Sunteți pe pagina 1din 77


Working Capital:The life blood of business, as is evident, signified funds required for day-to-day
operations of the firm. The management of working capital assumes great importance
because shortage of working capital funds is perhaps the biggest possible cause of failure
of many business units in recent times. There it is of great importance on the part of
management to pay particular attention to the planning and control for working capital.
An attempt has been made to make critical study of the various dimensions of the
working capital management of ACC.
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's shortterm assets and its short-term liabilities. The goal of Working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient money flow
to satisfy both maturing short-term debt and upcoming operational expenses.

Objective of the study:The following are the main objective which has been undertaken in the present study:
1. To determine the amount of working capital requirement and to calculate various
ratios relating to working capital.
2. To analyze the Indian Cement Industry.
3. To evaluate the financial performance of ACC limited using financial tools.
4. To suggest the steps to be taken to increase the efficiency in management of
working capital.

Place of study:The project study is carried out at the Finance Department of ACC cements ltd corporate
office Situated at Hyderabad, Telagana. The study is undertaken as a part of the MBA
Study design and methodology:Two types of data are collected, one is primary data and second one is secondary data.
The primary data were collected from the Department of finance, ACC Ltd, Hyderabad.
The secondary data were collected from the Annual Report of ACC & ACC website, etc.
Scope: - The study has got a wide & fast scope. It tries to find out the players in the
industry & focuses on the upcoming trends. It also tries to show the financial
performance of the major player of the industry i.e.; ACC Ltd.
Limitations:There may be limitations to this study because the study duration is very short and its
not possible to observe every aspect of working capital management practices. The data
collected were mostly secondary in nature.

Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of
balance sheet and profit and loss account. It also helps in short-term and long term
forecasting and growth can be identified with the help of financial performance analysis.
The dictionary meaning of analysis is to resolve or separate a thing in to its element or
components parts for tracing their relation to the things as whole and to each other. The
analysis of financial statement is a process of evaluating the relationship between the
component parts of financial statement to obtain a better understanding of the firms
position and performance. This analysis can be undertaken by management of the firm or
by parties outside the namely, owners,creditors,investors.

The analysis of financial statement represents three major steps:

The first step involves the re-organization of the entire financial data
contained the financial statements. Therefore the financial statements
are broke down into individual components and re-grouped into few
principle elements according to their resemblances and affinities. Thus
the balance sheet and profit and loss accounts are completely recasted and presented in the condensed form entirely different from
their original shape.

The second step is the establishment of significant relationships

between the individual components of balance sheet and profit and
loss account. This is done through the application tools of financial
analysis like Ratio analysis, Trend analysis, Common size balance sheet
and comparative Balance sheet.

Finally, the result obtained by means of application of financial tools is evaluated.

In brief financial analysis is the process of selection, relation and evaluation of

financial statements. The tools of analysis are used for determining the investment
value of the business, credit rating and for testing efficiency of operation.

Thus financial analysis helps to highlight the facts and relationships concerning
managerial performance, corporate efficiency, financial strength and weakness and credit
worthiness of the company.

Financial statement analysis (or financial analysis) the process of

understanding the risk and profitability of a firm (business, sub-business or project)
through analysis of reported financial information, particularly annual and quarterly
Financial statement analysis consists of 1) reformulating reported financial statements, 2)
analysis and adjustments of measurement errors, and 3) financial ratio analysis on the
basis of reformulated and adjusted financial statements. The two first steps are often
dropped in practice, meaning that financial ratios are just calculated on the basis of the
reported numbers, perhaps with some adjustments. Financial statement analysis is the

foundation for evaluating and pricing credit risk and for doing fundamental company
1) Financial statement analysis typically starts with reformulating the reported financial
information. In relation to the income statement, one common reformulation is to divide
reported items into recurring or normal items and non-recurring or special items. In this
way, earnings could be separated in to normal or core earnings and transitory earnings.
The idea is that normal earnings are more permanent and hence more relevant for
prediction and valuation. Normal earnings are also separated into net operational profit
after taxes (NOPAT) and net financial costs. The balance sheet is grouped, for example,
in net operating assets (NOA), net financial debt and equity.
2) Analysis and adjustment of measurement errors question the quality of the reported
accounting numbers. The reported numbers can for example be a bad or noisy
representation of invested capital, for example in terms of NOA, which means that the
return on net operating assets (RNOA) will be a noisy measure of the underlying
profitability (the internal rate of return, IRR). Expensing of R&D is an example when
such investment expenditures are expected to yield future economic benefits, suggesting
that R&D creates assets which should have been capitalized in the balance sheet. An
example of an adjustment for measurement errors is when the analyst removes the R&D
expenses from the income statement and put them in the balance sheet. The R&D
expenditures are then replaced by amortization of the R&D capital in the balance sheet.
Another example is to adjust the reported numbers when the analyst suspects earnings

3) Financial ratio analysis should be based on regrouped and adjusted financial

statements. Two types of ratio analysis are performed: 3.1) Analysis of risk and 3.2)
analysis of profitability:
3.1) Analysis of risk typically aims at detecting the underlying credit risk of the firm.
Risk analysis consists of liquidity and solvency analysis. Liquidity analysis aims at
analyzing whether the firm has enough liquidity to meet its obligations when they should
be paid. A usual technique to analyze illiquidity risk is to focus on ratios such as the
current ratio and interest coverage. Cash flow analysis is also useful. Solvency analysis
aims at analyzing whether the firm is financed so that it is able to recover from a loss or a
period of losses. A usual technique to analyze insolvency risk is to focus on ratios such as
the equity in percentage of total capital and other ratios of capital structure. Based on the
risk analysis the analyzed firm could be rated, i.e. given a grade on the riskiness, a
process called synthetic rating.
Ratios of risk such as the current ratio, the interest coverage and the equity percentage
have no theoretical benchmarks. It is therefore common to compare them with the
industry average over time. If a firm has a higher equity ratio than the industry, this is
considered less risky than if it is above the average. Similarly, if the equity ratio increases
over time, it is a good sign in relation to insolvency risk.
3.2) Analysis of profitability refers to the analysis of return on capital, for example return
on equity, ROE, defined as earnings divided by average equity. Return on equity, ROE,
could be decomposed: ROE = RNOA + (RNOA - NFIR) * NFD/E, where RNOA is

return on net operating assets, NFIR is the net financial interest rate, NFD is net financial
debt and E is equity. In this way, the sources of ROE could be clarified.
Unlike other ratios, return on capital has a theoretical benchmark, the cost of capital also called the required return on capital. For example, the return on equity, ROE, could
be compared with the required return on equity, kE, as estimated, for example, by the
capital asset pricing model. If ROE < kE (or RNOA > WACC, where WACC is the
weighted average cost of capital), then the firm is economically profitable at any given
time over the period of ratio analysis. The firm creates values for its owners.
Insights from financial statement analysis could be used to make forecasts and to evaluate
credit risk and value the firm's equity. For example, if financial statement analysis detects
increasing superior performance ROE - kE > 0 over the period of financial statement
analysis, then this trend could be extrapolated into the future. But as economic theory
suggests, sooner or later the competitive forces will work - and ROE will be driven
toward kE.
A financial statement (or financial report) is a formal record of the financial
activities of a business, person, or other entity. In British Englishincluding United
Kingdom company lawa financial statement is often referred to as an account,
although the term financial statement is also used, particularly by accountants.
For a business enterprise, all the relevant financial information, presented in a structured
manner and in a form easy to understand, are called the financial statements. They

typically include four basic financial statements, accompanied by a management

discussion and analysis:
1. Statement of Financial Position: also referred to as a balance sheet, reports
on a company's assets, liabilities, and ownership equity at a given point in time.
2. Statement of Comprehensive Income: also referred to as Profit and Loss
statement (or a "P&L"), reports on a company's income, expenses, and profits
over a period of time. A Profit & Loss statement provides information on the
operation of the enterprise. These include sale and the various expenses incurred
during the processing state.
3. Statement of Changes in Equity: explains the changes of the company's
equity throughout the reporting period
4. Statement of cash flows: reports on a company's cash flow activities,
particularly its operating, investing and financing activities.
For large corporations, these statements are often complex and may include an extensive
set of notes to the financial statements and explanation of financial policies and
management discussion and analysis. The notes typically describe each item on the
balance sheet, income statement and cash flow statement in further detail. Notes to
financial statements are considered an integral part of the financial statements.

Purpose of financial statements by business entities

"The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions." Financial statements should be
understandable, relevant, reliable and comparable. Reported assets, liabilities, equity,
income and expenses are directly related to an organization's financial position.
Financial statements are intended to be understandable by readers who have "a
reasonable knowledge of business and economic activities and accounting and who are
willing to study the information diligently." Financial statements may be used by users
for different purposes:

Owners and managers require financial statements to make important business

decisions that affect its continued operations. Financial analysis is then performed
on these statements to provide management with a more detailed understanding of
the figures. These statements are also used as part of management's annual report
to the stockholders.

Employees also need these reports in making collective bargaining agreements

(CBA) with the management, in the case of labor unions or for individuals in
discussing their compensation, promotion and rankings.

Prospective investors make use of financial statements to assess the viability of

investing in a business. Financial analyses are often used by investors and are

prepared by professionals (financial analysts), thus providing them with the basis
for making investment decisions.

Financial institutions (banks and other lending companies) use them to decide
whether to grant a company with fresh working capital or extend debt securities
(such as a long-term bank loan or debentures) to finance expansion and other
significant expenditures.

Government entities (tax authorities) need financial statements to ascertain the

propriety and accuracy of taxes and other duties declared and paid by a company.

Vendors who extend credit to a business require financial statements to assess the
creditworthiness of the business.

Media and the general public are also interested in financial statements for a
variety of reasons.

Government financial statements

The rules for the recording, measurement and presentation of government financial
statements may be different from those required for business and even for non-profit
organizations. They may use either of two accounting methods: accrual accounting, or
cash accounting, or a combination of the two (OCBOA). A complete set of chart of
accounts is also used that is substantially different from the chart of a profit-oriented


Financial statements of not-for-profit organizations

The financial statements that not-for-profit organizations such as charitable organizations
and large voluntary associations publish, tend to be simpler than those of for-profit
corporations. Often they consist of just a balance sheet and a "statement of activities"
(listing income and expenses) similar to the "Profit and Loss statement" of a for-profit.
Charitable organizations in the United States are required to show their income and net
assets (equity) in three categories: Unrestricted (available for general use), Temporarily
Restricted (to be released after the donor's time or purpose restrictions have been met),
and Permanently Restricted (to be held perpetually, e.g., in an Endowment).

Personal financial statements

Personal financial statements may be required from persons applying for a personal loan
or financial aid. Typically, a personal financial statement consists of a single form for
reporting personally held assets and liabilities (debts), or personal sources of income and
expenses, or both. The form to be filled out is determined by the organization supplying
the loan or aid.

Audit and legal implications

Although laws differ from country to country, an audit of the financial statements of a
public company is usually required for investment, financing, and tax purposes. These are
usually performed by independent accountants or auditing firms. Results of the audit are
summarized in an audit report that either provide an unqualified opinion on the financial


statements or qualifications as to its fairness and accuracy. The audit opinion on the
financial statements is usually included in the annual report.
There has been much legal debate over who an auditor is liable to. Since audit reports
tend to be addressed to the current shareholders, it is commonly thought that they owe a
legal duty of care to them. But this may not be the case as determined by common law
precedent. In Canada, auditors are liable only to investors using a prospectus to buy
shares in the primary market. In the United Kingdom, they have been held liable to
potential investors when the auditor was aware of the potential investor and how they
would use the information in the financial statements. Nowadays auditors tend to include
in their report liability restricting language, discouraging anyone other than the
addressees of their report from relying on it. Liability is an important issue: in the UK, for
example, auditors have unlimited liability.
In the United States, especially in the post-Enron era there has been substantial concern
about the accuracy of financial statements. Corporate officers (the chief executive officer
(CEO) and chief financial officer (CFO)) are personally liable for attesting that financial
statements "do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by
th[e] report." Making or certifying misleading financial statements exposes the people
involved to substantial civil and criminal liability. For example Bernie Ebbers (former
CEO of WorldCom) was sentenced to 25 years in federal prison for allowing WorldCom's
revenues to be overstated by billion over five years.


Standards and regulations

Different countries have developed their own accounting principles over time, making
international comparisons of companies difficult. To ensure uniformity and comparability
between financial statements prepared by different companies, a set of guidelines and
rules are used. Commonly referred to as Generally Accepted Accounting Principles
(GAAP), these set of guidelines provide the basis in the preparation of financial
statements, although many companies voluntarily disclose information beyond the scope
of such requirements.
Recently there has been a push towards standardizing accounting rules made by the
International Accounting Standards Board ("IASB"). IASB develops International
Financial Reporting Standards that have been adopted by Australia, Canada and the
European Union (for publicly quoted companies only), are under consideration in South
Africa and other countries. The United States Financial Accounting Standards Board has
made a commitment to converge the U.S. GAAP and IFRS over time.

Inclusion in annual reports

To entice new investors, most public companies assemble their financial statements on
fine paper with pleasing graphics and photos in an annual report to shareholders,
attempting to capture the excitement and culture of the organization in a "marketing
brochure" of sorts. Usually the company's chief executive will write a letter to
shareholders, describing management's performance and the company's financial


In the United States, prior to the advent of the internet, the annual report was considered
the most effective way for corporations to communicate with individual shareholders.
Blue chip companies went to great expense to produce and mail out attractive annual
reports to every shareholder. The annual report was often prepared in the style of a coffee
table book.

Moving to electronic financial statements

Financial statements have been created on paper for hundreds of years. The growth of the
Web has seen more and more financial statements created in an electronic form which is
exchangeable over the Web. Common forms of electronic financial statements are PDF
and HTML. These types of electronic financial statements have their drawbacks in that it
still takes a human to read the information in order to reuse the information contained in a
financial statement.
More recently a market driven global standard, XBRL (Extensible Business Reporting
Language), which can be used for creating financial statements in a structured and
computer readable format, has become more popular as a format for creating financial
statements. Many regulators around the world such as the U.S. Securities and Exchange
Commission have mandated XBRL for the submission of financial information.
The UN/CEFACT created, with respect to Generally Accepted Accounting Principles,
(GAAP), internal or external financial reporting XML messages to be used between
enterprises and their partners, such as private interested parties (e.g. bank) and public

collecting bodies (e.g. taxation authorities). Many regulators use such messages to collect
financial and economic information.
In financial accounting, a balance sheet or statement of financial position is a summary
of the financial balances of a sole proprietorship, a business partnership, a corporation or
other business organization, such as an LLC or an LLP. Assets, liabilities and ownership
equity are listed as of a specific date, such as the end of its financial year. A balance sheet
is often described as a "snapshot of a company's financial condition". Of the four basic
financial statements, the balance sheet is the only statement which applies to a single
point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity.
The main categories of assets are usually listed first, and typically in order of liquidity.
Assets are followed by the liabilities. The difference between the assets and the liabilities
is known as equity or the net assets or the net worth or capital of the company and
according to the accounting equation, net worth must equal assets minus liabilities.
Another way to look at the same equation is that assets equals liabilities plus owner's
equity. Looking at the equation in this way shows how assets were financed: either by
borrowing money (liability) or by using the owner's money (owner's equity). Balance
sheets are usually presented with assets in one section and liabilities and net worth in the
other section with the two sections "balancing."
A business operating entirely in cash can measure its profits by withdrawing the entire
bank balance at the end of the period, plus any cash in hand. However, many businesses


are not paid immediately; they build up inventories of goods and they acquire buildings
and equipment. In other words: businesses have assets and so they cannot, even if they
want to, immediately turn these into cash at the end of each period. Often, these
businesses owe money to suppliers and to tax authorities, and the proprietors do not
withdraw all their original capital and profits at the end of each period. In other words
businesses also have liabilities.

A balance sheet summarizes an organization or individual's assets, equity and liabilities at
a specific point in time. We have two forms of balance sheet. They are the report form
and the account form. Individuals and small businesses tend to have simple balance
sheets. Larger businesses tend to have more complex balance sheets, and these are
presented in the organization's annual report. Large businesses also may prepare balance
sheets for segments of their businesses. A balance sheet is often presented alongside one
for a different point in time (typically the previous year) for comparison.

Personal balance sheet

A personal balance sheet lists current assets such as cash in checking accounts and
savings accounts, long-term assets such as common stock and real estate, current
liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such
as mortgage and other loan debt. Securities and real estate values are listed at market
value rather than at historical cost or cost basis. Personal net worth is the difference
between an individual's total assets and total liabilities.


A small business bump that balance sheet lists current assets such as cash, accounts
receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible
assets such as patents, and liabilities such as accounts payable, accrued expenses, and
long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the
balance sheet. The small business's equity is the difference between total assets and total

Public Business Entities balance sheet structure

Guidelines for balance sheets of public business entities are given by the International
Accounting Standards Board and numerous country-specific organizations/companys.
Balance sheet account names and usage depend on the organization's country and the
type of organization. Government organizations do not generally follow standards
established for individuals or businesses.
If applicable to the business, summary values for the following items should be included
in the balance sheet: Assets are all the things the business owns, this will include
property, tools, cars, etc.

Current assets
1. Cash and cash equivalents
2. Accounts receivable


3. Inventories
4. Prepaid expenses for future services that will be used within a year

Non-current assets (Fixed assets)

1. Property, plant and equipment
2. Investment property, such as real estate held for investment purposes
3. Intangible assets
4. Financial assets (excluding investments accounted for using the equity method,
accounts receivables, and cash and cash equivalents)
5. Investments accounted for using the equity method
6. Biological assets, which are living plants or animals. Bearer biological assets are
plants or animals which bear agricultural produce for harvest, such as apple trees
grown to produce apples and sheep raised to produce wool.

See Liability (accounting)
1. Accounts payable
2. Provisions for warranties or court decisions
3. Financial liabilities (excluding provisions and accounts payable), such as
promissory notes and corporate bonds
4. Liabilities and assets for current tax
5. Deferred tax liabilities and deferred tax assets


6. Unearned revenue for services paid for by customers but not yet provided

The net assets shown by the balance sheet equals the third part of the balance sheet,
which is known as the shareholders' equity. It comprises:
1. Issued capital and reserves attributable to equity holders of the parent company
(controlling interest)
2. Non-controlling interest in equity
Formally, shareholders' equity is part of the company's liabilities: they are funds "owing"
to shareholders (after payment of all other liabilities); usually, however, "liabilities" is
used in the more restrictive sense of liabilities excluding shareholders' equity. The
balance of assets and liabilities (including shareholders' equity) is not a coincidence.
Records of the values of each account in the balance sheet are maintained using a system
of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by
construction must equal assets minus liabilities, and are a residual.
Regarding the items in equity section, the following disclosures are required:
1. Numbers of shares authorized, issued and fully paid, and issued but not fully paid
2. Par value of shares
3. Reconciliation of shares outstanding at the beginning and the end of the period
4. Description of rights, preferences, and restrictions of shares
5. Treasury shares, including shares held by subsidiaries and associates


6. Shares reserved for issuance under options and contracts

7. A description of the nature and purpose of each reserve within owners' equity

Income statement (also referred to as profit and loss statement (P&L), revenue
statement, statement of financial performance, earnings statement, operating
statement or statement of operations) is a company's financial statement that indicates
how the revenue (money received from the sale of products and services before expenses
are taken out, also known as the "top line") is transformed into the net income (the result
after all revenues and expenses have been accounted for, also known as Net Profit or the
"bottom line"). It displays the revenues recognized for a specific period, and the cost and
expenses charged against these revenues, including write-offs (e.g., depreciation and
amortization of various assets) and taxes. The purpose of the income statement is to show
managers and investors whether the company made or lost money during the period
being reported.
The important thing to remember about an income statement is that it represents a period
of time. This contrasts with the balance sheet, which represents a single moment in time.
Charitable organizations that are required to publish financial statements do not produce
an income statement. Instead, they produce a similar statement that reflects funding
sources compared against program expenses, administrative costs, and other operating
commitments. This statement is commonly referred to as the statement of activities.
Revenues and expenses are further categorized in the statement of activities by the donor
restrictions on the funds received and expended.



Industry Overview:The cement industry is one of the vital industries for economic development in a country.
The total utilization of cement in a year is used as an indicator of economic growth.
Cement is a necessary constituent of infrastructure development and a key raw material
for the construction industry, especially in the governments infrastructure development
plans in the context of the nations socioEconomic development.
India is the world's second largest producer of cement with total capacity of 219 million
tones (MT) at the end of FY 2009, according to the Cement Manufactures Association.
According to the Cement Manufacturers Association, cement dispatches during 2009-10
were 159.43 million tones (MT) increasing by 12 per cent over 142.23 in 2008-09.
Cement production during 2009-10 was 160.31 MT an increase of 12.37 per cent over
142.65 MT in 2008-09.
Moreover, the governments continued thrust on infrastructure will help the key building
material to maintain an annual growth of 9-10 per cent in 2010, according to Indias
largest cement company, ACC.
In January 2010, rating agency Fitch predicted that the country will add about 50 million
tone cement capacity in 2010, taking the total to around 300 million tones.
Government Initiatives
Government initiatives in the infrastructure sector, coupled with the housing
sector boom and urban development, continue being the main drivers of growth
for the Indian cement industry.


Increased infrastructure spending has been a key focus area. In the Union Budget
2010-11, US$ 37.4 billion has been provided for infrastructure development.
The government has also increased budgetary allocation for roads by 13 per cent
to US$ 4.3 billion.
Future Trends: The cement industry is expected to grow steadily in 2009-2010 and increase
capacity by another 50 million tons in spite of the recession and decrease in
demand from the housing sector.
The industry experts project the sector to grow by 9 to 10% for the current
financial year provided India's GDP grows at 7%.
India ranks second in cement production after China.
The major Indian cement companies are Associated Cement Company Ltd
(ACC), Grasim Industries Ltd, Ambuja Cements Ltd, J.K Cement Ltd and Madras
Cement Ltd.
The major players have all made investments to increase the production capacity
in the past few months, heralding a positive outlook for the industry.
The housing sector accounts for 50% of the demand for cement and this trend is
expected to continue in the near future.

PORTERS FIVE FORCE MODEL:- It is useful for analyzing the industry overall and
determining the level of competition among different existing players .It can be
understood under different topics .Along with the industry we will try to point out the
conditions for ACC too.
i) THREAT OF NEW ENTRANTS:ACC has threat from new entrants like TATA; Reliance etc can enter into this industry.
But there are certain barriers to their entry. These are: Availability of raw material


Restrictions on entry by government into cement industry

Cement industry requires a huge investment
Switching costs are high in cement industry

ii) BARGAINING POWER OF SUPPLIERS:Suppliers have very much impact on cement industry because of the following reasons: Raw materials used in cement are gypsum, fly ash and slag. There are few
suppliers of these materials.

Quality of finished goods i.e. cement is very important for ACC ltd.
As already said, there are high switching costs in cement industry.
There is no substitute to the raw material used in cement.
iii) BARGAINING POWER OF BUYER:- ACC ltd plays the role of buyer. It has
following bargaining powers:
There are only few buyers of raw material of cement.
ACC has major stake in cement industry i.e. 11% of the world.
iv) THREAT OF SUBSTITUTES:- It has threat from its competitors like Ambuja
cements, Birla cements, Binani cements ,Grasim etc.


In spite of huge stake in cement industry, it is difficult to be on the top because of the
other competing companies i.e. Ambuja, Birla, and Binani etc. The competitors are using


different promotional strategies to attract buyers. So, all the leading players in the
industry have to analyze the situation frequently & they have to keep changing them too.
Strengths: 1. The industry is likely to maintain its growth momentum and continue growing at

9 10% in the foreseeable future.

2. Government initiative in the infrastructure sector such as the commencement of the

second phase of the National Highway Development project, freight carriers, rural
roads and development of the housing sector (Bharat Nirman Yojana) are likely to
be the main drivers of growth.

In the coming few years the demand for the cement will increase which will be
booming news for cement manufactures. As capacity utilization is over 90% now.

4. Huge potential for export.

Weakness: 1. Cement Industry is highly fragmented & regionalized.
2. Low value commodity makes transportation over long distances uneconomical.
3. High capital cost and investment cost for each and every project.
4. The complex Excise Duty structure based on the category of buyer and end use
of the cement has caused at lot of confusion in the industry.
5. The recent ban on export of cement clinker would increase the availability of
cement in the domestic market, which in turn would put pressure on cement
Opportunities: Demandsupply gap
1. Substantially low per capita cement consumption as compared to developing
countries (1/3 rd of world average) Per capita cement consumption in India is
82 kgs against a global average of 255 kgs and Asian average of 200 kgs.
2. Despite slightly lower economic growth, the construction and infrastructure
sector is expected to record healthy growth, which augurs well for cement


3. Additional capacity of 20 million tons per annum will be required to match the

Threats: 1. The recent moves by the Central Government in making the import of the
cement total duty free, is a cause of worry for the Indian cement industry.
2. Further recent changes in the Central Excise Duty structure by way of
introduction of multiple slabs of Excise Duty is also a cause of worry for the
3. Almost all the major players in the industry have announced substantial
increase in the capacity and the possibility of over supply situation cannot be
ruled out.


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

truck Loading restrictions imposed by various State Governments

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

Competitor analysis (Overall industry):ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share in India,
which with its total installed capacity of 207 MTPA, India is the second largest cement
producing country in the world. ACCs nation-wide presence and brand image ensures a
competitive edge and helps it to withstand regional fluctuations in prices and also to
adapt its distribution to market place needs. Its key competitors are as follows:ACC Ltd is the market leader with the capacity of 22.63 MTPA .The top ten
companies are given below with the details:Name

ACC Limited



Installed Capacity


Net Profit (Quarter ended Sep 30, 2009)

41,550.89 lakhs


Gujarat Ambuja Cements Limited



Installed Capacity


Net Profit (Quarter ended on Sep 30, 2009)

31,848 lakhs





Installed Capacity


Net Profit (in 2008-09)

97,700 lakhs






Installed Capacity


Net Profit (in 2008-09)

1,64,800 lakhs


India Cements



Installed Capacity


Net Profit (in 2008-09)

43,218 lakhs


JK Cement Ltd



Installed Capacity


Net Profit (in 2008-09)

14,234.40 lakhs


Jaypee Group



Installed Capacity



Century Cement



Installed Capacity



Madras Cement



Installed Capacity


Net Profit (in 2008-09)

49,081 lakhs


Birla Corp.



Installed Capacity


Net Profit (in 2008-09)

9,061 lakhs


Introduction of the Company

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's
operations are spread throughout the country with 14 modern cement factories, 19 Ready
mix concrete plants, 19 sales offices, and several zonal offices. It has a workforce of
about 9000 persons and a countrywide distribution network of over 9,000 dealers. ACC's
research and development facility has a unique track record of innovative research,
product development and specialized consultancy services. Since its inception in 1936,
the company has been a trendsetter and important benchmark for the cement industry in
respect of its production, marketing and personnel management processes. Its
commitment to environment-friendliness, its high ethical standards in business dealings
and its on-going efforts in community welfare programs have won it acclaim as a
responsible corporate citizen. In the 70 years of its existence, ACC has been a pioneer in
the manufacture of cement and concrete and a trendsetter in many areas of cement and
concrete technology including improvements in raw material utilization, process
improvement, energy conservation and development of high performance concretes.
ACCs brand name is synonymous with cement and enjoys a high level of equity in the
Indian market. It is the only cement company that figures in the list of Consumer Super
Brands of India.


The company's various businesses are supported by a powerful, in-house research and
technology backup facility - the only one of its kind in the Indian cement industry. This
ensures not just consistency in product quality but also continuous improvements in
products, processes, and application areas.
ACC has rich experience in mining, being the largest user of limestone, and it is also one
of the principal users of coal. As the largest cement producer in India, it is one of the
biggest customers of the Indian Railways, and the foremost user of the road transport
network services for inward and outward movement of materials and products.
ACC has also extended its services overseas to the Middle East, Africa, and South
America, where it has provided technical and managerial consultancy to a variety of
consumers, and also helps in the operation and maintenance of cement plants abroad.
ACC is among the first companies in India to include commitment to environmental
protection as one of its corporate objectives, long before pollution control laws came into
existence. The company installed pollution control equipment and high efficiency
sophisticated electrostatic precipitators for cement kilns, raw mills, coal mills, power
plants and coolers as far back as 1966. Every factory has state-of-the art pollution control
equipment and devices.

History & Profile of ACC Cement Works

ACC was formed in 1936 when ten existing cement companies came together under one
umbrella in a historic merger the countrys first notable merger at a time when the term
mergers and acquisitions was not even coined. The history of ACC spans a wide canvas
beginning with the lonely struggle of its pioneer F E Din Shaw and other Indian
entrepreneurs like him who founded the Indian cement industry. Their efforts to face
competition for survival in a small but aggressive market mingled with the stirring of a


countrys nationalist pride that touched all walks of life including trade, commerce and
The first success came in a move towards cooperation in the countrys young cement
industry and culminated in the historic merger of ten companies to form a cement giant.
These companies belonged to four prominent business groups Tatas, Khataus, Killick
Nixon and F E Din Shaw groups. ACC was formally established on August 1, 1936.
Sadly, F E Din Shaw, the man recognized as the founder of ACC, died in January 1936.
Just months before his dream could be realized.
The ACC Board comprises of 13 persons. These include executive, non-executive, and
nominee directors. This group is responsible for determining the objectives and broad
policies of the Company - consistent with the primary objective of enhancing long-term
shareholder value.
The Board meets once a month. Two other small groups of directors - comprising
Shareholders'/Investors' Grievance Committee and Audit Committee of the Board of
Directors - also meet once a month on matters pertaining to the finance and share
disciplines. During the last decade, there has been a streamlining of the senior
management structure that is more responsive to the needs of the Company's prime
business. A Managing Committee - comprising, in addition to the Managing Director and
the two executive directors, the presidents representing multifarious disciplines: finance,
production, marketing, research and consultancy, engineering and human resources
meets once a week.
A Strategic Alliance:
The house of Tata was intimately associated with the heritage and history of ACC, right
from its formation in 1936 up to 2000. The Tata group sold all 14.45% of its
shareholdings in ACC in three stages to subsidiary companies of Gujarat Ambuja
Cements Ltd. (GACL), who are now the largest single shareholder in ACC.
This enabled ACC to enter into a strategic alliance with GACL; a company reputed for its
brand image and cost leadership in the cement industry.

Holcim A New Partnership:

A new association was formed between ACC and The Holcim group of Switzerland in
2005. In January 2005, Holcim announced its plans to enter into long term alliances
with Ambuja Group by acquiring a majority stake in Ambuja Cements India Ltd. (ACIL),
which at the time held 13.8% of total equity shares in ACC. Holcim simultaneously
announced its bid to make an open offer to ACC shareholders, through Holdcem Cement
Pvt. Ltd. and ACIL, to acquire a majority shareholding in ACC. An open offer was made
by Holdcem Cement Pvt. Ltd. along with ACIL, following which the shareholding of
ACIL increased to 34.69% of Equity share capital of ACC. Consequently, ACIL has filed
declarations indicating their shareholding and declaring itself as a promoter of ACC.
Holcim is the world leader in cement as well as
being large supplier of concrete, aggregates and certain construction related services.
Holcim is also a respected name in information technology and research and
development. The group has its headquarters in Switzerland with worldwide operations
spread across more than 70 countries.

Plants & Their Capacity:




Bargarh Cement Works
Chaibasa Cement Works

Capacity (MTPA)


New Wadi Plant

Chanda Cement Works

Damodar Cement Works
Gagal Cement Works

(Gagal I and II)

Jamul Cement Works

Kymore Cement Works
Lakheri Cement Works
Madukkarai Cement Works
Sindri Cement Works
Wadi Cement Works
Wadi Cement Works


Tikaria Cement Grinding and Packing





To be one of the most respected companies in India; recognized for challenging
conventions and delivering on our promises
Mission of ACC



Maintain our leadership of the Indian cement industry through the

continuous modernization and expansion of our manufacturing facilities
and activities, and through the establishment of a wide and efficient



marketing network.
Achieve a fair and reasonable return on capital by promoting productivity
throughout the company.
Ensure a steady growth of business by strengthening our position in the
cement sector.
Maintain the high quality of our products and services and ensure their
supply at fair prices.
Promote and maintain fair industrial relations and an environment for the
effective involvement, welfare and development of staff at all levels.
Promote research and development efforts in the areas of product
development and energy, and fuel conservation, and to innovate and
optimize productivity.
Fulfill our obligations to society, specifically in the areas of integrated
rural development and in safeguarding the environment and natural
ecological balance.

Few Achievement of ACC Limited:




The Associated Cement Companies Limited incorporated on August 1


India's first entirely indigenous cement plant installed at Chaibasa.



ACC Sindri uses waste material - calcium carbonate sludge -from fertilizer factory at
Sindri to make cement
Bulk Cement Depot established at Okhla, Delhi
Blast furnace slag, (a waste by-product from steel) from TISCO used at ACC Chaibasa
manufacture Portland Slag Cement.
Manufacture of Hydrophobic (waterproof) cement at ACC Khalari.
Manufacture of Portland Pozzolana Cement using naturally available materials. An Ecofriendly cements using an eco-friendly process.


ACC inducts use of pollution control equipment and high efficiency sophisticated

electrostatic precipitators for its cement plants and captive power plants decades before it
becomes mandatory to do so.


Introduction of the energy efficient pre-calcinations technology for the first time in India.


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


ACC develops a new binder, working at sub-zero temperature, which is successfully used in
the Indian expedition to Antarctica.


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


Commercial manufacture of ready-mixed concrete at Mumbai.

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


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


Awards & Accolades

IMC Ramkrishna Bajaj National Quality Award - Gagal wins Commendation Certificate and
New Wadi Plant wins Special Award for Performance Excellence in the Manufacturing Sector,

National Award for outstanding performance in promoting rural and agricultural development

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

Indira Priyadarshini Vrikshamitra Award --- by The Ministry of Environment and Forests for
"extraordinary work" carried out in the area of afforestation.

FICCI Award --- for innovative measures for control of pollution, waste management &
conservation of mineral resources in mines and plant.

Subh Karan Sarawagi Environment Award - by The Federation of Indian Mineral Industries for
environment protection measures.

Drona Trophy - By Indian Bureau Of Mines for extra ordinary efforts in protection of
Environment and mineral conservation in the large mechanized mines sector.

Indo German Greentech Environment Excellence Award

Golden Peacock Environment Management Special Award - for outstanding efforts in

Environment Management in the large manufacturing sector.

Indira Gandhi Memorial National Award - for excellent performance in prevention of pollution
and ecological development

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

Chemical Manufacturers Association

Vishwakarma Rashtriya Puraskar trophy for outstanding performance in safety and mine

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

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

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

systems by Greentech Foundation

FIMI National Award - for valuable contribution in Mining activities from the Federation of
Indian Mineral Industry under the Ministry of Coal.

Rajya Sthariya Paryavaran Puraskar - for outstanding work in Environmental Protection and
Environment Performance by the Madhya Pradesh Pollution. Control Board.

National Award for Fly Ash Utilization - by Ministry of Power, Ministry of Environment &
Forests and Dept of Science & Technology, Govt of India - for manufacture of Portland
Pozzolana Cement.

Good Corporate Citizen Award - by Bombay Chamber of Commerce and Industry for working
towards an environmentally sustainable industry while pursuing the objective of creation of a
better society.

National Award for Excellence in Water Management - by the Confederation of Indian Industry

ACC was the first recipient of ASSOCHAMs first ever National Award for
outstanding performance in promoting rural and agricultural development
activities in 1976.
Decades later, PHD Chamber of Commerce and Industry selected ACC as winner of
its Good Corporate Citizen Award for the year 2002.
Over the years, there have been many awards and felicitations for achievements in Rural
and community development, Safety, Health, Tree plantation, A forestation, Clean
Mining, Environment Awareness and Protection.

Corporate office:
Overseeing the companys rang of business; the Corporate Office is the central head
quarters of all business and human resource function located in Mumbai.


ACC Subsidiaries:
1. Bulk Cement Corporation India Ltd (BCCI)
2. ACC Machinery Company Ltd (AMCL)
3. ACC Nihon Casting Ltd (ANCL)

Regional marketing offices :Offices at all major cities in India i.e Bangaluru , Bhopal, Chandigarh , Coimbatore ,
Kanpur, Kolkata, Mumbai, Pune , Secunderabad ,New Delhi & Patna.




Rs. Crore


















Basic Earnings






per Share (Rs.)

An Introduction To Working Capital Management


Working capital means the part of the total assets of the business that change from one
form to another form in the ordinary course of business operations.
Concept of working capital:The word working capital is made of two words 1.Working and 2. Capital
The word working means day to day operation of the business, whereas the word capital
means monetary value of all assets of the business.
Working capital : Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship with
the current day-to-day operations of a business. Every business needs funds for two
* Long term funds are required to create production facilities through purchase of fixed









* Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses.
. It is other wise known as revolving or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e.
Working Capital = Current Asset Current Liability.
Businesses use capital for construction, renovation, furniture, software, equipment, or
machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is
also used often by businesses to put a down payment down on a piece of commercial real
estate. Working capital is essential for any business to succeed. It is becoming
increasingly important to have access to more working capital when we need it.


Concept of working capital

Gross Working Capital = Total of Current Asset

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

Current Assets
Cash in hand / at bank

Current Liabilities
Bills Payable

Bills Receivable

Sundry Creditors

Sundry Debtors

Outstanding expenses

Short term loans

Accrued expenses

Investors/ stock

Temporary investment

Bank Over draft

Prepaid expenses

Accrued incomes

Working capital in terms of five components:

1. Cash and equivalents: - This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key
questions such as: Is the cash level adequate to meet current expenses as they come due?
What is the timing relationship between cash inflow and outflow? When will peak cash
needs occur? When and how much bank borrowing will be needed to meet any cash
shortfalls? When will repayment be expected and will the cash flow cover it?
2. Accounts receivable: - Many businesses extend credit to their customers. If we do, is


the amount of accounts receivable reasonable relative to sales? How rapidly are
receivables being collected? Which customers are slow to pay and what should be done


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

naturally it requires continual scrutiny. Is the inventory level reasonable compared with
sales and the nature of
our business? What's the rate of inventory turnover compared with other companies in
our type of business?
4. Accounts payable: - Financing by suppliers is common in small business; it is
one of the major sources of funds for entrepreneurs. Is the amount of money owed
suppliers reasonable relative to what we purchase? What is our firm's payment










5. Accrued expenses and taxes payable: - These are obligations of our company
at any given time and represent a future outflow of cash.
Two different concepts of working capital are:

Balance sheet or Traditional concept

Operating cycle concept.

Balance sheet or Traditional concept:- It shows the position of the firm at certain point of
time. It is calculated in the basis of balance sheet prepared at a specific date. In this method
there are two type of working capital:

Gross working capital

Net working capital

Gross working capital:- It refers to the firms investment in current assets. The sum of the
current assets is the working capital of the business. The sum of the current assets is a

quantitative aspect of working capital. Which emphasizes more on quantity than its quality,
but it fails to reveal the true financial position of the firm because every increase in current
liabilities will decrease the gross working capital.
Net working capital:- It is the difference between current assets and current liabilities or the
excess of total current assets over total current liabilities.
Working capital= current assets - current liabilities.
Net working capital: - It is also can defined as that part of a firms current assets which is
financed with long term funds. It may be either positive or negative. When the current assets
exceed the current liability, the working capital is positive and vice versa.
Operating cycle concept: - The duration or time required to complete the sequence of
events right from purchase of raw material for cash to the realization of sales in cash is
called the operating cycle or working capital cycle.







Types of Working Capital:-























Factors requiring consideration while estimating working capital.

The average credit period expected to be allowed by suppliers.

Total costs incurred on material, wages.

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

The length of the production cycle (or) work in process.

The length of sales cycle during which finished goods are to be kept waiting for


The average period of credit allowed to customers

The amount of cash required to make advance payment

Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the efficiency with
which working capital is being used in the enterprise. The following are the important
ratios to measure the efficiency of working capital. The following, easily calculated,
ratios are important measures of working capital utilization.
Key Working Capital Ratios
The following, easily calculated, ratios are important measures of working capital




On average, we turn over the value of our
entire stock every x days. We may need to

(in days)

Average Stock *

break this down into product groups for



Cost of Goods



effective stock management.

Obsolete stock, slow moving lines will extend
overall stock turnover days. Faster production,
fewer product lines, just in time ordering will
reduce average days.
It takes on average x days to collect monies

(in days)

due to we. If were official credit terms are 45

Debtors * 365/




One or more large or slow debts can drag out

the average days. Effective debtor


Creditors * 365/


Cost of Sales (or days

(in days)

day and it takes 65 days... why?



management will minimize the days.

On average, we pay our suppliers every x
days. If we negotiate better credit terms this
will increase. If we pay earlier, say, to get a
discount this will decline. If we simply defer


paying our suppliers (without agreement) this

will also increase - but our reputation, the
quality of service and any flexibility provided
by our suppliers may suffer.
Current Assets are assets that we can readily
turn in to cash or will do so within 12 months
in the course of business. Current Liabilities
are amount we are due to pay within the

Total Current



Total Current



coming 12 months. For example, 1.5 times

means that we should be able to lay our hands
on $1.50 for every $1.00 we owe. Less than 1
time e.g. 0.75 means that we could have
liquidity problems and be under pressure to
generate sufficient cash to meet oncoming

(Total Current
Assets Quick Ratio

Total Current



Similar to the Current Ratio but takes account

of the fact that it may take time to convert
inventory into cash.

(Inventory +
Receivables Payables)/

As % A high percentage means that working capital

Sales needs are high relative to our sales.


Note:- Once ratios have been established for our business, it is important to track them
over time and to compare them with ratios for other comparable businesses or industry
The working capital needs of a business are influenced by numerous factors. The
important ones are discussed in brief as given below:


Nature of Enterprise:-The nature and the working capital requirements of an

enterprise are interlinked. While a manufacturing industry has a long cycle of
operation of the working capital, the same would be short in an enterprise
involved in providing services. The amount required also varies as per the nature;
an enterprise involved in production would require more working capital than a
service sector enterprise.
Manufacturing/Production Policy:-Each enterprise in the manufacturing sector
has its own production policy, some follow the policy of uniform production even
if the demand varies from time to time, and others may follow the principle of
'demand-based production' in which production is based on the demand during
that particular phase of time. Accordingly, the working capital requirements vary
for both of them.
Working Capital Cycle :-In manufacturing concern, working capital cycle starts
with the purchase of raw materials and ends with realization of cash from the sale
of finished goods. The cycle involves the purchase of raw materials and ends with
the realization of cash from the sale of finished products. The cycle involves
purchase of raw materials and stores, its conversion in to stock of finished goods
through work in progress with progressive increment of labor and service cost,
conversion of finished stick in to sales and receivables and ultimately realization
of cash and this cycle continuous again from cash to purchase of raw materials
and so on.
Operations:-The requirement of working capital fluctuates for seasonal business.
The working capital needs of such businesses may increase considerably during
the busy season and decrease during the slack season. Ice creams and cold drinks
have a great demand during summers, while in winters the sales are negligible.
Market Condition:-If there is high competition in the chosen product category,
then one shall need to offer sops like credit, immediate delivery of goods etc. for

which the working capital requirement will be high. Otherwise, if there is no

competition or less competition in the market then the working capital
requirements will be low.
Credit Policy:-The credit policy is concerned in its dealings with debtors and
creditors influence considerably the requirements of the working capital. A
concern that purchases its requirements on credit and sells its products/services on
cash requires lesser amount of working capital. On the other hand a concern
buying its requirements for cash and allowing credit to its customers, shall need
larger amount of funds are bound to be tied up in debtors or bills receivables.
Business Cycle:-Business Cycle refers to alternate expansion and contraction in
general business activities. In a period of born i.e. when the business is prosperous
there is a need for larger amount of working capital due to increase in sales, rise in
prices, optimistic expansion of business etc. On the country at he time of
depression i.e. when there is a down swing of the cycle, business contracts, sales
decline, difficulties are faced in collections from debtors and firms may have a
large amount of working capital lying ideal
Availability of Raw Material:-If raw material is readily available then one need
not maintain a large stock of the same, thereby reducing the working capital
investment in raw material stock. On the other hand, if raw material is not readily
available then a large inventory/stock needs to be maintained, thereby calling for
substantial investment in the same.
Growth and Expansion:-Growth and expansion in the volume of business results
in enhancement of the working capital requirement. As business grows and
expands, it needs a larger amount of working capital. Normally, the need for
increased working capital funds precedes growth in business activities.


Earning Capacity and Dividend policy:-Some firms have more earning capacity
than others due to the quality of their products, monopoly conditions etc. Such
firms with high earning capacity may generate cash profits from operations and
contribute to their capital. The dividend policy of a concern also influences the
requirements of the working capital. A firm that maintains steady high rate of cash
dividend irrespective of its generation of profits needs more capital than the firm
retains larger part of its profits and does not pay high rate of cash dividend.
Price Level Changes:-Generally, rising price level requires a higher investment
in the working capital. With increasing prices, the same level of current assets
needs enhanced investment.
Manufacturing Cycle:-The manufacturing cycle starts with the purchase of raw
material and is completed with the production of finished goods. If the
manufacturing cycle involves a longer period, the need for working capital would
be more. At times, business needs to estimate the requirement of working capital
in advance for proper control and management. The factors discussed above
influence the quantum of working capital in the business. The assessment of
working capital requirement is made keeping these factors in view. Each
constituent of working capital retains its form for a certain period and that holding
period is determined by the factors discussed above. So for correct assessment of
the working capital requirement, the duration at various stages of the working
capital cycle is estimated. Thereafter, proper value is assigned to the respective
current assets, depending on its level of completion.
Other Factors:-Certain other factors such as operating efficiency, management
ability, irregularities a supply, import policy, asset structure, importance of labor,
banking facilities etc. also influences the requirement of working capital.
Component of Working Capital Basis of Valuation: Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is lower

Stock of finished goods Cost of production
Debtors Cost of sales or sales value
Working Capital Management refers to management of current assets and current
liabilities. The major thrust of course is on the management of current assets .This is
understandable because current liabilities arise in the context of current assets. Working
Capital Management is a significant fact of financial management. Its importance stems
from two reasons:

Investment in current assets represents a substantial portion of total investment.

Investment in current assets and the level of current liabilities have to be geared
quickly to change in sales. To be sure, fixed asset investment and long term
financing are responsive to variation in sales. However, this relationship is not as
close and direct as it is in the case of working capital components.

The importance of working capital management is effected in the fact that financial
manages spend a great deal of time in managing current assets and current liabilities.
Arranging short term financing, negotiating favorable credit terms, controlling the
movement of cash, administering the accounts receivable, and monitoring the inventories
consume a great deal of time of financial managers.

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


Thus the job of efficient working capital management is a formidable one, since it
depends upon several variables such as character of the business, the lengths of the
merchandising cycle, rapidity of turnover, scale of operations, volume and terms of
purchase & sales and seasonal and other variations.

o Growth may be stunted. It may become difficult for the enterprise to undertake
profitable projects due to non-availability of working capital.
o Implementation of operating plans may become difficult and consequently the
profit goals may not be achieved.
o Cash crisis may emerge due to paucity of working funds.
o Optimum capacity utilization of fixed assets may not be achieved due to non
availability of the working capital.
o The business may fail to honor its commitment in time, thereby adversely
affecting its credibility. This situation may lead to business closure.
o The business may be compelled to buy raw materials on credit and sell finished
goods on cash. In the process it may end up with increasing cost of purchases and
reducing selling prices by offering discounts. Both these situations would affect
profitability adversely.
o Non-availability of stocks due to non-availability of funds may result in
production stoppage.


o Excess of working capital may result in unnecessary accumulation of inventories.

o It may lead to offer too liberal credit terms to buyers and very poor recovery
system and cash management.
o It may make management complacent leading to its inefficiency.
o Over-investment in working capital makes capital less productive and may reduce
return on investment. Working capital is very essential for success of a business
and, therefore, needs efficient management and control. Each of the components
of the working capital needs proper management to optimize profit.

Financing Working Capital

Working capital or current assets are those assets, which unlike fixed assets change their
forms rapidly. Due to this nature, they need to be financed through short-term funds.
Short-term funds are also called current liabilities. The following are the major sources of
raising short-term funds:
I. Suppliers Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material
is paid after some time, i.e. upon completion of the credit period. Thus, without having an
outflow of cash the business is in a position to use raw material and continue the
activities. The credit given by the suppliers of raw materials is for a short period and is
considered current liabilities. These funds should be used for creating current assets like
stock of raw material, work in process, finished goods, etc.
ii. Bank Loan for Working Capital


This is a major source for raising short-term funds. Banks extend loans to businesses to
help them create necessary current assets so as to achieve the
Required business level. The loans are available for creating the following current Assets:

Stock of Raw Materials

Stock of Work in Process

Stock of Finished Goods


Banks give short-term loans against these assets, keeping some security margin.
The advances given by banks against current assets are short-term in nature and banks
have the right to ask for immediate repayment if they consider doing so. Thus bank loans
for creation of current assets are also current liabilities.
iii. Promoters Fund
It is advisable to finance a portion of current assets from the promoters funds. They are
long-term funds and, therefore do not require immediate repayment. These funds increase
the liquidity of the business.

Management of Inventory
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 % of current assets
in public limited companies in India.
Because of the large size of inventories maintained by firms maintained by firms, a
considerable amount of funds is required to be committed to them. It is, therefore very
necessary to manage inventories efficiently and effectively in order to avoid unnecessary
investments. A firm neglecting a firm the management of inventories will be jeopardizing
its long run profitability and may fail ultimately.
The purpose of inventory management is to ensure availability of materials in sufficient
quantity as and when required and also to minimize investment in inventories at

considerable degrees, without any adverse effect on production and sales, by using simple
inventory planning and control techniques.
Need to hold inventories: Transaction motive emphasizes the need to maintain inventories to facilitate
smooth production and sales operation.
Precautionary motive necessities holding of inventories to guard against the risk
of unpredictable changes in demand and supply forces and other factors.
Speculative motive influences the decision to increases or reduce inventory
levels to take advantage of price fluctuations and also for saving in re-ordering
costs and quantity discounts etc.
Objective of Inventory Management:The main objectives of inventory management are operational and financial. The
operational mean that means that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory. The financial
objective means that investments in inventories should not remain ideal and minimum
working capital should be locked in it. The following are the objectives of inventory
management: To ensure continuous supply of materials, spares and finished goods.
To avoid both over-stocking of inventory.
To maintain investments in inventories at the optimum level as required by the
operational and sale activities.
To keep material cost under control so that they contribute in reducing cost of
production and overall purchases.
To eliminate duplication in ordering or replenishing stocks. This is possible with
the help of centralizing purchases.
To minimize losses through deterioration, pilferage, wastages and damages.


To design proper organization for inventory control so that management. Clear cut
account ability should be fixed at various levels of the organization.
To ensure perpetual inventory control so that materials shown in stock ledgers
should be actually lying in the stores.
To ensure right quality of goods at reasonable prices.
To facilitate furnishing of data for short-term and long term planning and control
of inventory
Management of cash
Cash is the important current asset for the operation of the business. Cash is the basic
input needed to keep the business running in the continuous basis, it is also the ultimate
output expected to be realized by selling or product manufactured by the firm.
The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the
firms manufacturing operations while excessive cash will simply remain ideal without
contributing anything towards the firms profitability. Thus a major function of the
financial manager is to maintain a sound cash position.
Cash is the money, which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm and balances in its bank
account. Sometimes near cash items such as marketing securities or bank term deposits
are also included in cash. Generally when a firm has excess cash, it invests it is
marketable securities. This kind of investment contributes some profit to the firm.
Management of Receivables
A sound managerial control requires proper management of liquid assets and inventory.
These assets are a part of working capital of the business. An efficient use of financial
resources is necessary to avoid financial distress. Receivables result from credit sales.
A concern is required to allow credit sales in order to expand its sales volume. It is not
always possible to sell goods on cash basis only. Sometimes other concern in that line


might have established a practice of selling goods on credit basis. Under these
circumstances, it is not possible to avoid credit sales without adversely affecting sales.
The increase in sales is also essential to increases profitability. After a certain level of
sales the increase in sales will not proportionately increase production costs. The increase
in sales will bring in more profits. Thus, receivables constitute a significant portion of
current assets of a firm. But for investment in receivables, a firm has to insure certain
costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a
proper control and management of receivables.
Needs to hold cash:
Receivables management is the process of making decisions relating to investment in
trade debtors. Certain investments in receivables are necessary to increase the sales and
the profits of a firm. But at the same time investment in this asset involves cost
consideration also. Further, there is always a risk of bad debts too.
Thus, the objective of receivable management is to take a sound
decision as regards investments in debtors. In the words of Bolton, S.E., the need of
receivables management is to promote sales and profits until that point is reached
where the return of investment in further funding of receivables is less than the cost







Working Capital Cycle
Cash flows in a cycle into, around and out of a business. It is the business's life blood and
every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory, generate
cash surpluses. If it doesn't generate surpluses, the business will eventually run out of
cash and expire. The faster a business expands the more cash it will need for working
capital and investment. The cheapest and best sources of cash exist as working capital
right within business. Good management of working capital will generate cash will help
improve profits and reduce risks. Bear in mind that the cost of providing credit to

customers and holding stocks can represent a substantial proportion of a firm's total
There are two elements in the business cycle that absorb
cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing our
money). The main sources of cash are Payables (our creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two
dimensions ........TIME ......... and MONEY. When it comes to managing working capital
- TIME IS MONEY. If we can get money to move faster around the cycle (e.g. collect
monies due from debtors more quickly) or reduce the amount of money tied up (e.g.
reduce inventory levels relative to sales), the business will generate more cash or it will
need to borrow less money to fund working capital. As a consequence, we could reduce
the cost of bank interest or we'll have additional free money available to support
additional sales growth or investment. Similarly, if we can negotiate improved terms with
suppliers e.g. get longer credit or an increased credit limit; we effectively create free
finance to help fund future sales.


If we.......
Collect receivables (debtors) faster

We release cash from
the cycle

Collect receivables (debtors) slower

Our receivables soak

up cash

Get better credit (in terms of duration

We increase our cash

or amount) from suppliers


Shift inventory (stocks) faster

We free up cash

Move inventory (stocks) slower

We consume more

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles
etc. If we do pay cash, remember that this is now longer available for working capital.
Therefore, if cash is tight, we should consider other ways of financing capital investment
- loans, equity, leasing etc. Similarly, if we pay dividends or increase drawings, these are
cash outflows and, like water flowing downs a plug hole, they remove liquidity from the
More businesses fail for lack of cash than for want of profit.
Sources of Additional Working Capital:

Existing cash reserves

Profits (when we secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Long-term loans

If we have insufficient working capital and we try to increase sales, we can easily overstretch the financial resources of the business. This is called overtrading. Early warning
signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for early cash

Bank overdraft exceeds authorized limit

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors

Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing Frequent shortterm emergency requests to the bank (to help pay wages, pending receipt of a
Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed....
how long it is owing.... for what it is owed.
Late payments erode profits and can lead to bad debts.
If we don't manage debtors, they will begin to manage our business as we will
gradually lose control due to reduced cash flow and, of course, we could experience an
increased incidence of bad debt.
The following measures will help manage our debtors:
1. Have the right mental attitude to the control of credit and make sure that it gets
the priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and
4. Be professional when accepting new accounts, and especially larger ones.
5. Check out each customer thoroughly before we offer credit. Use credit agencies,
bank references, industry sources etc.

6. Establish credit limits for each customer... and stick to them.

7. Continuously review these limits when we suspect tough times are coming or if
operating in a volatile sector.
8. Keep very close to our larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor our debtor balances and ageing schedules, and don't let any debts get too
large or too old.
Recognize that the longer someone owes we, the greater the chance we will never get
paid. If the average age of our debtors is getting longer, or is already very long, we may
need to look for the following possible defects:
weak credit judgment
poor collection procedures
lax enforcement of credit terms
slow issue of invoices or statements
errors in invoices or statements
Customer dissatisfaction.
Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention.

Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasons and
therefore put on the long finger because they convince themselves there is something
more urgent or important that demands their attention now. There is nothing more


important than getting paid for our product or service. A customer who does not pay
is not a customer.
Managing Payables (Creditors)
Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can create
liquidity problems. Consider the following:

Who authorizes purchasing in our company - is it tightly managed or spread

among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do we use order quantities which take account of stock-holding and purchasing


Do we know the cost to the company of carrying stock?

Do we have alternative sources of supply? If not, get quotes from major suppliers
and shop around for the best discounts, credit terms, and reduce dependence on a
single supplier.

How many of our suppliers have a returns policy?

Are we in a position to pass on cost increases quickly through price increases to

our customers?

If a supplier of goods or services lets we down can we charge back the cost of the

Can we arrange (with confidence!) to have delivery of supplies staggered or on a

just-in-time basis?

There is an old adage in business that if we can buy well then we can sell well.
Management of our creditors and suppliers is just as important as the management of our
debtors. It is important to look after our creditors - slow payment by we may create illfeeling and can signal that our company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with us to enhance the future
viability and profitability of our company.


ANALYSIS of financial statement of ACC Limited:Common size statement Analysis (vertical Analysis):A financial statement that has variables expressed in percentages rather than in dollar
amounts. For example, items on an income statement are shown as a percentage of
revenue or sales, and balance sheet entries are displayed as a percentage of total assets.

Common-size statements are used primarily for comparative purposes so that firms of
various sizes can be equated. Also called one hundred percent statement.
Advantages: The statement reveals the sources of funds & the distribution or application of the
total funds in the asset of a business enterprise.
Comparison of the common size statement over a number of years will clearly
indicate the changing proportion of the various components of assets, liabilities,
cost, net sales & profits.
It will assist corporate evaluation & ranking.
Limitations: It doesnt show variations in the different account items from period to period.
Less useful due to lack of established standard proportion of an asset to the total
asset & so on.
Common size statement analysis of ACC cements Ltd. from 2012-2016
2012 (%)





Shareholders Funds:-

Rs.(Crore) Rs.(Crore) Rs.(Crore) Rs.(Crore) Rs.(Crore)


Loan Funds:






Deferred Tax Liabilities


















APP. OF FUNDS:--Fixed Assets: 84.16
Net Current Assets( Curr 5.62


liabilities & provision)

(to the extent not written
off or adjusted)








Interpretation:(a) There is a significant increase in shareholders fund & decrease in loan

funds continuously over a period of time.
(b) There is also a significant increase in the amount invested by the company
for the purpose of future growth.
(c) There is a significant decrease in current asset over a period of time.
Trend Analysis (Horizontal):- Trend percentage analysis moves in one direction either
progression or regression ( upward or downward).This method involves the calculation of
percentage relationship that each statements bear to the same item in the base year
.Mostly the earliest period is taken as the base year.
Advantages: It indicates the increase in an accounted item along with the magnitude of changes
in percentages which is more effective then absolute data.
It facilitates an efficient comparative study of the financial performance of a firm
over a period of time.
Limitations: Any one trend by itself is not very analytical & informative.
During the inflationary periods the data becomes incomparable ,unless the
absolute rupee data is adjusted.
There is always the danger of selecting the base year which may not be
representative, normal & typical.
The calculated percentages having no logical relationship with one another.
Precautions to be taken: Consistency in the principles & practices followed by the organization throughout
the calculated period.


The base year should be normal.

Trend percentages should be calculated only for the items which are having
logical relationship with each other.
Figures of the current year should be adjusted according to the changes in price







Rs.(Crore) Rs.(Crore) Rs.(Crore)

Shareholders Funds:-





Loan Funds





Deferred Tax Liabilities










Fixed Assets










Curr Assets,Loans & Adv:












--(Less):-Current Liabilities
(to the extent not written off




or adjusted)





*Base year:-2006 Value (100)

Working Capital calculation:Statement showing change in working capital for ACC Ltd:( Crore)
Current Assets
Sund. Debtors
Cash & Bank Bal
Loan & Advances
Other CA
Total ( A )







Increase ( + )


Current Liabilities
Total ( B )


Decrease (- )


( A-B )
Changes in





working capital
Similarly the calculation of WC for the year 2012 to 2016 as given below:( Crore)
(A)Current assets






Working capital
Interpretation:-While looking into the changes, we will look into the various
components of working capital & analyze the changes in that.



By analyzing the 5 years data we can see that the value of inventories is increasing over a
no of year. It indicates that the company is growing rapidly in cement sector. A company
uses inventory when they have demand in market. From other point of view we can say
that the liquidity of firm is blocked in inventories but it is important to keep stocks due to
uncertainty of availability of raw material in time.



Debtors will arise only when credit sales are made. The above graph depicts that there is
continuous rise in the debtors of ACC Ltd in the successive years other than 2009.. It
represents an extension of credit to customers. The reason for increasing credit is
competition and company liberal credit policy.
Cash & Bank Bal, Loans & adv ANALYSIS:-

Significant increase in Cash & bank balance, which shows the financial strengths
of the company. Though there is a slight fall in the FY 2016 . Cash is basic input
or component of working capital. Cash is needed to keep the business running on
a continuous basis. So the organization should have sufficient cash to meet
various requirements.


After analyzing the table, we can say that the pattern of loans & advance is not
static in nature. It shows upwards & downwards movement as the requirements
influence it.

After analyzing the bar-chart, we can say that the amount of current liabilities is
increasing significantly over years .An increase current liabilities indicates that
company is using its credit facilities to the maximum extent for operating
From the above table we can see that provision shows an increasing trend and the
huge amount is being kept in these provisions. This is kept to pay the taxes,
interest & other facilities or benefits to the employee. It is just kept for meeting
future short-term liabilities.


(A) Overview:Financial ratios are measures of the relative health, or sometimes the relative sickness of
a business. A physician, when evaluating a persons health, will measure the heart rate,
blood-pressure and temperature; whereas, a financial analyst will take readings on a
companys growth, cost control, turnover, profitability and risk. Like the physician, the
financial analyst will then compare these readings with generally accepted guidelines.
Ratio analysis is an effective tool to assist the analyst in answering some basic questions,
such as:1. How well is the company doing?
2. What are its strengths and weaknesses?
3. What are the relative risks to the company?
Although an analysis of financial ratios will help identify a companys strengths
and weaknesses, it has its limitations and will not necessarily provide the solutions or
cures for the problems it identifies.
B. APPLICATION OF RATIO ANALYSIS:Integral tool in trend analysis
Compares the companys own ratios to itself over time
Identifies the companys strengths and weaknesses
Assists in establishing appropriate capitalization rates (helps to identify risk
factors particular to the subject company)
Liquidity Ratio






Current Ratio






Quick Ratio






Solvency Ratio
Debt-equity ratio.






Interpretation: - As we know that ideal current ratio for any firm is 2:1.The current
ratio of company is less than the ideal ratio. This depicts that companys liquidity
position is not sound. Its current assets are less than its current liabilities.
Generally a QR of 1:1 is considered to represent satisfactory current financial
position. The trend of quick ratio is uneven & the ratio is around 0.5:1 over a
period of time. A quick ratio is an indication that the firm is liquid and has the less
confidence to meet its current liabilities in time. This shows company has
liquidity problem.
Debt-equity ratio shows relationship between borrowed funds and owners capital
is a popular measure of the long term financial solvency of the firm. For ACC it
was the highest around 0.5:1 in 2012.After that it shows fluctuation.
Activity/mgmt efficiency Ratio:Dec,12
Inventory Turnover 5.37












Turnover 16.34

Investment Turnover 12.29









Work cap turn.


It shows increasing trend which is favorable for the company. As it indicates how
rapidly the inventory is turning into receivable through sales. A high ratio is good
from the view point of liquidity. A low ratio would signify that inventory does not
sell fast.
A high ratio is indicative of shorter time lag between credit sales and cash
collection. The higher the value of debtors turnover the more efficient is the
management of debtors or more liquid the debtors are. A low ratio shows that
debts are not being collected rapidly. As the graph reveals that the debts are
collected in time & the process is improving consistently. This shows that
company is utilizing its debtors efficiently as compare to previous year.
This ratio indicates high net working capital requires for sales. This company
having negative working capital because, they have more current liabilities over
current assets. It shows that the short term loans are not sufficient and more


money are invested in the purchase of fixed assets. Thus this ratio is helpful to
forecast the working capital requirement on the basis of sale.

Profitability & Investment turnover Ratio:Profitability Ratio






Gross Profit Ratio






Net Profit Ratio
















Valuation Ratio
Face value
Dividend per Share


As it shows the dividend per share ratio is increasing over years. It means that the
investors have faith in the company.
G/P margin ratio shows the profit relative to sales. A high ratio of gross profits
to sales is a sign of good management as it implies that the cost of production of
the firm is relatively low. For ACC it is uneven but it was good in FY13 &
The net profit margin is indicative of management ability to operate the business
with sufficient success not only to recover from revenues, but also to leave a
reasonable margin to the owners. A high net profit margin would ensure
adequate return to the owners as well as enable a firm to face adverse economic
conditions. It is significant & satisfactory for the company.
Suggestion: It is suggested that the company has to increase its current assets to meet its
short-term obligations.
Company has to improve debtors collection period continuously so that
effective receivable management will possible.
Reserves should be utilized for the growth of the company.


While forecasting cash flow, the management should take into account the
impact of unforeseen events, market cycles and actions by competitors. The
effect of unforeseen demands of working capital should be factored in.
Collaborating with the customers & suppliers instead of being focused only on
own operations will also yield good results. If feasible, helping them to plan
their inventory requirements efficiently to match their production with their
consumption will help reduce inventory levels.