ABC Analysis

COMPANY PROFILE

1.1 Overview

Kirloskar Electric Company Ltd. (KEC) is one of India’s leading manufacturers of electrical

and power equipment. Established in 1946 by Mr.Ravi.L.Kirloskar, Kirloskar Electric Manufactures

Alternating Current (AC) Motors, AC Generators, Direct Current (DC) Machines, Traction Equipment,

Switch Gear, Transformers and undertakes turnkey electrical projects.

In 64 years, the company has built on its core capabilities of prime technological and

engineering skills complemented by world class manufacturing facilities. Kirloskar Electric products have

made more than a significant contribution of India’s rapidly growing economy. Today, Kirloskar Electric

is capable of delivering a wide range of custom engineered products that meet and exceed global

standards at every competitive price.

3.2 History

Visionary founder Laxman Rao Kirloskar created the first Iron plough for the Indian

farmer. His involvement with agriculture led him to make the first pump then the prime movers for the

pumps. Since then KEC corporate goal has been to look into the future and engineer products that time

would eventually demand.

Ravi L Kirloskar, second – generation entrepreneur, son of the visionary, built a bank of

prime technological skills and capabilities. And a state of art facility that has since then continuously

reinvented itself to meet the changing demands of a changing market – just that one step ahead of time.

With long years of innovative application behind it, Kirloskar Electric finds itself

completely capable of delivering a range of custom engineered products that meet and exceed global

standards at very competitive prices.

Moving smoothly from agricultural sector to industry, to transport, to defence, to power

generation, Kirloskar Electric products have had more than a significant contribution to make to India’s

rapidly evolving economy.

Promoted by Kirloskar Brothers Ltd, Pune, the company was incorporated in Bangalore

on 26th July, 1946 under the Mysore Companies Act XVIII of 1938, with technical and financial

participation of well known British Company i.e., Brush Electrical Engineering Company Ltd.,

Loughborough, England, which is now a member of Hawker Siddeley Group.

Kirloskar Brothers Ltd is a public Limited Company, incorporated under the Indian

Companies Act, VII of 1913, on 15th January, 1920. This company is engaged in the manufacture and sale

of power driven pumps, metal cutting, including grinding machines, valves, hermetic sealed compressor

units, hydraulic and pneumatic equipment etc.

Kirloskar Electric Company Ltd. is a well established and professionally managed

company of 45 years of standing of the Kirloskar Group. It has an unbroken dividend record of 37 years,

six Bonus Issues and for Right issues. The main business activity of company is the manufacture and sale

of a diverse range of electrical and electronic equipments such as AC Induction Motors, Transformers,

AC generators, DC machines, Control Equipment and Systems, Power Electronic Products,

Instrumentations, Automation and Systems Division of the Company have specialized in executing

systems packages for large industries like steel, fertilizers, cement, sugar and other core sectors.

The company has four manufacturing plants – the first unit at Bangalore produces

higher range AC machines, Transformers, and Control Equipments, the second unit at Hubli turns out

small and medium range AC machines, the third unit at Peenya, Bangalore, produces DC machines and

the fourth unit at Mysore specializes in Electrical products.

1888- Engineering Brother Enterprise was established by Mr Lakshman Rao & Mr Kashinath Kirloskar.

1901- India’s first Mechanical Fodder Cutter Machine made.

1904- First Iron ploughs was Invented

1924- Export of Ploughs to Britain begins.

1940- India’s First Vertical Diesel Engine Manufactured.

1942- First AC Induction Motor made in India.

1946- Kirloskar Electric & Kirloskar Oil Engines established.

1949- India’s First 5HP AV1 Engine Manufactured.

1953- India’s First Transformers Manufactured.

1958- First Alternator in India was invented, Kirloskar Pneumatic Company Established.

1964- First Electronic DC Motor Made in India.

1970- Mr. Ravi Kirloskar Appointed as Managing Director.

1973- First Overseas Established In Malaysia.

1984- JV Established for Specialization in Pumps.

1988- Completed 100 years, a Centenary Year.

1991- Established in Singapore.

1992- Kirloskar Ferrous Established.

1993- ISO 9001 Certification.

1994- Mr. Vijay Kirloskar was appointed as Chairman.

2008- Kirloskar acquires LDW & established in Holland.

(Lloyd Dynamo Werke, Bremen, Germany.)

3.3 Vision, Mission and Quality Policy

3.3.1 Vision

Vision defines the desired or intended future state of a specific organization or

enterprise in terms of its fundamental objective or strategic function.

A vision statement outlines,

What the organization wants to be?

What it concentrates in future?

What is its source of inspiration?

Clear decision making criteria.

Vision statement of Kirloskar Electric Ltd

“The power of now is the energy of opportunities that come to us disguised as

challenges. The power of now at Kirloskar Electric is the dynamics of making opportunities work as by

meeting client’s tough specifications of cost and quality. At Kirloskar Electric, we bank on the power of

now.”

3.3.2 Mission

Mission defines the fundamental purpose of an organization or an enterprise, basically

describing why it exists.

A Mission statement outlines

The fundamental purpose of the organization.

Concentrates on the present.

Defines the customer and the critical processes.

Informs the desired level of performance.

Kirloskar Electric’s motto is to deliver machines to their customers that meet the customer’s

requirements as well as ensure trouble free service for a long life.

Right from the manufacturing stage every care is taken to ensure that machines are

delivered defect free to the customer. The company also offers the customer an option of witnessing

the testing process. However, many customers have requested the company to provide more

information regarding proper storage, installation, pre commissioning checks and planned maintenance

for rotating machines.

Kirloskar Electric’s Mission statement aims:

To provide products and services of high quality.

To assume leadership in business through proactive customer services.

To perform beyond customer expectation.

To create long term relationship with customers.

To achieve excellence in business through continual improvement.

3.3.3 Quality Policy

Quality system is designed to the requirements of ISO 9001, 1994.

The quality policy of KEC, Unit V (Mysore Unit) has been to design manufacture, market

and service at competitive prices, product of such quality as results in customer satisfaction, quality

reputation and market leadership.

Quality objective of the management of the company are:

1) To design, implement and maintain a quality system conforming to ISO 9001:2008.

2) To provide products and services in a manner which conforms to contractual requirement using

appropriately qualified trained and experienced personnel.

3) To employ the principles of continuous improvement with the involvement of all people and

concepts of next process as customer.

3.4 Aim of Kirloskar Electric Company:

Manufacturing the quality and leading electrical products with the help of latest international

technology.

The brand name of the quality for electrical product across the globe.

Kirloskar values are established in gaining excellence in engineering and marketing its mission

successfully.

Ensuring customer satisfaction.

Manufacturing products of highest quality using state of the art technology.

3.5 Objectives of Kirloskar Electric Company:

To provide products of highest quality and value.

To achieve cost effectiveness in machine shops and production process etc.

To invest in the technology to achieve technological excellence and competitive edge.

To develop employee’s mutual trust, respect and training.

To reduce wastage throughout supply chain.

Human resource development.

Quality objective

3.6 Business Ethics and Values

Business ethics is a specialized study of moral right and wrong that concentrates on

moral standards as they apply to business organization and its behavior.

Values represent the basic convictions that a specific mode of conduct or end-state of

existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of

existence.

Kirloskar Electric’s Business Ethics and Values are

Customer value enhancement.

Fairness in business dealings.

Quality-life time commitment.

Business leverage through technological leadership.

Fair return for our growth and wealth.

Maximization of stakeholder value.

Human resources our valuable assets.

3.7 Kirloskar Group of Companies:

It is made up of 8 major group companies, who are players in major sectors like manufacturing,

oil and gas, power, construction and mining, agriculture, industry and transport each led by the best

engineering and managerial talent in India. In addition to engineering, Kirloskar group also has interests

in civic utility systems and in Information Technology and Communication. These 8 companies form the

core of Kirloskar group. Each company is a renowned name in its own area of operation and is respected

world-wide for its services and products. For us manufacturing is just not limited to our factory premises

and our products. It is also about world class service.

Kirloskar Brothers Limited. (KBL)

Kirloskar Ferrous Industries Limited. (KFIL)

Kirloskar Middle East FZE. (KMEF)

Kirloskar Oil Engines Limited. (KOEL)

Kirloskar Industries Limited. (KIL)

Kirloskar Pneumatic Company Limited. (KPCL)

Kirloskar Proprietary Limited. (KPL)

Kirloskar Ebara Pumps Limited. (KEPL)

Kirloskar group is also a proud partner in joint ventures with companies like Ebara

Corporation, Toyota Motor Corporation, the renowned auto manufacturer. It is headed by Mr. Sanjay

Kirloskar. The Kirloskar group of companies was one of the earliest industrial groups which made a mark

in the engineering industry in India. The group produces pumps, engines, compressors, lathes and

electrical equipments like motors, transformers and generators.

3.7.1 Kirloskar Groups’ Strengths:

Multi-product group offers synergistic solution.

Leadership in all major core sectors in India like power, agriculture, steel coal, chemical process,

petrochemical, sugar, mining, transport, oil and gas, water supply and sewage, defense.

Excellent manufacturing technology and infrastructure.

In-house R&D facility.

Wide dealer and sales network in India and overseas. More than 100 regional area offices and 5

overseas offices.

3.8 Location of Manufacturing Plants:

Bangalore(Govenhalli), Hubli, Tumkur, Mysore, Pune.

The company has established 5 offices as global centre, which are situated at Singapore, Malaysia,

Michigan, Germany, Sharjah.

Sales Office: Ahmedabad, Bangalore, Bhuvaneshwar, Chennai, Cochin, Delhi, Guwahati, Hyderabad,

Indore, Jaipur, Kolkata, Lucknow, Madurai, Mumbai etc.

3.9 Kirloskar Electric’s Products

KEC manufactures following standard and customized range of products for various

applications:

AC Motors

Alternators/AC Generators

DC Machines

Electronics Switchgears

Traction

Transformers

DG Sets

KEC has developed special motors like Canned Pump, Roller Table, Mud Gun and Bell Annealing

Furnace motors.

India’s premier aircraft manufacturing facility in Bangalore has one of the worlds few high power

and outdoor duty vertical DC motor for helicopter blade testing made by KEC.

The prestigious CERN Super Particle Accelerator project tin Geneva uses KECs super conducting

DC Corrector Magnets in large numbers.

The first indigenously designed stealth ships at Mumbai have 4 KECs 1000kw AC generators.

KEC set a record as a company to indigenously design, manufacture and supply AC generator of

400Hz for defence applications.

KEC played a key role in building the entire power supply unit for the first ever indigenously built

missile.

KEC has developed special motors for steel industry and nuclear power plants.

KEC was the first choice for design and manufacture of a 3800 kW Twin Armature drop DC

motor.

With the association of Indian Railways and ABB, KEC has successfully developed and supplied

850kW AC mainline.

Projects

The country’s first cogeneration plant at TISCO has a complete electrical system from KEC.

Installation of the innovative farm project in Tamilnadu and Karnataka is the KEC’s unique

contribution to green power.

3.10 Milestones

India's first satellite tracked

Proud scientists celebrated the successful tracking of India’s first satellite. The

meticulously planned event was held in Hassan, Karnataka. The team had finalized the

specifications for AC generators with Kirloskar Electric Co., taking care of intricate details like

transient loading and transient voltage regulation performance.

Missile test fired

The first ever indigenously built missile was test fired in early 90's, year before; premiere

defense organizations perfected the intricate performance requirement of the power supply

unit. KEC played a key role in building the entire power supply unit. The AC Generators of KEC

were customized for arduous duty.

India explores Antarctica

India was the first developing country to join the Antarctica explorations. The task team

behind this feat had done the homework right. They carried with them specially designed AC

Generators, developed by KEC that worked perfectly in sub zero temperatures.

Rajdhani flagged off

The research wing of India Railways worked with specialists from KEC to design highly

reliable AC Generators that would take that heat, dust, smoke and the acceleration of the bogie

and continue to function giving passengers of the Rajdhani greater speed, greater comfort and

increased safety.

Spotting the enemy on radar

The system and network to spot enemy air-craft on the radar is complex and requires a

variety of power sources. Sensitive and classified projects involve supply of entire power pack

and AC Generators in line with the stringent specifications. KEC has successfully implemented

these projects and KEC's AC Generators are working for over 25 years in critical Defense

applications.

Boom of guns

The anti aircraft guns require reliable power supply as they work under extreme

climates round the year. KEC has supplied these special purpose army generators and AC motors

to keep these special purpose army generators and AC motors to keep the guns booming

without fail.

3.11 International Standards Certificatio

3.11.1 About ISO

ISO is the International organization for Standardization. It is located in Switzerland and

was established in 1947 to develop common international standards in many areas. Its members come

from150 national standards bodies.

3.11.2 About ISO 9000

The term ISO 9000 unfortunately has two different meanings:

It refers to a single standard (ISO 9000) and it refers to a set of three standards (ISO

9000, ISO 9001, and ISO 9004). All three referred to as quality management standards.

ISO 9000 discusses definitions and terminology and is used to clarify the concepts used

by the ISO 9001 and ISO 9004 standards. ISO 9001 contains requirements and is often used for

certifications purposes while ISO 9004 presents a set of guidelines and is used to develop quality

management systems that go beyond ISO 9001.

The ISO 9000 standards apply to all kinds of organizations in all kinds of areas. Some of

these areas include manufacturing, processing, servicing, printing, forestry, electronics, steel,

computing, legal services, financial services, accountings, trucking, banking, retailing, drilling, recycling,

aerospace, construction, exploration, textiles, pharmaceuticals, oil and gas, pulp and paper,

petrochemicals, publishing, shipping, energy, telecommunications, plastics, metals, research, health

care, hospitality, utilities, pest control, aviation, machine tools, food processing, agriculture,

government, education, recreation, fabrication, sanitation, transportation, software development,

consumer products, product design, instrumentation, tourism, communications, biotechnology,

chemicals, engineering, farming, entertainment, consulting, insurance and so on.

\

3.11.3 Certifications of the industry:

KEC was the first Electrical Engineering Company to get ISO 9001 certification in India.

KEC is also the first electrical equipment manufacturing company in India to be awarded with certificate

of providing ‘CE’ Mark. Kirloskar Electric is a pioneer in export of Electrical and Electronic goods for the

last four decades. KEC is a status holder recognized by Ministry of Commerce and Industry, Government

of India, as an Export House.

Bureau Veritas Quality International (BVQI) has certified the Quality Management

System of KEC. We are also first in electrical industry to obtain ISO 9001-2000 certification by BVQI.

The ISO 9001-2000 certificates awarded to: KEC - Bangalore, Hubli, Mysore, Tumkur.

KEMA’ registered quality B.V.Netherlands, notified authority have tested our products

with respect to low voltage directive, EMC (Electromagnetic) directive and MD (Machinery) directive.

CE’ stands for ‘CONFIRMATIVE EUROPEENNE’ and conformity to European standards

meeting basic requirements of Safety, Health and Environment & Protection (SHEC).

KEC is entitled to provide ‘CE Marking’ for AC motors, AC generators and DC machines. ’CE’

marking allows the product un-registered legal access to the European market.

We are proud of having established an independent laboratory duly certified by NVLAP-NIST,

USA for testing of energy efficient 3 phase Induction motors up to 50HP.

Kirloskar Electric Test Laboratory (KETL) is first in India and among few in Asia to get NVLAP

Accreditation.

3.12 Awards/Accolades

Best innovative product for Digital drive by IEEMA at the Elecrama exhibition.

National award for R&D from the Department of Scientific and Industrial Research, Ministry of

Science & Technology, India

DOE Award for excellence in electronics, 1995

FIE foundation award at IMTEX, AC servo drives and motors.

3.13 International Technical Collaboration

AC Induction motors – AEC Germany

AC Generators – AEC Germany

Cast resin transformers – Ocrev, Italy

Inverters – Fuji electric, Japan

Vector control inverters – University of Wuppertal, Germany

UPS – Toshiba Corporation, Japan

CNC Controls – Adolph Nemerical Controls Ltd., U.K

Transformers – Peebles Electric Ltd, U.K

Wind Turbine Generators – Wind Energy Group, U.K.

3.14 Bankers

Bank of Baroda

Bank of India

State Bank of Mysore

State Bank of Travancore

The Hong Kong and Shanghai Bank Ltd.

Bank of Commerce, Kuala Lumpur (Malaysia)

Production Turnover

During the year 2009-10, Company has achieved a turnover (Gross) of Rs.8.24billion. (Previous

year Rs.8.41 billion).

The operations have resulted in a net profit of Rs.21.1 million (previous year Rs.375.9 million).

Production Turnover (in million Rs.)

2009-10 2010-11

Gross Turnover 2256.0 1907.8

Net Profit 375.9 21.1

3.15 Equipment and Machinery

Kirloskar Electrical Ltd has dedicated equipments. KEC Unit V at Mysore houses state-

of-art manufacturing and testing facilities.

The manufacturing facilities include:

Sufficient number of heavy duty winding machines

Jerk free core assembly jigs

Hydraulic press for coil pressing operation

Air drying

Heating oven

Vacuum drying oven

Paint booth

It also has complete testing facilities for carrying out all routine and tests upto 50 MVA, 132 kV

class.

Kirloskar electric has a highly skilled and motivated workforce. The operators at different levels

undergo regular training in various skills, so that we keep abreast of latest practices in manufacturing

process.

At KEC there is an array of sophisticated facilities like Grill winding machines, hydraulic

heating and EOT cranes etc. which are procured for various sophisticated specialized operations as a

part of manufacture.

3.16 Major Customers

Some of the reputed customers of transformers include Siemens, Reliance Energy,

Enercon, Vestas etc.

There are other customers from the field of Sugar Industry, cement industry, steel

industry, defense, railways, computer firms and airports.

3.17 Competitors

The main competitors of KEC are:

1) ABB: is a leader in power and automation technologies. The ABB Group of companies operates

in around 100 countries and employs around 115,000 people.

2) Crompton Greaves: CGL has grown from a single unit making AC industrial motors and ceiling

fans to a multi-dimensional corporation with business interests in many product areas including

transformers, motors, electronic equipments and services. With its 28 manufacturing plants and

countrywide marketing and support network, CGL effectively provides value to its customers.

3) BHEL: is the largest engineering enterprise of India with an excellent track record of

performance. The company now has 14 manufacturing divisions, 8 service centers and 4 power

sector regional centers.

Research Methodology

Management Information system:-

A management information system is a continuing and interacting structure of people, equipment and

procedure to gather, sort, analyze, evaluate, and distribute pertinent timely and accurate information

for use by management decision makers. To improve their planning execution and control.

The four subsystem of the company s management information system are:-

1. Internal Report System

2. Intelligence System

3. Research System

4. Analysis

Through research an executive can get a synopsis of the current scenario which improves his

information base for making sound decision affecting future operations of the enterprise. Research

has its helpful hand in the area of financial planning and control. Financial research involves the

process of systematic collection, compilation, analyses and interpretation of relevant data for

financial planning and control. Research tools are applied effectively for studies involving financial

position of the enterprise and for studying the Investment planning and the techniques used for the

controlling the activities and major function of the company.

Research system:-

For undertaking my project, titled, Study of Inventory Control System and Trend Analysis research

has been conducted in four stages.

Stage I:-Defining the Problem and Research Objective

a. What is the Process of inventory planning and control to classify the different type of inventory to

determine the type and degree of control required for each.

b. Trend analysis which involves the comparisons of the Ratios of the firm over the period of time

which indicate the direction of change in the performance,- improvement, deteriorations and

consistency

Research Objective:-

Material control refers to the managerial functions which are directed to ensure that the required

quality and quantity of material is required at proper time with the minimum amount of capital.

Inventory control is not the wider term than material control. It seems to be a part ofmaterial control.

The first step in inventory planning/control process is the classification of different type of inventory

to determine the type and degree of control required for each. The ABC system is a widely used

classification technique for the purpose. On the basis of the cost involved, the various items are

classified into three categories.

1. A consisting of items with the largest investment Defining the problem and research objective

Developing and collecting the information Analyzing the information Presenting the findings

2. C with relatively low investment, but fairly large number of items

3. B witch stands mid-way between category A and C Category A requires more rigorous control, C

equires minimum attention, and B deserves less attention than A. but more than C.

Order quantity problem:-

Economic order quantity(EOQ)is the second key inventory problem relates to determination of the

size/quantity of the inventory which would be acquired that would minimize the total cost associated

with inventory management.EOQ refers to the level of inventory at which the total cost of inventory

comprising

1. Order/ setup cost.

2. Carrying cost is the minimum.

Since data related to the Order/ setup cost and Carrying cost is confidential with the Mangalam for

that we have not calculated the EOQ.

Order point problem:-

Yet another problem relating to the inventory planning and control is: when should the order to

procure to inventory to be placed? It is that inventory level which is equal to the consumption during

the lead time/procurement time.

Reorder Level = Safety stock + (daily usages * lead time)

Safety stock:

Safety stocks are the minimum additional inventory which serves as a safety margin

to meet an unanticipated increase in usages. This increase may be due to an unusually high

demand or because of uncontrollable late receipt of incoming inventory.

RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to

interpret the financial statement so that the strength and weakness of the firm, as well as his historical

performance and current financial position can be determined. Three types of comparisons are

involved in the ratio analysis which reflects the relationship between the related variables:-

1. Trend analysis.

2. inter-firm comparison

3. Comparison with standards/industry averages.

In this project work the Trend Analysis of the of the Ratios of the financial result of last year with the

Ratios of the same previous year is calculated. This analysis will figure out the performance of the

Mangalam Cement in this year in comparison with the last year. Ratios are broadly classified into

our groups

1. liquidity Ratios

2. Capital Structure or Leverage Ratios

3. Profitability Ratios

4. Activity/Turnover/Efficiency Ratios

Stage II: - Developing and Collecting the Information:-

In these stage efforts was directed towards developing and collecting the data. This stage calls for

determining the type of information needed and the most efficient way to gather the information. A

researcher can get the secondary data or primary or both. This project work strongly depends on the

collection of the secondary information or data. The data is being collected by visiting the different

departments on the basis of the questionnaire prepared and also the data relating to the ratios are

being taken from the financial results published in news paper or on website.

Questionnaire:-

Ques1 What are the raw material used in the production of the cement and segregate it into

the direct or indirect material?

Ques2 What techniques are used for inventory planning and control ABC analysis Economic Order

uantity (EOQ) Perpetual inventory system Setting of Various Level.

Ques3 What is the production of cement and Clinker in past three months from july to

sep?

Ques4 What are the dispatches of cement in the past three months?

Ques5 What is the consumption of raw material for cement production in three months? According

to this questionnaire the effort has been made for collecting the information from the various

department of Mangalam Cement ltd. Like inventory control techniques from stores department and

consumption from the production department and all other information from the sales, accounts and

finance departments. These all information collected is secondary and used for analytical purpose

The data related to the valuation of inventory is confidential with Mangalam Cement for that the

analysis of the valuation technique cannot be done in this project.

Stage III:-Analyzing the Information:-

The next step in the research process is to extract pertinent information and findings from data. We

have attempted to apply some of the advance statistical techniques and decision models in the

analytical research system in the hope of discovering additional information. For analysis purpose we

have compare the techniques used by Mangalam in inventoryplanning with other techniques and

have advised the more suitable technique which can also be implemented.

Stage IV: - Presenting the findings:-

The next step in this process is to find out the useful and fruitful information from the data or the

analytical work done. The researcher should present major findings that are relevant to the major

financial decision facing management. The study is useful when it reduces the amount of uncertainty

facing the financial executive.

Study of Inventory Control System and Trend Analysis

Synopsis:-

1. Technique used for inventory planning and control

2. What is the stock of raw material they maintain during the production?

3. Trend analysis of the financial position of the firm in comparison with the last year

position.

PROJECT WORK

QUES1:-What is the Process of inventory planning and control to classify the different type of

inventory to determine the type and degree of control required for each?

The inventory can be referred as the sum total of the value of the raw material, fuels and lubricant,

spare parts maintenance consumable. Semi-processed material and finished goods stock at any given

point of time. The average business has about 30% of its working capital tied up in inventories. The

technique used by Mangalam Cement with regards to the process of inventory planning and control

to classify different type of inventory is ABC analysis. The concept of ABC analysis we have

discussed in Research methodology. Below given table summarizes how Mangalam Cement treats

the various category item according to there consumption value.

1. Every category has fast and slow moving items.

a. Fast moving inventory is one which is used three or more times in a year

b. Slow moving inventory is one which is used less than 3 times a year

2. Category of inventory according to its valuation.

a. A consist of category where the valuation of inventory is 20000 and above

b. B consists of inventory where the valuation of inventory is between 19999

and 10000.

c. C consists of inventory where the valuation of inventory is less than 10000. Here is the data of the

ABC analysis of the Mangalam Cement for the month of July and Sept.

August31

Limitation of ABC analysis:-

1. ABC analysis, in order to be fully effective, should be carried out with standardization and

codification. A B C

Fast Slow Fast Slow Fast Slow

units Rs. units Rs. units Rs. units Rs. units Rs. units Rs. 528 293.43 376 234 225 11.76 229 30.56

198 15.9 5458 383.13

2. ABC analysis is based on gradation of different items, this gradation may include a lot of

ubjective elements.

3. The result of ABC analysis should be reviewed periodically and updated.

COMPARISON WITH ANATHER TECHNIQUES

Economic Order Quantity (EOQ):-

The correct quantity to buy is the quantity at which the cost of acquisition equals the cost of

possession. This is technically known as the economic order quantity or the reorder quantity.EOQ

helps to achieve the lowest unit cost. The concept of economic order quantity is primarily based on

the consideration of the acquisition cost and possession cost, which has been discus below.

Acquisition Cost:-

In order of determining the EOQ the cost of acquiring the inventory should be known like cost of

placing the order, cost of stocking material and the quantity discounts available. For the item being

purchased. By knowing these we can find out the extra cost of servicing an order. It is the

incremental cost rather than the average cost per order that is important here, because, within limits

the fixed cost of these departments continues regardless of the number of order placed

Possession cost :-

The cost is also referred as the inventory carrying cost. This cost is mostly represented by the items

like the rent of storage, cost of insurance, opportunity cost of tying up with large working capital

with inventory.

Limitation of EOQ

1. The calculation of EOQ is based on the accuracy of the information of the ordering cost and the

carrying cost on which they are based.

2. The concept is based on the assumption that the usage of material is both predictable and evenly

distributed.

3. Acquisition cost and the carrying cost is not easy to be calculated. The data related with the

acquisition cost and the possession cost is not available with the company. So it should not be

feasible for the company to calculate the acquisition cost and the possession cost as a result it is

difficult to calculate the EOQ.

Setting up of various levels

Another important technique of inventory planning and control is the setting the various levels for the

inventory control. Various levels should kept in mined.

Maximum stock level: - Maximum stock level represents the upper limit beyond which the quantity

of any item is not normally allowed to rise. The main object of establishing this limit is to ensure that

unnecessary working capital is not blocked in the stores.

Maximum Level = Reordering Level + Reordering – Minimum Quantity Consumption Mangalam

should also maintain the maximum stock level so that its working capital is not engaged in for the

slow moving items. Investment for the slow moving items is around 7 crore which is a big amount to

invest.

Minimum stock level: - This is the lower limit below which the stock of any item should not allow

to fall. This is also known as safety or buffer stock. The main object behind this limit is to protect

against the stock out of a particular item. Minimum stock level = Reorder Level (Normal Usages *

Average Per period Delivery time)

Reorder level: - reorder level is fixed between the minimum and maximum stock level.

When the purchase of the material reaches at its point the company should initiate for the

purchase of the material. The reorder level is slightly more than the minimum stock level to

guard against Normal Usages and Abnormal delay in supply.

Reorder-level=Maximum Consumption * Maximum period required

During the period for delivery

Danger level: - this is generally fixed below the minimum stock level. Normal stock should

not be below the minimum level. If it reaches the danger level at any point of time, urgent

action for replenishment of stock must be taken to prevent the stock out.

Note: - Due to the lack of data available with the company we cannot able to calculate these

levels because the data with the company are confidential

.

Evaluating Financial Position By Using Ratio Analysis

Introduction:-

1.1 Importance of financial statement analysis in an organization.

In our money oriented economy, Finance may be defined as provision of money at the time

it is needed. To every one responsible for provision of funds, it is problem of securing

importance to so adjust his resources as to provide for a regular outflow of expenditure in

face of an irregular inflow of income.

1. The profit and loss account (Income Statement).

2. The balance sheet In companies, these are the two statements that have been prescribed and there

contents have been also been laid down by law in most countries including India. There has been

increasing emphasis on

(a) Giving information to the shareholder in such a manner as to enable them to grasp it easily. (b)

Giving much more information e.g. funds flow statement, again with a view to facilitating easy

understanding and to place a year results in perspective through comparison with post year results.

(c) The directors report being quite comprehensive to cover the factors that have been operating and

are likely to operate in the near future as regards to the various functions of production, marketing,

finance, labour, government policies, environment in general. Financial statements are being made

increasingly used by parties like Bank, Governments, Institutions, and Financial Analysis etc. The

statement should be sufficiently informative so as to serve as wide an curia as possible. The financial

statement is prepared by accountants based on the activities that take place in production and non-

production wings in a factory. The accounts convert activities in monetary terms to help to know the

position and performance of the enterprise..

1.2 Uses of Financial Statement Analysis.

The main uses of accounting statements for Executives:- To formulate policies. Bankers:- To

establish basis for Granting Loans. Institutions \ Auditors:- To extend Credit facility to business.

Investors :- To assess the prospects of the business and to know whether they can get a good return

on their investments Accountants:- To study the statement for comparative purposes.

Financial Ration Analysis The Tool Kit

3.1 Ration Analysis :-

Ratio Analysis is the process of determining and interpreting numerical relationship based on

financial statement. It is defined as the systematic use of ratio to interpret the financial statement so

that the strength and weakness of a firm as well as its historical performance and current financial

conditions can be determined. A ratio is a statically yard stick that provides a measure of the

relationship between variables and figures. The relationship between variables or figures can be

xpressed in fractions. For Ex. Quotient of current assets by current Liabilities.

Percentages;-

For Rs. Cost of goods sold as percentage of sales. Proportion of numbers:- For Ex. Double the

Turnover in last one year. These alternative methods establish a relationship among variables for the

urposes of financial analysis referred to as Ration Analysis. Ration are simple to calculate and easy to

understand, Financial analysis employee these fools to explain financial statements and performance

of a company.

3.2 Objectives of Ratio Analysis:-

The main objective of Ration Analysis technique is to reveal the relationship in more meaningful

way so as to enable us to draw conclusion from them. The ration analysis thus as a quantitative tool

helps the Analyst to draw answers to questions such as Are the Net Profits Adequate Are the assets

being use efficiently is the firm solvent Can the firm meet its current obligation and so on Thus the

Ratio Analysis help the Owner or Investors: For estimating earning capacity. Creditors: Concerned

primarily with liquidity and ability to pay interest and redeem loan within specified period. Financial

Executive: - Interested in evaluating analytical tool that will measure costs efficiency, liquidity and

profitability, with a view to making intelligent decisions.

Basis of comparison;-

Ratios are relative figures reflecting the relationship between variables. This enables the analysis to

draw conclusion regarding financial operations The use of ratio as a tool of financial analysis

involves their comparison, for a single ratio, like absolute figures, fails to reveal the true position. For

ex, P /E ratio (price /earning ratio for particular scrip) should be compared over a period of time to

get a true picture ofcompany performance. Thus comparisons with related facts is the basis of ratio

analysis s In ratio analysis, four types of comparisons are involved.

1 Trend Ratio

2 Inter firm comparisons

3 Comparisons of items within a single year s financial statement of a firm.

4 Comparisons with standard or plans

Trend ratios:-

Comparison of firm over time i.e. present ratios are compared with past ratios.

Trend ratios indicate the direction of change in performance improvement deterioration or

consistency over the years.

Inter firm comparisons:-

Comparisons of the ratios of a firm with those of other in the same line of business or with the

industry reflect its performances in relations to its competitor. The other type of comparisons may

relate to comparisons of items with in a single year financial statement of a firm and comparisons

with standard or plans.

Types of Ratio

Types of Ratios: -

1. Liquidity ratios

2. Leverage Ratios

3. Turnover Ratios

4. Profitability Ratios

5 Valuation Ratios.

4.1 Liquidity Ratio: -

Liquidity refers of the ability of a firm to meet its obligation in the short run, usually one year or

when the become duration for payment. A proper balance between liquidly and profitability is

required for efficient Financial Management. Liquidity ratios are based on the relationship between

current assets the sources for meeting short-term obligation and current liabilities. The ratios, which

indicate the liquidity of a firm, are: -

1. Current Ratio.

2. Acid test Ratio.

3. Fund-Flow Ratio.

4. Net working capital.

4.1.1 Current Ratio

The current Ratio is the ratio of current liabilities it is calculated as: -

The current assets include cash and Bank Balance, Marketable securities, Bills, Receivable,

Inventories, Loan sand advances, Advances Payment and prepaid expenses.

The current liabilities include creditors, bills payable bank overdraft short-term loans,

outstanding expense & income tax payable, unclaimed divided and proposed dividend.

Te current ratio measures the ability of the firm to meet its current liabilities. The current

assets get converted into cash into the operational cycle of the firm and provide the fund

needed to pay current liabilities. The higher the ratio, to ward off.

4.1.2 Acid Test Ratio: -

The acid test ratio is the ratio between quick current assets and current liabilities.

It is calculated as

Quick assets Acid Test Ratio = Current liabilities

The term quick asset refers to current assets that can be converted into cash immediately.

Quick assets current assets (inventories + prepaid expenses)

It is based on current asset, which are highly liquid. This also called quick ratio. Generally,

an acid test ration of 1:1 considered satisfactory as a firm can easily meet all current claims

4.1.3 Bank to working capital Gap Ratio: -

This ratio establishes a relationship between short-term bank borrowing and working capital gap

It is calculated as Short term bank Borrowing Bank Finance to working Gap Ratio = Working capital

gap Working capital equal to current assets less current liabilities other than bank borrowing. The

tondon committee reports suggest this ratio should not exceed 0.75 even under most liberal scheme

of financing.

4.1.4 Fund flow ratio: -

A dynamic analysis of liquidity call for examination of cash inflow and cash outflow in addition to

the size of the liquid asset balances at a given point of time. The current ratio and acid test ratio are

static in nature. Quick assets Internal measure = Average daily flow of operational cash expenditure

4.2 leverage or capital structure ratios: -

These ratios refer to the use of debt finance long term solvency of the firm can be examined by using

leverage or capital ratios. The leverage ratio or capital structure ratio can be defined as the financial

ratios which throw light on the long term solvency of a firm reflected in its ability to assure the long

term creditors with regards to.

1. Periodic payment of interest during the period of loan.

2. Repayment of Principe on maturity or in predetermined installments at due dates.

Leverage ratio help in assessing the risk arising from the use debt capital. Two type of

ration that is commonly used to analyze financial ration are.

1. Structural ratios.

2. Coverage ratios

4.2.1 Structural ratios: -

Structural ratios are based on the proportion of debt and equality in the financial structure of the firm,

two important coverage ratios are interest converge ratios and fixed charge coverage ratio 5:3:1

Structural ratios

Debt equity ratio

This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debt

equity ratios establishment relation ship between borrowed funds and owner capital to measure the

long term financial solvency of the firm. The ratio indicates the relative proportions of debt and

equity in financing the assets of the firm. It is calculated as follows Debt Debt equity ratio = Equity

The debts side consist of all liabilities (that include short term and long term liabilities) of the firm.

The equity side consists of new worth (plus) preference capital. The lower the debt equity ratio the

higher in the degree of protection enjoyed by the creditors. The debt equity ratio defined by the

controller of capital issue, debt is defined as long term debt plus preference capital which is

redeemable before 12 years and equity is defined as paid up equity capital plus preference capital

which is redeemable after 12 years. The general norm for this ratio is 2:1. on case of capital intensive

industries as norms of 4:1 is used for fertilizer and cement industry and a norms of 6:1 is used for

shipping units.

4.2.2 Coverage Ratios.

These ratios are computed from the information available in the profit and loss account. The

coverage ratios measure the relation ship between what is normally available from operations of the

firm and the claims of the outsider.

The various coverage ratios are

1. Interest coverage ratio

2. Fixed charges average ratio

3. Dividend coverage ratio

Interest coverage Ratio

This ratio is also know as Time interested Earned ratio This ratio measures the debt servicing of

capacity of a firm in so far as fixed interest on long term loan is concerned. Interest coverage ratio

determined by dividing the operating profits or earning before interest and taxes by fixed interest

charges on loans It is calculated as Earning Before Interest &Taxes (EBIT)

The EBIT is used in the numerator of this ratio because the ability of a firm to pay interest is not

affected by tax payment as interest on debt fund in a tax deductible expenses. The ratio apparently

measure the margin of safety the firm enjoys with the respect to its interest burden. A high iterest

coverage ratio implies that the firm can easily meet its interest burden even if EBIT decline. A low

interest coverage ratio results in financial embarrassment when EBIT declines. This ratio is not

appropriate measures of interest coverage because the source of interest payment is cash flow before

interest and taxes. In this view, we may use the modified interest coverage ratio.

Fixed charges coverage Ratio:

This ratio helps in measuring the debt servicing ability adequately because it considers both interest

Repayment of Loan If the denominator of this ratio only the repayment of loan is adjusted upwards

for the tax factor because the loan repayment amount un like interest, is not tax deductible. This ratio

may be amplified to include other fixed charges like lease payment and preference dividend. hus,

This ratio like the interest coverage ratio reveals the safety margin available to the

preference share holder. The higher the coverage the better it is from their point of view.

4.3 Turnover Ratio

Turnover Ratios are also referred to as Activity ratio or Assets. Management ratios. This

ratio establishes relationship between the level of activity represented by sales or cost of

good sold and levels of various assets.

The important turnover ratios are: -

Inventory Turnover ratio

Average collection period ratio

Receivable Turnover ratios

Fixed Asset Turnover ratios

Debtors Turnover ratios

Creditors Turnover ratios

Inventory Turnover ratio: -

This Ratio is computed by dividing net sales by inventory

Thus,

The numerator of this ratio is the net sales for the year and the denominator is the Inventory

balance at the end of the year.

This ratio is deemed to reflect the efficient the management of inventories and vice versa.

This statement need not be always true. A low level of inventory may cause a higher

inventory turnover ratio.

It might be argued that the inventory turnover ratio may be

Cost of Goods Sold = Sales -Gross Profit

Average Inventory = Average of (Opening +Closing Stock)

This ratio also indicates how fast inventory is sold

A high ratio is good from the viewpoint of liquidity and vice versa. Average collection

period.

The receivable figure of the ratio generally represents the receivables balance at the end of

the year. When sales the highly seasonal, the average of receivable figure at the and of

each month or each season can be used and when sales growth is high the average of the

beginning and ending receivables balances are to be used. An average sale per day in the

denominator is simply the sales of the year divided by 365.

The average collection period should be compared with firm credit terms to judge the

efficiency of receivables management.

As a rule of thumb, the average collection period should be not exceeding 1½ times the

credit period.

Receivable Turnover ratios

The Receivable Turnover ratio measures the relationship between credit sales during

a particular accounting period and the average receivables (sundry debtors) outstanding

during the period.It is expressed in two formsAverage collection period after calculating daily sales

(sales day) and dividing accountsreceivable by sales per day.The receivables figures used is the

receivables figures at the end of the period .

The receivables turnover ratio and the average collection period are a follows.

The shorter the average collection period the higher the receivables turnover ratio.

The net sales indicate the net sales for the period and fixed assets are the balance in the net

fixed assets account at the end of the year.

This ratio measures the efficiency with which fixed assets are employed. If the fixed assets

turnover ratio is high it indicates the there is a high degree of efficiency in assets utilization.

Similarly if the ratio is low if reflects in efficient use of assets.

It is important to note that when the fixed assets of the firm are old and substantially

depreciated, the fixed turnover ratio tens to be high because the denominator ratio is very

low.

Total assets turnover ratio:-

The main objectives of the total assets turnover ratio are to measure how efficiency assets

are employed. It is a kind to the out capital ratio in economic analysis.

Total assets simply the balance sheet total at the end of year.

If the total assets turnover ratio is high it implies that there is high degree of efficiency in

assets utilization and vice-versa.

Debtor s turnover ratio: -

The debtor s turnover ratio is determined by dividing the net credit sales by average debtors

outstanding during the year.

Therefore

Debtors turnover ratio = Net credit sales

Average debtors

Here net sales consist of gross credit less returns. Average debtors are simply average of

debtors at the beginning and at end of the year.

The main function of this ratio is to measure how rapidly debts are collected.

A high ratio is indicative of shorter time lag between credit sales and cash collection/

A low ratio indicates that debts are not being collected rapidly.

Creditor turnover ratio:-

Creditor turnover ratio is a rate between net purchase and average amount of creditor out

standing during the year.

Creditors turnover ratio = net credit purchases

Average of creditors

Net credit purchase = gross credit

Purchase less returns to supplier

Average creditors = Average of creditors outstanding at the

Beginning and at the end of the year.

A low turnover ratio reflects liberal terms granted by suppliers, while a high turnover ratio

shown that accounts are settled rapidly.

The creditor s turnover ratio is an important tool as a firm can reduce its requirement of

current assets by relying on suppliers creditors.

The intent to which trade creditors are willing to wait for payment can be approximated by

the creditors turnover ratio.

4.4 Profitability Ratios:-

Profitability is measured of efficiency and the search for its provides an incentive to achieve

efficiency.

Profitability the final results of business operations mainly the owners and management are

in the financial soundness of the firm.

The management of the firm is eager to measure its acting efficient. Similarly the owners

invest their funds with the expectation of reasonable return. Thus it all depends on the profit

for the ensure operating efficiency to the management and ensure reasonable return to the

owners.

1. Profit margin ratio (gross and net)

2. Expenses ration or operating ratio profitability ratios in relation to investment are.

3. Return on investment

4. Return on assets

5. Return on equity

6. Return on capital employed.

7. Net income to total assets ratio.

4.4.1 Profit margin ratio:-

Profit margin ratio measures the relationship between profit and sales; there are two profit

margin ratios

Gross margin ratio

Net margin ratio

Gross profit margin ratio: -

Gross profit can be defined as the difference between net sales and cost of goods

sold.

Gross margin profit ratio is also known as gross margin gross profit margin ratio is

calculated by dividing gross profit by sales.

Gross profit margin ratio = gross profit

Net sales

Net sales-cost of goods sold.

The gross profit margin ration shows the margin left after meeting manufacturing cost. The

ratio also measures.

The efficiency of production as well as pricing. The Gross profit to sales is a sign of good

management s as it implies that the cost of production of the firm is relatively low. A high

ratio may also imply of a higher sales rise without a corresponding increase in the cost of

goods sold.

Whereas a low gross profit margin in a danger signals, warranting a careful and detailed

analysis of the factors responsible for the same.

The main contributing factors responsible for low ratio maybe high cost of production as

will as inefficient utilization of fixed as well as current assets a low selling price resulting

from severe competition, inferior quality. Lock of demand etc.

Net Profit Margin Ratio:

The Net Profit Margin Ration determines the between Net profit and sales of business firm.

This relationship is also known as net margin. This ratio shows the earning left for

shareholder (both equity and preference) as percentage of Net sales.

Net Margin Ratio measures the over all efficiency of production, Administration selling,

Financing and pricing.

Thus,

Net Profit

Net profit Margin Ratio: - -------------------

Net Sales

A high Net profit Margin indicates adequate return to the owners as will as enable a firm to

withstand adverse economic conditions when selling price is decanting, cost of production

is rising and demand for product is falling.

A low Net Profit Margin has opposite implications. A firm with low net profit margin can

earn a high rate of return on investment it has a higher inventory turnover.

Jointly considering gross and net profit margin provides a valuable understanding of the

cost and profit structure of the firm and enables the analyst to identity the source of business

efficiency of inefficiency.

4.4.2 Profitable Ratios in regard to Investment

The profitable ratios can also be computed by relating the profits of a firm to its

investments. These ratios are popularly termed return on investment (ROI).

There are three different concept of investment in vogue assets. Capital employed and

Shareholders Equity.

Based on each of the above there are three board categories of ROI s

They are

Return on Assets

Return on Capital Employed

Return on Shareholders Equity.

Return on Assets: -

Return on Assets ration measure the profitability ratio in terms of relationship between Net

Profit and Assets. There are various approaches possible to define net profit and Assets.

The concept of Net profit may be

Net Profit after Taxes.

Net Profit after Taxes plus Interest

Net Profit after Taxes plus Interest minus Tax Saving.

Assets may be variants of return on assets are

The Return on Assets based ration would be an under estimate as the interest paid to the

creditor is excluded from the Net Profit.

The above may not provide correct results for inter firm comparison. As a measure of

operating performance, the above equations should be substituted by the following: -

This equation correctly reports about the operating efficiency of firms if they all are equity

financed. The main purpose of return on assets is to measure the profitability of the total

funds Investment of a firm.

Return on Capital Employed (ROCE):-

Return on capital employed is same as return on assets except for the difference that the

profits are related to the capital employed. In this ratio the term capital employed refers to

the long term funds supplied by the creditors and owners of the firms.

The return on capital employed can be computed \calculated in two ways firstly it is equal

to non-current liabilities (Long Term Liabilities) plus owner s equity. Secondly it is

Average Total Capital Employed-Average Intangible Assets

In the ratio is compared with similar firms, with industry average and over time would

provide sufficient insight into how efficiently the long term funds of owners and creditors

are being used.

The higher the ratio, the more efficient in used of the capital employed.

Return on Equity:-

The return on equity the profitability of equity funds invested in the firm. Return on equity

is regarded as very important measures because it reflects the productivity of the ownership

(or risk capital employed in the firm)

Thus

Equity Earning

Return on Equity = -------------------

Net Worth

Equity earning of this ratio is equal to profit after tax less preference divided

Net worth includes all contribution made by equity shareholder (paid up capital + reserve &

surplus)

This ratio is called as return on net worth.

This ratio is influenced by several factors return on investment, debt equity ratio average

cost of Debt. Funds and tax rate.

Return on investment:-

The return on investment is a measure of business performance, which is not affected by

interest charges and tax payments.

Thus

Return on investment = EBIT

Total assets

Numerator represent pre-earning belonging to all sources of finance, total assets represent

total financing.

This ratio focuses on operation performance and obstructs away the effect of financial

structure and tax rate. It is eminently suited for inter firm comparisons. This ratio is

internally consistent.

Net income to total assets ratio: -

The main purpose of net income to total assets ratio is measure how efficiency the capital is

employed.

Net income of total assets ratio = Net income / Earning Per

Profit Share

The market price per share may be the price prevailing on a certain day or preferably the

average price over a period of time.

The earning per share (EPS) is simply profit after tax divided by number of outstanding

equity shares. The PE ratio is a summary measures & which primarily reflects the following

factors growth, prospects, risk characteristics, share holders, orientation, corporate image

and degree of liquidity.

Yield: -

Yield: - Divided + price change

Initial price

This may be split into two parts

Divided Price change

+

Initial yield divided yield Initial price capital gain/loss yield

Generally companies with low growth prospects after a high divided yield and low capital

gains yield, companies with superior growth prospects after a low divided yield and high

capital gains yield.

Market value to book value ratio: -

Market value per share

Market value to book value ratio =

Book value per share

This ratio reflects the contribution of a firm to the net wealth of the society. If the market

value to book value ratio is equal to 1. All the three ratios return on equity, earnings per

share (which is inverse to PE ratio) and total yield are equal

If the ratio is say 2 the firm has created a net wealth of one rupee for every rupees invested

in it. If the ratio is equal to 1 it implies that the firm has neither contribution nor detracted

from the net wealth of the society.

Application of Ratio Analysis Techniques

ConclusionCONCLUSION

Conclusion drawn from the study of Inventory control system in Mangalam Cement ltd.

Mangalam Cement has adopted ABC analysis for inventory planning. And from that

we come to know that that company engaged its 10 core in the inventory in stock and from

that 7 corers in slow moving items which is been used less than three time a year. We

suggest bringing that inventory to some lower amount so that its working capital may get

stronger than before.

We suggest that the company should set maximum and minimum level for its

inventory so that its investment should become less in the inventor

There is no acquisition cost and the possession cost calculated by the company for

that the calculation of economic order quantity (EOQ) is not possible. So it should be

difficult for the company to calculate the reordering level for that company has to bear the

extra cost other than fixed cost like the ordering charges, transportation charges etc.

Zero level inventory system is also the most efficient way of maintaining the proper

inventory but Mangalam Cement cannot able adopt this because it is in the remote area and

60 km away from kota so that it will take time to get the item from there and some

important and costly equipments are to be exported. So it is not feasible for the company to

adopt zero level inventory system.

In the end I suggest Mangalam Cement that it should set the various levels for its

inventory planning like the maximum level, minimum level and danger level. From that the

investment in the inventory is being lowered.

Now a day through the advance technology of computers and internet. The work of setting

levels for the inventory has been easier through efficient Management Information

System (MIS).

The conclusion drawn from the analysis of ratio is the previous chapter is presented in the

following section

6.1 Return on Investment

Mangalam Cement ltd return on assets (ROA) return on total capital employed and return

on shareholders equity have increased considerably from 1995-96 to 2004-05. Return on

assets (ROA) return on total capital employed and return on shareholders equity how

increased by about 35% from 1995-96 to 2004-05 indicating an excellent overall

performance by the management.

This ROA is comparable to some highly profitable companies like the Colgate Palmolive

Ltd. Hindustan Lever Ltd who are active in the consumer product business Rajasthan Spg.

Wvg. Mills is into highly specialized industrial products hence their achievement in return

on investment should set p example for other to follow: -

6.2 Turnover Ratios

The turnover ratios show fairly good performance by the company. The inventory turnover

ratio (approx. 4 times) indicates good inventory management. The average collection period

(varies between 50-70 days with an expectation in year 2004-05 indicate a liberal credit

contract. It does not border a cash and carry system. The fixed asset turnover ratio indicates

a low profitable deployment of fixed assets (approx. 2 times) the capital employed to

turnover ratio indicates fair utilization of capital employed.

The average collection period should to exceed1.5 times the credit period companies like

Colgate Palmolive has a average collection period of 15 days compared to this Mangalam

Cement ltd. should bring its average collection period. The company should concentrate on

profitable deployment of fixed assets.

6.3 Liquidity Ratio

The current ratio (approx. 1.5) and quick ratio (approx. 1.3) indicates an effective

liquidity management by Mangalam Cement ltd. A high current and quick ratio indicates

that the company can meet its current obligation liabilities.

The high liquidity ratios reflect a very strong short term financial structure. Mangalam

Cement ltd. should maintain current assets in the form of receivables and cash rather than in

inventory so as to meet its current obligation efficiency.

6.6 Profitability Ratio

Mangalam Cement ltd. Gross profit Margin ratio and the net profit margin ratio on an

average of is about 35% and 10% respectively. These figures and during the last three

financial years are truly remarkable. The gross profit margin ratio and the net profit margin

ratio have increased during 1995-96 to 2004-05 in spite to low profit suffered by the

company during 1995-96 which indicates that company heavy capital expenditure for

expansions of spindles and looms by the company.

It may by noted as Net profit Margin has Been around 15%in the last three financial years

reflecting a better earning for the shareholders.

6.7 Leverage Ratio

The high Debt equity, debt assets and debt to total capital ratio indicates a moderate

existence of equity and capital employed these ratio indicate that the company has a low

geared capital structure Mangalam Cement ltd. is able to maintain an average interest

coverage ratio indicating that the firm enjoys the margins of safety with the respect to this

interest burden.

The company maintains a modest interest coverage ratio so that it can easily meet its

interest burden even if EBIT suffers a decline.

Considering the above ratios for a period of time during 1995-96 and 2004-05, it is clear

that Mangalam Cement ltd. has achieved an overall efficiency in production Administration

Selling, Financing, Pricing and Tax Management.