Winter Training Project Report

7/31/2019 Winter Training Project Report

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KANPUR INSTITUTE OF MANAGEMENT STUDIES 1

ACKNOWLEDGEMENT

Any assignment puts to litmus test of an individual knowledge credibility or experience and thussole efforts of an individual are not sufficient to accomplish the desired successful completion of

a project. It involves the interest and effort of many people and so this becomes obligatory on the

part to record our thanks to those who helped us out in the successful completion of our project.

I am deeply grateful to my Faculty Guide Ms. PURNIMA JAISWAL, who provided valuable

insights and guidance at every stage of the project.

I would thank to my DEAN. Mr. AJAY KUMAR VISHWAKARMA & all lab maintenance stafffor proving me assistance in various hardware & software problem encountered during course of

my project.

This project has been possible due to the support of several wonderful individuals. I also convey

my sincere gratitude to my friends and my family for their encouragement and Support extended

to me during the course of my project. In the end I would like to thank many unknown

individuals, with whom I interacted. All of them with their due cooperation and motivation made

the completion of this project successful. I would like to thank them all.

Date: MD ZUHAIR

ROLL NO: 091105


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PREFACE

To start any business, First of all we need finance and the success of that business entirely

depends on the proper management of day-to-day finance and the management of this short-term

capital or finance of the business is called Working capital Management.

Working Capital is the money used to pay for the everyday trading activities carried out by the

business - stationery needs, staff salaries and wages, rent, energy bills, payments for supplies and

so on.

I have tried to put my best effort to complete this task on the basis of skill that I have achieved

during the last one year study in the institute. I have tried to put my maximum effort to get the

accurate statistical data. However I would appreciate if any mistakes are brought to me by thereader.


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TABLE OF CONTENTS

S.NO. DESCRIPTION PAGE NO.

1 EXECUTIVE SUMMARY 6

2 INDUSTRY OVERVIEW 7

3 COMPANY PROFILE 15

4AN INTRODUCTION TO WORKING CAPITAL

MANAGEMENT24

5 OBJECTIVES OF THE STUDY 466 SCOPE 47

7 RESEARCH METHODOLOGY 48

8 DATA INTERPRETATION AND ANALYSIS 50

9 LIMITATION OF THE STUDY 66

10 FINDINGS 67

11 SUGGESTIONS 68

12 CONCLUSION 69

13 REFERENCES 70

14 APPENDICES 71


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LIST OF GRAPHS

FIGURE

NO.DESCRIPTION

PAGE

NO.

1 Demand-supply 11

2 Working capital changes 54

3 Inventory analysis 55

4 Sundry debtors analysis 56

5 Cash & bank balances, loans & advances analysis 57

6 Current liabilities & provisions analysis 58

7 Working capital ratios and its interpretation 60

8 Activity/management efficiency ratio 62

9 Profitability & investment turnover ratio 64


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EXECUTIVE SUMMARY

The major objective of the study is to understand the working capital of ACC & to suggest

measures to overcome the shortfalls if any. Funds needed for short term needs for the purpose

like raw materials, payment of wages and other day to day expenses are known as working

capital. Decisions relating to working capital (Current assets-Current liabilities) and short term

financing are known as working capital management. It involves the relationship between a

firms short-term assets and its short term liabilities. By definition, working capital management

entails short-term definitions, generally relating to the next one year period.

The goal of working capital management is to ensure that the firm is able to continue its

operation and that it has sufficient cash flow to satisfy both maturing short term debt and

upcoming operational expenses. Working capital is primarily concerned with inventories

management, Receivable management, cash management & Payable management.

Inventories management at ACC

ACC is a large scale manufacturing company involved in production of Cement. Therefore, it

has to maintain large quantity of inventories at production units for its smooth running and

functioning.

Cash management at ACC

ACC has been accumulating huge cash surpluses over last several years, which enables the

organization to maintain adequate cash reserves and to generate required amount of cash.

Receivables management at ACC

ACC has set up its marketing office at all major cities in India i.e. Bangaluru , Bhopal,

Chandigarh , Coimbatore , Kanpur, Kolkata, Mumbai, Pune , Secunderabad New Delhi &

patna This marketing office obtains sales order from Cement users in India as well as globally.

The cement production and dispatch figures for the month of May 2010 are 1.81 & 1.75 million

tones respectively. The Sales recorded for the FY 2009 was Rs. 83, 86.1crores.


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INDUSTRY OVERVIEW

The cement industry is one of the vital industries for economic development in a country. Thetotal utilization of cement in a year is used as an indicator of economic growth. Cement is a

necessary constituent of infrastructure development and a key raw material for the construction

industry, especially in the governments infrastructure development plans in the context of the

nations socio-Economic development. 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

Manufactures Association.

According to the Cement Manufacturers Association, cement dispatches during 2009-10 were159.43 million tones (MT) increasing by 12 per cent over 142.23 in 2008-09. Cement production

during 2009-10 was 160.31 MT an increase of 12.37 per cent over 142.65 MT in 2008-

09.Moreover, the governments continued thrust on infrastructure will help the key building

material to maintain an annual growth of 9-10 per cent in 2010, according to Indias largest

cement company, ACC.In January 2010, rating agency Fitch predicted that the country will add

about 50 million tone cement capacity in 2010, taking the total to around 300 million tones.

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the housing sector boomand urban development, continue being the main drivers of growth for the Indian cement

industry.

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.


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Future Trends

The cement industry is expected to grow steadily in 2009-2010 and increase capacity byanother 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 yearprovided 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 thepast few months, heralding a positive outlook for the industry.

The housing sector accounts for 50% of the demand for cement and this trend is expectedto continue in the near future.

PORTERS 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:-

Availability of raw material Restrictions on entry by government into cement industry Cement industry requires a huge investment Switching costs are high in cement industry


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ii) BARGAINING POWER OF SUPPLIERS

Suppliers have very much impact on cement industry because of the following reasons:-

Raw materials used in cement are gypsum, fly ash and slag. There are few suppliers ofthese materials.

Quality of finished goods i.e. cement is very important for ACC ltd. As already said, there are high switching costs in cement industry. There is no substitute to the raw material used in cement.

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.

V) RIVALRY AMONG THE COMPETING FIRMS IN INDUSTRY

In spite of huge stake in cement industry, it is difficult to be on the top because of the other

Competing companies i.e. Ambuja, Birla, and Binani etc. The competitors are using

different promotional strategies to attract buyers. So, all the leading players in the industry have

to analyze the situation frequently & they have to keep changing them too.


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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. Lowvalue 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 thedomestic market, which in turn would put pressure on cement prices.


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Opportunities: Demandsupply 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.

Growing Demand-Supply Gap

Capacity additions (Million Tones)

Fig. 1

146.4

195.2

117.1

168.2

0

50

100

150

200

250

2003-04 2008-09

Demand

Capacity


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Threats

1. The recent moves by the Central Government in making the import of the cement total duty

free, is a cause of worry for the Indian cement industry.

2. Further recent changes in the Central Excise Duty structure by way of introduction of multiple

slabs of Excise Duty is also a cause of worry for the industry.

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.

4. Increased railway freight, coal prices and dispatch bottlenecks on account of truck Loading

restrictions imposed by various State Governments

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

industry.

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. ACCs 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


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Name Gujarat Ambuja Cements Limited

Production 15,094


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

Name Ultratech

Production 13,707


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

Name Grasim

Production 14,649


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

Name India Cements

Production 8,434



Name JK Cement Ltd

Production 6,174


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

Name Jaypee Group

Production 6,316


Name Century Cement

Production 6,636


Name Madras Cement

Production 4,550




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Name Birla Corp.

Production 5,150



MARKET SHARE

ACC, 11.80%

Others, 49.50%Grasims, 9.60%

L&T, 11.30%

India

Cement,

6.90%

Madras , 3.30% Gujrat

Ambuja,

7.60%


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COMPANY PROFILE

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations

are spread throughout the country with 14 modern cement factories, 19 Ready mix concrete

plants, 19 sales offices, and several zonal offices. It has a workforce of about 9000 persons and a

countrywide distribution network of over 9,000 dealers.

ACC's research and development facility has a unique track record of innovative research,

product development and specialized consultancy services. Since its inception in 1936, the

company has been a trendsetter and important benchmark for the cement industry in respect of

its production, marketing and personnel management processes. Its commitment to environment-

friendliness, its high ethical standards in business dealings and its on-going efforts in community

welfare programs have won it acclaim as a responsible corporate citizen. In the 70 years of its

existence, ACC has been a pioneer in the manufacture of cement and concrete and a trendsetter

in many areas of cement and concrete technology including improvements in raw material

utilization, process improvement, energy conservation and development of high performance

concretes.

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

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

The company's various businesses are supported by a powerful, in-house research and

technology backup facility - the only one of its kind in the Indian cement industry. This ensures

not just consistency in product quality but also continuous improvements in products, processes,

and application areas.

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 ofthe 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.


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ACC is among the first companies in India to include commitment to environmental

protection as one of its corporate objectives, long before pollution control laws came into

existence. The company installed pollution control equipment and high efficiency sophisticated

electrostatic precipitators for cement kilns, raw mills, coal mills, power plants and coolers as far

back as 1966. Every factory has state-of-the art pollution control equipment and devices.

History & Profile of ACC Cement Works

ACC was formed in 1936 when ten existing cement companies came together under one

umbrella in a historic merger the countrys 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 countrys nationalist pride that

touched all walks of life including trade, commerce and business. The first success came in a

move towards cooperation in the countrys young cement industry and culminated in the historic

merger of ten companies to form a cement giant. These companies belonged to four prominent

business groupsTatas, 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 ACC Board comprises of 13 persons. These include executive, non-executive, and nominee

directors. This group is responsible for determining the objectives and broad policies of the

Company - consistent with the primary objective of enhancing long-term shareholder value. 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


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multifarious disciplines: finance, production, marketing, research and consultancy, engineering

and human resourcesmeets 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.

HolcimA 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 longterm alliances with Ambuja Group

by acquiring a majority stake in Ambuja 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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Plants & Their Capacity

No. Units State Capacity (MTPA)

1 Bargarh Bargarh Cement Works 0.96

2 Chaibasa Chaibasa Cement Works 0.87

3 Chanda Chanda Cement Works 1.00

4 Damodhar Damodar Cement Works 0.53

5 Gagal Gagal Cement Works 4.40(Gagal I and II)

6 Jamul Jamul Cement Works 1.58

7 Kymore Kymore Cement Works 2.20

8 Lakheri Lakheri Cement Works 1.50

9 Madukkarai Madukkarai Cement Works 0.96

10 Sindri Sindri Cement Works 0.91

11 Wadi Wadi Cement Works 2.59

12 New Wadi Plant Wadi Cement Works 2.60

13 Tikaria Tikaria Cement Grinding andPacking Plant 2.31

VISION

To be one of the most respected companies in India; recognized for challenging conventions

and delivering on our promises

MISSION

Leadership Maintain our leadership of the Indian cement industry through the continuous

modernization and expansion of our manufacturing facilities and activities, and

through the establishment of a wide and efficient marketing network.

Profitability Achieve a fair and reasonable return on capital by promoting productivity

throughout the company.


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1966 ACC inducts use of pollution control equipment and high efficiency sophisticated

electrostatic precipitators for its cement plants and captive power plants decades

before it becomes mandatory to do so.

1978 Introduction of the energy efficient pre-calcinations technology for the first timein India.

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

1987 ACC develops a new binder, working at sub-zero temperature, which is

successfully used in the Indian expedition to Antarctica.

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

India.

1993 Commercial manufacture of ready-mixed concrete at Mumbai.

2001 Commissioning of the new Wadi plant of 2.6 MTPA capacity in Karnataka, the

largest in India, and among the largest sized kilns in the World.

AWARDS & ACCOLADES

IMC Ramkrishna Bajaj National Quality Award -Gagal wins Commendation Certificate

and New Wadi Plant wins Special Award for Performance Excellence in the Manufacturing

Sector, 2007.

National Award for outstanding performance in promoting rural and agricultural

developmentby ASSOCHAM

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

performance.

Indira Priyadarshini Vrikshamitra Award --- by The Ministry of Environment and Forests

for "extraordinary work" carried out in the area of afforestation.


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

conservation of mineral resources in mines and plant.

Subh Karan Sarawagi Environment Award - by The Federation of Indian Mineral Industries

for environment protection measures.

Drona Trophy - By Indian Bureau Of Mines for extra ordinary efforts in protection of

Environment and mineral conservation in the large mechanized mines sector.

Indo German Green tech Environment Excellence Award

Golden Peacock Environment Management Special Award - for outstanding efforts in

Environment Management in the large manufacturing sector.

Indira Gandhi Memorial National Award - for excellent performance in prevention of

pollution and ecological development

Excellence in Management of Health, Safety and Environment : Certificate of Merit by

Indian Chemical Manufacturers Association

Vishwakarma Rashtriya Puraskar trophy for outstanding performance in safety and mine

working

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

Jamnalal Bajaj Uchit Vyavahar Puraskar - Certificate of Merit by Council for Fair Business

Practices

Greentech Safety Gold and Silver Awards - for outstanding performance in Safety

management systems by Greentech Foundation

FIMI National Award - for valuable contribution in Mining activities from the Federation of

Indian Mineral Industry under the Ministry of Coal.

ACC was the first recipient of ASSOCHAMs first ever National Award for outstanding

performance in promoting rural and agricultural development activities in 1976. Decades later,

PHD Chamber of Commerce and Industry selected ACC as winner of its Good Corporate Citizen


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Award for the year 2002. 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.

MAP OF ACC NETWORK

Corporate office

Overseeing the companys rang of business; the Corporate Office is the central head quarters of

all business and human resource function located in Mumbai.

ACC Subsidiaries

1. Bulk Cement Corporation India Ltd (BCCI)

2. ACC Machinery Company Ltd (AMCL)

3. ACC Nihon Casting Ltd (ANCL)

Regional marketing offices

Offices at all major cities in India i.e Bangaluru , Bhopal, Chandigarh , Coimbatore , Kanpur,

Kolkata, Mumbai, Pune , Secunderabad ,New Delhi & Patna.


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MAP OF ACC PLANTS

HIGHILIGHTS OF FINANCIAL PERFORMANCE of ACC LTD

Table.1 (Rs. In Crore)

Particulars 2005 2006 2007 2008 2009

NET SALES 3,221 5,803 6,991 7,283 8,027

PBT 684 1,620 1,930 1,737 2,294

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

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

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

Basic Earnings per Share (Rs.) 30.02 66.02 76.75 64.63 85.60


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AN INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working capital means the part of the total assets of the business that change from one form to

another form in the ordinary course of business operations.

Concept of working capital

The word working capital is made of two words 1.Working and 2. Capital The word working

means day to day operation of the business, whereas the word capital means monetary value of

all assets of the business.

Working capital

Working capital may be regarded as the life blood of business. Working capital is of major

importance to internal and external analysis because of its close relationship with the current

day-to-day operations of a business. Every business needs funds for two purposes.

Long term funds are required to create production facilities through purchase of fixedassets such as plants, machineries, lands, buildings & etc

Short term funds are required for the purchase of raw materials, payment of wages, andother day-to-day expenses.

It is other wise known as revolving or circulating capital It is nothing but the difference

between current assets and current liabilities. i.e.

Working Capital = Current AssetCurrent Liability.

Businesses use capital for construction, renovation, furniture, software, equipment, or machinery.

It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by

businesses to put a down payment down on a piece of commercial real estate. Working capital is

essential for any business to succeed. It is becoming increasingly important to have access tomore working capital when we need it.


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Concept of working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability.

Current Assets Current Liabilities

Cash in hand / at bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary investment

Prepaid expenses

Accrued incomes

Bills Payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over draft

Working capital in terms of five components

1. Cash and equivalents: - This most liquid form of working capital requires constantsupervision. A good cash budgeting and forecasting system provides answers to key questions

such as: Is the cash level adequate to meet current expenses as they come due? What is the

timing relationship between cash inflow and outflow? When will peak cash needs occur? When

and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment

be expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If we do, is the

amount of accounts receivable reasonable relative to sales? How rapidly are receivables beingcollected? Which customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so naturally it

requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature


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of our business? What's the rate of inventory turnover compared with other companies in our

type of business?

4.Accounts payable: - Financing by suppliers is common in small business; it is one of the

major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonablerelative to what we purchase? What is our firm's payment policy doing to enhance or detract

from our credit rating?

5. Accrued expenses and taxes payable: - These are obligations of our company at any given

time and represent a future outflow of cash.

Two different concepts of working capital are:-

Balance sheet or Traditional concept Operating cycle concept.

Balance sheet or Traditional concept

It shows the position of the firm at certain point of time. It is calculated in the basis of balance

sheet prepared at a specific date. In this method there are two type of working capital:-

Gross working capital Net working capital

Gross working capital

It refers to the firms investment in current assets. The sum of the current assets is the working

capital of the business. The sum of the current assets is a quantitative aspect of working capital.Which emphasizes more on quantity than its quality, but it fails to reveal the true financial

position of the firm because every increase in current liabilities will decrease the gross working

capital.


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Net working capital

It is the difference between current assets and current liabilities or the excess of total current

assets over total current liabilities.

Working capital= current assets - current liabilities.

Net working capital

It is also can defined as that part of a firms current assets which is financed with long term

funds. It may be either positive or negative. When the current assets exceed the current liability,

the working capital is positive and vice versa.

Operating cycle concept

The duration or time required to complete the sequence of events right from purchase of raw

material for cash to the realization of sales in cash is called the operating cycle or working

capital cycle.

OPERATING CYCLE

RawMaterial

Work inprogress

FinishedGoods

Sales

Debtors & BillReceivables

Cash


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TYPES OF WORKING CAPITAL

WORKING CAPITAL

BASIS OF CONCEPT

GROSSWORKINGCAPITAL

NET

WORKINGCAPITAL

BASIS OF TIME

PERMANENT/FIXED WC

TEMPORARY /VARIABLE WC

SEASONALWORKINGCAPITAL

SPECIFICWORKINGCAPITAL


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SIGNIFICANCE OF WORKING CAPITAL

Factors requiring consideration while estimating working capital

The average credit period expected to be allowed by suppliers.

Total costs incurred on material, wages.

The length of time for which raw material are to remain in stores before they are issued for

production.

SIGNIFICANCEOF WORKING

CAPITAL

EASY LOANFROM BANK

PAYMENT TOSUPPLIERS

DIVIDENDDISTRIBUTION

INCREASEDEBT

CAPACITY

INCREASE INFIX ASSETS

INCREASEEFFICIENCY


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Payables

Ratio

(in days)

Creditors *

365/Cost of

Sales (or

Purchases)

= x

days

On average, we pay our suppliers every x days.

If we negotiate better credit terms this will

increase. If we pay earlier, say, to get a

discount this will decline. If we simply defer

paying our suppliers (without agreement) this

will also increase - but our reputation, the

quality of service and any flexibility provided

by our suppliers may suffer.

Current

Ratio

Total Current

Assets/Total

Current

Liabilities

= x

times

Current Assets are assets that we can readily

turn in to cash or will do so within 12 months in

the course of business. Current Liabilities are

amount we are due to pay within the coming 12

months. For example, 1.5 times means that we

should be able to lay our hands on $1.50 for

every $1.00 we owe. Less than 1 time e.g. 0.75

means that we could have liquidity problems

and be under pressure to generate sufficient

cash to meet oncoming demands.

Quick Ratio

(Total CurrentAssets -

Inventory)/

Total Current

Liabilities

= x

times

Similar to the Current Ratio but takes accountof the fact that it may take time to convert

inventory into cash.

Working

Capital

Ratio

(Inventory +

Receivables -

Payables)/Sales

As%

Sales

A high percentage means that working capital

needs are high relative to our sales.

Note:- Once ratios have been established for companys business, it is important to track them

over time and to compare them with ratios for other comparable businesses or industry sectors.


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The working capital needs of a business are influenced by numerous factors. The

important ones are discussed in brief as given below:

Nature of Enterprise:-The nature and the working capital requirements of an enterpriseare interlinked. While a manufacturing industry has a long cycle of operation of the

working capital, the same would be short in an enterprise involved in providing services.

The amount required also varies as per the nature; an enterprise involved in production

would require more working capital than a service sector enterprise.

Manufacturing/Production Policy:-Each enterprise in the manufacturing sector has itsown production policy, some follow the policy of uniform production even if the demand

varies from time to time, and others may follow the principle of 'demand-based

production' in which production is based on the demand during that particular phase of

time. Accordingly, the working capital requirements vary for both of them.

Working Capital Cycle :-In manufacturing concern, working capital cycle starts withthe purchase of raw materials and ends with realization of cash from the sale of finished

goods. The cycle involves the purchase of raw materials and ends with the realization of

cash from the sale of finished products. The cycle involves purchase of raw materials and

stores, its conversion in to stock of finished goods through work in progress with

progressive increment of labor and service cost, conversion of finished stick in to sales

and receivables and ultimately realization of cash and this cycle continuous again from

cash to purchase of raw materials and so on.

Operations:-The requirement of working capital fluctuates for seasonal business. Theworking capital needs of such businesses may increase considerably during the busy

season and decrease during the slack season. Ice creams and cold drinks have a great

demand during summers, while in winters the sales are negligible.

Market Condition:-If there is high competition in the chosen product category, then oneshall need to offer sops like credit, immediate delivery of goods etc. for which the

working capital requirement will be high. Otherwise, if there is no competition or less

competition in the market then the working capital requirements will be low.

Credit Policy:-The credit policy is concerned in its dealings with debtors and creditorsinfluence considerably the requirements of the working capital. A concern that purchases


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its requirements on credit and sells its products/services on cash requires lesser amount of

working capital. On the other hand a concern buying its requirements for cash and

allowing credit to its customers, shall need larger amount of funds are bound to be tied up

in debtors or bills receivables.

Business Cycle:-Business Cycle refers to alternate expansion and contraction ingeneral business activities. In a period of born i.e. when the business is prosperous there

is a need for larger amount of working capital due to increase in sales, rise in prices,

optimistic expansion of business etc. On the country at he time of depression i.e. when

there is a down swing of the cycle, business contracts, sales decline, difficulties are faced

in collections from debtors and firms may have a large amount of working capital lying

ideal

Availability of Raw Material:-If raw material is readily available then one need notmaintain a large stock of the same, thereby reducing the working capital investment in

raw material stock. On the other hand, if raw material is not readily available then a

large inventory/stock needs to be maintained, thereby calling for substantial investment

in the same.

Growth and Expansion:-Growth and expansion in the volume of business resultsin enhancement of the working capital requirement. As business grows and expands, it

needs a larger amount of working capital. Normally, the need for increased workingcapital funds precedes growth in business activities.

Earning Capacity and Dividend policy:-Some firms have more earning capacity thanothers due to the quality of their products, monopoly conditions etc. Such firms with high

earning capacity may generate cash profits from operations and contribute to their capital.

The dividend policy of a concern also influences the requirements of the working capital.

A firm that maintains steady high rate of cash dividend irrespective of its generation of

profits needs more capital than the firm retains larger part of its profits and does not pay

high rate of cash dividend.

Price Level Changes:-Generally, rising price level requires a higher investment in theworking capital. With increasing prices, the same level of current assets needs enhanced

investment.


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Manufacturing Cycle:-The manufacturing cycle starts with the purchase of raw materialand is completed with the production of finished goods. If the manufacturing cycle

involves a longer period, the need for working capital would be more. At times,

business needs to estimate the requirement of working capital in advance for

proper control and management. The factors discussed above influence the quantum of

working capital in the business. The assessment of working capital requirement is made

keeping these factors in view. Each constituent of working capital retains its form for a

certain period and that holding period is determined by the factors discussed above. So

for correct assessment of the working capital requirement, the duration at various stages

of the working capital cycle is estimated. Thereafter, proper value is assigned to the

respective current assets, depending on its level of completion.

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

facilities etc. also influences the requirement of working capital.

Component of Working Capital Basis of Valuation:-

Stock of raw material Purchase cost of raw materials Stock of work in process At cost or market value, whichever is lower Stock of finished goods Cost of production Debtors Cost of sales or sales value Cash Working expenses

WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and current liabilities. The

major thrust of course is on the management of current assets .This is understandable because

current liabilities arise in the context of current assets. Working Capital Management is a

significant fact of financial management. Its importance stems from two reasons:-


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1) Investment in current assets represents a substantial portion of totalinvestment.

2) Investment in current assets and the level of current liabilities have to be gearedquickly 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.

The importance of working capital management is effected in the fact that financial manages

spend a great deal of time in managing current assets and current liabilities. Arranging short term

financing, negotiating favorable credit terms, controlling the movement of cash, administering

the accounts receivable, and monitoring the inventories consume a great deal of time of financial

managers. The problem of working capital management is one of the best utilization of a

scarce resource. 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.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Growth may be stunted. It may become difficult for the enterprise to undertake profitableprojects due to non-availability of working capital.

Implementation of operating plans may become difficult and consequently the profitgoals may not be achieved.

Cash crisis may emerge due to paucity of working funds. Optimum capacity utilization of fixed assets may not be achieved due to non availability

of the working capital.

The business may fail to honor its commitment in time, thereby adversely affecting itscredibility. This situation may lead to business closure.

The business may be compelled to buy raw materials on credit and sell finished goods oncash. 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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Non-availability of stocks due to non-availability of funds may result in productionstoppage.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL

Excess of working capital may result in unnecessary accumulation of inventories. It may lead to offer too liberal credit terms to buyers and very poor recovery system and

cash management.

It may make management complacent leading to its inefficiency. Over-investment in working capital makes capital less productive and may reduce return

on investment. Working capital is very essential for success of a business and, therefore,

needs efficient management and control. Each of the components of the working capital

needs proper management to optimize profit.

FINANCING WORKING CAPITAL

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. Suppliers 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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ii. Bank Loan for Working Capital

This is a major source for raising short-term funds. Banks extend loans to businesses to help

them create necessary current assets so as to achieve the Required business level. The loans are

available for creating the following

Current Assets:

Stock of Raw Materials Stock of Work in Process Stock of Finished Goods Debtors

Banks give short-term loans against these assets, keeping some security margin. 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.

iii. Promoters Fund

It is advisable to finance a portion of current assets from the promoters funds. They are long -

term funds and, therefore do not require immediate repayment. These funds increase the liquidity

of the business.

MANAGEMENT OF INVENTORY

Inventories constitute the most significant part of current assets of a large majority of companies

in India. On an average, inventories are approximately 60 % of current assets in public limited

companies in India. Because of the large size of inventories maintained by firms maintained by

firms, a considerable amount of funds is required to be committed to them. It is, therefore very

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

investments. A firm neglecting a firm the management of inventories will be jeopardizing its

long run profitability and may fail ultimately. The purpose of inventory management is to ensure

availability of materials in sufficient quantity as and when required and also to minimize


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investment in inventories at considerable degrees, without any adverse effect on production and

sales, by using simple inventory planning and control techniques.

Need to hold inventories

Transaction motive emphasizes the need to maintain inventories to facilitate smoothproduction and sales operation.

Precautionary motive necessities holding of inventories to guard against the risk ofunpredictable changes in demand and supply forces and other factors.

Speculative motive influences the decision to increases or reduce inventory levels to takeadvantage of price fluctuations and also for saving in re-ordering costs and quantity

discounts etc.

Objective of Inventory Management

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

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 productionand overall purchases.

To eliminate duplication in ordering or replenishing stocks. This is possible with the helpof centralizing purchases.

To minimize losses through deterioration, pilferage, wastages and damages.


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

To ensure perpetual inventory control so that materials shown in stock ledgers should beactually 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 firms manufacturing

operations while excessive cash will simply remain ideal without contributing anything towards

the firms 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

A sound managerial control requires proper management of liquid assets and inventory. These

assets are a part of working capital of the business. An efficient use of financial resources is

necessary to avoid financial distress. Receivables result from credit sales. A concern is required

to allow credit sales in order to expand its sales volume. 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. The increase in sales is also essential to increases profitability. After a

certain level of sales the increase in sales will not proportionately increase production costs. The

increase in sales will bring in more profits. Thus, receivables constitute a significant portion of


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current assets of a firm. But for investment in receivables, a firm has to insure certain costs.

Further, there is a risk of bad debts also. It is therefore, very necessary to have a proper control

and management of receivables.

Needs to hold cash

Receivables management is the process of making decisions relating to investment in trade

debtors. Certain investments in receivables are necessary to increase the sales and the profits of a

firm. But at the same time investment in this asset involves cost consideration also. Further, there

is always a risk of bad debts too.

Thus, the objective of receivable management is to take a sound decision as regards investments

in debtors. In the words of Bolton, S.E., the need ofreceivables management is to promote sales

and profits until that point is reached where the return of investment in further funding of

receivables is less than the cost of funds raised to finance that additional credit.

Working Capital Cycle

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.

There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-

progress) and Receivables (debtors owing our money). The main sources of cash are Payables

(our creditors) and Equity and Loans.


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WORKING CAPITAL CYCLE

Each component of working capital (namely inventory, receivables and payables) has two

dimensions ........TIME ......... and MONEY. When it comes to managing working capital -

TIMEIS 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,

Cash

inventory

sales

receivables

Equity &

Loans

Overheads

etc

Payables


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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) faster We release cash from the cycle

Collect receivables (debtors) slower Our receivables soak up cash

Get better credit (in terms of duration or

amount) from suppliers

We increase our cash resources

Shift inventory (stocks) faster We free up cash

Move inventory (stocks) slower We consume more cash

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 dividends or increase drawings, these are cash outflows and, like

water flowing downs a plug hole, they remove liquidity from the business.

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

Sources of Additional Working Capital

Existing cash reserves Profits (when we secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

If we have insufficient working capital and we try to increase sales, we can easily over-stretch

the financial resources of the business. This is called overtrading.


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Early warning signs include:

Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term

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

Handling Receivables (Debtors)

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.

Late payments erode profits and can lead to bad debts.

If we don't manage debtors, they will begin to manage our business as we will gradually lose

control due to reduced cash flow and, of course, we could experience an increased incidence of

bad debt.

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 thepriority 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.


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7. Continuously review these limits when we suspect tough times are coming or if operatingin 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:

weak credit judgment poor collection procedures lax enforcement of credit terms slow issue of invoices or statements errors in invoices or statements Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand

immediate attention.

Profits only come from paid sales.

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 nothing more important than getting paid for our

product or service. A customer who does not pay is not a customer.


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Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully to

enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing

function can create liquidity problems. Consider the following:

1. Who authorizes purchasing in our company - is it tightly managed or spread among anumber of (junior) people?

2. Are purchase quantities geared to demand forecasts?3. Do we use order quantities which take account of stock-holding and purchasing costs?4. Do we know the cost to the company of carrying stock?5. Do we have alternative sources of supply? If not, get quotes from major suppliers and

shop around for the best discounts, credit terms, and reduce dependence on a single

supplier.

6. How many of our suppliers have a returns policy?7. Are we in a position to pass on cost increases quickly through price increases to our

customers?

8. If a supplier of goods or services lets we down can we charge back the cost of the delay?9. Can we arrange (with confidence!) to have delivery of supplies staggered or on a just-in-

time basis?

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!).

Remember, a good supplier is someone who will work with us to enhance the future viability and

profitability of our company.


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OBJECTIVE OF THE STUDY

The following are the main objective which has been undertaken in the present study:

1. To determine the amount of working capital requirement and to calculate various ratios

relating to working capital.

3. To evaluate the financial performance of ACC limited using financial tools.

4. To suggest the steps to be taken to increase the efficiency in management of working capital.


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SCOPE OF THE STUDY

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.

The scope of the study is identified after and during the study is conducted. The study of working

capital is based on tools like trend Analysis, Ratio Analysis, working capital Analysis, Inventory

Turnover analysis etc. Further the study is based on last 4 and 5 years Annual Reports of ACC

Ltd. And even factors like competitors analysis, industry analysis were not considered while

preparing this project.


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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying now research is done systematically. In that various steps,

those are generally adopted by a researcher in studying his problem along with the logic behind

them. It is important for research to know not only the research method but also know

methodology. The procedures by which researcher go about their work of describing, explaining

and predicting phenomenon are called methodology. Methods comprise the procedures used for

generating, collecting and evaluating data. All this means that it is necessary for the researcher to

design his methodology for his problem as the same may differ from problem to problem.

Data collection is important step in any project and success of any project will be largely depend

upon now much accurate you will be able to collect and how much time, money and effort will

be required to collect that necessary data, this is also important steps. Data collection plays an

important role in research work. Without proper data available for analysis you cannot do the

research work accurately.

Types of data

There are two types of data available.

1. Primary data

2. Secondary data

My research is based on secondary data

Secondary data

The data was available to me through the means of internet and then trend analysis was done

accordingly .This project is based on secondary information collected through five years annual

report of the company, supported by various books and internet sites. The data collection was

aimed at study of working capital management of the company. Project is based on


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Type of Research

As, my research being an Analytical research, I have used facts and information already

available, and analyzed them to make a critical evaluation, the research methods used is Analysis

of Past records.

1. Annual report of ACC LTD. 2005






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DATA INTERPRETATION AND ANALYSIS

ANALYSIS OF FINANCIAL STATEMENT OF ACC LIMITED

Trend Analysis - Trend percentage analysis moves in one direction either progression or

regression (upward or downward).This method involves the calculation of percentage

relationship that each statements bear to the same item in the base year .Mostly the earliest

period is taken as the base year.

Advantages:-

It indicates the increase in an accounted item along with the magnitude of changes inpercentages which is more effective then absolute data.

It facilitates an efficient comparative study of the financial performance of a firm over aperiod 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 thecalculated 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.


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Common size statement Analysis

A financial statement that has variables expressed in percentages rather than in dollar amounts.

For example, items on an income statement are shown as a percentage of revenue or sales, and

balance sheet entries are displayed as a percentage of total assets. Common-size statements areused primarily for 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 thetotal funds in the asset of a business enterprise.

Comparison of the common size statement over a number of years will clearly indicatethe changing proportion of the various components of assets, liabilities, cost, net sales &

profits.

It will assist corporate evaluation & ranking.Limitations:-

It doesnt 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.


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COMMON SIZE STATEMENT ANALYSIS OF ACC CEMENTS LTD. FROM 2005-2009

Table 2

2005

(%)

2006

(%)

2007

(%)

2008

(%)

2009

(%)

SOURCES OF FUNDS:

Shareholders Funds:- 46.96 71.76 83.84 85.77 86.78

Loan Funds: 44.36 20.91 9.47 8.39 8.18

Deferred Tax Liabilities (Net) 8.68 7.32 6.69 5.84 5.04

TOTAL FUNDS 100 100 100 100 100

APP. OF FUNDS:---

Fixed Assets: - 84.16 79.48 80.03 88.29 91.08

Investments:- 9.60 11.50 17.06 11.82 21.28

Net Current Assets( Current Assists-

current liabilities & provision)5.62 9.00 2.92 (0.11) (12.37)

MISC EXP.(to the extent not

written off or adjusted)0.61 0.02 0.00 0.00 0.00

TOTAL ASSETS (Net) 100 100 100 100 100

Interpretation:-

(a) There is a significant increase in shareholders fund & decrease in loan funds continuously

over a period of time.

(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.


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WORKING CAPITAL CALCULATION

STATEMENT SHOWING CHANGE IN WORKING CAPITAL FOR ACC LTD

Table. 3 ( Rs.in Crore)

Particulars Dec09 Dec08 Increase ( + ) Decrease (- )

Current Assets

Inventories 778.98 793.27 (14.29)

Sund. Debtors 203.70 310.17 (106.47)

Cash & Bank Bal 746.38 984.24 (237.86)

Loan & Advances 554.42 651.28 (96.86)

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

Current Liabilities

C.L. 2060.34 1801.79 258.55

Provisions 1091.88 963.93 127.95

Total ( B ) 3152.22 2765.72

(851.66)

( A-B ) (857.75) (6.09) (465.16) (465.16)

Changes in working capital (851.66)

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


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SIMILARLY THE CALCULATION OF WC FOR THE YEAR 2005 TO 2009

Table.4 (Rs.in Crore)

2005 2006 2007 2008 2009

(A)Current assets 1,421 1,921 2,203 2,760 2,294

(B)Current Liabilities 1,335 1,672 2,221 2,766 3,152

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

WORKING CAPITAL CHANGES

Fig.2

Interpretation:- current liabilities are increasing over current assets suggest that thecredit periodare not managed properly

86

249

-18 -6

-858-1000

-800

-600

-400

-200

0

200

400

2005 2006 2007 2008 2009


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.

INVENTORY ANALYSIS

Table. 5 (Rs.in Crore)

2005 2006 2007 2008 2009

Inventories 600.95 624.13 730.86 793.27 778.98

INVENTORY ANALYSIS

Fig. 3

By analyzing the 5 years data it can be seen that the value of inventories is increasingover 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.

600.95624.13

730.86

793.27 778.98

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009


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SUNDRY DEBTORS ANALYSIS


2005 2006 2007 2008 2009

Sundry Debtors 199.17 213.96 289.29 310.17 203.70

SUNDRY DEBTORS ANALYSIS

Fig. 4

Debtors will arise only when credit sales are made. The above graph depicts that there iscontinuous 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.

199.17213.96

289.29310.17

203.7

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009


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CASH & BANK BALANCES, LOANS & ADVANCES ANALYSIS

Table. 7: (Rs.in Crore)

2005 2006 2007 2008 2009

Cash and Bank Balance 100.60 152.98 78.87 87.57 95.64Loans and Advances 533.54 569.21 544.31 779.76 714.55

CASH & BANK BALANCES, LOANS & ADVANCES ANALYSIS

Fig. 5

Decrease in Cash & bank balance, which shows the financial position of the company.Though there is a almost 50% fall in the FY 2007 but increases significantly thereafter.

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 innature. It shows upwards & downwards movement as the requirements influence it.

100.6152.98

78.87 87.57 95.64

533.54569.21 544.31

779.76

714.55

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009

Cash & Bank Balances Loans & Advances


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CURRENT LIABILITIES & PROVISIONS ANALYSIS


2005 2006 2007 2008 2009

Current Liabilities 1,449.02 1,596.50 1,991.27 2,245.39 2,558.73

Provisions 316.77 541.83 666.27 963.93 1,091.88

CURRENT LIABILITIES & PROVISIONS ANALYSIS

Fig. 6

After analyzing the bar-chart, we can say that the amount of current liabilities isincreasing significantly over years .An increase current liabilities indicates that

company is using its credit facilities to the maximum extent for operating purpose. But

at the same time there is continuous rise in the debtors which will increase workingcapital requirement

Provision shows an increasing trend and the huge amount is being kept in theseprovisions. 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.

1449.021596.5

1991.27 2245.39

2558.73

316.77541.83

666.27

963.931091.88

0

500

1000

1500

2000

2500

3000

2005 2006 2007 2008 2009

Current Liabilities Provisions


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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 persons health, will measure the heart rate, blood-

pressure and temperature; whereas, a financial analyst will take readings on a companys 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 companys strengths and weaknesses,

it has its limitations and will not necessarily provide the solutions or cures for the problems it

identifies.

B. APPLICATION OF RATIO ANALYSIS:-

Integral tool in trend analysis

Compares the companys own ratios to itself over time Identifies the companys strengths and weaknesses Assists in establishing appropriate capitalization rates (helps to identify risk factors

particular to the subject company)


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WORKING CAPITAL RATIOS AND ITS INTERPRETATION

Table. 9

Dec05 Dec06 Dec07 Dec08 Dec09

Liquidity Ratio

Current Ratio 0.58 0.77 0.86 0.89 0.67

Quick Ratio 0.42 0.61 0.55 0.61 0.42

Solvency Ratio

Debt-equity ratio. 0.50 0.25 0.07 0.10 0.09

WORKING CAPITAL RATIOS AND ITS INTERPRETATION

Fig. 7

0.58

0.77

0.860.89

0.67

0.42

0.610.55

0.61

0.42

0.5

0.25

0.070.1 0.09

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2005 2006 2007 2008 2009

Current Ratio Quick Ratio Debt-Equity Ratio


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Interpretation

As we know that ideal current ratio for any firm is 2:1.The current ratio of company isless than the ideal ratio. This depicts that companys liquidity position is not sound. Its

current assets are less than its current liabilities.

Generally a quick ratio of 1:1 is considered to represent satisfactory current financialposition. 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 apopular 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.


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ACTIVITY/MANAGEMENT EFFICIENCY RATIO

Table. 10

Dec,05 Dec06 Dec07 Dec08 Dec09

Inventory Turnover Ratio 5.37 9.33 24.85 27.51 25.22

Debtor Turnover Ratio 16.34 27.75 27.40 24.12 31.22

Investment Turnover Ratio 12.29 22.40 24.85 27.51 25.22

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

ACTIVITY/MANAGEMENT EFFICIENCY RATIO

Fig. 8

5.379.33

24.8527.51

25.22

16.34

27.75 27.424.12

31.22

12.29

22.424.85

27.5125.22

27.93

6.96

18.25 17.02

54.17

0

10

20

30

40

50

60

2005 2006 2007 2008 2009

Inventory Turnover Ratio Debtor Turnover Ratio

Investment Turnover Ratio Working Capital Turnover Ratio


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Interpretation

Inventory Turnover Ratio shows increasing trend which is favorable for the company. Asit indicates how rapidly the inventory is turning into receivable through sales. A high

ratio is good from the view point of liquidity. A low ratio would signify that inventory

does not sell fast.

A high Debtor Turnover Ratio is indicative of shorter time lag between credit sales andcash collection. The higher the value of debtors turnover the more efficient is the

management of debtors or more liquid the debtors are. A low ratio shows that debts are

not being collected rapidly. As the graph reveals that the debts are collected in time & the

process is improving consistently. This shows that company is utilizing its debtors

efficiently as compare to previous year.

The working capital ratio indicates high net working capital required. This companyhaving negative working capital because, they have more current liabilities over current

assets. It shows that the short term loans are not sufficient and more money are invested

in the purchase of current assets. Thus this ratio is helpful to forecast the working

capital requirement on the basis of sale.


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PROFITABILITY & INVESTMENT TURNOVER RATIO

Table. 11

Dec,05 Dec06 Dec07 Dec08 Dec09

Profitability Ratio

Gross Profit Ratio 17.32 28.97 23.72 20.59 27.68

Net Profit Ratio 16.85 21.16 20.44 16.29 19.69

Investment Valuation Ratio

Face value 10.00 10.00 10.00 10.00 10.00

Dividend per Share 8.00 15.00 20.00 20.00 23.00

PROFITABILITY & INVESTMENT TURNOVER RATIO

Fig. 9

17.32

28.97

23.72

20.59

27.68

16.85

21.16 20.44

16.2919.69

8

1520

20

23

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009

Gross Profit Ratio Net Profit Ratio Dividend Per Share


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Interpretation

Gross Profit Ratio shows the profit relative to sales. A high ratio of gross profits to salesis a sign of good management as it implies that the cost of production of the firm is

relatively low. For ACC it is uneven but it was good in FY06 & FY09.

The net profit margin is indicative of management ability to operate the business withsufficient success not only to recover from revenues, but also to leave a reasonable

margin to the owners. A high net profit margin would ensure adequate return to the

owners as well as enable a firm to face adverse economic conditions. It is significant &

satisfactory for the company.

As it shows the dividend per share ratio is increasing over years. It means that theinvestors have faith in the company.


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LIMITATIONS

Following limitations were encountered while preparing this project:

1) Limited data:-

This project has completed with annual reports; it just constitutes one part of data collection i.e.

secondary. There were limitations for primary data collection I.e. of confidentiality.

2) Limited period:-

This project is based on five year annual reports. Conclusions and recommendations are based on

such limited data. The trend of last five year may or may not reflect the real working capital

position of the company. There may be limitations to this study because the study duration is

very short and its not possible to observe every aspect of working capital management practices.

The data collected were secondary in nature.

3) Limited area:-

Also it was difficult to collect the data financial information. Industry figures were also difficult

to get.


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FINDINGS

The net sale increases by 150% in 5 years (2005-2009) with increasing rate. Profit before tax increases by 235% in these 5 years, except in the year 2008. Operating Profit tax increases by 330% in these 5 years except in 2008. Profit after tax increases by 195% in 5 years (2005-2009) with increasing every year. Change in Capital Employed is increased by 98% from 2005 to 2009. Earnings per Share increases by 185% in these 5 years, except in the year except 2008. There is a significant increase in shareholders fund & decrease in loan funds

continuously over a period of time.

There is also a significant increase in the amount invested by the company for thepurpose of future growth.

The current ratio of company is less than the ideal ratio. Its current assets are less than itscurr

Winter Training Project Report

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