8167.5
3509.59
2.33
2009-10
10725.94
3922.48
2.73
2010-11
27336.1
14506.15
1.88
2011-12
24288.00
25214.04
0.96
Current ratio 3 2.5
2.73 2.29
2.33 1.88
2
1.5 0.96
1 0.5
0
2007-08
2008-09
2009-10 Years
2010-11
2011-12
INFERENCE The Ratio is above standard ratio (2:1) all years i.e. 2007-08 to 2008- 09 Ratios: 2.29, 2.33, 2.73, 1.88, and 0.96 respectively.
Quick ratio Establishes a relationship between quick or liquid, Assets and liabilities. An asset is a Liquid if it can be converted into cash immediately. Inventories are considered to be less liquid. The quick ratio is found out by dividing quick assets by current liabilities. A quick ratio of 1to1 is considered to represent a satisfactory current financial condition. Current assets-inventories Quick ratio= ------------------------------------Current liabilities Table Quick ratio
Year
Quick assets
Current liabilities
Quick ratio
(Rs in lakhs)
(Rs in lakhs)
(in times)
2007-08
6597.58
3877.84
1.70
2008-09
5664.30
3509.59
1.61
2009-10
7611.37
3922.48
1.94
2010-11
23365.09
14506.15
1.61
2011-12
18216.65
25214.04
0.72
Quick ratio
Percentage 2.5 2
1.94 1.7
1.61
1.61
1.5 1
0.72
0.5 0
2007-08
2008-09
2009-10
2010-11
2011-12
Years
INFERENCE The Ratio is above standard ratio (1:1) all years i.e. 2003-04 to 2007- 08 Ratios: 1.7:1, 1.6:1, 1.0:1, 1.6:1, and 0.7:1 respectively.
Cash Ratio Cash is the most liquid asset. A financial analyst may examine cash ratio and its Equivalent to current liabilities. Trade investment or marketable securities are Equivalent of cash. The standard ratio is 0.5:1or 50:100(%).
Cash & bank + marketable securities Cash ratio= ------------------------------------------------------Current liabilities
Table cash ratio Year
Cash & bank
Current liabilities
Cash ratio
(Rs in lakhs)
(Rs in lakhs)
(in times)
2007-08
1716.40
3877.84
0.44
2008-09
1290.71
3509.59
0.37
2009-10
1383.35
3922.48
0.35
2010-11
12012.16
14506.15
0.83
2011-12
4773.47
25214.04
0.18
Cash ratio
Percentage 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
0.83
0.44 0.37
0.35 0.18
2007-08
2008-09
2009-10 Years
2010-11
2011-12
INFERENCE The Ratio is above standard ratio (0.5:1) all years i.e. 2003-04 to 2007- 08 Ratios: 0.44, 0.37, 0.35, 0.83 and 0.18 respectively
Networking capital ratio The difference between current assets and current liabilities excluding short-term bank barrowing is collected net working capital or net current assets. Net working capital ratio is some times used as measure of a firm’s liquidity. It is considered that between two firms. The one having the larger networking capital has the greater ability to meet its current obligations. The ratio is calculated as: Net working capital= current assets-current liabilities Net assets= fixed assets + current assets Net working capital Net working capital ratio=
---------------------------Net assets
Table Net working capital ratio Year 2007-08 2008-09 2009-10 2010-11 2011-12
Net working capital (Rs in lakhs) 5001.66 4657.91 6803.46 12829.95 926.04
Net working capital ratio (in times) 0.11 0.11 0.16 0.12 0.01
Net working capital ratio
Percentage 0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0
Net assets (Rs in lakhs) 45357.34 42070.25 42684.40 107415.94 150822.72
0.16
0.11
0.12
0.11
0.01
2007-08
2008-09
2009-10 Year
INFERENCE
2010-11
2011-12
Net working capital ratio is sometimes used as a measure of firm’s liquidity. During the period from 2003-04 to 2010-11 the ratios are 0.11, 0.11, 0.16, 0.12, 0.01.
LEVERAGE RATIOS Financial leverage refers to the use of debt finance ratios help in assessing the risk arising from the use of debt capital. To judge the long-term financial position of the firm, financial leverage ratios are calculated. The ratios indicate mix of funds provided by owners and lenders.
Debt equity ratio Several debt equity ratios are utilized to analyze the out siders funds of a firm. And the total shareholders fund Total debt Debt equity ratio= --------------------------Net worth Total debt = secured loans + unsecured loans Net worth = share capital + reserves and surplus Table Debt equity ratio Year 2007-08 2008-09 2009-10 2010-11 2011-12
Total debt (Rs in lakhs) 28089.02 27198.47 25198.62 16454.93 24948.24
Debit equity ratio (in times) 0.43 0.42 0.39 0.20 0.25
Debit equity ratio
Percentage 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
Net worth (Rs in lakhs) 64698.07 64698.07 64698.07 80846.56 100619.28
0.43
0.42
0.39 0.25 0.2
2007-08
2008-09
2009-10
Years
2010-11
2011-12
INFERENCE The debt equity ratio has been decreased from 0.43 in 2003-04 to 0.25 in 2010-11. This is due to decrease in debt funds. It is good sign for the company.
Total debt ratio The debt-equity ratio is determined to ascertain the soundness of the long term financial policies of the company. It is also known as external internal equity ratio. Total debt = secured loans + unsecured loans Capital employed = share capital + reserves and surplus + total debt Total debt Total debt ratio = ------------------------Capital employed Table Total debt ratio Year
Total debt
Capital employed Total debt ratio
(Rs in lakhs)
(Rs in lakhs)
( in times )
2007-08 28089.02
92787.09
0.30
2008-09 27198.47
91896.54
0.30
2009-10 25198.62
89896.69
0.28
2010-11 16454.93
97301.49
0.17
2011-12 24948.24
125567.52
0.20
Percentage
Total debt ratio
0.35
0.3
0.3
0.3
0.28
0.25
0.2
0.2
0.17
0.15 0.1 0.05 0
2007-08
INFERENCE
2008-09
2009-10 Years
2010-11
2011-12
The total debt ratio has been decreased from 0.30 in 2003-04 to 0.20 in 2010-11. This is due to decrease in debt funds. It represents the company having low debt ratio. So, the company is flexible in the firms operation.
Capital employed to net worth ratio /equity The ratio can be calculated by dividing capital employed or net assets by net worthy. Network includes share capital and reserves and surplus. Generally, capital employed or net assets to net worth ratio should be more than one. Capital employed Equity ratio = -------------------------Net worth Capital
employed
=
share
capital
+
reserves
and
surplus
+
total
Net worth = share capital + reserves and surplus
Capital employed to net worth ratio Year
Capital employed
Net worth
Capital employed to net
(Rs in lakhs)
(Rs in lakhs)
worth ratio ( in times )
2007-08
92787.09
64698.07
1.43
2008-09
91896.54
64698.07
1.42
2009-10
89896.69
64698.07
1.39
2010-11
97301.49
80846.56
1.20
2011-12
125567.52
100619.28
1.25
debt
Capital employed to net worth ratio
Percentage 1.45
1.43
1.42 1.39
1.4 1.35 1.3
1.25
1.25
1.2
1.2 1.15 1.1 1.05
2007-08
2008-09
2009-10 Years
2010-11
2011-12
INFERENCE The capital employed to net worth ratio has been decreased from 1.43 in 2003-04 to 1.25 in 2010-11. This is due to decrease in debt funds. ACTIVITY RATIOS Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called Turnover ratios. Because they indicate the speed with assets are being converted into sales.
Inventory turnover ratio Inventory turnover ratio is a measure of liquidity. It indicates the speed at which the inventory is sold out.This ratio indicates the efficiency of the firm in selling its products. Cost of goods sold Inventory turnover ratio = --------------------------------Average inventory Cost of goods sold = sales – gross profit Average inventory = opening stock + closing stock / 2 Table Inventory turn over ratio Year 2007-08 2008-09 2009-10 2010-11 2011-12
Cost of goods sold Inventory (Rs in lakhs) (Rs in lakhs) 25509.56 2487.69 29237.39 2392.56 16825.32 2696.36 36172.58 3430.26 46374.89 5021.18
Inventory turnover ratio ( in times ) 10.25 12.22 6.24 10.54 9.24
Percentage
Inventory turnover ratio
14 12
12.22 10.54
10.25
9.24
10 8
6.24
6 4 2 0
2007-08
2008-09
2009-10 Years
2010-11
2011-12
INFERENCE The Ratios of all years i.e. 2003-04 to 2007- 08 Ratios: 10.25, 12.22, 6.24, 10.54 and 9.24 respectively.
Working capital turn over ratio In this ratio numerator is sales and denominator is net working capital. It shows how many times net working capital goes into sales. Higher the ratio, the lower the investment tied in working capital and vice versa. Very high working capital turnover is not desirable, since it pushes the enterprise into financial stracts. Lower magnitude of the ratio is a reflection of low utilization of working capital. Sales Working capital turnover ratio = ------------------------------------Working Capital Net working capital = total current assets – total current liabilities Table Working capital turnover ratio Year
Sales
Net working capital Working capital turnover ratio
(Rs in lakhs) (Rs in lakhs)
( in times )
2007-08
29021.15
5001.66
5.80
2008-09
32605.16
4657.97
7.00
2009-10
41516.72
3187.96
13.02
2010-11
99378.92
12829.95
7.75
2011-12
117521.84
926.04
126.90
Working capital turnover ratio
Percentage 140
126.9
120 100 80 60 40 20
7
5.8
13.02
7.75
2009-10 Years
2010-11
0
2007-08
2008-09
2011-12
INFERENCE The Ratios of all years i.e. 2003-04 to 2007- 08 Ratios: 5.80, 7.00, 13.02, 7.75 and 126.90 respectively.
Debtor’s turnover ratio It indicates the number of times debtor’s turnover each year. If it is high that indicates the effectiveness of management in collecting debts. Generally, the higher the value of debtor’s turnover, the more efficient is the management of credit. Sales Debtors turnover ratio = ----------------------Average debtors Debtors turn over ratio
Year
Sales
Debtors
debtors turnover
(Rs in lakhs)
(Rs in lakhs)
ratio ( in times )
2007-08 29021.15
3109.72
9.33
2008-09 32605.16
2467.39
13.21
2009-10 39689.62
943.79
42.05
2010-11 99378.92
2531.00
39.26
2011-12 117521.84
2640.09
44.51
Debtor’s turnover ratio
Percentage 50
44.51
42.05
39.26
40 30 20 9.33
13.21
10 0
2007-08
2008-09
200-07
2010-11
2008-08
Year
INFERENCE The Ratios OF all years i.e. 2003-04 to 2007- 08 Ratios: 9.33, 13.21, 42.05, 39.26 and 44.51 respectively.
Debtors collection period Debtors collection period indicates the speed of the collection of debts by the firm. If the firm is collecting the debts in time then that will good for the firm. The shorter collection period is the better quality of debtors. No. Of days in a year (360) Debtors collection period = -------------------------------------Debtor’s turnover ratio (or) Average debtors /credit sales*365
Table Debtors collection period Year
Credit sales
Debtors
Debtors collection period
(Rs in lakhs)
(Rs in lakhs) (in days)
2007-08
29021.15
3109.72
39
2008-09
32605.16
2467.39
27
2009-10
39689.62
943.79
9
2010-11
99378.32
2531.00
10
2011-12
117521.84
2640.09
8
Debtor’s collection period (day)
Percentage 45 40 35 30 25 20 15 10 5 0
39 27
10
9
2007-08
2008-09
2009-10
2010-11
8
2011-12
Year
INFERENCE The days of all years i.e. 2003-04 to 2007- 08 days: 39, 27, 9, 10and 8 respectively
PROFITABILITY RATIOS Profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm.
Gross profit ratio The gross profit ratio indicates the extent to which sales of goods per unit may decline with out May loss in the operations of the firm. This is also known as “Gross profit margin” (or) Gross profit margin on sales. The gross profit is the difference between sales and cost of goods sold. Gross profit(sales-cost of goods sold) Gross profit ratio =
___________________________
x 100
Net sales Table Gross profit ratio Year 2007-08 2008-09 2009-10 2010-11
Gross profits Net sales Gross (Rs in lakhs) (Rs in lakhs) ( in times ) 13172.03 29021.15 45.39 13369.03 32605.16 41.06 18776.27 39689.62 47.30 63206.34 99378.92 63.60
profit
ratio
2011-12 71146.95
117521.84
60.54
Gross profit ratio
Percentage 70
63.6
60.54
60 50
47.3
45.39
41.06
40 30 20 10 0 2007-08
2008-09
2009-10
2010-11
2011-12
Year
INFERENCE The ratio of all years i.e. 2003-04 to 2010-11 ratios 45.39, 41.06, 47.30, 63.60, 60.54 respectively.
Net profit margin ratio Net profit is obtained when operating expenses; Interest and taxes are subtracted from the gross profit. The net profit margin ratio is measured by dividing profit after tax by sales. The ratio also indicates the firm’s capacity to withstand adverse economic conditions. Net profit Net profit margin ratio = ---------------------- x 100 Net sales
Table Net profit ratio Year
Net profit
Net sales
Net profit ratio
(Rs in lakhs)
(Rs in lakhs)
( in times )
2007-08
-2747.91
29021.15
-9.47
2008-09
-2104.92
32605.16
-6.46
2009-10
2265.11
39689.62
5.71
2010-11
18057.74
99378.92
18.17
2011-12
19772.72
117521.84
16.82
Net profit ratio
Percentage
18.17
20
16.82
15 10
5.71
5 0 -5 -10
2007-08
2008-09
2009-10
2010-11
2011-12
-6.46 -9.47
-15
Year
INFERENCE The first two years the ratios are -9.47, -6.46. After three years the ratios are 5.71, 18.17, 16.82. The net profit ratio of the company is in increased trend. It shows that the net profit is increasing year by year.
Operating profit ratio This ratio establishes the relationship between operating profit and sales. Operating profit Operating profit ratio = --------------------------------- x 100 Net sales
Table Operating profit ratio
Year
Operating
profit Net sales
Operating profit ratio
(Rs in lakhs)
(Rs in lakhs)
( in times )
2007-08
-35.05
29021.15
-0.12
2008-09
-190.94
32605.16
-0.59
2009-10
13883.70
43921.16
31.61
2010-11
61291.86
99378.92
61.68
2011-12
75391.89
117521.84
64.15
Operating profit ratio
Percentage 70
61.68
64.15
60 50 40
31.61
30 20 10
-0.12
-0.59
2007-08
2008-09
0 -10
2009-10 Years
2010-11
2011-12
INFERENCE The operating profit ratio has been increasing from -0.12 in 2003-04 to 64.15 in 2010-11. This is due to increase in operating profit.
CHAPTER- 5
5.1 FINDINGS
During the study period, the current ratio of the company in the first 3 years was above the standard norm 2:1. But from the year 2010-11, it started decreasing and reached to 0.96in 2011-12.
In the year 2009, the Quick ratio was decreased to 0.72 from 1.61 times in 2010-11 due to decrease in the cash balance. It was also decreased from 1.94 in 2009-10 to 1.61 in 2010-11. Even in 2008-09, it was decreased to 1.61 from 1.70 in 2007-08.
The standard cash ratio is 0.5:1. In the years 2009, 2007, 2006, and 2005 were 0.18, 0.35, 0.37, and 0.44 were below standard. But in the year 2010-11 the company maintained standard cash ratio.
The Net working capital ratio was 0.11 in the years 2005, 2006. In subsequent years 2007, 2008 and 2009 it was 0.16, 0.12, and 0.01 respectively. It means that company was not in a position to meet its current obligations.
The debt equity ratio was 0.43 in 2007-08 and 0.42 in 2008-09. But in later years it decreased to 0.39 in 2009-10 and to 0.17 in 2010-11. But it was increased to 0.20 in 2011-12.
Total debt ratio has been decreased from 0.30 in 2007-08 to 0.20 in 2011-12. This is due to decrease in debt funds.
The capital employed to net wroth ratio was decreased continuously from 1.43 in 200809 to 1.25 in 2011-12. This is due to increase in debt funds.
Except in 2008-09, the inventory turn over ratio decreased from 10.25 times in 2007-08 to 9.24 in 2011-12. In 2008-09, it was 12.22.
Debtors turn over ratio of the firm for the year 2005 to 2009 was increased continuously from 9.33 in 2007-08 to 44.51 in 2011-12.
Debtors collection period of the firm.In the year 2009 from 39, 27 and 10 (days) in 2005, 2006, and 2008 years. That means the company collection period is good.
Gross profit ratio was 45.39 in the year 2005. In subsequent years 2005 to 2009, it was 41.06, 47.30, 63.60 and 60.54 respectively.
Net profit ratio was -9.47 in the year 2005. In later years 2006 to 2009, it was
-6.46,
5.71, 18.17 and 16.82 respectively. The ratios are in increasing trend. The varies between from -9.46 to 16.82.
5.2 SUGGESTIONS •
The company should maintain current assets to improve the liquidity position of the company.
•
The debt equity ratio is to be improved as the low debt equity implies a greater claim of owners than creditors.
•
The company shall reduce its selling and distribution expenses which lead to increase the profitability of the company.
•
Debtor’s turnover ratio was too high due to increased sales, Hence the company is suggested to take precaution to avoid bad debts.
CONCLUSION This study reveals that the over all the performance of the Shree cement ltd was not satisfactory. The financial position of the company should be fluctuating years. And the company should take necessary steps in order to improve the liquidity and profitability positions.
PROFIT AND LOSS ACCOUNT OF THE ON 31st MARCH,2008
SNO
PARTICULARS
AMOUNT Rs in lakhs
1.
INCOME Sale of manufactured goods (-)excise duty
116900.24 17521.32 99378.32
Sale of traded goods Other income
1832.29 101211.21
2.
Expenditure Cost of goods sold
36172.58
Personnel cost
3604.81
Other expenses
25119.28
Depreciation
5204.23
Amortization of good will
1799.20
Interest and other finance cost
950.93 72851.03
Profit before tax
28360.18
Provision for tax Current tax
6542.84
MAT credit of earlier years
982.00
MAT credit for the year
713.59
Fringe benefit tax
115.83
Deferred tax charge
5339.36
Profit for the year
18057.36
Debit balance in profit and loss a/c brought forward
1909.25
Balance in profit and loss a/c carried forward
16148.49
BALANCE SHEET AS ON 31st MARCH, 2008
SNO
PARTICULARS
AMOUNT Rs in lakhs
1. SOURCES OF FUNDS shareholders funds: Share capital
42796.14
Reserves and surplus
38050.42
80846.56 Loan funds Secured loans Un secured loans Deferred tax liability(net)
4168.45 12286.48 5659.36
TOTAL 102960.85 2.
APPLICATION OF FUNDS Fixed assets Gross block
89683.71
(-)accumulated depreciation
29850.93
Net block
59832.78
Capital work-in-progress
20247.06 80079.84
Investments
10051.06
Current assets, loan and advances inventories
3971.01
Sundry debtors
2531.00
Cash and bank balances
12012.16
Loans and advances
8821.93 27336.10
Current liabilities and provisions Current liabilities provisions
13132.52 1373.63 14506.15
Net current assets Debit balance in profit and loss account
TOTAL
12829.95 -
102960.85
PROFIT AND LOSS ACCOUNT OF THE ON 31st MARCH,2009
SNO
PARTICULARS
AMOUNT Rs in lakhs
1.
INCOME Sale of manufactured goods, gross
137728.95
(-)excise duty
20207.11
Sale of traded goods
117521.84
Other income
1807.18 119329.02
2.
Expenditure Cost of goods sold
46374.89
Personnel cost
4030.09
Other expenses
29017.00
Depreciation
5377.68
Amortization of good will
1799.20
Interest
534.19 87133.05
Profit before tax
32195.97
Provision for tax Current tax
12881.45
MAT credit of earlier years
-
MAT credit for the year
-
Fringe benefit tax Deferred tax(credit)/ charge
60.00 518.20
Profit after tax
19772.72
Balance in profit and loss a/c brought forward
16148.49
Balance in profit and loss a/c carried forward
35921.21
BALANCE SHEET AS ON 31st MARCH, 2009
SNO
PARTICULARS
AMOUNT Rs in lakhs
1. SOURCES OF FUNDS shareholders funds: Share capital
42796.14
Reserves and surplus
57823.14
100619.28 Loan funds Secured loans
10342.31
Un secured loans
14605.93
Deferred tax liability(net)
5141.16
TOTAL 130708.68 2.
APPLICATION OF FUNDS Fixed assets Gross block
91539.87
(-)accumulated depreciation
36353.10
Net block
55186.77
Capital work-in-progress
71347.95 126534.72
Investments
5100.00
Current assets, loan and advances inventories
6071.35
Sundry debtors
2640.09
Cash and bank balances
4773.47
Loans and advances
10803.09
24288.00 Current liabilities and provisions Current liabilities provisions
22479.86 2734.18 25214.04
Net current assets Debit balance in profit and loss account
TOTAL
926.04 -
130708.68
BIBLIOGRAPHY
JAMES C.VANN HORNE, “Financial Management”, 9th edition Prentice – Hall of India Private Limited, New Delhi, 1994. KHAN M.Y. & JAIN P.K,“Financial Management”, 2nd Edition Tata Mc. GrawHill Publishing Co. Ltd., New Delhi. PANDEY I.M., “Financial Management”, 7th Edition, Vikas Publishing House Pvt. Ltd., New Delhi, 1995. KOTHARI C.R.,” Research Methodology”, 2nd Edition, WishwaPrakasham, New Delhi, 1990. MAHESWARI S.N., “Financial Management”, 4th Edition, Sultan Chand & Sons, New Delhi. 1997. PRASANNA CHANDRA., ”Financial Management”, 3rd Edition, Tata McGrawHill Publishing Co., Ltd., New Delhi, 1984.
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