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A STUDY ON FINANCIAL STATEMENT ANALYSIS IN MADRAS CEMENTS LIMITED, CHENNAI.

PROJECT REPORT

Submitted by

C.SIVAKUMAR Register No: 098001802044

In partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION in


DEPARTMENT OF MANAGEMENT STUDIES MAHA COLLEGE OF ENGINEERING MINNAMPALLI, SALEM 636 106.

MAY- 2011

MAHA COLLEGE OF ENGINEERING


SALEM Department of Management Studies PROJECT WORK MAY-2011 This is to certify that the project entitled A STUDY ON FINANCIAL STATEMENT ANALYSIS IN MADRAS CEMENTS LIMITED, CHENNAI is the bonafide record of project work done by

C.SIVAKUMAR Register No: 098001802044


of Master of Business Administration during the year 2010-2011.

-----------------------Project Guide

-------------------------------Head of the Department

Submitted for the Project Viva-Voce examination held on ----------------

------------------------Internal Examiner

-----------------------External Examiner

DECLARATION

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DECLARATION

I affirm that the report work title A STUDY ON FINANCIAL STATEMENT ANALYSIS IN MADRAS CEMENTS LIMITED, CHENNAI of being submitted in partial fulfillment for the award of MBA is the original work carried out by me. It has not formed the part of any other training report submitted for award of any degree or diploma, either in this or any other university.

(Signature of the Candidate)

C.SIVAKUMAR 098001802044

I certify that the declaration made above by the candidate is true

J. ARUL, LECTURER

CERTIFICATE

ACKNOWLEDGEMENT

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ACKNOWLEDGEMENT
I take this Golden opportunity to show my gratitude to the Management, MAHA COLLEGE OF ENGINEERING, Salem for providing me needed facilities to do my Project work.

I wish to place on record my gratitude to Dr.R.Asokan,M.Tech.,Ph.d.,F.I.E.,F.T.A Principal, Maha college of engineering Salem for his Valuable suggestion and encouragement.

I take the opportunity to Acknowledge Dr.V.M.Sriramachandran, M.A(Eng)., M.A(Pub-Admin).,MBA(HRD).,L.L.B(Law).,Ph.D (Eng & Mgt Science), Director, Department of Management Studies of Maha college of Engineering, Salem.

I am deeply grateful to Mr. J.Arul M.B.A., M.Phil., M.com., DMM., PGDCA., Lecturer Department of Management Studies, Maha college of Engineering for guiding me through this endeavor and for all support and help given to me in preparation of this work.

I extend my sincere thanks to Mr.S.Vaithiyanathan SGM Accounts & Audit madras cements limited Chennai. For giving the opportunity to do the Training Work for accomplishing my MBA Degree.

(C. SIVAKUMAR)

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CONTENT
CHAPTER NO

PARTICULARS Abstract List of Tables List of Charts

PAGE NO v vi vii

1.1 1.2 1.3 1.4 1.5


II

INTRODUCTION Introduction of the Study Introduction of the Company Objective of the Study Limitations of the Study Scope of the Study

1 7 15 16 17

MAIN THEME OF THE PROJECT WORK 2.1 2.2 2.3 2.4 2.5 Review of Literature Research Methodology Period of the Study Area of the Study Data analysis & interpretation CONCLUSION 3.1 3.2 3.3 Findings Suggestion Conclusion SCOPE FOR THE FUTURE WORK Reference 67 68 69 70 18 19 21 21 22

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ABSTRACT

ABSTRACT

The title of the project in A STUDY ON FINANCIAL STATEMENT ANALYSIS IN MADRAS CEMENTS LIMITED, CHENNAI. The India cement limited industries a cement company attempts to evaluate the financial healthiness of the company in order to reshape the critical financial factors of the company in order to prepare the company for the market challenges. The aim of the study was To Improve the financial management of the madras cement Ltd-Chennai. The aim was achieved through meeting out the listed objectives such as To identify the critical parameters to measure the financial soundness of the company, To find the Revenue position of the company, To analyze the liquidity position of the company, To measure the risk level of the Madras Cements Ltd To find financial leverage of the India cement industries. The objectives of the study were achieved through analysis of various ratios that would reflect the healthiness of each parameter considered for the study. The research methodology adapted for the study was to analyses the annual factors of the company was calculated and inferences were drawn. The scope was 2005-2010 and the annual reports were analyses. The financial statement analysis of the company was calculated using parameters such as Revenue Position, Liquidity Position of the company. Data analysis methods used were Ratio analysis. The analysis reveals that the overall financial

performance of the company is satisfactory. But the company has more current liabilities then the current assets leads to less liquidity position of the firm. So to conclude we can state that the company is marching towards a good position.

LIST OF TABLES

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LIST OF TABLES

S.No
1 2 3 4 5 6 7 8 9 10 11 12 13

TABLE TITLE
Table Shows The Comparative Balance Sheet analysis Table Shows The common size Balance Sheet as analysis Table Shows The trend Balance Sheet analysis Table shows the current ratio Table shows the liquid ratio Table shows the Proprietary ratio Table shows the net working capital ratio Table shows the net profit ratio Table shows the capital turnover ratio Table shows the cash position ratio Table Shows The statement of gross working capital analysis Table Shows The statement of net working capital analysis Table Shows The schedule of changes in working capital analysis

PAGE No
26 29 32 37 40 43 46 49 52 55 60 62 65

LIST OF CHARTS

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LIST OF CHARTS

S.No 1 2 3 4 5 6 7

CHART TITLE Chart shows the current ratio Chart shows the liquid ratio Chart shows the Proprietary ratio Chart shows the net working capital ratio Chart shows the net profit ratio Chart shows the capital turnover ratio Chart shows the cash position ratio

PAGE No 38 41 44 47 50 53 56

CHAPTER I INTRODUCTION

CHAPTER I 1.1 INTRODUCTION TO THE STUDY FINANCIAL STATEMENT ANALYSIS

Financial Statements are prepared primarily for decision making. They play a dominant role in setting the framework of managerial decision. That term financial analysis, also known as analysis and interpretation of financial statements refer to the process of determining financial strength and weakness of the form by establishing strategic relation between the items of the balance sheet. Profit and Loss Account and other operative data. Analyzing Financial

Statement according to Metcalf and Tigard, is a process of evaluation the relationship between component parks of the financial statement to obtain a better understanding of a firms position and performance.

The purpose of financial analysis is to diagnoses the information contained in financial statement so as to judge the profitability and financial soundness of the firms. Financial statements as used in corporate business houses refers to a set of reports and schedules which an accountant prepares at the end of a period of time for business enterprise. Financial statement consists of balance sheet or position statement, profit and loss account and fund flow statements. The financial statements are prepared under the historical cost convention in accordance with applicable accounting standards.

Finance concern itself with the actual flow of money, as well as any claims against money. With the help of financial analysis techniques we can find how much finance is needed at what time and for what time period finance is needed. Financial analysis is a scientific evaluation of the profitability and financial strength of any business concern. Financial statement analysis is the process of the scientifically making a proper, critical and comparative evaluation of the profitability and financial health of a given concern through the application of the techniques of the financial statement analysis. Financial statement analysis is a preliminary step towards the financial evaluation of the result drawn by the analyst or management accountant.

2 Management makes analysis of such result thereafter. Evidently financial analysis is the end of a continuous accounting cycle, which starts with the classification, recording, summarizing, presentation and analysis of data and ends with the interpretation of result obtained from critical analysis thereof. Much can be learn about business performance and financial position through the analysis of financial statements.

The result obtained from critical analysis of financial statement. The analysis of financial statement spot lights the significant facts and realization concerning managerial performance, corporate efficiency, financial strength, weakness and credit worthiness. The technique of financial analysis is frequently applied to the study of counting data with a view to determining continuity or discontinuity of the operating policies, investment values of the business, credit rating and testing the efficiency of operations.

FINANCIAL MANAGEMENT

Financial Management is concerned with the acquisition, financing and management of assets with same over all goals in mind. Financial management is the managerial activity which is concerned with planning and controlling of the firms financial resources. Though it was a branch of economics till 1890, as a separate activity or discipline it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concepts even today.

ADVANTAGES OF FINANCIAL MANAGEMENT

Anticipating Financial needs Acquiring Financial resources Allocating funds in business Administrating the allocation of funds Analyzing the performance of the finance Accounting and Reporting to management.

IMPORTANCE OF FINANCIAL MANAGEMENT

Financial management is applicable to every type of organization, irrespective of its size, kind or nature. Thus it is important and useful for all type of ownership organization where there is a use of finance, financial management is helpful. Every management aims to utilize its funds in a best possible & profitable way. So this subject is acquiring a universal applicability. It is indispensable in any organization as it helps in:

Financial planning and successful promotion of an enterprise. Acquisition of funds and when required at the minimum possible cost. Proper use and allocation of funds. Taking sound financial decisions. Improving the profitability through financial controls. Increasing the wealth of the investors and the nation and Promoting and mobilizing individual and corporate savings.

FINANCIAL ANALYSIS

Financial is regarded as the lifeblood of business enterprises. This is because of modern economy. Finance is one of the basic fundamentals of all kinds of economic activities. It is the master key, which provides access to all the sources for being employed in manufacturing and merchandising activities. Financial management is essential in both profit and non-profit organization. Financial analysis is an in-depth study of a firms financial position (i.e., Capital, assets and liabilities of a firm at a point of times and its financial performance (i.e., income, profitability, solvency, earnings per share, dividend payout etc) over a period of time. The main aim of financial analysis is better in understanding a firms position and performance. In other words, it is intended to have an assessment of a financial health of firm.

FINANCIAL STATEMENT ANALYSIS

Financial statement serves as horoscopes of a business as they enable reader to measure financial position of a concern. Such statements contain sufficient valuable information about various aspects of business that can be useful for business decisions.

DEFINITION
The American institute of Certified public Accounts defines that Financial Statements are prepared for the purpose of presenting a periodical review or report by the management and deals with the status of the investment in the business and the result achieved during the period under review.

A financial statement is an organization collection of data according to logical and consistent accounting procedure. Its purpose is to convey the understanding of some of the financial aspects of a business firm. There are,

1. Income Statement (or) Trading and profit and loss account, which is prepared by a concern in order to know the profit earned and loss sustained during a specified period. The income statement may be prepared in the form of a manufacturing account to find out the cost of production, in the form of trading account to determine gross profit or gross loss, in the form of a profit and loss account .It may also be prepared to show the distribution of profit. 2. Position statement (or) Balance sheet that is prepared b a business concern on particular data in order to know its financial position. The balance sheet is one of the important financial statements depicting the financial strength of the concern. It shows on the one hand the properties that it utilizes and on the other hand the source of those properties. The balance sheet show all the assets owned by the concern and all the liabilities and claims it owe to owners and outsiders. 3. Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statement so that the strength and weakness of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items / variables.

5 This relationship can be expressed as: percentages fraction proportion of numbers

NATURE OF FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the collective name of the tools and techniques that rein tended to provide relevant information to decision markers. The financial statement analysis consists of comparison for the some company over periods of time and comparisons of different companies. The financial statements are prepared on the basis of recorded facts. The recorded facts are those which can be expressed in monetary terms. The financial statements analysis is prepared for a particular period, generally one-year. The transactions are recorded in a chronological order, as and when the events happen. It is prepared periodically, generally for the accounting period.

The financial statements are composed of data, which is the result of combination of Recorded facts concerning the business transactions. Conventional adopted to facilitate the accounting technique. Postulates, or assumptions made to and Personal judgments used in the application of the convention and postulates.

PURPOSE OF FINANCIAL STATEMENT ANALYSIS

The purpose of financial statement analysis is to assess a companys financial health and performance. Financial statement analysis enables investors and creditors to evaluate part performance and financial position and to predict future performance.

STEPS INVOLED IN FINANCIAL STATEMENT ANALYSIS

The process of financial statement analysis consists of the following six steps: Determine of scope and objective of analysis. Study of financial statements. Collection of relevant information. Rearrangement of the data. Analysis of data by analytical technique Interpretation, presentation and preparation of report.

1.2 INTRODUCTION TO THE COMPANY


In 1950's, investment in Cement Industry was not attractive due to price controls and the massive investments required. Only those entrepreneurs who were not profit minded but cared for country's development came forward in investing in Cement Industry.

When Shri. Manubai Shah, Central Minister for Industries in late fifties came to Madras to meet the Industrialists; he called upon Shri P A C Ramasamy Raja and requested him to start a cement factory in TN. This was readily accepted by Shri PACR and this marked the birth of "Madras Cements Ltd" in 1961. Concern for Investors On the night of September 3, 1962, while the whole city slept, PACR lay on his bed in the Madras General Hospital, seriously ill. As all his near and dear watched with tears in their eyes, PACR summoned his son Ramasubrahmaneya Rajha, to his bedside. "There is no more hope", he whispered: "You should take care of everything from now". My main concern is for Madras Cements. I have taken a lot of money as shares from well wishers I have not paid them back any dividends as yet. This has to be taken care of immediately ...." Those were his last words. PACR's Dream Come True PACR's last wish was dutifully fulfilled by the prsent chairman

Shri.P.R.Ramasubrahmaneya Rajah. Today Madras Cements Ltd is not only one of the most respected cement companies in the country but also leads in giving the best return for the investors. With a cement capacity of 10.49 million tons per annum, the company is the sixth largest producer of cement in India. It is also one of the largest wind energy producer in the country with a capacity of 185.59 MW.

8 Birth of Cement Plants The first plant of MCL at Ramasamy Raja Nagar, near Virudhunagar in Tamil Nadu commenced its production in 1962 with a capacity of 200 tones, using wet process. In 70's, the plant switched over to more efficient dry process. A second kiln was also added to bring the total capacity to 12 lakh ton per annum. The second venture of MCL is its Jayanthipuram plant near Vijayawada in A.P set up in 1987. The 16 lakh ton per annum plant employs the latest state of art technology .The third venture of MCL is at Alathiyur in TN set up in 1997 and expanded by addition of another line in 2001. The 30 lac ton per annum plant is the most modern plant in the country. Other Ventures In 2000, MCL acquired Gokul Cements situated in Mathod in Karnataka whose capacity is 600 TPD. Being a eco-friendly company, MCL set up the Ramco Winfarm in 1993 at Muppandal TN. This was followed by wind farms in Poolavadi near Coimbatore in 1995 and Oothumalai in 2005. The combined capacity of these two put together is about 45 MW. In the year 1999, MCL commissioned the most sophisticated Ready Mix Concrete Plant in Medavakkam in South Chennai. In 2002, a state-of-art Dry Mortar plant was commissioned near Sriperumpudur, Tamilnadu which manufactures dry mortar; cement based putty and tile fix compound. Madras Cements, a company that belongs to the Ramco Group is one of the prominent names in cement industry in South India. Established in 1987, at Vijayawada in Andhra Pradesh it is a fully computerized cement producing company through the five units located in various parts of South India. It is the fifth largest cement producing company in India having the capacity to manufacture 10 million tons per annum. The company continuously strives to improve its efficiency through the use of technology, quality, renewal and customer centric operations. The company uses the most advanced technology to manufacture cement of the highest quality for its clients spread across various parts of India and the world.

9 Madras Cements ranks among the leading manufacturers of cement in India and is one of the few companies which manufacture cement at a very economical rate. The company has its own captive power plant that runs on gas and a 20 mega watt power generator. It looks to update the organization practices on a regular basis to uphold the culture of professional management in the company. The major exporters of Madras Cements are Iran and Sri Lanka.

Madras Cements Factories


Madras Cements Limited or MCL began its operations in 1962 with 200 TPD. The first 1200 TPD dry plant was commissioned by the company in 1976. The five plants of the company that operates with a total capacity of 8 MTPA are: Mathod, Karnataka (0.2 MTPA) Ariyalur, Tamil Nadu (2.0 MTPA) Alathiyur, Tamil Nadu (3.0 MTPA) R R Nagar, Tamil Nadu (1.2 MTPA) Jayanthipuram, Andhra Pradesh (3.6 MTPA) The company's plant at Jayanthipuram began operations in 1988 with a capacity of 2500 TPD; it was upgraded to a capacity of 3200 TPD in 1992. This plant is equipped with a modern computer based quality control system.

Madras Cements Technology

Madras Cements Limited makes use of the latest technology and equipment for all the production purposes. The company has been a trend setter of sorts in adopting state-of-the-art methods for the manufacture of cement, ready mix concrete and dry mortar products.

10 Some of the technologies used by MCL are listed below: Pre-calciner technology Surface Mining Technology Vertical Mills for Cement Grinding Advanced X-Ray technology for Quality Control Latest and highly effective ESPs and Bag filters Most Modern Programmable Logic Controllers (PLC) The FUZZY Logic Software System for process Controls The Ramco Research and Development Centre was started in 2002 with an aim to conduct research in the fields of cement technology and modern construction practices. Situated near Chennai, the centre is equipped with a state-of-the-art laboratory and other associated services. Experienced scientists and technicians conduct research to improve the quality of cement and give better results to customers.

Madras Cements Awards

Madras Cements has won several awards and recognitions over the years. Some of them are The 4 Leaves Award given by Centre for Science and Environment, the Best Energy Efficient Unit from National Council for Cement and Building Materials, Corporate Performance Award by Economic Times, National Award for Energy Conservation from Confederation of Indian Industries, the Best Improvement in Energy Performance from International Congress on Chemistry of Cement and The Analyst Award given by The Institute of Chartered Financial Analysts of India.

Madras Cements Products


Madras Cements is mainly involved in the manufacture of Portland cement. Other than this, the company also produces dry mortar products and ready mix concrete. Madras Cements uses the modern dry process technology for all its expansion projects while the dust extraction and suppression system is used to control the fugitive emissions.

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MISSION:

To continuously improve productivity through quality, technology renewal and customer focused operations. To position ourselves in the cement business as a pace setter and grow in the same and related business. To seek green field locations for growth on the basis of developed synergies of the existing operations. To continuously seek quality enhancement in product, processes and responses to various stakeholders. To update management practices on a continuous basis and maintain a culture of professional management. To conserve, protect and enhance quality of life for our employees and community. To preserve the credence in our motto "our real resources are the human assets".

Core Values & Beliefs


Customers continued satisfaction and the sensitivity to their needs is our source of strength and security. If there is no customer, there is no business We do not look at productivity as a game in numbers. We try to learn from others, be committed to quality and always stay ahead in terms of technology We have strong faith in the innate creative abilities and infinite potential of human resources. We are committed to investing in people development and growth, since this is the foundation for strong and qualitative growth of the organization.

Freedom to professional managers, open channels of communication, transparency in whatever we do, participative management, involvement of the workers in their leisure time in community and social work are evidences of our faith in human resources.

12 INDUSTRY STRUCTURE

Fast rising government expenditure on infrastructure sector in India has resulted a higher demand of cement in the country. In the same direction, a participation larger company in the sector has increased. For rising efficiency in the sector the planning commission of India in the 10th plan has formed a working group on cement industry. There is a total number of 125 large cement plants and more than 300 small cement plants operating in India presently.

Growth of cement Industries:

India is the world's second largest producer of cement after China, with cement companies adding nearly eight million tones (MT) capacity in April 2009, taking the total installed capacity to 219 MT and dispatch of 16.65 million tons during April 2009. A few of the leading manufacturers are the UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc. The cement industry may add 40-45 MT of capacity this fiscal, a 21 per cent increase over the installed capacity at 212 MT in 2008-09.

With the boost given by the government to various infrastructure projects, road networks and housing facilities, growth in the cement consumption is anticipated in the coming years. Another 50 MT capacity is likely to be added this year, according to industry sources.

With almost total capacity utilization levels in the industry, cement dispatches have maintained a 10 per cent growth rate. Total dispatches grew to 170 MT during 200708 as against 155 MT in 200607.

Moreover, cement dispatches were 18.12 MT in March 2009, showing a growth of 10.35 per cent as compared to 16.42 MT in March 2008. During March 2009, cement production was 18.10 MT, registering a growth of 10.43 per cent as compared to 16.39 MT in March 2008. Despite concerns of slowdown, led by a change in economic scenario along with excess supply pressure, the cement industry has ended FY 2008-09 on a strong note.

13 Technological change:

Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level.

Industry Scenario:
The cement industry in India has been enjoying its best period with a healthy growth in demand in the past two years. The industry has been operating at its near full capacity during this period. The cement prices have been steady throughout the year with this firm demand position. The all India clinker production picked up further by 6.5% to 129.70 million tonnes as compared to 121.75 million tonnes during the previous year. The overall production of cement in the country for the year ended March 2008 was up at 168.31 million tonnes as against 155.66 million tonnes in the previous year registering a growth of 8.1%. The domestic consumption of cement grew further by 9.8% over and above the double digit growth recorded in the previous two financial years and was at 164.02 million tonnes as compared to 149.40 million tonnes in the previous financial year. The cement industry currently enjoys a good time with remunerative prices driven by a buoyant demand in the short term. The indicators and drivers of the economy are also showing the right directions with a positive 7-8% growth in GDP with firm outlook on housing, infrastructure projects and irrigation projects which augur well for the industry. Though fresh capacity / expansions have been announced and are being set up, the delays in commissioning are inevitable as earlier mentioned, caused by pressure on machinery suppliers and nonavailability of suitable contractors. In the meanwhile, whatever capacity addition that may take place, would be needed to meet the enhanced demand and hence the industry expects that this period of stable and remunerative prices would continue in the near term. The company is also not lagging behind and has taken all steps to participate in the future growth and prosperity of the industry.

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Cement Industry in India


According to the report submitted and as the facts and the data suffice that India ranks second in cement production with an installed capacity of about 236 mt as found in the year 2009-2010. However the production rate increased in the 2011 and the rate of production was 14.52 mt. in comparison with the last fiscal year this year, 2010-2011 the total cement production reached 136.51 mt. cement send out were also high according to the other corresponding years. "The Indian Cement Industry Forecast" report says that the Indian cement industries have seen a boost in the last few years in production rate. The recession couldn't make its effect on the cement industry. More over the investors have shown interest in this industry and the year has seen certain huge flow of investments that worked as an impetus behind the development. Moreover the infrastructure has become strong even. To keep up the recent pace with the growing demand and the supply chain the industries are implementing efficient modes and cleaner technologies in the manufacturing floors with an eye of justice done towards the socioeconomic and environmental ecology.

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1.3 OBJECTIVES OF THE STUDY

To analyze the financial position of the concern with the help of financial statement analysis. To study the overall financial performance of the concern. To find out the liquidity position of the concern with the help of ratios. To assess the solvency position of the concern. To analyze the profitability position of the company. To analyze the effectiveness of the management of components of the working capital in the concern. Offering suggestion for the effective management of working capital.

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1.4 LIMITATIONS OF THE STUDY

Financial statements are only interim reports. They are not final because the exact financial position can be known only when the business is sold or liquidated. Many items in the financial statements are based on the personal judgment of the accountant. This factor affects the validity of financial statements. Financial statements do not give all the information regarding the financial position of the firm. They provide only a summarized view of the financial position & operation of the firm. Financial statements ignore the changes in price level. Hence, their use is limited during inflationary periods. The study period is limited only for five financial years. The data used for study is said to be secondary data, which is historical in nature. The study does not consider the cost of capital, capital budgeting and dividend position of the concern. The figures are purely depended on the Annual Reports of the concern. Any window dressing may affect the analysis of financial statements. The researcher cannot compile the current financial year due to the reason that company under study was having its accounts under consideration by Auditors.

17 1.5 SCOPE OF THE STUDY

Cement industry is concerned the management of current assets is very essential because of the variation of demand and the duration of the manufacturing process and also other trade practices like credit policy. So working capital management and maintenance and of various financial ratios plays an important in maintaining a better profitability.

The main aim of financial statement analysis is the better understanding of firms position and performance. The financial analysis refers to the process of determining financial strength and weakness of the firm by establishing strategic relationship the terms of the balance sheet and profit and loss amount.

The financial statements provide the basic data for financial performance of ratio analysis. This study helps the management to know about the real reasons of profit or loss and the suggestions given will be of useful for the management for the future growth of the organization.

CHAPTER II MAIN THEME OF THE PROJECT WORK

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CHAPTER II MAIN THEME OF THE PROJECT WORK 2.1 REVIEW OF LITERATURE


It is essential for a researcher to do a review on the literature related to his present study to have a deep knowledge on the subject. It is only through this literature that the researcher takes the initial step of fixing the problem of study. Through review of literature will expose the researcher to previous research conducted and their area of study etc. A review of previous studies will help the researcher about the limitations of the study and thereby the researcher could take proper measure to overcome them. The present chapter gives the reader, a broader outlook on the background and situation under which the study has been undertaken. Following are the earlier studies, which have been conducted by various researchers in the area of banking. A review of these studies enabled the researcher to formulate the research problem. Dr .bhogappa and kulkarni .G.S (1990) ^3 have identified that the two factors, strengthen owned capital base and deposits are essential management of working capital. They also pointed out that the bank should strive to improve credit deposit ratio not by decreasing the advances but by increasing deposits. Bhatt B. V (1989) ^6 analyzed the inter relationship of credit and deposit analysis. The results revealed that the effective credit deposit ration positively depends upon deposits, net outstanding and apex bank loan. Edward I Altman (1968) ^14 examined the development of traditional ratio analysis is a technique for investigating corporate performance. His topic was financial ratios, discriminate analysis and the prediction of corporate bankruptcy.

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2.2 RESEARCH METHODOLOGY


The aim to provide input for the madras Cements Limited, through analyzing the critical changes and trends in financial performance during the period considered for the study.

Research design
The systematic and scientific framework for analysis of financial statements is regarded as the research design. The research design is made according to the objectives of the report and may be exploratory, descriptive and experimental. In this report research designing have been adopted so as to satisfy the objective and to reveal facts. This project had been undertaken to study the financial performance of MADRAS CEMENTS LIMITED, CHENNAI.

Methods of data collection

Secondary data
The secondary data are those data that are already collected and published. The financial statements published & other publications relevant to the analysis are used as a basis for the secondary data. Data necessary for the study are acquired by collecting second hand information i.e. secondary data. In this present context the secondary data necessary for the analysis are acquired through 5 consecutive years.

TOOLS AND TECHNIQUES


The following tools & techniques of financial analysis are used as measures of judging the degree of efficiency of the financial performance analysis and working capital management of the sample unit.

20 1. FINANCIAL STATEMENT ANALYSIS

Statement of Comparative Balance sheet analysis Statement of Common size Balance sheet analysis Statement of Trend Balance sheet analysis

1. RATIO ANALYSIS 2. WORKING CAPITAL STATEMENT ANALYSIS


Statement of Gross working capital Statement of Net working capital Statement showing Schedule of changes in working capital.

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2.3 PERIOD OF THE STUDY

The study was conduct from the month of March 2011 and May 2011.

2.4 AREA OF THE STUDY

A financial statement analysis of Madras Cements Limited Chennai.

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2.5 DATA ANALYSIS AND INTERPRETATION


Financial analysis depends to a very large extent on the use of ratios though there are other equally important tools of such analysis. The analysis and interpretation of financial or annual reports represent the last step of accounting. Interpretation requires analysis and analysis requires interpretation to be meaningful and useful. Further, interpretation requires comparison of the analysis data of a current year with that of thump rule values, a specific industry average values or the previous years value.

OBJECTIVES OF DATA ANALYSIS AND INTERPRETATION


To interpret the profitability and efficiency of various business activities with the help of profit and loss account. To measure managerial efficiency of the firm. To measure short-term and long-term solvency of the business To ascertain earning capacity in future period To determine future potential of the concern. To measure utilization of various assets during the period

TYPES OF ANALYSIS
The process of financial statement analysis is of different types. The process of analysis is classified on the basis of information used and modus operandi of analysis. The classification in as under:

Financial statements analysis

On the basis of information used External analysis Internal analysis

On the basis of modus operandi of analysis Horizontal analysis Vertical analysis

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EXTERNAL ANALYSIS
External analysis is based on published financial statements of a firm. Outsiders have limited access to internal records of the concern. Therefore, they depend on published financial statements. Thus, the analysis done by outsiders namely creditors, suppliers, investors and government agencies is known as external analysis. This analysis serves a very limited purpose.

INTERNAL ANALYSIS

Internal analysis is done on the basis of internal and unpublished records. It is done by executives or other authorized officials. It is very much useful and significant to employees and management.

HORIZONTAL ANALYSIS

Horizontal analysis is also known as dynamic or trend analysis. The analysis is done by analyzing the statements of a number of years. According to John. N. Myer The horizontal analysis consists of a study of the behavior of each of the entities in the statement. Thus, under horizontal analysis use study the behavior of each item shown in the financial statements.

VERTICAL ANALYSIS

Vertical analysis is also known as static analyses or structural analyses. This analysis is made on the basis of a single set of financial statements prepared on a particular data. Under vertical analysis, quantitative relationship is established between different items shown in a particular statement. Common -size statements are a form of vertical analysis.

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TECHNIQUES OR TOOLS OF DATA ANALYSIS AND INTERPRETATION

Various techniques have been developed for the analysis & interpretation of financial statements. The selection of appropriate analytical technique would depend upon the objective of the analysis. The most important techniques or tools Data Analysis and Interpretation of financial statements are listed below:

Statement of Comparative Balance Sheet Analysis Statement of Common-Size Balance Sheet Analysis Statement of Trend Balance Sheet Analysis Ratio Analysis Statement of Gross Working Capital Analysis Statement of Net Working Capital Analysis Statements showing Schedule of Changes in Working Capital.

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STATEMENT OF COMPARATIVE BALANCE SHEET ANALYSIS


COMPARATIVE FINANCIAL STATEMENTS

Any financial statement that reports the comparison of data of two or more consecutive accounting periods is known as comparative financial statements.

The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to given an idea of financial position at two or more periods. Any statement prepared in a comparative form will be covered in comparative statements.

The comparative statement may show: Absolute figures Changes in absolute figures Absolute data in terms of percentages Increase or decrease in terms of percentages

According to A.F.FOULKE Comparative financial statements are the statements of the financial position of a business so designed as to provide time prospective to the consideration of various elements of financial position embedded in such statements.

COMPARATIVE BALANCE SHEET

The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise.

26

TABLE NO: 1 TABLE SHOWS THE STATEMENT OF COMPARITIVE BALANCE SHEET ANALYISES (Rs in cr)
SOURCES OF FUND Capital Reserves 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

12.08 381.10 393.18 190.78 411.67 602.45 379.95 44.55 424.5 79.72
1499.85 2005-2006

12.08 654.28 666.36 158.64 518.70 677.34 469.59 150.72 620.31 308.02
2272.03 2006-2007

11.90 941.95 953.85 660.13 975.51 1,635.64 653.36 110.75 764.11 408.29
3761.35 2007-2008

23.80 1,236.40 1,260.20 1,762.88 700.57 2,463.45 825.24 105.03 930.27 363.52
5017.44 2008-2009

23.80 1,534.36 1,558.16 1,884.28 682.23 2,566.51 1,011.56 119.78 1131.34 353.68
5609.69 2009-2010

Net worth Secured Loans Unsecured Loans Total Debt Current Liabilities
Other liability

Total Liabilities
Profit &loss Total APPLICATION OF FUNDS

Cash and Bank Balance Investments Loans and Advances Sundry Debtors Current Assets
Other assets Total

49.31 88.67 127.47 49.35 100.95


1083.1 1499.85

56.57 88.75 364.60 65.34 128.24


1568.53 2272.03

22.92 88.76 451.98 61.61 242.70


2893.38 3761.35

38.33 88.61 456.50 89.80 328.89


4015.31 5017.44

35.53 88.74 532.01 155.51 412.54


4385.36 5609.69

27

INTERPRETATION:

The above table represents the statement of comparative balance sheet of the company under study for financial year 2005-2006 to 2009-2010. The financial year 2005-2006 to 2009-2010 is taken as the base year for the analysis.

SOURCES OF FUNDS:

During the period of study the share capital of the company has increased it shows positive increase in trend in the share capital held by the cement company. During the period of study the loan of the madras cement company has increased it shows positive increase in trend in the loan held by the cement industry. Profit and loss account of the bank shows an increasing trend expected during the financial year 2008-2009 to 2009-2010. Other liabilities of the madras cement company source in decreasing trend.

APPLICATION OF FUNDS:

Advances of the madras cement company show the increase Rs.127.47 to 532.01. Investment of the madras cement company shows an increasing trend expected during the financial year 2007-2008 to 2008-2009. the total current asset of the madras cement company shows the increase Rs.100.95 to 412.54. Other asset of the bank shows the increase Rs .1083.1 to 4385.36.it is a increasing trend.

28

STATEMENT OF COMMON- SIZE BALANCE SHEET ANALYSIS


COMMON- SIZE FINANCIAL STATEMENT

The common- size statements, Balance sheet and income statement are shown in analytical percentages. The figures are shown as percentages of total assets, total liabilities and total sales. The total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities. These statements are also known as component percentage or 100 percent statements because every individual item is stated as a percentage of the total 100.

Common size financial statements are those in which figures reported are converted into percentages to some common base. Common size financial statements present absolute figures could be misleading. For example, cost of sales in absolute figures might have gone up but as percentage of sales it might have come down. Hence, for a better understanding and comparison, the figures are converted into percentage of some common base.

Sales are taken as common size income size statement. All expenses are recorded as percentage of sales. In the common- size balance sheet, total of assets or liabilities is taken as a common base. Each item is expressed as a percentage of the total. Common- size statements are useful to a financial analyst

COMMON- SIZE BALANCE SHEET A statement in which balance sheet items are expressed as the ratio of each asset the total assets and the ratio of each liability is expressed as a ratio of total liabilities is called commonsize balance sheet. The common-size balance sheet can be used to compare companies of differing size. The comparison of figures in different periods is not useful because total figures may be affected by a number of factors. It is not possible to establish standard norms for various assets. The trends of figures from year to year may not be studied and even they may not give proper results.

29 TABLE NO: 2 TABLE SHOWS THE STATEMENT OF COMMAN SIZE-BALANCE SGEET ANALYSIS (Rs in Cr)
SOURCES OF FUND Capital Reserve fund 2005-2006 0.85 25.41 12.72 2006-2007 0.53 28.80 2007-2008 0.32 25.04 2008-2009 0.47 24.64 2009-2010 0.42 27.35

Secured Loans Unsecured Loans Total Debt Current Liabilities


Other liability

27.45 40.17 25.33 2.97 28.3 5.32


100 2005-2006

6.98 22.83 29.81 20.67 6.63 27.3 13.56


100 2006-2007

17.55 25.94 43.49 17.37 2.94 20.31 10.85


100 2007-2008

35.14 13.96 49.1 16.45 2.09 18.54 7.25


100 2008-2009

33.59 12.16 45.75 18.03 2.14 20.17 6.30


100 2009-2010

Total Liabilities
profit@ loss Total

APPLICATION OF FUNDS

Cash and Bank Balance


Investment

3.29 5.91 8.49 3.29

2.49 3.91 16.04 2.85

0.61 2.36 12.01 1.63

0.76 1.77 9.09 1.78

0.63 1.58 9.48 2.77

Loans and Advances Sundry Debtors

Current Assets
Other assets Total

6.73 72.21
100

5.64 69.03
100

6.45 76.92
100

6.55 80.02
100

7.35 78.17
100

30 INTERPRETATION:

The above table represents the statement of common size balance sheet analyze for the financial year 2005-2006 to 2009-2010 purpose of analyze the total of sources of funds and application of funds of each financial under study is taken as 100.

SOURCES OF FUNDS:

The loan of short term, medium term and long term has increased from 12.72% to 33.59%. It is in the decreasing trend except the financial year 2005-2006 to 2006-2008.

Profit and loss of the bank shows a decreasing trend except during the financial year 2005-2006 to 2009-2010.

During the period of study the proportion of other liabilities by the madras cement company is in a fluctuating manner.

APPLICATIONS OF FUNDS:

During the period of study the proportion of cash held by the madras Cement Company ranges from 3.29% to 0.63% It is the decreasing trend. The proportion of advances with other company range from 8.49% to 9.48%. It is the increasing trend. The proportion of investment range from 5.91% to 1.58%, it is the decreasing trend. The proportion other assets held by the madras Cement Company ranges from 69.03% to 76.92% during the financial year 2007-2008. thereafter it is in the increasing trend.

31

STATEMENT OF TREND BALANCE SHEET ANALYSIS

TREND ANALYSIS Trend analysis is one of the important tools of analyzing the data. It computes the percentage changes for different over a long period and then makes a comparative study of them. The financial statements may be analyzed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year. The information for a number of years is taken up and one year, generally the first year, is taken as a base year. The figures of the base year are taken as 100 and trend ratios for other years are calculated on the basis of base year.

PROCEDURE FOR CALCULATING TRENDS

One year in taken as a base year. Generally, the first or the last is taken as base year. The figures of base year are taken as 100. Trend percentages are calculated in relation to base year. If a figure in other year is less than the figure in base year the trend percentage will be less than 100 and it will be more than 100 if figure is more than base year figure. Each years figure is divided by the base years figure.

TREND PERCENTAGES The trend percentages help the analyst to study the changes that have occurred during the period. Such an analysis indicates the progress of business by showing ups and downs in its activities. The calculation of trend percentage involves Selection of base year Assign a weight of 100 to the value of the variable of base year and Expressing the percentage change in the value of variable from base year to the study year.

32 TABLE NO: 3

TABLE SHOWS THE STATEMENT OF TREND BALANCE SHEET ANALYSIS (Rs in cr)
SOURCES OF FUND 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Capital Reserve fund

100 100 100 100 100 100 100


2005-2006

100 171.68 83.15 125.99 123.59 338.31 386.37


2006-2007

98.50 143.96 416.11 188.06 139.13 73.48 132.55


2007-2008

200 131.25 267.05 71.81 126.30 94.83 89.03


2008-2009

100 124.09 106.88 97.38 122.57 114.04 97.29


2009-2010

Secured Loans Unsecured Loans Current Liabilities Other liabilities profit@ loss
APPLICATION OF FUNDS

Cash and Bank Balance Investments Loans and Advances

100 100 100 100 100 100

114.72 100.09 286.02 132.40 127.03 144.81

40.51 99.90 123.96 94.29 189.46 184.46

167.23 99.83 101 145.75 135.51 138.77

92.69 100.14 116.54 173.17 125.43 109.21

Sundry Debtors Current Assets


Other assets

33 INTERPRETATION:

The above table represents the trend analysis of madras Cement Company under study for the financial year 2005-2006 to 2009-2010 for the purpose of analyzing the items of the financial year. 2005-2006 is the base year and is always 100.

SOURCES OF FUNDS: From the table it is inferred that the share capital of the madras Cement Company under study range it is increasing trend. During the period of study, secured loan range from 83.15 to 106.88. It is the increasing trend expected during the financial year 2007-2008 to 2008-2009. During the period of study, unsecured loans range. It is the fluctuation trend expected during the financial year 2007-2008 to 2008-2009. During the period of study, profit and loss account of the madras Cement Company It is the increasing trend expected during the financial year 2006-2007 to 2007-2008. During the period of study, other liabilities range from 338.31 to 114.04. It is the decreasing trend. APPLICATION OF FUNDS:

During the period of study, balance with other company range from 40.51 to 167.23 the financial year. It is the increasing trend expected during the financial year 2007-2008 to 2008-2009.

During the period of study, investment of the bank range from 100.09 to 100.14. It is the increasing trend.

During the period of study, other assets of the bank range from 144.81 to 184.86. Thereafter decreasing trend.

34

RATIO ANALYSIS
Ratio analysis is one of the technique of financial analysis where ratios are used as a yards for evaluating the financial condition and performance of a firm. Analysis and interpretation of various accounting ratios gives a skilled and experienced analyst a better understanding of the financial condition and performance of the firm than what he could have obtained only through a perusal of financial statement.

MEANING Ratio simply means one number expressed in terms of another. A ratio is statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios are relationship expressed in mathematical terms between figures, which are connected with each other in some manner. An accounting ratio shows the relationship in mathematical terms between two interrelated accounting figures.

DEFINITION According to Accounts Handbook by Wixon, Kell and Bedford, A ratio is an expression of the quantitative relationship between two numbers.

NATURE Ratio analysis is a technique of analysis and interpretation of financial statement. It is the most important tool available to financial analysis for their work. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strength and

weakness of a firm. It is expressed either in the form of a coefficient or as a percentage or as a


proportion.

35

CLASSIFICATION
Classification of ratio in view of financial management is given below as,

LIQUIDITY RATIO The liquidity ratio indicates the liquidity position of a concern. They infect, measure the ability of a company to meet its current liabilities as they fall due. If the concern has insufficient current assets in relation to its current liabilities it might be unable to meet its commitments, and be forced into liquidation. PROFITABILITY RATIO Profit has always been considered as the main indicator of a successful business. However, the real test of success of a business or failure of a business is to evaluate its profit earning capacity in relation to capital employed. Profitability ratios measure overall performance and effectiveness of the firm. ACTIVITY RATIO Activity ratio measures the efficiency of a firm in employing the available Resources. Such ratios reflect the degree of effectiveness of fund utilization in the Business activities. It also reflects the firms efficiency in utilizing its assets.

Activity ratio are popularly known as Turnover ratio because they highlight the management to convert or turnover the assets of the into sales. LEVERAGE RATIO Leverage ratio shows the proportions of debt and equity in financial the firm Assets. Leverage is an indication of a concern which makes the borrowed funds to Increase the return on owners equity. Leverage ratio measure the contribution of financing by owners who provide the finance by the firms creditors. The leverage ratio, a test of solvency, attempts to monitor the ability of a pay all of its debts-current as well as non-current, as they become due.

36

CURRENT RATIO

Current ratio is the most widely used ratio. It is a ratio of current assets to current liabilities. It is an indicator of the current liquidity of the firm. It is a fundamental measure of the companys financial conditions, namely its ability to meet normal operating obligations.

The current ratio is expressed as:

Current Assets Current ratio = Current Liabilities

Current ratio is an indicator of the firms commitment to meet its short term liabilities. It shows the relationship between total current assets and total current liabilities. Current assets should be double of current liability. Current ratio is an index of the firms financial stability.

Ideal current ratio is 2:1. Current ratio is also an index of technical solvency and an index of the strength of working capital. When the liabilities are paid it will not affect the business concern.

Current assets include cash and these assets which can be converted into cash within a year each as marketable securities, debtors and inventories. Prepaid expenses are also included in current assets as they represent the payments that will not be made by the firm in the future. All obligations maturing within a year are included in current liabilities. It includes creditors, bills payable, accrued expenses, short term bank loan, income tax liability.

37 TABLE NO: 4

TABLE SHOWS THE CURRENT RATIO (Rs in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Current assets 199.60 250.15 327.25 457.29 603.64 Current liability 184.14 243.79 290.76 335.35 426.46 Ratio 1.08 1.03 1.13 1.36 1.42 Average=1.204

INTERPRETATION The table reveals the current ratio of the concern under the study for the financial year 20052006 to 2009-2010.

The analysis of reveals increasing trend. During the year2004-2005 a sight increased occurred in current ratio madras Cement Company has a current ratio hearing the thumb rule.

Hence it is concluded that the current ratio of the concern during the period of study is said to be satisfactory level.

38

CHART SHOWS THE CURRENT RATIO

39

QUICK OR ACID TEST OR LIQUID RATIO

Quick ratio establishes a relationship between total quick or liquid assets and total current liabilities. Quick or liquid assets refer to assets which are quickly convertible into cash within a short period without loss of value.

Quick ratio is expressed as:

Quick or Acid Test or Liquid Ratio=

Quick or Liquid Assets Current Liabilities

Quick ratio is used to measure short term solvent position of a concern. Current assets other than stock and prepaid expenses are considered as quick assets. The standard norm of quick ratio is 1:1.Quick ratio also known as Acid Test or Liquid ratio is a more vigorous test of liquidity. The financial soundness of a concern can be known from this ratio. Hence it is called as Acid Test Ratio.

Cash in hand and cash at bank are the most liquid assets. The other assets which can be included in the liquid assets are bills receivable, sundry debtors, marketable securities and shortterm or temporary investments. Inventories cannot be termed to be liquid asset because they cannot be converted into cash immediately without a sufficient loss of value. In the same manner, prepaid expenses are also excluded from the list of quick / liquid assets because they are not expected to be converted into cash. Liquid assets comprise all current assets minus stock and prepaid expenses. Liquid liabilities comprise all current liabilities minus bank overdraft.

40 TABLE NO: 5 TABLE SHOWS THE LIQUID RATIO

(Rs in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Liquid assets 190.73 239.82 311.17 441.5 573.88 Current liability 184.14 243.79 290.76 335.35 426.46 1.03 0.98 1.07 1.31 1.34 Average =1.146 Ratio

INTERPRETATION The table reveals the liquid ratio of the concern under the study for the financial year 2005-2006 to 2009-2010.

The analysis of reveals increasing trend. During the year 2007-2008 a sight increased occurred in liquid ratio in this concern the liquid ratio was more than that of thumb of rule.

The average of liquid ratio was said to be 1.146 in indicate that the bank liquidity position is good and has the ability to meet or liquid liability in time.

41

CHART SHOWS THE LIQUID RATIO

42

PROPRIETARY RATIO

Proprietary Ratio is a variant to the Debt-Equity Ratio which is also known as Equity Ratio or Shareholders to Total Equities Ratio or Net worth to Total Assets Ratio. This ratio establishes the relationship between Shareholders Funds to Total assets of the firm.

Proprietary Ratio is expressed as:

Proprietary Ratio =

Shareholders Funds Total Assets

Proprietary ratio shows the general soundness of the company. This ratio shows the long term or future solvency of the business. The ratio of owners equity to total assets is a measure of the financial strength (or) weakness of the enterprise. It is very important to creditors of the company as it helps them to ascertain the shareholders funds in the total assets of the business.

The acceptable norms of this ratio are 1:3. A high ratio indicates safety to the creditors and a low ratio shows greater risk to the creditors. The shareholders funds are equity share capital, preference share capital, undistributed profits, reserves and surplus. Out of this amount, accumulated losses should be deduced. The total assets on the other hand denote total resources of the concern.

A ratio below 0.5 is alarming for the creditors since they have to lose heavily in the event of companys liquidation as it indicates more of creditors funds and less of shareholders funds in the total assets of the company.

43 TABLE NO: 6 TABLE SHOWS THE PROPRIETARY RATIO

(Rs. in cr) Year Share holders funds 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 81.62 120.77 119.02 1624.35 2379.69 1191.42 1569.49 2952.09 4213.53 4709.76 0.068 0.076 0.040 0.385 0.500 Average =0.214 Total assets Ratio

INTERPRETATION: The table reveals the proprietary ratio of the concern under the study for the financial year 2005-2006 to 2009-2010.

The proprietary ranges from 0.068 to 0.500 it is an increasing trend, the ratio is 0.068 in year 2005-2006, again it is observed an increasing value of 0.076 in 2006-2007.

The share holder fund in the total capital of the madras company in higher and so we can conclude better the long term solvency position of the company.

44

CHART SHOWS THE PROPRIETARY RATIO

45

NET WORKING CAPITAL RATIO

Net Working Capital ratio establishes the relationship between Net working capital and Net assets. The difference between current assets and current liabilities excluding short-term bank borrowing is called Net working capital.

Net Working Capital Ratio is expressed as:

Net Working Capital Ratio =

Net Working Capital Net Assets

Net Working Capital ratio is sometimes used as a measure of a firm liquidity. Net Working Capital ratio measures the firms potential reservoir of funds. The measure of liquidity is a relationship rather than the difference between current assets and current liabilities. A high Net working capital ratio indicates that the firm has greater ability to meet its current obligations. A low Net working capital ratio indicates that the firm has less ability to meet its current obligations.

46 TABLE NO: 7 TABLE SHOWS THE NET WORKING CAPITAL RATIO

(Rs. in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Networking capital 142.52 178.43 576.47 635.36 317.70 Net assets 1191.42 1569.49 2952.09 4213.53 4709.76 Ratio 0.12 0.11 0.19 0.15 0.06 Average =0.126

INTERPRETATION: The above table represents the membership of the bank under study for the financial year 2005-2006 to 2009-2010.

The net working capital ratio ranges from 0.12 to 0.06 it is the decreasing trend, during the period of study. The net working capital is said to be in d trend and growth index stands at 0.12.

47

CHART SHOWS THE NET WORKING CAPITAL RATIO

48

NET PROFIT RATIO

Net profit ratio establishes the relationship between Net profit (after tax) and net sales of the concern. It indicates the efficiency of the management in manufacturing, selling, Administrative and other activities of the firm. This ratio is the overall measure of firms profitability.

Net Profit Ratio is expressed as:

Net profit Net Profit Ratio = Net sales

X 100

Profit ratio is a measure of managements efficiency in operation the business successfully from the owners point of view. It indicates the return on shareholders investments. Higher the ratio better is the operational efficiency and profitability of the concern. This ratio also indicates the firms capacity to face adverse economic conditions such as price competition, low demand etc.

49 TABLE NO: 8 TABLE SHOWS THE NET PROFITE RATIO

(Rs. in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net profit 79.02 308.02 408.29 363.52 353.68 Net sales 1004.37 1567.37 2005.32 2529.24 2807.18 Ratio in % 7.86 19.65 20.36 14.37 12.59 Average = 17.48

INTERPRETATION: The above table represents the membership of the bank under study for the financial year 2005-2006 to 2009-2010.

The net profit ratio ranges from 7.86 to 12.59 it is the increasing trend, during the period of study. Net profit ratio is said to be in increasing trend and growth index stands at 7.8.

Hence it is concluded that the net profit ratio of the concern during the period of study is said to be satisfactory but not to the decrease level.

50

CHART SHOWS THE NET PROFIT RATIO

51

CAPITAL TURNOVER RATIO

Capital Turnover Ratio is the relationship between cost of sales (or) sales and Capital Employed in the business. This ratio is calculated to measure the efficiency or effectiveness with which a firm utilizes its resources or the capital employed.

Capital Turnover ratio is expressed as:

Capital Turnover Ratio =

Cost of Sales Capital Employed (OR)

Sales Capital Turnover Ratio = Capital Employed

As capital is invested in a business to make sales and earn profits, this ratio is a good indicator of overall profitability of a concern. Higher ratio indicates higher efficiency and lower ratio indicates ineffective usage of capital. Higher ratio shows higher profit and lower ratio shows lower profit.

52

TABLE NO: 9 TABLE SHOWS THE CAPITAL TURNOVER RATIO (Rs in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net sales 1004.37 1567.37 2005.32 2529.24 2807.18 Capital employed 393.18 666.35 953.85 1260.19 1558.15 Ratio 2.55 2.35 2.10 2 1.80 Average = 2.16

INTERPRETATION: The above table represents the membership of the bank under study for the financial year 2005-2006 to 2009-2010.

The capital turnover ratio it is the fluctuation trend, during the period of study. The capital turnover ratio is said to be in decreasing trend.

Hence it is concluded that the capital turnover ratio of the concern during the period of study is said to be minimum satisfactory level.

53

CHART SHOWS THE CAPITAL TURNOVER RATIO

54

CASH POSITION RATIO

Cash position ratio: This ratio is also called Absolute liquidity ratio or super quick ratio. This is variation of quick ratio. This ratio is calculated when liquidity is highly restricted in terms of cash and cash equivalents. This ratio measures liquidity in terms of cash and near cash items and short-term current liabilities. Cash position ratio is calculated with the help of the following formula.

Formula: Cash &bank balance+ marketable securities Cash position ratio= --------------------------------------------------------------Current liabilities

An idea cash position ratio is 0.75:1. This ratio is a more rigorous measure of a firms liquidity position. It is not a widely used ratio.

55

TABLE NO: 10 TABLE SHOWS THE CASH POSITION RATIO

(Rs in cr) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Cash +marketable 150.24 184.8 265.64 367.48 448.13 Current liability 184.14 243.79 290.76 335.35 426.46 0.81 0.75 0.91 1.09 1.05 Average =0.922 Ratio

INTERPRETATION: The table reveals the cash position ratio of the concern under the study for the financial year 2005-2006 to 2009-2010.

The cash position ratio ranges from .81 to .1.05 it is the increasing trend, during the period of study. The cash position ratio is said to be in increasing trend and growth index stands at 1.05.

56

CHART SHOWS THE CASH POSITION RATIO

57

WORKING CAPITAL MANAGEMENT


STATEMENT OF WORKING CAPITAL

Capital required for a business can be classified under two main categories via, Fixed working capital Working capital

FIXED WORKING CAPITAL


Every business funds for two purposes for its establishment and to carry out its day to day operations. Long-term funds are required to create production facilities through purchase of fixed assets. Investments in these assets represent that part of firms capital is blocked on a permanent basis and is called fixed working capital.

WORKING CAPITAL
Funds are also needed for short term purposes for the purchase of raw materials, Payments of wages and other day to day expenses etc., these funds are known as working capital.

DEFINITION

Working capital refers to that part of the firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors & inventories.

According to Shubin, Working capital is the amount of funds necessary to cover the cost of operating the enterprise

58

STATEMENT OF WORKING CAPITAL

Working capital is needed for day-to-day operation of the business, so it can be considered as the lifeblood for any business. The management of working capital has a definitive effect on the profitability and the continued existence of a business. It is one of the most important facts of the firms overall financial management. Working capital sphere throws open a welcome challenge and an opportunity for the finance manager to play a key role in effective planning, controlling, directing and utilizing the working funds in an enterprise.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital. They are, Gross Working capital Net Working capital

STATEMENT OF WORKING CAPITAL MANAGEMENT

Working capital management is the process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets.

Working capital management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivable and inventories of the firm will old at any point in time. In addition, financial managers must decide how these current assets are to be financed. Financing choices include the mix of current as well as long-term liabilities.

The management of the working capital is concerned with the management of assets such as cash, marketable securities accounts receivables, prepaid expenses and current assets, also liabilities such as accounts payable, wages payable and accruals.

59

STATEMENT OF GROSS WORKING CAPITAL

Gross working capital refers to the amount of funds invested in current assets. That is, the Gross working capital is the capital invested in total current assets of the enterprises. Current assets are the assets which can be converted into cash within an accounting year.

Gross Working Capital = Total Current Assets

COMPONENTS OF CURRENT ASSETS


Cash in hand and Bank balance Bills Receivables Sundry Debtors (Less provisions for bad debts) Short term loans and advances Inventories of stocks, such as: Raw materials Work in progress Stores and spares Finished goods Prepaid expenses Accrued income

60

TABLE NO: 11 TABLE SHOWS THE STATEMENT OF GROSS WORKING

CAPITAL ANALYSIS (Rs in cr) CURRENT ASSETS Cash and Bank Balance Loans and Advances Sundry Debtors Other assets 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

49.31

56.57

22.92

38.33

35.53

127.47

364.60

451.98

456.50

532.01

49.35 1083.1

65.34 1568.53

61.61 2893.38

89.80 4015.31

155.51 4385.36

Investments Total

88.67 1397.9

88.75 2143.79

88.76 3518.65

88.61 4688.55

88.74 5196.95

INTERPERTATION: The total current assets was found to be 1397.9 in the year 2005-2006, next year it is also increased in 2143.79 in the year of 2008-2009 the current assets is increased in 4688.55 the last year 2008-2009 increased in 5196.95.

The current assets show a steady increase of working capital during the period of 20062010.

61

STATEMENT OF NET WORKING CAPITAL


Net working capital is the excess of current assets over current liabilities. That is, it refers to the difference between current assets and current liabilities. Current liabilities are those claims of outside which are accepted to mature for payment within an accounting year.

Net working capital = Current Assets Current Liabilities

Net Working capital may be positive or negative.

A positive net working capital will arise when current assets exceed current liabilities. A negative net working capital occurs when current liabilities are more than the current assets.

COMPONENTS OF CURRENT LIABILITIES

Bill payable Sundry creditors (or) Accounts Payable Accrued term loans, advances and deposits Bank overdraft Provision for transactions

62 TABLE NO: 12 TABLE SHOWS THE STATEMENT OF NETWORKING CAPITAL ANALYSIS (Rs in cr) 2009-2010

CURRENT ASSETS(a) Cash and Bank Balance Loans and Advances Sundry Debtors Investments Total CURRENT LIABILITIES(b) Bills payable Creditors Customer balances Other liability Total NETWORKING CAPITAL(a-b)

2005-2006

2006-2007

2007-2008

2008-2009

49.31 127.47 49.35 88.67 296.8 2005-2006 7.92 35.38 131.90 8.91 184.11 112.69

56.57 364.60 65.34 88.75 575.26 2006-2007 6.41 71.17 154.45 12.23 244.26 331

22.92 451.98 61.61 88.76 625.27 2007-2008 6.52 108.55 169.13 7.03 291.23 334.04

38.33 456.50 89.80 88.61 673.24 2008-2009 3.7 111.13 197.84 15.01 327.68 345.56

35.53 532.01 155.51 88.74 811.59 2009-2010 3.28 164.81 243.34 23.15 434.58 377.01

63 INTERPERTATION:

The above table represents that the net working capital of the concern during the financial year 2006-2010.

CURRENT ASSETS

The increased in advances of concern range from 127.47 to 532.01 during the period of financial year.

The debtors range from Rs 49.35 to 155.51 in the year of 2005-2006 to 2009-2010 the 2004-2005 is decreased in Rs.49.35.

When the compare 2005-2006 to 2009-2010 is increased in Rs.88.67 to 88.74 the investment shows an increasing trend.

CURRENT LIABILITY

The creditors increase from Rs.35.38 to 164.81 in the financial year of 2005-2006 to 2009-2010.

The increased in customer balances of concern range from 131.90 to 243.34 during the period of financial year.

The total other liability range from Rs 8.91 to 23.15 in the year of 2005-2006 to 20092010.

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STATEMENT SHOWS THE SCHEDULE OF CHANGES IN WORKING CAPITAL

Statement of changes in working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets.

As, working capital

= Current assets Current liabilities

An increase is current assets increased working capital An decrease is current assets decreases, working capital An increase in current liabilities decreases working capital An decrease in current liabilities increases working capital

The change in the amount of any current asset or current liability in the current balance sheet as compared to that of the previous balance sheet either results in increase or decrease in working capital. The difference is recorded for each individual current asset and current liability. In case a current asset in the current period is more than in the previous period, the effect is a recorded in the increase column. But if a current liability in the current period is more than in the previous period, the effect is decrease in working capital and it is recorded in the decrease column or vice versa.

The total increase and the total decrease are compared and the difference shows the net increase or net decrease in assets and current liabilities and the other information is not of any use for preparing this statement.

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TABLE NO: 13 TABLE SHOWS THE STATEMENT OF SCHEDULE OF CHANGES IN WORKING CAPITAL CURRENT ASSETS(a) Cash and Bank Balance Loans and Advances Sundry Debtors Investments Total CURRENT LIABILITIES(b) Bills payable Creditors Customer balances Other liability 2005-2006 2006-2007 2007-2008 2008-2009 (Rs in cr) 2009-2010

39.89 20.37 9.35 0.04 69.65 2005-2006 7.92 9.16 9.36 2.7

7.27 237.13 15.99 0.08 260.47 2006-2007 -1.51 35.79 22.55 3.32

-33.65 86.9 -3.73 0.01 49.53 2007-2008 0.11 37.38 14.68 -5.2

15.41 4.52 28.19 -0.15 47.97 2008-2009 -7.82 2.58 28.71 7.98

-2.8 75.51 65.71 0.13 137.55 2009-2010 -0.42 53.68 45.5 8.14

Total Net working capital increase or decrease

29.14 40.51

60.15 200.32

46.97 2.56

31.45 16.52

106.9 30.65

66 INTERPERTATION: The above table represents that the statement of changes in working capital of the concern during the financial year 2005-2006 to 2009-2010.

CURRENT ASSETS: The debtors range from Rs 9.35 to 65.71in the year of 2005-2006 to 2009-2010 the 20072008 is decreased in Rs.-3.73. When the compare 2008-2009 to 2009-2010 is increased in Rs.-0.15 to 0.13 the investment shows a increasing trend during the period of study. CURRENT LIABILITY:

The creditors range from Rs.9.16 to 53.68 in the year of 2005-2006 to 2009-2010 the 2008-2009 is decreased in Rs.2.58 it is the increasing trend during the period of study. The total other liability range from Rs 2.7 to 8.14 in the year of 2006-2007 to 2009-2010 it is the increasing trend during the period of study.

CHAPTER III CONCLUSION

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CHAPTER - III 3.1 FINDINGS


The firms current ratio is satisfactory. Quick Ratio is in good position. Liquidity position has increased year by year from 2005 to 2010. The firm faces net profit when comparing the years from 2005to 2010. The investments of the company had increased from Rs. 88.61 crore as on 31.03.2008 to Rs. 88.74 crore as on 31.03.2010.

The loans and advances of the company had increased from Rs. 127.47 crore as on 31.03.2006 to Rs. 532.01 crore as on 31.03.2010.

The profit and loss of the cement company had increased from Rs. 79.72 crore as on 31.03.2006 to Rs. 353.68 as on 31.03.2010.

The working capital position has fluctuating year by year from 2006 to 2010.

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3.2 SUGGESTIONS
Fixed Assets has to be maintained, and increase their value. The firm may increase the Return on Assets through high utility of fixed assets. The fixed assets value may be increased up to the level of current assets. The firm can maintained the increase in current assets value comparing with current Liabilities. Working capital has to be maintained, and increase their value.

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3.3 CONCLUSION

The study was under taken to understand the financial statement analysis of madras cements ltd. The researcher has made a deep analysis of the financial position of the organization for the past five years. To fulfill the objectives of the study, selected short-term solvency ratios, long term solvency ratios and turnover ratios were calculated. The study reveals that the effect should be taken to improve the sales. The analysis reveals that the overall financial statement analysis of the company is satisfactory. But the company has more current liabilities than the current assets leads to less liquidity position of the firm. The company can utilize that amount in a more productive manner. So to conclude we can state that the company is marching towards a good position.

CHAPTER IV SCOPE FOR THE FUTURE WORK

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CHAPTER - IV SCOPE FOR THE FUTURE WORK


The study includes establishments of cause and effect relationship between various items in the balance sheet and income statement for the period 2005-2010.

This study reveals the present financial, liquidity and profitability position of the concern. The proposed study will enable the management to plan for its future and will act as a basis for research work on financial performance to be made in future.

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REFERENCES
1. KHAN.M.Y.JAIN P.K. Financial Management Text & Probs Tata Mc- Graw Hill Publishing Company 2008. 2. PANDEY.I.M. Financial Management, New Delhi, Vikas Publishing House Pvt., Ltd., 1995 ANNUAL & AUDITED REPORTS The India cements Ltd., 2005-2009. 3. Sreenivasan N.P Management Accounting. 4. Dr. R.Ramachandran & Dr. R. Srinivasan Management Accounting 5. T.S. Reddy & Y. Hari Prasad Reddy management Accounting.

WEB SITE WWW.MADRASCEMENTS.COM WWW.RAMCOCEMENTS.COM