Project On

Short term financial analysis of cement industry in

India

Submitted by Praneswar nayak

Roll-no -11 MCO- 043

Under the guidance of

DR. Kishore Kumar Das

As a partial fulfillment for award of master degree in commerce

School of commerce & management studies

Department of commerce

Ravenshaw University

DECLARATION

I, Praneswar Nayak hereby declare that the project Work entitled “Short term

financial analysis of cement industry in India “is the original work done by me for

fulfillment of my master degree of commerce under the guidance of Prof. Kishore

kumar Das ,Department of commerce.

Signature of studentPraneswar NayakRoll no-11MCo-043

ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during the preparing of this project

My deepest thanks to Prof.Dr. KIshore ku. Das Guide of the project for guiding and correcting various documents of mine with attention and care. He has taken pain to go through the project and make necessary correction as and when needed.

I would also thank my Institution and my faculty members without whom this work would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

Praneswar NayakDepartment of commerceRoll no: - 11MCO043

CONTENT

Chapter 1: Introductory

Introduction Scope & purpose study

Objective of the study Methodology Literature review

Chapter 2: Industrial profileChapter 3: Short term financial analysis of cement industry in India

Theoretical overview & analysisChapter 4: Epilogue

Findings of the study Suggestions and Recommendation Conclusion

Bibliography

Chapter-1

Introductory

I INTRODUCTIONNTRODUCTION

The cement industry presents one of the most energy-intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be effective in merging economic, environmental, and social development objectives. A historical examination of productivity growth in India’s industries embedded into a broader analysis of structural composition and policy changes will help identify potential future

development strategies that lead towards a more sustainable development path. Issues of productivity growth and patterns of substitution in the cement sector as well as in other energy-intensive industries in India have been discussed from various perspectives. Historical estimates vary from indicate improvement to a decline in the sector’s productivity. The variation depends mainly on the time period considered, the source of data, the type of indices and econometric specifications used for reporting productivity growth. Regarding patterns of substitution most analyses focus on inter fuel substitution possibilities in the context of rising energy demand. Not much research has been conducted on patterns of substitution among the primary and secondary input factors: Capital, labour, energy and materials. However, analyzing the use and substitution possibilities of these factors as well as identifying the main drivers of productivity growth among these and other factors is of special importance for understanding technological and overall development of an industry.

Scope & purpose study

The present study “Short term financial analysis of cement industry in India” analyses the profitability of the Indian cement industry and analyze the current financial position of the industry. The study attempts to determine the efficiency and effectiveness of management in each segment of working capital. Since the various methods of will be critically reviewed

The importance of the study is emphasized by the fact that the manner of administration of current asset and current liabilities determined to a very large extent the success or failure of a business. The efficient and effective management of working capital is of crucial importance for the success of a business, which involves the management of the current assets and the current liabilities. The business concern has therefore to optimize the use of available resources through the efficient and effective management of the current assets and current liabilities. This will enable to increase the profitability of the concern and the firm could be able to meet its current obligation will in time.

Objective of study:- The main objective of study is to know the short term financial position of Indian cement industry

Methodology Short term financial analysis is the evaluation of firms past, present and anticipated future financial performance and financial condition. The section illustrates how financial information are collected and analyzed.

Data Period: the company wise information has been collected on a number of variables during the pried from 2007-2011 covering five years.

Source of Data: The basic data for this current study has been collected from the secondary source. The data was collected from the following companies’ website:

ACC limited Ultratech cement limited India cement limited Ambuja cement limited OCL limited

Frame Work of Analysis: To find out short term financial position and solvency in cement industry of India, the ratio analysis is used.

Tools of Analysis

1.Current ratio: Current ratio is the ratio between current assets and current liabilities. The firm is said to the comfortable in its liquidity position, if the current ratio is 2:1

Current assets Current ratio = ----------------------------

Current liabilities

2. Cash ratio: It is the ratio between absolutes liquid assets and current liabilities. It supplements the information given by current ratio. The standard of the cash ratio is 1:1.

Cash + marketable securities Cash Ratio = ---------------------------------------

Current liabilities

3. Debtor turnover ratio: Debt or turnover ratio indicates the number of debtor turnover each year. Higher the value of debtor turnover, the more efficient is the management of credit.

Credit Sales Debtors Turnover Ratio = -------------------------------

Average Debtors

4. Net working capital ratio: Net working capital ratio is the difference between the current assets and current liabilities excluding short-term bank borrowing. It is sometimes used as measure of firm’s liquidity.

Net working capital Net working capital Ratio = ----------------------------------------

Net assetsIII) HYPOTHESIS:- There is no any significant difference between ProfitabilityTrends of Cement Industry of India.

Literature review

Factor Analysis was first applied to financial ratios by Pinches, Mingo and Caruthers (1973) in an attempt to develop an empirically-based classification of financial ratios. Since then, researchers are using Factor Analysis as a mean of eliminating redundancy and reducing the number of financial ratios needed for empirical research. Hamdi and Charbaji (1994) applied Factor Analysis to 42 financial ratios of International Commercial Airlines for the year of 1986to reduce them to underlying factors. Tan, Koh and Low (1997) used the actor Analysis on 29financial ratios of the companies listed on the Stock Exchange of Singapore (SES) from 1980 to 1991 to derive 8 underlying factors. Öcal, Oral, Ercan Erdis and Vural (2007) applied Factor Analysis on 25 financial ratios of Turkish construction industry during 1998 to 2001 to derive 5underlying factors. Dr, Bandyopadhyay and Chakraborty (2010) made an empirical study on the 44 financial ratios of selected companies from Indian iron & steel industry and derived 10 underlying factors. Application of Cluster Analysis on financial ratios is also not a new one. Few researchers have done it before. Wanga and Leeb (2008) applied a new clustering method based on a fuzzy relation between financial ratio sequences. They also conducted an empirical study on 24 financial ratios of four Taiwan shipping companies using Cluster Analysis. De, Bandyopadhyay and Chakraborty (2010) also validated the results derived from the Factor Analysis by the Cluster Analysis.Morris and Shin (2010) conceptually defines the liquidity ratio as “realizable cash on the balance sheet to short term liabilities.” In turn, “realizable cash” is defined as liquid assets plus other assets to which a haircut has been applied. Ration analysis is one of the conventional way that use financial statements to evaluate the company and create standards that have simply interpreted financial sense (George H.Pink, G. Mark Holmes 2005). A sudden stop in an organization is generally defined as a sudden slowdown in emerging market capital (cash) inflows, with an associated shift from large current account deficits into smaller deficits or small surpluses. Sudden stops are “dangerous and they may result in bankruptcies, destruction of human capital and local credit channels” Calvo, 1998.

According to many university researchers (Basno & Dardac, 2004), the required liquidity for each business depends on the balance sheet situation of the business. In order to evaluate the liquidity state, special importance is held by the way in which there are classified organizational assets and liabilities (Basno & Dardac, 2004). Liquidity risk is seen as a major risk, but it is the

object of: extreme liquidity, "security cushion" or the specialty of mobilizing capital at a "normal" cost (Dedu, 2003)

The International Accounting Standards (IFRS, 2006) indicate the fact that liquidity refers to the available cash for the near future, after taking into account the financial obligations corresponding to that period. Liquidity risk consist in the probability that the organization should not be able to make its payments to creditors, as a result of the changes in the proportion of long term credits and short term credits and the uncorrelation with the structure of organization's liabilities (Stoica, 2000).Liquid assets should have the following attributes: diversified, residual maturities appropriate for the institution’s specific cash flow needs; readily marketable or convertible into cash; and minimal credit risk. (2005 The Bank of Jamaica Publish: February 1996). Liquidity lines and funding facilities may also have a role within an institution’s liquidity programmed by helping an institution protect itself against temporary difficulties that might occur when honoring cash outflow commitments. (2005 The Bank of Jamaica Publish: February 1996).

The efficient management of the broader measure of liquidity, working capital, and its narrower measure, cash, are both important for a company's profitability and well being. In the words of Fraser (1998) "there may be no more financial discipline that is more important, more misunderstood, and more often overlooked than cash

Chapter-2

Industrial profile

History of cement industry

The history of the cement industry in India dates back to the 1889 when a Kolkata-based company started manufacturing cement from Argillaceous. But the industry started getting the organized shape in the early 1900s. In 1914, India Cement Company Ltd was established in Porbandar with a capacity of 10,000 tons and production of 1000 installed. The World War I gave the first initial thrust to the cement industry in India and the industry started growing at a fast rate in terms of production, manufacturing units, and installed capacity. This stage was referred to as the Nascent Stage of Indian Cement Company. In 1927, Concrete Association of India was set up to create public awareness on the utility of cement as well as to propagate cement consumption.

The cement industry in India saw the price and distribution control system in the year 1956, established to ensure fair price model for consumers as well as manufacturers. Later in 1977, government authorized new manufacturing units (as well as existing units going for capacity enhancement) to put a higher price tag for their products. A couple of years later, government introduced a three-tier pricing system with different pricing on cement produced in high, medium and low cost plants.

Cement Company, in any country, plays a major role in the growth of the nation. Cement industry in India was under full control and supervision of the government. However, it got relief at a large extent after the economic reform. But government interference, especially in the pricing, is still evident in India. In spite of being the second largest cement producer in the world, India falls in the list of lowest per capita consumption of cement with 125 kg. The reason behind this is the poor rural people who mostly live in mud huts and cannot afford to have the commodity. Despite the fact, the demand and supply of cement in India has grown up. In a fast developing economy like India, there is always large possibility of expansion of cement industry.

Growth in domestic cement demand is likely to remain strong, with the resumption in the housing markets, regular government spending on the rural sector and infrastructure spend accomplished by rise in the number of infrastructure projects implemented by the private sector. Furthermore, it is expected that the industry players will continue to increase their annual cement output in coming years and India’s cement production will grow at a compound annual growth rate (CAGR) of around 12 per cent during 2011-12 - 2013-14 to reach 303 Million Metric Tons, according to Indian Cement Industry Forecast to 2012. Cement Manufacturing Association (CMA) is targeting to achieve 550 MT capacities by 2020. A large number of oversea players are also expected to enter the industry in the coming years as 100 per cent FDI is permitted in the cement industry. Our country is the second major cement producing country following the China having a total capacity of around 230 MT (including mini plants). However, on account of low per capita

consumption of cement in the country (156 kgs/year as compared to world average of 260 kgs) there is an enormous potential for growth of the industry.

The demand for cement mainly depends on the level of development and the rate of growth of the economy. There are no close substitutes for cement and hence the demand for cement is price inelastic. During the October – 2011 14.78 MT were produced and 14.38MT was consumed. For the FY 2011 – 12 (Apr - Oct), MT 97.84 was consumed form the 98.91 MT produced. During the first half of the year, there was marginally poor off take in cement demand due to passive construction activity, which lead to excess supply, thus putting downward pressure on realizations. This has been coupled with rise in input costs, especially prices of coal and petroleum products. As a result, both the top line and bottom line have been affected. This demand supply mismatch scenario is expected to prevail for some time. Good agricultural income will support demand.

Present scenario of Industry

India is the second major cement producing country following the China; we have 137 large and 365 mini cement plants. Leading players in the industry are Ultratech Cement, Ambuja Cement Limited , JK Cements, ACC Cement, Madras Cements etc. Cement is an adhesive that holds the concrete together and is therefore vital for meeting economy’s needs of Housing & accommodation and necessary infrastructure such as roads & bridges, schools, hospitals etc. Hence, the cement is one of the fundamental elements for setting up strong and healthy infrastructure of the country and plays an important role in economic development and welfare of the nation.

Cement industry is being segmented regionally i.e. Northern, Central, Western, Southern and Eastern. Cement, being a bulk item transporting it over long distances can prove to be uneconomical as it attracts very high amount of freight. Thus, it has resulted in cement being largely a regional play with the industry divided into five main regions. As it is a freight intensive industry, the segment is completely domestic driven and exports account for very negligible percentage of the total cement off take.

Southern region in the country is the biggest contributor in cement production and it has a largest pie in capacity with 92.11MT. India has total capacity of 226.90 MT as on March – 2010 comprised of Northern Region 48.27 MT, Central Region 26.01 MT, Eastern Region 31.89 MT, Western Region 28.62 MT and as mentioned earlier Southern Region 92.11 MT. Rajasthan, Andhra Pradesh, Tamilnadu, Madhya Pradesh and Gujarat are the prominent cement industry contributor states. The southern region generally has an excess capacity trend in the past owing to profuse availability of limestone, the western and northern regions are generally has more demand than availability.

Some specifics of Indian cement industry

India ranks second in world cement producing countries.

Capacity utilization: In view of the fact that the industry operates on fixed cost, higher the capacity sold, the wider the cost distributed on the same base. But there have been instances wherein despite a healthy capacity utilization, margins have fallen due to lower realizations.

Access and proximity to raw materials (limestone and coal) and consuming markets are very important as it is extremely bulky commodity

Sector is highly capital-intensive, a green field project for 1 MT on an average requires capital expenditure of Rs 3 bn and 2 MT is considered an ideal size for a company to have some kind of economies of scale. The sector operates with a high level of fixed cost and therefore volume growth is decisive to have good growth margins.

Raw materials like limestone and gypsum costs are usually lower than freight and power costs in the cement industry. Excise duties imposed by the government and labor wages are among the other chief cost components involved in the manufacturing of cement.

Cement production and growth

Domestic demand plays a major role in the fast growth of cement industry in India. In fact the domestic demand of cement has surpassed the economic growth rate of India. The cement consumption is expected to rise more than 22% by 2009-10 from 2007-08. In cement consumption, the state of Maharashtra leads the table with 12.18% consumption, followed by Uttar Pradesh. In terms of cement production, Andhra Pradesh leads the list with 14.72% of production, while Rajasthan remains at second position.

The production of cement in India grew at a rate of 9.1% during 2006-07 against the total production of 147.8 MT in the previous fiscal year. During April to October 2008-09, the production of cement in India was 101.04 MT comparing to 95.05 MT during the same period in the previous year. During October 2009, the total cement production in India was 12.37 MT compared to a production of 11.61 MT in the same month in the previous year. The cement companies are also increasing their productions due to the high market demand. The cement companies have seen a net profit growth rate of 85%. With this huge success, the cement industry in India has contributed almost 8% to India's economic development.

Chapter-3Short term financial analysis of cement industry in India

Theoretical overview & analysis

Before making analysis of short financial position of various cement industries in India the following are be to discuss. So the followings are discuss about the ratios by which the short term financial position are analyzed

Liquidity Ratio:-

It is extremely essential for a firm to be able to meet its obligation as they become due. Liquidity ratios measures the ability of the firm to meet its current obligations .A firm should ensure that it does not suffer from lack of liquidity and also that it does not have excess liquidity. The failure of the company to meet its obligations due to lack of sufficient liquidity, will result in a poor credit

worthiness, loss of creditor’s confidence etc. A very high degree of liquidity is also bad; idle assets earn nothing. Therefore it is necessary to strike a proper balance between high liquidity and lack liquidity.

The most common ratios which indicate the balance of liquidity are (a) current ratio (b) quick ratio (c) cash ratio (d) interval measure (e) net working capital ratio.

Importance of Liquidity Ratios:

Liquidity ratios are probably the most commonly used of all the business ratios. Creditors may often be particularly interested in these because they show the ability of a business to quickly generate the cash needed to pay outstanding debt. This information should also be highly interesting since the inability to meet short-term debts would be a problem that deserves your immediate attention.

Liquidity ratios are sometimes called working capital ratios because that, in essence, is what they measure. The liquidity ratios are: the current ratio and the quick ratio. Often liquidity ratios are commonly examined by banks when they are evaluating a loan application. Once you get the loan, your lender may also require that you continue to maintain a certain minimum ratio, as part of the loan agreement.

Current Ratio:-

Current ratio is the relationship between current asset and current liability. This ratio is also known as working capital ratio which measures the other general liquidity and is most widely used to make the analysis of short term financial position of a firm. It is calculated by dividing the total current asset by total current liability.

Current Ratio=Current Assets/current LiabilitiesA relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligation in time as and when they become due. The rule of thumb is 2:1 i.e. current asset as double the current liability is consider being satisfactory.

Significance of current ratio:

This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm’s financial stability. It is also an index of technical solvency and an index of the strength of working capital.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been a deterioration in the liquidity position of the firm. A ratio equal to or near 2 : 1 is considered as a standard or normal or satisfactory. The idea of having double the current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. However, the rule of 2 :1 should not be blindly used while making interpretation of the ratio. Firms having less than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. If a firm's current assets include debtors which are not recoverable or stocks which are slow-moving or obsolete, the current ratio may be high but it does not represent a good liquidity position.

Limitations of Current Ratio:

This ratio is measure of liquidity and should be used very carefully because it suffers from many limitations. It is, therefore, suggested that it should not be used as the sole index of short term solvency.

1. It is crude ratio because it measures only the quantity and not the quality of the current assets.

2. Even if the ratio is favorable, the firm may be in financial trouble, because of more stock and work in process which is not easily convertible into cash, and, therefore firm may have less cash to pay off current liabilities.

Valuation of current assets and window dressing is another problem. This ratio can be very easily manipulated by overvaluing the current assets. An equal increase in both current assets and current liabilities would decrease the ratio and similarly equal decrease in current assets and current liabilities would increase current ratio Quick Ratio:It is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

The quick ratio is calculated as:

 Also known as the "acid-test ratio" or the "quick assets ratio"

Significance of quick Ratio:-

The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Usually high liquid ratios an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory.

Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed

immediately to meet the current obligations. In the same manner, a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. On the other hand, A firm having a low liquid ratio may have a good liquidity position if it has a fast moving inventories.

Working Capital Turnover Ratio:

Working capital turnover ratio indicates the velocity of the utilization of net working capital.

This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows:

Formula of Working Capital Turnover Ratio:

Following formula is used to calculate working capital turnover ratio

Working Capital Turnover Ratio = Cost of Sales / Net Working Capital

The two components of the ratio are cost of sales and the net working capital. If the information about cost of sales is not available the figure of sales may be taken as the numerator. Net working capital is found by deduction from the total of the current assets the total of the current liabilities.

Significance of working capital turnover ratio:

The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation

Inventory Turnover Ratio or Stock Turnover Ratio (ITR):

Every firm has to maintain a certain level of inventory of finished goods so as to be able to

meet the requirements of the business. But the level of inventory should neither be too high nor too low.

A too high inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas too low inventory may mean the loss of business opportunities. It is very essential to keep sufficient stock in business

Definition:

Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio/Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.

Components of the Ratio:

Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the and of the period and dividing it by two. In case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average is calculated.

Formula of Stock Turnover/Inventory Turnover Ratio:

The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost. 

(a) [Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost]

Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may

be calculated by dividing net sales by average inventory at cost. If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory. 

(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost](c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price](d) [Inventory Turnover Ratio  = Net Sales / Inventory]

Significance of ITR:

Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories.

It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. The norms may be different for different firms depending upon the nature of industry and business conditions. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis.

Debtors Turnover Ratio | Accounts Receivable Turnover Ratio:

A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy.

The effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors.

Definition:

Debtors turnover ratio or accounts receivable turnover ratio  indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.

Formula of Debtors Turnover Ratio:

Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

The two basic components of accounts receivable turnover ratio are net credit annual sales and average trade debtors. The trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills Receivables. The average receivables are found by adding the opening receivables and closing balance of receivables and dividing the total by two. It should be noted that provision for bad and doubtful debts should not be deducted since this may give an impression that some amount of receivables has been collected. But when the information about opening and closing balances of trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated by dividing the total sales by the balance of debtors (inclusive of bills receivables) given. and formula can be written as follows.

Debtors Turnover Ratio = Total Sales / Debtors

Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.

Creditors / Accounts Payable Turnover Ratio:

Definition and Explanation:

This ratio is similar to the debtor’s turnover ratio. It compares creditors with the total credit purchases.

It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtor’s turnover ratio, creditors turnover ratio can be calculated in two forms, creditors turnover ratio and average payment period.

Formula:

Following formula is used to calculate creditor’s turnover ratio:

Creditors Turnover Ratio = Credit Purchase / Average Trade Creditors

Average Payment Period:

Average payment period ratio gives the average credit period enjoyed from the creditors. It can be calculated using the following formula:

Average Payment Period = Trade Creditors / Average Daily Credit Purchase

Average Daily Credit Purchase= Credit Purchase / No. of working days in a year

Or

Average Payment Period = (Trade Creditors × No. of Working Days) / Net Credit Purchase

(In case information about credit purchase is not available total purchases may be assumed to be credit purchase.)

ANALYSIS:ANALYSIS:CCURRENTURRENT RATIOSRATIOS

YYEAREAR

ACCACC LIMITEDLIMITED

ULTRATECHULTRATECHLIMITEDLIMITED

AMBUJAAMBUJA CEMENTCEMENTLTDLTD

OCLOCLLIMITEDLIMITED

INDIAINDIA CEMENTCEMENT LTDLTD

20112011 0.870.87 0.67 1.14 5.84 0.95 20102010 0.680.68 0.67 1.071.07 0.66 1.2820092009 0.670.67 0.67 0.890.89 0.75 1.4620082008 0.890.89 0.59 1.261.26 0.95 1.1320072007 0.860.86 0.58 1.031.03 0.45 1.43

Year 2011 2010 2009 2008 20070

2

4

6

8

10

12

14

16

18

INDIA CEMENT LTDOCLAMBUJA CEMENTULTRATECHACC LIMITED

QUICKQUICK RATIOSRATIOS

YYEAREAR

ACCACC LIMITEDLIMITED

ULTRATECHULTRATECHLIMITEDLIMITED

AMBUJAAMBUJA CEMENTCEMENTLTDLTD

OCLOCLLIMITEDLIMITED

INDIAINDIA CEMENTCEMENT LTDLTD

20112011 0.58 0.36 0.85 13.63 1.3520102010 0.43 0.340.34 0.75 1.08 1.6920092009 0.42 0.30 0.57 1.02 1.5420082008 0.61 0.34 0.74 1.15 1.2320072007 0.55 0.38 0.64 0.10 1.49

Year 2011 2010 2009 2008 20070

2

4

6

8

10

12

14

16

18

INDIA CEMENT LTDOCLAMBUJA CEMENTULTRATECHACC LIMITED

Inventory Turnover Ratio

YYEAREAR ACCACC LIMITEDLIMITED

ULTRATECHULTRATECHLIMITEDLIMITED

AMBUJAAMBUJA CEMENTCEMENTLTDLTD

OCLOCLLIMITEDLIMITED

INDIAINDIA CEMENTCEMENT LTDLTD

20112011 18.59 15.7315.73 10.38 10.6610.66 8.98 20102010 19.04 17.6917.69 9.19 11.6511.65 23.2420092009 25.22 22.6522.65 11.36 7.157.15 25.9320082008 27.51 22.8922.89 7.54 9.829.82 26.3620072007 24.85 31.1631.16 9.969.96 1.371.37 27.47

2011 2010 2009 2008 20070

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20

30

40

50

60

70

80

90

100

INDIA CEMENT LTD OCL

AMBUJA CEMENT ULTRATECH

ACC LIMITED

((CHARTCHART OFOF INVENTORYINVENTORY TURNOVERTURNOVER RATIORATIO))

DEBTORSDEBTORS TURNOVERTURNOVER RATIORATIO

YEARYEAR ACCACC

LIMITEDLIMITED

ULTRATECHULTRATECHLIMITEDLIMITED

AMBUJAAMBUJA CEMENTCEMENTLTDLTD

OCLOCLLIMITEDLIMITED

INDIAINDIA CEMENTCEMENT LTDLTD

20112011 42.62 26.71 45.92 16.39 18.1118.1120102010 40.04 32.28 52.58 13.64 9.239.2320092009 31.22 35.04 37.60 11.16 8.798.7920082008 24.12 31.71 33.39 7.27 10.1010.1020072007 27.40 27.55 48.14 2.87 10.6610.66

year 2011 2010 2009 2008 20070

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20

30

40

50

60

AMBUJA CEMENTAMBUJA CEMENT OCLOCL ACC LIMITEDACC LIMITED ULTRATECHULTRATECH INDIA CEMENTINDIA CEMENT

ANALYSISANALYSIS ANDAND FINDINGSFINDINGS::

In ACC limited the current ratio is in increasing trend from2007-2008 i, e 0.86 to 0.89 that means the improvement in illiquidity position of firm & after that, in 2009 there has been detoriation of firm in some extent as it falls to 0.67 . In 2010 it also increases. For ultratech cement current ratio increase from2007-2008 as 0.58 -0.59 and after that it is in a constant position i,e 0.67 from 2009-2011 that means the current assets increases following the current liability. The all companies have not good current ratio because it is below the rule of thumb except the OCL limited in2011 as its current ratio is 5.84.

India cements have its very satisfactory quick ratio & liquidity position of India cements is also very good in all year. OCl also have good ratios from 2008-2010.in 2011 OCL have huge quick ratio as 13.63 & it is

very good liquidity position and all other companies have low quick ratio in all year except and inventories are not absolutely non-liquid and its satisfactory because the inventory is fast moving.

Inventory turnover ratio of all companies has satisfactory and it indicates efficient management inventory because more frequently stocks are sold.

Debtor turnover ratio of all companies in all year are satisfactory except the OCL limited in 2007 I,e 2.87 is very low as comparison to other.in2007 of OCL limited has sales to the less liquidator debtor.

Overally short term financial position of all companies are satisfactory. The management system of cement industries is very efficient. Indian cement industries in a healthy position & it produce qualitative

cement.

SUGGESTIONSSUGGESTIONS A ANDND RECOMMENDATIONSRECOMMENDATIONS

All companies should increase its productions as india develops its infrastructural sites.Management of companies is suggested to improve its current ratio.The Government should frame policy for the benefits of cement industries.The Government should develop the R & D in cement industries.

ConclusionThe amount of profit earned measures the efficiency of a business. The greater the volume of profit, the higher is the efficiency of the concern. The profit of a business may be measured and analyzed by studying the profitability of investments attained by the business. The study investigates the profitability of the selected cement companies in India. The study uses various liquidity and profitability ratios for assessment of impact of liquidity ratios on profitability performance of selected cement companies. It is inferred from the results profitability performance of selected cement companies is satisfactory.

Bibliography

J. C. Van Home. J. M Wachowicz (JR). “Fundamental ofManagement Accounting”. Prentice Hall of India (PHI).

Pandey, I.M.“Financial Management” New Delhi: Vikash publication

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