Working Capital Sagar Cement

MBA Programme
INTRODUCTION
Here we intend to discuss the problems relating to the management of working
capital in kesoram industries. The discussion extends to the various issues including
the importance of working capital, its size structure and efficiency of the management
of the components. Further, an attempt is also made to trace out the significance
sources of working capital finance and the problems faced by the kesoram industry in
securing funds for meeting working capital management.
IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

Though Working Capital is of vital significance to an understanding in several
ways, the management of which did not receive adequate attention until recently. The
literature of Finance concentrated more on the infrequent episodic events like mergers
and liquidation neglecting completely the management of working capital. Even now
the management of the fixed assets is getting precedence over the working capital.
There are only few studies that were conducted to know the art of managing this vital
component of capital employed in the Indian context with special reference to
working capital.
Working capital is the area of financial management that consumes much of
time of a finance manager. It plays a greater role in earning maximum return on the
investment. That is to say a firms profitability may increased as more working capital
is added to the fixed capital when the firm does not exceed cent percent of the
capacity.
In managing this asset, the finance manager of a company is constantly
engaged in endeavoring to maintain a sound working capital position. He is often
times confronted with excess and shortages of working capital. While an excessive
working capital leads to un remunerative use of scarce funds, inadequate working
Master of Business Administration
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MBA Programme
capital interrupts the smooth flow of business activity and impairs profitability.
History is replete with instances where paucity of working capital has posed to be the
major contributing factor for business failures.
Not only the adequacy of working capital posses a threat to the finance
manager but also its abundance. Availability of more than required amount of funds
causes on unchecked accumulation of inventories. Further there may be a tendency to
grant more and more credit without properly looking into the credentials of the
customers. Moreover, idle cash earns nothing and it is unwise to keep large quantities
of cash with the firm. Thus the need to have adequate working capital in a firm need
not be overemphasized.
Working capital in a business enterprise may compared to the blood of the
human body; blood gives life and strength to the human body, and working capital
imparts life and strength profits and solvency to the business organization. The
need for working capital to run the day to day business activities need not be
overemphasized. One hardly finds a business enterprise, which does not require any
amount of working capital.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

The specific objectives of working capital management as follows:
1) To ensure that the marginal return on investment in working capital assets is
equal to or more than the cost of capital of funds utilized to finance working
capital.
2) To ensure that adequate working capital is maintained for the operations of the
business, which in turn ensures solvency and profitability.
3) To ensure that the mix of working capital components is maintained in
optimum manner.
4) Minimize over the long run the cost of capital employed in financing the
current assets.
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MBA Programme
5) To control the flow of funds through working capital in such a way that the
firm would always be able to meet its obligations when due.
6) To ensure that working capital management is effective enough to promote
profitability
and helps in maximizing the wealth of the shareholders.
DEFINITIONS:
An individual to do his daily activities smoothly should have energy, for that he
should have an optimum diet. Like that for an organization, to run its day to day
activities smoothly there should be a fund that is known as working capital.
Working capital is the amount of financing required to sustain optimal
balances of the firms working capital assets. Working capital represents that portion
of capital, which circulates from one form to another in the ordinary conduct of
business.
Working capital is a shot-term source of financing. Working capital
management includes managing the current assets. Current assets include cash,
inventory, bill receivables, and short-term investments. Current assets are liquid in
nature. So the current assets can be convertible into cash very quickly and easily. In
managing the current assets time is a minor factor. The level of current assets, which
should be maintained, depends upon the expected sales. The current assets can be
adjusted with sales fluctuations in the short run.
Working capital management encompasses the administration and control of
the current assets, utilization of short-term financing via various current liability
sources and control of the amount of networking capital.
Like the most other financial terms, different writers use the concept working
capital in different connotations. Working capital is the amount of financing required
to sustain optimal balances of the firms working capital assets.

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The concept of working capital is built on the three important elements:

a) Financing working capital assets i.e. current assets
b) The amount of cash tied up in working assets.
c) The speed with these assets is converted into cash.
Obviously, it is understood either as the total of current assets or as the excess
of current assets over current liabilities. No special distinction is made between the
terms total current assets, and working capital by authors like, Mehta, Archu, Bogen,
Mead and Baker. According to Mehta, working capital is nothing but total of current
assets. For him it is a substitute for working capital, though not a perfect one. Archer
expresses similar view and DAmbrosio that working capital is the capital circulating
into cash over an operating cycle. Customarily according to them, working capital is
equated with all the current assets. Bogen is in complete agreement with this
explanation of the term and states that working capital and current assets are
interchangeable.
CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital. Viz, gross concept and net concept.
The Gross working capital also known as current capital or circulating capital is
represented by the sum total of all current assets of the enterprise. On the other hand,
the term networking capital refers to the difference between current assets and current
liabilities.
Gross working capital refers to the firms investment in current assets. Current
assets are the assets which can be converted into cash within an accounting year (or
operating cycle) and include cash, short-term securities, Debtors (accounts receivable
or book debts) bills receivables and stock (inventory).
Networking capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders, which expected to mature
for payments within an accounting year and include creditors (accounts payable) bills
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MBA Programme
payable and outstanding expenses. Networking capital can be positive or negative. A

positive net working capital will arise when current assets exceed current liabilities. A
negative net working capital occurs when current liabilities are in excess of current
assets.
Gross working capital focuses attention on two aspects of current assets
management. I.e. the consideration of the level of investment in current assets should
avoid two-danger points- excessive and inadequate investment in current assets.
Investment in current assets should be just adequate, not more, not less, to the needs of
the business firm. Excessive investment in current assets should be avoided because it
impairs the firms profitability, as idle investment earns nothing. On the other hand,
inadequate amount of working capital can threaten solvency of the firm because of its
in ability to meet its current obligations.
Another aspect of the gross working capital points to the need of arranging
funds to finance the current assets. When ever a need for working capital funds arises
due to the increasing level of business activity or for any reason, financing
arrangement should be made quickly. Similarly, if suddenly, some surplus funds arise
they should not be allowed to remain idle, but should be invested in short-term
securities. Thus the financial manager should have the knowledge of the sources of
funds of working capital as well as investment avenues where idle funds may be
temporarily invested.
Net working capital is a qualitative concept. It indicates the liquidity position
of the firm and suggests the extent to which working capital needs may be financed by
permanent sources of funds. Current assets should be sufficiently in excess of current
liabilities to constitute a margin or buffer for maturing obligations within the operating
cycle of business.

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MBA Programme
A negative working capital means a negative liquidity and may prove to be

harmful for the companys reputation. Excessive liquidity is also bad. It may be due to
mismanagement of current assets.
Networking capital concept also covers the question of judicious mix of long
term and short-term funds for financing current assets. For every firm, there is a
minimum amount of networking capital, which is permanent. Therefore, a portion of
the working capital should be financed with the permanent sources of funds such as
equity share capital, debentures, long-term debt, and retained earnings. Management
must, therefore decide the extent to which current assets should be financed with
equity and /or borrowed capital.
In summary it may be emphasized that both gross and net concepts of working
capital are equally important for the efficient management of working capital. There is
no precise way to determine the amounts of gross, or networking capital for any firm.
COMPONENTS OF WORKING CAPITAL:

For a proper appreciation of the problems of working capital management a
closer look at the individual items of working capital is essential. The components of
current assets and current liabilities, which constituents of working capital are:
Current Assets:
The finance literature describes the Current Assets as those Assets, which can
be converted into cash within an accounting year or within the operating, cycle which
ever is greater. Sometimes these assets may not get converted into cash strictly within
this stipulated period, but are still included in the category of current assets. The
current assets include basically inventories of all categories, trade debtors, advances
investments in marketable securities, cash in hand and at bank and other current assets
including prepaid expenses and advance payment of tax.
Current Liabilities:
Current liabilities are those that are payable within the next accounting year or
Operating Cycle. Normally al those liabilities that are required to be paid within a
period of one year are regarded as Current liabilities. They include Sundry Creditors,
Bank Borrowings, advances received from customers; security and other deposits etc
and other liabilities including interest accrued on loans. Like the current assets, current
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liabilities also may not satisfy the time criterion, but the dues are still included in the
category of current liabilities.
Exhibit 1.1 Constituent parts of working capital
Current Liabilities
Bank Borrowings
Current Assets
Inventories
Cash credit and overdrafts
Raw materials, components etc
Trade Creditors
Work-in-progress
Including Sundry Creditors
Finished goods
Or Creditors for purchases
Stores & Spares
Other Current Liabilities
Sundry Debtors or Trade Creditors
Advances from Customers
Out standing payments in cash
Accrued expenses viz
Cash & Bank balances
Salaries, Wages & Other trade dues

Statutory Liabilities
Other Current Assets
Like Electricity charges,
Advances to suppliers
Municipal rent & rates
Others viz, loans & Advances
Un paid Dividend, O/S dues
Debtor Balances
Prepaid expenses
Others like Provisions for taxes & Other
Short-term investments
Current Provisions
Govt, Semi-Govt, and Trade Deposits

of one year or less, advance of income
tax and sales tax.
Thus, the financial analysis that relates to the study of working capital trends
involves a searching effort to trace out the supporting details of the summary of
classified information available in published financial statements of companies and
then to decide which of them can genuinely be recognized as current assets or current
liabilities.
Sources of Working Capital Finance:

Financing is important issue in the management of working capital of an enterprise. A
closer view of the financial situation of public enterprises in developing countries
indicates that many of them suffer from inadequate provisions of working capital. The
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creation of capacity and procurement of funds for capital expenditures are emphasized
but commensurate efforts are not made in planning the availability of working capital.
Enterprises that have insufficient working capital suffer from under-utilization of their
capacity to use. The period of gestation is lengthened and the break-even point of
viability recedes into the future. If the shortage in working capital is to serve as to
keep the operations of the enterprise below the break-even point of utilization, the
enterprise incurs deficits.
Partly there are various sources from which working capital may be financed,
which include bank borrowings, public deposits, trade credit, provisions and various
other current liabilities. Apart from those short- term sources, an enterprise can also
depend on internal sources and long-term funds to meet its working capital
requirements. Theoretically, an undertaking may use these short and long-term sources
of funds in any combination as it likes.
Generally, there are two kinds of working capital namely fixed working capital
and variable working capital. Though working capital increases and decreases over
time, there is always a minimum level of current assets, which is continuously
required by the firm to carry on its business operations. This minimum level of current
assets is referred to as permanent or fixed working capital. It is permanent in the same
way as the firms fixed assets are depending upon the changes in production and sales,
the need for working capital over and above the permanent working capital will
fluctuate. On the other hand, the extra working capital needed to support the changing
production and sales activities is called variable or temporary working capital.
However, both the kinds of working capital are necessary to facilitate production and
sales.
Thus, the sources of working capital can also be broadly classified into the
following two categories:
1. Permanent Sources of Working Capital.
2. Current Sources of Working Capital.
Permanent Sources Of Working Capital Finance:

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The Permanent Sources of Working Capital can be both internal and external.
Among the internal sources, retained earnings represent the undistributed profits and
are considerably dependent upon factors like the rate of the company taxation and the
dividend policy. Generally this source is used for financing expansion but can also be
used for financing working capital, depending upon the operative stage of the
enterprise in addition to the price of policy and the method of appropriation of profit.
As regards depreciation, it is a part of the cost of production and is subsequently
recovered in cash and gross revenue. Where the life of the plant and machinery is
fairly long, depreciation can be utilized as a long-term source of working capital.
Retained earnings and depreciation may prove to be the best source of
permanent working capital, but they are not available in the initial stages of an
enterprise. Unless an enterprise has operated for a sufficiently long time their share in
the working capital is not likely to be much. Further, in the case of state undertakings,
the discretion about the use and accumulation of these funds may not be exclusively
with the enterprise and reliance on them is, therefore, conditional and subject to the
approval of the government. Incase, retained earnings and depreciation are inadequate
or are disallowed by the government, public enterprises may be required to resort to
external sources to finance permanent working capital needs.
Among the external sources, the government in general, will be the only
source, which a public understanding can tap. The government may advance loans or
may grant cash subsidies.
Current Sources of Working Capital Finance:

The Sources of Working capital finance may also be internal and external.
Among the internal sources, a reference may be made to the tax provisions and unpaid
dividends. Taxes are payable at stated intervals subsequent to the receipt of the income
on which they are assessed. The enterprise, has, therefore, a chance of using funds
kept under tax provision during the intervals? Similarly payments of dividends may be
timed so as to suit the requirements of working capital, particularly when they are
enhanced by seasonal factors. It is noticeable that provisions of tax and unpaid
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dividends can be used as sources of current working capital but only occasionally and
that too within the limitations in regard to their general inflexibility and in the initial
stages of operation to their non-availability.
Thus undoubtedly, public enterprises will have to mobilize other external
sources of current working capital finance. The lone and dependable source is the
arrangement of cash and credit facilities with banks. Trade creditors may also be look
into a source. Generally, banks advance both secured and unsecured loans. Usually, a
credit line is agreed upon, implying that there exists an informal undertaking between
borrower and the bank as to the maximum amount of credit, which the bank will
provide the borrower at any one time.
In conclusion, it can be said that both the permanent and current sources of
financing working capital are important, though it is different to say anything
categorically about the relative importance. In principle, it is agreeable that the
permanent working capital should be financed from out of permanent sources, while
the current working capital should be financed out of current sources.
NEED FOR ADEQUACY OF WORKING CAPITAL:

It is essential for any business to maintain adequate working capital and to
ensure that there is no shortage or excess working capital. The consequences of
inadequate working capital or excessive working capital are listed below:
Dangers of inadequate working capital:

1. It fails to take advantages and tap the available market opportunities; there by
loosing the sales which results in loss of profits.
2. Growth potentials get stagnated. It will not to fulfill the customers requirements.
3. Implementation of the operating plans and sales targets get sabotaged.
4. The firm would be facing liquidity problem being unable to meet its day-to-day
commitments on time.
5. The reputation of the firm would be severely affected on account of failure to meet
dead lines or payment commitments.
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6. Fixed assets remain under utilized and therefore the rate of return on investment
falls.
7. The credit rating of the company is lowered making it difficult for the business to
borrow funds for its operations.
Dangers of excessive working capital:

1. Inventories get accumulated. The cost of holding inventories increases. The
losses in different forms such as theft, breakage, mishandling increases.
2. Receivables get accumulated increasing the risk of defaults. Therefore, a bad
debt as a percentage of sales increases.
3. The costs of financing debtors and stock increases; since interest cost is
incurred on the amount locked in such assets.
4. It amounts to idle funds and therefore rate on investment falls down.
5. Since more liquidity is available, the company may follow a liberal dividend
policy, making it difficult to maintain the stability of dividend in future, when
the company may not be doing well.
6. Managerial inefficiency may creep in due to availability of surplus funds.
VARIOUS TYPES OF WORKING CAPITAL:

The various types of working capital are as follows:
1. Permanent Working Capital:
It is found that it is always necessary to hold a minimum amount of working
capital in various assets as a permanent feature to ensure smooth running of the
business at all items. This minimum level of current assets that must be maintained at
all times is known as permanent working capital. It is infact a fixed working capital,
which is needed fro business what ever may be the level of operations within given
capacity levels.
Features:
a. It constitutes the core current assets, which is needed to maintain at all times.
b. Being of a fixed nature, it is financed normally out of long-term funds.
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c. The size of business determines the amount of permanent working capital.

2. Temporary Working Capital:
a. Temporary Working Capital is of a short-term nature and is required depending
upon the demand of product in the market.
b. It is variable part of working capital.
c. It will be required by way of additional investment in stock and debtors to support
sales in the period and can be withdrawn during the slack period.
d. It is not of a permanent nature and keeps on changing according to the production
and sales changing patterns.
3. Gross Working Capital:
It is the total amount of funds invested in various components of current
assets taken together. The total of investment in all the individuals current assets is
the gross working capital. The level of gross working capital can help in controlling
the unproductive investment in various current assets an monitor their effective use.
4. Networking Capital:
It is simply the excess of total current assets over the total current liabilities.
Current liabilities refer to short-term liabilities payable within one year. Hence the
extent to which funds is available from the current liabilities; the requirement of funds
for financing current assets is reduced. In other words, the current assets are partly
financed from the current liabilities a balancing amount of current assets represent
networking capital. It reflects the liquidity of the business.
5. Negative Working Capital:
When the current liabilities are in excess of the current assets. It gives rise to
negative working capital. Negative working capital reflects liquidity Crunch. It
indicates that the firm is not bale to meet its short-term obligations on time. It has
adverse effect on the operational efficiency.
6. Reserve Working Capital:
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It is a part of working capital, which is ear marked, for meeting unforeseen

contingencies. Shortage of working capital adversely affects operational efficiency of
any business. If due to certain unforeseen circumstances, the business is forced into
liquidity problems, this reserve can be of help in mitigating any such liquidity
problems. A business is always exposed to risks, which can throw the business out of
gear, if sufficient reserve is not available. Hence, the importance of keeping a certain
amount as reserve working capital.
7. Fluctuating Working Capital:
Fluctuating Working Capital represents the additional working capital required
to finance the additional inventory or other current assets due to seasonal nature of the
industry. It can also mean extra funds needed to meet contingencies during
inflationary situations, recession or a strike or to take advantage of a bulk discount.
FINANCIAL NEEDS OF A FIRM
Fluctuating working capital
Permanent working capital
Assets in Rs
Fixed Assets
Jan Mar June September December
DETERMINANTS OF WORKING CAPITAL:

The amount of working capital depends upon a number of factors; many of
which are operating at the same time; theyre by complicating the issue. In certain
business requirement of working capital may be meagre while in certain other
business, the requirement may be huge, depending entirely on the working conditions
and the industry to which the business belongs. Some of the factors are as follows:
1.Nature of Business: A companys working capital requirements are directly related
to the type of business it operates. In some industries like public utility services the
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consumers are generally asked to make payments in advance and the money thus
received is used for meeting the requirements of current assets. Such industries, can
carry on their business with comparatively less working capital. On the contrary,
industries liker cotton, jute may have to be required to purchase raw materials for the
whole of the year only during the harvesting season, which obviously increases the
working capital needs in the period.
2.Length of manufacturing Cycle: It is said that the longer the manufacturing cycle
of a product the greater its cost, and the larger is the requirement of working capital.
The reason is that a larger amount of inventory is tied up in its manufacture. A
distillery, which has an ageing process, has generally to make heavy investment in
inventory. Bread-making units provide the other extreme. These units sell their
products daily and therefore, their investment in working capital may not be large. The
higher the rate of turnover of inventories the larger is the volume of business which
can be transacted with a given amount of circulating assets. Besides, the range of
products influences the requirements of working capital.
3. Managements Attitude Towards Risk: Managements attitude towards risk also
influence the size of working capital in an undertaking. It is of course, difficult to give
a very precise and determinable meaning to the managements attitude towards risk,
but as suggested by walker, the following principles involving risk may serve as the
basis of policy formulation:
a) If the working capital is varied relative to sales the amount of risk that firm
assumes also varied and the opportunity for gain or loss is increased.
b) Capital should be invested in each component of working capital as long as the
equity position of the firm increases;
c) The type of capital used to finance working capital directly affects the amount
of risk that a firm assumes as well as the opportunity for gain or loss and cost
of capital.

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d) The greater the disparity between the maturities of a firms short-term debt
instruments and flow of internally generated funds, the greater the risk and
vice-versa
Briefly these principles imply that the policies governing the size of working
capital are determined by the amount of risk which the management is prepared to
under take.
4. Growth and Expansion of Business: It is logical to expect that larger amounts of
working capital are needed to support the increasing operations of a business concern.
But, there is no simple formula to establish the link between growth in the companys
volume of business and the growth of working capital. The critical fact is that the need
for increased working capital funds does not follow the growth in business activity but
preceeds it. Citerus paribus, growth industries require more working capital than
those that are static.
5. Product Policies: Depending upon the kind of items manufactured by adjusting its
production schedules a company may be able to off-set the effects of seasonal
fluctuations upon the working capital. The choice rests between varying output in
order to adjust inventories to seasonal requirements and maintaining a steady rate of
production and permitting stocks of inventories to build up during off-season period.
In the first instance, inventories are kept to minimum levels; in the second, the
uniform manufacturing rate avoids high fluctuations of production schedules but
enlarged inventory stocks create special risks and costs.
6. Position of the Business Cycle: Besides, the nature of business, manufacturing
process and production policies, cyclical and seasonal changes also influence the size
and behaviour of working capital. During the upswing of the cycle and the busy
season of the enterprise, there will be a need for a larger amount of working capital to
cover the lag between increased and the receipts. The cyclical and seasonal changes
mainly influence the size of working capital through the inventory stock. As regards
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the behaviour of inventory during the business cycles, there is no unanimity of opinion
among economists. A few say that inventory moves in conformity with business
activity. While others hold the view that business activity depends upon the behaviour
of the inventory of finished goods which is determined by the credit mechanism and
short-term rate of interest. What ever be the view points, the fact remains that the
cyclical changes do influence the size of the working capital.
7. Terms of Purchase and Sales: The magnitude of the working capital of a business
is also affected by the terms of purchase and sales. If, for instance, an undertaking
purchases its materials on credit basis and sells its finished goods on cash basis, it
requires less working capital over an undertaking which is following the other way of
purchasing on cash basis, and selling on credit basis. It all depends on the
managements discretion to set credit terms in consideration with the prevailing
market conditions.
8.Miscellaneous: A part from the above mentioned factors some others like the
operating efficiency, profit levels, managements policies towards dividends,
depreciation and other reserves, price level changes, shifts in demand for products
competitive conditions, vagaries in supply of raw materials, import policy of the
government, hazards and contingencies in the nature of the business, etc., also
determine the amount of working capital required by an undertaking.
OPERATING CYCLE OR WORKING CAPITAL CYCLE:

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Operating cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash. The Operating cycle of a
manufacturing company involves three phases:
Acquisition of resources is such as raw material, labor, power and fuel etc.
Manufacture of the product, which includes conversion of raw materials into workin- progress into finished goods.
Sale of the product is either cash or a credit. Credit sales create account receivables
for collection.
These phases affect cash flows, which most of the time, are neither are
synchronized nor certain. They are not synchronized because cash outflows usually
occur before cash inflows. Cash inflows are not certain because sales and collections,
which give rise to cash inflows, are difficult to forecast accurately. Cash outflows, on
the other hand, are relatively certain. The firm needs to maintain liquidity to purchase
raw materials and pay expenses as hardly a matching between cash inflows cash out
flows. Cash is also held to meet any future exigencies. Stocks of raw materials and
work-in-progress are kept to ensure smooth production and to guard against nonavailability of raw materials and other components. The firm holds stock of finished
goods to meet the demands of customers on continuous basis and sudden demand
from some customers. Debtors are created because goods are soled on credit for
marketing and competitive reasons. Thus a firm makes adequate investment in
inventories, and debtors, for smooth, un interrupted production and sale.
In any business there is bound to be a time lapse from the time funds are
invested in business for buying raw materials and the cash is finally recycles back in
business through sales. This time span can split into the following parts comprising
the chronological sequence of events.
1. Time required for conversion of cash into raw materials.
2. Time required for conversion of raw materials into work-in-process.
3. Time spent in conversion of work-in-process into finished goods.
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4. Time spent in conversion of finished goods into debtors and bills receivables
through sales.
5. Finally, time taken to convert debtors and bills receivables into cash.
Purchases
Payment
Credit sale
Collection
RMCP+WIPCP+FGCP
Inventory conversion Period
Receivables conversion
period
Payables
Net operating cycle

Gross operating Cycle
Length of operating Cycle:

The length of Operating Cycle of a manufacturing firm is sum of:
i. Inventory Conversion Period
ii. Debtors conversion Period
Inventory Conversion Period: The inventory conversion Period is the total time
needed for producing and selling the product. Typically it includes:
a) Raw material Conversion Period (RMCP)
b) Work-in-Process Conversion Period (WIPCP)
c) Finished Goods Conversion Period (FGCP)
Debtors Conversion Period: The time required collecting the outstanding amount
from the customers .The total of inventory conversion period and debtors conversion
period is referred to as Gross Operating Cycle.

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In practice, a firm may require resources on credit and temporarily post pone
payment of certain expenses. Payables, which the firm can defer, are spontaneous
sources of capital to finance investment in current assets. The payables deferral period
(PDP) is the length of time the firm is able to defer payments on various resource
purchases. The difference between (gross) Operating Cycle and payables deferral
period is net operating cycle (NOC). If depreciation is excluded from expenses in the
computation of operating cycle, the net operating cycle also represents the cash
conversion cycle.
CYCLICAL FLOW OF WORKING CAPITAL AND ITS
CHARACTERISTICS:
For every business enterprise there will be a natural cycle of activity. Due to the
interaction of the various forces affecting the working capital, it transforms and moves
from one to other. The role of the financial manager, then, is to ensure that the flow
proceeds through the different working capital stages at an effective rate and at the
appropriate time. However, the successive movements in this cycle will be different
from one enterprise to another, based on the nature of the enterprises. For example:
i.
If the enterprise is a manufacturing concern, the cycle will something like:

Cash(buying)Raw materials(production)Finished Goods(sales on
credit)Accounts Receivable(collections)Cash
ii.
If the enterprise is purely a relating company and one which has no

manufacturing problem the cycle is shortened as:
Cash-(buying)--Merchandise--(sales)Accounts
Receivables(collections)
Cash
i.
If the enterprise is a purely financing enterprise, the cycle is still shorter and it
can be shown as:
Cash(sanction of loans)Debtors(Collections)Cash
But in real business situations, the cyclical flow of working capital is not a
simple and smooth going as one may be tempted to conclude from the simple flows.
Three important characteristics of working capital are namely short life span swift
transformation and inter-related asset forms and synchronization of activity levels.
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1. Short life Span: Components of working capital are short-lived. Typically their life
span does not exceed one year. In practice, however, some assets that violate this
criterion are still classified as current assets.
2. Swift Transformation and Inter related Asset Forms: In addition to their short
span of life, each component of the current assets is swiftly transformed into the other
asset. Thus, cash is utilized to replenish inventories, inventories are diminished when
sales occur that augment accounts receivables and collection of accounts receivables
increases cash balances. Thus, a natural collary of this transformation is the frequent
and repetitive decisions that affect the level of working capital and the closes
interaction that exists among the members of the family of working capital. The latter
entails the assumption that efficient management of one asset cannot be under taken
with out simultaneous consideration of other assets.
3. Assets Forms and Synchronization of activity levels: A third characteristic of
working capital components is that their life span depends upon the extent to which
the basic activities like production, distribution, and collection are non-instantaneous
and unsynchronized. If these three activities were only instantaneous and
synchronized, the management of working capital would obviously be a trivial
problem. If production and sales were synchronized there would be no need to have
inventories. Similarly, when all inventories pay cash, management of accounts
receivable would become necessary.

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NEED OF THE STUDY
The main need of the study is to analyze the financial information of the
SAGAR CIMENTS PVT LIMITED. This study further necessitated for the
following needs:
To find out the liquidity or short term solvency of the SAGAR
CIMENTS PVT LIMITED
It helps to compare what credit period it receives from the supplier
and what it offers to the customers.
To express the relationship between different financial aspects in such
a way that it allows
the users to draw conclusions about the
performance, strengths and weaknesses of the company.
To know short term debt serving ability of the company.

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OBJECTIVES OF THE STUDY
The
main
objective of the present study is to analyze and interpret the
financial information of the SAGAR CIMENTS PVT LTD. The other objectives of
the study are as follows :
To know the performance of the company in different time periods.
To know the financial viability of the SAGAR CIMENTS PVT LTD
To offer suggestions, if any for better financial performance of the
company.
To know the future liquidity of the company.

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SCOPE OF THE STUDY
An extensive study is done on the financial transactions and the financial information of
the SAGAR CIMENTS PVT LTD. The study covers all the transactions of the SAGAR
CIMENTS PVT LTD in the Andhra Pradesh.
The study covers the historical financial information of the company to find growth,
strength and weaknesses of the company.
The study covers the measurement of profitability of the firm and its operating
efficiency. And the relationship between different financial aspects.
The scope covers all the financial factors such as the current assets current liabilities etc
of the SAGAR CIMENTS PVT LTD
The scope covers the information regarding the shares and shareholders and the
shareholders funds etc of the organization.

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METHODOLOGY:
Methodology is scientific and systematic search for pertinent information on specific
topic. The reliability of management decision depends upon the quality of date. Basically we
have two types of data:
Primary date.
Secondary date.
PRIMARY DATA :Primary data can be collected either through experience of through survey. Those
which are collected a fresh and for the first time and thus happen to be original in character
that is called primary data. Primary data can be collected in the following ways :
By observations
Through personal interview
Through telephone interviews
By mailing of questionnaires.
Through schedules.
SECONDARY DATA :Secondary data means data that are already available that is they refer to the data
which have already been collected and analyzed by some one else and which have already
been pass through the statistical process is called secondary data. Secondary data may either
be published data or unpublished data that data are available.

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LIMITATIONS OF THE STUDY

While the study is undertaken with a view to analyze and to interpret the financial
information of the SAGAR CIMENTS PVT LTD. These are some limitations encountered
during the study. The limitations of the study are as follows :
Due to shortage of the time for overall analysis of the financial information of
SAGAR CIMENTS PVT LTD has become difficult.
Since the current year was not completed it is not possible to compare the compare
the current year information with the previous year information.
Due to the busy schedule of some managers it was not possible to the information
from those meets, So the report may not be accurate
Some of the financial records were with the registered office of the company
SAGAR CIMENTS PVT LTD due to some statutory requirements; it became
difficult to get the overall information of the company.
Since I was new to the company, the managers of the company were denied to
furnish the financial information.

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INDUSTRY PROFILE
The Indian Cement industry is the second largest cement producer in the
world, with an installed capacity of 144 million tones. The industry has
undergone rapid technological up gradation and vibrant growth during the last
two decades, and some of the plants can be compared in every respect with the
best operating plants in the world. The industry is highly energy intensive and
the energy bill in some of the plants is as high as 60% of cement manufacturing
cost. Although the newer plants are equipped with the latest state-of-the-art
equipment, there exists substantial scope for reduction in energy consumption in
many of the older plants adopting various energy conservation measures.
The Indian cement industry is a mixture of mini and large capacity
cement plants, ranging in unit capacity per kiln as low as 10 tpd to as high as
7500 tpd. Majority of the production of cement in the country (94%) is by large
plants, which are defined as plants having capacity of more than 600 tpd. At
present there are 124 large rotary kiln plants in the country. The Ordinary
Portland Cement (OPC) enjoys the major share (56%) of the total cement
production in India followed by Portland Pozzolana Cement (PPC) and Portland
Slag Cement (PSC).
A positive trend towards the increased use of blended cement can be seen
with the share of blended cement increasing to 43%. There is regional
imbalance in cement production in India due to the limitations posed by raw
material and fuel sources. Most of the cements plants in India are located in
proximity to the raw material sources, exploiting the natural resources to the full
extent. The southern region is the most cement rich region while other regions
have almost same cement production capacity.
The Indian cement industry is about 90 years old and its main sources of
energy are thermal and electrical energy. The thermal energy is generally
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obtained from coal, and the electrical energy is obtained either from grid or
captive power plants of the individual manufacturing units.
History of Indian Cement Industry

By stating production in 1914 the story of story of Indian cement is a
stage of continuous growth.
Cement is derived from the Latin word
cementam. Egyptians and Romans found the process of manufacturing

cement. In England during the first century the hydraulic cement has become
more versatile building material. Later on, Portland cement was invented and
the invention was usually attributed to Joseph Aspdin of Enland.
India is the worlds 4th largest cement produced after China, Japan and
U.S.A. The South Industries have produced cement for the first time in 1904.
The company was setup in Chennai with the installed capacity of 30 tonnes per
day. Since then the cement industry has progressing leaps and bounds and
evolved into the most basic and progressive industry. Till
1950-1951, the
capacity of production was only 3.3 million tonnes. So far annual production
and demand have been growing a pace at roughly 78 million tonnes with an
installed capacity of 87 million tonnes.
In the remaining two years of 8th plan an additional capacity of 23 million
tonnes will actually come up. India is well endowed with cement grade
limestone (90 billion tonnes) and coal (190) billion tonnes). During the nineties
it had a particularly impressive expansion with growth rate of 10 percent.
The strength and vitality of Indian Cement Industry can be gauged by the
interest shown and support gives by World Bank, considering the excellent
performance of the industry in utilizing the loans and achieving the objectives
and targets. The World Bank is examining the feasibility of providing a third
line of credit for further upgrading the industry in varying areas, which will
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make it global. With liberalization policies of Indian Government, the industry

is posed for a high growth rates in nineties and the installed capacity is expected
to cross 100 million tonnes and production 90 million tonnes by 2003 AD. The
industry has fabulous scope for exporting its product to countries like the
U.S.A., U.K., Bangladesh Nepal and other several countries. But there are not
enough wagons to transport cement for shipment.
Cement The Product
The natural cement is obtained by burning and crushing the stones

containing clayey, carbonate of lime and some amount of carbonate of
magnesia. The natural cement is brown in color and its best variety is known as
ROMAN CEMENT. It sets very quickly after addition of water. It was in the
eighteenth century that the most important advances in the development of
cement were which finally led to the invention of Portland cement.
In 1756, John Smeaton showed that hydraulic lime which can resist the
action of water can be obtained not only from hard lime stone but rom a
limestone which contain substantial proportion of clayey.
In 1796, Joseph Parker found that modules of argillaceous limestone
made excellent hydraulic cement when burned in the usual manner. After
burning the product was reduced to a powder. This started the natural cement
industry.
The artificial cement is obtained by burning at a very high
temperature a mixture of calcareous and argillaceous material. The mixture of
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ingredients should be intimate and they should be in correct proportion. The

calcined product is known as clinker. A small quantity of gypsum is added to
clinker and it is then pulverized into very fine powder, which is known as
cement.
The common variety of artificial cement is known as normal
setting cement or ordinary cement. A mason Joseph Aspdn of Leeds of England
invented this cement in 1824. He took out a patent for this cement called it
PORTLAND CEMENT because it had resemblance in its color after setting
to a variety of sandstone, which is found abundance in Portland England. The
manufacture of Portland cement was started in England around 1825. The first
cement factory installed in Tamilnadu in 1904 by South India limited and then
onwards a number of factories manufacturing cement were started. At present
there are more than 150 factories producing different types of cements.
Composition of Cement:
The ordinary cement contains two basic ingredients, namely, argillaceous
and calcareous.
In argillaceous materials the clayey predominates and in
calcareous materials the calcium carbonate predominates. A good chemical

analysis of ordinary cement along with desired range of ingredient
Ingredients
Percent
Range
Lime (Capo)
62
62-67
Silica (SiO2)
22
17-25
Alumina (Al2O3)
3-8
Calcium sulphate
3-4
(CaSO4)
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Iron Oxide (Fe2O3)
3-4
Magnesia (MgO)
1-3
Sulphur (S)
1-3
Alkalies
0.2-1
Industry Structure and Development:

With a capacity of 115 million tonnes of large cement plants, Indian
cement industry is the fourth largest in the world.
However per capita
consumption in our country is still at only 100 Kgs against 300 Kgs of
developed countries and offers significant potential for growth of cement
consumption as well as addition to cement capacity. The recent economic
policy announcement by the government in respect of housing, roads, power
etc., will increase cement consumption.
CURRENT SCENARIO:
The cement industry occupies an important place in the national economy
because its strong linking to other sectors such as construction, transaction, coal
and power the cement industry as also one of the major contributors to the
chequer by way of indirect taxes.
Cement production during April to January 2009-10 was 130.67 MT as
compared to 115.52 MT during the same period for the same year 2008-09 over
the last few years, the Indian cement industry witness strong growth with
demand reporting a compounded annual growth rate of 9.3% and capacity
addition a CAGR of 5.6% between 2005-06 and 2008-09.
FDI
Presently 100% FDI is permitted in the Indian cement industry.
ROLE OF CEMENT INDUSTRY IN INDIA GDP-FACTS:
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The Indian cement industry is one of the booming sectors of the Indian
economy.
He infrastructure development of country in the recent years is the
demand.
Drive for the cement industry.
The Indian cement industry is experiencing the entry of many foreign
players in the Indian market.
The average monthly capacity utilization during the year 2008 to 2009
was 95%
The cement dispatches in the year 2008-09 was 157 MT
India ranks second in the production.
THE NAME OF VARIOUS CEMENT COMPANIES IN ANDHRA

PRADESH:
The KCP ltd (cement unite)
Madras cements ltd
Kesoram cements ltd
Priyadarashini cements ltd
Sri Vishnu cements ltd
Kakatiya cements ltd
NCL industries ltd
Orient cement
Parasakthi cements ltd
Bhavya cements ltd
Sagar cements ltd
Deccan cements ltd
Andhra cements ltd
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J.P. cements ltd

Bharathi cements ltd
A.C.C. ltd
The India cements ltd
Zuvari cements ltd
Sri chakra cements ltd
Ultratech cements ltd
CEMENT COMPANIES IN INDIA:
S.NO
STATE
NO OF CEMENT
PLANTS
01
02
03
04
05
06
07
ASSAM
ANDHRA PRADESH
BIHAR
DELHI
GUJARAT
HARYANA
HIMACHAL
1
19
7
1
13
2
4
08
09
10
PRADESH
JAMMU KASMIR
KARNATAKA
KERLA
1
9
1
Problems:
The main impediments to the growth of cement industry in India may be
broadly listed as follows.
Shortage of capital:
The cement industry is the capital intensive in nature. On the account of
its record of declining profitability. It is unable to trace the required finance
from the capital market.
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Power Shortage:
Cement industry is also power intensive frequent power cut effects
on the production. Through many units try to tied over the power crisis by
installing their own generators, seem to suffer loss due to high cost of such an
effort. It is estimated that 50.55% of total manufacturing cost related to power.
In 1989-90 merely 17% of total cement production with the country were
captive power at high cost.
Location Problem:
Cement industries are mainly situated in the western and southern
regions production about 71% of the output while the northern and southern
regions. Those factors lead to heavy transport cost.
Shortage of coal:
Coal shortage effects production of cement industry resulting in the
capacity and under utilization of capacity. The impurities and low quality of
coal affects the furnace and quality of cement. The coal supplied to cement unit
has regard an ash content up to 57% and the calorific value of 3000 an even less
against the calorific value of 4500-6500 of improved coal.
Non availability of Railway wagon:

Non-availability of railway wagons leads to considerable delay in
bringing in the raw materials and in dispatching the cement to various potential
markets. Sending cement by open railway wagon leads to pilferage and damage
by rail and 45% of by roads.
Defective methods of transport:

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Methods of cement bagging and its transportation in India are primitive

which make marketing in effecting an uneconomically hardly a quality of
cement at present is handled in bulk.
Negligible Share in the World Trade:
Indians share in world is negligible currently India exports only about
3.5 lakhs tones in a year.
Technological absolve:
The industry is needed to change in the production process. There is need
for conversion from wet process to dry process. It needs an investment
exceeding Rs.200/- crows. If the industry tries doesnt learn reasonable profit
institutional finance also becomes difficult. The other factors that affect the cost
of production and the profitability of the industry a
i. Price inverse in critical emerge inputs such as coal, power, light etc.
ii. Higher wages and lower labor productivity.
iii. Royalty and other levies and public leaves of Royalty and mineral lights
as constituted 60-70% of limestone in AP.
iv. Lower capacity utilization where higher capacity utilization has been.
v. High capital and financing cost of the new plants owing to high import
duty for plant and machinery as well as high cost of steam and increase in
the freight charges over the period.
Cement Export Prospects:

Indian cement is exported mainly to Nepal, Bangladesh, and small
partition to silence through export enquiries for about one million tone are on
hand with Indian with hug. Domestic demand exports have taken a backseat.
Substantial export can be achieved if 100% EOW of setup in the coastal area.
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These units would have the benefit of the projects cost due to the concession
import.
Recent Scenario of Cement Industry In India:
The cement industry was one of the industries to be liveried in 1980. The
government partially decontrolled the cement industry in 1982 followed by the
total decontrol in 1989. The cement industry has witnessed spectacular progress
mainly due to the forces of the economic liberalizations and the jettisoning of
the price controls of the capacity restrictions.
These act generated tremendous interest with and within decade nearly 30
millions tones capacity works added to the extending cement which checked
price raise. To add to the healthy competition among the place improved the
quality of cement.
This turn has helped the Indian cement industry to continues its
impressive performance over the years. During the fiscal year 1955-56, cement
production touched a new peak of 69 million tones as against 62.4 million tones
in the previous year representing a remarkable growth of 10%.
The year 1955-56 cement production touched a new peak of 69 million
tones as against 62.4 million tones in the previous year representing a
remarkable growth of 10%.
He year 1955-56 witnessed a hoping 12% to increase a demand for
cement the highest ever in the last decade. In the year 1996-97 the demand had
continued to growth at a still high rate. The first quarter has witnessed 14%
growth over the previous year. Considering Government emphasis on improving
infrastructure in the country and the various plans it has announced in the
direction. The upward trend of the cement industry is expected to continue. The
Indian cement Industry is the second large in the world after chinas. In terms of
quality productivity and efficiency, it compares with the best anywhere, it is
almost entirely home grown built indigenously and using locally sourced inputs.
In other words, the hardware and software that ruin the industry are mostly
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India. Baring one or two exception Years, its performance in the last two
decades has been quits consistent and commendable in terms of modernization,
expansion, growth in production and improvement in the productivity and cost
efficiency.
According to the Cement Manufacture Association (C.M.A), the industry
has an installed capacity of over 137 million tones from 124 plans of 56
members companies. Most of the company is modern and based on the energy
efficient dry process technology.
There are as many as 64 plans of million tones or more capacity.
However, the minimum economic size has increased to two million tones a year.
The share of the road of transport of cement is nearly 60% while 39% is moved
by rail. In the recent year, sea routes are used increased to markets on the
western coast.
The Indian cement industries play a key role in national economy,
generating substantial revenue for state and central govt. it is third highest
country boaters in terms of exercised duty of over Rs. 3500 crows year. Sales
tax yield around Rs.3200 crows to state govt, royalties and other cases add
another Rs.1500 crows. The industry employs a work face has over of 1.5lakh
person and supported father compliment of 12 lakhs people engaged indirectly.
The industry is highly fragmented with a no of flyers by global standards
selling price fluctuates from place to and seasonally. Cement is not a product
that can be easily differentiated. The last few years have seen notable matches
an acquisition in the Indian cement industry. This is slow process. The industry
welcomes to the trend in as much as it involves players. Who are generally
interested in cement as an ongoing business. Secondly, consolidation can bring
about greater efficiency and productivity due to economics of scale that should
ultimately benefits of consumers.
Opportunities and Threats
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In view of low per capita consumption in India, there is a considerable

scope for growth in cement consumption and creation of new capacities in
coming years. The cement industry does not appear to have adequately
exploited cement consumption in rural segment where damaged where damaged
growth is possible. Landed cost of cement (with import duty) continues to be
higher than home market prices but with reduced import duty, increasing
imports, may pose a serious threat to the domestic cement industry.
Risks and Concerns
Slow down of Indian economy or drop in growth rate of agriculture may
adversely affect the consumption.
The recent increase in railway freight
coupled with diesel / petrol price like will increase the cost of production and
distribution, as being bulky, cement is freight intensive increase in Limestone
royalty also adds to the cost of production, which is considerably higher than
corresponding costs of many other developing countries.
In our country there is a need to undertake a massive programme of house
construction activity into the rural and urban areas. It is impossible to construct
a house without cement and steel, in other words, cement is one of the basic
construction materials and therefore it is one of the vital elements for the
economic development of the nation
Salient features of Indian cement industry
Indian cement industry is the second largest in the world with an installed
capacity of 135 MTPA. It accounts for nearly 6% of the world production.
There are 124 large plants and around 365 mini plants. The industry presents a
mixed picture with many new plants that employ state-of-the-art dry process
technology and a few old wet process plants having wet process kilns.
Production from large plants (with capacity above 1 MTPA) account for
85% of the total production. The cement industry has achieved significant
progress in terms of reducing the overall energy intensity. Dry process plants
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that the weighted average thermal energy consumption was 734 kCal/kg
clinkers, and weighted average electrical energy consumption was 89 kWh/tone
of cement. The best energy consumption is 692 kCal/kg. Clinker and 66
kWh/ton of cement.
Quantitative details:
The energy intensity of the all the dry process plants (cost of energy as
percentage of total production cost of packed cement) varies from 29 to 61%.
This is observed to vary with the vintage of the plant, the technology employed
by the plants and the type of cement produced.
Specific thermal and electrical energy consumption for the plants ranges
between 692 879 kCal/kg. Of clinker and 66 127 kWh/ton of cement
produced (product mix) respectively. The specific electrical energy also includes
the energy consumed in packing.
Plant utilities and plant lighting. The reasons for wide range in specific
energy consumption can be mainly attributed to the differing equipment
configuration employed in different sections of the plants by various cement
plants. For example, plants employing ball mills for grinding have reported
higher specific electrical energy consumption as compared to plants having
vertical roller mills.
In addition, other factors like the plant capacity, its capacity utilization,
vintage, product mix, process control system, maintenance aspects, raw material
characteristics and above all the managements attitude and operational
practices of plant personnel are also important. Besides, various external
parameters like quality of coal, raw materials and power supply have their own
repercussions. A large number of plants have put in vertical roller mills for raw
meal section. The balls mills are still operating in the clinker grinding and coal
milling sections in some of the plants. Some of the newer plants have installed
roller press and vertical roller mills in the clinker grinding section as well.
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Comparison of energy performance of Indian cement industry with other

countries reveals that there exists scope for improving the energy performance
of the Indian cement industry. The best reported (as per CMA data) energy
performance figures in the world re 65 kWh/t of cement and
650 kCal/kg of clinker whereas the best in India is 69 kWh/t of cement and 665
kCal/kg of clinker.
This clearly bring out the fact that although we have some of the best
plants in the world in terms of energy performance, there are many plants where
there exists scope for reducing energy Consumption.
Present & Future Scenario of Cement Industry
A typical cyclical industry is normally characterized by the boom and
bust syndrome. A huge potential market and rapid growth in the early stages lead
to a surge in interest and a flurry of research. The buoyant markets and huge
profits raked in by players tempt more players into the market. Capacities
increase in excess of demand and guilt in capacity is created. Competition
increases, prices fall and margins come under the pressure.
Capacity addition comes to a halt weaker players should stop shop or sell
off to larger ones. Demand catches up the cyclical industries, the Indian cement
industry exhibits this boom and bust cycle
Industry back ground
Cement is the core industry and the product is the basic requirement for
the development of housing and infrastructure. India is the largest producer of
cement is Asia after china, with an installed capacity of more than 142 million
tons per year. This comprises more than 400 major and mini cement plants.
However, more than 53% of the installed capacity is controlled by the 6 top
players in India. Lime stone is a major raw material used by the cement industry
and based on its availability, the industry is concentrated in Madhya Pradesh,
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Andhra Pradesh and Rajasthan. Thus more than 50% of the installed capacity
have come up in 7 cluster with plenty of limestone deposits.
The public sector accounts for only 8% of the capacity, as against the
private sector share of 92% of the installed capacity. The southern region had the
highest installed capacity, estimated at around 46 million tons per annum where
in Andhra Pradesh alone accounted for about 21 mtpa
Demand and Supply
Cement is essential and basic input material for the construction activity.
The development of infrastructure is on the top of the Government agenda which
assures good growth for the cement industry in the coming years.
Demand for cement is linked to the economic activity in any country. It
can be categorized into demand for housing construction and infrastructure and
hence cement demand in developing economies is much higher than any
developed countries. The demand for cement is proportionately related to the
spending on infrastructure including housing. In India, housing accounts for
about 55% of cement consumption. After the decontrolling of cement industry,
supply and demand situation has become a sensitive and critical factor in
determining the over all profitability of the industry. Any small imbalance in
demand and supply of the cement results in disproportionate change in the
cement prices.
The per capital consumption of cement in India is very low at 99 Kg
against the Asian average of 200 kgs. Over the last 15 years, the consumption of
cement by the Governments has fallen drastically from 15% to 50% creating stiff
competition between the market players. The trend is likely to be reversed in
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future as the Governments focused in infrastructure development like express

highways and other large projects.
Cement Industry Future Outlook

The Indian cement industry, which is the second largest producer of
cement in the world after China has been resilient even in the face of recession
and continues to expand rapidly. The growth of the cement sector in India has
led to large capacity addition by major players over the past few months. The
growth in the sector is propelled by the boom in the real estate sector, increased
government spending in the infrastructure as well as private sector initiatives.
Fitch Ratings said it sees a stable outlook for Indian construction
industry in 2010 adding that construction material costs especially steel and
cement - will be at the same level as last year. Traditionally, growth of Indian
cement industry has remained directly proportional to the growth of the
countrys economy. However, in fiscal 2008-09, despite the economic
slowdown, India produced around 181 million metric tonnes (mmt) of cement,
representing a growth of around 7.8% over the fiscal 2007-08. Consumption
also increased at the same pace during the last fiscal.
Cement production reached 160.31 million tonnes during FY 2009-10, up
12.37% from 142.65 million tonnes in FY 2008-09, as per the data released by
the Cement Manufacturers Association. Additionally, sales grew by 12% to
159.43 million tonnes from 142.23 million tones.
Analysts have forecast substantial growth in both cement production and
consumption during 2009-10 to 2011-12. Additionally, the housing sector,
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which accounts for more than 50% of the total cement consumption in India, is
also on a strong growth path, the trend is expected to continue in coming years.
Over-supply a bane for cement companies

The cement sector added 40 million tonnes of fresh capacity in
2009-10, which is 1/5th of the total capacity for 2008-09. This has led to the
flooding of the market with supplies way beyond the demand. Going ahead, the
problem is likely to be aggravated with the monsoon season setting in, which
traditionally is a weak demand period.
In a natural progression in the scheme of things, the month of May saw
over-capacity leading to a decline in per bag cement prices by about Rs 5-10 in
most regions. Analysts have forecast demand pick up after September on higher
government spending on infrastructure projects, as well as investments in the
rural and urban housing segments. Even though this is a positive sign, factors
like higher input costs (increased coal prices), transportation costs, and the lack
of pricing power due to severe competition, are likely to pull down margins for
the cement companies. The initial numbers for cement dispatch in the month of
June 2010 points to a low 5% yoy growth. Additionally, with sluggish demand
and increasing supply, prices per bag are believed to have fallen further.
Forecast
The Indian cement industry is projected to grow in the coming years.
Analysts have forecast cement production to increase at round 11% CAGR
between FY 2009-10 and FY 2011-12, to reach nearly 240 mmt. However, for
2QFY11 analysts have forecast a decline in all-India capacity utilization by 800
bps YoY to 72%, which will lead to sharp cuts in cement prices across regions.
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Going ahead, the Indian cement industry is forecast to get support from
the sustained demand in the form of government support and infrastructure
development. However, a low down could come from the increasing prices of
key inputs like slag, coal, gypsum, petroleum products and fly ash. The prices
are expected to become tougher in the coming years. Additionally, availability
of raw material continues to be a challenge, which could result in an
unfavorable impact on the Indian cement industry.

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INTRODUCTION TO SAGAR GROUP

Sager cements limited is a 20 years old company engaged in the
manufacturing of the cement in three mini plants in the state of Andhra Pradesh.
The company is promoted by Shri S. Veera Reddy, an agriculturist from
Miryalguda, Nalgonda District. Andhra Pradesh, along with other promoters in
the year 1983.It went into commercial production on 26 th January, 1985 with an
installed capacity of 66,000 tons per annum.
The company is managed by a Board of Directors, headed by O.
Swaminatha Reddy, Chartered Accountant, and Ex- Chairman Andhra Bank and
APSFC limited and presently a well known Management consultant from
Hyderabad. The board includes Shri I. Seshagiri GiriRao, G.M of APIDC as its
nominee.
Dr S. Anand Reddy, doctor by profession and son of Shri Veera Reddy engaged
in the business, is the Executive Director of the Company.
LOCATION
Sager cements limited have located its first mini plant at Mattampally.
Huzurnagar, in Nalgonda District, in the year 1985. The plant is located within
35km from national highway no.9 connecting Vijayawada-Hyderabad.
The second plant (grinding unit) is located at Kharasalvalasa, near Salur,
Vizianagaram District. The plant is located about 130km from Visakhapatnam.
Due to unavailability of the project, the operations at Salur unit have been
suspended. The company has setup its second grinding unit at Bayyavaram, near
Anakapally, Visakhapatnam District on the National Highway connecting
Calcutta and Chennai with a capacity of 1.50 lakhs tons with requirements of
north coastal area of Andhra Pradesh

44
MBA Programme
GROWTH & DEVELOPMENT

PRODUCTION CAPACITY
The company has commenced its first mini cement plant at Mattampally
with an installed capacity of 66000 tons of ORDINARY PORTLAND CEMENT
(OPC) per year and gradually expanded its capacity from 66000 tons to 297000
tons per annum.
The capacity of the grinding unit at Bayyavaram, near Anakapally is
150000 tons per annum. With these measures fructifying, the company hopes to
consolidate its position in the state of Andhra Pradesh capacity 6.50 lakhs tons
per annum. The capacity of the grinding unit at Bayyavaram is 150000 tons per
annum.With these measures fructifying, the company hopes to consolidate its
position in the state of Andhra Pradesh with a capacity of 6.50 lakhs tons per
annum.
Present Production Capacity
1. Mattampally
2.97 Lakh tons
2. Salur
1.98 Lakh tons
3. Anakapally
1.50 Lakh tons
TECHNOLOGY USED
SAGAR CEMENTS LTD is one of the most successful mini cements units in
Andhra Pradesh. The companys project at Mattampally is based on dry process
rotator kiln technology widely used all over the world.Thcompany has adopted
most modern technology at its Mattampally plant in terms of coolers and
material handling and installed Bucket Elevators and IKN kids cooler Imported
from Germany for cooling sections and the new six stage pre heating systems.
The company has also installed stacker-reclaimed for ensuring high quality.
Further, the company has also used OSEPA Separator for its Mattampally unit for
maintaining uniform quality of cement. With this Technology up-gradation in its
operations, the company was able to reduce power consumption to low of 80
units per ton (2003-2004)
45
MBA Programme
Further, the grinding unit set-up at Bayyavaram in the year 2000 is based
in the vertical Roller Mill technology imported from Germany. This technology
is most cost effective and Sagar Cements Ltd is a first mini cement plant to use
this technology in the country.
PRODUCT RANGE
The company is marketing its product in the brand name of Sagar Priya,
which is well known in Andhra Pradesh for the last 16 years and its range of
products such as
43 Grade Ordinary Portland Cements(OPC)
53 Grade Ordinary Portland Cements (OPC)
Sulphate Resistant Cement (SRC)
Special Grade OPC used for Railway sleepers; and Portland Blast
Furnace Slag Cement(PBFSC)
Further, the company is also marketing its products in the states of Tamilnadu
and Orissa. The companys customers, apart from builders and dealers, include
Mazgoan Doc, Mumbai; Rain Calcining, Larsen & Turbo (L&T), Nagarjuna
Fertilizers and chemicals Limited (NFCL), Hyderabad Industries Limited (HIL)
etc.
PUBLIC ISSUE
The company has made the first public issue during the year 1984. During
the year 1992, the company has made a Rights-cum-Public issue at a premium of
Rs.10/- under CCI guidelines. As at March 1998, the equity of the company
stands at Rs.8.10 Crores with a book value of Rs.34/-. The share of the company
were listed on Hyderabad Stock Exchange and Mumbai stock Exchange and also
traded on National Stock Exchange.
PRESENT STATUS

46
MBA Programme
Sugar cements Ltd has increased the production capacity at its

Mattampally plant to 198000 tons per year. Clinker capacity utilization has
already crossed 300000 tons giving highest advantage to the company in the
terms of cost. The cement capacity utilization at its Salur plant is increasing and
expected to touch 80% during the current year.
At Mattampally
The unit consumes about 92 units per ton of cement, which is considered
to be lowest among mini cements plants and comparable with major cement
plants. The capacity utilization of the Mattampally unit is 122 percent in terms
of clinker.
The Company has been concentrating on the cost reduction for the last 5
years and has considerably reduced the cost of production by installing latest
equipment and power saving devices.
The unit is supported by 2 DG sets to cover 75 percent of the power
requirement in addition to the power received from Sagar power ltd. The unit
produces 43 grade, 53grade and Sulphate resistant cement to the requirement of
customers.
The cement is sold on SAGAR PRIYA brand, which is known in the
market for the last 16 years. The unit has repaid term loans taken up to the year
1995
At Salur
The entire production of the unit is year marked for Orissa, where the
prices are good. The unit has availed sales tax deferment. The power
consumption has come down from 70 units to 55 units per ton over the last 2
years. The unit has repaid terms loan and has become free from loans.
At Bayyaram (Anakapally)
The unit was set up with modern VRM technology from Germany. The
unit is eligible for sales tax deferment of Rs 17.5 Crores. The unit consumes only
47
MBA Programme
38 39 units per ton of cement production. The unit saves transportation cost of
clinker and cement as it is located on the national highway. The unit is catering to
the needs of north Coastal districts of Andhra Pradesh Where Slag cement is
having greater demand.
A.VISION
STRATEGIC THEMES OF THE COMPANY.
To develop its Brand Sagar Priya as a major supply brand in a Market
through its Quality products and
to become a Major Cement Company in
India .Acquire leadership in national and international market.

MISSION:
Sagar cements is a main unit of Progressive growth oriented SAGAR
Group of companies, specialist in producing variety of cements which is
essential commodity.
AIM:
The aim of the Sagar Marketing department is to penetrate the product Sagar
Brand to nook and corner to all nearby markets in Andhra Pradesh to take the
product near to customer.to stimulate
develop and maximize
continue and accelerate efforts
the contribution of
to
infrastructure sector to the
economy of the country.

Sophisticated, very efficient operating systems with Advanced Technologies.
With Action planning firmly launched for diversification of its business into
Power generation projects and Pharmaceutical & Real Estate.

48
MBA Programme
ORGANIZATIONAL STRUCTURE
CHAIRMAN
MANAGING DIRECTOR
EXECUTIVE DIRECTOR
BOARD OF DIRECTORS
DIRECTOR TECHNICAL
COMPANY SECRETARY
S.G.M(Proj).
V.P(Markg)
Engineers Mkg.Mgr.
Executive
G.M(Finance)
Mgr(Accounts)
Mgr

49
SR.V.P(W) Mgr(Adm
Site.
Adm .staff ..
MBA Programme
GROUP OF COMPANIES
SAGAR POWER LIMITED:
Along with Sagar cements Ltd, Shri Veera Reddy has also promoted Rs.40
crier companies viz, M/s Sagar Power Ltd which has two mini Hydel power projects
in the state of Andhra Pradesh with a capacity in Mega Watts. The company has
made a net profit of Rs.11.33 lakhs on a turnover of Rs. 7.53 Crores for the year
ended 31st March 2002. Sagar Power Ltd is a subsidiary of Sagar Cements Ltd.
PANCHVATI POLYFIBRES LIMITED:
Shri S.Veera Reddy has also promoted an Rs.10 Crore company viz, M/s
Panchvati polyfibres Ltd, and manufacturing HDPE bags, mainly used for packing
by the cement units. Apart from Sagar cements Ltd, Panchvati Polyfibres limited
supplies bags to M/s Kakatiya Cements Ltd, M/s Penna Industries Ltd, M/s
Priyadarshani Cements, ltd, M/s Penna Industries Ltd etc.
PROMOTERS
Chairman
Sri. O. Swaminatha Reddy
Managing Director
Sri S. Veera Reddy
Director
Sri K. Thnu Pillai
Executive Director
Dr. S. Anand Reddy
Director (Technical)
Sri S. Srikanth Reddy
Secretary
Sri R. Soundararajan
General Manger (works)
Sri N. Bhasker Reddy

50
MBA Programme
ACHIEVEMENTS:
SHORT TERM OBJECTIVES
Achieve major reductions in wage expense.
Reduces transportation charges through Putting Our sincere follow up with
Railway Authority for developing
Railway Line route from Jaggaya
to
Dammar cherla via our Plant .

The Central Govt proposed the same in Annual Budget.
Acquire full pledged Mineing Lease for meeting Our Plant Raw Material
Requirment. Procurement of Quality Coal & other raw material at lower cost. If
possible may plan for importing the coal; with cheeper rate
COMPETITORS
KCP Cement
Bharathi cements
Ambuja Cement
Birla Corporation
Kesoram Cements
JK Lakshmi Cement
Shree chakra Cement
UltraTech Cement

51
MBA Programme
POLICIES:
Sagar Cements was built on a strong foundation of fundamental
values of responsibility, respect & trust.
We are committed to encouraging our employees to do their best
while respecting other employees, agents , customers &
others, ensuing highest safety standards , and adhering to local
and international standards of manufacturing.
VALUES:
Sagar Cements actively supports skill development programs to train workers to
professional level. It will improve their talents, upgrade their skills and add
values to Indian masons. This commitment reflects Sagar Cements' concern for
the preservation of traditional community values the strong foundation of our
society.
Sagar Cements is committed to providing safe and healthy working
environments for its employees and also contributing to the enhancement of
quality of life of the people residing in and around the plant and other parts of
the state by conducting several community programs and contributing to
welfare measures.

52
MBA Programme
SWOT ANALYSIS
Strengths
A firm's strengths are its resources and capabilities that
can be used as a basis for developing a competitive advantage.
Examples of such strengths include:

Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
Favorable access to distribution networks
Weaknesses
The absence of certain strengths may be viewed as a weakness. For
example, each of the following may be considered weaknesses:

Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to key distribution channels
In some cases, a weakness may be the flip side of strength. Take the case
in which a firm has a large amount of manufacturing capacity. While this
capacity may be considered a strength that competitors do not share, it
also may be a considered a weakness if the large investment in
manufacturing capacity prevents the firm from reacting quickly to
changes in the strategic environment.
Opportunities
The external environmental analysis may reveal certain new opportunities
for profit and growth. Some examples of such opportunities include:
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MBA Programme
An unfulfilled customer need

Arrival of new technologies
Loosening of regulations
Removal of international trade barriers
Threats
Changes in the external environmental also may present threats to the
firm. Some examples of such threats include:

Shifts in consumer tastes away from the firm's products
Emergence of substitute products
New regulations
Increased trade barriers

54
MBA Programme
TABLE No : 5.0
STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR
ENDING 31-03-2009-2010
Particulars
2009
2010
Increase
Decrease
Inventory
2020.00
266.21
640.21
Sundry Debtors
3600.00
4516.97
916.97
--
299.41
498.61
199.2
7166.82
Loans & Advances
1248.51
9798.43
549.92
Total Current Assets (A)
7167.92
9474.22
1706.90
2,206.48
499.58
--
0.72
1.50
0.78
22.34
23.24
0.90
990.00
993.05
3.05
Total Current Liabilities (B)
2719.96
3,224.27
Net Working Capital (A-B)

Increase in working capital
4447.96
1801.99
6249.95
Total
6,249.95
6,249.95
Current Assets
Cash & Bank Balances
Less :- Current Liabilities

Sundry Creditors
Advances
Deposits
Provisions
1801.99
2306.30
2306.30
INTERPRETATION:
From the above e5.0 we can observe the changes of working capital during the year 2006-07
& notice that there is increase working capital of 1801.99 (GCS). The position of working
capital better & there is no input on liquidity during the year 2009-10

55
MBA Programme
TABLE No 5.1
ENDING 31-03-2010-2011
Particulars
2010
2011
Increase
Decrease
Inventory
2,660.21
3,937.73
1,277.52
Sundry Debtors
4,516.97
5,327.36
810.39
498.61
9,503.91
9005.3
Loans & Advances
1,798.43
2,408.14
609.71
9,474.22
21,177.14
2,206.48
1,609.41
597.07
1.50
1.50
23.24
28.81
5.57
993.05
2,239.09
1,246.04
3,224.27
3,877.31
6,249.95
17,299.83
Increase in Working capital
11,049.88
Total
INTERPRETATION:
17,299.83
Current Assets

Sundry Creditors
Advances
Deposits
Provisions
11,049.88
17,299.83
12,301.49
12,301.49
From the above table 5.1 we can observe the changes of working capital during the year
2009-10 and observe that there is a increase in working capital of 11,049.88(Lacs) The
position of working capital is better & there is no impact on liquidity during the year 20102011

56
MBA Programme
TABLE No : 5.2
ENDING 31-03-2011-2012
Particulars
2011
2012
Increase
Decrease
Inventory
3937.73
6355.16
2417.42
Sundry Debtors
5327.36
5191.41
135.95
9503.91
2337.09
7166.82
Loans & Advances
2408.14
3618.70
1210.56
21,177.14
17,502.35
1,609.41
2,280.24
Advances
Deposits
Current Assets

Sundry Creditors
670.83
1.0
28.81
27.78
3
1,108.4
Provisions
2,239.09
1.130.61
3,877.31
3,438.63
17,299.83
14,063.72
Decrease in Working capital

Total
INTERPRETATION:
3,236.11
17,299.83
17,299.83
11,049.88
12,301.49
12,301.49
2011-12. An observe that there is an decrease in working capital of Rs3,236.11(Lacs).The
position of working capital shows negative but there is no impact of liquidity during year
2010-11.
TABLE No : 5.3
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MBA Programme

ENDING 31-03-2012-2013
Particulars
2012
2013 Increase
Decrease
Current Assets
Inventory
6355.16
7,192.65
Sundry Debtors
5191.41
4912.59
278.82
2337.09
2,037.45
299.64
Loans & Advances
3618.70
2,963.88
657.82
17,502.35
17,106.57
2,280.24
2,2837.16
556.92
27.78
31.42
3.64
Provisions
1.130.61
332.34
3,438.63
3200.92
14,063.73
13.905.65
837.49

Sundry Creditors
Advances
Deposits

Total
14,063.73
798.27
158.08
158.08
14.063.73
1,793.84
1,793.84
INTERPRETATION:
From the above 5.3 we can observe the changes of working capital during the year 2012-13.
An observe that there is an decrease in working capital of Rs.158.08 (Lacs). The position of
working capital shows negative trend but there is no impact liquidity during the year 2011-12.

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MBA Programme
TABLE No : 5.4
ENDING 31-03-2013-2014
Particulars
2013
2014 Increase
Decrease
Current Assets
Inventory
7,192.65
7,577.03
Sundry Debtors
4912.59
4831.61
80.98
2,037.45
524.87
1512.56
Loans & Advances
2,963.88
3637.27
17,106.57
16,570.80
2,2837.16
3918.07
1080.91
31.42
75.62
44.2
332.34
166.48
3,438.63
3200.92
13.905.65
12410.32
384.38
673.39

Sundry Creditors
Advances
Deposits
Provisions

Total
INTERPRETATION:
13.905.65
165.55
1495.33
1495.33
13,905.65
13,905.65
2,718.65
2013-14. An observe that there is an decrease in working capital of Rs.1495.33 (Lacs). The
position of working capital shows negative trend but there is no impact of liquidity during the
year 2012-13

59
MBA Programme
Changes in working capital

20000
15000
10000
5000
0
2010
2011
2012
2013

60
2014
MBA Programme
Size of Working Capital

Current Assets
Size of Working capital =
100
Total Net Assets
Table No 5.5
Year
Current
Total Net
C.A
Assets
Assets
N.A
100
2009-2010
9,474.22
13,378.71
70.815
2010-2011
21,177.14
25,832.22
81.979
2011-2012
17,502.35
31,584.13
55.415
2012-2013
17,106.57
36,636.83
46.692
2013-2014
16,570.80
39,366.76
42.093
Total
81,831.08
146,798.65
296.994
Average
16,366.22
29,359.73
59.398

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MBA Programme
Size of working capital

100
80
60
40
20
0
2010
2011
2012
2013
2014
INTERPRETATION:
The table no 5.5 presents the size of working capital & its percentage to total net assets can
be observed from the table that current assets in absolute turn stood at 9474.22to 16570.80 &
total net assets 13,378.71 to 39,366.76.In case of percentage was continuously declining
from 70.815 during 2009 to 42.093 present in the year 2012.As the percentage were inducing
to lower therefore the position of profitability is rising & reducing the risk of liquidity in
SAGAR CIMENTS PVT LIMITED on average it shows the percent of 59.398 during the
period. Overall state that size of working capital is above 50% where it leads to increase the
changes of liquidity problem in the company

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MBA Programme
Particulars
2010
2660.21
2011
3937.73
2012
6355.16
2013
7192.65
2014
7,577.03
Average
Inventory
(28.08)
45.16
(18.59)
5327.36
(36.31)
5191.41
(42.05)
4912.59
(45.73)
4,831.61
Sundry Debtors
Cash & Bank
(47.67)
498.61
(25.15)
9503.91
(29.66)
2337.09
(28.71)
2037.45
(29.15)
524.89
32.07
Balances
(526)
1798.43
(44.87)
2408.14
(13.35)
3618.70
(11.91)
2963.88
(3.17)
3637.27
15.71
Loans & Advances
(18.99)
(11.37)
(20.67)
(17.33)
(21.95)
18.06
Total Current Assets
9474.22
21,177.14
Average
100.00
100.00
34.15
17,502.35 17,106.57 16,570.80

100
100
100
Structure of Current Assets

Table No 5.6
INTERPRETATION:
From the above table you can observe that the SAGAR CIMENTS PVT LTD is completely
depending upon inventories during all the decade. On an average it was maintaining 34.15%
while comparing to sundry debtors [32.01%] for the study period. Next to debtors, loans &
advances high percent 18.06% .The Company is maintaining cash &other current assets with
a low percent in structure of current assets during the decade.

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MBA Programme
Structure of current Liabilities

Table No 5.7
Particulars
Sundry creditors
2010
2,206.48
2011
1609.41
2012
2280.24
2013
2837.16
2014
3918.07
(68.43)
1.50
41.50
66.31
88.63
94.17
Advance Deposits
Other Current
0.05
23.24
28.81
27.78
31.42
75.62
1.01
Liabilities
Provisions
0.72
993.05
0.74
2,239.09
0.80
1,130.61
0.98
332.34
1.81
166.79
27.156
57.74
3,877.31
100
32.87
3,438.63
100
10.38
3,200.92
100
4.00
4,160.48
100
30.79
Total current Liabilities 3,224.27
Average
100
Average
71.80
0.05
INTERPRETATION:
From above TABLE NO: 5.7 we can observe that SAGAR CIMENTS PVT LTD Company
depending upon sundry creditors during all the decade. On average it was maintaining 71.80
next to creditors the company is giving importance to provisions 27.16% on average the
advances were 0.05% current liabilities is 1.01% during the study period.

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MBA Programme
Efficiency of Working Capital
Sales
Efficiency of Working Capital
=
Current Assets
Table No 5.8
Year
Sales
Current Assets
Sales/Current
assets
2010
12,301.77
9,474.22
1.29
2011
18,487.34
21.177.14
0.87
2012
23742.85
17.502.35
1.35
2013
27406.94
17,106.57
1.60
23.876.77
1,05,815.67
21.163.13
16,570.80
81,831.08
16,366.21
1.44
6.55
1.31
2014
Total
Average

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MBA Programme
Efficiency of working capital
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above we can observe the efficiency of working capital of comparing sales to current
assets. The sales during the year 2010-11 raises from 12,301,77 (Lacs) to 23,876.77 (Lacs) during
2013-14. The current assets also increases from 9,474.22 to 16,570.80 during 2012-13.In case of
rations we can observe that it was approximately maintaining 1.5 as ratio during all the years. On
overall we can say that the company is maintaining a slow movement of current assets &
indicating a suboptimal utilization of working capital. On average it shows the percent of 1.31
during the period showing the current assets were moving slowly.

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MBA Programme
RATE OF RETURN
Net Profits (After Tax)

Rate of return =
Current Assets
Table No 5.9
Year
Net Profit
Current Assets
Rate of Return
2010
(AFTER Tax)
850.76
9,474.22
0.08
2011
2096.84
21.177.14
0.09
2012
2,716.05
17.502.35
0.15
2013
629.85
17,106.57
0.03
2014
239.53
16,570.80
0.01
6,533.03
1306.60
81,831.08
16,366.21
0.36
0.07
Total
Average

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MBA Programme
Rate of return
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
The table No 5.9 indicate the calculation between Net profit is continuously increasing &
decreasing from 850.76 (lacs) during 2009, Rs. 2,716.05 (lacs) during 2012 & Rs. 16,507.80
during 2014. The current assets also continuously increasing & decreasing from Rs. 9474.22
(Lacs) during 2010, Rs.21.177.14 (Lacs) during 2011 & Rs. 16,507.80 during 2012. In case of
percentages it was calculated from 0.08 in the year 2009 to 0.15 in the year of 2012 year
decreased to 0.01 during the year 2013. On average the company was maintaining 0.07 as rate of
return during the study period which indicates a low rate of return in the company.

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MBA Programme
OPERATING CYCLE
Components of Inventory Conversion period
RMI 360
Raw Materials conversion period =
RMC
Table No 5.10
RAW MATERIAL CONVERTION PERIOD
Year
Raw Materials
Raw Materials
360
Raw Materials
2010
Inventory
984.39
Consumption
7371.23
360
Consumption Period
48.07
2011
1309.08
1087.07
360
43.60
2012
1976.29
14240.37
360
49.96
2013
2402.37
18127.97
360
47.7
2014
2280.09
15527.45
360
52.8
Total
Average
8952.22
1790.44
66,074.09
13,214.81

69
242.14
48.42
MBA Programme
Raw Material conversion period

60
50
40
30
20
10
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table no 5.10 we can observe that raw material inventory is continuously
increasing form 984.39 (lacs) to 2280.09 (lacs) during the year of 2010-2013. The consumption is
also following the same pattern and the company is maintaining 360 as the number of days for all
the years i.e, (20010-14). The raw material conversion period is too high and the company was
taking a long period to convert in to the further stages. On average RMCP is 48.42(lacs) during
the period.

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MBA Programme
WORK-IN-PROGRESS CONVERSION PERIOD
W.I.P 360
WIPCP =
Cost of production
Table No 5.11
Year
2010
W.I.P
1,530.33
Cost of production
11,436.47
360
360
2011
2,232.38
15,293.23
360
52.55
2012
3,828.12
19,241.83
360
71.62
2013
4,372.09
24,132.12
360
65.22
2014
4,708.97
22,440.42
360
75.54
16,671.89
3335.37
92,544.07
18,508.81
Total
Average

71
WIPCP
48.17
313.1
62.62
MBA Programme
Work In Progress Conversion Period

80
60
40
20
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table No 5.11 we can observe that work in progress is continuously increasing
from 1530.33 (lacs) to 4708.97 (lacs) during the year 2010-14. The company is maintaining 360
days conversion period. Coming to cost of production in rupees the amount 11,436.47 (lacs) to
22,440.42 (lacs) during the period of 2010-14. The WICP is fluctuating. On an average the
company was maintaining WICP is Rs.62.62 (lacs) during the period

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MBA Programme
FINISHED GOODS CONVERSION PERIOD
Finished goods 360

F.G.C.P =
Cost of goods sold
TABLE NO 5.12
Year
Finished goods
Cost of goods sold
360
F.G.C.P
2010
Inventory
141.51
10,992.04
360
4.63
2011
391.86
14,047.31
360
10.04
2012
544.69
17,803.41
360
11.05
2013
408.21
23,684.10
360
6.20
2014
580.72
21,687.41
360
9.63
2066.99
413.39
88,214.27
17,642.85
Total
Average

73
41.55
8.31
MBA Programme
Finished Goods Conversion Period

12
10
8
6
4
2
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table No 5.12 we can observe that finished goods inventory is fluctuations from
Rs.141.51 (lacs) to Rs.580.72 (lacs) during the period 2010-14. The company is maintaining 360
days conversion period. Coming to cost of goods sold in rupees the amount 10,992.04 (lacs) to
21,687.41 (lacs) during the period of 2010-14. The F.G.C.P is maintaining 413.39 (lacs) during
the year 2010-14. The cost of goods sold is Rs.17642.85 (lacs) & F.G.C.P is Rs.8.31 during the
period.

74
MBA Programme
INVENTORY CONVERSION PERIOD (INCP)

RMCP + WIPCP+FGCP = INCP
TABLE NO 5.13
Year
RMCP
WIPCP
F.G.C.P
INCP
2010
48.07
48.17
4.63
100.87
2011
43.60
52.55
10.04
106.19
2012
49.96
71.62
11.05
132.63
2013
47.71
65.22
6.20
119.13
2014
52.80
75.54
9.63
137.97
Total
242.14
313.1
41.55
596.79
Average
48.428
62.62
8.31
119.35

75
MBA Programme
Inventory Conversion Period

150
100
50
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table No 5.13 we can observe that RMCP is fluctuating from Rs.48.07 (lacs) to
Rs.52.80 (lacs) during 2010-14. On the average it was maintaining Rs 48.428(lacs) during study
period. The WIPCP is continuously increasing from Rs 48.17(lacs) to Rs 75.54(lacs) during the
year of 2010-14.On the average it was maintaining 62.62 (lacs) during the study period. The
FGCP is fluctuating it was maintaining Rs.8.31 during the study period. On the average the INCP
is Rs 119.35 (lacs) during the study period.

76
MBA Programme
DEBTORS CONVERSION PERIOD (D.C.P)

Debtors 360
D.C.P =
Credit sales
TABLE NO 5.14
Year
Debtors
Credit sales
360
D.C.P
2010
4516.97
12,301.77
360
132.18
2011
5327.36
17,317.41
360
110.76
2012
5191.41
21,040.67
360
88.82
2013
4912.59
24,478.67
360
72.25
2014
4831.61
21,975.50
360
79.15
Total
24779.94
97,111.02
1800
483.16
4955.98
19,422.20
360
96.63
Average
Debtors Conversion Period

150
100
50
0
2009-10
2010-11
Narasaraopet Engineering College
2011-12
2012-13
2013-14
77
MBA Programme
INTERPRETATION:
From the above table No 5.14 we can observe debtors is continuously fluctuating from
Rs.4516.97(lacs) to Rs. 4831.61(lacs) during the period of 2010-14. The credit sales is
continuously increasing from Rs. 12,301.77(lacs) to Rs. 21,975.50 (lacs) during the
period 2010-14. On the average the debtors maintaining Rs 4955.98(lacs) & average
credit sales is Rs.19,422.20 (lacs) during the period of 2010-14. The D.C.P fluctuating by
from Rs 132.18 (lacs) to Rs 79.15(lacs) during the year 2010-14. On the average it was
maintain Rs 96.63(lacs) during the study period.
78
MBA Programme
GROSS OPERATING CYCLE

INCP + D.C.P = G.O.C
Table No 5.15
Year
Inventory conversion Debtors conversion

period
period
Gross Operating
2010
100.87
132.18
cycle
233.05
2011
106.19
110.76
216.95
2012
132.63
88.82
221.45
2013
119.13
72.25
191.38
2014
137.97
79.15
216.78
Total
596.79
483.16
1079.61
Average
119.35
96.63
215.92
79
MBA Programme
Gross Operating Cycle

250
200
150
100
50
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
In the above table no 5.15 we can observe that the Inventory conversion period is
continuously increasing Rs.100.87 (lacs) during the period of 2010-14 On the average it
was maintaining Rs 119.35 it was maintaining Rs. 119.35. The debtors conversion period
is fluctuating year wise. On the average it was maintain Rs 96.63 (lacs) during the period
2010-14. The gross operating cycle is fluctuating by the year wise. On the average it was
maintain Rs 215.92 during the year 2010-14
80
MBA Programme
PAYABLES DEFERRAL PERIOD
Creditors 360
P.D.P =
Credit purchases
TABLE NO : 5.16
Year
Creditors
360
P.D.P
2010
2206.48
360
417.44
2011
1609.41
360
487.66
2012
2280.41
360
524.31
2013
2837.16
360
490.42
2014
3918.07
360
447.32
Total
12,851.36
1800
2367.15
2570.27
360
473.43
Average
81
MBA Programme
Payables Deferral Period

600
500
400
300
200
100
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table No 5.16 we can observe the creditors is continuously increasing
from Rs.2,206.48 (lacs) during the period of 2010-14. The credit purchase is also
continuously increasing from Rs.1902.86(lacs) to Rs.3153.17(lacs) during the period of
2010-14. On the average it was maintaining creditors Rs.2570.27(lacs) Credit purchases
Rs 1978.47(lacs) during the period of 2010-14. The P.D.P is fluctuating from
Rs.417.44(lacs) to Rs 447.32(lacs) during the period 2010-14. On the average it was
maintaining Rs 473.43 (lacs) during the study period.
82
MBA Programme
Overall Operating Cycle

TABLE No:- 5.17
Particulars
1.Inventory conversion period
2010
100.87
2011
106.19
2012
132.63
2013
119.13
2014
137.63
(a)
Raw Material
984.39
1309.08
1976.29 2402.37 2280.09
(b)
Work in progress
1530.33 2232.38
3828.11 4372.09 4708.96
141.51
2757.10
132.18
2889.28
417.44
2471.84
544.69
6481.72
88.82
6570.54
524.31
6046.23
(c)
Finished goods
Total
2. Debtors conversion period
3. Gross operating cycle [1+2]
4. Payment Deferral period
5. Net Operating cycle
[3-4]
391.86
4039.51
110.76
4150.27
487.66
3662.61
408.21
7301.80
72.25
7374.05
490.42
6883.63
Average
508.72
7635.4
79.15
7714.55
447.32
7267.23
83
MBA Programme
CURRENT RATION
Current Assets
Current Ratio =
Current Liabilities
TABLE No :- 5.18
Current ratio of
( Rs. In lakhs)
Year
2010
Current assets
9474.22
Current Liabilities
3224.27
Current ratio
2.93
2011
21,177.14
3877.31
5.46
2012
17,502.35
3438.63
5.08
2013
17,106.57
3200.92
5.34
2014
16,507.80
4160.48
3.96
Total
81,768.08
17,901.61
22.77
Average
16353.62
3580.32
4.55
INTERPRETATION :From the table No :- 5.18 we can observe that the current assets is fluctuating
from Rs. 9474.22(lacs) in the year 2010-14 to Rs. 16,507.80 (lacs) in the year 2013-14.
The current liabilities are alternatively increasing from Rs. 3,224.27 (lacs) to Rs. 4160.48
(lacs) during the period 2010-14.On the average it was maintaining current assets Rs.
Current Ratio
16,353.62(lacs), current liabilities Rs. 3,580.32 (lacs) during the years 2010-14 on the
average the current ratio is maintaining 4.55 % during the study period.
6
5
4
3
2
Narasaraopet
Engineering College
1
0
84
MBA Programme
Quick Ratio
Quick Ration =
Quick Assets
Current Liabilities
TABLE No: - 5.19

Year
2010
Current assets
3,589.74
Current Liabilities
3224.27
Current ratio
1.11
2011
13,362.10
3877.31
3.44
2012
7,708.56
3438.63
2.24
2013
6,712.98
3200.92
2.09
2014
4833.28
4160.48
1.16
Total
36206.66
17901.61
10.04
Average
7,2211.33
3580
2.00
INTERPRETATION :From the above table No. 5.19 we can observe that quick assets are
fluctuating from Rs. 3589.74 (lacs) to Rs. 4833.28 (lacs) during the period 2010-14. And
the current liabilities are following same pattern of fluctuation from Rs. 3224.27(lacs) to
Rs. 4160.48 (lacs) during the period 2010-14.On the average it was maintaining quick
Quick Ratio
assets Rs. 7,241.33 (lacs) & current is Rs. 3580 (lacs) during the period 2010-14 .On the
average it was maintaining a quick ratio of Rs . 2.00 (lacs) during the study period.
4
3
2
1
0
Narasaraopet
Engineering College
2009-10
2010-11
85
2011-12
2012-13
2013-14
MBA Programme
Cash Position Ratio
C.P.R =
Cash + Market securities

Current liabilities
TABLE No: 5.20
Year
2010
Current assets
498.61
Current Liabilities
3224.27
Current ratio
0.15
2011
9503.91
3877.31
2.45
2012
2337.09
3438.63
0.67
2013
2037.45
3200.92
0.63
2014
524.89
4160.48
0.12
Total
14,901.95
17,901.61
4.02
Average
2980.39
3580.32
0.80
INTERPRETATION :From the above table No. 5.20 we can observe that cash + Market securities is
fluctuating from Rs. 498.61(lacs) to Rs. 524.89 (lacs ) during the period of 2010-14 . The
current liabilities is continuously increasing from rs. 3224.27 (lacs) to Rs. 4160.48 (lacs)
during the period 2010-14.On the average it was maintaining cash + MKT Securities Rs.
2980.39(lacs) & current liabilities Rs 3580.32 (lacs) during the period .On the average it
was marinating C.P.Ratio of Rs. 0.80 (lacs) during the study period.
Cash Position Ratio

3
2.5
2
1.5
1
0.5
0
2009-10
2010-11
86
2011-12
2012-13
2013-14
MBA Programme
INTERVAL MEASURE RATIO

I.M.R =
Current Assets Inventory

Operating Expenses
TABLE NO: 5.21

Year
2010
Current assets
3589.74
Current Liabilities
2197.82
Current ratio
1.63
2011
13362.10
2288.12
5.83
2012
7708.56
2032.27
3.79
2013
6712.98
2763.00
2.42
2014
4833.28
3256.72
1.48
Total
36206.66
12,537.91
15.15
Average
7241.33
2507.58
3.03
INTERPRETATION :From the above No:- 5.21 we can observe that the current assets Inventory is
fluctuating from Rs.3,589.74 (lacs) to Rs.4,833.28 (lacs) during the period 2010-14. And
average daily operating expenses continuously increasing from Rs. 2197.82 (lacs) to Rs.
3256.72 (lacs) during the period 2010-14.On the average it was maintaining current
Assets Inventory of Rs. 7241.33(lacs) & Average daily operating Expenses of Rs.
2,507.58 (lacs) during the period .The days hold very less & maintaining quick assets on
Interval Measure Ratio
average of Rs. 3.03 approximately . To meet the current obligations it was taking less
time.
8
6
4
2
87
2009-10
2010-11
2011-12
2012-13
2013-14
MBA Programme
NETWORKING CAPITAL RATION
Net working capital

Net working Capital Ration
=
Net assets
TABLE NO 5.22
Year
Net working Capital
Net assets
Ration
Net working
ratio
2010
6249.95
13,378.71
0.46
2011
17,299.83
25832.22
0.66
2012
14,063.72
31584.13
0.44
2013
13095.65
36636.83
0.35
2014
12,410.32
39366.76
0.32
Total
63,119.47
1,46,798.65
2.23
Average
12,623.89
29,359.73
0.45
88
MBA Programme
Net Working Capital Ratio

0.8
0.6
0.4
0.2
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table no 5.22 we can observe that the net working capital is fluctuating
from Rs 6249.95 (lacs) to Rs. 12,410.32(lacs) during the period 2010-14. The net assets
are continuously increasing from Rs.13,378.71(lacs) to Rs.39366.76 (lacs) during the
period 2010-14. On the average it was maintaining net working capital of Rs.12, 263.89
(lacs) net assets of Rs.29, 359.73 (lacs) during the period 2010-14. On the average it was
maintaining a net working ratiof Rs.0.45 (lacs) during the study period.
89
MBA Programme
INVENTORY TURNOVER RATIO
Sales 360
I.T.Ratio
=
Inventory
Table No : 5.23
Year
Sales
Inventory
Days
Debtors Turnover
2010
12301.77
2660.21
360
Ratio
1664.76
2011
17314.41
3937.73
360
1582.93
2012
21040.67
6355.15
360
1191.89
2013
24478.67
7192.64
360
1225.18
2014
21975.50
7577.03
360
1044.10
Total
97111.02
27722.76
1800
5278.86
19,422.20
5544.55
360
1055.77
Average
90
MBA Programme
Inventory Turnover Ratio

2000
1500
1000
500
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table No : 5.23 we can observe that the sales is increasing from Rs.
12,301.77 (lacs) to Rs. 21975.50 (lacs) from the period 2010-14 & the inventory is also
continuously increasing from Rs.2660.21 (lacs)to Rs 7577.03(lacs) during the period
2010-14. On the average it was maintaining sales of Rs.19,422.20 (lacs) & inventory of
Rs. 5544.55 (lacs) during the period 2009-13. On the average the I.T Ratio is Rs 5544.55
(lacs) during the 5 year period.
91
MBA Programme
DEBTORS TURNOVER RATIO

Sales
D.T.O. Ratio =
Debtors
Table No:5.24
Year
Sales
Debtors
Debtors
2010
12301.77
4516.97
Turnover Ratio
2.72
2011
17314.41
5327.36
3.25
2012
21040.67
5191.41
4.05
2013
24478.67
4912.59
4.98
2014
21975.50
4831.61
4.54
Total
97111.02
24779.94
19.54
19,422.20
4955.99
3.91
Average
92
MBA Programme
Debtors Turnover Ratio

6
5
4
3
2
1
0
2009-10
2010-11
2011-12
2012-13
2013-14
INTERPRETATION:
From the above table no 5.24 we can observe that the sales were continuously increasing
from 12.301.77 (lacs) to Rs. 21.975.50(lacs) during the period 2010-14.Debtors were
fluctuating year wise from Rs 4516.97(lacs) to Rs 4831.61(lacs) during the period 201014. On the average it was maintaining sales of Rs 19,422.20(lacs) & debtors of Rs
4955.99(lacs) during the period of 2010-14. On the average it was maintaining a debtors
turnover ratio of Rs 3.91 (lacs) during the 5 year period. This shows that there was no
impact on liquidity.
93
MBA Programme
WORKING CAPITAL TURNOVER

Sales
Working capital turnover =
Net working capital
Table No : 5.25
Year
Sales
Networking capital
W.C.T.O
2010
12301.77
6249.95
1.96
2011
17314.41
17299.83
1.00
2012
21040.67
14063.72
1.49
2013
24478.67
13095.65
1.86
2014
21975.50
12410.32
1.77
Total
97,111.02
63119.47
8.08
Average
19,422.20
12623.89
1.62
INTERPRETATION:
From the above table no 5.25 we can observe that the sales were continuously increasing
from Rs.12, 301.77 (lacs) to Rs. 21,975.50(lacs) during the period 2010-14. The net
working capital is fluctuating from Rs.6249.95(lacs) to Rs.12410.32 (lacs) during the
period 2010-14 On an average it was maintaining sales of Rs.19,422.20 (lacs) & net
working capital of Rs.12623.89 (lacs) during the period 2010-14. On the average the
working capital turnover ration is Rs.1.62 (lacs) during the study period.
Working Capital Turnover Ratio

2.5
2
1.5
1
Narasaraopet
Engineering College
0.5
94
2009-10
2010-11
2011-12
2012-13
2013-14
MBA Programme
CHAPTER-6
FINDINGS AND SUGGESTIONS

FINDINGS:
1) It also indicates the ineffective utilization of current liabilities like trade
creditors, short-term loans, bank overdraft etc. the above table the current
ratio is very high as 5.46 in the year of 2009-10 and low as 2.95 inthe year
of 2008-10
2) X-axis represents the period of study and Y-axis represents the ratio of
current assets and current liabilities. The current ratio is decreased as 5.46 to
2.95.
3)
Net sales to Net Working Capital during the period of study. X-
axisrepresents the period of study and Y-axis represents the Current Assets to
Net Working Capital ratio. The Net working capital T.O.R is very high as 1.96
in the year 2008-09 & low in the year 2009-10 was 1.00
4) The percentage of loans and advances to current assets during the period of
study. X-axis represents the period of study and Y-axis represents the loans
and advances to current assets ratio. The percentage was gradually increased
11.37 to 21.95. The company should consider the cost of capital and return for
getting such loans and advances
5) We can observe that in most of the years current assets are more than
74 % of the total assets. This is an indication of holding more assets in
the form of working capital that means more working capital than
95
MBA Programme
requirement. However the % of Current assets to total assets is reducing

year by year. However holding more current assets is also not advisable.
The company should conceive the need of holding such higher current
assets.
6) Quick assets ratio during the period of study? X-axisrepresents the period
of study and Y-axis represents the ratio of quick assets to current liabilities.
The percentage was high in the year 2009-10 as 3.44 and low in the year
2008-09 as 1.11
7) Working capital turnover ratio indicates the velocity of utilization of
net working capital. Working capital turnover ratio is very thin which is
in between 1.96 and 1.00 indicating low performance of working capital
8) The above table explains show the cash & Bank to Current Assets
during the period of study. X-axis represents the period of study and Yaxis represents the Ratio of Cash & Bank to Current Assets. The total
period of observation cash held is more than 3 %. It indicates that the
company is holding surplus cash and bank balances which impact the
overall profitability of the company. During the year 2011-12 the cash
and bank balance has reduced to a greater extent
9) Cash to Current Liabilities Ratio during the period of study. X-is represents
the period of study and Y-axis represents the ratio of Cash toCurrent
Liabilities. The cash held is more than current liabilities during the year
2009-2010 & the
Next 3 years was less when compared to the current liabilities.
It is
indicating that the ineffective utilization of credit period for purchases

96
MBA Programme
made. However the cash held is reducing year by year when compared
with current liabilities, which is a satisfactory performance of cash
management.
10)The cash velocity to sales is higher during 2012-13, which is
indicative of efficient cash management.
During the year 2009-10 it is as low as 1.95 indicating the low
performance of
cash held. The higher the velocity indicates the optimum
utilization of cash resources and vice-versa.
97
MBA Programme
BIBLIOGRAPHY
Khan & Jain. 2004. Financial management. New Delhi : Tata McGraw
Hill Private Limited.
Pandey, I.M. 2002. Financial management. New Delhi : Vikas
publications.
Prasanna Chandra. 2002. Financial management. New Delhi : Tata
McGraw Hill Private Limited.
Vanhorne, James.C. Financial management. New Delhi : Tata
McGraw Hill Private Limited.
Website:
WWW.SAGAR CIMENTS.COM
98

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MBA Programme

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

OBJECTIVES OF WORKING CAPITAL MANAGEMENT:

and helps in maximizing the wealth of the shareholders.

Master of Business Administration

The concept of working capital is built on the three important elements:

CONCEPTS OF WORKING CAPITAL:

payable and outstanding expenses. Networking capital can be positive or negative. A

Master of Business Administration

A negative working capital means a negative liquidity and may prove to be

COMPONENTS OF WORKING CAPITAL:

Cash credit and overdrafts

Raw materials, components etc

Including Sundry Creditors

Or Creditors for purchases

Stores & Spares

Other Current Liabilities

Sundry Debtors or Trade Creditors

Advances from Customers

Out standing payments in cash

Accrued expenses viz

Cash & Bank balances

Salaries, Wages & Other trade dues

Other Current Assets

Like Electricity charges,

Municipal rent & rates

Others viz, loans & Advances

Un paid Dividend, O/S dues

Others like Provisions for taxes & Other

Govt, Semi-Govt, and Trade Deposits

Sources of Working Capital Finance:

Permanent Sources Of Working Capital Finance:

Current Sources of Working Capital Finance:

NEED FOR ADEQUACY OF WORKING CAPITAL:

Dangers of inadequate working capital:

Dangers of excessive working capital:

VARIOUS TYPES OF WORKING CAPITAL:

c. The size of business determines the amount of permanent working capital.

It is a part of working capital, which is ear marked, for meeting unforeseen

Jan Mar June September December

DETERMINANTS OF WORKING CAPITAL:

Master of Business Administration

OPERATING CYCLE OR WORKING CAPITAL CYCLE:

Master of Business Administration

Net operating cycle

Length of operating Cycle:

Master of Business Administration

If the enterprise is a manufacturing concern, the cycle will something like:

If the enterprise is purely a relating company and one which has no

Master of Business Administration

NEED OF THE STUDY

To find out the liquidity or short term solvency of the SAGAR

CIMENTS PVT LIMITED

It helps to compare what credit period it receives from the supplier

and what it offers to the customers.

To express the relationship between different financial aspects in such

a way that it allows

the users to draw conclusions about the

performance, strengths and weaknesses of the company.

To know short term debt serving ability of the company.

Master of Business Administration

OBJECTIVES OF THE STUDY

objective of the present study is to analyze and interpret the

Master of Business Administration