PROJECT REPORT
                                                 ON
                      COST AND FINANCIAL ANALYSIS

                             A STUDY CONDUCTED AT:-

BIRLA CEMENT WORKS CHITTORGARH
(RAJ.)

FOR PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMISTRATION COURSE

SUBMITTED BY :-
RUCHI JAIN
(MBA-SESSION 2007-2009)
INSTITUTE OF TECHNOLOGY &
MANAGEMENT (RAJ.) 
AFFILIATED TO RAJASTHAN TECHNICAL
UNIVERSITY, KOTA
                                       
                                                   ACKNOWLEDGEMENT

 Talent & capabilities are of course necessary but opportunities & right guidance are two very
importance back-up without which any person can climb the ladder to success.

Vocational training is indeed an important aspect of MBA programs & it is my great privilege to
have this training in such an esteemed business empire-Birla Corporation Ltd... 
For this I am grateful to the top management of BCW, which provide me the opportunity to work
as trainee in such a prestigious organization.
----------------------- for providing me this 
Opportunity and support.

I am highly obliged to ----------------------for his important guidance & Support throughout 

the project.

I am very grateful to -------------), for providing me this 

project & giving me this opportunity.

I am highly indebted to -------- for providing all necessary 

information for her excellent co-operation, guidance & support.

I dedicate my satiated esteem towards staff of the accounts department for their Co-operation & guidance.

Lastly I would like to thanks to my co-trainees & all people who helped me in accomplish my project.

  Place:  BIRLA CEMENT WORKS

                                       BIRLA CORPORATION LIMITED
(BIRLA CEMENT WORKS & CHITTOR CEMENT WORKS)

                                                                        

M P BIRLA GROUP

QUALITY POLICY
Birla Corporation Limited, Chanderiya is committed to comply with the
requirements of customers to their entire satisfaction & continually improve the
effectiveness of Quality Management System by

1. Enhancing customer satisfaction by supplying consistent quality cement.

2. Regular up gradation of technology, optimum utilization of resources &

upkeep of equipment for reducing costs.

3. Training & involvement of employees to develop quality culture in the unit.

INDEX
 COMPANY PROFILE
 THE PROJECT
 OBJECTIVE
 RESEARCH METHODOLOGY

 COST ANALYSIS
 RAW MATERIAL CONSUMED
 MANUFACTURING EXPENSES
 PAYMENT AND PROVISION FOR EMPLOYEES
 SELLING,ADMINISTRATION & OTHER EXPENSES
 INTEREST

  FINANCIAL ANALYSIS
 LIQUIDITY RATIO
 LEVERAGE RATIO
 ACTIVITY / EFFICIENCY RATIO
  PROFITABILITY RATIO

 CONCLUSION
 SUGGESTION
 LIMITATION
 BIBLIOGRAPHY

COMPANY PROFILE

 Birla Corporation Limited a well known name in the business world was established by late Shri
Ghanshyam Das Birla in the year 1919. He set up the first Indian owned jute mill near Calcutta
and named it Birla Jute Manufacturing Company Limited. The named of the company was
changed to Birla Jute I Industries Limited in 1983 and finally to Birla Corporation Limited in
1998.
From G.D. Birla the unit passed on to his Nephew Late Shri M. P. Birla, who with his
entrepreneurial abilities and keen management mind expanded it into an industrial empire with
manifold diversification in various areas. 
The company has seven divisions in six different states namely Rajasthan, M.P. U.P. West
Bengal, Maharashtra and Haryana. 
The Company has following divisions -
1. Cement division 
2592. Jute division
2593. Synthetics division
2594. Carbides and Gases Division
2595. Vinoleum division 
2596. Auto trim division

Financial Performance. :
Cement Division of the company performed well during the year with higher capacity utilization
increased volumes and improved profitability. During the year all the plants operated
satisfactorily. The total turnover registered a growth of 25% in 2006-07 as compared to 2005-06
due to setting up of new plants and other expansion plans would help the company in
maintaining the momentum of growth.
Since I had done my summer training at cement division situated at Chanderia i.e. BCW I CCW
so here I am giving a brief description of these two units-
Birla Corporation Limited is having two plants in Chanderia namely BCW (Birla Cement
Works) and CCW (Chanderia Cement Works). BCW was set up in feb. 1967 while CCW in
1986. The Company carried out various modifications and de - bottlenecking in these plants, as a
result of which the installed capacity has increased to 20 lac tones from 14 lac tones.
Consequently, the installed capacity of the company increased from 39.1 to 45.1 lac tones.

FINANCIAL PERFORMANCE

PARTICULAR 2006-07 2005-06 CHANGE

[Rs. In lacs]
Total Income 159341 122859.85 29.69

Total expenditure 107348.7 103673.21 3.55

9
Operating Profit 51992.21 19186.64 170.98

Interest 1852.71 1361.96 36.03

Profit after interest 50139.50 17824.68 181.29

Depreciation  3965.48 3415.78 16.09

 Profit after tax 32623.02 12575.90 159.41
                                                                                                                                      
                                              

  
CEMENT DIVISION:
At present the company is having following 6 cement units:-
Name of  the unit  Year of establishment
Satna Cement Works 1959

Birla Cement Works 1967

Durgapur Cement 1974

Works 
Grinding unit
Birla Cement Works 1982

Chittor Cement Works  1986

Raebareli Cement 1998

Grinding unit

AWARDS RECEIVED BY CHITTOR UNITS:-

Sl.N Name of Award
o
1. ISO9001:2000 Certification
2. IS/ISO:14001Certification
3. Best Productivity Award
4.   II Best Productivity Award  NPC to CCW in 1991-92
5. Certificate of Merit for
productivity
6. Best improvement in the
thermal energy Performance
7. Best improvement Energy
Performance 
8.  Bhamashah  award of
Educational Activities
9.  Excellent award for
maintaining Healthy
Condition of Machinery
  10. Merit Award
11.  Workers Education Trophy
12. Lal Bahadur Shastri Gold
National Memorial Award  Excellent Pollution control Implementation
Awarding  Insititute
BVQI,UK in 2002 to BCW &CCW
BIS,New Delhi, in 2002 to BCW &CCW
NPC to CCW in 1989-90 & again in 1993-
94
NPC to CCW in 1998-99
NPC to BCW in 1992-93 & CCW in 1993-
94
NPC to BCW in 1992-93
Govt. of Rajasthan to BCW in 1996-97
IIT, Chennai & Vibration engineers
Consultants(P) Ltd, & to BCW &CdW in
1996-97
VEC(P)Ltd, Chennai for  sustained
implementation of condition Monitoring &
continued Machine Machine Health
improvement in 2001
Central Board for Workers Education,
Udaipur, Ministry of Labour, Govt. of
India to BCW &CCW in 1998-99 & again
in 2001-02
International Green land Society for
by CCW in 2002-03
13.  Best supporting core Plant Regional training Center, Nimbahera in
1998-99 , 2000-01,
& 2001-02
14. Award of Captive DGMS, Udaipur
mines(safety Week 1995(1),1996(2),1997(1),1998(3),
celebration in Udaipur
region)  1999(4),2000(2),2001(5),2002(3)

15. Best income Tax Payee(TDS) Income Tax Department , Udaipur Range
award to BCW in1996-97

BCW & CCW have received the quality certification ISO9001-2000 for quality management
system and ISO-14001 for environment management system.
CAPEXIL has awarded the BCL two export awards for 1990-91, 1991-92 and 1998-99,
and1999-00 for export of cement.

Information System:
Company is having LAN installation using UNIX oracle-7 generation. Most of the software
application are developed in-house and even used at Satna and Mumbai Office. The Process of
computerization is growing rapidly. Total investment to around Rs. 1.5 crore.

Human Resource Development:-

Diagnostics studies over, the relevant system are being implemented in a phased manner. The
response is encouraging.

Social Activities:
Our Company has contributed tremendously toward the economic and social development of this
area. These include expansion of the building of the Govt. referral hospital at chittorgarh ,
renovation of Kalika Mata Temple at Chittor Fort, construction of a  secondary school building
at village Nagari at a cost of 21 Lac for which we were conferred the “  Bhamashah Samman”
award and the construction and expansion for a number of other school and temple buildings in
the area around Chittorgarh. Tranist cattle Camps were opened during severe drought conditions
in the state. Free eye operation Camps are organized from time to time for the rural population of
this area. We have also made handsome donation for social welfare and the development of
Sangam Sthal at Chittorgarh.   
 THE PROJECT
OBJECTIVES OF THE PROJECT
These were the main objective to conduct a deep research on company’s
financial and cost statement:
1. To find out and analyze the factor which create impact on the cost of the
cement.
2.  Give suggestions to reduce the cost of cement by comparing its cost
factors with another industry players like Shree Cement ltd. And industry
standard.
3.  To find out the reasons in the cost of cement and bring them in notice of
top management.
4. Analyze the financial efficiency by using various ratios and compare
them to the industry standard.
5. Give suggestions about operational and financial performance to the top
management of the Birla Cement Works.

                                    
 
 RESEARCH METHODOLOGY
The methodology adopted to do my study & research is briefed in the following
paragraphs:-
The Research Design:- As the objective of my study was to compare the
mechanism & impact of cost and financial analysis in the cement industry, so I
studied & analyzed the available annual reports of the companies.

DATA COLLECTION:-The secondary data is collected & used from the

following sources:-
1. Annual reports of companies.
2. Financial Statements birla Cement & Chanderiya Cement Works.
3. www.birlacorporation.com as well as from dealers.

Analysis of collected data:-The data collected was calculated theoretically &

mathematically &inferences were drawn on the basis of the same.

                                                  

COST ANALYSIS
MAJOR COST FACTORS INCLUDED IN PRODUCTION OF CEMENT AT
BCW IN 2006-07
                 
    

1.  RAW MATERIAL CONSUMED

         Raw material plays a very vital role in determining cost of any product and in cement it
covers about 12.82% of total cost and utmost care should be taken to see that there is no
unnecessary loss or wastage on account of material. Cement raw material comprises
limestone, late rite, gypsum, clay, Pozzolana/fly ash.

Limestone: It is extracted by company’s own mines situated at jaisurjana nearby plant, which
have been taken on lease from the govt. of Rajasthan.

te : Also called Iron-Ore is easily available from nearby mines at Sawa

um: It is purchased from Hanumangarh / Nagpur districts of Rajasthan.

Material: The main pozzolanic material is china clay, wich was brought from areas between Nimbahera
and Chittorgarh. Now instead of pozzolana. Fly ash is used for manufacturing PPC, which is
brought from Kota and own thermal power plants.
 OBSERVATION: 
main items, which used in production of cement as a raw material.

s produced from company’s own mines. The cost of limestone is increased till 

the year 2007 it fall down nearly 1 %. It is also lower than the industry standard 
limestone in Aditya Cement is only Rs. 70 /-, which also produces from its own 
mines so there is a more need to cut this limestone cost.

Laterite is brought from Sawa and nearby areas and the transportation cost is the main factor in
increasing its cost. But here the cost of laterite is reducing year by year than industry though
Aditya has its cost only Rs. 114 /- per ton due to the nearity of mines. To reduce its cost the only
option is to reduce its transportation cost.

Gypsum is brought from Hanumangarh and Nagpur districts which is miner fluctuating year by
year but very higher than the industry standards. It has got increased from the last year i.e. from
456 – 479 per tone.
Fly Ash is brought from Kota Thermal power plant. In the year 2003 its cost was only Rs. 310
per ton lower than the Industry standards i.e. Rs. 340 per tone but now its cost has increased to
Rs. 414 per tonne which is much higher than the the industry players. Company has to find new
sources of Fly Ash to lower its cost.

RAW MATERIAL CONSUMED

Raw   Qty.   Amt.   Qty.   Amt.   Qty. Amt.   Qty. Amt.

material

Limestone 250939 2150.43 2399539 2056.29 2396584 2061.06 2398625 2062.82

5

Laterite 104850 1520.12 48914 72.11 84969 191.53 76538 172.53

Gypsum 175282 8402.54 220416 1154.84 180579 1161.79 167227 1075.89

Red ochre 71123 136.94 71998 138.62 70959 186.16 71933 188.72

Fly Ash 208250 8594.87 231881 974.35 307521 1318.34 398956 1710.32

2003-04 2004-05 2005-06 2006-07

   
OBSERVATION:
The cost of Raw Material is increasing day by day as a percent of total expenses. In the
industry where most of the firms have only 10% as total expense, the company has nearly 11%
of the total expenses in the year 2003-04 which increases more upto 15% in the year 2006-07.
The increased cost of gypsum and fly ash is the main reason for that.
 2.  MANUFACTURING EXP.

                    In this head we include power and fuel, store, spare parts, repairing of fixed assets
and packing material. The major form of power and fuel used in production i.e. coal, furnace oil,
electricity and other utilities separately.

                     BCW plants power requirement is fulfilled from their own thermal power plant, DG
sets and also purchase from electricity board.

                   Coal is purchased from various mines of Coal India Ltd.  brought from Jharia pits.
Pet coke is purchased from reliance and Chinese coal is imported from abroad. Nearly 2/3 cost of
total cost of production is manufacturing exp.
   

   OBSERVATION:

           There is a clear increase in the proportion of the manufacturing expense to the total
expenses. In the year 2003-04 it was only 40.89% now it has been reached to 49.17% this is
mainly due to the increase in the cost of power, fuel and other manufacturing expenses.
OBSERVATIONS:
               Stores, spares and other packing Material cost both have increased from the last
year. A power and Fuels expense has increased per unit from Rs. 29387.76 in the year 2003-04
to Rs 32237.04 in year 2005-06. In the year 2002 due to the commencement of new thermal
power plants at Satna and Chanderia units. All these efforts reduced the expenses in the year
2007 to Rs. 30594.66, which is lowest during last two years.

3. Payment to and Provision for employees:

                   Among the 5’m of management – Man, Machine, Material, Money and Method, Man
power is the most important and effective tool to get the better quality product with minimum
resources. It is manpower which co-ordinate with all other available resources and makes
efficient production possible. It’s duty of an organization’s management to not only satisfy
employee’s physiological needs but also fulfill their safety, social, esteem and self-actualization
needs. So excluding salaries and wages the company provides 3% of total product expenses like
Bonus and allowances, contribution to provident, super annotation fund gratuity and employee
welfare expenses for the  employees .
OBSERVATION:
Employee expenses are increasing every year. In 2004-05 it was Rs. 237 per tone but in
2007 it went upto Rs. 238 per tone. Increasing contribution to provident fund, contribution fund
and employee welfare expenses are the main reason for increasing this cost. To face the
competition a major part is also paid to the sales persons as salaries.
              Employee expenses is also increasing in proportion to total expenses, in 2004-05 it was
only 9.61 % but in 2007 it reached up to 11.46 % of the total expenses. This is a matter of
investigation for the top management.
OBSERVATION: 
Salaries, Wages and Bonus which is major part of payment and provision to employee is
never increased in proportion of the sales volume. In the year 2003 though the sales got
increased by 11% but it (cost) got increased only by 12%, in 2007 the sales increased by 25% but
salaries and bonus increased by 2% thus it looks that this expenses is due to the new recruitment
policy and the retirement.

OBSERVATION:
           To maintain the trained man power in the company Birla’s welfare expenses
decreases every year in proportion to total employee expenses, which is good sign to maintain
the employees.

4.  Selling, Administration & Other Expenses:

         This expense is nearly ¼ of the total cost of production. These expenses include freight &
cartage, exp. On advertising, commission to selling agent, material handling expenses, marketing
office expenses, travelling expenses of staff, telephone charges, godown rent, office rent,
provision for doubtful debts, insurance etc
OBSERVATION
            Selling & Administration expenses are increasing every year as % of Total Expenses
due to the cutthroat competition in the industry. In 2005 it was only 20.12% but now it has
reached up to 22.57% of the total expenses in 2007.
         Selling & Administration cost per ton sales has shown a upward trend. In the year 2005 it
was only Rs. 414.91 but it reached to Rs. 468.84 in the year 2007.This is due to the Inefficient
Utilization and low production from the available resources
OBSERVATION:
         Transportation and Forwarding is a major part of the Selling and administration Expenses.
Goods are being transported by the Rail and Road mode. This cost is reducing year by year as%
of Selling & Adm. Expenses due to the Fast movement of goods by Rail, Trucks and Trailors to
their designated places.

OBSERVATION:
             Selling and Administration Expenses is increasing most of the time in proportion to
sales so it is clear that if sales is increasing the selling and administration expenses will also
increase.
              Advertising and Publicity Expenses didn’t have a clear relation with the sales, in the
year 2004-05 though the sales got increased by 15% but the Advertising and Publicity expenses
deepen by 35% and in the very next year i.e. 2005-06 though the sales increases by only 7% but
Advertising and Publicity expenses increases to 49%.Again in 2003-04 it deepen to 3% while the
sales increases to 25%.

5. Interest:

     To fulfill the short term as well as long-term requirement of the Company they take loan.
Companies take long-term loan from financial institution to fund fresh assets, expansion,
debottlenecking, modernization and the up-gradation of equipment. Company borrows short-
term loan to finance working capital requirement. Short-term loan is also available from banks,
staff and other deposited and trade deposited. On behalf of loan taken, company have to pay
interest to all concerned parties or debenture holders, this cost is nearly 3% of the total expenses,
which can vary from company to company. 
OBSERVATION:
                Interest Cost which was around 2% of the Total Expenses in the year 2004 deepen to
1.7% in the year 2006-07, which shows lower dependency on the long term and short term loan
from the Market compare to other industry competitions.
                 Interest Cost Per Ton Production has also deepen from Rs.52.71 in 2003-04 to
Rs.35.25 in the year 2006-07 which is the result of Re-Negotiation on the rates of loan from the
Financial Institutions.
OBSERVATION:    
 It is clear that most of the portion of the Interest goes to the Financial Institutions for the Long-
term loan. In the year 2004-05 it was only 44.83%, which increased up to 56.47% in 2006-07.

 
OBSERVATION:

          Birla’s Sales Volume is increasing from year to year which is a clear indication of the
Company’s growth. As we can clearly see that in the year 2006-07 the Company’s sales has
increased around 25%.

                    We can also make good prediction about the future of the Cement Industry as the govt. is
taking initiative on Infrastructure Building particularly the North-South Corridor popularly known as
“Golden Quadrilateral” and “Pradhan Mantri Gramin Sadak Yogana”. Also the Mass programme of
Housing Sector like “2 million houses per annum” scheme. Such scheme is expected to act as catalyst to
the growth.

FINANCIAL ANALYSIS
        
         
             Ratio are a very useful tool to analyze the companies working by the
data available by it’s balance-sheet and P. & L. a/c, by the ratio we can
compare company’s financial condition with the other industry player, All the
external persons from the company can view company’s financial condition
only by these ratios.
 USE AND SIGNIFICANCE OF RATIO ANALYSIS :

1. Useful in analysis of financial statement:-

Accounting ratio simplifies and systematizes a long array of accounting figures to make
them understandable. The importance of ratio, that is relationship worked out among
various accounting data which are mutually dependent and which influence each other,
arises from the fact that often absolute figures standing alone convey no meaning. They
become significant only when considered along with other figures.

2. Useful in simplifying accounting figures:-

        Accounting ratio simplifies summaries and systematizes a long array of
accounting figures to make them understandable. The importance of ratio, that is
relationship worked out among various accounting data, which are mutually dependent
and which influence each other arise from the fact that often- absolute figures standing
alone convey no meaning. They become significant only when considered along with
each other figures.

3. Useful in judging the operating efficiency of business:-

Accounting ratios are helpful for diagnosis of the financial health of a business concern.
This is done by evaluating liquidity solvency, profitability etc. Such an evaluation
enables management to assess financial requirement and the capabilities of various
business units.

4. Useful for forecasting purpose:-

        Accounting ratios are also like for forecasting purpose supposes sales this year are
Rs.10 lakhs and the stock is 1/5 of sales. If the firm wishes to increase sales next year to
Rs. 12 lakhs, it must be ready to carry a stock of Rs. 240000 i.e. 1200000/5 similarly
other requirement can be worked out. Accounting ratio tabulated for a number of years
indicate the trend of the business. This help in preparation of estimates for the future.

5. Useful in locating the weak spots of the business:-

       Accounting ratio is of a great assistance in locating the weak spots in the business
even through the overall performance may be quite good. For example if the firm find
that the increase distribution expenses is more than proportionate to the result achieved,
these can examined in detail and depth to remove any wastage that may be there.

6. Useful in comparison of performance:-

    A firm would like to compare its performance with that of other firm and of industry
in general. This is called inter firm comparison. If the performance of different units
belonging to the same firms to be compared, it is called intra firm accounting ratio.

 LIMITATION OF RATIO ANALYSIS:-

Though ratios are simple to calculate and easy to understand, they suffer from some
limitations.

1. Limited use of a single ratio:-

A single ratio does not convey much of a server. To make a better interpretation, a
number of ratio have to be calculated which is likely to confuse the analyst rather than
help him in making any meaningful conclusion.

2. Inherent limitation of accounting:-

Like financial statement ratios also suffer from the inherent weakness of the accounting
records such as their historical nature. Ratios of the past are not necessary true indicators
of the future.

3. Change of accounting procedure:-

Frequent change in accounting procedure by a firm often make ratio analysis misleading
i.e. a change in the valuation methods of inventories from FIFO to LIFO increasing the
cost of sales and reduce considerably the value of closing stock turnover ratio to be
lucrative and an unfavorable gross profit ratio.

    4.  Window dressing:-

Financial statement can easily be window dressed to present a better picture of its
financial, one has to be very careful in making decision from ratio calculated from such
financial statement.

       5. Incomparable:-

              Not only industries different in their nature but also the firm of the similar           business
             Widely procedure etc. It makes comparison of ratio difficult and misleading.

 6. Personal bias:-

     Ratios are only means of financial analysis and not an end in itself. Ratios        have
to be interpreted in it self and different. Peopled may interpret the same ratios in
different ways.

  7. Absolute figures destructive:-

     Ratio devoid of absolute figures may prove destructive, as ratio analysis is primarily a
quantitative analysis and not a qualitative analysis.

  8. Ratio no substitutes:- 

Ratio analysis is merely a tool of financial statement hence ratio becomes useless it
separated from the statement from which they are computed.

  THE MAIN RATIOS ARE:-

    
   [A]    LIQUIDITY RATIO:-
           This ratio shows a company’s ability to meet its short-term financial obligation like
current ratio and quick ratio.

[A.1]    CURRENT RATIO:-

      Current ratio is the ratio of total current assets to the current liabilities.

          CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

           Current assets include cash and bank balances, marketable securities, inventory of raw
material; semi-finished (work in progress) and finished good, debtors net of provision for bad
and doubtful debts, bills receivable and prepaid expenses. Current liabilities include trade
creditors, bills payable, banks credit, and provision for taxation payable and outstanding
expenses.

Rationale of current ratio:

                       The current ratio of a firm measures its short-term solvency. As a measure of
short-term financial liquidity, it indicates the rupees of current assets available for each rupee of
current liability. The higher the current ratio the larger the amount of rupees available per rupee
of current liability, the more the ability of the firm to meet the current obligations and the greater
the safety of funds of short-term creditors. Thus current ratio in a way is a measure of margin of
safety to the creditors.
                    The need for the margin of safety arises from the inevitable unevenness in the flow
of funds through the current assets and liabilities account. If the flow were absolutely smooth and
uniform each day so that inflows exactly equaled maturity obligations, the requirement of the
safety margin would be small. But it rarely happens so the size of the current assets should be
sufficiently larger than the current liabilities so that the firm is able to pay it is current maturing
debt a sand when it becomes due. The current liabilities can be settled by only making payments
whereas the current assets available to liquidate them are subject to shrinkage for various reasons
such as debt debt inventories becoming obsolete or unsalable and occurrence of unexpected
losses in marketable securities and so on. The current ratio measures the size of the short-term
liquidity buffer. A satisfactory current ratio would enable a firm to meet its obligations even
when the value current assets decline.

GENERAL INTERPRETATION:

               In case of inter firm comparison, the firm with a higher current ratio has a higher
liquidity and better short-term solvency, but a very high ratio of current assets and current
liabilities may be indicative of slack management practices, as it might signal excessive
inventories for current requirement and poor credit management in term of over extended
accounts receivable. At the same time the firm may not be making full use of its borrowing
capacity.
            Conventionally a current ratio of 2:1 is considered satisfactory. The logic underlying the
conventionally rule is that even with a drop out of 50% in the value of current assets, a firm can
meet it’s obligations, i.e. a 100% margin of safety is assumed to be sufficient to ward off the
worst of situations. But this rule can not be applied mechanically. What is satisfactory ratio will
depend on the development of the capital market and the availability of long-term funds to
portion of the current assets is financed by the current liabilities. This policy of relying to a
limited extent on short-term credit is probably to avoid the difficulty in which the creditors may
put the firm in times of temporary adversity. Under developed and developing countries rely
heavily on short term financing.

                    Another factor, which has a bearing on the current ratio, is the nature of the industry.
Current ratio is only a quantitative index of liquidity. The term quantitative refers to the fact that
it takes into account the total current assets without making any distinction between the types of
current assets to the total current assets. A satisfactory measure of liquidity should consider the
liquidity of the various current assets. Current liabilities are fixed but current assets are subject to
shrinkage, e.g. possibility of bad debt, un-salability of inventory and so on. Some of the current
assets are more liquid as compared to the others; cash is the most liquid of all and inventories the
least liquid of all. Thus the current ratio is not a conclusive index of the real liquidity of the firm.
A more logistic measure is the quick ratio.

OBSERVATION:-
           The current ratio of a firm measures its short-term solvency. As a measure of short term
financial liquidity, it indicates the rupees of current assets available for each rupee of current
liability current ratio shows declining trend that indicates an inadequate margin of safety
between the assets that presumably are or will be available to liquidate claims and obligation to
be paid.
         The highest Current ratio was in the year 2004-05 i.e. 1.28%, due to the striking difference
in inventories pilling up. In this year the inventory component comprises a large part of the
current assets. But it has started to decline. The inventory component varies between 40-42% of
current assets. This law level of inventory in the company is the main reason for decline in
current ratio.

[A.2]   QUICK RATIO:

          Quick ratio is a more refined measure of the firm’s liquidity. This ratio established the
relationship between liquid assets and current liabilities. As assets is liquid, if it can be converted
into cash immediately without a loss of value. Cash is the most liquid assets. The other assets,
which are considered to the relatively liquid, are debtors and marketable securities. Stock and
prepaid expenses are considered to be less liquid. Inventories normally require some time for
converted into cash; the value of cash also has a tendency to fluctuate. It is calculated by dividing
quick assets by current liabilities.
                
                      QUICK RATIO = QUICK ASSETS / CURRENT LIABILITIES
    
    Quick assets include:
1. Cash
             2.    Book debts (Debtors and bills receivable)
        Inventories are excluded because it takes time to sell finished goods and to convert raw
material and work in progress into finished good. There is also an uncertainty as so whether or
not the inventories can be sold. Prepaid expenses should also be excluded because they cannot be
converted into cash.

    
 GENERAL INTERPRETATION:
         Generally a quick ratio of 1:1 is considered adequate to present a satisfactory current
financial condition. If the ratio is lower than the ideal then it implies that a large part of the
current assts of the firm is tied up in slow moving and unsalable inventories and slow paying
debts. The firm would find it difficult to pay its current obligations. To get an idea regarding the
firm’s relative current financial conditions, its current ratio should be compared with industry
averages.

OBSERVATION:-

             Generally a quick ratio of 1:1 is considered adequate to present a satisfactory current

financial condition. If the ratio is lower than the idle then it implies that a large part of the current
assets of the firm is tied up in slow moving and unsalable inventories and slow paying debts.
               Birla cement has a quick ratio 0.82 in the year 2004-05 which is fluctuating year by
year it deepened to 0.68 in the year 2005-06; it clearly indicates that a large of the current assets
is invested in the slow moving items and slow moving debts.
               In 2006-07 the liquidity position of the company has improved and its cash and bank
balances constitute 14.2% of Current Assets, which is highest against other years.
             Therefore the trend shows that the Quick Ratio is fluctuating year after year and it is
very below than the industry standard.

[B.]    Leverage Ratio:-

        This ratio measures the extent to which the company has been financed by short term and
long term debt obligation like debt equity ratio. It is also called capital structure ratio. These
ratios are calculated to judge the long-term financial position of the firm. These ratios reveal the
funds provided by owners and outsiders. These ratios show how much amount the owners
introduce in business. Generally these ratio are beneficial to the long-term creditors debenture
holder, financial institutions etc.

[B.1]    DEBT EQUITY RATIO:-

                 The debt equity ratio is the measure of the relative of the creditors and owners against
the firm’s assets. This ratio is calculated in various ways. One view is to calculate the debt equity
ratio as long-term debt divided by the shareholders equity. Past accumulated losses and deferred
expenditure should be excluded from the ratio is also called debt to net worth ratio.
               Another variation of the debt equity ratio is to divide the total debt by the shareholders
equity.

       DEBT EQUITY RATIO = TOTAL DEBT / SHAREHOLDERS EQUITY

        This ratio takes into consideration both current liabilities and non-current liabilities in the
numerator of the debt equity ratio.

  GENERAL INTERPRETATION:-
        Whatever way the debt equity ratio is calculated it shows the extent to which debt financing
has been used in the business. A high ratio shows that the claims of the creditors are greater than
those of the owners; a very high ratio is unfavorable from the firm point of view. This introduces
inflexibilities in the firm’s operations due to increasing interference and a pressure from
creditors.A highly levered company is able to borrow funds on restrictive terms and conditions.
The loan agreement mar require a firm to maintain a certain level of working capital or a
minimum of current ratio or restrict the payment of dividends or fix limits to the officers and
employee’s salary. Heavy indebtedness resulting in creditors undue pressures clouds independent
business judgment and saps management‘s energies. During the period of low profit, a highly
debt financed companies suffers great strains it cannot earn sufficient profit even to pay interest
charges to its creditors. To meet the working capital needs the firm finds it difficult to get credit,
it may have to borrow on highly unfavorable terms.
              A low debt equity ratio implies a greater claim of owners and creditors from the point of
view of creditors it represent a satisfactory capital structure of business since a high proportion
of equity provides a larger margin for them. During the periods of law profits, the debt servicing
will prove to be less burdensome for a company with low debt equity ratio. However from the
shareholders point of view there is a disadvantage during the periods of good economic activities
if the firm employs a low amount of debt. The higher the debt equity ratio the higher return on
investment than there is a need to strike a proper balance between the use of debt of equity. The
most appropriate debt equity ratio would involve a trade off between risk and return.

OBSERVATION:-
          This ratio shows the extent to which Debt Financing has been used in the business. A high
shows that the claims of the creditors are greater than those of the owners.
        Here we find that the debt-equity ratio of the company is increasing year by year. In 2006-
07 it reached up to 0.42, which is more than the industry standard.
        Which shows Inflexibilities in the firm’ operation due to increasing Inferences and
Pressures from the creditors.

[C] Activity / Efficiency ratio:-

            Investment of the fund of creditors and owners in various kinds of assets is done to
generate sales and profit. The effective management of assets will increase the amount of sales.
Activity ratio is computed to evaluate the efficiency with which the firm manages and utilizes its
assets. These ratios are also called turnover ratios because they indicate the rapidity with which
assets are being converted or turned over into sales.

[C.1]    INVENTORY TURNOVER RATIO:

          The inventory or stock turnover indicates the efficiency of the firm’s inventory
management. It is calculated by dividing the cost of goods sold by the average inventory.

      INVENTORY TURNOVER = COST OF GOODS SOLD / AVERAGE

INVENTORY
     If data regarding the above are available then the ratio can calculate by applying the following
formula.

        INVENTORY TURNOVER = SALES / INVENTORY

        If the firm has a strong seasonal character, it is more desirable to take the average of the
monthly inventory levels.

  GENERAL INTERPRETATION:
                 The inventory turnover shows how rapidly the inventory is turning into receivables
through sales. Generally a high inventory is indicative of goods inventory management, and a
lower inventory suggests an inefficient inventory management. A low inventory turn over
implies excessive inventory levels than warranted by production and sales activities or slow
moving or obsolete inventory.
          A high level of sluggish inventory amounts to unnecessary tie up of funds, impairment of
profits, and increased cost, if the obsolete inventories have to be written off this will adversely
affect the working capital position and liquidity of the firm.
         A high inventory may be the result of a very low level of inventory, which result in
frequent stock outs. The situations of frequent stock outs and too low inventory ratio shold be
further investigated. The computation of inventory for individual components of inventory may
help to detect imbalanced investment in the various inventory components.
 

OBSERVATION:-
           The Inventory Turnover shows how rapidly the inventory is turning into receivables
through sales. Generally a High Inventory Turnover is indicative of Good Inventory management
and a Low inventory suggests an inefficient inventory management. It is maintained by company
throughout four years.

[C.2]  TOTAL ASSETS TURNOVER RATIO:

            Although fixed assets are directly concerned with the generation of sales, but other assets
also contribute to the production and sales activities of the firm. The firm must manage its total
assets efficiently and should generate maximum sales through their proper utilization. The total
assets turnover I calculated as follows:

                     TOTAL ASSETS TURNOVER = SALES / TOTAL ASSETS

   It generates the sales generated per rupee of investment in total assets.

GENERAL INTERPRETATION:
         The total assets turnover ratio is a significant since it shows the firm’s ability of generating
sales from all financial resources committed to the firm. As this ratio increases, there is more
revenue generated per rupee of total investment in assets. The firm’s ability of a large volume of
sales on a small total assets basis an important part of the firm overall performance in term of
profits. Idle or non-performing used assets increase the firm’s need for costly financing and the
expenses maintaining and upkeep. The total assets turnover should be cautiously used. In the
denominator of this ratio assets are net of depreciation. Hence lower assets with a lower book
value create a misleading impression of high turnover. While calculating assets turnover,
fictitious assets like debit balance of profit and loss account and deferred expenditure should be
excluded.

OBSERVATION:
           This ratio shows the firms ability of generating sales from all the financial resources
committed to the firm. As this ratio decreases, there is less revenue generated per rupee of total
investment in assets. Company’s assets turnover ratio is decreasing from 1.8 in the year 2003-04
to 1.23 in the year 2006-2007.

[C.3]  DEBTOR TURNOVER RATIO:

        A firm sells goods on credit and cash basis. When the firm extends credit to its customer,
debtors are created in the firm’s account. Debtors are converted into cash over a short period, and
therefore are included in current assets. The liquidity position of the firm depends on the quality
of debtors to a great extent. Financial analysts employ two ratios to judge the quality of debtors.
One is debtor’s turnover and the other is average collection period.

                     DEBTOR TURNOVER = CREDIT SALES / AVERAGE

DEBTORS
   Sometimes due to non-availability if the following formula can also be used.
                           DEBTORS TURNOVER = TOTAL SALES / DEBORS

    The debtor’s turn over indicate the number of times on the average that debtors’ turnover each
year. Generally the values of debtor’s turnover, the more efficient are the management of assets.

  AVERAGE COLLECTION PERIOD:-

  It brings out the nature of firm’s credit policy and the quality of debtors more clearly.
  It is calculated as follows:

         AVERAGE COLLECTION PERIOD = DAYS IN A YEAR / DEBTORS

TURNOVER
Average collection period represented the average number of days for which the firm must wait
after making sales before collection cash from the customers.

GENERAL INTERPRETATION:
        The average collection period measures the debtors since it indicates the rapidity or
slowness of the collectibles.
          The shorter the average collection period, the better the debtors management as a short
collection period should be compared against the firm’s credit terms and policy to judge its credit
collection efficiency. An excessively long collection period implies a too liberal and inefficient
credit and collection performance.
             This certainly delays the collection of cash and impairs the firm’s debt paying ability.
The chance of necessarily favorable rather it indicates a very restrictive credit and collection
policy. Such a policy succeeds in avoiding the bad debts losses, but so severely curtails the sales
that overall profits are quite low. The collection period thus provides the analyst with two
significant measurements of debtors. He can initially test a company’s collection to determine
the collectability of debtors and measure credit and collection efficiency. Then he can gauge the
companies’ ratio against the industry average to ascertain it’s competitive and weakness relative
to credit and overall financial accomplished.
  

OBSERVATION:
 This ratio indicates the speed with which debtors are converted into cash. It indicates the
Efficiency of the Trade Credit Management.
         The chart indicates that the debtor’s management in our organization is very effective. In
the 2003-04 it was only 12 days as compared to other industry competitors and Industry Standard
it was very low. it has shown slightly increasing in the year 2004-05 than after it has shown a
decreasing trend. In the year 2006-07 it was only 6 days that shows the Stringent Credit policies,
Tight Credit Standard and policies followed by the company that resulted in the Minimum Cost
and Chances of Bad Debt but then they restrict their sales and profit margin.
              The reason of this lowest debtor’s period is the cash discount of Rs. 4 per bag for
payment made in one day and general inducements to them at the end of the year.   

[D]   PROFITABILITY RATIO:-

 The main objective of a company is to earn profits because profits are necessary to survive and
grow over a long period of time. Profit is the ultimate output of a company, and it will have no
future if it fails to make sufficient profit. The term profitability may be defined as ability of a
given investment to earn a return from its use. The profitability ratio measures how efficiently a
company management has generated profit on sales and investment.

[D.1] NET PROFIT TO SALES:-

         This ratio is a symbol of profitability and efficiency of the business. Higher the ratio the
more favorable for the business as it denotes sounds management and efficiency. Lower ratio
reveals decline in profits and mismanagement.

OBSERVATION:-
This ratio shows the overall efficiency of the business. Higher the ratio betters the business. As
increase in ratio over the previous period shows improvement in the efficiency.
          Profit before tax is a better indicator then profit after tax since tax liability on profit is
beyond the control of the enterprise. As the chart reveals that net profit of the enterprise is
showing increasing trend, it was 3.51% in 2004 which increases up to 18.18% in 2007 which
shows great efficiency utilization in the company and indicates firm’s capacity to face adverse
economic conditions such as price, competition, demand etc.

[D.2] OPERATING RATIO:-

       This ratio is computed by dividing the operating cost by the net sales
       Operating ratio = Operating Cost / Sales * 100

GENERAL INTERPRETATION:
           A high ratio is unfavorable since it will leave a small amount of operating income to meet
interest, dividend etc.
OBSERVATION:-
       As a working proposition a low ratio is favorable while a high one is unfavorable. The
implication of a high ratio is that only a relatively small percentage share of sales is available for
meeting financial liabilities like interest, tax and dividend.
       Operating ratio, which was 28.56 in 2003-04, now deepens to 23.1 in the year 2006-07. As
we know that low ratio is favorable, the following are the reason for decrease in operating ratio.
A.  Efficiency of the marketing department leading to controlled expenses.
B.  Effective advertisement.
C.  Effective utilization of resources.
D.  Decrease in selling expenses.
E.  Reduction in Power consumption.

CONCLUSION

By the Comparative study of the company’s financial statement of the last consecutive four years
and compare them with industry standard I conclude the following points:

 Company’s liquidity position is sound to face the short-term demand, both Current and
Quick ratios are below from the industry standard.
  More than one-fourth of the current assets are blocked in the inventory, which clearly
shows the sufficient management of the inventory.

 Long-term loan is taken from the financial institutions like ICICI and IDBI the rate of
Interest being 14-15%, which looks higher than the market availability. Interest Cost
which was around 2% of the Total Expenses in the year 2003-04 deepen to 1.7 % in the
year 2006-07, which is the result of Re-Negotiation on the rates of loan from the
Financial Institutions, payment to loans and no fresh borrowing,

 The Cost of Gypsum and Fly-Ash is very high as compare to Industry standard and the
other Industry players. Raw Material Cost is increasing every year to the Cost of
Production.

 Selling and Administration expense now effecting very much to the cost of Production
and Expenses is increasing most of the time in proportion to the sales so it is clear that if
sales is increasing Selling and Administration Expenses will also increase of the
Company. Advertising and Publicity Expenses didn’t have a clear relation with the sales.

 Debtor’s collection period and Assets Turnover ratio both are sufficient as compare to the
Industry Standards.

 Company purchases power from the AVVNL and produce its own but the cost of
purchase is very much higher than the Power Produced.
                                               

SUGGESTIONS
After making a deep research of the company’s financial and cost statement of the last five year I
want to put the following points as the suggestions to the company:
 Company should use computerized mining software for production of limestone to
improve the quality, rising yield in process and reduce its cost. To reduce the raw
material cost there should be enough change in raw material mix design of the product.

 Assuming that employees better know the cost rising factors and to cut that cost company
should introduce a suggestion scheme for the employees, best suggestion should
appreciated among the employees with monetary rewards.

 Proper training and development programs, equal work environment and amenities for
employee of all the departments & replacement of old senior employees with young
professional executives will surely increase employee efficiency, increase sales and
reduce employee cost per ton of production.

 Company should change its advertising policy and sales promotion schemes. Shine-board
& wall painting advertising should be replaced by electronic & print media advertising.
Advertising in national dailies like Times Of India, Punjab Kesri, The Hindu, Weekly
magazine like India Today & news channels like Aaj Tak & Star News can be shown to
target an Indian Cement Consumer.

 To reduce the interest cost and reduce the interest coverage Ratio Company should take
debt from the market instead of using creditor’s fund. A wide re-negotiation from the
financial institutions should be taken on the matter of the interest rates of the long term
funds. Company should replace its working capital by long-term loans.

 To attract more customers and increase in the sales company has an option to liberalize
its credit policy, this will increase the average collection period which is still half of the
industry standards and reduce the selling and distribution expense per ton.

 To reduce the cost of cement, to face the competition and to cope-up with the customers
changing Demand Company should establish a research and development department.

 To improve company’s liquidity position it should invest more in current assets so that
it’s current and quick ratio can reach up to industry standards.

 A proper attention on company’s inventory is essential to reduce the inventory ratio of

the company.
                                       LIMITATIONS 

 Cost analysis is a very important tool to reduce the cost. Cost of any product
depends on various internal and external factors and easy availability of the
resources, which may be different between different companies; one factor may too
cheaper than other companies and another factor may be very costly for the
company due to availability of resources.

 For the cost analysis a deep detail about every item is needed but due to confidential
data, only public documents, Balance sheets and P. & L. a/c had provided to us,
which were inefficient for financial Analysis and the Cost.

 The total sales and total purchases have been assumed as credit sales and purchase.

 Inherent limitations of Ratio analysis also constitute the limitations of the analysis.

 Ratio predicts only the quantitative aspects of the firm not the qualitative aspects. 

                                                          

                                                   

                                             

  BIBLIOGRAPHY
 
Annual reports of Birla Corporation Limited, Shree Cement Limited,
Financial Statement of Birla Cement Works, Chanderia Cement Works.
Financial Management – I.M. Pandey
Financial Management – M.Y. Khan & P.K. Jain
Management Accounting – M.R. Agarwal
www.birlacement.com