Working Capital

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INTRODUCTION

The total capital employed in a business organization can be categorized as fixed

capital and working capital. The fixed capital that part of the funds, which is invested in

current assets.

The investment in fixed assets is represented by land and buildings (for factory, office go

down and stores), equipment such as machinery, furniture and fixtures, intangible assets in

the form of patents and goodwill etc. To employ these fixed assets gainfully current assets

are required. Current assets consists of raw materials, working progress, finished goods,

stores and spares accounts, receivables, cash in hand and at bank and marketable

securities.

Balanced working capital position:

The firm should maintain a sound working capital position. It should have

adequate working capital to run its business operations. Both excessive as well as

inadequate working capital positions are dangerous from the firm’s point of view.

Excessive working capital means idle funds, which earn no profits for the firm. Paucity of

working capital not only impairs the firm’s profitability but also results in production

interruptions and inefficiencies.

WORKING CAPITAL MANGEMENT

Working capital management forms the inching of every business. As Gilberth

Harold puts the problems. Unfortunately, there is so much disagreement among

financiers, accountants, business men and economists as to the exact meaning of the term

Working Capital.

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Definition of Working Capital:

Working Capital or Circulating Capital indicates circular flow of funds in the

routine activities of business.

Working Capital can be defined as “ Any acquisition of funds which increases the

current assets, increases working capital also, for they are one and the same”

-Bonnevile.

The current assets are cash, marketable securities, accounts receivable and

inventory.

The current liabilities are those liabilities which are intended at their inception to be

paid in the ordinary course of business such as bills payable, bank overdraft and

outstanding expenses.

The goal of working capital management to manage the firms current assets and

current liabilities in such a way that a satisfactory level of working capital is maintained.

This is because if the firm cannot maintain a satisfactory level of working capital, it is

likely to become insolvent and may even be forced into bankruptcy.

IMPORTANTCE OF WORKING CAPITAL

The source of any enterprise depends on the proper management of working

capital aims at protecting the purchasing power of assets and maximizing the return on

investments, sales expansion, dividend declaration, plant expansion, increased salaries and

wages, rising price level etc., but added strain on working capital maintenance.

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CONCEPTS OF WORKING CAPITAL

There are two concepts of Working Capital

1 Gross Working Capital

2 Net Working Capital

Gross Working Capital:

It refers to the company’s investments in Current assets. Current Assets are the

assets which can be converted into cash within an accounting year and include cash, short-

term securities, debtors, bills receivables and stock.

Net Working Capital

It refers to the difference between current assets and current liabilities. Current

Liabilities are those claims of outsiders, which are expected to mature for payment within

an accounting year and include creditors, bills payable, and outstanding expenses.

Networking Capital can be positive or negative.

A positive net working capital will arise when current liabilities are in excess of

current liabilities. A negative net working capital occurs when current liabilities are in

excess of current assets.

The two concepts of working capital – gross and networking capital are not

exclusive, rather they have equal significance from management view point, the gross

working capital concept focuses attention on two aspects of current assets management..

1 Optimum investment current assets and

2 Financing of current assets.

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Net working capital being the difference between current assets and current liabilities .

It is a qualitative concept. It aims at

1 The firms liquidity position and

2 Financing of current assets

3 Suggests the extent to which working capital needs may be financed by permanent

sources of funds.

The consideration of the level of investment in current assets should avoid two

danger points.

Current assets have excessive and inadequate investments. Investment in current

assets should be just adequate, not more not less to the needs of the business firm.

Excessive investment in current assets should be avoided because it impairs the firm’s

profitability an ideal investments nothing. On the other hand inadequate amount of

working capital can threaten solvency of the firm because of its inability to meet its

current obligations.

CHARACTERISTICS OF CURRENT ASSETS

In the management of working capital two characteristics of current assets must

born in mind.

1 Short-term span

2 Swiftly transformation into other assets form

Current assets have a short life span. Accounts receivable may have a life span of

30 to 60 days, inventories may be held for 30 days to 100 days and cash may be held idle

for week or two.

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Each current asset is swiftly transformed into other assets form. Cash is used for

acquiring raw materials.

Raw materials are untransformed into finished goods (this transformation may

involve several stages of work in progress), finished goods, generally sold on credit, are

converted into accounts receivable and finally, accounts receivables, on realization

generates cash.

The need for current assets arises because of the operating cycle. The operating

cycle is a continuous process and therefore, the need for current assets is felt constantly.

But the magnitude of current assets needed in not always the same, it increases and

decreases over time.

However, there is always a minimum level of current assets which time is

continuously required by the firm to carry on its business operations.

This minimum level of current assets is referred to as permanent or fixed working

capital. Depending upon the changes in production and sales, the need for working capital,

over and above permanent working capital will fluctuate.

The extra working capital needed to support the changing production and sales

activities is called fluctuating or variable or temporary working capital.

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DETERMINANTS OF WORKING CAPITAL

There are no set rules to determine the working capital requirements of firms. A

large number of factors, each having a different importance, influence working capital

needs of firms. Therefore, an analysis of relevant factors should be made in order to

determine total investment in working capital. The following is the description of factors,

which generally influence the working capital requirements of firms.

NATURE AND SIZE OF BUSINESS:

The size of business also has an important impact on its working capital needs. Size

may be measured in terms of the scale of operations. A firm with large scale of operations

will need working capital than small term. The working capital requirements of a firm are

basically influenced by the nature of business trading and financial firm has a very less

investment infixed assets, but require a large sum of money to be invested in working

capital.

TECHNOLOGY AND MANUFACTURING POLICY

The manufacturing cycle starts with the purchase and use of raw materials and

completes with the production of finished goods. Longer the manufacturing cycle, larger

will be the firms working capital requirements. An extended manufacturing time span

means a larger tie-up of funds in inventories. Thus if there are alternative technologies of

manufacturing a product, the technological process with the shortest manufacturing cycle

may be chooses.

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FIRMS CREDIT POLICY

The credit policy of the firm affects the working capital by influencing the level of

debtors. The credit term to be granted to customers may depend upon the forms of the

industry to which the firm belongs.

AVAILABILITY OF CREDIT

Creditors also affect the working capital requirements of a firm. A firm will need

less working capital if liberal credit terms are available to it.

OPERATING EFFICIENCY

The operating efficiency of the firm relates to the optimum utilization of resources

at minimum costs. The firm will be effectively contributing in keeping the working capital

investment at a lower level if it is efficient to controlling operating costs and utilizing

current assets. The use of working capital is improved and pace of a cash conversion cycle

is accelerated with operating efficiency.

BUSINESS FLUCTUATIONS

Most firms experience seasonal and cyclical fluctuations in the demand for their

products and services. This business variation effects the working capital requirements

especially the temporary working capital requirement of the firm. When these is an

upward swing in the economy, sales will increase and vice-versa.

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PRODUCTION POLICY

A steady production policy will cause inventories to accumulate during the off-

season periods and the firm will be exposed to greater inventory cost and risk. Thus, if the

cost and risks of maintaining a constant production schedules are high, the firm may adopt

the policy of varying its production schedules in accordance with the change in demand.

GROWTH AND EXPANSION ACTIVITIES

The working capital needs of firm increases it growth in terms of sales of fixed

assets. If is difficult to precisely determine the relationship between volume of sales and

the working capital needs. The critical fact however is that the need for increased working

capital funds does not follow growth in business activities but precedes it.

PROFIT MARGIN AND PROFIT APPROPRIATION

Firms differ in their capacity to generate profit from business operations. Some

firms enjoy a dominant position, due to quality product or good marketing management or

monopoly power in the market and earn a high profit margin. Some other firms may have

to operate in an environment of intense competition and may earn low margin of profits. A

high net profit margin contributes towards the working capital pool. In fact the net profit is

a source of working capital to the extent it has earned in cash.

DIMIENSIONS OF WORKING CAPITAL MANAGEMENT

Working Capital Management refers to the administration of all aspects of current

assets namely cash, marketable securities, debtors and are many aspects of working capital

management, which makes it an important function of the financial manager.

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Empirical observations show that the financial managers have to spend much of

their time to the daily internal operations, relating to the current assets and current

liabilities of the firms. Investments in current assets represents a very significant portion

of the total investment in assets. It is particularly very important for small firms to manage

their current liabilities in financing current assets is far significant incase of small firms, as

unlike large firms, the difficulties in raising long terms finances.

There is a direct relationship between sale and working capital needs. As sales

grow, the firm needs to invest more in inventories and book debts. These needs become

very frequent and fast when sales grow continuously.

It may thus be concluded that all precautions should be taken for the effective and

efficient management of working capital. To decide the levels and financing of current

assets, the risk return implications must be evaluated.

FINANCING CURRENT ASSETS

The firm must find out the sources of funds to finance its current assets. It can

adopt different financing policies. Three types of financing be distinguished as follows.

1 Long term financing

2 Short term financing

3 Spontaneous financing

The important sources of long-term financing are shares, debentures, preference

shares, retained earnings and debt from financial institutions.

Short term financing refers to those sources of short credit that the firm must

arranged in advance. These sources include short term bank loans, commercial papers and

factoring receivable.

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Spontaneous financing refers to the automatic sources of short term funds. The

major sources of such financing are trade credit ( creditors and bill payable)and

outstanding expenses. Spontaneous sources of finance are cost free.

TECHNIQUES FOR THE MANAGEMENT OF WORKING CAPITAL

In this section a few important techniques of working capital are presented. All

techniques of working capital management can be divided into two parts. Techniques

relevant for the management of working capital as a whole and the techniques relevant for

the management of each component of working capital cash account receivable and

inventory.

Techniques relevant for the management of working capital

One of the very important issues in the management of working capital is to decide

how much to invest in current assets. The investment in current assets is generally

influenced by sales volume. Therefore before firm is able to decide about he quantum of

working capital. It should be forecast its feature sales volume accurately or near

accurately. This is equal true about the components of working capital as well.

TIME SERIES MODELS

The time series models are based on the assumptions that the past trend will

continue repeating in the future. In the construction of tikes series, models, historical

recordings of the factors to be forecasted is taken into the account and their pattern and

the relationship over the time is established on the basis of the pattern so established future

forecast is made.

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ECONOMETRIC MODELS

The models here are the equations consisting of dependent and independent

variable. These equations attempt to establish the nature of relationship between variables

enabling the analysts to study the value of the dependent variable on the basis of the value

of the independent variable. These models are sophisticated, very useful techniques.

WORKING CAPITAL FORECASTING TECHNIQUES

Having determined the sales accurately, steps can to taken to forecast working

capital and the various components of it. Working capital requirements can be, determined

into two.

1 Percentage Sales method.

2 Operational Cycle method.

NEED OF THE STUDY

The need for working capital to run the day-to-day business activities cannot be

overemphasized. We will hardly find a business firm, which does not require any amount

of working capital. We know that a firm should aim at maximizing the wealth of its

shareholders. In its endeavor to do so, a firm should earn sufficient return from its

operations. The firm has to invest enough funds in current assets of generating sales.

Current assets are needed because sales do not convert into cash instantaneously. There is

always an operating cycle involved in the conversion of sales into cash.

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OPERATING CYCLE:

There is a difference between current assets and fixed assets in terms of their

liquidity. A firm requires many years to recover the initial investment in fixed assets such

as plant and machinery or land and buildings. Investment in current assets such as

inventories and debtors is realized during the firms operating cycle which is usually less

than a year.

Operating cycle is the time duration required to convert sales, after the conversion

of resources into inventories into cash. The operating cycle of a manufacturing company

involves three phases acquisition of resources such as raw material, labour, power and fuel

etc., manufacture of product which included conversion of raw material into work-in-

progress into finished goods, sale of the produce either for cash or on credit create

accounts receivable for collection.

Stocks of raw material and work-in-process are kept to ensure smooth production

and to guard against non-availability of raw material and other components. The firm

holds stock of finished goods to meet the demands of customers on continuous basis and

sudden demand from some customers. Debtors are created because goods are sold on

credit for marketing and competitive reasons. Thus, a firm makes adequate investment in

inventories and debtors, for smooth, uninterrupted production and sale.

Fig:

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The total of inventory conversion period and debtors conversion period is referred

to as gross operating cycle. The difference between operating cycle and payables deferral

period is net operating cycle. Net operating cycle is also referred to as cash conversion

cycle.

Statement of the Problem

In order to maintain flows operations every firm needs certain amount of current

assets. For example cash is required to pay for expenses or to meet obligations for

services received or goods purchased etc, by a firm. On the identical plane inventories are

required to provide the link between production and sale. Similarly accounts receivable

generate when goods are sold on credit.

Needless to mention cash, bank, debtors, bills receivables closing stock (including

raw materials, work in process, finished goods), prepayments and certain other deposits

and investments which are temporary in nature present current assets of a firm.

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Economists like Mead, Mallet, Backer and Field are of the opinion that the whole

of these current assets forms the working capital of a firm. And this concept of working

capital of a firm is frequently termed as gross working capital, in the area of financial

management.

Excessive working capital is bad and causes following:

1. It results in unnecessary accumulation of inventories. Thus, chances of inventories

mishandling, wastage, theft and losses increase.

2. It is an indication of defective credit policy and slag credit collection period.

Consequently higher incidence of bad debts results, which adversely affects profits.

3. It makes management complacent, which generates into managerial inefficiency.

4. Tendencies of accumulating inventories tend to make speculative profits grow.

This may tend to make divided policy liberal and difficult to cope with future when

firm is unable to make speculative profits.

Inadequate working capital is also bad and causes following:

1. It stagnates growth. It becomes difficult for the firm to undertake profitable

projects due to inadequacy of funds.

2. It becomes difficult to implement operating plans and achieve firms profit target.

3. Operating inefficiencies creep in and it becomes difficult even to meet day-to-day

commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus

the firms profit would deteriorate.

5. Paucity of working capital funds render the firm unable to avail attractive credit

opportunities.

6. The firm losses it reputations when it is not in a position to honor its short-term

obligations. As a result, the firm faces tight credit terms.

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An enlightened management should therefore maintain the right amount of working

capital on an continue basis, only then a proper functioning of operations will be

ensured.

OPTIMUM WORKING CAPITAL

Determining the optimal level of current assets involve a trade-off between costs

that rise with current assets and costs that fall with current assets. The former are referred

to as carrying cost and lather as shortage costs carrying costs are mainly in the nature of

the cost of financing a higher level of current cost are mainly in the nature of the cost of

financing a higher level of current assets. Shortage of cost is mainly in the form of

disruption in production schedule, loss of sales, and loss of customer goodwill. Therefore,

the optimal levels of current assets are described as the total costs (The sum of carrying

cost and shortage costs) are minimized at that level. It has been explained in the following

diagram.

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GENERAL INTRODUCTION

Cement the word as per OXFORD as modern it is commonly used is used is any

substance applied soft for sticking things. But cement means is most vital and important

for material for modern constructions. It is a “material which sets and hardness when

mixed with water”. Cement is basically used in construction as a binding agent. In ancient

times, clay bricks and stonnes have been used for construction works.

The Romans were using a binding or cementing material that would harden under water.

The First Systematic efforts were made by “SMEATION” who under took the erection of

new lighthouse in 1756.He observed that the production obtained by burning limestone

was the best cementing material work under water.

After fifty year UICAT French chemist, produced hydraulic cement by burning finely

ground clay and used it in the paste. Cement invented by JOSEPH ASPDIN in 1824, since

hardened cement paste resembled Portland stone in England in colour, he named it as

“Portland cement” a name which has carried over the century. Portland cement was

manufactured in United States of America in 1975.

In India South Industries, Madras, production cement for the first time in 1904.This unit

has capacity of 30 ton/day was based on lime from sea.

By 1913, however three units started their operation with a combined installed capacity of

75,000 tonnes per annum. In 1914,indigenous production fess for short domestic demand

necessitating an import of 165723 tonnes shipment difficulties and foreign trade relation

during the first world war year acted as a catalyst for the development of indigenous

industry, and by 1924 the total installed capacity grew to 559800 tonnes per annum.

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In 1963, all the cement companies with exception of SONE VALLEY PORTLAND

CEMENT COMPANIES LIMITED merged to from the ASSOCIATE CEMENT

COMPANIES LIMITED. This has more facilitated a cost of reduction as well as

uniformity in quality. By 1947 the installed capacity of the industry raised to 2.2 million

tonnes per annum.

After partition five of the cement production units in the country went to Pakistan and

total installed capacity of the eighteen units that remained in India was 1.5 million tonnes

per annum. This increased to 3.8 million tonnes by 1950-51.

In the three decades (1950-80).The capacity expansion was between 7 and 8 million

tonnes per decade. The targets set in respect of additional capacity generation was released

with the impetus given by the partial decontrol announced in 1982, several unit lockup

project for expansions of capacity and modernization which contributed to words

increased production.

DEFINITION OF CEMENT

Cement may be defined, as “it is a mixture of calcium silicate and aluminates, which have

the property of settings and hardening under water the amount silica, alumina who is

present in each crust are sufficient to combine with calcium oxide (Cao) to from the

corresponding calcium silicate and aluminates”.

Classification of cement

Cement is three types 1. Puzzolantic Cement

2. Natural Cement

3. Portland Cement

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Pozzolantic Cement

It Consists of mixtures of silicate calcium and aluminum. Shows the hydraulic property

when it is in the form of powder and being mixed with suitable proportion when it is in the

form of powder and bong mixed with suitable proportion of lime. The rate of hardening is

much slower and the comprehensive strength developed is about a half of Portland cement

it is found more resistance to the chemical action than others.

Natural Cement

This is natural occurring material, It is obtained from cement rocks .These cement rocks

are claying limestone containing solicits, aluminates of calcium. The selling property of

this cement is more than the Portland cement but is comprehensive strength is half of its.

Portland Cement

1.Ordinary Portland cement

2.Rapid hardening Portland cement

3.Lows heat cement

4.White or coloured cement

5.Water proof Portland cement

6.Portland cement

7.Portland puzzling cement

8.Sulphate resisting cements

9.Oil-well cement.

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OBJECTIVES OF THE STUDY

The following are the objectives of the study

1. To present the conceptual framework relating to management of working capital.

2. To know the inventory management practices of Kesoram Cement.

3. To assess the receivables management practices of Kesoram Cement.

4. To Offer suitable suggestion for the efficient management of working capital in

Kesoram Cement. Keeping in view in the adequacies highlighted by the study.

5. To give profile of the organization (Kesoram Cement).

6. To study on working capital management in the organization.

METHODLOGY

The proposed study is carried with the help of secondary sources only. Annual reports of

the company and other journals, magazines and manuals published by Kesoram Cement

Company. Some of the information related to topic was gathered from website related to

Kesoram Cement Company.

LIMITATIONS OF THE STUDY

1. Since it will not be possible to conduct a micro level study of all Cement Industries

in Andhra Pradesh, the study is restricted to Kesoram Cement only.

2. The data is limited due to that the study is focused on financial performance

through comparative analysis and ratio analysis only in Kesoram Cement.

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SCHEME OF PRESENTATION

Chapter 1. : Deals with Introduction, Need, Objectives, Methodology, Limitations,

Scheme of Presentation .

Chapter 2 : Deals with Profile, History, Growth, Turnover, Organisational Chart.

Chapter 3 : Deals with Focus on theoretical Framework of Working Capital

Management, Introduction to Working Capital, Introduction to

Chapter 4 : Deals with Comparative Statement of Working Capital from 2002-2003

to 2007-2008, Liquidity Ratios from 2002-03 to 2007-08, Quick Ratios

from 2002-03 to 2007-08, Leverage Ratios from 2002-03 to 2007-08,

Profitability Ratios from 2002-03 to 2007-08 and Solvency Ratios from

2002-03 to 2007-08.

Chapter 5 : Deals with Annexure and Bibliography

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CHAPTER – IIINDUSTRY PROFILE

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PROFILE OF THE INDUSTRY

Kesoram cement industry is one among the industrial gains in the country, today serving

the nation on the industrial front. Kesoram Industries Ltd has a chorused and eventful

history dating back to the 1920’s. When the Industrial house of Birla acquired it with only

a textile mill under it’s banner in 1927 it grew from strength to strength and spread its

activity to newer fields like rayon, pulp, transparent paper, spun pipes, refractories and

other products.

The Government of India de-licensed the cement industry in the year 1966 with a view to

attract private entrepreneurs to argument the cement production. Kesoram rose to the

occasion and decided to setup few cement plants in the country.

Kesoram cement industry in corporate by the promoter of Birla group came up with a

cement plant at Basantnagar located in Karimnagar dist of A.P which is 8 KM away

from Ramagundam railway station linking Chennai and New Delhi. The capacity of the

plant was 8.26 Lakhs tonnes per annum.

The company first unit at Basantnagar with a capacity of 2.5 Lakh tonnes in corporation

humbolts, suspension preheater system was commissioned during the year 1969.

The second unit was setup in 1971, which added 2.00 Lakh tonnes capacity. The third unit

with a capacity 2.5 Lakh tonnes went to stream in 1978. It was further expanded to make it

a 9.00 lakh tonnes plant at Basantnagar. The coal for this company is being a supplied

singareni colliery and power is obtained from APTRANSCO. The demand for the factory

is about 21 MW.

The Kesoram cement industry came up with captive thermal power plant of 15.7 MW

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capacities for uninterrupted power supply. Which would ensure consistency in the supply

of cement even during power cut periods?

Birla supreme is popular brand Kesoram cement from its prestigious plant of Basantnagar

in AP., which has out standing track record in performances and productivity, serving the

national for the last three decades. It has proved its distinction by bagging several national

and state awards. It also has the distinction of achieving optimum capacity utilization.

Kesoram offers a choice of top quality Portland cement of light, heavy construction and

allied application quality is built in every fact of the operations.

The plant layout is rational begin with the limestone is rich in calcium carbonate, a key

factor that influenced the quality of the final product. The dry process technology used in

the latest computerized monitoring.

Type od Sales:

1.Depot Sales

2.Site Sales

Depot Sales:

The required amount of cement is supplied to the dealer’s from the the depot. The

Branches of company make these sales.

Site Sales:

The company directly sell the required quantity of cement to required group or

organization dealer’s etc.

Distribution Channel :

Kesoram Cement follows intensive type of Distribution channel

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Intensive Distribution:

In an Intensive distribution strategy the manufacture makes the goods or services in as

many outlets as possible.

Dealers Selections:

The company select the dealer’s after taking into consideration the financial positions are

the dealer’s opinion regarding the product. The company takes more attention for selecting

dealers in the urban region.

The incentive facilities given to the dealers by the company are quantity (trade discount)

has count and sliding scale discount (A Annual Discount)

Kesoram Cement undertaking marketing activities extensively In the state of

AP,Karnataka, Kerala, Maharastra & Gujarat. In AP Sales depots are located in different

areas like a Karimnagar, Warangal, Nizamabad, Vijayawada and Nellore. In other states it

has opened 10 depots.

The market share of Kesoram cement in AP is 7.59%. The market share of the company in

various states is shown as under.

States Market Share

Karnataka 4.94%

Tamil Nadu 0.94%

Kerala 0.29%

Maharastra 2.81%

The share of Kesoram Cement in the all India cement market is 1.19%

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PRODUCTION OF KESORAM CEMENT

Year Tonnes

1985-86 4,45,441

1995-96 8,05,921(more capacity)

2005-06 7,82,385(Due to power cut)

An average sale of the company is between 2000 to 2200 metric tonnes per day. The

company takes order through its branch builders, dealers and from any organization if

ordered for bulk quantity.

Sales Promotion

The company has got a health sales promotion it has taken much concentration in

advertising of the product through various mean like

1.News paper

2.Television

3.Wall Painting

4.Bus Pannels

5.Shop Paintings

KESORAM CEMENT ADVANTAGES

1.Helps in designing seeker and more elegant structures, giving greater

flexibility in design concept.

2.Due to its fine quality, super fine construction can be achieved

3.It gives maximum strength at minimum use of cement with water in the water

cement ration especially the 53 grade

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4.Better water proofing is achieved due to low heat of hydration, as the shrinkage will be

less, which means fewer cracks.

5.Better finish is achieved due to fitness and hence better workability. Thus plastering

becomes easier with better finish.

ABOUT THE INDIAN CEMENT INDUSTRY

By starting production in 1914 the story of Indian cement industry is a stage of

continuous growth.

India is the worlds 4th largest cement producer after China, Japan and USA. So far annual

production and demand have been growing a pace at roughly 68 million tonnes with an

installed capacity of 82 million tonnes.

In the remaining two years of 8th plan an additional capacity of 23 million tonnes has been

planned. Assuming that at latest 16 million tonnes will actually come up. India will have

an installed capacity of 98 million tonnes.By the turn of the country would be well over

100 million tonnes.

India is well endowed with cement grade limestone (90 billion tonnes) and coal (190

billion tonnes). The basic raw material required cement manufactured and is self sufficient

in manufacture of cement making machinery’s. During the nineties it has particularly

impressive expansion with a growth rate of 10 percent.

The strength and vitality of Indian cement industry can be gauged by the interest shown

and support given by world bank considering the excellent performance of the industry in

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utilizing the loans and achieving the objectives and targets. The World Bank is examine

the feasibility of providing a third line of credit for further upgrading the industry n

varying areas, which will make it global, with the liberalization polices of India

government the industry is posed for high growth rates in nineties and the installed is

expected to cross 100 million tonnes and production 90 million tonnes by 2000 AD.

India’s cement industry has added just about 10 million tonnes of additional capacity

“1994-96”.

The industry has fabulous scope for exporting its product to countries like the USA, UK ,

Bangladesh, Nepal and other several countries. But there are not enough wagons to

transport cement for shipment. A leading producer of eastern India say his order book is

full for the coming 8 to 9 months, but “where are the wagons” in 1994-95, 75% indent

made for wagons. The rail dispatches decreased from 50% to 45%. Demand growth rate in

India 6.5% compare to other countries.

Wagon shortage hits the industry’s prospects harder because of the uniqueness of the plant

location. Most of the plants are located in interior and backward areas. One tonne of

cement has to pay in excise duty of Rs 350 and central sales tax 4%. Western part of India

production growth rate of 176%,9% to north and 6% for the east. Government purchases

have gone down about 20% following privatization of infrastructure activities.

India inspire of being the 4th biggest producer of cement in the world has still a very low

per capital consumption of cement. India’s cement industry has indeed “tableau’s

prospect” added Large Plants (in India).

Cement companies 51 Nos

Cement plant 99 Nos

Installed capacity 64.84 million

Tonnes

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a) Private Sector

b) Public Sector

55.34

9.50

Total Investment approximately 10,000 crores

Manpower Over 1.25 lakhs

Captive power generation capacity installed

Diesel 54.77 MW

Thermal 174.75 MW

Consumption norms for producing one tonne of cement

Coal 20%

Power 100 KW

TECHNOLOGY

Cement may be manufactured employing three alternative technologies.

a) The largely out model well process technology

b) The more modern dry process that requires only 19% coal utilization

c) The latest precipitator technology through which optimum utilization may be

achieved. Here the calculator or raw.

Material is partly completely carried out before the feed enters the rotator kiln-besides

saving power, the adoption of this technology enable an increase in installed capacity by

30-50% the 30,000 tonnes per day plan being set in the country use this technology

PRICING POLICY

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The price of cement was first determined by the Government in August 1942 on “cost

plus” first determined the price of cement. The price there after was basically on the

recommendation of the tariff commission after their successive enquiries held in 1953,

1958, 1974 and 1978.

In 1974 the government retained the uniform retention price but rejected the rehabilitation

allowances as also the creation of the revolving fund for establishing new plant 9 million

tonnes capacity.

In December 1978 a high level committee of Lavaraj Kumar appointed by the

Government recommended a new price structure based on costs prevailing at that time.

DISTRIBUTION SYSTEM

Distribution of cement was entirely under government control until 1982. At present the

industry has to make an arrangement towards the levy quota, which is to be sold

compulsorily to the government. The rest of the output or open market quota may be sold

in the open market evolved prices. The output lifted by the government is allocated state

wise.

PACKAGING OF CEMENT

Cement is packed in bags of 50 kg Per bag. The types of packing material are as follows.

a) Jute Bags: Jute Bags conforming of IS-2580 are used as packing material.

b) HDPE/PP Bags: These are manufactured from poly propylene (PP) and High-

Density Poly ethylene tapes, Woven into fabric on circular looms.

c) Paper linked HEPE Bags/Paper Bags: At present there is no ISI specification for

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these bags. These are made from HDPE line with Kraft paper on the outside.

d) Light Weight Jute Bags: These are similar to suggest, is of light weight. This is

covered under ISI 2154 . These bags are cheaper by about 0.50ps, as compared to

jute bags.

e) Ploy Jute Bags: These are made of fabric woven with twine and HDPF types.

STORING OF CEMENT

Portland cement is a very fine material and as such it is highly Hygroscopes that is say

readily absorbs moisture not only in the form of mistier but also from the air it is

necessary, therefore to protect it from dampness before it is to fulfill its function.

Every year and particularly in the monsoon, large quantities if cement are spoilt due to

neglect in keeping the cement bags absolutely dry. There cement is stored flowingly.

The first requisite for storing bagged Portland cement is a building or ashes, which is

completely weather proof. The walls are of waterproof concrete masonry constructions,

overload with a waterproofing. Course the window are few and small and kept tightly

shut. This is to prevent moisture from outside atmosphere entering the building. The floor

is a 150 mm thick concrete slab laid on a dry course of soiling and 1.20 mm above ground

level. The ground is sloping way from the building to prevent accumulations of rain water

in its vicinity. All these precautions ensure that the floor will remain absolutely dry. The

plinth is fairly high so that a lorry can back conveniently to the door and the chassis and

building floor are almost same level, thus making loading and unloading of bags very

easy.

GOVERNMENT POLICY ON CEMENT INDUSTRY.

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The cement factories were facing problem of large problem of large-scale absence of their

plant and machinery. There immense scope for rejuvenation modernization and expansion

of our cement industry, modernization in nutshells, means using modern technological

advances to ensure that productivity increases, quality improved and the cost of input is

reduced to the maximum extend possible.

The Government policy lays much emphasis on modernization and up gradation of

technology, the planning commission in its approach paper of the seventh plan has

observed that the focus of industrial development in the seventh plan will be a graduation

technology, modernization better utilization of assets and promotion of efficiency.

In this context, the government ought to bare in mind that capacity expansion and

modernization could be effected only if the industry’s unable to secure the promises 12%

post tax return on net worth. Hither to the cement units have been obliged to absorb

completely the escalation in cost in the absence of a suitable like in cement price and

hence there has been considerable reduction in the internal generation of funds.

It is therefore of vital importance that the deterioration in the financial I if the industry is

arrested and the industry rejuvenated to continue unimpeded the process accelerated

growth to attain the capacity target of 62 million tonnes by the end of seventh plant. This

would call for necessarily the adoption of formula under which there should be an

automatic increase in the price of levy cement off set the escalation in costs.

STATEWISE CEMENT PLANTS

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Serial No State Number of cement plant (Large)

01 Andhra Pradesh 19

02 Assam 01

03 Bihar 07

04 Delhi 01

05 Gujarat 13

06 Harayana 02

07 Himachal Pradesh 04

08 Jammu Kashmir 01

09 Karnataka 09

10 Kerala 01

LIST OF AWARDS BAGGED KESORAM CEMENT

S.N

o

YEAR DETAILS

01 1984 FAPPCI Award for Best Family Planning Efforts in states

02 1985 FAPPCI Award for Best Industrial Promotion/Expansion Efforts in the

state.

03 1986 Best Family Planning in the state

04 1987 National Productivity Award

05 1987-88 National Award for Mines Safety

06 1988 National Productivity Award

07 1988-89 National Award for Mines Safety

08 1989-90 Best Family Planning Efforts in states

09 1990-91 AP State Award for Best Industrial Relations

10 1991 AP State Yahamanya Rathna and best management Award

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11 1991 FAPPCI Award for Best Family Planning Efforts in states

12 1991-92 NCBM’s National Award for Energy Performance

13 199394 Indira Gandhi Memorial National award for Excellence in industry

14 1993 FAPPCI Award Jawaharlal Nehru Silver Trophy

15 1995 Best Management Award by AP Govt.

16 1996 Mines Safety Award in AP

17 1997 Mines Safety Award in AP

18 1997-98 Best Workers Welfare by FAPCCI

19 1998 Achieved ISO-9002 Certification from Bureau of Indian Standarsd

20 1999 The “Best Pay roll saving group award among private sector”.

1st Prize in the level by International savings organization, Govt of

India.

21 2000-01 The Best efforts in rural development by an industry in ther state by the

federation of AP of Commerce 7 industry (FAPCCI)

22 2001 1st prize Mines environment and pollution control

23 2001-02 Award for efforts in environmental protection in the region by the

Godavari Pradushana Pariharana Paryavarna Parieractiona Avkhamu

(GPPPPG) ( A Voluntary organization for pollution and control and

environmnent)

24 2003 First prize for HORTICULTURE SHOW (for corombola fruit) held at

public gardens, Hyderabad being organized by the director of

Horticulture

25 2002-03 Award for best efforts in environmental protection in the region by the

Godavari Pradushana Pariharana Paryavarna Parieractiona Avkhamu

(GPPPPG) ( A Voluntary organization for pollution and control and

environmnent)

26 2003 Achieved ISO14001 certification pertaining to environment from

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Bureau of Indian Standards

27 2003 Vana Mithra Awards from the district collector

28 2002-03 Award for the best efforts put in by kesoram cement for protecting the

environment.

29 2004 Achieved OHSAS-18001 certification from DNV Delhi

30 2005 First prize for HORTICULTURE SHOW (for sapota, Banana &

corombola fruit) in connection with Shathavahanakalotsavalu.

31 2006-07 FAPCCI award for Excellence in Rural Development.

WELFARE AND RECREATION FACILITIES AT A GLANCE

1) Recreation Club : For the Purpose of recreation facilities tow auditors are

provided for the employees to indoor games like shuttle, chess, caroms and for

organising culture functions and activities like drama, music and dance concert etc.

2) Libraries and Reading Rooms : The company has provided libraries and reading

rooms for the benefit of the employee. About 5000 books are available in read the

libraries. All kinds of newspaper and magazines are made available in reading

rooms for the daily reading rooms for the employees and their families.

3) Canteen : Is provided to cater to the needs of the employees for the supply of

snacks, tea, coffee and meals.

4) Schools : One English Medium school and Telugu Medium school are provided to

meet the educational requirements of the employee’s children.

5) Dispensary: The Company has provided a dispensary with a qualified medical

officer and Para medical staff for the benefit or the employee. The employees

conversed under ESI scheme has to avail the medical facilities from the ESI

Hospital.

6) House Jounal : A House Jounral in the name of Basantnagar Samachar is brought

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out quarterly where in all the important activities of the plant are published.

7) Kesoram Consumer Co-Operative Store : Consumer Co-Operative stores are

available to meet the needs of the employees for supply of essential commodities

like rice, wheat, sugar, kerosene on cash credit basis.

8) Sport and Games : Competitors in sport and games are conducted every year for

15th August & 26th January.

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CHAPTER – IIIFOCUS ON THEORETICAL FRAMEWORK OF

WORKING CAPITAL MANAGEMENT

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MANAGEMENT WORKING CAPITAL IN KESORAM CEMENT

INDUSTRIES:

Working capital management is connected with the resolution of the problem in managing

current assets and current liabilities. The goal of working capital management is to

maintain optimum level of current assets and current liabilities by ensuring the both

liquidity and profitability. If firm cannot maintain satisfactory of working capital their are

likely to fall in liquidity trap. Sources of short term financing must be cautiously managed

to ensure that there are obtained and used in the best possible way. Integrating the short

term obligation with the short-terms assets and liabilities in the main them of working

capital management.

The working capital objective of the Kesoram Industries Ltd uses forecasting method to

determine working capital requirement, It takes sakes as the basis for working capital

determination, The company prepares working capital budget are prepared in coordination

with budget, sales and collect function. The company’s policy regarding financing of

working capital is all variable needs with short-term sources and only for the period

needed. The sources of working capital financing as per priority are cash credit from

banks. Advance from customer’s equity and long-term sources and working capital loans

for central government.

In this organization, Finance Director is the executive responsible for the over all working

capital management. The company follows new working capital and current ratio as

working capital norm and the company review the working capital shortage and also there

were excess working capital situations.

The current assets of the company mainly include inventories, sundry debtors, cash and

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bank balance and loan and advances. Current liabilities constitute sundry creditors

provisions and other liabilities. The structure of current assets and curreny liabilities of

Kesoram Industries Ltd. Is given below.

Current Assets:

i) Inventories:

a) Raw and packing material

b) Stock in progress

c) Finished goods

d) Consumables

e) Stores and Spares

ii) Sundry Debtors:

a) Debts

b) Others

iii) Cash and bank balance

a) Cash in hand

b) Cash at bank

iv) Loans and Advances

a) Advance recoverable in cash

b) Prepaid expenses

c) Deposit recoverable

d) Tax deducted at source

e) Advance tax

f) Advances to suppliers

Current Liabilities

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i) Sundry Creditors

a) Creditors for material

b) Creditors for capital expenditure

ii) Provisions

a) Provision for Income-Tax

b) Provision for Bonus

c) Proposed Dividend

d) Dividend tax

iii) Other Liabilities

a) Deposits

b) Advances from customers

c) Interest accrued but not due

d) Tax deducted at source payable

e) Others

In order to assess the adequacy and effectiveness for working policies of KCI PVt Ltd.

Over the last five years a detailed analysis in to working capital as takes up with help of

trend analysis and accounting rations.

NETWORKING CAPITAL (NWC)

Net working capital is the excess of current assets over current liabilities symbolically,

NWC=CA-CL. IN order to know the NWC of Kesoram Industries Ltd. It is proposed to

calculate and present net working capital requirements for the period commencing from

1998-99 to 2003-04

COMPARATIVE STATEMENT ANALYSIS

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As the very name signifies, comparative financial statements are statements of the

financial position of a business so formulated as to focus on the elements contained there

in and provide the necessary time perspective.

So normally, it is the balance sheet and profit and loss account, which alone are prepared

in a comparative form, since it is these two statements, which are considered as important

financial statements. More over, it is thought these two statements and financial positional

and the operation al results of any business can be determined.

Comparative financial statements are designed to disclose the following

1.Absolute data

2.Increase and decrease in absolute data

3. Increase and decrease in absolute data in terms of percentage

4.Comparision expressed in ration

5.Percentage of totals.

Comparative financial statements are very useful to the financial analyst since they

contain figures drawn from single statement and also provide necessary information for

the study of financial and operating results over a period of time. They point out the

direction are the trend of the movement as regards financial position and operating results

of the business concern.

Comparisons will become effective, only if the data compared truly reflects the

consistency in the application of generally accepted accounting principles for date-to-date

or period-to-period.

The analyst should also keep in mind the price level change that have taken place between

the dates of different transaction and that of preparation of financial statements. Where

there is a substantial price fluctuation. The analyst must exercise great caution while

interpreting the values.

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COMPARATIVE BALANCE SHEET:

Normally any increase and decrease in the value if various assets and liabilities as well as

in proprietors equity or capital, resulting from the operational activities of the business,

can be easily observed by means comparison of the balance sheet at the beginning and end

of the accounting period.

To facilitate comparison a simple device known as “comparative balance sheet’, may be

used. Such method often yields valuable information as regards the progress of the

business concern.

While the single balance sheet represent balance sheet represent balances of accounts

drawn at the end of an accounting period., the comparative balance sheet and current

balance sheet represents only the balances of accounts drawn on different dates, but also

the extent of increase or decrease between these two dates.

The single balance sheet focuses on the financial status of the concern as on a particular

date, the comparative balance sheet focuses on the charges that have

taken place in one accounting period as compared with another.

The changing is the direct outcome of operational activities. Conversion of assets

liabilities and capitals as well as interactions among assets, liability and capital.

The form of comparative balance sheet consists of two columns for the data of the

previous balance sheet and current balance sheet ad the third column for disclosing

increase and decrease in various terms. A fourth column shows the percentage of increase

and decrease in values.

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COMPARATIVE BALANCE SHEET

Particulars Previous Year Current Year Increase/Decrease Percentage

Change

ASSETS:

LIABILITIES

COMPARATIVE INCOME STATEMENT:

An income statement reveals the operational results of the business for a stipulated period

of time. The comparative income statement shows the operational results of the business

for a number of accounting periods so that change in absolute figures from one period to

another may be stated in terms of money and percentages.

The comparative income statement like the comparative balance sheet provides the same

type of particulars such as account balances, increases or decreases such balances and the

percentages of increase or decrease.

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Comparative Income Statement

Particulars Previous Year Current Year Increase/Decrease Percentage

change

RATIO ANALYSIS:

A ratio is a simple mathematical expression. It is number expressed in terms of another

number, expressing the quantitative relationship between the two Ratio analysis is the

technique of interpretation of financial statements with help of various meaningful rations.

Ratios do not add any information that is already available, but they show the relationship

between two items in a more meaningful way. They help us to draw certain conclusion.

Comparison with related facts in the basis of ratio analysis.

Ratio may be used for comparison in any of the following ways.

1) Comparison of a firm with its own performance in the past

2) Comparison of one firm with another firm in the industry.

3) Comparison of one firm with the industry as a whole.

4) Comparison of an achieved performance with pre-determined standards.

5) Comparison of one department of a concern with other departments.

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TYPES OF RATIOS:

Several ratios calculated from the accounting data can be grouped into various classes

according to the financial activity function to be valuated. The parties which generally

interested in financial analysis are short and long term creditors owners and management

short term creditors are mainly interested in liquidity or short term solvency of the firm.

Liquidity Ratio:

It is externally essential for a firm to the table to meet its obligation as they become due.

Liquidity ratios measure the ability of the firm to meet its current obligations. In fact

analysis of liquidity needs its current obligations. In fact analysis of liquidity need the

preparation of cash budgets and cash and funds flow statements but liquidity ratio by

establishing a relationship between cash and other assets to current obligation provide

quick measure of liquidity. A firm should ensure that it does not suffer from lack of

liquidity. And also that is not too much highly liquid. The failure of a company to meet its

obligations, due to lack of sufficient liquidity will result in bad credit image loss of

creditors of the company. A very high degree of liquidity is also bad ideal assets earn

current assets. Therefore it is necessary to strike a proper balance between liquidity and

lack of liquidity.

The most common ratio which indicated the extent of liquidity or lack of it is:

a) Current Ratio

b) Quick Ratio

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CURRENT RATIO:

The current ratio is calculated by dividing current assets and current liabilities.

Current Ratio: current assets/ current liabilities.

Current assets include cash and those assets, which can be converted into cash with in a

one year. Such as marketable securities, debtors and inventories prepaid expenses are also

include in current assets as they representing the payments that will have not to make by

the firm in the near future. All obligations maturing with in one year included in current

liabilities.

Thus current liabilities include creditors, bills payable, accrued expenses short-term loans

income tax liability and long term debts maturing in the current year. The ratio is a

measure of the firm’s short-term solvency. It indicates the availability of current assets in

rupees for every one rupee of current liability. A ratio greater than one means that the

firm has more current assets than current claims again them.

QUICK RATIO:

Quick Ratio = Quick assets/Current liabilities

The ratio establishes a relationship between quick of liquid and current liabilities. Assets

liquids if it can be converted into cash immediately or reasonably soon with a loss of cash

value. Other assets, which are considered to be relatively liquid and include in fixed

assets, are books debts means debtors and bills receivables and marketable securities

which are temporary quoted once. Inventories normally require some time for realizing

into cash their values also tendency to fluctuate.

The quick ratio is found out by dividing the total of the quick assets by total current

liabilities.

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LEVERAGE RATIO:

FIXED ASSETS TURNOVER RATIO:

Fixed assets imply net fixed assets = Gross fixed assets-Depreciation

A high fixed assets turn over ratio indicates better utilization of firm’s fixed assets.

A ratio of around 5 is considered is ideal.

This ratio establishes a relationship between net sales and fixed assets.

The objective of computing this ratio is determining the efficiency with which

fixed asses are utilized.

Components of this ratio is

1) Net Sales, which means gross sales minus sales returns.

2) Net Fixed (operating ) assets, which mean gross fixed assets minus depreciation

theorem

Computation of this ratio is

This ratio is computed by dividing the net sales by the fixed assets. This is usually

expressed as ‘X’ number of terms. In the form of formula, ratio may be expressed as

under:

Fixed assets turn over ratio = net sales/net fixed assets

It indicates the firm’s ability to generate sales per rupee of investment in fixed assets. In

general, the ratio, the more efficient the management and utilization of fixed assets, and

vice versa.

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PROFITABLITIY RATIO

NET PROFIT RATIO :

It indicates that the result of overall operation of the firm. While the gross profit ratio

indicates the extent of profitability of core operations, net profit ratio tells us about overall

profitability.

The ratio means the relationship between net profit and net sales the main objective of

computing this ratio is to determine the overall profitability due to various factors such as

operational efficiency, trading on equity etc.

The components if these ratios are net profits and sales.

The ratio is computed by dividing the net profit by the net sales.

Net profit ratio = Net profit /sales

SOLVENCY RATIOS

DEBT AND EQUITY RATIO :

The ratio establishes a relationship between long –term debts and shareholder funds.

It reflects the relative claim of creditors and share holders against the assets of the

business. Debt usually refers to long-term liabilities. Equity includes equity and

preference share capital and reserves .Long-term debt, which means long-term loans.

Shareholder’s funds, which mean equity share capital plus preference share capital plus

reserves and surplus minus fictitious assets.

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This ratio is compared by dividing the long-term debts by the shareholders funds. This

ratio is usually expressed as proportions, 2:1 it indicates the margin of safety to long-term

creditors. A low-debt ratio implies the use of more equity than debt, which means a larger

safety margins for creditors treat owner’s as a margin of safety.

Debit-equity ratio = Long-term debts/shareholder funds.

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CHAPTER – IVANALYSIS & INTERPRETATION

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COMPARATIVE STATEMENT OF WORKING CAPITAL FOR THE YEAR 2002-2003

Particular 2002 2003Absolute

Change

Change in

%

Current Assets

a) Inventories 800065303 1821777224 1021711921 127.7

b) Sundry Debtors 991705719 1911277269 919571550 92.72

c) Cash & Bank

Balance91528024 251092974 159564950 174.3

d) Other current assets 115506801 559090805 443584004 384

e) Loans and

Advances878270934 763136566 -115134368 -13.1

Total Current Assets (A) 2877076781 5306374838 2429298057 84.43

Current Liabilities (B) 804261757 1620414304 816152547 101.5

Working Capital (A-B) 2072815024 3685960534 1613145510 77.82

(+) Provisions 143258232 433233214 289974472 202.4

Net Working Capital 2216073256 419193748 1903119982 85.87

Interpretation

Interpretation of comparative working capital statement of Kesoram cement company Ltd

between the years 2001-2002 to 2002-2003

In the year 2002-03 the closing stock 0% raw materials work in progress and

finished goods in Kesoram cement was Rs 1,82,17,77,224 and the year 2001-02 the

inventory is Rs 80,00,65,303 there is an increased in the stock balance by 127.7% i.e Rs

1,02,17,11,921. The Average inventory for two years study period is Rs 1,31,09,21,263.

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In the year 2002-03 sundry debtors in Kesoram cement company ltd was Rs

1,91,12,77,263 and the year 2000-2001 the sundry debtors Rs 99,17,17,05,719 there is

increased by 92.72% i.e Rs 95,95,71,550.

Cash and bank balance have increased to Rs 25,10,92,974 from Rs 9,15,28,024 and other

current assets also increased.

In the year 2002-03 the loans and advances of kesoram cement company Ltd was Rs

76,31,36,556 and in the year 2001-02 loans and advances of kesoram cement company

Ltd is Rs 87,82,70,934. It is decreased to (-) Rs 11,51,34,368.

The total current assets increased from Rs 2,87,70,76,781 to Rs 5,30,63,74,838 i.e Rs

2,42,92,98,057 (84.43%)

In the year of 2001-02 the current liabailities was Rs 80,42,41,757 and in the year of 2002-

03 current liabilities are Rs 1,62,04,14,14,304. There is increase by Rs 81,62,52,547 i.e

101.47% this is resulted is to increase in current liabilities.

The working capital of Kesoram cement company Ltd is increased from Rs

2,07,28,15,024 to Rs 3,68,59,60,534. But the provisions of kesoram cement company Ltd

have increased from Rs 14,32,58,232 to Rs 43,32,33,214 i.e Rs 28,99,74,982 i.e 202.14%

In the year 2001-02 the net working capital was Rs 2,21,60,73,256 and in the year 2002-

03 Rs 4,11,91,93,748 i.e 85.87% it is increased. The net working capital is very beneficial

to company for the purpose of maintaining managing day-today activities of the

kesoram cement company Ltd.

Compare to the 2001-02 to 2002-03. It is increased Rs 4,11,91,93,748 i.e 85.87%.It is

most beneficial for the company

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Change

Change in

%

Current Assets

a) Inventories 1821777224 1528406205 -293371019 -16.10

b) Sundry Debtors 1911277269 1539980546 -376344854 -19.63

c) Cash & Bank

Balance251092974 312180623 61087649 24.32

d) Other current assets 559090805 182114852 -376975953 -67.42

e) Loans and

Advances763136566 997119989 239031554 31.53

Total Current Assets (A) 5306374838 4559802215 -746572623 -14.06

Current Liabilities (B) 1620414304 1487645302 -1372769002 -8.19

Working Capital (A-B) 3685960534 3072156913 613803621 -16.65

(+) Provisions 433233214 547413821 114180607 26.35

Net Working Capital 419193748 3619570734 499623014 -12.12

Interpretation





inventory is Rs 1,82,17,77,224 there is an increased in the stock balance by 16.10% i.e Rs

29,33,71,019. The Average inventory for two years study period is Rs 1,67,50,91,715.

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1,53,99,80,546 and the year 2003-2004 Rs 19,11,27,72,269 So it was decreased in the

sundry debtors by 19.63% i.e Rs 37,63,44,854.

Cash and bank balance have increased to Rs 6,10,87,549 and it is 2003-04 Rs

31,21,80,623 and it is increased from 2002-03 it is Rs 25,10,92,974.


76,13,65,66 and in the year 2003-04 loans and advances of kesoram cement company Ltd

is Rs 99,71,19,989 It is increased to Rs 23,90,31,554.

The total current assets decreased from Rs 5,30,63,74,838 to Rs 4,55,98,02,215 i.e. –Rs

74 65,72,623 (-14.06%)

In the year of 2002-03 the current liabilities was Rs 1,62,04,14,304 and in the year of

2003-04 current liabilities are Rs 1,48,76,45,302. There is decrease by Rs 13,27,69,002 i.e

8.19% this resulted too decrease in current liabilities.

The working capital of Kesoram cement company Ltd is increased from Rs

3,68,59,60,534 to Rs 3,07,21,56,913 i.e Rs 61,38,03,621 (16.65%).

In the year 2002-03 the net working capital was Rs 4,11,91,93,748 and in the year 2003-

04 Rs 3,61,95,70,734.This means that the the net working capital is decreased to Rs

49,96,23,014 i.e 12.12%

Compare to the 2002-03 to 2003-04 the total networking is decreased Rs 49,96,23,014, it

is not satisfactory.

.


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Change

Change in

%

Current Assets

a) Inventories 1528406205 1970349211 441943006 28.91%

b) Sundry Debtors 1539980546 1535631209 -4349337 -0.28%

c) Cash & Bank

Balance312180623 198671674 -113508949 -36.36%

d) Other current assets 182114852 263218444 81103592 44.53%

e) Loans and

Advances997119989 106263342 65343353 6.55%

Total Current Assets (A) 4559802215 5030333880 470531665 10.31%

Current Liabilities (B) 1487645302 1773856653 286211351 19.23%

Working Capital (A-B) 3072156913 3256477227 184320314 5.99%

(+) Provisions 547413821 638879286 91465465 16.70%

Net Working Capital 3619570734 3895356513 275785779 7.61%

Interpretation








1,53,99,80,546 and the year 2004-2005 Rs 1,53,56,31,209 So it was decreased in the

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sundry debtors by 0.28% i.e Rs 43,49,337.

Cash and bank balance have been decreased in the year 2004-05 36.36% i.e Rs

11,35,08,949

Other Current assets of the year 2003-04 Rs 18,21,14,852 and it are increased in the year

2004-05.The increased amount is Rs 8,11,03,592 i.e 44.53%


99,71,19,989 and in the year 2004-05 loans and advances of kesoram cement company

Ltd is It is increased to Rs 6,3,43,353 i.e 6.55%.

The total current assets increased from Rs 4,55,98,02,215 to Rs 5,03,03,33,880.


2004-05 current liabilities are Rs 1,77,38,56,653 There is increase by Rs 28,62,11,351 i.e

19.23% this resulted too increase in current liabilities.

The Net working capital of Kesoram cement company Ltd is increased from Rs

3,61,95,70,734 to Rs 3,89,53,56,513 i.e. Rs 27,57,85,779 i.e. 7.61%.

Compare to the 2003-04 to 2004-05 the net working capital is very beneficial to company

for the purpose of maintaining (or) managing the day today activities of Kesoram cement

Ltd.


Particular 2005 2006 Absolute Change in

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Change %

Current Assets

a) Inventories 1970349211 2030662246 60313035 3.06%

b) Sundry Debtors 1535631209 2007943703 472312494 30.75%

c) Cash & Bank

Balance198671674 243527953 44856279 22.57%

d) Other current assets 263218444 219176744 -44041700 -16.73%

e) Loans and

Advances106263342 893837399 -168625943 -15.87%


Current Liabilities (B) 1773856653 1453759824 -320096829 7.25%


(+) Provisions 638879286 694329841 55450555 8.67%


Interpretation








2,00,79,43,703 and the year 2004-2005 Rs 1,53,56,31,209 So it was increase in the sundry

debtors by 30.75% i.e Rs 47,23,12,494.

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Cash and bank balance have been decreased to Rs 4,48,56,279 and other current assets

have been decreased to Rs 4,40,41,700 in the year 2004-05 the loans and advance of

Kesoram cement Ltd was Rs 1,06,24,63,342 and in the year 2005-06 the loans and

advance of Kesoram cement Ltd was Rs 89,38,37,399 it has decreased by 15.87% i.e Rs

10,86,25,943.

The total current assets were increased Rs 5,03,03,33,880 to Rs 5,39,51,48,045.


2005-06 the current liabilities are Rs 1,45,37,59,824, so there was decreased by Rs

32,00,96,829 i.e. 18.04%.

The working capital of the loans and advance of Kesoram cement Ltd in the year 2005-06

was Rs 3,94,13,88,221 and in the year 2004-05 Rs 3,25,64,77,227, so there was an

increased Rs 68,49,10,994 this was happened due to the increased total current assets in

the present financial year 2005-06.

Provisions of Kesoram Cement Ltd., in the year 2005-06 was Rs 6,94,33,29,841 and in the

year 2004-05 was Rs 63,88,79,286 by this we can indentify that the provisions has been

increased by Rs 5,54,50,555 i.e. 8.67% in the financial year 2005-06.

In the year 2005-06 the Net working capital of Kesoram cement company Ltd was Rs

4,63,57,18,062 and in the year 2005-06 the net working capital was Rs 3,89,53,56,513 so

there was an increased the net working capital by 19.06% i.e Rs 74,03,61,549

Increasing net working capital was very beneficial to the company for the purpose of

maintaining (or) managing the day today activities of Kesoram cement Ltd.

COMPARATIVE STATEMENT OF WORKING CAPITAL FOR THE

YEAR 2006-07

Particular 2006 2007 Absolute Change in

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Change %

Current Assets

a) Inventories 2030662246 3768827777 1738165531 46.11%

b) Sundry Debtors 2007943703 2459452581 451508878 18.36%

c) Cash & Bank

Balance243527953 272422341 28894388 10.60%

d) Other current assets 219176744 118199412 100977322 -85.42%

e) Loans and

Advances893837399 2062247261 1168409862 56.65%




(+) Provisions 694329841 1357049231 662719380 48.83%


Interpretation





inventory is 2,03,06,62,246 there is an increased in the stock balance by 46.11% i.e Rs

1,73,81,65,531. The Average inventory for two years study period is Rs 2,89,97,45,012.



debtors by 18.36% i.e Rs 45,15,08,878.

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Cash and bank balance have been decreased to Rs 2,88,94,388 and other current assets

have been decreased to Rs 10,09,77,322. In the year 2006-07 the loans and advance of


advance of Kesoram cement Ltd was Rs 89,38,37,399 it has decreased by 56.65% i.e Rs

1,16,84,09,862.

The total current assets were increased Rs 5,39,51,48,045 to Rs 8,68,11,49,372

In the year of 2005-06 the current liabailities was Rs 1,45,37,59,824and in the year of

2006-07 the current liabilities are Rs 2,26,82,92,085, so there was increase by Rs

81,45,32,261 i.e. 35.91%.

The working capital of Kesoram cement Ltd in the year 2006-07 was Rs 6,41,28,57,287

and in the year 2005-06 Rs 3,94,13,88,221, so there was an increased Rs 2,47,14,69.066

this was happened due to the increased total current assets in the present financial year

2006-07.


year 2005-06 was Rs 69,43,29,841 by this we can indentify that the provisions has been

increased by Rs 66,27,19,380 i.e. 48.83% in the financial year 2006-07.


7,76,99,06,508 and in the year 2005-06 the net working capital was 4,63,57,18,062 so

there was an increased the net working capital by 40.33% i.e 3,13,41,88,446.





Change

Change in

%

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Current Assets

a) Inventories 3768827777 4421701810 652874033 14.77%

b) Sundry Debtors 2459452581 2730735205 271282624 9.93%

c) Cash & Bank

Balance272422341 405421333 132998992 32.81%

d) Other current assets 118199412 214691785 96492373 44.94%

e) Loans and

Advances2062247261 4290179191 2227931930 51.93%




(+) Provisions 1357049231 3303927056 1946877825 58.93%


Interpretation









debtors by 9.93% i.e Rs 27,12,82,624.

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Cash and bank balance have been increased to Rs 13,29,98,992 and other current assets

have been increased to Rs 9,64,92,373. In the year 2007-08 the loans and advance of


advance of Kesoram cement Ltd was Rs 2,06,22,47,261 it has increased by 51.93% i.e Rs

2,22,79,31,930.

The total current assets were increased Rs 3,38,15,79,952 to Rs 12,06,27,29,324.

In the year of 2006-07 the current liabilities was Rs. Rs 2,26,82,92,085 and in the year of

2007-08 the current liabilities are Rs 3,03,03,23,592 so there was increase by Rs.

76,20,31,507 i.e. 25.15%.

The working capital of Kesoram cement Ltd in the year 2007-08 was Rs 9,03,24,05,732

and in the year 2006-07 was Rs 6,41,28,57,287, so there was an increased Rs.

2,61,95,48,445 this was happened due to the increased total current assets in the present

financial year 2007-08.


year 2006-07 was Rs 1,35,70,49,221by this we can indentify that the provisions has been

increased by Rs 1,94,68,77,825 i.e. 58.93% in the financial year 2007-08.


12,33,63,32,788 and in the year 2006-07 the net working capital was 7,76,99,06,508 so

there was an increased the net working capital by 37.02% i.e 4,56,64,26,280.


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LIQUIDITY RATIO

Table-1

a.Current ratio:Current ratio = Current assets/current liabilities

Year Current Assets Current Liabilities Ratio

2002-2003 53063.74. 20536.47 2.58

2003-2004 45598.02 20350.59 2.24

2004-2005 50303.33 24127.35 2.08

2005-2006 53951.48 21480.89 2.51

2006-2007 86811.49 36253.41 2.39

2007-2008 120627.29 63342.51 1.90

Interpretation:

1) The current ratio shows fluctuating trend during the review period

2) The ideal ratio of current ratio is 2:1 but, this company had current ratios in each

year more than the ideal ratio.

3) This indicates the company was not utilizing is current assets properly during the

review period.

4) In 2001-2002 the current ratio was 3.04% this clearly indicates the positive

utilization of funds.

5) During the review period 2002-2006 in all financial years the company made use of

current assets efficiently .

QUICK RATIO

Quick ratio = quick assets/current liabilities

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Table-2

Year Quick Assets Current Liabilities Ratio

2002-2003 20770.11 9475.20 2.19

2003-2004 38345.97 20536.47 1.69

2004-2005 30313.96 20350.59 1.48

2005-2006 30109.82 24127.35 1.24

2006-2007 33644.85 21480.89 1.56

2007-2008 76410.28 30303.24 2.52

1) The quick ratio was showing fluctuating trend during review period.

2) The average quick ratio was found 1:21 times during 2001-02.

Which is more than the ideal ratio of 1:1 which indicates the company invested more

funds are created which may have good liquidity position but there is a cut in the profit

of the company.

3) The above clearly indicates that the firm is highly liquid.

LEVERAGE RATIO

FIXED ASSETS TURN OVER RATIO

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Fixed assets turn over ratio = net sales/net fixed assets

Year Sales ( In Lakhs) Net fixed asssets Ratio

2002-2003 134479.03 60794.08 2.21

2003-2004 134440.3 62647.10 2.14

2004-2005 138917.83 59008.51 2.35

2005-2006 156572.14 56993.09 2.74

2006-2007 251645.89 110519.01 2.27

2007-2008 344032.16 171883.45 2.00

1) The fixed assets turn over ratio was showing the fluctuating trend during the review

period.

2) The fixed assets turn over ratio is high in the year 2005-06 compare to all given

financial year all these ratios are less then 3 but the deal ideal fixed assets turn over

ratio is 5

3) A high fixed turn over ratio includes better utilization of the firm fixed assets

4) The firm fixed asset turn over ratio has to increase, these it is desirable.

PROFITABILITY RATIO

NET PROFIT RATIO

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Net profit ratio = net profit/net sales

Year Net profit Net sales Ratio

2002-2003 8027.80 67214.21 11.94

2003-2004 12541.56 134543.30 9.32

2004-2005 7441.66 135375.20 5.49

2005-2006 9298.54 140116.20 6.63

2006-2007 11850.44 157648.40 7.51

2007-2008 38335.04 298792.21 12.83

Interpretation

1) The above ratio shows fluctuating trend during the review period.

2) In the year 2007-2008 the profit was 12.83% by this we can find that the highest

profit earning financial year is 2007-08 compare to the given financial year

3) I n the net profit ratio increases the company perforamance is good and the profit

will be increased.

4) The above ratio is satisfactory for all given financial years.

SOLVENCY RATIO

DEBT AND EQUITY RATIO

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DEBIT-EQUITY RATIO= LONG TERM DEBIT /SHARE HOLDER FUNDS

Year Long-term debts Share holder funds Ratio

2002-2003 9917.06 34869.39 0.28

2003-2004 19112.77 36491.77 0.52

2004-2005 15399.8 33881.86 0.45

2005-2006 15356.31 33878.40 0.45

2006-2007 20079.43 34848.27 0.57

2007-2008 24594.52 60869.28 0.40

Interpretation

1) The above ratio was shown little fluctuating trend during review period

2) The ideal debt-equity ratio is 2:1 the firms seemed to pay a little amount to the

creditors because the firm debit-equity ratios are very less than the ideal debt equity

ratio any year.

3) The low debt equity implies that there us a less risk to the creditors and have

sufficient safety margin.

4) The company is maintaining a good level of long-term loans.

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CHAPTER – VFINDINGS, CONCLUSIONS &

SUGGESTIONS

It is clear from the study net working capital of kesoram cement 2002-2008.The net

working capital of the company recorded 85.87% in the year 2002-03. Again in the

year of 2003-04 net working capital was decreased 12.12% again it is increased

7.61% in the year of 2004-05.And in the year 2005-06 it is recorded 19.06% & in

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the year 2006-07 it is recorded 40.33% Finally in the year 2007-2008 it was

recorded 37.02.

It is observed from the study the current of the kesoram cement from 2002-2008.

Current assets of the company recorded in the year of 2002-2003 i.e. 84.43%. In

the year 2003-2004 it is decreased to 14.06%.Again it is decreased 10.31% in the

tear 2004-2005.IN the year 2005-2006 it is recorded 7.25%. In the year 2006-2007

it is recorded 37.85%. In the year 2007-2008 it is recorded 28.03%.

It is understood from the study the current liabilities of kesoram cement during the

year 2002-2008. In the year 2002-2003 it is recorded 101.47% in the year of

2003-2004 it is declined 8.19% in the year 20042005 it is reached 19.23% again in

the year 2005-2006 it is decreasing 18.04% , in the year 2006-2007 it is increased

by 35.91% and in the year 2007-2008 it is decreased by 25.15%

It is clear the study ratio is satisfactory as it is more than the thumb rule 2.1

It is concluded the quick ratio is above the standard rule and this concludes it as

satisfactory.

Fixed assets turn over ratio indicates the extent to which assets are utilized to

maximize the sales.The company has managed fixed assets efficiently.

Net profit ratio we can describe that the company net profit is very sound.

It is concluded that the gross profit is satisfactory

The debt-equity ratio proportion as per equality concerned is less the low equity

that there is less risk to the creditors and they have sufficient safety margin.

SUGGESTIONS

It is suggested that the company has to maintain sufficient inventory and which

should be on par with the working capital requirement for strengthen it.

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It is clear from the study liquidity position was increased which has satisfactory

the company has to maintain the same in future.

It is observed from the study that employ can more debt to take the advantage of

leverage.

A high fixed turn over ratio indicates better utilization of the firm’s fixed assets. A

ratio of around 5 is considered ideal.

It is clears from the study the net profit ratio over all profitability. The higher the

ratio the more profitable is the business.

It is observed from the study the company has to decrease its direct expenses to

improve its net profit. The company has to utilize its current assets efficiently only

it’s maintaining as smooth liquid position.

F I N D I N G S :

There is an increase in the % of closing stock of gypsum to monthly production both in terms of % and in terms of absolute quantity when compared to year ended due to the fact that the average production. Since the production was low there is an increase in the % of closing stock.

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Eventhough the total mix of Bauxite, Iron ore and Fly ash remains about 6% of

total Raw Meal production, there has been a change in the composition.

Consumption of Flyash in Raw meal stage has been stopped from June 09. This is due to the fact that the Company is aiming at maximising PPC Since usage of Fly ash both in the initial stage of Raw meal and in the final stage of Cement, would reduce the quality of cement, the same has been stopped. Since usage of Fly ash both in the initial stage of Raw meal and in the final stage of Cement, would reduce the quality of cement, the same has been stopped. As a result the use of Fly ash is restricted to the final stage only, to that extent more of Bauxite and Iron ore is used in the raw meal stage.

There is an increase of Rs 6/MT in raw meal cost of production compared to previous year. This is due to Rs 9/MT increase in limestone stone cost and Rs 3/MT increase in Bauxite cost. However there is a decrease in iron ore cost by Rs 4/MT. 6% of Bauxite and Iron ore is to be mixed with 94% of limestone to get raw meal. In the current quarter the % of ratio mix between Iron ore and Bauxite has come down. Iron ore being the costlier material has been substituted with additional quantity of Bauxite. The decrease in stores and spares in the current quarter is attributable to low maintenance, since the shell liner was replaced in the previous, which resulted in the increase in cost.

There is no change in the cost of clinker as compared to previous quarter. However there was a saving in stores and spares in the current quarter due to no maintenance in the current quarter as against the previous quarter. Also there was a saving in power cost in the current quarter since there was no purchase of APSEB power. There is also a saving in the stores and spares cost of Kiln in the current quarter since there were low maintenance in the current quarter as the brick lining was changed in Q1 itself.

The Company has started maximising PPC production from the current year, since this yields the maximum margin.

Sundry Debtors

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season and unfavourable market conditions. The Ageing analysis given below substantiates that majority of

debtors outstanding as at year end pertain to the

Cash & Bank Balances :

There is an increase in the balance on account of cheque issued but not cleared.

HDFC bank was opened by the unit, which is the cash management account for the unit. Due to this the operations in UTI and SBI banks where closed.

Loans and Advances :

Advance against Stores The balance pertains to advance paid for stores and Raw materials.

The major advances paid in the current year is compared with the previous year

balances

Advance against Order

The increase in advance against order is due to payment of advance for capital

items.

Dead Rent and Royalty

This amount represents advance money paid for extraction of limestone from Mines. In the previous year the extraction quantity was more and hence the unit had paid the amounts in advance as per demand whereas in the currentyear, the advance paid is comparitively less to the quantity extracted.

The reason for increase in Prepaid expense is due to renewal of insurance policies in the nature of Industrial All risks policy

BIBILOGRAPHY

Authors Name Title of the Book, Publisher and Edition

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I.M.Pandey Financial Management, Vikas Publisher

8th Edition

Prasanna Chandra Financial Management, Tata McGraw

Hill 5th Edition

R.K.Sharma and Shashi K.Gupta Management Accounting, Kalyani

Publishers, 8th Edition

S.P.Jain & K.L.Narang Financial Accounting and Analysis,

Kalyani Publishers, 3rd Edition

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Working Capital

Documents

excessive working capital

importantce of working

working capital maintenance

definition of working

paucity of working capital

fixed capital

networking capital

capital needs