INTRODUCTION
Working Capital:-
The life life blood blood of bus busine iness, ss, as is evident evident,, signif signified ied funds funds requir required ed for day-to-da day-to-day y operations of the firm. The management of working capital assumes great importance because shortage of working capital funds is perhaps the biggest possible cause of failure of many business units in recent times. There it is of great importance on the part of management to pay particular attention to the planning and control for working capital. An attempt has been made to make critical study of the various dimensions of the working capital management of ACC. Decisions relating to working capital and short term financing are referred to as working capital managem management ent . These involve managing the relationship between a firm's short-
term assets and its short-term liabilities. The goal of orking capital management is to ensure that the firm is able to continue its operations and that it has sufficient money flow to satisfy both maturing short-term debt and upcoming operational e!penses.
Objective of te !t"#$:-
The following are the main ob"ective which has been undertaken in the present study#
$. To determine determine the amount amount of working working capital capital requirement requirement and and to calculate calculate various various ratios relating to working capital. %. To analy analy&e &e the ndian ndian (emen (ementt ndustr ndustry y. ). To evaluate evaluate the financial financial performanc performancee of A(( A(( limited limited using financial financial tools. tools. *. To sugges suggestt the the step stepss to be taken taken to incr increa ease se the effi effici cien ency cy in managem management ent of working capital.
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%lace of !t"#$:-
The pro"ect study is carried out at the +inance Department of ACC cement! lt# corporate office ituated at yderabad, Telagana. The study is undertaken as a part of the /A curriculum.
&t"#$ #e!ign an# meto#olog$:-
Two types of data are collected, one is primary data and second one is secondary data. The primary data were collected from the Department of finance, A(( 0td, yderabad. The secondary data were collected from the Annual 1eport of A(( 2 A(( website, etc.
&cope: - The study has got a wide 2 fast scope. t tries to find out the players in the
industry 2 focuses on the upcoming trends. t also tries to show the financial performance of the ma"or player of the industry i.e.3 A(( A(( 0td.
'imitation!:-
There may be limitations to this study because the study duration is very short and it4s not possible to observe every aspect of working capital management practices. The data collected were mostly secondary in nature.
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*INANCIA' %(R*OR+ANC( %(R*OR+ ANC( ANA',&I& ANA',&I&
+inancial performance analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing the relationship between the items of balance sheet and profit and loss account. t also helps in short-term and long term forecasting and growth can be identified with the help of financial performance analysis. The dictionary meaning of 5analysis4 is to resolve or separate a thing in to its element or components parts for tracing their relation to the things as whole and to each other. The analysis of financial statement is a process of evaluating the relationship between the component parts of financial statement to obtain a better understanding of the firm4s position and performance. This analysis an alysis can be undertaken by management of the firm or by parties outside the namely, owners,creditors,investors.
Te anal$!i! of financial !tatement repre!ent! tree major !tep!:
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The frst step involves the re-organization re-organization o the entire fnancial data contained the fnancial statements. statements. Thereore Thereore the fnancial fnancial statements are broke down into individual components and re-grouped into ew principle elements according to their resemblances resemblances and anities. Thus the balanc balance e sheet sheet and proft proft and loss accoun accounts ts are are compl complete etely ly rerecasted and presented in the condensed orm entirely dierent rom their original shape.
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The second step is the establishment o signifcant relationships between the individual components o balance sheet and proft and loss account. This is done through the application tools o fnancial analysis like Ratio analysis Trend analysis !ommon size balance sheet and comparative "alance sheet.
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+inally, the result obtained by means of application of financial tools is evaluated.
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n brief financial analysis is the process of selection, relation and evaluation of financial statements. The tools of analysis are used for determining the investment value of the business, credit rating and for testing efficiency of operation.
Thus financial analysis helps to highlight the facts and relationships concerning managerial performance, corporate efficiency, financial strength and weakness and credit worthiness of the company.
*inancial !tatement anal$!i! 6or financial anal$!i!7 the process of understanding the risk and profitability of a firm 6business, sub-business or pro"ect7 through analysis of reported financial information, particularly annual and quarterly reports.
+inancial statement analysis consists of $7 reformulating reported financial statements, %7 analysis and ad"ustments of measurement errors, and )7 financial ratio analysis on the basis of reformulated and ad"usted financial statements. The two first steps are often dropped in practice, meaning that financial ratios are "ust calculated on the basis of the reported numbers, perhaps with some ad"ustments. +inancial statement analysis is the
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foundation for evaluating and pricing credit risk and for doing fundamental company valuation.
$7 +inancial statement analysis typically starts with reformulating the reported financial information. n relation to the income statement, one common reformulation is to divide reported items into recurring or normal items and non-recurring or special items. n this way, earnings could be separated in to normal or core earnings and transitory earnings. The idea is that normal earnings are more permanent and hence more relevant for prediction and valuation. 8ormal earnings are also separated into net operational profit after ta!es 689:AT7 and net financial costs. The balance sheet is grouped, for e!ample, in net operating assets 689A7, net financial debt and equity.
%7 Analysis and ad"ustment of measurement errors question the quality of the reported accounting numbers. The reported numbers can for e!ample be a bad or noisy representation of invested capital, for e!ample in terms of 89A, which means that the return on net operating assets 6189A7 will be a noisy measure of the underlying profitability 6the internal rate of return, 117. ;!pensing of 12D is an e!ample when such investment e!penditures are e!pected to yield future economic benefits, suggesting that 12D creates assets which should have been capitali&ed in the balance sheet. An e!ample of an ad"ustment for measurement errors is when the analyst removes the 12D e!penses from the income statement and put them in the balance sheet. The 12D e!penditures are then replaced by amorti&ation of the 12D capital in the balance sheet. Another e!ample is to ad"ust the reported numbers when the analyst suspects earnings management.
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)7 +inancial ratio analysis should be based on regrouped and ad"usted financial statements. Two types of ratio analysis are performed# ).$7 Analysis of risk and ).%7 analysis of profitability#
).$7 Analysis of risk typically aims at detecting the underlying credit risk of the firm. 1isk analysis consists of liquidity and solvency analysis. 0iquidity analysis aims at analy&ing whether the firm has enough liquidity to meet its obligations when they should be paid. A usual technique to analy&e illiquidity risk is to focus on ratios such as the current ratio and interest coverage. (ash flow analysis is also useful. olvency analysis aims at analy&ing whether the firm is financed so that it is able to recover from a loss or a period of losses. A usual technique to analy&e insolvency risk is to focus on ratios such as the equity in percentage of total capital and other ratios of capital structure. /ased on the risk analysis the analy&ed firm could be rated, i.e. given a grade on the riskiness, a process called synthetic rating.
1atios of risk such as the current ratio, the interest coverage and the equity percentage have no theoretical benchmarks. t is therefore common to compare them with the industry average over time. f a firm has a higher equity ratio than the industry, this is considered less risky than if it is above the average. imilarly, if the equity ratio increases over time, it is a good sign in relation to insolvency risk.
).%7 Analysis of profitability refers to the analysis of return on capital, for e!ample return on equity, 19;, defined as earnings divided by average equity. 1eturn on equity, 19;, could be decomposed# 19; = 189A > 6189A - 8+17 ? 8+D@;, where 189A is
return on net operating assets, 8+1 is the net financial interest rate, 8+D is net financial debt and ; is equity. n this way, the sources of 19; could be clarified.
Bnlike other ratios, return on capital has a theoretical benchmark, the cost of capital also called the required return on capital. +or e!ample, the return on equity, 19;, could be compared with the required return on equity, k;, as estimated, for e!ample, by the capital asset pricing model. f 19; C k; 6or 189A A((, where A(( is the weighted average cost of capital7, then the firm is economically profitable at any given time over the period of ratio analysis. The firm creates values for its owners.
nsights from financial statement analysis could be used to make forecasts and to evaluate credit risk and value the firm's equity. +or e!ample, if financial statement analysis detects increasing superior performance 19; - k; E over the period of financial statement analysis, then this trend could be e!trapolated into the future. /ut as economic theory suggests, sooner or later the competitive forces will work - and 19; will be driven toward k;.
A financial !tatement 6or financial report7 is a formal record of the financial activities of a business, person, or other entity. n /ritish ;nglish Fincluding Bnited Gingdom company law Fa financial statement is often referred to as an acco"nt , although the term financial statement is also used, particularly by accountants.
+or a business enterprise, all the relevant financial information, presented in a structured manner and in a form easy to understand, are called the financial statements. They
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typically include four basic financial statements, accompanied by a management discussion and analysis#
$. &tatement of *inancial %o!ition # also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. %. &tatement of Compreen!ive Income # also referred to as :rofit and 0oss statement 6or a I:20I7, reports on a company's income, e!penses, and profits over a period of time. A :rofit 2 0oss statement provides information on the operation of the enterprise. These include sale and the various e!penses incurred during the processing state. ). &tatement of Cange! in ("it$ # e!plains the changes of the company's equity throughout the reporting period *. &tatement of ca! flow!# reports on a company's cash flow activities, particularly its operating, investing and financing activities.
+or large corporations, these statements are often comple! and may include an e!tensive set of note! to te financial !tatement! and e!planation of financial policies and management #i!c"!!ion an# anal$!i! . The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail. 8otes to financial statements are considered an integral part of the financial statements.
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%"rpo!e of financial !tatement! b$ b"!ine!! entitie!
IThe ob"ective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.I +inancial statements should be understandable, relevant, reliable and comparable. 1eported assets, liabilities, equity, income and e!penses are directly related to an organi&ation's financial position.
+inancial statements are intended to be understandable by readers who have Ia reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently.I +inancial statements may be used by users for different purposes#
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9wners and managers require financial statements to make important business decisions that affect its continued operations. +inancial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders.
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;mployees also need these reports in making collective bargaining agreements 6(/A7 with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.
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:rospective investors make use of financial statements to assess the viability of investing in a business. +inancial analyses are often used by investors and are
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prepared by professionals 6financial analysts7, thus providing them with the basis for making investment decisions.
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+inancial institutions 6banks and other lending companies7 use them to decide whether to grant a company with fresh working capital or e!tend debt securities 6such as a long-term bank loan or debentures7 to finance e!pansion and other significant e!penditures.
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Lovernment entities 6ta! authorities7 need financial statements to ascertain the propriety and accuracy of ta!es and other duties declared and paid by a company.
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Mendors who e!tend credit to a business require financial statements to assess the creditworthiness of the business.
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edia and the general public are also interested in financial statements for a variety of reasons.
.overnment financial !tatement!
The rules for the recording, measurement and presentation of government financial statements may be different from those required for business and even for non-profit organi&ations. They may use either of two accounting methods# accrual accounting, or cash accounting, or a combination of the two 69(/9A7. A complete set of chart of accounts is also used that is substantially different from the chart of a profit-oriented business
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*inancial !tatement! of not-for-profit organi/ation!
The financial statements that not-for-profit organi&ations such as charitable organi&ations and large voluntary associations publish, tend to be simpler than those of for-profit corporations. 9ften they consist of "ust a balance sheet and a Istatement of activitiesI 6listing income and e!penses7 similar to the I:rofit and 0oss statementI of a for-profit. (haritable organi&ations in the Bnited tates are required to show their income and net assets 6equity7 in three categories# Bnrestricted 6available for general use7, Temporarily 1estricted 6to be released after the donor's time or purpose restrictions have been met7, and :ermanently 1estricted 6to be held perpetually, e.g., in an ;ndowment7.
%er!onal financial !tatement!
:ersonal financial statements may be required from persons applying for a personal loan or financial aid. Typically, a personal financial statement consists of a single form for reporting personally held assets and liabilities 6debts7, or personal sources of income and e!penses, or both. The form to be filled out is determined by the organi&ation supplying the loan or aid.
A"#it an# legal implication!
Although laws differ from country to country, an audit of the financial statements of a public company is usually required for investment, financing, and ta! purposes. These are usually performed by independent accountants or auditing firms. 1esults of the audit are summari&ed in an audit report that either provide an unqualified opinion on the financial
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statements or qualifications as to its fairness and accuracy. The audit opinion on the financial statements is usually included in the annual report.
There has been much legal debate over who an auditor is liable to. ince audit reports tend to be addressed to the current shareholders, it is commonly thought that they owe a legal duty of care to them. /ut this may not be the case as determined by common law precedent. n (anada, auditors are liable only to investors using a prospectus to buy shares in the primary market. n the Bnited Gingdom, they have been held liable to potential investors when the auditor was aware of the potential investor and how they would use the information in the financial statements. 8owadays auditors tend to include in their report liability restricting language, discouraging anyone other than the addressees of their report from relying on it. 0iability is an important issue# in the BG, for e!ample, auditors have unlimited liability.
n the Bnited tates, especially in the post-;nron era there has been substantial concern about the accuracy of financial statements. (orporate officers 6the chief e!ecutive officer 6(;97 and chief financial officer 6(+977 are personally liable for attesting that financial statements Ido not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thNeO report.I aking or certifying misleading financial statements e!poses the people involved to substantial civil and criminal liability. +or e!ample /ernie ;bbers 6former (;9 of orld(om7 was sentenced to %< years in federal prison for allowing orld(om's revenues to be overstated by billion over five years.
%$ &tan#ar#! an# reg"lation!
Different countries have developed their own accounting principles over time, making international comparisons of companies difficult. To ensure uniformity and comparability between financial statements prepared by different companies, a set of guidelines and rules are used. (ommonly referred to as Lenerally Accepted Accounting :rinciples 6LAA:7, these set of guidelines provide the basis in the preparation of financial statements, although many companies voluntarily disclose information beyond the scope of such requirements.
1ecently there has been a push towards standardi&ing accounting rules made by the nternational Accounting tandards /oard 6IA/I7. A/ develops nternational +inancial 1eporting tandards that have been adopted by Australia, (anada and the ;uropean Bnion 6for publicly quoted companies only7, are under consideration in outh Africa and other countries. The Bnited tates +inancial Accounting tandards /oard has made a commitment to converge the B.. LAA: and +1 over time.
Incl"!ion in ann"al report!
To entice new investors, most public companies assemble their financial statements on fine paper with pleasing graphics and photos in an annual report to shareholders, attempting to capture the e!citement and culture of the organi&ation in a Imarketing brochureI of sorts. Bsually the company's chief e!ecutive will write a letter to shareholders, describing management's performance and the company's financial highlights.
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n the Bnited tates, prior to the advent of the internet, the annual report was considered the most effective way for corporations to communicate with individual shareholders. /lue chip companies went to great e!pense to produce and mail out attractive annual reports to every shareholder. The annual report was often prepared in the style of a coffee table book .
+oving to electronic financial !tatement!
+inancial statements have been created on paper for hundreds of years. The growth of the eb has seen more and more financial statements created in an electronic form which is e!changeable over the eb. (ommon forms of electronic financial statements are :D+ and T0. These types of electronic financial statements have their drawbacks in that it still takes a human to read the information in order to reuse the information contained in a financial statement.
ore recently a market driven global standard, P/10 6;!tensible /usiness 1eporting 0anguage7, which can be used for creating financial statements in a structured and computer readable format, has become more popular as a format for creating financial statements. any regulators around the world such as the B.. ecurities and ;!change (ommission have mandated P/10 for the submission of financial information.
The B8@(;+A(T created, with respect to Lenerally Accepted Accounting :rinciples, 6LAA:7, internal or e!ternal financial reporting P0 messages to be used between enterprises and their partners, such as private interested parties 6e.g. bank7 and public $*
collecting bodies 6e.g. ta!ation authorities7. any regulators use such messages to collect financial and economic information.
n financial accounting, a balance !eet or !tatement of financial po!ition is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organi&ation, such as an 00( or an 00:. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year . A balance sheet is often described as a Isnapshot of a company's financial conditionI. 9f the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has three parts# assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.
Another way to look at the same equation is that assets equals liabilities plus owner's equity. 0ooking at the equation in this way shows how assets were financed# either by borrowing money 6liability7 or by using the owner's money 6owner's equity7. /alance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections Ibalancing.I
A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. owever, many businesses
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are not paid immediately3 they build up inventories of goods and they acquire buildings and equipment. n other words# businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. 9ften, these businesses owe money to suppliers and to ta! authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. n other words businesses also have liabilities.
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A balance sheet summari&es an organi&ation or individual's assets, equity and liabilities at a specific point in time. e have two forms of balance sheet. They are the report form and the account form. ndividuals and small businesses tend to have simple balance sheets. 0arger businesses tend to have more comple! balance sheets, and these are presented in the organi&ation's annual report. 0arge businesses also may prepare balance sheets for segments of their businesses. A balance sheet is often presented alongside one for a different point in time 6typically the previous year7 for comparison.
%er!onal balance !eet
A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. ecurities and real estate values are listed at market value rather than at historical cost or cost basis. :ersonal net worth is the difference between an individual's total assets and total liabilities.
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A small business bump that balance sheet lists current assets such as cash, accounts receivable, and inventory, fi!ed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued e!penses, and long-term debt. (ontingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.
%"blic 0"!ine!! (ntitie! balance !eet !tr"ct"re
Luidelines for balance sheets of public business entities are given by the nternational Accounting tandards /oard and numerous country-specific organi&ations@company4s.
/alance sheet account names and usage depend on the organi&ation's country and the type of organi&ation. Lovernment organi&ations do not generally follow standards established for individuals or businesses.
f applicable to the business, summary values for the following items should be included in the balance sheet# Assets are all the things the business owns, this will include property, tools, cars, etc.
A!!et!
(urrent assets $. (ash and cash equivalents %. Accounts receivable
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). nventories *. :repaid e!penses for future services that will be used within a year
8on-current assets 6+i!ed assets7 $. :roperty, plant and equipment %. nvestment property, such as real estate held for investment purposes ). ntangible assets *. +inancial assets 6e!cluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents7 <. nvestments accounted for using the equity method . /iological assets, which are living plants or animals. /earer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.
'iabilitie!
ee 0iability 6accounting7 $. Accounts payable %. :rovisions for warranties or court decisions ). +inancial liabilities 6e!cluding provisions and accounts payable7, such as promissory notes and corporate bonds *. 0iabilities and assets for current ta! <. Deferred ta! liabilities and deferred ta! assets
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. Bnearned revenue for services paid for by customers but not yet provided
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The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. t comprises#
$. ssued capital and reserves attributable to equity holders of the parent company 6controlling interest7 %. 8on-controlling interest in equity
+ormally, shareholders' equity is part of the company's liabilities# they are funds IowingI to shareholders 6after payment of all other liabilities73 usually, however, IliabilitiesI is used in the more restrictive sense of liabilities e!cluding shareholders' equity. The balance of assets and liabilities 6including shareholders' equity7 is not a coincidence. 1ecords of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. n this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual.
1egarding the items in equity section, the following disclosures are required#
$. 8umbers of shares authori&ed, issued and fully paid, and issued but not fully paid %. :ar value of shares ). 1econciliation of shares outstanding at the beginning and the end of the period *. Description of rights, preferences, and restrictions of shares <. Treasury shares, including shares held by subsidiaries and associates
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. hares reserved for issuance under options and contracts H. A description of the nature and purpose of each reserve within owners' equity
Income !tatement 6also referred to as profit and loss statement (P&L) , revenue statement , statement of financial performance , earnings statement , operating statement or statement of operations 7 is a company's financial statement that indicates
how the revenue 6money received from the sale of products and services before e!penses are taken out, also known as the Itop lineI7 is transformed into the net income 6the result after all revenues and e!penses have been accounted for, also known as 8et :rofit or the Ibottom lineI7. t displays the revenues recogni&ed for a specific period, and the cost and e!penses charged against these revenues, including write-offs 6e.g., depreciation and amorti&ation of various assets7 and ta!es. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time.
(haritable organi&ations that are required to publish financial statements do not produce an income statement. nstead, they produce a similar statement that reflects funding sources compared against program e!penses, administrative costs, and other operating commitments. This statement is commonly referred to as the statement of activities. 1evenues and e!penses are further categori&ed in the statement of activities by the donor restrictions on the funds received and e!pended.
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8DBT1Q :19+0; A8D (9:A8Q :19+0; In#"!tr$ Overview:-
The cement industry is one of the vital industries for economic development in a country. The total utili&ation of cement in a year is used as an indicator of economic growth.
(ement is a necessary constituent of infrastructure development and a key raw material for the construction industry, especially in the government4s infrastructure development plans in the conte!t of the nation4s socio;conomic development. ndia is the world's second largest producer of cement with total capacity of %$K million tones 6T7 at the end of +Q %EEK, according to the (ement anufacture4s Association.
According to the (ement anufacturer4s Association, cement dispatches during %EEK-$E were $
oreover, the government4s continued thrust on infrastructure will help the key building material to maintain an annual growth of K-$E per cent in %E$E, according to ndia4s largest cement company, ACC1
n Ranuary %E$E, rating agency +itch predicted that the country will add about
.overnment Initiative!
Lovernment initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, continue being the main drivers of growth for the ndian cement industry.
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ncreased infrastructure spending has been a key focus area. n the Bnion /udget %E$E-$$, BS )H.* billion has been provided for infrastructure development.
The government has also increased budgetary allocation for roads by $) per cent to BS *.) billion.
*"t"re Tren#!:
The cement industry is e!pected to grow steadily in %EEK-%E$E and increase capacity by another
The industry e!perts pro"ect the sector to grow by K to $E for the current financial year provided ndia's LD: grows at H.
ndia ranks second in cement production after (hina.
The ma"or ndian cement companies are Associated (ement (ompany 0td 6A((7, Lrasim ndustries 0td, Ambu"a (ements 0td, R.G (ement 0td and adras (ement 0td.
The ma"or players have all made investments to increase the production capacity in the past few months, heralding a positive outlook for the industry.
The housing sector accounts for
%ORT(R2& *I)( *ORC( +OD(':- t is useful for analy&ing the industry overall and
determining the level of competition among different e!isting players .t can be understood under different topics .Along with the industry we will try to point out the conditions for A(( too. i7 T1;AT 9+ 8; ;8T1A8T#A(( has threat from new entrants like TATA3 1eliance etc can enter into this industry. /ut there are certain barriers to their entry. These are#-
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Availability of raw material
1estrictions on entry by government into cement industry
(ement industry requires a huge investment
witching costs are high in cement industry
ii7 /A1LA88L :9;1 9+ B::0;1#-
uppliers have very much impact on cement industry because of the following reasons#
1aw materials used in cement are gypsum, fly ash and slag. There are few suppliers of these materials.
Uuality of finished goods i.e. cement is very important for A(( ltd.
As already said, there are high switching costs in cement industry.
There is no substitute to the raw material used in cement.
iii7 /A1LA88L :9;1 9+ /BQ;1#- A(( ltd plays the role of buyer. t has following bargaining powers#
There are only few buyers of raw material of cement.
A(( has ma"or stake in cement industry i.e. $$ of the world.
iv7 T1;AT 9+ B/TTBT;#- t has threat from its competitors like Ambu"a cements, /irla cements, /inani cements ,Lrasim etc.
M7 1MA01Q A98L T; (9:;T8L +1 8 8DBT1Q# n spite of huge stake in cement industry, it is difficult to be on the top because of the other competing companies i.e. Ambu"a, /irla, and /inani etc. The competitors are using
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different promotional strategies to attract buyers. o, all the leading players in the industry have to analy&e the situation frequently 2 they have to keep changing them too.
&WOT ANA',&I& Strengths: -
$. The industry is likely to maintain its growth momentum and continue growing at about
K V $E in the foreseeable future.
%. Lovernment initiative in the infrastructure sector such as the commencement of the second phase of the 8ational ighway Development pro"ect, freight carriers, rural roads and development of the housing sector 6/harat 8irman Qo"ana7 are likely to be the main drivers of growth. ).
n the coming few years the demand for the cement will increase which will be booming news for cement manufactures. As capacity utili&ation is over KE now.
*. uge potential for e!port. Weakness: -
$. (ement ndustry is highly fragmented 2 regionali&ed. %. 0ow V value commodity makes transportation over long distances uneconomical. ). igh capital cost and investment cost for each and every pro"ect. *. The comple! ;!cise Duty structure based on the category of buyer and end use of the cement has caused at lot of confusion in the industry. <. The recent ban on e!port of cement clinker would increase the availability of cement in the domestic market, which in turn would put pressure on cement prices. Opportunities: Demandsuppl! gap
$. ubstantially low per capita cement consumption as compared to developing countries 6$@) rd of world average7 :er capita cement consumption in ndia is J% kgs against a global average of %<< kgs and Asian average of %EE kgs. %. Despite slightly lower economic growth, the construction and infrastructure sector is e!pected to record healthy growth, which augurs well for cement industry.
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). Additional capacity of %E million tons per annum will be required to match the demand.
"hreats: -
$. The recent moves by the (entral Lovernment in making the import of the cement total duty free, is a cause of worry for the ndian cement industry.
%. +urther recent changes in the (entral ;!cise Duty structure by way of introduction of multiple slabs of ;!cise Duty is also a cause of worry for the industry.
). Almost all the ma"or players in the industry have announced substantial increase in the capacity and the possibility of over supply situation cannot be ruled out.
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*. ncreased railway freight, coal prices and dispatch bottlenecks on account of truck 0oading restrictions imposed by various tate Lovernments
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carcity of good quality (oal is some other factors which are cause of concern for the industry.
Competitor anal$!i! 3Overall in#"!tr$4:-
A((, with an installed capacity of %%.) T:A, en"oys an $$ market share in ndia, which with its total installed capacity of %EH T:A, ndia is the second largest cement producing country in the world. A((4s nation-wide presence and brand image ensures a competitive edge and helps it to withstand regional fluctuations in prices and also to adapt its distribution to market place needs. ts key competitors are as follows#-
ACC 't# i! te market lea#er wit te capacit$ of 55167 +T%A 1Te top ten companie! are given below wit te #etail!:Name
ACC 'imite#
%ro#"ction
$H,KE%
In!talle# Capacit$
$J,*E
Net %rofit 38"arter en#e# &ep 79 599;4
*$,<
Name
."jarat Amb"ja Cement! 'imite#
%ro#"ction
$<,EK*
In!talle# Capacit$
$*,JE
8et :rofit 6Uuarter ended on ep )E, %EEK7
)$,J*J lakhs
Name
Ultratec
%ro#"ction
$),HEH
In!talle# Capacit$
$H,EEE
8et :rofit 6in %EEJ-EK7
KH,HEE lakhs
%
Name
.ra!im
%ro#"ction
$*,*K
In!talle# Capacit$
$*,$$<
8et :rofit 6in %EEJ-EK7
$,*,JEE lakhs
Name
In#ia Cement!
%ro#"ction
J,*)*
In!talle# Capacit$
J,J$E
8et :rofit 6in %EEJ-EK7
*),%$J lakhs
Name
<= Cement 't#
%ro#"ction
,$H*
In!talle# Capacit$
,JE
8et :rofit 6in %EEJ-EK7
$*,%)*.*E lakhs
Name
%ro#"ction
,)$
In!talle# Capacit$
,<)$
Name
Cent"r$ Cement
%ro#"ction
,)
In!talle# Capacit$
,)EE
Name
+a#ra! Cement
%ro#"ction
*,<
In!talle# Capacit$
<,*
8et :rofit 6in %EEJ-EK7
*K,EJ$ lakhs
Name
0irla Corp1
%ro#"ction
<,$
In!talle# Capacit$
<,$$)
8et :rofit 6in %EEJ-EK7
K,E$ lakhs
%H
Intro#"ction of te Compan$ ACC 6A(( 0imited7 is ndia's foremost manufacturer of cement and concrete. A(('s
operations are spread throughout the country with $* modern cement factories, $K 1eady mi! concrete plants, $K sales offices, and several &onal offices. t has a workforce of about KEEE persons and a countrywide distribution network of over K,EEE dealers. A(('s research and development facility has a unique track record of innovative research, product development and speciali&ed consultancy services. ince its inception in $K), the company has been a trendsetter and important benchmark for the cement industry in respect of its production, marketing and personnel management processes. ts 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 citi&en. n the HE years of its e!istence, A(( 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 utili&ation, process improvement, energy conservation and development of high performance concretes. A((4s brand name is synonymous with cement and en"oys a high level of equity in the ndian market. t is the only cement company that figures in the list of (onsumer uper /rands of ndia.
%J
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 ndian cement industry. This ensures not "ust consistency in product quality but also continuous improvements in products, processes, and application areas. A(( has rich e!perience 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 ndia, it is one of the biggest customers of the ndian 1ailways, and the foremost user of the road transport network services for inward and outward movement of materials and products. A(( has also e!tended its services overseas to the iddle ;ast, Africa, and outh 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. A(( is among the first companies in ndia to include commitment to environmental protection as one of its corporate ob"ectives, long before pollution control laws came into e!istence. 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 $K. ;very factory has state-of-the art pollution control equipment and devices.
>i!tor$ ? %rofile of ACC Cement Work!
A(( was formed in $K) when ten e!isting cement companies came together under one umbrella in a historic merger V the country4s first notable merger at a time when the term mergers and acquisitions was not even coined. The history of A(( spans a wide canvas beginning with the lonely struggle of its pioneer * ( Din &aw and other ndian entrepreneurs like him who founded the ndian cement industry. Their efforts to face competition for survival in a small but aggressive market mingled with the stirring of a
%K
country4s nationalist pride that touched all walks of life V including trade, commerce and business. The first success came in a move towards cooperation in the country4s young cement industry and culminated in the historic merger of ten companies to form a cement giant. These companies belonged to four prominent business groups V Tatas, Ghataus, Gillick 8i!on and + ; Din haw groups. A(( was formally established on August $, $K). adly, + ; Din haw, the man recogni&ed as the founder of A((, died in Ranuary $K). Rust months before his dream could be reali&ed. The A(( /oard comprises of $) persons. These include e!ecutive, non-e!ecutive, and nominee directors. This group is responsible for determining the ob"ectives and broad policies of the (ompany - consistent with the primary ob"ective of enhancing long-term shareholder value.
The /oard meets once a month. Two other small groups of directors - comprising hareholders'@nvestors' Lrievance (ommittee and Audit (ommittee of the /oard 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 (ompany's prime business. A anaging (ommittee - comprising, in addition to the anaging Director and the two e!ecutive directors, the presidents representing multifarious disciplines# finance, production, marketing, research and consultancy, engineering and human resources V meets once a week.
A &trategic Alliance:
The house of Tata was intimately associated with the heritage and history of A((, right from its formation in $K) up to %EEE. The Tata group sold all $*.*< of its shareholdings in A(( in three stages to subsidiary companies of Lu"arat Ambu"a (ements 0td. 6LA(07, who are now the largest single shareholder in A((. This enabled A(( to enter into a strategic alliance with LA(03 a company reputed for its brand image and cost leadership in the cement industry.
)E
>olcim @ A New %artner!ip:
A new association was formed between A(( and The olcim group of wit&erland in %EE<. n Ranuary %EE<, olcim announced its plans to enter into long V term alliances with Ambu"a Lroup by acquiring a ma"ority stake in Ambu"a (ements ndia 0td. 6A(07, which at the time held $).J of total equity shares in A((. olcim simultaneously announced its bid to make an open offer to A(( shareholders, through oldcem (ement :vt. 0td. and A(0, to acquire a ma"ority shareholding in A((. An open offer was made by oldcem (ement :vt. 0td. along with A(0, following which the shareholding of A(0 increased to )*.K of ;quity share capital of A((. (onsequently, A(0 has filed declarations indicating their shareholding and declaring itself as a promoter of A((. olcim is the world leader in cement as well as being large supplier of concrete, aggregates and certain construction related services. olcim is also a respected name in information technology and research and development. The group has its headquarters in wit&erland with worldwide operations spread across more than HE countries.
%lant! ? Teir Capacit$:
&1 No1
$
Bnits /argarh (haibasa
% )$
tate /argarh (ement orks (haibasa (ement orks
(apacity 6T:A7
E.K E.JH
) * < H J K $E $$
%$(handa Damodhar Lagal Ramul Gymore 0akheri adukkarai indri adi 8ew adi :lant
(handa (ement orks Damodar (ement orks Lagal (ement orks
$.EE E.<) *.*E 6Lagal and 7
Ramul (ement orks Gymore (ement orks 0akheri (ement orks adukkarai (ement orks indri (ement orks adi (ement orks adi (ement orks
$.
Tikaria (ement Lrinding and :acking $)
Tikaria
:lant
%.)$
)i!ion:
WTo be one of the most respected companies in ndia3 recogni&ed for challenging conventions and delivering on our promisesX
+i!!ion of ACC
)%
aintain our leadership of the ndian cement industry through the 0eadership
continuous moderni&ation and e!pansion of our manufacturing facilities and activities, and through the establishment of a wide and efficient
:rofitability Lrowth Uuality
marketing network. Achieve a fair and reasonable return on capital by promoting productivity throughout the company. ;nsure a steady growth of business by strengthening our position in the cement sector. aintain the high quality of our products and services and ensure their supply at fair prices. :romote and maintain fair industrial relations and an environment for the
;quity
effective involvement, welfare and development of staff at all levels. :romote research and development efforts in the areas of product :ioneering
development and energy, and fuel conservation, and to innovate and optimi&e productivity. +ulfill our obligations to society, specifically in the areas of integrated
1esponsibility
rural development and in safeguarding the environment and natural ecological balance.
*ew Acievement of ACC 'imite#:
,(AR
Acievement!
;76
The Associated (ement (ompanies 0imited incorporated on August $
;B
ndia's first entirely indigenous cement plant installed at (haibasa.
; ;6 ;6 ;6 ;6
))
A(( indri uses waste material - calcium carbonate sludge -from fertili&er factory at indri to make cement /ulk (ement Depot established at 9khla, Delhi /last furnace slag, 6a waste by-product from steel7 from T(9 used at A(( (haibasa manufacture :ortland lag (ement. anufacture of ydrophobic 6waterproof7 cement at A(( Ghalari. anufacture of :ortland :o&&olana (ement using naturally available materials. An ;cofriendly cements using an eco-friendly process.
to
A(( inducts use of pollution control equipment and high efficiency sophisticated ;66
electrostatic precipitators for its cement plants and captive power plants decades before it becomes mandatory to do so.
;E
ntroduction of the energy efficient pre-calcinations technology for the first time in ndia.
;E5
(ommissioning of the first $ T:A plant in the country at adi, Garnataka.
;E
A(( develops a new binder, working at sub-&ero temperature, which is successfully used in the ndian e!pedition to Antarctica.
;;5
ncorporation of /ulk (ement (orporation of ndia, a RM with the Lovernment of ndia.
;;7
(ommercial manufacture of ready-mi!ed concrete at umbai. (ommissioning of the new adi plant of %. T:A capacity in Garnataka, the largest in ndia, and among the largest si&ed kilns in the orld.
599
)*
Awar#! ? Accola#e! •
#$% amkrishna 'aa ational *ualit! +,ard - V Lagal wins (ommendation (ertificate and
8ew adi :lant wins pecial Award for :erformance ;!cellence in the anufacturing ector, %EEH. •
ational +,ard for outstanding performance in promoting rural and agricultural development
V by A9(A •
S,ord of onour - by /ritish afety (ouncil, Bnited Gingdom for e!cellence in safety
performance. •
#ndira Pri!adarshini .rikshamitra +,ard --- by The inistry of ;nvironment and +orests for
Ie!traordinary workI carried out in the area of afforestation. •
/#%%# +,ard --- for innovative measures for control of pollution, waste management 2
conservation of mineral resources in mines and plant. •
Su0h 1aran Sara,agi 2nvironment +,ard - by The +ederation of ndian ineral ndustries for
environment protection measures. •
Drona "roph! - /y ndian /ureau 9f ines for e!tra ordinary efforts in protection of
;nvironment and mineral conservation in the large mechani&ed mines sector. •
•
#ndo 3erman 3reentech 2nvironment 24cellence +,ard 3olden Peacock 2nvironment $anagement Special +,ard - for outstanding efforts in
;nvironment anagement in the large manufacturing sector. •
#ndira 3andhi $emorial ational +,ard - for e!cellent performance in prevention of pollution
and ecological development •
24cellence in $anagement of ealth5 Safet! and 2nvironment : (ertificate of erit by ndian
(hemical anufacturers Association •
.ish,akarma ashtri!a Puraskar troph! for outstanding performance in safety and mine
working •
•
3ood %orporate %iti6en +,ard - by :D (hamber of (ommerce and ndustry 7amnalal 'aa 8chit .!avahar Puraskar - (ertificate of erit by (ouncil for +air /usiness
:ractices •
3reentech Safet! 3old and Silver +,ards - for outstanding performance in afety management
)<
systems by Lreentech +oundation •
/#$# ational +,ard - for valuable contribution in ining activities from the +ede ration of
ndian ineral ndustry under the inistry of (oal. •
a!a Sthari!a Par!avaran Puraskar - for outstanding work in ;nvironmental :rotection and
;nvironment :erformance by the adhya :radesh :ollution. (ontrol /oard. •
ational +,ard for /l! +sh 8tili6ation - by inistry of :ower, inistry of ;nvironment 2
+orests and Dept of cience 2 Technology, Lovt of ndia - for manufacture of :ortland :o&&olana (ement. •
3ood %orporate %iti6en +,ard - by /ombay (hamber of (ommerce and ndustry for working
towards an environmentally sustainable industry while pursuing the ob"ective of creation of a better society. •
ational +,ard for 24cellence in Water $anagement - by the (onfederation of ndian ndustry
6(7
ACC was the first recipient of A&&OC>A+4s first ever National Awar# for o"t!tan#ing performance in promoting r"ral an# agric"lt"ral #evelopment activitie! in ;6 .
Decades later, %>D Camber of Commerce an# In#"!tr$ selected ACC as winner of its .oo# Corporate Citi/en Awar# for te $ear 5995 . 9ver the years, there have been many awards and felicitations for achievements in 1ural and community development, afety, ealth, Tree plantation, A forestation, (lean ining, ;nvironment Awareness and :rotection.
Corporate office:
9verseeing the company4s rang of business3 the (orporate 9ffice is the central head quarters of all business and human resource function located in umbai.
)
ACC &"b!i#iarie!:
$. /ulk (ement (orporation ndia 0td 6/((7 %. A(( achinery (ompany 0td 6A(07 ). A(( 8ihon (asting 0td 6A8(07
Regional marketing office! :-
9ffices at all ma"or cities in ndia i.e /angaluru , /hopal, (handigarh , (oimbatore , Ganpur, Golkata, umbai, :une , ecunderabad ,8ew Delhi 2 :atna.
+A% O* ACC %'ANT&:-
)H
>I.>I'I.>T& O* *INANCIA' %(R*OR+ANC( of ACC 'TD
1s. (rore %artic"lar!
?%EE<
%EE
%EEH
%EEJ
%EEK
N(T &A'(& %0T O%(RATIN.
),%%$ J* $
<,JE) $,%E $,H$H
,KK$ $,K)E $,KK)
H,%J) $,H)H $,JKK
J,E%H %,%K* %,*)
%RO*IT %AT Capital
<** ),
$,%)% *,%)*
$,*)K *,HK$
$,%$) <,H*
$,EH ,K)%
(mplo$e# 0a!ic (arning!
)E.E%
.E%
H.H<
*.)
J<.E
per &are 3R!14
An Intro#"ction To Working Capital +anagement
)J
WWorking capital mean! te part of te total a!!et! of te b"!ine!! tat cange from one form to anoter form in te or#inar$ co"r!e of b"!ine!! operation!1F
Concept of working capital:-
The word working capital is made of two words .orking and 51 (apital 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 : -
orking capital may be regarded as the life blood of business. orking capital is of ma"or importance to internal and e!ternal analysis because of its close relationship with the current day-to-day operations of a business. ;very business needs funds for two purposes.
? 0ong term funds are required to create production facilities through purchase of fi!ed assets
such
as
plants,
machineries,
lands,
buildings
2
etc
? hort term funds are required for the purchase of raw materials, payment of wages, and other day-to-day e!penses. . t is other wise known as revolving or circulating capital
t is nothing but the difference between current assets and current liabilities. i.e.
orking (apital = (urrent Asset V (urrent 0iability.
/usinesses use capital for construction, renovation, furniture, software, equipment, or machinery. t is also commonly used to purchase inventory, or to make payroll. (apital is also used often by businesses to put a down payment down on a piece of commercial real estate. orking capital is essential for any business to succeed. t is becoming increasingly important to have access to more working capital when we need it.
)K
Concept of working capital
•
•
Lross orking (apital = Total of (urrent Asset 8et orking (apital = ;!cess of (urrent Asset over (urrent 0iability.
C"rrent A!!et!
C"rrent 'iabilitie!
•
(ash in hand @ at bank
•
/ills :ayable
•
/ills 1eceivable
•
undry (reditors
•
undry Debtors
•
9utstanding e!penses
•
hort term loans
•
Accrued e!penses
•
nvestors@ stock Temporary investment
•
/ank 9ver draft
•
•
:repaid e!penses
•
Accrued incomes
Working capital in term! of five component!:
1 Ca! an# e"ivalent! # - This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key questions such as# s the cash level adequate to meet current e!penses as they come dueY hat is the timing relationship between cash inflow and outflowY hen will peak cash needs occurY hen and how much bank borrowing will be needed to meet any cash shortfallsY hen will repayment be e!pected and will the cash flow cover itY
51 Acco"nt! receivable: - any businesses e!tend credit to their customers. f we do, is
*E
the the amou amount nt of accou account ntss recei receiva vabl blee reas reason onabl ablee rela relati tive ve to sale salesY sY ow ow rapi rapidl dly y are are receivables being collectedY hich customers are slow to pay and what should be done about
themY
71 Inventor$: - nventory is often as much as
naturally it requires continual scrutiny. s the inventory level reasonable compared with sales and the nature of our businessY hat's the rate of inventory turnover compared with other companies in our type of businessY
*. Acco"nt! pa$able: - +inancing by suppliers is common in small business3 it is one of the ma"or sources of funds for entrepreneurs. s the amount of money owed suppliers reasonable relative to what we purchaseY hat is our firm's payment policy
doing
to
enhance
or
detract
from
our
credit
ratingY
1 Accr"e# eGpen!e! an# taGe! pa$able: - These are obligations of our company
at any given time and represent a future outflow of cash.
Two #ifferent concept! of working capital are #-
•
0alance !eet or Tra#itional concept
•
Operating c$cle concept1
0alance !eet or Tra#itional concept: - t shows the position of the firm at certain point of
time. t is calculated in the basis of balance sheet prepared at a specific date. n this method there are two type of working capital#•
•
Lross working capital 8et working capital
.ro!! working capital #- t refers to the firm4s 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. hich emphasi&es more on quantity than its quality, but it fails to reveal the true financial position po sition of the firm because every increase in current liabilities will decrease the gross working capital.
Net working capital: - t is the difference between current assets and current liabilities or the
e!cess of total current assets over total current liabilities.
Working capitalH c"rrent a!!et! - c"rrent liabilitie!1
Net working capital: - t is also can defined as that part of a firm4s current assets which is
financed with long term funds. t may be either positive or negative. hen the current assets e!ceed the current liability, the working capital is positive and vice versa.
Operating c$cle concept # - The duration or time required to complete the sequence of
events right from purchase of raw material for cash to the reali&ation of sales in cash is called the operating cycle or working capital cycle.
(A
1A AT;1A0
O%(RATIN. C,C'(
D;/T91 2 /00 1;(;MA/0;
A0;
T$pe! T$pe! of Working Working Capital:Cap ital:-
*%
91G 8 :19L1;
+8 L99D
TQ:; 9+ 91G8L (A:TA0
98 T; /A 9+ /@ (98(;:T
L19 91G8L (A:TA0
8;T 91G8L (A:TA0
98 T; /A 9+ T;
1;LB0A1 91G8L (A:TA0
T;:91A1Q 91G8L (A:TA0
;A98A0 91G8L (A:TA0
:;(+( 91G8L (A:TA0
&I.NI*ICANC( O* WOR=IN. CA%ITA': CA%ITA': -
*)
:AQ;8T T9 B::0;1
;AQ 09A8 +19 /A8G
DMD;8D DT1/BT-98
L8+(A8--(; 9+ 91G8L (A:TA0
8(1;A; ;++;(;8(-Q
8(1;A; D;/T (A:A(TQ
8(1;A; 8 +P A;T
*actor! re"iring con!i#eration wile e!timating working capital1 •
The average credit period e!pected to be allowed by suppliers.
•
Total costs incurred on material, wages.
•
The length of time for which raw material are to remain in stores before they are issued for production.
•
The length of the production cycle 6or7 work in process.
•
The length of sales cycle during which finished goods are to be kept waiting for sales.
**
•
The average period of credit allowed to customers
•
The amount of cash required to make advance payment
Importance of Working Capital Ratio!
1atio analysis can be used by financial e!ecutives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utili&ation. =e$ Working Capital Ratio!
The following, easily calculated, ratios are important measures of working capital utili&ation.
Ratio
*orm"lae
Re!"lt
Interpretation 9n average, we turn over the value of our
entire stock every ! days. e may need to tock Turnover 6in days7
Average tock ?
break this down into product groups for
)<@
=!
(ost of Loods
days
old
effective stock management. 9bsolete stock, slow moving lines will e!tend overall stock turnover days. +aster production, fewer product lines, "ust in time ordering will reduce average days. t takes on average ! days to collect monies
1eceivables 1atio 6in days7
due to we. f we4re official credit terms are *< Debtors ? )<@
=!
ales
days
9ne or more large or slow debts can drag out the average days. ;ffective debtor
:ayables
(reditors ? )<@
1atio
(ost of ales 6or days
6in days7
day and it takes < days... whyY
:urchases7
=!
management will minimi&e the days. 9n average, we pay our suppliers every ! days. f we negotiate better credit terms this will increase. f we pay earlier, say, to get a discount this will decline. f we simply defer
*<
paying our suppliers 6without agreement7 this will also increase - but our reputation, the quality of service and any fle!ibility provided by our suppliers may suffer. (urrent Assets are assets that we can readily turn in to cash or will do so within $% months in the course of business. (urrent 0iabilities are amount we are due to pay within the
Total (urrent (urrent 1atio
Assets@
=!
Total (urrent
times
0iabilities
coming $% months. +or e!ample, $.< times means that we should be able to lay our hands on S$.
6Total (urrent Assets Uuick 1atio
nventory7@ Total (urrent
orking (apital 1atio
=! times
imilar to the (urrent 1atio but takes account of the fact that it may take time to convert inventory into cash.
0iabilities 6nventory > 1eceivables :ayables7@
As A high percentage means that working capital ales needs are high relative to our sales.
ales
8ote#- 9nce ratios have been established for our business, it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors. Te working capital nee#! of a b"!ine!! are infl"ence# b$ n"mero"! factor!1 Te important one! are #i!c"!!e# in brief a! given below #
*
Nat"re of (nterpri!e #-The nature and the working capital requirements of an
enterprise are interlinked. hile 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 nature3 an enterprise involved in production would require more working capital than a service sector enterprise.
+an"fact"ring%ro#"ction %olic$:- ;ach enterprise in the manufacturing sector
has its own production policy, some follow the policy of uniform production even if the demand varies from time to time, and others may follow the principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly, the working capital requirements vary for both of them.
Working Capital C$cle #-n manufacturing concern, working capital cycle starts
with the purchase of raw materials and ends with reali&ation of cash from the sale of finished goods. The cycle involves the purchase of raw materials and ends with the reali&ation 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 reali&ation of cash and this cycle continuous again from cash to purchase of raw materials and so on.
Operation!:- The requirement of working capital fluctuates for seasonal business.
The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. ce creams and cold drinks have a great demand during summers, while in winters the sales are negligible.
+arket Con#ition:-f there is high competition in the chosen product category,
then one shall need to offer sops like credit, immediate delivery of goods etc. for
*H
which the working capital requirement will be high. 9therwise, if there is no competition or less competition in the market then the working capital requirements will be low.
Cre#it %olic$:- The credit policy is concerned in its dealings with debtors and
creditors influence considerably the requirements of the working capital. A concern that purchases its requirements on credit and sells its products@services on cash requires lesser amount of working capital. 9n the other hand a concern buying its requirements for cash and allowing credit to its customers, shall need larger amount of funds are bound to be tied up in debtors or bills receivables.
0"!ine!! C$cle:-/usiness (ycle refers to alternate e!pansion and contraction in
general business activities. n 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 e!pansion of business etc. 9n 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
Availabilit$ of Raw +aterial:- f raw material is readily available then one need
not maintain a large stock of the same, thereby reducing the working capital investment in raw material stock. 9n 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.
.rowt an# (Gpan!ion #-Lrowth and e!pansion in the volume of business results
in enhancement of the working capital requirement. As business grows and e!pands, it needs a larger amount of working capital. 8ormally, the need for increased working capital funds precedes growth in business activities.
*J
(arning Capacit$ an# Divi#en# polic$ #-ome firms have more earning capacity
than others due to the quality of their products, monopoly conditions etc. uch 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.
%rice 'evel Cange!:- Lenerally, rising price level requires a higher investment
in the working capital. ith increasing prices, the same level of current assets needs enhanced investment.
+an"fact"ring C$cle:- The manufacturing cycle starts with the purchase of raw
material and is completed with the production of finished goods. f 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. ;ach constituent of working capital retains its form for a certain period and that holding period is determined by the factors discussed above. o 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.
Oter *actor!:- (ertain 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 0a!i! of )al"ation:
*K
tock of raw material :urchase cost of raw materials
tock of work in process At cost or market value, whichever is lower
tock of finished goods (ost of production
Debtors (ost of sales or sales value
(ash orking e!penses#WOR=IN. CA%ITA' +ANA.(+(NT
orking (apital anagement refers to management of current assets and current liabilities. The ma"or thrust of course is on the management of current assets .This is understandable because current liabilities arise in the conte!t of current assets. orking (apital anagement is a significant fact of financial management. ts importance stems from two reasons#•
nvestment in current assets represents a substantial portion of total investment.
•
nvestment in current assets and the level of current liabilities have to be geared quickly to change in sales. To be sure, fi!ed asset investment and long term financing are responsive to variation in sales. owever, 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 WbestX utili&ation of a scarce resource.
Thus the "ob 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 2 sales and seasonal and other variations. CON&(8U(NC(& O* UND(R A&&(&&+(NT O* WOR=IN. CA%ITA'
o
Lrowth may be stunted. t may become difficult for the enterprise to undertake profitable pro"ects due to non-availability of working capital.
o
mplementation of operating plans may become difficult and consequently the profit goals may not be achieved.
o
(ash crisis may emerge due to paucity of working funds.
o
9ptimum capacity utili&ation of fi!ed assets may not be achieved due to non availability of the working capital.
o
The business may fail to honor its commitment in time, thereby adversely affecting its credibility. This situation may lead to business closure.
o
The business may be compelled to buy raw materials on credit and sell finished goods on cash. n the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. /oth these situations would affect profitability adversely.
o
8on-availability of stocks due to non-availability of funds may result in production stoppage.
CON&(8U(NC(& O* O)(R A&&(&&+(NT O* WOR=IN. CA%ITA'
<$
o
;!cess of working capital may result in unnecessary accumulation of inventories.
o
t may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management.
o
t may make management complacent leading to its inefficiency.
o
9ver-investment in working capital makes capital less productive and may reduce return on investment. orking capital is very essential for success of a business and, therefore, needs efficient management and control. ;ach of the components of the working capital needs proper management to optimi&e profit.
*inancing Working Capital
orking capital or current assets are those assets, which unlike fi!ed assets change their forms rapidly. Due to this nature, they need to be financed through short-term funds. hort-term funds are also called current liabilities. The following are the ma"or sources of raising short-term funds#
I1 &"pplier2! Cre#it
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.
ii1 0ank 'oan for Working Capital
<%
This is a ma"or source for raising short-term funds. /anks e!tend loans to businesses to help them create necessary current assets so as to achieve the 1equired business level. The loans are available for creating the following current Assets# •
Ztock of 1aw aterials
•
tock of ork in :rocess
•
tock of +inished Loods
•
Debtors
/anks 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.
iii1 %romoter2! *"n#
t is advisable to finance a portion of current assets from the promoter4s funds. They are long-term funds and, therefore do not require immediate repayment. These funds increase the liquidity of the business.
+anagement of Inventor$
nventories constitute the most significant part of current assets of a large ma"ority of companies in ndia. 9n an average, inventories are appro!imately E of current assets in public limited companies in ndia. /ecause of the large si&e of inventories maintained by firms maintained by firms, a considerable amount of funds is required to be committed to them. t 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 "eopardi&ing 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 minimi&e investment in inventories at
<)
considerable degrees, without any adverse effect on production and sales, by using simple inventory planning and control techniques. Nee# to ol# inventorie!:
Tran!action motive emphasi&es the need to maintain inventories to facilitate
smooth production and sales operation.
%reca"tionar$ motive necessities holding of inventories to guard against the risk
of unpredictable changes in demand and supply forces and other factors.
&pec"lative motive influences the decision to increases or reduce inventory
levels to take advantage of price fluctuations and also for saving in re-ordering costs and quantity discounts etc. Objective of Inventor$ +anagement:-
The main ob"ectives 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 ob"ective means that investments in inventories should not remain ideal and minimum working capital should be locked in it. The following are the ob"ectives 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 production and overall purchases.
To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centrali&ing purchases.
<*
To minimi&e losses through deterioration, pilferage, wastages and damages.
To design proper organi&ation for inventory control so that management. (lear cut account ability should be fi!ed at various levels of the organi&ation.
To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores.
To ensure right quality of goods at reasonable prices.
To facilitate furnishing of data for short-term and long term planning and control of inventory +anagement of ca!
(ash is the important current asset for the operation of the business. (ash is the basic input needed to keep the business running in the continuous basis, it is also the ultimate output e!pected to be reali&ed by selling or product manufactured by the firm. The firm should keep sufficient cash neither more nor less. (ash shortage will disrupt the firm4s manufacturing operations while e!cessive cash will simply remain ideal without contributing anything towards the firm4s profitability. Thus a ma"or function of the financial manager is to maintain a sound cash position. (ash 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. ometimes near cash items such as marketing securities or bank term deposits are also included in cash. Lenerally when a firm has e!cess cash, it invests it is marketable securities. This kind of investment contributes some profit to the firm. +anagement of Receivable!
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. 1eceivables result from credit sales. A concern is required to allow credit sales in order to e!pand its sales volume. t is not always possible to sell goods on cash basis only. ometimes other concern in that line
<<
might have established a practice of selling goods on credit basis. Bnder 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 current assets of a firm. /ut for investment in receivables, a firm has to insure certain costs. +urther, there is a risk of bad debts also. t is therefore, very necessary to have a proper control and management of receivables. Nee#! to ol# ca!:
1eceivables management is the process of making decisions relating to investment in trade debtors. (ertain investments in receivables are necessary to increase the sales and the profits of a firm. /ut at the same time investment in this asset involves cost consideration also. +urther, there is always a risk of bad debts too. Thus, the ob"ective of receivable management is to take a sound decision as regards investments in debtors. n the words of /olton, .;., the need of receivables management i! Jto promote !ale! an# profit! "ntil tat point i! reace# were te ret"rn of inve!tment in f"rter f"n#ing of receivable! i! le!! tan te co!t of
f"n#!
rai!e#
to
finance
tat
a##itional
cre#it1F Working Capital C$cle
(ash flows in a cycle into, around and out of a business. t is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. f a business is operating profitably, then it should, in theory, generate cash surpluses. f it doesn't generate surpluses, the business will eventually run out of cash and e!pire. The faster a business e!pands the more cash it will need for working capital and investment. The cheapest and best sources of cash e!ist as working capital right within business. Lood management of working capital will generate cash will help improve profits and reduce risks. /ear in mind that the cost of providing credit to <
customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventor$ 6stocks and work-in-progress7 and Receivable! 6debtors owing our money7. The main sources of cash are %a$able! 6our creditors7 and ("it$ an# 'oan! .
;ach component of working capital 6namely inventory, receivables and payables7 has two dimensions ........T; ......... and 98;Q. hen it comes to managing working capital - TI+( I& +ON(,. f we can get money to move faster around the cycle 6e.g. collect monies due from debtors more quickly7 or reduce the amount of money tied up 6e.g. reduce inventory levels relative to sales7, 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. imilarly, if we can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit3 we effectively create free finance to help fund future sales.
#f ,e9999999 (ollect receivables 6debtors7 faster
"hen999999 e release cash from
the cycle (ollect receivables 6debtors7 slower
9ur receivables soak up cash
Let better credit 6in terms of duration
e increase our cash
or amount7 from suppliers
resources
hift inventory 6stocks7 faster
e free up cash
ove inventory 6stocks7 slower
e consume more cash
t can be tempting to pay cash, if available, for fi!ed assets e.g. computers, plant, vehicles etc. f 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. imilarly, 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. +ore b"!ine!!e! fail for lack of ca! tan for want of profit1 &o"rce! of A##itional Working Capital:•
;!isting cash reserves
•
:rofits 6when we secure it as cash[7
•
:ayables 6credit from suppliers7
•
8ew equity or loans from shareholders
•
/ank overdrafts or lines of credit
•
0ong-term loans
f we have insufficient working capital and we try to increase sales, we can easily overstretch the financial resources of the business. This is called overtrading . ;arly warning signs include#
:ressure on e!isting cash
;!ceptional cash generating activities e.g. offering high discounts for early cash payment
/ank overdraft e!ceeds authori&ed limit
eeking greater overdrafts or lines of credit
:art-paying suppliers or other creditors
:aying bills in cash to secure additional supplies
anagement pre-occupation with surviving rather than managing +requent shortterm emergency requests to the bank 6to help pay wages, pending receipt of a cheque7. >an#ling Receivable! 3Debtor!4
(ash flow can be significantly enhanced if the amounts owing to a business are collected faster. ;very business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed. 'ate pa$ment! ero#e profit! an# can lea# to ba# #ebt!1 If we #onKt manage #ebtor! te$ will begin to manage o"r b"!ine!! as we will
gradually lose control due to reduced cash flow and, of course, we could e!perience an increased incidence of bad debt. Te following mea!"re! will elp manage o"r #ebtor! #
$. ave the right mental attitude to the control of credit and make sure that it gets the priority it deserves. %. ;stablish clear credit practices as a matter of company policy. ). ake sure that these practices are clearly understood by staff, suppliers and customers. *. /e professional when accepting new accounts, and especially larger ones. <. (heck out each customer thoroughly before we offer credit. Bse credit agencies, bank references, industry sources etc.
. ;stablish credit limits for each customer... and stick to them. H. (ontinuously review these limits when we suspect tough times are coming or if operating in a volatile sector. J. Geep very close to our larger customers. K. nvoice promptly and clearly. $E. (onsider charging penalties on overdue accounts. $$. (onsider accepting credit @debit cards as a payment option. $%. onitor our debtor balances and ageing schedules, and don't let any debts get too large or too old. 1ecogni&e that the longer someone owes we, the greater the chance we will never get paid. f 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 "udgment poor collection procedures
la! enforcement of credit terms
slow issue of invoices or statements
errors in invoices or statements
(ustomer dissatisfaction.
Debtors due over KE days 6unless within agreed credit terms7 should generally demand immediate attention.
%rofit! onl$ come from pai# !ale!1
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. Tere i! noting more
E
important tan getting pai# for o"r pro#"ct or !ervice1 A c"!tomer wo #oe! not pa$ i! not a c"!tomer1 +anaging %a$able! 3Cre#itor!4
(reditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. :urchasing initiates cash outflows and an over-&ealous purchasing function can create liquidity problems. (onsider the following#
ho authori&es purchasing in our company - is it tightly managed or spread among a number of 6"unior7 peopleY
Are purchase quantities geared to demand forecastsY
Do we use order quantities which take account of stock-holding and purchasing costsY
Do we know the cost to the company of carrying stockY
Do we have alternative sources of supplyY f not, get quotes from ma"or suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.
ow many of our suppliers have a returns policyY
Are we in a position to pass on cost increases quickly through price increases to our customersY
f a supplier of goods or services lets we down can we charge back the cost of the delayY
(an we arrange 6with confidence[7 to have delivery of supplies staggered or on a "ust-in-time basisY
There is an old adage in business that if ,e can 0u! ,ell then ,e can sell ,ell . anagement of our creditors and suppliers is "ust as important as the management of our debtors. t is important to look after our creditors - slow payment by we may create illfeeling and can signal that our company is inefficient 6or in trouble[7.
$
Remember a goo# !"pplier i! !omeone wo will work wit "! to enance te f"t"re viabilit$ an# profitabilit$ of o"r compan$1
DATA ANA',&I& INT(R%R(TATION ANA',&I& of financial !tatement of ACC 'imite#:Common !i/e !tatement Anal$!i! 3vertical Anal$!i!4:-
A financial statement that has variables e!pressed in percentages rather than in dollar amounts. +or e!ample, 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.
%
(ommon-si&e statements are used primarily for comparative purposes so that firms of various si&es can be equated. Also called one hundred percent statement. Advantages#
The statement reveals the sources of funds 2 the distribution or application of the total funds in the asset of a business enterprise.
(omparison of the common si&e statement over a number of years will clearly indicate the changing proportion of the various components of assets, liabilities, cost, net sales 2 profits.
t will assist corporate evaluation 2 ranking.
0imitations#
t doesn4t show variations in the different account items from period to period.
0ess useful due to lack of established standard proportion of an asset to the total asset 2 so on.
Common !i/e !tatement anal$!i! of ACC cement! 't#1 from 595-596
%E$% 67
%E$)67
%E$*67
%E$<67
%E$67
9B1(; 9+ +B8D# hareholders4 +unds#-
1s.6(rore7 1s.6(rore7 *.K H$.H
1s.6(rore7 J).J*
1s.6(rore7 J<.HH
1s.6(rore7 J.HJ
0oan +unds#
**.)
%E.K$
K.*H
J.)K
J.$J
H.)%
.K
<.J*
<.E*
$EE
$EE
$EE
$EE
HK.*J $$.
JE.E) $H.E %.K%
JJ.%K $$.J% 6E.$$7
K$.EJ %$.%J 6$%.)H7
E.E%
E.EE
E.EE
E.EE
Deferred Ta! 0iabilities J.J 68et7 T9TA0 +B8D $EE A::. 9+ +B8D#--+i!ed Assets# J*.$ nvestments#K.E 8et (urrent Assets6 (urr <.% Assests-
current
liabilities 2 provision7 ( ;P:. 6to the e!tent not written off or ad"usted7
)
E.$
T9TA0 A;T 68et7
$EE
$EE
$EE
$EE
$EE
Interpretation:-
6a7 There is a significant increase in shareholder4s fund 2 decrease in loan funds continuously over a period of time. 6b7 There is also a significant increase in the amount invested by the company for the purpose of future growth. 6c7 There is a significant decrease in current asset over a period of time. Tren# Anal$!i! 3>ori/ontal4:- Trend percentage analysis moves in one direction either
progression or regression 6 upward or downward7.This method involves the calculation of percentage relationship that each statements bear to the same item in the base year .ostly the earliest period is taken as the base year.
Advantages#
t indicates the increase in an accounted item along with the magnitude of changes in percentages which is more effective then absolute data.
t facilitates an efficient comparative study of the financial performance of a firm over a period of time.
0imitations#
Any one trend by itself is not very analytical 2 informative.
During the inflationary periods the data becomes incomparable ,unless the absolute rupee data is ad"usted.
There is always the danger of selecting the base year which may not be representative, normal 2 typical.
The calculated percentages having no logical relationship with one another.
:recautions to be taken#
(onsistency in the principles 2 practices followed by the organi&ation throughout the calculated period.
*
The base year should be normal.
Trend percentages should be calculated only for the items which are having logical relationship with each other.
+igures of the current year should be ad"usted according to the changes in price levels.
9B1(; 9+ +B8D#
%E$)?
%E$*
%E$<
%E$
1s.
1s.6(rore7
1s.6(rore7
1s.6(rore7
6(rore7 hareholders4 +unds#-
$EE
$)%.E
$<.HK
$K$.*%
0oan +unds
$EE
<$.%$
<%.%
$.K
Deferred Ta! 0iabilities
$EE
$E).*
$E*.H
$EJ.K
T9TA0 +B8D
$EE
$$).$
$)$.%
$
+i!ed Assets
$EE
$$).K
$*<.H
$J$.*
nvestments
$H.J
$)*.K
%K).$
(urr Assets,0oans 2 Adv#
$EE
$$*.H
$*).
$$K.*
$EE
$)*.J
$J$.$
%E.*
$EE
E.EE
E.EE
E.EE
A::. 9+ +B8D#-
--60ess7#-(urrent 0iabilities 2:rov. ( ;P:. 6to the e!tent not written off
<
or ad"usted7 T9TA0 A;T 68et7
$EE
$$).$
$)$.%
$
?/ase year#-%EE Malue 6$EE7
Working Capital calc"lation:-
&tatement !owing cange in working capital for ACC 't#:3 R!1in Crore4
:articulars C"rrent A!!et! nventories und1 Debtors (ash 2 /ank /al 0oan 2 Advances 9ther (A Total 6 A 7
Dec4$
Dec4$<
HHJ.KJ %E).HE H*.)J <<*.*% $E.KK 55;B1B
HK).%H )$E.$H KJ*.%* <$.%J %E.H 5;167
%EE.)* $EK$.JJ 75155
$JE$.HK K).K) 5615
ncrease 6 > 7
6$*.%K7 6$E.*H7 6%)H.J7 6K.J7 6K.J7
C"rrent 'iabilitie!
(.0. :rovisions Total 6 / 7
Decrease 6- 7
%
6 A-/ 7 Cange! in
6J
6.EK7 3E1664
6J<$.7 6*<.$7
6*<.$7
working capital Total 6*<.$7 6*<.$7 3E14 3E14 &imilarl$ te calc"lation of WC for te $ear 595 to 596 a! given below:3R!1in Crore4
6A7(urrent assets 6/7(urrent
%E$% $,*%$ $,))<
%E$) $,K%$ $,H%
%E$* %,%E) %,%%$
%E$< %,HE %,H
%E$ %,%K* ),$<%
0iabilities J %*K 6$J7 67 6J
IN)(NTOR, ANA',&I&
H
/y analy&ing the < years data we can see that the value of inventories is increasing over a no of year. t indicates that the company is growing rapidly in cement sector. A company uses inventory when they have demand in market. +rom 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.
&UNDR, D(0TOR& ANA',&I&
J
Debtors will arise only when credit sales are made. The above graph depicts that there is continuous rise in the debtors of A(( 0td in the successive years other than %EEK.. t represents an e!tension of credit to customers. The reason for increasing credit is competition and company liberal credit policy.
Ca! ? 0ank 0al 'oan! ? a#v ANA',&I&:-
ignificant increase in (ash 2 bank balance, which shows the financial strengths of the company. Though there is a slight fall in the +Q %E$ . (ash is basic input or component of working capital. (ash is needed to keep the business running on a continuous basis. o the organi&ation should have sufficient cash to meet various requirements.
K
After analy&ing the table, we can say that the pattern of loans 2 advance is not static in nature. t shows upwards 2 downwards movement as the requirements influence it.
CURR(NT 'IA0I'ITI(& ? %RO)I&ION& ANA',&I&:-
After analy&ing the bar-chart, we can say that the amount of current liabilities is increasing significantly over years .An increase current liabilities indicates that company is using its credit facilities to the ma!imum e!tent for operating purpose.
+rom the above table we can see that provision shows an increasing trend and the huge amount is being kept in these provisions. This is kept to pay the ta!es, interest 2 other facilities or benefits to the employee. t is "ust kept for meeting future short-term liabilities.
HE
RATIO ANA',&I& 3A4 Overview:-
+inancial ratios are measures of the relative health, or sometimes the relative sickness of a business. A physician, when evaluating a person4s health, will measure the heart rate, blood-pressure and temperature3 whereas, a financial analyst will take readings on a company4s growth, cost control, turnover, profitability and risk. 0ike the physician, the financial analyst will then compare these readings with generally accepted guidelines. 1atio analysis is an effective tool to assist the analyst in answering some basic questions, such as#$. ow well is the company doingY %. hat are its strengths and weaknessesY ). hat are the relative risks to the companyY Although an analysis of financial ratios will help identify a c ompany4s strengths and weaknesses, it has its limitations and will not necessarily provide the solutions or cures for the problems it identifies. 01 A%%'ICATION O* RATIO ANA',&I&:-
ntegral tool in trend analysis
(ompares the company4s own ratios to itself over time
dentifies the company4s strengths and weaknesses
Assists in establishing appropriate capitali&ation rates 6helps to identify risk factors particular to the sub"ect company7
WOR=IN. CA%ITA' RATIO& AND IT& INT(R%R(TATION :-
Dec4$% 'i"i#it$ Ratio
H$
Dec4$)
Dec4$*
Dec4$<
Dec4$
(urrent 1atio
E.
E.HH
E.J
E.JK
E.H
Uuick 1atio
E.*%
E.$
E.<<
E.$
E.*%
&olvenc$ Ratio Debt-equity ratio.
E.
E.%<
E.EH
E.$E
E.EK
nterpretation# - As we know that ideal current ratio for any firm is %#$.The current ratio of company is less than the ideal ratio. This depicts that company4s liquidity position is not sound. ts current assets are less than its current liabilities.
Lenerally a U1 of $#$ is considered to represent satisfactory current financial position. The trend of quick ratio is uneven 2 the ratio is around E.<#$ 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 owners4 capital is a popular measure of the long term financial solvency of the firm. +or A(( it was the highest around E.<#$ in %E$%.After that it shows fluctuation.
Activit$mgmt efficienc$ Ratio:-
nventory
Dec,$% Turnover <.)H
Dec$) K.))
Dec4$* %*.J<
Dec4$< %H.<$
Dec4$ %<.%%
1atio Debtor
Turnover $.)*
%H.H<
%H.*E
%*.
%$)$.%%
1atio
H%
nvestment Turnover $%.%K
%%.*E
%*.J<
%H.<$
%<.%%
6.K7
6$J.%<7
6$H.E%7
6<*.$H7
1atio ork cap turn.
6%H.K)7
t shows increasing trend which is favorable for the company. As it indicates how rapidly the inventor$ 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 ratio is indicative of shorter time lag between credit sales and cash collection. The higher the value of #ebtor!2 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 2 the process is improving consistently. This shows that company is utili&ing its debtor4s efficiently as compare to previous year.
This ratio indicates high net working capital requires for sales. This company having negative working capital because, they have more current liabilities over current assets. t shows that the short term loans are not sufficient and more
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money are invested in the purchase of fi!ed assets. Thus this ratio is helpful to forecast the working capital requirement on the basis of sale.
%rofitabilit$ ? Inve!tment t"rnover Ratio:%rofitabilit$ Ratio
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8et :rofit 1atio
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Inve!tment )al"ation Ratio
+ace value Dividend per hare
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As it shows the dividend per share ratio is increasing over years. t means that the investors have faith in the company.
L@: margin ratio shows the profit relative to sales. A high ratio of gross profits to sales is a sign of good management as it implies that the cost of production of the firm is relatively low. +or A(( it is uneven but it was good in +Q4$) 2 +Q4$.
The net profit margin is indicative of management ability to o perate the business with sufficient 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. t is significant 2 satisfactory for the company.
&"gge!tion:
t is suggested that the company has to increase its current assets to meet its short-term obligations.
(ompany has to improve debtors4 collection period continuously so that effective receivable management will possible.
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1eserves should be utili&ed for the growth of the company.
hile forecasting cash flow, the management should take into account the impact of unforeseen events, market cycles and actions by competitors. The effect of unforeseen demands of working capital should be factored in.
(ollaborating with the customers 2 suppliers instead of being focused only on own operations will also yield good results. f feasible, helping them to plan their inventory requirements efficiently to match their production with their consumption will help reduce inventory levels.
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