ratio analysis in cement industry

7/30/2019 Ratio Analysis in cement industry

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PROJECT REPORT

ON

RATIO ANALYSIS


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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

CHAPTER3RESEARCH & METHODOLOGY

3.1 NEED FOR THE STUDY

CHAPTER- 4.

4.1 FINDINGS

CHAPTER5.

5.1 SUGGESTIONS

CHAPTER6.

CONCLUSION

BIBLIOGRAPHY


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CHAPTER -1

INDUSTRY

OVERVIEW


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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


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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


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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


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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.


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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.


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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


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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.


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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 non-

saponifiable 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


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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 economys 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 Lakheri, Distt. Bundi

Indian cement industryMajor players


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Competition

Last Price Market Cap.

(Rs. cr.)

Sales

Turnover

et Profit Total Assets

Ambuja Cements 54.20 8,252.38 5,704.84 1,971.10 4,991.67

9.

shree


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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 37.54 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 08.28 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 93.57 1,232.47

Dalmia Cement 90.00 728.45 1,480.67 47.15 2,730.48

OCATION

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 Delhi-

Ahmedabad 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

L


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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 believesin 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


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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 INTERESTNone 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


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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 companys 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 companys 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


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from time to time will devote such time for the upliftment of the downtrodden, poor and

needy persons in the locality.


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PRODUCT & MARKET

Shree Ultra Cement 53 Grade BIS Specification 53Grade

Shree Ultra Cement53-Grade

Fineness (m / kg) 225 385

Soundness

Le chatelier expansion (mm) Max. 10 1.0

Auto-clave expansion (%) Max. 0.8 0.606

Setting Time (Mins)

Initial Min. 30 111

Final Max. 600 166

Compressive Strength (MPa)

3 days 27 41.3

7 days 37 54.7

28 days 53 67.6


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BIS specification Shree Ultra Cement -43

GradeShree Ultra Cement -43 Grade

Fineness (m / 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


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TUFF Cemento 3556 IS Specification 43 Grade 3556

Fineness

Specific Surface (m2

/ kg)

Min.330 406

Setting Time(Minutes.)(a)Intial

Min.30 110

(b)final Min.600 175

Soundness Test

(a)Le-Chatelier Method (mm)

Max. 10 1.0

(a)AutoClave(%) Max. 0.800 0.068

Compressive Strength (MPa)

(a)3 days(Min.)

Min.16 39

(b)7 days(Min.) Min.22 49

(c)28 days(Min.) Min. 33 59

Quality Initiatives

Shree Cement possesses one of the few R&D centres in the Indian cement industry. Thiscenter 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.
http://www.shreecementltd.com/section_main.asp?section=S1


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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.


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CHAPTER- 2

RATIO ANALYSIS


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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. Alexanders contention was that interpretation of financial

statements can be made either by establishing quantitative relationships between various

items of financial statements.


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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 firms, 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

firms 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 firms 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 firms 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


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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 stock-

in-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

creditors main interest is in the liquidity position or short-term solvency of the firm,


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long-term solvency and profitability of the firm. Similarly, concentrate on the firms

profitability and financial condition. Management is interested in evaluation of every

aspect of the firms 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 creditors 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 firms 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


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inventories. Pre-paid expenses, bills receivable accrued income are also included in

current assets. Current liabilities include creditors 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 AssetsInventories / 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 shareholders 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 firms assets.


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The use of debt magnifies the shareholders earning as well as increases their risk and

firms 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 firms 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.


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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 salesgross profit of purchases + direct expenses+ opening stock+

manufacturing expensesclosing 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 ratioThe 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.


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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 debtors turnover, the more

efficient is the management of credit.

Average collection period is calculated to know the nature of the firms 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.


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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

firms 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 managements 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


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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.


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CHAPTER3

RESEARCH &

METHODOLOGY


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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.

3.2SCOPE 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


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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.


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CHAPTER 4

DATA ANALYSIS

&

INTERPRETATION


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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.


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Current assets

Current ratio= -------------------------

Current liabilities

Table Current ratio

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.

Year Current assets

(Rs in lakhs)

Current liabilities

(Rs in lakhs)

Current ratio

( 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

2.29 2.332.73

1.88

0.96

0

0.5

1

1.5

2

2.5

3

2007-08 2008-09 2009-10 2010-11 2011-12

Years


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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

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.

Year Quick assets

(Rs in lakhs)

Current liabilities

(Rs in lakhs)

Quick ratio

(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

PercentageQuick ratio

1.71.61

1.941.61

0.72

0

0.5

1

1.5

2

2.5

2007-08 2008-09 2009-10 2010-11 2011-12

Years


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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

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

Year Cash & bank

(Rs in lakhs)

Current liabilities

(Rs in lakhs)

Cash ratio

(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

0.440.37 0.35

0.83

0.18

00.10.20.30.40.50.60.70.80.9

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percenta e


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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 firms 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

INFERENCE

Year Net working capital

(Rs in lakhs)

Net assets

(Rs in lakhs)


(in times)

2007-08 5001.66 45357.34 0.11

2008-09 4657.91 42070.25 0.11

2009-10 6803.46 42684.40 0.16

2010-11 12829.95 107415.94 0.12

2011-12 926.04 150822.72 0.01


0.11 0.11

0.16

0.12

0.010

0.020.040.060.080.1

0.120.140.160.18

2007-08 2008-09 2009-10 2010-11 2011-12

Year

Percentage


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Net working capital ratio is sometimes used as a measure of firms 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 Total debt(Rs in lakhs)

Net worth(Rs in lakhs)

Debit equity ratio(in times)

2007-08 28089.02 64698.07 0.43

2008-09 27198.47 64698.07 0.42

2009-10 25198.62 64698.07 0.39

2010-11 16454.93 80846.56 0.20

2011-12 24948.24 100619.28 0.25

Debit equity ratio

0.43 0.420.39

0.20.25

00.050.1

0.150.2

0.250.30.35

0.40.450.5

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percentage


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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

(Rs in lakhs)

Capital employed

(Rs in lakhs)

Total debt ratio

( 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

INFERENCE

Total debt ratio

0.3 0.30.28

0.170.2

00.05

0.10.150.2

0.250.3

0.35

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percentage


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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 debt

Net worth = share capital + reserves and surplus

Capital employed to net worth ratio

Year Capital employed

(Rs in lakhs)

Net worth

(Rs in lakhs)

Capital employed to net

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


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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 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 = salesgross profit

Average inventory = opening stock + closing stock / 2

Table Inventory turn over ratio

Year Cost of goods sold

(Rs in lakhs)

Inventory

(Rs in lakhs)


( in times )

2007-08 25509.56 2487.69 10.252008-09 29237.39 2392.56 12.22

2009-10 16825.32 2696.36 6.24

2010-11 36172.58 3430.26 10.54

2011-12 46374.89 5021.18 9.24

Capital employed to net worth ratio1.43 1.42

1.39

1.21.25

1.051.1

1.151.2

1.251.3

1.351.4

1.45

2007-08 2008-09 2009-10 2010-11 2011-12Years

Percentage


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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 assetstotal current liabilities

Table Working capital turnover ratio

Year Sales

(Rs in lakhs)

Net working capital

(Rs in lakhs)

Working capital turnover ratio

( 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


10.2512.22

6.24

10.549.24

02468

101214

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percentage


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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.


It indicates the number of times debtors turnover each year. If it is high that indicates the

effectiveness of management in collecting debts. Generally, the higher the value of

debtors turnover, the more efficient is the management of credit.

Sales

Debtors turnover ratio = -----------------------

Average debtors

Debtors turn over ratio

Year Sales

(Rs in lakhs)

Debtors

(Rs in lakhs)

debtors turnover

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

Working capital turnover ratio

5.8 7 13.02 7.75

126.9

0204060

80100120140

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percentage


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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 = --------------------------------------Debtors turnover ratio

(or)

Average debtors /credit sales*365

Table Debtors collection period

Year Credit sales

(Rs in lakhs)

Debtors

(Rs in lakhs)

Debtors collection period

(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


9.3313.21

42.0539.26

44.51

0

10

20

30

40

50

2007-08 2008-09 200-07 2010-11 2008-08

Year

Percentage


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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 Gross profits

(Rs in lakhs)

Net sales

(Rs in lakhs)

Gross profit ratio

( in times )

2007-08 13172.03 29021.15 45.39

2008-09 13369.03 32605.16 41.06

2009-10 18776.27 39689.62 47.30

2010-11 63206.34 99378.92 63.60

Debtors collection period (day)

39

27

9 10 8

05

101520253035

4045

2007-08 2008-09 2009-10 2010-11 2011-12

Year

Percentage


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2011-12 71146.95 117521.84 60.54

INFERENCEThe 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 firms capacity to withstand adverse economic

conditions.

Net profit

Net profit margin ratio = ---------------------- x 100

Net sales

Table Net profit ratio

Year Net profit

(Rs in lakhs)

Net sales

(Rs in lakhs)

Net profit ratio

( 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

Gross profit ratio

45.3941.06

47.3

63.660.54

0

10

20

30

40

5060

70

2007-08 2008-09 2009-10 2010-11 2011-12

Year

Percentage


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2011-12 19772.72 117521.84 16.82

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.


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

(Rs in lakhs)

Net sales

(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

Net profit ratio

-9.47-6.46

5.71

18.17

16.82

-15

-10-5

05

101520

007-08 2008-09 2009-10 2010-11 2011-12

Year

Percentage


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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.


-0.12 -0.59

31.61

61.68 64.15

-100

1020

3040506070

2007-08 2008-09 2009-10 2010-11 2011-12

Years

Percentage


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CHAPTER- 5


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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 to0.96in 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 2008-

09 to 1.25 in 2011-12. This is due to increase in debt funds.


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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.


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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.

Debtors turnover ratio was too high due to increased sales, Hence the company is

suggested to take precaution to avoid bad debts.


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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.


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PROFIT AND LOSS ACCOUNT OF THE ON 31st

MARCH,2008

SNO PARTICULARS AMOUNT

Rs in lakhs

1. INCOME

Sale of manufactured goods 116900.24

(-)excise duty 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 115.83Deferred 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


60/65

BALANCE SHEET AS ON 31st

MARCH, 2008


Rs in lakhs

1.

SOURCES OF FUNDS

shareholders funds:

Share capital 42796.14

Reserves and surplus 38050.42

80846.56

Loan funds

Secured loans 4168.45

Un secured loans 12286.48

Deferred tax liability(net) 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 10051.06Current assets, loan and advances

inventories 3971.01

Sundry debtors 2531.00

Cash and bank balances 12012.16


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Loans and advances 8821.93

27336.10

Current liabilities and provisions

Current liabilities 13132.52

provisions 1373.63

14506.15

Net current assets 12829.95

Debit balance in profit and loss account -

TOTAL 102960.85


62/65

PROFIT AND LOSS ACCOUNT OF THE ON 31st

MARCH,2009


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 60.00

Deferred tax(credit)/ charge 518.20Profit 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


63/65

BALANCE SHEET AS ON 31st

MARCH, 2009


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 advancesinventories 6071.35

Sundry debtors 2640.09

Cash and bank balances 4773.47

Loans and advances 10803.09


64/65

24288.00

Current liabilities and provisions

Current liabilities 22479.86

provisions 2734.18

25214.04

Net current assets 926.04

Debit balance in profit and loss account -

TOTAL 130708.68


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BIBLIOGRAPHY

JAMES C.VANN HORNE, Financial Management, 9 th edition Prentice Hall

of India Private Limited, New Delhi, 1994.

KHAN M.Y. & JAIN P.K,Financial Management, 2nd Edition Tata Mc. Graw-

Hill 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 McGraw-

Hill Publishing Co., Ltd., New Delhi, 1984.

WEBSITEBROWSED

www.google.comwww.Shreecementltd.com

ratio analysis in cement industry

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