Summer Internship Program

On

A Study of Financial Performance Based on Ratio Analysis

AT ACC Ltd. Dhanbad, Jharkhand

SUBMITTED BY: Anish Kr. Singh (Reg. No: 1020007)

Faculty Guide Guide Prof. Anirban Ghatak Shankar Faculty, CUIM

Company Mr. Jai Chief Manager

CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT BANGALORE- 560029

CERTIFICATE- FACULTY GUIDE

This is to certify that this internship report on the topic A STUDY OF FINANCIAL PERFORMANCE BASED ON RATIO ANALYSIS, is a satisfactory work of Mr. Anish Kr. Singh under my guidance and support .This report is a part of MBA course with specialization in Finance stream and the content and the work done is genuine with respect to the information covered and thought expressed. .. Prof. Anirban Ghatak Faculty Guide Christ University Institute of Management Date:Place:-

CERTIFICATE- COORDINATOR
This is to certify that Mr. Anish Kr. Singh (Registration number- 1020007) is a bona fide student of Christ University Institute of Management (MBA batch 2010-12) and has successfully completed his Summer Internship Project in ACC Ltd., Sindri Plant, Dhanbad, Jharkhand, in the Finance field. .. Prof. Dr. Jeevananda Coordinator Christ University Institute of Management Date:Place:-

ACKNOWLEDGEMENT
I take this opportunity to express my gratitude towards those whose guidance and co-operation has helped me immensely during the completion of the project. I express my sincere thanks to Mr. Jai Shankar (Chief Manager) who guided me whole heartedly spending his valuable time and taking such interest in my work. It gives me much pleasure to thanks Mr. Pawan Khere (Chief Manager, Sales) for giving his valuable input that really helped me to complete the project successfully. I also convey my sincere gratitude to my faculty Guide Prof. Anirban Ghatak, CHRIST UNIVERSITY INSTITUTE OF MANAGEMENT. I extend my sincere appreciation and thanks to ACC LTD. for the overwhelming welcome, supportive work environment and hospitality which I received. It was indeed a very pleasant and learning experience for me.

Anish Kr. Singh 1020007

Executive Summary
As per the requirement of the course of Master of Business Administration, I have completed my Summer Internship from ACC ltd. The Internship was completed during a two month tenure of April May2011 The Internship period helped me complete my study relating to the topic A Study Of Financial Performance on the basis of Ratio Analysis. The Internship provided me with the opportunity to interact with expert in the field and increase my knowledge about the industry as a whole. A study has been carried out to show the financial performance of the company. With the help of various ratios the performance has been measured and proper actions are recommended. Based on the findings of this analysis, suitable suggestions have been provided for the same.

INDEX

Title

Pag e No.

Certificate from the Company CertificateFaculty Guides CertificateCoordinator Acknowledgement Executive Summary Industry Profile 1.1 1.2 1.3 1.4 1.5 1.6 Introduction Cement Industry Demand derive New Investment Government Initiatives Road Ahead Big Players in the Industry 2 Research Methodology 2.1 2.2 2.3 2.4 2.5 2.6 Problem Statement Objective Scope of the Study Data Collection Measurement Techniques Limitations 8 8 8 8 9 9
2

2 3 4 5 5 6

Company Profile 3.1 3.2 3.3 3.4 Data Analysis Introduction Vision Board of Director Evolution 11 12 13 13

and Interpretatio ns 4.1 4.2 4.3 Findings and Suggestions 5.1 5.2 Findings Suggestions 65 66 67 68 Profitability Ratio Turnover Ratio Financial Ratio 19 37 50

Bibliography Annexure-1

CHAPTER 1

INDUSTRY PROFILE

1.1 INTRODUCTION The one Indian industry which is set for growth over the coming years is the Cement Industry. The worlds second largest cement producer (after China) reached its total installed capacity to 231 million tones after adding 11 million tones of capacity during the first half of 2009. The main characteristics of this industry is that it is highly fragmented, cyclical and highly capital intensive. There are around 125 large and 300 small cement plants. Some of the leading cement manufacturers are UltraTech/Grasim combine, Dalmia Cements, India Cements and Holcim. Returns depend on the vibrancy of the economy as a whole as it directly affects the sales realization and capacity utilization. The industry is heavily dependent on 3 sectors; coal, power and transport. Energy and freight are the two major cost components. Over the last few years, while the proportion of energy cost has increased marginally, freight costs have declined. Increasing government expenditure on infrastructure sector and rising demand for commercial and residential real estate development has resulted in higher demand for cement in the country. According to a report by the ICRA Industry Monitor, the installed cement capacity is expected to increase to 241 million tons per annum by the end of 2010. It also expects that driven by higher domestic demand and increasing utilization, India's cement industry may record an annual growth of 10% over the coming years. Taking cue of the global economic slowdown which was affecting cement companies in India last year, Governments initiative to re-impose counter-veiling duty and special counter-veiling duty this year will help provide a level playing field for domestic players. Moreover, it also appointed a coal regulator to facilitate timely and proper allocation of coal blocks to the important sectors like cement. As coal is one of the prime raw materials used in cement production, this seems to be a positive move. 2

Growth potential of cement industry can be judged by the fact that the per capita cement consumption (156 kg) in India is still well below the global average consumption (396 kg). This gap can be expected to be covered in the coming years. Besides, housing sector accounts for almost 50% of the total cement consumption in the country and the large young population will ensure that the demand for infrastructure stays put. The rising cost of energy, transportation raw material continues to pressure the industry as a whole. To sustain profitability, companies will have to explore alternate source of energy while at the same time enhance their operational efficiency. Industry experts opine that the cement industries should now increase their focus on investing adequately in developing human resources that will be capable enough to address the professional needs of construction industry including advanced technologies and construction practices, project management construction and litigation. 1.2 Cement industry demand derive

1.3 New Investments After exceeding the projected cement production of 290 MT, the Cement Manufacturers Association (CMA) is targeting a production increase upto 320 MT by the year end.

Holcim Group, has increased its stake from 46.44 per cent to 50 per cent stake in Ambuja Cement through the creeping acquisition route. It has also increased its stake in ACC to reach 50.1 per cent.

The Builders Association of India (BAI) plans to set up a cement manufacturing plant at a cost of US$ 677.97 million at Anantpur in Andhra Pradesh. The plant would have a production capacity of 10 MTPA and is expected to be ready in two years.

Shree Cement plans to set up a two MT clinkerisation unit near Raipur, Chhattisgarh, with an investment of US$ 225.12 million. BK Birla Group outfit, Kesoram Industries, is setting up a 2,000 tonne a day packaging unit in Medak district of Andhra Pradesh at a cost of US$ 1.76 million, according to a filing by the company to the stock exchanges. The proposed unit would cater to the packing needs of its cement manufacturing unit at Sedam in Karnataka.

Birla Corporation, the flagship company of the M P Birla Group, is planning to set up a one MT cement plant in Assam at an investment of around US$ 99 million. The company has signed a memorandum of understanding (MoU) with the Assam Mineral Development Corporation to this effect.

Giving further push to industrial development in the State, the Government of Orissa through its single level window clearance committee has approved four major projects involving an investment of US$ 274.02 million.

The Hyderabad-based Sagar Cements Ltd and Vicat Group of Frances US$ 563.82 million worth joint venture (JV) plant is likely to commence operations next year.

My Home Industries Limited (MHI), a 50:50 joint venture (JV) between the Hyderabad-based My Home Group and Ireland's building material major CRH Plc, plans to scale up its cement production capacity from the existing five MTPA

to 15 MTPA by 2016. The company would undertake this capacity expansion at a cost of US$ 1 billion.

Rain Commodities Ltd, which manufactures Priya Cement, has acquired Birla Cement and Industries Ltd from Yash Birla Group for an undisclosed sum.

Cement and gypsum products have received cumulative foreign direct investment (FDI) of US$ 2,316.27 million between April 2000 and February 2011, according to the Department of Industrial Policy and Promotion (DIPP). Cement companies have added a capacity of 89 MT in the last three years taking their installed capacity to 265 million tonnes per annum (MTPA). The companies are expected to add 35 MT of capacity by 2012-13 as compared to consumption of 179 MT in the last fiscal. 1.4 Government Initiatives The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways has planned to invest US$ 354 billion in road infrastructure by 2012. Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement. Increased infrastructure spending has been a key focus area. Finance Minister Pranab Mukherjee has proposed to earmark US$ 47 billion for infrastructure development during 2011-12. The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy. 1.5 Road Ahead Cement sales has revived across regions in December 2010. The pick-up in cement demand was attributed to revival of infrastructure and real estate projects, especially in rural areas. Demand is expected to gain momentum in the March quarter which is traditionally considered a strong as most of the infrastructure and real estate projects are revived post monsoon.

1.6 Big players in the industry Sales Net Profit Profitability Total Assets Turnover UltraTechCement Ambuja Cements ACC Shree Cements Birla Corp India Cements Prism Cement Madras Cements Binani Cement Chetinad Cem 13,350.86 7,517.55 7,975.78 3,514.13 2,162.16 3,509.27 3,388.71 2,636.04 1,733.26 1,540.77 1,404.23 1,263.61 1,120.01 209.7 319.88 68.1 95.79 210.98 90.51 75.17 % 0.11 0.17 0.14 0.06 0.15 0.02 0.03 0.08 0.05 0.05 6,213.17 7,395.13 6,993.31 3,840.48 2,441.80 6,268.54 1,971.07 4,124.67 1,814.59 1,622.59 Market Cap. (Rs. cr.) 27,947.20 21,736.18 19,360.64 6,194.58 2,920.43 2,624.83 2,458.90 2,121.50 1,706.84 1,577.47

CHAPTER 2

RESEARCH METHODOLOGY

2.1 Problem Statement Analysis of Financial Statements of ACC limited. 2.2 OBJECTIVE

To compute the financial position of the ACC Ltd. To analyze the profitability and solvency position of the firm. To analyze the efficiency of the firm through ratios.

To suggest ways and means to improve the present condition. To examine the overall performance of the company. To study the future prospect of Indian Cement Industry.

2.3 SCOPE OF THE STUDY The scope of the study is restricted only till the organizational level. It has been achieved with the help of the Annual Report of the company of the year 2006, 2007, 2008, 2009 & 2010.

2.4 Data collection The study has been conducted using Secondary data alone. Given the nature of the topic, use of Primary data was not warranted. The Secondary data collection methodology is:

For Qualitative data, the Company website and interaction with the Company guide was used. For Quantitative data, Company reports and internal records were used. Collection, classification, compilation, tabulation, analysis & interpretation of information, facts & figure relevant to the co.

Consultation and personal observation. Graphics & diagrammatical presentation of data

2.5 Measurement Techniques/ Statistical tools

Accounting Ratios. Financial Statements of the Company. 2.6 Limitations

Lack of sufficient time. Lack of adequate information.

The study is conducted only on the basis of Balance Sheet & Profit and loss account.

CHAPTER 3

COMPANY PROFILE

3.1 INTRODUCTION
ACC Limited is Indias foremost cement manufacturer with a countrywide network of factories and marketing offices. Established in 1936, ACC has been a pioneer and trendsetter in cement and concrete technology. Among the first companies in India to include commitment to environment protection as a corporate objective, ACC has won accolades for environment friendly measures taken at its plants and mines, and has also been felicitated for its acts of good corporate citizenship. ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations are spread throughout the country with 16 modern cement factories, more than 40 Ready mix concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 10,000 persons and a countrywide distribution network of over 9,000 dealers. Since inception in 1936, the company has been a trendsetter and important benchmark for the cement industry in many areas of cement and concrete technology. ACC has a unique track record of innovative research, product development and specialized consultancy services. The company's various manufacturing units are backed by a central technology support services centre - the only one of its kind in the Indian cement industry. ACC has rich experience in mining, being the largest user of limestone. As the largest cement producer in India, it is one of the biggest customers of the domestic coal industry, of Indian Railways, and a considerable user of the countrys road transport network services for inward and outward movement of materials and products.

Among the first companies in India to include commitment to environmental protection as one of its corporate objectives, the company installed sophisticated pollution control equipment as far back as 1966, long before pollution control laws came into existence. Today each of its cement plants has state-of-the art pollution control equipment and devices. ACC plants, mines and townships visibly demonstrate successful endeavours in quarry rehabilitation, water management techniques and greening activities. The company actively promotes the use of alternative fuels and raw materials and offers total solutions for waste management including testing, suggestions for reuse, recycling and coprocessing. ACC has taken purposeful steps in knowledge building. We run two institutes that offer professional technical courses for engineering graduates and diploma holders which are relevant to manufacturing sectors such as cement. The main beneficiaries are youth from remote and backward areas of the country. ACC has made significant contributions to the nation building process by way of quality products, services and sharing expertise. Its commitment to sustainable development, its high ethical standards in business dealings and its on-going efforts in community welfare programmes have won it acclaim as a responsible corporate citizen. 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 SuperBrands of India.

3.2 VISION

3.3 BOARD OF DIRECTORS

Mr N. S. Sekhsaria Chairman

Mr Paul Hugentobler Deputy Chairman

Mr Sumit Banerjee Managing Director

Mr S M Palia Mr Naresh Chandra

3.4 Evolution
ACC has an interesting story - one that inspired a book. ACC was formed in 1936 when ten existing cement companies came together under one umbrella in a historic merger the country's 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 2

struggle of its pioneer F E Dinshaw 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 country's nationalist pride that touched all walks of life - including trade, commerce and business. The first success came in a move towards cooperation in the country's 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 Dinshaw groups. ACC was formally established on August 1, 1936. Sadly, F E Dinshaw, the man recognized as the founder of ACC, died in January 1936; just months before his dream could be realized.

F. E. Dinshaw the founder of ACC ACC stands out as the most unique and successful merger in Indian business history, in which the distinct identities of the constituent companies were melded into a new cohesive organization - one that has survived and retained its position of leadership in industry. In a sense, the formation of ACC represents a quest for the synergy of good business practices, values and shared objectives. The use of the plural in ACC's original name, The Associated Cement Companies Limited, itself indicated the company's origins from a merger. Many years later, some stockbrokers in the country's leading stock exchanges continued to refer to this company simply as 'The Merger'.

ACC's First Board Meeting in 1936 at The Esplanade The house of Tata was intimately associated with the heritage and history of ACC, right from its formation in 1936 upto 2000. Between the years 1999 and 2000, the Tata group sold all 14.45 per cent of its shareholding in ACC in three stages to subsidiary companies of Gujarat Ambuja Cements Ltd (later called Ambuja Cement Ltd), who then became the largest single shareholder in ACC. A new association was forged between ACC and the Holcim group of Switzerland in 2005. In January 2005, Holcim announced its plans to enter into a long-term strategic alliance with the Ambuja Group by acquiring a majority stake in Ambuja Cements India Ltd. (ACIL), which at the time held 13.8 per cent of the total equity shares in ACC. Holcim simultaneously announced its bid to make an open offer to ACC shareholders, through Holdcem Cement Pvt Limited and ACIL, to acquire a majority shareholding in ACC. An open offer was made by Holdcem Cement Pvt. Limited along with Ambuja Cements India Ltd. (ACIL), following which the shareholding of ACIL increased to 34.69 per cent of the Equity share capital of ACC. Consequently, ACIL 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 suppliers 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. Considering the formidable global presence of Holcim and its excellent reputation, the Board of ACC welcomed this new association.

ACCs Head Office - Cement House, 121 Maharshi Karve Road, Mumbai.

ACCs registered office was first located at Esplanade House in South Mumbai, a graceful edifice that still stands out in its neighbourhood. The head office then shifted to its own premises in Cement House shown here. The address of this stately building was then Number 1, Queens Road, Churchgate. An all-India competition in 1938 had invited leading architects of the time to send in their designs of which this elegant design made by Ballardie Thompson & Mathews was chosen as the winning entry. Work on its construction began in 1939 and was completed during the War period. The building was occupied by the Royal Air Force and vacated only in 1946.

In 2009, a unique project, has transformed Cement House into an energy efficient environment-friendly building. Its attractive refurbished faade now houses an ultramodern office equipped with space-saving modular workstations, access control and intelligent lighting with motion and light sensors, waste management systems and water saving devices set amid greenery and a central atrium that further expands the sense of light and space. Product ACC's brand name is synonymous with cement and enjoys a high level of equity in the Indian market. Our range of cements and blended cements is marketed through a network of 19 Sales Units, 54 Area Offices, and 194 warehouses. This is backed by a countrywide network of over 9,000 dealer who, in turn, are assisted by their sub-dealers. ACCs marketing, sales and distribution processes are industry standards. Although we take immense pride in having supplied some of Indias most admired projects, ACC is essentially a peoples brand of cement with more than 80 per cent of sales made through an extensive dealer network that covers every state in India. Its customer base represents the masses of India - individual homebuilders in small towns, rural and semi-urban India. ACC cement enjoys an image of assuring consistency and of high quality backed by inhouse research and expertise. Complementing this is a unique customer services cell comprising qualified civil engineers, who assist and advise customers with prior and post sales service. This service begins with selection of type and grade of cement (where applicable) to troubleshooting and on-site assistance.

ACC Media Release - Cement Production and Despatches in May 2011

May 2011 Cement production Cement despatches May 2010 Cement production Cement despatches Cumulative January May 2011 Cement production Cement despatches 2.01 million tonnes 1.99 million tonnes 1.82 million tonnes 1.75 million tonnes

10.28 million tonnes 10.26 million tonnes 2

January May 2010 Cement production Cement despatches

9.15 million tonnes 9.10 million tonnes

CHAPTER 4

DATA ANALYSIS &

2

INTERPRETATION

4.1 PROFITABILITY RATIO: INTRODUCTION: A company should earn profit to survive and grow over a long period of time. Profit is the ultimate output of company and company will have no future if it fails to make sufficient profits. Therefore company should continuously evaluate the efficiency of the company in terms of profits. OBJECTIVES: Profitability ratios are calculated to measures the operating efficiency of the company. Poor operational performance may indicate poor sales and hence poor profits. Lower profitability may arise due to lack of control over the expenses etc. INTRESTED PARTIES IN PROFITABILITY RATIOS:

MANAGEMENT CREDITORS OWNERS

Generally two major types of profitability ratios are calculated:

Profitability in relation to sales Profitability in relation to investment

PROFITABILITY RATIOS INVOLVE:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

GROSS PROFIT RATIO NET PROFIT RATIO OPERATING EXPENSES RATIO OPERATING PROFIT RATIO RETURN ON INVESTMENT / OVERALL PROFITABILITY RATIO RETURN ON EQUITY RETURN ON TOTAL ASSETS EPS DPS RETAINED EANING RATIO

GROSS PROFIT MARGIN RATIO Gross profit is the difference between sales and the manufacturing cost of goods sold. And gross profit is compared with the sales. Gross profit margin ratio reflects the efficiency with which management produces each unit of product. This ratio indicates the average spread between the cost of goods sold and sales revenue. A high gross profit ratio is sign of goods management and implies that the firm is able to produce at relatively lower cost. A low gross profit margin reflects higher cost of goods sold due to

Reduction in selling price Inefficient utilization of plant and machinery etc. It is calculated as follows: Gross profit ratio= Sales-Cost of Goods Sold ____________________ Net Sales. = Gross Profit ___________ Net Sales * 100

GROSS PROFIT MARGIN RATIO Year 2006 2007 Gross Profit(in crores) 1966.53 2429.53 Net Sales(in crores) 5803.48 7007.17 Ratio (%) 33.89% 34.67% SOURCE: ANNUAL REPORTS OF COMPANY 2008 2350.18 7308.62 32.16% 2009 2750.32 8027.20 34.26% 2010 1950.90 7717.33 25.28%

Interpretation:

Gross profit margin of ACC in 2006 was 33.89%, which increased to 34.67% in 2007. But in 2008 it fall by 2.50% which is not a good sign, but again it went up in 2009 at 34.26%. We can see a very major fall in 2010 almost 10% as compared to previous year which shows a decrease in profit margins.

NET PROFIT MARGIN RATIO This ratio is also known as Net Margin. This measures the relationship between net profit and sales of a firm. Depending on the concept of net profit employed, it is calculated as follows = Profit (loss) after tax ___________________ * 100 Net Sales This ratio indicates companys capacity to withstand adverse economic conditions. A company with high net margin ratio would ensure adequate return to the owners as well as enable a firm to withstand adverse economic condition when selling price is declining, cost of production is rising and demand for the product is falling.

It would really be difficult for a low net margin ratio company to withstand these advantageous. NET PROFIT MARGIN RATIO Year 2006 2007 2008 2009 PAT 1231.84 1438.59 1212.79 1606.73 Net Sales 5803.48 7007.17 7308.62 8027.20 Ratio 21.23% 20.53% 16.59% 20.02% SOURCE: ANNUAL REPORTS OF COMPANY 2010 1120.01 7717.33 14.51%

Interpretation: The Net Profit Ratio of ACC in 2006 is 21.23% and in the year 2007 it is decreased to 20.53% and again in the year 2008 it is decreased to 16.59% showing a downward trend but in 2009 it increased to 20.02% showing signs of improvement. But again in 2010 it falls drastically to 14.51%, therefore net profit ratio is not satisfactory. As net profit ratio is obtained after deducting tax and other provisions, so net profit ratio of ACC is not fair enough from company point of view.

OPERATING EXPENSES

It explains the changes in the profit margin ratio. This ratio is computed by dividing opening expenses Viz. cost of goods sold plus selling expenses and general and administrative expenses (excluding Interest) by sales. Operating Expenses Ratio = Operating Expenses _________________ *100 Net Sales A higher operating expenses ratio is unfavorable, since it will have a small amount of operating income to meet interest, dividends etc. and on the other hand lower operating expenses ratio is favorable. Year 2006 2007 2008 Operating Exp 1401.19 1848.38 1815.70 Net Sales 5803.48 7007.17 7308.62 Ratios 24.14% 26.38% 24.84% SOURCE: ANNUAL REPORTS OF COMPANY 2009 1847.25 8027.20 23.01% 2010 1932.93 7717.33 25.05%

Interpretation: The operating expenses ratio of ACC throughout is very much steady at around 25%. It keeps on fluctuating at a very low rate. Because of high operating expenses ratio in 2010 as compared to previous years, it might have affected the Net Profit margin ratio leading to decrease in it.

OPERATING PROFIT RATIO This ratio is calculated as follows: = EBIT ______ * 100 Net Sales Year EBIT(in crores) NET SALES(in crores) RATIO 2006 1501.86 5803.48 25.88% OPERATING PROFIT RATIO 2007 2008 2009 1741.12 1727.70 2378.69 7007.17 24.46% 7308.62 23.64% 8027.20 29.63% 2010 1518.23 7717.33 19.67%

Interpretation: This ratio of Operating Profit in ACC, in the year 2006 is 25.88% and it is decreased in the year 2007 to 24.46%, but it is very low and further it decreased 23.64% in the year 2008. In 2009 the co. performed outstandingly with a profit ratio of 29.63%. But again it fell by almost 10% in 2010 showing a bad performance. The ratio is decreased due to increase in the operating expenses. RETURN ON INVESTMENT (ROI)

It is also called as overall profitability ratio or Return on capital employed (ROCE) Ratio. This ratio is the broadest measure of the overall performance of business firm. It indicates the percentage of return on the total capital employed in the business. The higher ratio, the more efficient use of the capital employed. It is calculated on the bases of the following: ROI = Operating Profit _______________ * 100 Capital employed OR PBIT ________________ * 100 Capital employed

RETURN ON INVESTMENT Year PBIT Capital Employed ROI 2006 1501.86 4234 35.47% 2007 1741.12 4791 36.34% 2008 1727.70 5746 30.06% 2009 2378.69 6932 34.31% 2010 1518.23 7355 20.64%

Interpretation: In 2006 the ROI was 35.47%, in the year 2007 it increases to 36.34%, and in the year 2008 it went down to 30.06%. In 2010 the ROI came down to 20.64%, this happened because of increase in operating expenses. The return on investment ratio is decreased in the year 2010. It means here the company had not use the capital employed efficiently.

RETURN ON EQUITY (ROE) / NET WORTH Return on Equity is calculated to see the profitability of owners investment. Return on Equity = PAT ____________________________ Shareholders Equity or Net worth * 100

Return on Equity indicates how well the firm has used the resources of owners. This ratio reflects the extent to which this objective has been accomplished. This ratio is of great interest to the present as well as the prospective shareholders and also of great concern to management, which has the responsibility of maximizing the owners welfare. RETURN ON EQUITY Year PAT(in crores) Net Worth(in crores) Ratios 2006 1232 3142 39.21% 2007 1439 4153 34.65% 2008 1213 4928 24.61% 2009 1607 6016 26.51% 2010 1120 6469 17.31%

Interpretation: In 2006 the Return on equity was 39.21%. It decreases to 34.65% in the year 2007. And it further decreases to 24.61%. In 2010 the ROE came down to lowest i.e.17.31%. It indicates that management has not used the resources of owners very effectively. Therefore in the year 2010 company incurred less profit.

RETURN ON TOTAL ASSETS (ROTA) This ratio is compared to know the Productivity of the total assets. There are two methods of computing Return on Total Assets 1. ROTA= PAT ___________ * 100 Total Assets 2. ROTA= PAT + Interest _______________ * 100 Total Assets RETURN ON TOTAL ASSETS Year PAT Total Assets Ratios 2006 1232 4379.62 28.13% 2007 1439 4953.26 29.05% 2008 1213 5745.55 21.11% 2009 1607 6932.39 23.18% 2010 1120 7354.84 15.23%

Interpretation: In 2006 the return on assets was 28.13 %. It increases to 29.05 % in the year 2007. But in 2008 it decreases to 21.11%. In 2010 it reduced further to 15.23%. It indicates that management has not used assets very effectively. Therefore in the year 2010 company earned less profit.

EARNING PER SHARE (EPS): It measures the profit available to the equity shareholders on a per share basis, that is amount that they can get on every share held. It is calculated by dividing the profits available to the shareholders by the number of the outstanding shares. The profits available to the ordinary shareholders are represented by net profit after taxes and preference dividend. The overall profitability can also be judged by calculating EPS. EPS is calculated by following formula: EPS = PAT ___________________ Number of Equity Shares EARNING PER SHARE Year PAT( No. of Equity Share Value 65.4 76.3 64.3 85.1 59.3 2006 2007 2008 2009 2010 1232 1439 1213 1607 1120 18,83,26,009 18,86,72,305 18,87,29,706 18,87,88,179 18,87,93,243

Interpretation: EPS of Company in 2006 is Rs65.4, which increases to Rs76.3% in the year 2007. In 2009 the has the best EPS at Rs85.1. the lowest is in 2010 at Rs59.3. This happened due to decrease in profit, EPS is decreased.

DIVIDEND PER SHARE (DPS) It is the dividend paid to the ordinary shareholders on a per share basis. In other words, DPS is the net distributed profit belonging to the shareholders divided by the number of ordinary shares outstanding. This ratio is particularly useful for those investors who are interested only in dividend income. formula: DPS= Dividend Paid _______________ Number of Shares DIVIDEND PER SHARE (DPS) Year 2006 Dividend 322 Paid(in crores) No. of 18,83,26,009 Shares Values 17.09 2007 439 2008 439 2009 505 2010 668 Dividend per share is calculated by following

18,86,72,305 18,87,29,706 18,87,88,179 18,87,93,243 23.27 23.26 26.75 35.38

4.2 TURNOVER / ACTIVITY RATIOS OF THE COMPANY Introduction: Activity ratios are employed to evaluate the efficiently with which the firm manages and utilizes its assets. These ratios are also called as turnover ratio. Therefore they indicate the speed with which assets are being converted / turned over in to sales. Thus an activity ratio involves relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. In other words, turnover ratio indicates the efficiency with which the capital employed is rotated in the business. Higher the ratio of rotation, the greater will be the profitability DIFFERENT TURNOVER RATIOS:
1. 2. 3. 4. 5. 6. 7. 8.

Inventory stock turnover Ratio Debtors (Accounts Receivable) Turnover Ratios. Creditors (Account Payable) Turnover Ratios Fixed Assets turnover Ratio Current Assets turnover Ratio Working capital turnover Ratio Total Assets turnover Ratio Net Assets turnover Ratio

INVENTORY/ STOCK TURNOVER RATIO (ITR/STR) It indicates the efficiency of firm in producing and selling its products. High Ratio is good from the view point of liquidity and vice versa. A low ratio would signify that inventory does not sell fast and stably in the warehouse for a longtime. It is calculated as follows: Cost of Goods Sold ________________ Avg. Inventory OR Sales __________ Closing Stock (If there is no opening stock)

Hence Avg. Inventory = Opening Stock + Closing Stock ____________________________ 2 Avg. Inventory is calculated by taking stock levels of raw materials, working process and finished goods at the beginning of year & at the end of the year & that is divided by two INVENTORY TURNOVER RATIO Year Sales(in crores) Closing Stock(in crores) Ratios 2006 5803 624.13 9.30% 2007 6991 730.86 9.57% 2008 7283 793.27 9.18% 2009 8027 778.98 10.30% 2010 7717 914.98 8.43%

Year No. of Days

INVENTORY CONVERSION PERIOD 2006 2007 2008 2009 365 365 365 365

2010 365 2

In a year ITR 9.30% 9.57% 9.18% DAYS 39 38 40 SOURCE: ANNUAL REPORTS OF COMPANY

10.30% 35

8.43% 43

Interpretation: The STR/ ITR are high in all five years. And Stock conversion in 2009 is very fast because company takes 35 days. It increases in 2010 to 43days. It indicates that conversion ratio is very fast till 2009 but increased in 2010.

DEBTORS TURNOVER RATIO: Debtors constitute an important constituent of current assets and therefore the quality of debtors to great extent determines that firms liquidity. There are two ratios. They are:
1. 2.

Debtors turnover Ratio Debtors collection period Ratio

Debtors turnover can be calculated by dividing total sales by balance of debtors. Debtors turnover = Sales ______ Debtors Higher the ratio is better, since it indicate that debts are being collected more promptly 2

Year Net Sales(in crores) Debtor(in crores) Ratios

2006 5803.48 213.96 27.12%

DEBTORS TURNOVER RATIO 2007 2008 2009 7007.17 7308.62 8027.20 289.29 24.22% 310.17 23.56% 203.70 39.41%

2010 7717.33 178.28 43.23%

Interpretation: The ratio in the year 2006 is at 27.12%, which decreases to 24.22% in the year 2007,which again went down to 23.56%. But in the year 2009 it increased to 39.41% which further increased to 43.23% in 2010. It indicate that debts are being collected more promptly & effectively. DEBTORS COLLECTION PERIOD: This ratio indicates the extent to which the debts have been collected in time. It gives the average debt collection period. The higher is the turnover ratio and shorter is the average collection period the better is the trade credit management and the better is the liquidity of debtors, as short collection period and high turnover ratio imply prompt payment on the part of debtors. On the other hand, low turnover ratio and long collection period reflects that payments by debtors are delayed. Debtors Collection Period = No. of days __________ DTR It is helpful to

The creditors and lenders of the firm to know the firms collecting within a reasonable time. DEBTORS COLLECTION PERIOD

Year

2006

2007

2008

2009

2010 2

No. of days 365 365 365 DTR 27.12% 24.22% 23.56% Days 13 15 16 SOURCE: ANNUAL REPORTS OF COMPANY

365 39.41% 9

365 43.23% 8

Interpretation: Credit allowed is a bit on the higher side in 2008 as compare to other years. In the year 2009 and 2010 there is a reduction in credit allowed i.e. 9days & 8days recpt. This is quite normal. This shows that company has reduced the credit period.

FIXED ASSETS TURNOVER RATIO This ratio indicates the extent to which the investments in fixed assets contributed towards sales. If compared with previous period it indicates, whether the investment in fixed assets has been judicious or not.

The ratio is calculated as follows: = Cost of Goods Sold _________________ Net Fixed Assets FIXED ASSETS TURN OVER RATIO Year COGS Net Fixed Assets Ratios 2006 4486.54 3481 1.29times 2007 5418.79 3964 1.37times 2008 5909.59 5073 1.16times 2009 5973.92 6315 0.95times 2010 6612.81 6645 0.99times

Interpretation: The fixed assets turnover is 1.29times in the year 2006, in the year 2007 the fixed assets turnover is 1.37times. But in the year 2008 it decreased to 1.16times. It falls again in 2009 to 0.95times, but 2010 it increased slightly and reached to 0.99times. It means in the year 2010 fixed assets are properly utilized as compared to 2009 i.e. there is a better efficiency in utilization of fixed assets. CURRENT ASSETS TURNOVER RATIO: This ratio indicates the extent to which the investment in current assets contributed towards sales. If the ratio is compared with a previous period, it indicates whether the investment in current assets has been judicious or not. The ratio is calculated by dividing the cost of goods sold to Avg. current assets. The ratio is calculated as follows: = Cost of Goods Sold __________________ Current Assets CURRENT ASSETS TURNOVER RATIO Year COGS Current 2006 4486.54 1921 2007 5418.79 2203 2008 5909.59 2760 2009 5973.92 2256 2010 6612.81 2753

Assets Ratios

2.34times

2.46times

2.14times

2.65times

2.40times

Interpretation: This ratio is satisfactory in all the 5 years. It is more than 2 in all 5 years. It was at 2.34times in 2006. It increases to 2.46 in the year 2007. But it decreases to 2.14 in the year 2008. But it is more than one in all cases. It indicates that the current assets are promptly invested towards making sales. WORKING CAPITAL TURNOVER RATIO: This ratio indicates whether or not working capital has been effectively utilized in making sales This ratio is calculated as follows: = Net Sales _______________ Net Current Assets WORKING CAPITAL TURNOVER RATIO Year 2006 Net Sales 5803.48 Net Current 1921 Assets Ratios 3.02times 2007 7007.17 2203 3.18times 2008 7308.62 2760 2.65times 2009 8027.20 2256 3.56times 2010 7717.33 2753 2.80times

Interpretation: The ratio is increased in 1st two years i.e. in the year 2006 is at 3.02, and in the year 2007 is at 3.18. But in the year 2008 it decreases to 2.65. Again in 2009 it increased to 3.56 and then went down in2010 to 2.80. This ratio indicates that working capital has not been effectively utilized in making sales in 2010 as compared to 2009.

TOTAL ASSETS TURNOVER RATIO This ratio is computed by dividing the cost of goods sold the average total assets. Total assets include fixed assets, current assets and miscellaneous expenditure. Average total assets are simple average of the opening and the closing balance of the total assets.

Total assets turnover ratio=Cost of Goods Sold Total Assets This ratio measures the efficiency of a company in managing and utilizing its assets. The higher the turnover ratio, the more efficient is the management and utilization of available assets. While low turnover ratio is indicative of under utilization of available resources and presence of idle capacity. In operational terms the company can expand its activity level (in terms of production and sales) should be borne in mind that this ratio might be on a higher side due to the fact that the value of the assets is very less after the depreciation. Keeping this in mind, a cautious use of this ratio is desirable. TOTAL ASSETS TURNOVER RATIO Year COGS Avg Total Assets Ratios 2006 4486.54 3996.46 1.12times 2007 5418.79 4666.44 1.16times 2008 5909.59 5268.06 1.12times 2009 5973.92 6338.97 0.94times 2010 6612.81 7143.62 0.93times

Interpretation: The turnover ratio of the company is not so good. Till 2008 is going well and in a constant manner but in 2009 & 2010 it further decreased. Higher the turnover ratio, the

more efficient is the management and utilization of available assets. So, company need to look upon its assets turnover ratio & try to improve it.

NET ASSETS TURNOVER RATIO Net assets include net fixed assets and net current assets A firms ability to produce large volumes of sales for a given amount of net assets is the most important aspects of its operating performance. Underutilized assets increases the firms need for costly financing as well as expenses for maintains and up keep. The ratio is calculated as follows: = Net Sales _________ Net Assets NET ASSETS TURNOVER RATIO Year Net Sales(in crores) Net Assets(in crores) Ratio 2006 5803.48 4379.62 1.33times 2007 7007.17 4953.26 1.41times 2008 7308.62 5745.55 1.27times 2009 8027.20 6932.39 1.16times 2010 7717.33 7354.84 1.05times

Interpretation: The ratio is increased in 1st two years but form 2008 it started reducing and came down to 1.05 in 2010. So it indicates that the ratio bit lower side. It also indicates that there has been decreased in utilization of resources.

4.3 FINANCIAL RATIOS OF THE COMPANY Introduction: Financial ratios indicate about the financial position of the company. A company is deemed to be financially sound, if it is in position to carry on its business smoothly and meet all its obligations both long- term as well as short- term without strain. Thus, company financial position has to be judged from two angles long- term as well as shortterm.
1.

Financial Ratio:

Current Ratio Quick / Acid test / Liquid Ratio. Absolute liquid / Cash Ratio

2.

Leverage Ratio :

Debt ratio Debt equity Ratio Proprietary Ratio Capital employed to net worth ratio Interest coverage

LIQUIDITY RATIO 2

Liquidity ratios may be defined as financial ratio, which thorough tight on short term slovenly of firm.

Liquidity Ratio measures the ability of the firm to meet its current obligations. Liquidity ratio needs establishing a relationship between cash and other current assets to current obligations to provide quick measures of liquidity. A firm should ensure that it doesnt suffer from lack of liquidity and also that it does not have excess liquidity. Failure of a company to meet its obligations due to lack of sufficient liquidity, will result in a poor creditworthiness, loss of creditors confidence.

Liquidity is perquisite for the survival of firm. The short-term creditors of firm are interested in short-term solvency / liquidity of firm. But liquidity implies from the viewpoint utilization of funds of the firm, that funds are idle or they even very little.

So liquidity ratio measure ability of a firm to meet its short- term obligations and reflect short- term financial strength/solvency of firm.

CURRENT RATIO: 2

This ratio is an indicator of firms commitment to meet its short- term liabilities. Higher ratio, better the coverage, 2:1 ratio is treated as standard ratio. This ratio is also called as solvency / working capital ratio. The current ratio is the ratio of the current assets and current liabilities. It is calculated by dividing current assets by current liabilities. Current Ratio= Current assets Current liabilities The current ratio is a measure of short- term solvency of the company. It indicates the rupee of current assets available for each rupee of current liability. The higher the current ratio the larger the amount of rupees available per rupee of current liability and the greater the safety of the short- term creditors. This margin of safety to the creditors is essential due to the unevenness of the flow of funds through current assets and current account. The current liabilities can be settled by making the payment whereas the current assets available to liquidate them are subject to shrinkage of various reasons like obsolescence of inventory, bad debts, and unexpected losses and so on. Thus current ratio represents the short- term liquidity Buffer.

CURRENT RATIO Year 2006 Current Assets 1921 Current 1672 Liability Ratios 1.15 2007 2203 2221 0.99 2008 2760 2766 1 2009 2256 3114 0.72 2010 2753 3746 0.73

Interpretation:

The ratio is not good in all the 5years when compared with the conventional standard. In all the 5years the ratio is below the 2. This indicates that firms commitment to meet its short liabilities was not so good.

QUICK / ACID TEST / LIQUID RATIO: Liquid ratio is indication of availability of quick assets to honor its immediate claims. Higher the ratio betters the coverage. And the standard ratio is 1:1. An asset is liquid if it can be converted into cash immediately without loss of value. Hence cash is most liquid assets after assets which are considered to be relatively liquid are; Debtors balance, marketable securities etc. inventories considered to be less liquid therefore they require some time form relishing into cash and their value also has tendency to fluctuate. The ratio is calculated as follows: = Quick Assets ________________________ Current Liabilities

QUICK RATIO Year Quick Assets Current Liabilities Ratio 2006 1293.96 1672 0.77 2007 1778.29 2221 0.80 2008 1748.17 2766 0.63 2009 2079.7 3114 0.67 2010 2566.28 3746 0.69

Interpretation: The ratio is not good in all the 5years when compared with the conventional standard 1:1. In all the 5years the ratio is below the 1. But it is nearer to ratio1 in 2007. Here creditors are getting their payment slowly. But there is some sign of improvement in 2010, but still need a lot.

CASH / ABSOLUTE LIQUID RATIO: 2

It calculated as follows: = Cash + Bank Balance _____________________ Current Liabilities Here, trade investment; marketable securities are equivalent of cash. And therefore they may be included in the computation of cash ratio. The standard rate for this ratio is 0.5:1. This ratio also indicates liquidity position of company, and firms commitment to meet its short -term liabilities. CASH RATIO Year 2006 Cash + Bank 1080 Balance Current Liabilities Ratios 1672 0.65 2007 1489 2221 0.67 2008 1438 2766 0.52 2009 1876 3114 0.60 2010 2388 3746 0.64

Interpretation: Cash ratio is very much satisfying when compared to the conventional standard of 0.5:1 the ratio is more than 0.5 in all the 5years. It indicates that there is a good liquidity position of the company and there is good firms commitment to meet its short-term liabilities. The ratio has decreased in year 2008 but then also it was above the standard. This means that company meets its liability mainly through cash.

LEVERAGE RATIO LEVERAGE RATIO is also called as capital structure ratio. It relates to the study of various types of capital structure of firm. The long- term solvency of a company can be examined by using leverages or capital structure ratios. These ratios are for long-term creditors to judge the long-term financial strength of the company. The aspects that are mainly considered for this are:
1. 2.

Ability to repay the principal when due and Regular payment of the interest.

THE DIFFERENT LEVERAGE RATIO ARE:

1. 2. 3. 4.

Debt Ratio Debt Equity Ratio Proprietary Ratio Interest Coverage Ratio

DEBT-EQUITY RATIO It measures the relation between debt and equity in the capital structure of the firm. In other word, This ratio shows the relationship between the borrowed capital and owners capital. This ratio shows relative claim of the creditors and shareholders against the assets of the company. It is expressed as: = Long-term Debt __________________ Shareholders Equity

Generally higher the ratio greater is the possibility of increasing the ROR to equity & vice versa. A high debt equity ratio may be adopted to take advantage of cheaper debt capital. The ratio indicates the extent to which the firm depends upon outside for its existence. The ratio provides margin of safety to the creditors. It tells owners the extent to which they can gain benefits of maintaining control with a limit investment.

PROPRITORY RATIO: It establishes relationship between the propitiator or shareholders funds & total tangible assets. It may be expressed as: Proprietary Ratio=Proprietors Funds Total Assets The ratio indicates properties stake in total assets. Higher the ratio lowers the risk and lower the ratio higher the risk. Debt equity ratio & current ratio affects the proprietary ratio. PROPRITORY RATIO Year Proprietor Funds(in crore) Total Assets Ratios 4379.62 0.72 4953.26 0.84 5745.55 0.86 6932.39 0.87 7354.84 0.88 2006 3142.92 2007 4152.71 2008 4927.73 2009 6016.22 2010 6469.49

Interpretation: The ratio is high in all the 5years. It increases from 0.72 in 2006 to 0.88 in 2010. It indicates that there is too much depends on inside money. It shows that the financial position of the company is strong. This is increasing year by year.

INTEREST COVERAGE RATIO: This is a measure of the protection available to creditors for payment of interest charges by the company. The ratio shows whether the company has sufficient income to cover its interest requirements by a wide margin. The interest coverage ratio is computed by dividing profit before interest and tax by the interest expenses. A high ratio implies

adequate safety for payment of interest even if there were to be a drop in the companys earnings. The interest coverage ratio is as follows: = Profit Before Interest and Tax _________________________ Interest Expenses Year PBIT Int Exp Ratios 2006 1501.86 52.03 28.87 INTEREST COVERAGE RATIO 2007 2008 2009 1741.12 1727.70 2378.69 73.87 39.96 84.30 23.57 43.24 28.22 2010 1518.23 56.78 26.74

Interpretation: The ratio is quite good. In the year 2008 the ratio was highest at 43.24, but it decreases to 28.22 & 26.74 in the year 2009& 2010. A high ratio implies adequate safety for payment of interest even if there were to be a drop in the companys earnings.

Chapter 5

FINDINGS AND SUGGESTIONS

5.1 FINDINGS
SHORT TERM FINANCIAL POSITION

The short term financial position of the company is not good enough in 2010. Current assets of the company in 2010 are `2753 where as the Current liability is `3746. It was quite good in the year 2006 where Current Assets were higher than Current Liability.

Current Ratio is 0.73:1. Company needs a lot of improvement to reach a standard level.

Short term liquidity of the company is also good as the acid test ratio is 0.69:1. Company needs a bit of improvement to make it 1:1.

Turnover ratio of the company reflects their good and sound position. Stock turnover ratio is 8.43times. It is good that they clear there stock more than 5times in a year. Debtor turnover ratio also shows positive result in their efficiency.

Long term Financial Position

Long term financial policy is not as good as it should be. No doubt company adopted very nice policy of financing fixed assets from the long term fixed assets and the long term liabilities. Rest payment is made in cash, thereby leading to reduction of the amount of cash.

Debt- Equity ratio also gives the same picture. It should be near to 1 as much as possible. It is not near to one in every year. It is also showing an increasing trend. It is not a good sign.

Proprietary Ratio is 88%, it is good as it is more than 50%. Earnings per share are one of the most important factors. Shareholders are the main stake holders of the company they judge the company performance on the basis of EPS & Dividend declared.

Company is not utilizing its resources up to the maximum. Customer base remains the same. SAP is not implemented properly as the employees are not trained to use Company is not looking for increase in the plant capacity. Implementation of new policies by Holcim is disturbing the workforce in The company is more dependent on outsiders fund. Current Ratio is 1 :1. Company needs bit improvement in it so that to Long term financial policy is not as good as it should be. No doubt

the same.

adapting to the new work-culture.

make it 2:1.

company adopted very nice policy of financing fixed assets from the long term fixed assets and the long term liabilities. Rest payment is made in cash, thereby leading to reduction of the amount of cash.

The short term financial position of the company is not good enough.

Current Assets of the company in the year2008 is Rs.2735.20Crwhere as the Current Liabilities is Rs.2741.29Cr.

High employee turnover rate. The other cement industries are paying good

salaries to employees as compare to ACC LIMITED that is why employees are leaving the company.

5.2 RECOMMENDATIONS/ SUGGESTIONS Some suggestions that I have given to the company and following are the result of those suggestions are as follows:

I suggest them to increase the promotion of Health and Safety at Work, including the prevention of occupational risks and it is in the process. I suggest them to increase the capacity of plant as it a long term process so company. Officials said they put that point in the annual board meeting so it is in the process. Current Ratio of the company is 0.73:1. So I suggest them to increase that to 2:1 and they are working upon it. Company is not spending so much on the R& D so I suggest them to increase the same and the company said that they will think to allocate more finance in the budget of the company.

BIBLIOGRAPHY

I.M. Pandey Financial Management. Vikas Publishing House Pvt. Ltd. M.Y. Khan and P. K. Jain Financial Management. Tata Megraw Hill Publishing company Ltd. New Delhi.

Khan and Jain Management and Accounting. Himalaya publishing house Pvt. Ltd. Website: www.acclimited.com www.acclimitedhelp.in

ANNEXURE