A

PROJECT REPORT
ON

“A STUDY ON WORKING CAPITAL

MANAGEMENT AT BIRLA CEMENT”

SUBMITTED TO

AWADHESH PRATAP SINGH UNIVERSITY, REWA (M.P.)

FOR THE AWARD OF

BACHELOR OF BUSINESS ADMINISTRATION
BBA (SEMESTER-VI)

BY

SHRISTI SINGH PARMAR

UNDER GUIDANCE OF
PROF. K. P. TRIPATHI

VINDHYA INSTITUTE OF MANAGEMENT & RESEARCH,

SATNA (M.P.)
2015
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

GUIDE’S CERTIFICATE
This is to certify that MISS. SHRISTI SINGH PARMAR has satisfactorily completed

the Summer Training Project work on “A Study on Working Capital Management at

Birla Cement” under my guidance for the partial fulfillment of BBA (Semester-VI)

submitted to Awadhesh Pratap Singh University, Rewa during the academic year

2015.

To best of my knowledge and belief the matter presented by her is original

work and not copied from any source. Also this report has not been submitted earlier

for the award of any Degree of Awadhesh Pratap Singh University, Rewa.

Place: Satna PROF. K. P. TRIPATHI

Date: / 04 / 2015 (Project Guide)

1
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

DECLARATION

I undersigned, hereby declare that this Summer Training Project Report

entitled “A Study on Working Capital Management at Birla Cement” prescribed by

AWADHESH PRATAP SINGH UNIVERSITY, REWA during the academic year 2014-2015

under the guidance of PROF. K. P. TRIPATHI is my original work.

The matter presented in this report has not been copied from any source. I

understand that any such copying is liable to be punishable in any way the university

authorities deem to be fit. Also this report has not been submitted earlier for the

award of any Degree or Diploma of Awadhesh Pratap Singh University, Rewa or any

other University.

This work humbly submitted to Awadhesh Pratap Singh University for the

partial fulfillment of Bachelor of Business Administration (Sem-VI).

PLACE: SATNA MISS SHRISTI SINGH

PARMAR
DATE: / 04 / 2015

2
 VINDHYA INSTITUTE OF MANAGEMENT & SCIENCE
SATNA (M.P.)

ACKNOWLEDGEMENT

Whenever we are standing on most difficult step of the dream of our life, we
often remind about The Great God for His blessings & kind help and he always helps
us in tracking off the problems by some means in our lifetime. I feel great pleasure to
present this project entitled “A Study on Working Capital Management at Birla
Cement”.
I am grateful to those people who help me a lot in preparation of this project
report. It is their support and blessings, which has brought me to write this project
report. I have a deep sense of gratitude in my heart for them.
I would give sincere thanks to our faculty members Prof. R.P.Singh, Prof.
Prashant Mishra, Prof. Neeraj Saxena, Dr. Fahim Siddiqui, Prof. Priti Dwivedi who is
been & will be source of inspiration to us.
I am very thankful to my project guide Prof. K.P.Tripathi for his whole-hearted
support and affectionate encouragement without which my successful project would
not have been possible.
Finally, I am very grateful to Mighty God and inspiring parents whose loving
& caring support contributed a major share in completion of my task.

3
 Ms. Shristi Singh Parmar

TABLE OF CONTENTS

S.N. Contents Page No.

1 Introduction of Project 5-16

2 Company Profile 17-20

3 Review of Literature 21-24

4 Objectives 25-26

5 Research Methodology 27-30

6 Data Analysis & Interpretation 31-54

7 Findings & Suggestions 55-56

8 Limitations 57-58

9 Conclusion 59-60

10 References 61-62

Annexure
11 63-65
Questionnaire

4
 CHAPTER-I

INTRODUCTION OF PROJECT

5
INTRODUCTION:

WORKING CAPITAL is the amount of fund necessary to cover the cost of operating the
enterprise. Working capital is the part of firm’s capital which is required for financing short term
or current assets such as inventories, debtors, marketable securities and cash. Funds invested in
these current assets keep revolving with relative rapidly. Hence is also known as circulating or
revolving capital or short term capital or liquid capital.

Every running business needs working capital. Even a business which is fully equipped with all
types of fixed assets required are bound to collapsed without-

i) Adequate supply of raw material for processing.

ii) Cash to pay for wages, power and other costs.
iii) Creating stock of finished goods to feed the market demand regularly.
iv) The ability to grant credit to its customers.

6
CONCEPT OF WORKING CAPITAL
There is a lot of difference of opinion among accountants, financial experts, entrepreneur and
economists.

1)TRADITIONAL AND BALANCE SHEET CONCETS-

According to this concept working capital depicts the position of the firm at certain point of
time. With this point of view working capital is of two types-

A) GROSS WORKING CAPITAL

The gross working capital is financial or going concern concept. According to this concept
all the current assets of the business financed by long term funds or short term funds form
the working capital of the firm.
The following arguments are placed in favour of this concept-

7
 1) It enables the enterprise to provide correct amount of working capital at the right time.

2) Every management is more interested in the total current asset with which it has to
operate rather than the sources from it is financed.
3) The gross concept of working capital takes into consideration that every increase in the
funds of the enterprise would increase the working capital.

4) The concept of gross working capital is more useful in determining the rate of return
on investment.

B) NET WORKING CAPITAL-

Net working capital is the difference between CURENT ASSETS & CURENT
LIABILITY. A part of funds required to maintain CURENT ASSETS is provided by
CURENT LIABILITY & the balance is provided by long term funds.
Therefore net working capital may also be defined as that part of firms CURENT
ASSETS which is financed with long terms funds. The following arguments are put in
favour of this concept.

1) Excess of CURENT ASSETS over CURENT LIABILITY is an indicator of financial

soundness and the ability to face depression and contingencies.

2) It indicates the margin of protection available to the short term creditor that is the excess
of CURENT ASSETS over CURENT LIABILITY.

3) It is an indicator of the financial soundness of the enterprise.

4) It suggests the need to financing a part of the working capital requirements out of the
permanent sources of funds.

8
 In the company, in year 2012-2013the current assets are Rs 563676 lacks and current
liability is Rs 365514 lacks, and in year 2013-2014the current assets are Rs 848017 lacks
and current liabilities are Rs 503670 lacks, this shows that in both the year current assets
are more than current liabilities, which shows positive move in company position and the
net working capital ratio in year 2012-2013 is 1.54:1 and in year 2013-2014 ratio is
1.68:1. Suggested ratio by chore and tendon committee is 1.33:1.

C) PERMANENT OR FIXED WORKING CAPITAL

A minimum level of current assets, which is continuously required by a firm to carry on its
business operations, is referred to as permanent or fixed working capital.

D) VARIABLE OR FLUCTUATING WORKING CAPITAL

The extra working capital needed to support the changing production and sales activities
of the firm is referred to as fluctuating or variable working capital.

OPERATING CYCLE

9
SIGNIFICANCE OF WORKING CAPITAL
Working capital is as essential for the smooth and efficient running of a business, as circulation of
blood is essential in the human body for maintaining life.

1) IMMEDIATE PAYMENT TO SUPPLIERS

Adequate working capital enables a firm to pay its suppliers immediately that ensures regular
supply of raw material.
In Birla Cement Ltd, at the year of 2012-2013the working capital is Rs 198162 lacks and in
year 2013-2014the working capital is Rs 344347 lacks. This shows that the capital is properly
utilized in the company and which indicate the financial soundness of the company, it enables
the firm to make immediate payment to its suppliers.

1) BENEFIT OF CASH DISCOUNT

The firm can avail the advantage of cash discount this will result in reducing the cost of
production, where by firm can reduce its selling prices and attract more customers by allowing
trade discount.

2) ADEQUATE DIVIDEND DISTRIBUTION

Firm short of working capital plough back their profit in their business to make up the
deficiency of working capital. In such case dividends will not be declared and the shareholders
will feel dissatisfied. When a firm has enough working capital dividends can be declared and
this will create satisfaction among the share holders and bring stability in the market price of
shares.

3) INCREASE IN GOODWILL AND DEBT CAPACITY

In business promptness in payment to third party creates goodwill and increases the debt
capacity of the concerned firm. It enables the firm to raise loan whenever needed.
As the company makes the proper utilization of its capital, this enables the firm to make
immediate payment to its suppliers and to its share holders in the form of dividend, this
increase the goodwill of the company and enable the firm to raise loan when ever needed.

10
4) EXPLOITATION OF GOOD OPPORTUNITIES
Only company with adequate working capital can exploit good opportunities and can earn
handsome profits. Example a firm can make seasonal purchase in bulk when the price are
cover or can accept big supply orders.

5) MEETING UNFORSEEN CONTINGENCIES

Business oscillations, legal cases, and small crises can be easily handled through adequate
working capital.

6) INCREASED EFFICIENCY
Adequate working capital has psychological effect on the directors and executives of the
company as it motivates them to work. Moreover timely payment of wages to employees, they
work with more vigor and confidence. Thus adequate working capital creates an atmosphere of
security and increases overall efficiency.
8) INCREASE IN FIXED ASSETS PRODUCTIVITY
Without working capital fixed assets are like gun which cannot shoot as there are no cartages.
It is there said the fate of large scale investment in fixed asset is often determined by a
relatively small amount of current assets.

EFFECTS OF EXCESSIVE WORKING CAPITAL

The need to maintain adequate capital cannot be questioned but a firm must not have excessive or
redundant working capital. Excess working capital refers to ideal funds which do not earn any
profit for the firm.

1) UNNECESSARY STOCK PILING

Surplus money may lead to unnecessary purchasing and accumulation of inventories causing
more chances of mishandling of inventories, theft, waste, losses.

2) DEFECTIVE CREDIT POLICY

Excessive working capital implies excessive debtors and defective credit policy. This causes
higher incidence of bad debts that ultimately affects profit of the firm.

11
3) MANAGERIAL INEFFICIENCY
It shows that the management is not interested in utilizing the resources and encouraging
economy.

4) EFFECT ON PROFITABILITY
Excessive working capital remains idle and earns no profits whereas interest has to be paid on
it.

5) PROMOTES SPECULATION
Excessive working capital promotes profits of speculation nature by stock piling. It results in
liberal dividend policy which the firm may not be able to maintain in future.

FACTORS WHICH DETERMINE THE WORKING CAPITAL

1) NATURE OF THE BUSINESS

The amount of working capital is basically related to the nature and volume of the
business. Firms engaged in public utility services such as railway, transport and electricity
supply companies require moderate amount of working capital because they are selling
services instead of products. Trading concerns or manufacturing concerns have to
maintain large amount of working capital because they require current assets such as
inventories, receivables and cash.

2) SIZE OF BUSINESS
The size may be measured either in terms of scale of operations or in assets or sales. Large
firm will require more working capital. The cement industry has witnessed an increase in
the competition in the market and thus this has led to increase in working capital
requirement of the firm.

3) CHANGES IN TECHNOLOGY

12
 Changes in technology may lead to improvement in processing of raw material, savings in
waste, higher productivity and more speedy production. All these improvement enables
the company to reduce investment in inventories. If a company decide to go for
automation, if will reduce the requirement for working capital. The technological change
in cement industry led to reduce investment in inventories.

4) LENGTH OF OPERATING OR WORKING CYCLE

The amount of working capital depends upon the length or duration of operating cycle.
The speed with which the operating cycle is completed determines the amount of working
capital .The larger the period of working capital the more is the investment in bill and
inventories. Normally the need for working capital funds precedes growth in business
activity. As the division has witnessed an enormous growth over last few years, its
working capital requirement has increased.

5) FIRM CREDIT POLICY

Credit policy of the firm also has an impact on working capital needs. A firm following
liberal credit policy will require more working capital to carry book debts. On the contrary
a firm that adopts strict credit policy and grants credit facility to customer with higher
credit handing will require less amount of working capital as funds tied up in receivable
will be realised promptly for further use.

6) TERMS OF PURCHASE AND SALES

A firm buying raw materials and other services on credit and selling goods on cash will
require less investment in current assets. On the other hand a firm which purchases raw
material on cash basis and sells its products on credit basis will need large amount of
working capital in a firm.

7) BUSINESS CYCLE
In a period of boom when the business is prosperous, there is need for large amount of
working capital due to increase in sales and rise in price of raw material. In times of
depression when demand falls lesser amount of working capital is required.

13
 8) WORKING CAPITAL TURNOVER
This is measured by ratio of sales to current assets. When the turnover is fast the working
capital required is less.

9) PROFIT MARGIN AND DIVIDEND POLICY

The amount of working capital required in a firm also depends upon its profit margin and
dividend policy. A high rate of profit margin due to quality products or good marketing
management or monopoly power in the market reduces the working capital requirements
of the firm because profit earned in cash is a source of working capital.

ADVANTAGE OF ADEQUATE WORKING CAPITAL

1. SOLVENCY OF THE BUSINESS

Adequate working capitals help in maintaining solvency by the business by providing
uninterrupted flow of production.

2. GOODWIL
Sufficient working capital enables a business concern to make prompt payment and hence
helps in creating and maintaining goodwill.

3. EASY LOANS
A concern having a adequate working capital, high solvency and good credit standing can
arrange loan from banks and other uneasy and favourable terms.

4. CASH DISCOUNTS
Adequate working capital can also enable a concern to avail cash discount on the
purchases and hence it reduces costs.

14
5. REGULAR SUPPLY OF RAW MATERIAL
Sufficient working capital ensures regular supply of raw material and continuous
production.

6. REGULAR PAYMENT OF SALARY, WAGES AND OTHER DAY TO DAY

COMMITMENTS

A company which has ample working capital can make regular payment of salary, wages
and other day to day commitment which raises the moral of its employees, increases there
efficiency, reduce wastages and cost and enhances production and profits.

7. EXPLOITATION OF FAVOURABLE MARKET CONDITION

Only concern with adequate working capital can exploit favorable market condition such
as purchasing its requirements in bulk when the prices are lower and by holding its
inventories for higher prices.

8. ABILITY TO FACE CRISIS

Adequate working capital enables a concern to face business crisis in emergencies such as
depression because during such period, generally, there is much pressure on working
capital.

APPROACHES OF WORKING CAPITAL

There are three approaches of working capital-
1) MATCHING APPROACH

2) CONSERVATIVE APPROACH

3) AGGRESSIVE APPROACH

15
 MATCHING- According to this principle, the maturity of the sources of financing should
match the maturity of the assets being financed. This means that fixed assets and
permanent current assets should be supported by long term sources of finance, whereas
fluctuating current assets must be supported by short term sources of finance.

 CONSERVATIVE- In conservative approach long term financing is used to meet fixed

asset requirement, permanent working capital requirements and a portion of fluctuating
working capital requirement. During seasonal upswings short term financing is used.
During seasonal downswings surplus is invested in liquid assets.

 AGGRESSIVE- In aggressive approach long term financing is used to meet fixed asset
requirement as well as peak working capital requirement. When the working capital
requirement is less than its peak level the surplus is invested in liquid assets

16
 CHAPTER-II

COMPANY PROFILE

17
COMPANY PROFILE:

Birla Corporation Limited (BCL) has been ranked 6 th amongst India’s ten “Most Admired
Companies” in the Cement Sector by Fortune India, the eminent business magazine. The
ranking has been based on a number of criteria, including “size, contribution GDP, growth rate,
maturity of industry and sufficient competition”. The ranking of the company has gone up to 6 th
in 2013 from 8th in 2012. This is Fortune India’s second survey of India’s “Most Admired
Companies”.

Birla Corporation Limited is the flagship Company of the M.P. Birla Group. Incorporated as
Birla Jute Manufacturing Company Limited in 1919, it was Late Mr. Madhav Prasad
Birla who gave shape to it. As Chairman of the Company, Mr. Madhav Prasad
Birla transformed it from a manufacturer of jute goods to a leading multi-product corporation
with widespread activities. Under the Chairmanship of Mrs. Priyamvada Birla, the Company
crossed the Rs. 1300 - crore turnover mark and the name was changed to Birla Corporation
Limited in 1998.

18
After the demise of Mrs. Priyamvada Birla, the Company continued to consolidate in terms of
profitability, competitiveness and growth under the leadership of Mr. Rajendra S. Lodha, late
Chairman of the M.P. Birla Group. Under his leadership, the Company posted its best ever
results in the years ended 31.3.2006, 31.3.2007 and 31.3.2008.

The Company continued to record impressive growth in 2008-09 and 2009-10. Mr H V Lodha
is now Chairman of the company.

Birla Corporation Limited has products ranging from cement to jute goods, PVC floor
covering, as well as auto trims (jute felt-based car interiors).
 
 Installed Capacity and Production

Product Installed Capacity Production (2009-2010)

Cement 6.46 Mill. Tons. 5.69 Mill. Tons.
Jute Goods 38000 M T 27,300 MT
PVC Floor Covering 48.60 lakh sq. mtrs 1.09 lakh sq. mtrs.
Auto Trim Parts 7.80 lakh Pcs 0.64 lakh Pcs
Iron & Steel Casting 3,750 tons 1,078 tons

19
 LIST OF DIRECTORS
FOUNDERS OF M. P. BIRLA GROUP

LATE SHRI. M. P. BIRLA LATE SMT. PRIYAMVADAJI BIRLA

20
 CHAPTER-III

REVIEW OF LITERATURE

21
REVIEW OF LITERATURE:

In the prior literature cash flow analysis are examined mainly for two reasons. First reason is to
explore whether cash flow components carry information about financial health of a company and
to use that information to derive firms’ life cycle stages. Second reason is to analyze the value
relevance of operating, investing and financing cash flows versus the value relevance of earnings
and accruals.

To start with, Gentry et al. evaluates the contributions of cash flow components to identify
financial health of a company. The researchers state that, if a company’s cash flows from
operations (CFO) increase, the financial and credit health of the firm would also increase as the
firm would less likely to need borrowing and cash interest expense. Contrarily, if a company’s
CFO declines, it would be more likely to use interest bearing debt to finance its plans and
investments. They employ Helfert approach to analyze cash flow components and observe that,
firms with high CFO and cash outflow from investing activities would also likely to have low
credit risk. The results also show that, CFO has more information content than investing and
financing cash flows in explaining financial success or failure of a firm.

Dickinson examines the cash flow patterns as a proxy for firm life cycle that is derived from
accounting information. The researcher indicates that cash flow patterns supply a rigid and robust
indicator of firm life cycle stage and allows researchers to evaluate a firm’s current performance
as well as predicts its future performance according to firm’s current life cycle stage. In this
respect, Dickinson divides life cycle of firms into 5 phases namely introduction, growth, maturity,
shake out and decline. The classification of life cycle stages are constituted by using firm’s
operating, investing and financing cash flows in which firm life cycle is completely separated
from firm’s age. The researcher uses life cycle proxy in order to assess the economic, market and
accounting behavior of firms within each life cycle stage and develops a method for identifying
firm life cycle using the combination of cash flow patterns. First, Dickinson makes an ex ante
assumption considering a uniform distribution of life cycle stages across firms and uses the sign
of the net operating, investing and financing cash flows and determines eight possible cash flow
patterns combinations. The study uses NYSE, AMEX and NASDAQ firms in determining the

22
sample for the 1989-2005 period. Dickinson demonstrates several variables such as profitability,
stock returns, financial leverage, risk, tax rates, dividend payments, age and size which have a non
linear relationship with firm life cycle. The researcher conducts profit analysis to explain how
these variables are related to life cycle and uses life cycle proxy to assess profitability in the
financial statement analysis.

Dickenson conducts profit model to evaluate life cycle stage with respect to thirteen variables
covering return ratios, earnings per share, sales and dividend payments. The researcher further
determines a base model, where changes in return on net operating assets are regressed as a
function of current profitability and lagged profitability. In the analysis, Chow test is conducted
on the full sample versus life cycle stage subsamples in order to measure whether the coefficients
in the separate subsamples are equal across life cycle stage. As a conclusion it is found that, the
structural shift among life cycle stages is significant. It is further observed that, incorporating
information about firm life cycle improves the explanatory power of future profitability.
Specifically, current and past profitability, growth in net operating assets and the changes in asset
turnover have significant effect in explaining future profitability. Consequently the results show
that, cash flow patterns are robust indicators of firm life cycle stages.

Gort and Klepper defines the life cycle stages as introductory stage-where an innovation is first
produced, growth stage-where the number of producers increases dramatically, maturity stage-
where the number of producers reaches a maximum, shake out stage-where the number of
producers begins to decline and decline stage in which there is nearly zero net entry. Inspired by
Gort and Klepper’s definition of life cycles, Dickinson demonstrates that in the introduction stage,
net operating cash flows are negative since firms are initially learning their cost structures and
operating environments. Investing cash flows are also negative because of managerial optimism
that investment opportunities are growing. In this stage financing cash flows are expected to be
positive since they borrow from creditors or issue stock. In the growth stage, operating cash flows
would be positive since firm’s main purpose is to maximize their profit margins. Investing cash
flows as well as financing cash flows are also expected to be positive since firms continue to
invest and finance their investment in order to grow more. In mature stage, operating cash flows
are still positive although profitability decreases. Meanwhile, financing and investing cash flows

23
are negative since the firm invests to maintain capital rather than to grow and to service its debt
rather than to acquire new financing. In the shakeout stage, cash flow expectations are ambiguous
and hence cash flows from operating, financing and investing can be either positive or negative.
Finally, in the decline stage, operating cash flows are expected to be negative and investing cash
flows are expected to be positive since firms are aimed to liquidate their assets and finance their
operations as well as service their debt. However, firms in this stage may also seek for additional
funds to downturn their position so that the sign of financing cash flows is indeterminable.

According to Myers, in early life cycle stages, growth opportunities are a larger component of
firm value, whereas in later stages assets in place become the largest component. As a result
Black observes that, at least one of the components in cash flow statements (operating, financing
and investing) is useful in explaining stock returns in each firm life cycle stage. The researcher
further demonstrates that, the value relevance of a particular cash flow component depends on the
life cycle stage of the firm.

24
 CHAPTER-IV

OBJECTIVES OF THE STUDY

25
OBJECTIVES:

This research is based on the study of working capital management with reference to Birla
Cement. The objectives of my study are as follows:

1) The research objective of working capital management is to ensure that the firm is able to
continue its operation and that it has sufficient cash flow to satisfy both maturing short-
term debt and upcoming operational expenses.

2) The objective of working capital is to find the amount of fund necessary to cover the cost
of operating the enterprise.

3) The research objective of Working capital is that it indicates financial soundness of the
enterprise.

4) The objective of determining the working capital is to minimize the level of risk arising in
the business.

26
 CHAPTER-V

RESEARCH METHODOLOGY

27
 RESEARCH METHODOLOGY

RESEARCH
Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in future course of action. The research has been defined as
“A careful investigation or enquiry especially through search for new fact in any branch of
knowledge”.

RESEARCH METHODOLOGY
Research methodology is a systematic and scientific method to know the truth and reality
behind phenomena. Research methodology is the way to systematically solve the problem. When
we talk about research methodology we not only talk about the research method but we also
consider the logic behind methods we use in the context of our research study and explain why, we
use a particular method or technique and why we are not using other, so that research result are
capable of being evaluated either by the researcher himself or the others.

The aim of result is a process recording and analyzing the critical and relevant facts about
the problem in any branch of human activity.

METHODOLOGY:

The efficiency of cash flow statement in Birla Cement over the years has been analyzed with the
help of following techniques and approaches:

1) OPERATING CYCLE APPROACH:

The normal operations of a manufacturing and trading company start with cash, go through the
successive segments of the operating cycle, viz, raw material storage period, conversion period,
finished goods storage period and average collection period before getting back cash along with
profits. The shorter the duration of the operating cycle period, the locking up of funds in current

28
assets is for a relatively short duration. Thus, operating cycle period has been calculated for four
years and the operating cycle period for the current year has been compared with the previous
years to know whether the period has increased or decreased over the years. To provide a better
view, each segment of operating cycle period is compared over the years to get a picture of
management of working capital management in the division.

2) RATIO ANALYSIS
Despite the usual limitations associated with ratios, ratio analysis is still popular for analyzing the
financial statements of business entities. This is mainly attributable to the simplicity in calculation
and indication of the direction in which the entity is moving. Thus various working capital ratios
have been calculated for the various years and compared to gauge the efficiency of working
capital management in the Cement division of Birla Corporation Ltd.

RESEARCH DESIGN:
Research design is a frame work or plan for a study that guides the collection and analysis of the
data. The controlling plan for a marketing research study in which the methods and procedures for
collecting and analyzing the information to be collected is specified. A plan for collecting and
utilizing data so that desired information can be obtained with sufficient precision or so that a
hypothesis can be tested properly.

SOURCES OF DATA:

PRIMARY DATA
Primary data refers to the data which is collected for the first time from the origin. It is the first
hand information. The input related to cash flow statement has been obtained from the inventory
stores located at cement plant (Birla Group). Some data and information related to working
capital management has been obtained from the finance and accounts department of the division.
The data so received are also collected from the management.

29
SECONDARY DATA
Secondary data refers to the data which are already in existence. These are second hand
information. The data required for making a comparative study are collected from annual reports
available on internet and published sources. The data required for the application of quantitative
tools and techniques for monitoring the efficiency of cash flow statement has been extracted from
the annual report presented in year 2012-2013 and 2013-2014.

30
 CHAPTER-VI
DATA ANALYSIS & INTERPRETATION

31
ANALYSIS OF WORKING CAPITAL 
Analysis of working capital is an essential part of financial management. If there is an adequate
amount of working capital and it is utilized in the right manner, it is a great achievement for the
business. The excess of working capital causes financial stringency and brings the business to a
standstill.

Realizing the impotence of working capital in financial management the analysis of working
capital becomes an essential phenomenon. It facilitates the adequacy and management of working
capital. The management of working capital provides a careful inquiry into its components so as
to control the working capital and to conserve it properly. It helps in determining the optimum
level of working capital in the firm. The process of measurement and analysis of working capital
is performed on the basis of financial statements of the business enterprise for past few years. In
the present study the analysis of working capital of ultra tech cement ltd. has been made by two
techniques vis., trend analysis and ratio analysis.

WORKING CAPITAL TREND ANALYSIS

The working capital trend analysis represents picture of variation in current assets, current
liabilities and working capital over period of time. Such an analysis enables us to study upward
and downward trend in current liabilities and its effect on the working capital position. The trend
analysis is a tool of financial appraisal where the changes in the factors are compared with the
base year assuming the base year as 100.In the present study a statement – showing trend of
working capital as well as its structure has been made. It is it scientific and important study
because each component of working capital has got the relationship of causes and effects. 
 

32
 CALCULATION OF WORKING CAPITAL IN BIRLA
From above details THE NET WORKING CAPITAL FOR the following years are given below-
YEARS 11-12 12-13 13-14
146868 198162 344347

ANALYSIS THROUGH CHART

350000

300000

250000

200000

150000

100000

50000

0
CACULATION OF 31.03.12 31.03.13 31.03.14
WORKING
CAPITAL IN JAL

INTERPRETATION
By analyzing three year data we come to a conclusion that net working capital is more in 2013
than 2012 that increment also in 2014. It continuous increases in the net working capital indicate
that the position of the company is growing continuously.

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS

Inventory is total amount of goods and materials content in a store of factory at any given time.
Inventory means stock of three things:-

 Raw materials

33
  Semi finished goods.

 Finished goods.

POSITION OF INVENTORY IN BIRLA

(SUB TO)
For analysis point of view major item of inventories are considered.
YEAR 31.03.12 31.03.13 31.03.14
STORE, SPARE PARTS etc. 29311 34761 44150
RAW MATERIAL 641 905 707
FINISHED GOODS 2377 2653 3169
STOCK IN PROCESS 756 3006 2324
WORK IN PROCESS 39598 43418 50238
TOTAL 72683 84743 100588

ANALYSIS THROUGH CHART:

120000

100000

80000

60000

40000

20000

0
POSITION OF 31.03.12 31.03.13 31.03.14
INVENTORY IN
JAL

INTERPRETATION
By analyzing the 3 years data we see that the inventories are increased year by year. We are
looking increasing pattern in inventories. We can see that inventories are growing in 12-13 and
13-14 respectively from previous year. By this growth we can say that the company is growing

34
very rapidly in cement sector. A company uses inventory when they have demand in market and
JAL is having a great demand in infrastructure sector. That is biggest reason for increase in
inventories. From other point of view we can say that the liquidity of firm is blocked in
inventories but to stock is very good due to uncertainty of availability of raw material in time.

SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales are made.

POSITION OF SUNDRY DEBTOR IN BIRLA

YEAR 31.03.12 31.03.13 31.03.14
DEBT OUTSTANDING FOR A
PERIOD EXCEEDING 6 MONTHS
i. FROM OVERSEAS WORK 10163 10163 10163
ii. FROM OTHERS 15279 17434 20760
Less: PROVISION FOR BAD DEBT (140) (139) (155)
OTHER BAD DEBTS 19903 31160 71281
TOTAL 45205 58618 102049

ANALYSIS THROUGH CHART

120000

100000

80000

60000

40000

20000

0
POSITION OF 31.03.12 31.03.13 31.03.14
SUNDRY
DEBTORS IN JAL

35
 INTERPRETATION
In the table and figure we see that there is continuous rise in the debtors of Birla in the successive
years. A simple logic is that debtors increase only when sales increase and if sales increases it is
good sign for growth. We can see 30% growth in 2013 in comparison with 2012 and there is 74%
growth in year 2014 while comparing with previous year.

We can say that it is a good sign as well as negative also. Company policy of debtors is very good
but a risk of bad debts is always present in high debtors. When sales are increasing with a great
speed the profit also increases. If company decreases the Debtors they can use the money in many
investment plans. Increase in debtors also result in strong working capital ratio. But the company
should regularly monitor the debtors to avoid loss as bad debts.

CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset and vital current assets; it is an important component of
working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a broader
sense it includes near cash assets such as marketable securities and time deposits with bank.

POSITION OF CASH AND BANK BALANCE IN BIRLA

YEAR 31.03.12 31.03.13 31.03.14

CASH IN HAND 9162 5858 30818
BALANCE WITH 133707 175627 259542
SCHEDULED BANK
BALANCE WITH NON 112 59 499
SCHEDULED BANK
TOTAL 142981 181544 290859

36
ANLYSIS THROUGH CHART:

300000

250000

200000

150000

100000

50000

0
POSITION OF 31.03.12 31.03.13 31.03.14
CASH AND BANK
BALANCE IN JAL

INTERPRETATION

If we analyze the above table and chart we find that in year 2013 it increases from the previous
year and comparing between 2013 and 2014 then we analyze that in 2013 it increases more from
the previous year. Company is utilizing the fixed cash for exploding the projects that is good for
growth. Cash requirement of any company should be there to provide for its requirement when it
needs, so holding excess cash is not good for any company.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees
for a specific period of time and in return they will be liable to make timely repayment of that
amount in addition to interest on that loan.

POSITION OF LOAN AND ADVANCES IN BIRLA

YEAR 31.03.12 31.03.13 31.03.14

ADVANCES TO SUPPLIERS 53013 74690 99930
STAFF IMPREST AND 333 525 592

37
ADVANCES
CLAIMS AND REFUND
RECEIVABLE 8592 20363 42383
PREPAID EXPENCES 4645 3550 12901
DEPOSIT WITH GOVT.
a) Govt. dept. 14794 17519 21119
b) Others 849 82596 112779
ADVANCES & INCOME TAX
DEDUCTION AT SOURCE 24875 21493 4358
SALES TAX RECEIVABLE 2705 1458 36748
TOTAL 109850 222194 330810

ANLYSIS THROUGH CHART

350000
300000
250000
200000
150000
100000
50000
0
POSITION OF 31.03.12 31.03.13 31.03.14
LOAN AND
ADVANCES IN
JAL

INTERPRETATION

If we analyze the table and the chart we can see that it follows an increasing trend which is a good
sign for the company. We can see that from the year 2012 to 2013 it increased and in year 2014
the increase is more than the previous two years. The increasing pattern shows that company is

38
giving advances for the expansion of plants and machinery which is good sign for better
production of cement and other goods. Although company’s cash is blocked but this is good that
company is doing modernization of plants in time to compete with other competitors in market.

CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities that has to be paid by the firm with in one year.
Liquidity Ratio:-

Current Ratio:-

Current ratio is one of the important ratios used in testing liquidity of a concerned firm. This is a
good measure of the ability of company to maintain solvency over a short run. This is computed
by dividing the total current assets by the total current liabilities and is expressed as:

Current Ratio = Current Assets

Current Liabilities

The current assets of a firm represent those assets, which can be in the ordinary course of
business, converted into cash within one accounting year. The current liabilities are defines as
obligation maturing within a short period (usually one accounting year). Excess of current assets
over current liabilities is known as working capital and since these two (current assets and current
liabilities) are used incurrent ratio therefore, this ratio is also known as working capital ratio. With
the help of this ratio the analyst can review the extent to which the company can covert such
liabilities with current assets. The current ratio gives the analyst a general picture of the adequacy
of the working capital of accompany and ability of the company to meet its day-to-day payment
obligation. “It likewise measures the margin of safety provided for paying current debts in the
event of a reduction in the values of current assets.”The current ratio is very useful as a measure

39
of short terms debt prying ability but it is tricky to interpret this ratio. Experts are of the view that
the value of current assets should be at least double the amount if current liabilities. Walker and
Bough have the same view when they ay “a good current ratio may mean a good umbrella for
creditors against the rainy days.”But to the management it reflects bad financial planning or
presence of idle assets or overcapitalization”

IDLE CURRENT RATIO: 2:1

If this ratio is higher than standards than it is assumed

 Very good short –term liquidity/solvency.

 Excess stocks, bad debts and idle cash.

 Under trading If this ratio is lower than standards than it is assumed

 Unsatisfactory short-term liquidity.

 Shortage of stocks, less credit sales, shortage of cash.

   Year 2010-11 2011-12 2012-13

Ratio 1.22 0.51 0.58

40
 

   Interpretation:- 

      According to banker’s rule of thumb 2:1 is the ideal ratio for current ratio but as per
the statistics of the last 3 years, the current ratio is good in 2009-10 and quite satisfactory
in 2011-12. However the company is able to manage with the above current ratio,
availing more credit from the vendor. If we see the nature of the business it is a grinding
unit, so the investment is done more for the fixed assets. 
 

Quick Ratio:- 

The solvency of a company is batter indicated by quick ratio. The fundamental this Ratio
is to enable the financial management of company to ascertain that would happen

If current creditors press for immediate payment and either not Possible to push up the
sales of closing or it id sold, a heavy loss is likely to be suffered. This problem arises
because closing stock is two steps away from the cash and their price more or less
uncertain according to market demand. The term quick assets include all current assets
except inventories and prepaid expenses. It shows the relationship of quick assets and
current liabilities. The Ratio is calculated as following 

Quick Ratio = Current Assets – Inventor

41
                              Current Liabilities   

It is indicator of a company's short-term liquidity. The quick ratio measures a company’s ability
to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better
is the position of the company. It is known as the "acid-test ratio" or the "quick assets ratio". 
 

IDLE QUICK RATIO 1:1 

 Year 2010-11 2011-12 2012-13

Ratio 0.72 0.31 0.30
 

   Interpretation:- 

         As per the Banker’s rule of thumb 1:1 ratio is satisfactory for the quick ratio. Here the
inventories are not included as this ratio requires the liquid assets which are easily convertible to
cash within a short period of time. The average collection period also affect this ratio as debts are
the liquid assets. Again the firm’s transactions are mainly done in credit and the credit period is a
bit longer. So the quick ratio doesn’t affect the firm. 
 

42
 

   Inventory Turn-over Ratio

Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet
the requirements of the business. But the level of inventory should neither to be high not to be
low. It to high inventory means higher carrying cost and higher risk of stocks becoming obsolete
whereas to low inventory may mean the loss of business opportunities. it is express in number of
time . Stock turnover ratio or inventory turnover ratio indicates the no. of times the stock has been
turned over during the period and evaluates the efficiency with which a firm a able to manage its
inventory. This ratio indicates whether investment in stock is within proper limit or HIGHER
RATIO INDICATES:-

 Stock is sold out fast.

 Same volume of sales from less stock or more sales from

 Same stock

 Too high ratio shows stock outs or over trading.

 Less working capital requirement.

 LOWER RATIO REVEALS:-

 Stock a sold out at a slow speed.

 Same volume of sale for more stock or less sale from same stock.

 More working capital requirement.

 Too low ratio show obsolete stock or under trading.

   

Inventory turnover ratio measures the velocity of conversion of stock in to sales. Usually a high
inventory turnover / stock velocity indicates efficient management of inventory because more
frequently the stock are sold, the lesser amount of money is required to finance the inventory.
Low inventory turnover ratio indicates inefficient management of inventory. in low inventory
turnover implies over investment in inventories, the business, poor quality of goods, stock

43
accumulation, accumulation of absolute and slow moving good and low profit as compared to
total investment the inventory turnover ratio is also an index profitability where a high ratio
signifies more profit ‘a low ratio signifies low profit some time a high inventories. 

Year 2010-11 2011-12 2012-13

Ratio 18.24 41.82 31.06
 

   Interpretation:- 

         Activity ratio indicates the speed with which assets are converted to sales. Inventory turn-
over ratio indicates the rate at which funds invested in inventories are converted into sales. The
inventory turn-over ratio of the company is more in 2010-11 than 2011-12. The inventories are
managed better in 2010-11 than the previous years and 2011-12 as higher inventory turn-over
ratio is considered to be better. Higher the inventory turn-over ratio, lesser amount is required to
be invested in inventories. 
 
     Days of Inventory Holding:- 

   Days of inventory holding = Inventory x 360

             Sales 

44
 Year 2010-11 2011-12 2012-13
Ratio 19 9 12
 

      

Interpretation:-

      The days of inventory holding shows the efficiency of the movement of the inventories into
sales. Here we can see 2011-12 is a great year for the company as per inventory holding. The
inventories are converted into sales quicker than the previous years. 

Raw Material Inventory Turn-Over Ratio:-

45
                        Raw Material Turn-Over Ratio = Materials Consumed

                                Avg. Raw Material Inventory 

Year 2010-11 2011-12 2012-13

Ratio 34.96 16.07 22.53
 

Interpretation:-

      This ratio tells about the time period to convert raw materials into work-in-progress. The
figure shows that 2010-11 has a lower level of raw material inventory turn-over. In manufacturing
industries raw materials must be consumed fast and as per that point of view 2010-11 is better
than 2009-10 and 2011-12.

Debtors Turn-Over Ratio:- 

Debtors Turn-Over Ratio = Sales

46
           Debtors 

Year 2010-11 2011-12 2012-13

Ratio 17.94 69.14 66.93
 

Interpretation:-

      This ratio shows the liquidity of the debtors, how promptly they are paying to the firm. Higher
value is considered to be better for this ratio, so in 2010-11 the debtors are more liquid and this
helps the firm to maintain a healthy liquid asset.

           

Average Collection Period:-

                             Average Collection Period = Debtors x 365

47
           Sales 

Year 2010-11 2011-12 2012-13

Ratio 20 5 5
 

Interpretation:-

The average collection period shows promptness of the debtors in making payments. As per the
statics 2010-11 and 2011-12 are the best among the 3 years for the company in getting the
payments. The chances of bad debts and losses are more in 2009-10. 
 
 

48
Creditor Turn-Over Ratio:- 

Creditor Turn-Over Ratio = Purchase

         Creditors 

Year 2010-11 2011-12 2012-13

Ratio 7.32 10.11 16.38

Interpretation:-The ratio indicates the velocity with which the creditors are turned over in
relation to purchases. Better the value better it is or otherwise lower the value less
favorable the result. 
 

49
Average Payment Period:- 

Average Payment Period = Creditor x 365

Purchase 

Year 2010-11 2011-12 2012-13

Ratio 32 36 22
 
 

Interpretation:- 

      It shows the average number of days taken by the firm to pay to its creditors. Higher the value
implies greater credit period enjoyed by the firm. Lower value is considered to be better as it
keeps a healthy liquidity position.  
 
 

50
Working Capital Turn-Over Ratio:- 

A measurement comparing the depletion of working capital to the generation of Sales over a
given period. This provides some useful information as to how

Effectively a company is using its working capital to generate sales. 

Working Capital Turn-Over Ratio = Cost of sales

           Net Working Capital 

A company uses working capital (current assets - current liabilities) to fund operations and
purchase inventory. These operations and inventory are then converted into sales revenue for the
company. The working capital turnover ratio is used to analyze the relationship between the
money used to fund operations and the sales generated from these operations. In a general sense,
the higher the working capital turnover, the better because it means that the company is
generating a lot of sales compared to the money it uses to fund the sales. 
 
  

51
Year 2010-11 2011-12 2012-13
Ratio 14 -6 -7.80
 

Interpretation:- 

      It shows the effective utilization of the net working capital. If we see the statistics of the
company, the working capital turn over ratio is negative for the company, in the financial year
2010-11 and 2011-12. This is because current liabilities are more than current assets in both years.

 
 

52
Net Profit Margin:- 

Net Profit Margin = PAT x 100

                         Sales 

Year 2010-11 2011-12 2012-13

Ratio 15.35 19.33 23.64
 
 

Interpretation:- 

      This ratio indicates the efficiency of the management in manufacturing, selling, administrative
and other activities of the firm. This ratio measures the overall ability of the company to turn each
rupee sales in profit. In 2009-10 when the company gained 15.35% for each one rupee invested,
in the next 2 years it has increased to 19.33% and 23.64% respectively. 
 

53
Gross Profit Ratio:- 

Gross Profit Ratio = (Sales – COGS) x 100

        Sales 

Year 2010-11 2011-12 2012-13

Ratio 65.51 61.81 72.80
 

Interpretation:- 
      This ratio indicates the efficiency with which a company produces its products. It is good in
2011-12 as compare to the previous years. In previous years the manufacturing cost is higher and
excessive competition might be one of the reasons. 

54
 CHAPTER-VII
FINDINGS & SUGGESTIONS

55
 FINDINGS AND SUGGESTIONS

 Company should administrated the credit on the basis of certain will recognized and
established principal of credit administration.

 The company should maintain and optimum level of cash in the business in order to
maintain a proper liquidity of business.

 Equipments requiring modernization and rebuilding.

SUGGESTIONS

1. The canteen facility provides a affordable food to the workers but the quality of the food

should be improved as some workers suggested.

2. The trade union should take the initiative to enlighten its members regarding Govt

labour Policies.

3. Wage structure must be improved by taking into consideration the

length of the service and the job responsibility.

4. Promotion must be given on the basis of efficiency.

5. Working conditions in same department must be improved.

6. Management must try to keep good relations with the workers.

56
CHAPTER-VIII
LIMITATIONS

57
 LIMITATIONS

 The period for the application of quantitative techniques and approaches for analyzing the
efficiency of working capital management in the division is restricted to three years.

 Some of the aspects related to working capital management being internal matters of
finance were not accessible.

 The time factor also plays as a limitation for the study of working capital management

58
CHAPTER-IX

59
CONCLUSION

An attempt has been made in the project to study and analyze various aspects of working capital
management in Birla cement division. All the division are efficiently managing its working
capital especially in the recent two years, there have been a lot of improvement in the
management of working capital. A careful attention has been given by the executives in
enhancing the efficiency in working capital management.

The company has adequate sources of finance to meet its short term obligations. The combined
interpretation of liquidity ratio’s indicate that interest of short term creditors is well protected by
adequate solvency and liquidity in the firm.

The shortening of operating cycle during the period of study indicates not only efficiency in the
management of working capital but also efficiency in production and distribution system, logistic
and delivery system prevailing in the organization.

In the context of the present highly competitive market it is necessary that the division keeps on
identifying new areas and work on it for improvement in working capital management. More
advanced and efficient method of managing different component of current asset should be
worked upon.

60
CHAPTER-X
REFERENCES

61
 REFERENCES

 INTERNAL SOURCES:

Data provided by the Birla Cement Ltd.

 EXTERNAL SOURCES:

i) I.M PANDEY, financial management, vikash publishing house, New Delhi.

ii) PRASANNA CHANDRA, financial management, theory and practice, 3 rd edition,

Tata McGraw hill, New Delhi.

iii) BHATTACHARYA, H, total management by ratios, New Delhi, sage publication

Indiapvt. Ltd.

iv) YADAV, R. A, “working capital management- a parametric approach”, the chartered

accountant.

v) PRASAD, R. 5, “working capital management in paper industry” finance India

volume XV. NO. 1, March 2001.

vi) Financial management and policy, J.C. VAN HORNE, PHI.

vii) Research methodology by C.R.KOTHARI.

 WEBSITES

www.google.com
www.Birlacementlimited.com

62
CHAPTER-XI
ANNEXURE

63
 ANNEXURE

POSITION OF INVENTORY IN BIRLA

(SUB TO)
For analysis point of view major item of inventories are considered.
YEAR
STORE, SPARE PARTS etc.
RAW MATERIAL
FINISHED GOODS
STOCK IN PROCESS
WORK IN PROCESS
TOTAL

POSITION OF SUNDRY DEBTOR IN BIRLA

YEAR
DEBT OUTSTANDING FOR A
PERIOD EXCEEDING 6 MONTHS
iii. FROM OVERSEAS WORK
iv. FROM OTHERS
Less: PROVISION FOR BAD DEBT
OTHER BAD DEBTS
TOTAL

POSITION OF CASH AND BANK BALANCE IN BIRLA

YEAR
CASH IN HAND
BALANCE WITH SCHEDULED
BANK
BALANCE WITH NON

64
SCHEDULED BANK
TOTAL

POSITION OF LOAN AND ADVANCES IN BIRLA

YEAR
ADVANCES TO SUPPLIERS
STAFF IMPREST AND
ADVANCES
CLAIMS AND REFUND
RECEIVABLE
PREPAID EXPENCES
DEPOSIT WITH GOVT.
c) Govt. dept.
d) Others
ADVANCES & INCOME TAX
DEDUCTION AT SOURCE
SALES TAX RECEIVABLE
TOTAL

65