a report on acc cements

7/28/2019 A Report on Acc Cements

1/40

1. MEANING AND CONCEPT OF FINANCE

Finance is the life blood of business. Finance is of the basic foundations of all kinds

of economic activities. Like any other functional management firm (such as production,

marketing, finance etc) Finance is a vital functional organ of the firm. If the finance

function does not operate well, the whole organizational activity will be collapsed. The

subject matter of financial management has been defined in many ways depending upon the

study of the subject.

1.1 CONCEPT OF FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the collective name for the tools and techniques that

are intended to provide relevant information to decision makers. The purpose of financial

statement analysis is to access a company financial health and performance. Financial

statement analysis consists of comparisons for the same company over periods of time and

comparisons of different companies either in the same industry or in different industries.

Financial statement analysis enables investors and creditors to evaluated past performance

and financial position, and to predict future performance.


2/40

CHAPTER 2

RESEARCH METHODOLOGY

2.1. OBJECTIVES OF THE STUDY

1. To measure the operating performance of the company.

2. To measure Liquidity position of the company.

3. To measure long term solvency of the company

2.2. LIMITATIONS OF THE STUDY

This study mainly depends on the Secondary data i.e., Annual reports of ACC Ltd.

Operating and Financial performance of the company is analyzed using 5 years data

alone.

The Study does not consider the time value of money.

The validity of analysis and suggestions depends on the financial statements and

reports alone, provided by the company.

2.3 RESEARCH DESIGN

The research design that is adopted in this study is descriptive design. Descriptive

research is used to obtain information concerning the current status of the phenomena to

describe, "what exists" with respect to variables or conditions in


3/40

2.4. SAMPLING DESIGN2.4.1. SAMPLIE SIZE:-

The sample size for this study is 20072011 annual reports of Profit and Loss

Account, Balance Sheet.

2.4.2. SAMPLE UNIT:-One year Financial Report will constitute a sample unit.

2.4.3. DATA SOURCES:-

Data were collected through both secondary data sources.

The Secondary data was collected mainly from

1. Annual Reports

2. Internal Records

3. Books

2.4.4. TOOLS USED:-

The collection of data were tabulated and presented in the appropriate places of

various chapters. Besides the performance of business was evaluated by analyzing and

interpreting financial statement with the help of Ratio Analysis, Trend Percentages, Common

Size financial statement, Dupont Analysis.

3.COMMON-SIZE FINANCIAL STATEMENT

Common-size Financial statements are those in which figures reported are converted

into percentages to common base. The comparative common-size financial statements show

the percentage of each cash item to the total in each period but from period to period.


4/40

4. TREND PERCENTAGES

The method of calculating trend percentage involves the calculation of percentage

relationship that each item bears to the same item in the base year. Any year may be taken as

the base year. It is usually the earliest year. Any intervening year made be taken as the base

year. Each item of base year is taken as 100 and on that basis percentages for each of the

items of each of the years are calculated. These percentages can also be taken as index

numbers showing relative changes in the financial showing relating changes in the financial

data resulting with the passage of time.

The method of trend percentages is a useful analytical device for the management

since by substituting percentages for absolute figure.

However, Trend percentages are not calculated for all of the items in financial

statements. They are usually calculated only for major items since the purpose is to highlight

important changes.


5/40

5. RATIO ANALYSIS

Ratio analysis is widely used tool of financial analysis. Ratios are

relationships expressed in mathematical terms between figures which are connected with

each in some manner.

It is defined as the systematic use of ratios to interpret the financial statements so that

the strengths and weaknesses of a firm as well as its historical performance and current

financial condition can be determined. This relationship can be expressed as Percentages,

Fractions and proportion of numbers.

Financial ratios are used to evaluate Profitability, Liquidity, Capital structure of the

Company.

Types of ratios:

Ratios can be classified for the purpose of exposition into four broad groups.

1. Profitability Ratios

2. Activity Ratios

3. Liquidity Ratios

4. Capital structure Ratios

ADVANTAGES:

1. Ratio simplifies Financial statements.

2. Ratio facilities inter-firm and intra-firm comparison.

3. It helps in decision-making.


6/40

5.1. PROFITABILITY RATIOS:

The profitability ratios are calculated to measure the overall efficiency of the

business. The management is naturally eager to measure its operating efficiency.

Profitability ratios are used as an indicator of the efficiency with which the operation of the

business.

The following ratios are calculated:

1. Net profit ratio

2. Operating profit ratio

3. Earning per share

4. Price earnings ratio

5. Earnings yield ratio

6. Return on equity

7. Return on investments

8. Return on total assets


7/40

5.1.1. NET PROFT RATIO:

Net profit ratio indicates net margin earned on sales. Net profit Ratio expressed the

relationships between the net profit and net sales. This ratio helps in determining the

efficiency with which affairs of the business are being managed.

Net profit after tax

Net profit Ratio = ---------------------------- x 100

Net sales

Table 3.2 Net profit ratio for the yea 2007-2011

YearNet profit after tax

Crore

Net sales

Crore

Net profit ratio

%

2007 1,439 6,991 (20.58)

2008 1,213 7,283 (16.64)

2009 1,607 8,027 (20.02)

2010 1,120 7,717 (14.51)

2011 1,325 9,439 (14.04)

(Source: ACC LTD Annual Reports year 2007-2011)

The companys net profit has decreased throughout the five years, it indicates the poor

administration capability of the concern. This ratio also indicates that firms capacity to face

adverse economic conditions such as price competition, lower demand etc. If the profit of the

firm is not sufficient or the firm incurred loss, the firm shall not be able to achieve a

satisfactory return on its investment.


8/40


9/40

5.1.2. OPERATING PROFIT RATIO:

The operating expense ratio explains the changes in the profit margin (EBIT to Sales)

ratio. This ratio is computed by dividing operating expenses viz. cost of goods sold plus

operating expenses.

The Ratio is a complementary of net profit ratio. This ratio is measure of the

operating efficiency with which the businesses is being carried. A comparison of the cost

component is high or low in the figure of sales.

EBITDA

Operating ProfitRatio = -------------------------- *100

Net sales

(Operating cost = Cost of sales + Operating Expenses)

Table 3.3 operating ratio for the year 2007-2011

YearEBITDA

Crore

Net sales

Crore

Operating Profit ratio

%

2007 1,993 6,991 28.51

2008 1,899 7,283 26.07

2009 2,644 8,027 32.94

2010 1,812 7,717 23.48

2011 1,921 9,439 20.35


It indicates operating efficiency of the firm. The operating ratio of the firm was

increased for the first three years. In this periods the firm has spent more operating expenses.

Hence it indicates the low efficiency of the firm. But there after in the year 2011 operating

cost is decreased. So in this period the has tried to reduce the cost.


10/40


11/40

5.1.3. EARNING PER SHARE:

EarningPer Share highlights the overall success of the concern from owners point of

view and it is helpful in determining market price of equity share.


Earning per share = ------------------------------------------------------

Number of Equity Shares

Table 3.4 Earning per share Ratio for the year 2007-2011

Year


Crore

No.of equity

shares

Earnings per share

% (Rs.)

2007 1,439 187624404 76

2008 1,213 187681819 65

2009 1,607 187740292 85

2010 1,120 187745356 60

2011 1,325 187745356 71


This table reflects the capacity of the concern to pay dividend to its equity

sharesholders. It has heavy loss in the year 2009-10. Hence it degrade the reputation of the

firm as well as interest of the shareholders of the company.


12/40


13/40

5.1.4. PRICE EARNINGS RATIO:

This ratio indicates the number of times the earning per share is covered by its market

price. Price earning ratio helps the investor in deciding whether to buy or not buy the shares

of a company at a particular market price.

Market price per share

Price earnings ratio = ---------------------------------

Earnings per share

Table 3.5 Price Earnings Ratio for the year 2007-2011

Year Market Price per ShareEarning per Share

(Rs.)

Price Earnings

Ratio

2007 1223 76 16.10

2008 1171 65 18.03

2009 865 85 10.18

2010 444 60 7.40

2011 948 71 13.36


Usually higher the Price earnings ratio, better it is. The Management should look into

the causes that have resulted into the fall of this ratio. Hence Price Earnings Ratio

decreasing, it affects the market price of shares, and also the company fails to get good name

from its shareholders.


14/40


15/40

5.1.5. EARNINGS YIELD RATIO:

The earning yield may be defined as the ratio of earnings per share to the market

value per ordinary share. The earning yield ratio is also called the earning price ratio.

Earning per share

Earning yield = ----------------------------- x 100

Market price per share

Table 3.6 Earning yield Ratio for the year 2007-2011

YearEarning per Share

(Rs.)

Market Price per

ShareEarning yield

2007 (1.54) 10 (15.4)

2008 (1.65) 10 (16.5)

2009 (1.59) 10 (15.9)

2010 (2.63) 10 (26.3)

2011 (8.82) 10 (88.2)


Earnings yield shows negative value. It is also increasing trend. It reveales the poor

performance of the company.


16/40


17/40

5.1.6. RETURN ON EQUITY:

In real sense, equity shareholders are the real owners of the company. They assume

the highest risk in the company. Equity shareholders are getting residual claim after paying

interest and performance dividend. Return on equity capital, which is the relationship

between profits of a company an its equity capital, can be calculated as:


Return on Equity = -------------------------------- * 100

Net worth

Table 3.7 Return on equity for the year 2007-2011


Crore

Net worth

Crore

ROE

%

2007 1,439 4,153 (34.65)

2008 1,213 4,928 (24.61)

2009 1,607 6,016 (26.71)

2010 1,120 6,469 (17.31)

2011 1,325 7,192 (18.42)(Source: ACC LTD Annual Reports year 2007-2011)

Here, the company has not earned profit, hence, the net loss erode the shareholders

net worth year after year. The return on equity ratio has also showed decreasing trend . The

companys profitability position was not good.


18/40


19/40

5.1.7. RETURN ON INVESTMENT:

The Conventional approach of calculating return on investment is to divide PAT by

investment. Investment represent pool of funds supplied by shareholders ad lenders, while

PAT represent reside income of shareholders therefore it is conceptually unsound to use PAT

in the calculation of ROI.

Operating profit

ROI = -------------------------------- *100

Capital employed

Table 3.8 Return on investment for the year 2007-2011


Crore

Capital employed

Crore

Ratio

%

2007 1,439 4,791 (30.04)

2008 1,213 5,746 (21.11)

2009 1,607 6,932 (23.18)

2010 1,120 7,355 (15.22)

2011 1,325 8,221 (16.12)


In the year 2007-2011 the company has incurred operational loss. Eventhough the

company employed huge amount of capital but due to its inefficient operation, its operating

profit turned into loss.


20/40


21/40

5.1.8. RETURN ON TOTAL ASSETS:

The ROTA may also be called profit to asstRatio. There are various approaches

possible to define net profits and assets, according to the purpose and intent of the calculation

of the ratio.

The ROTA based on this ratio would be an under estimate as the interest paid to the

creditors is excluded from the net profits.

Net profit after Tax

ROTA = ------------------------------------- * 100

Total assets

Table 3.9. Return on total asset for the year 2007-2011


Crore

Total asset

Crore

Return on Total

Assets

%

2007 1,439 7,489 (19.41)

2008 1,213 8,517 (14.24)

2009 1,607 10,059.15 (15.98)

2010 1,120 11,041.34 (10.14)

2011 1,325 11,816.71 (11.21)


In the year 2009-2010 the company incurred net loss. The return on total assets

showed negative (loss) balance in all the 5 years. It was not good indication to conduct the

business in forthcoming years.


22/40


23/40

5.2. ACTIVITY / TURNOVER RATIOS:

Turnover ratios are also known as Activity or Efficiency ratios. These indicate

the efficiency with which the capital employed is rotated in the business. Activity ratio

measures the efficiency of asset management. Turnover ratio indicates the number of times

the capital has been rotated in the process of doing business.


5.2.1. FIXED ASSETS TURNOVER RATIO:

Fixed assets turnover ratio indicates the extent to which the investments in fixed

assets contribute towards coast of goods sold. If compared with a previous period it indicates

whether the investment in fixed assets has been judicious or not.

Cost of goods sold

Fixed assets turnover ratio = --------------------------------------

Fixed assets

Table 3.10. Fixed assets turnover ratio for the year 2007-2011

Year Cost of goods sold Fixed Assets Ratio

2007 1026302079 4599847844 0.22

2008 1085499769 1317459132 0.8

2009 713705801 1233959900 0.57

2010 2757442192 8727028918 0.31

2011 3814339033 8195640982 0.46


The above table dealt with fixed assets turnover ratio. Higher the ratio, more is the

efficiency in probability of a business concern. A lower ratio is the indication of under

utilization of fixed assets in the year 2006-07 and 2009-10 is lower, is indicates lower

utilization of fixed assets.


24/40


25/40

5.2.2. DEBTORS TURNOVER RATIO:

Debtors turnover is found out by dividing credit sales for average debtors. Debtors

turnover indicates the number of times debtors turnover each year. The higher the value of

debtors turnover, the more efficient is the management of credit. The average number of days

for which debtors remain outstanding is called the average collection period.

Net credit sales

Debtors Turnover Ratio = -----------------------------------

Closing debtors

Table 3.11 Debtors turnover ratio for the year 2007-2011

Year

Net Credit Sales

Crore Closing Debtors

Debt

Turnover

Ratio

Debt

collection

period

(Days)

2007 4,991 293.65 16.99 22

2008 5,283 310.17 17.03 21

2009 7,027 203.90 34.46 11

2010 6,717 178.28 37.67 10

2011 8,439 260.41 32.40 11


Debtors velocity indicates the number of times the debtors are turned over during a

year. Generally higher the value of debtors turnover more efficient in the management of

debtors. Similarly, lower debtor turnover implies inefficient management of debtor.

From the table the ratio for the year 2009-10 was very low, when compared with other

remaining years performance.


26/40


27/40

5.3. LIQUIDITY RATIOS

Liquidity is the ability of company meets its short-term obligations when they fall

due. As company should have enough cash and the current assets, which can be converted

into cash so that it can pay its suppliers and lenders on time.


1. Current ratio

2. Quick ratio / Liquid ratio

3. Net working capital ratio

4. Cash ratio

5.3.1. CURRENT RATIO:

Current ratio is a widely used indicator of companys ability to pay its debts in

the short-term. It is the relationships between current assets and current liabilities. Current

assets are those assets which can be easily converted into cash within a short period of time

or with in an operating cycle generally one year. Current liabilities are those which are

payable with in a short period of time generally one year.

Current assets

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

Current liabilities

Table 3.14 Current Ratio for the year 2007-2011

Year Current Assets

(In Crores)

Current Liabilities

(in Crores)

Ratio

2007 2,203 2,221 0.99

2008 2,760 2,766 0.99

2009 2,256 3,114 0.72

2010 2,753 3,746 0.73

2011 3,618 3,664 0.99


From the table, it reveals the current ratio was steady in the year 2007 and 2008 ,but

it dropped after that.Then it increased again in 2011. Internationally accepted current ratio is

2:1 i.e., current assets shall be 2 times of current liabilities. The ability of the concern also

depends on current asset position. Here, current assets are not sufficient to meet its current


28/40

liabilities. Hence the companys solvency position is not good for all the years indicated

above.


29/40

5.3.2. QUICK RATIO

This ratio is also termed as Acid Test Ratios and Liquidity Ratio. This ratio is

ascertained by comparing the liquid assets to current liabilities. Prepaid expenses and stock

are not taken as quick assets. Bank overdraft is not taken as quick liability.

Quick assets

Quick Ratio = ----------------------------

Current liabilities

Table 3.15.Quick ratio for the year 2007-2011

YearQuick assets

(in crores )

Current liabilities

( in crores)Ratio

2007 1710.17 2,221 0.77

2008 1631.94 2,766 0.59

2009 1463.58 3,114 0.47

2010 2659.66 3,746 0.71

2011 2418.24 3,664 0.66


From the above table in 2007-2011 the ratio is less than the ideal ratio 1. Here, quick

liabilities are twice when compared with quick assets. Hence, this position is not healthy for

the soundness of the business.


30/40


31/40

5.3.3. NET WORKING CAPITAL RATIO:

Net working capital represents the excess of current assets over current liabilities.

Net working capital measures the firms potential reservior of funds. Net working capital is a

measures of liquidity.

Net working capital

Net Working capital ratio = ---------------------------------

Capital employed

Net working capital = Current assetsCurrent liabilities

Table 3.16 Net working capital ratio for the year 2007-2011

YearNet working capital

(inRs.)

Net Assets (or)

Capital employed

(inRs.)

Ratio

2007 18 4,791 (0.003)

2008 6 5,746 (0.001)

2009 858 6,932 (0.123)

2010 993 7,355 (0.135)

2011 46 8,221 (0.005)


The table revealed the networking capital ratio from the year 2007 to 2011. The

company borrowed loan for its working capital requirements, because current liabilities were

higher than that of current assets, in every year.

Hence liquidity position is not good.


32/40


33/40

5.3.4. CASH RATIO

Cash ratio means the availability to meet out the current liabilities. This ratio is also

named as Absolute Liquid Ratio. It is the Relationship between the Absolute liquid assets

include cash in hand, cash at bank and marketable securities or temporary investments.

Cash

Cash ratio = -------------------------

Current liabilities

Table 3.17 Cash ratio for the year 2007-2011

Year Cash Current liabilities Ratio

2007 1,489 2,221 0.67

2008 1,438 2,766 0.52

2009 1,876 3,114 0.60

2010 2,288 3,746 0.61

2011 2,832 3,664 0.77


An ideal cash ratio is 0.75:1. This ratio is more regorious measure of a firms liquidity

position. The table indicates from the year 2007 to 2011. For the 5 years the companys cash

position is not sufficient to meet its obligations. Because the five years its position is lower

than ideal ratio.


34/40


35/40

5.4. CAPITAL STRUCTURE RATIOS:

Capital structure ratios are also called as Leverage Ratios and Solvency Ratios.

The long term solvency of a company is affected by the extent of debt used to finance the

assets of the company. These ratios explain how the capital structure of firm is made up or

the debt equity mix adopted by the firm. Long term solvency ratios indicate a firms ability

to meet the fixed interests and repayment schedules associated with its long-term borrowings.

The important capital structure ratios are:

1. Debt-Equity ratio2. Proprietary ratio3. Debt ratio

5.4.1. DEBTEQUITY RATIO:

The debt-equity ratio is calculated to ascertain the soundness of the long-termfinancial policies of the company. It is also known as External - Internal equity ratio. The

relationship between borrowed funds and owners capital is popular measure of the long-term

financial solvency of the firm. The relationship is shown by the debt-equity ratio. The ratio

is

Long-term debt

Debt - equity ratio = ------------------------------------

Shareholders funds

Table 3.18 Debt equity ratio for the year 2007-2011

Year Long-term debt Share holders funds

DebtEquity

Ratio

%

2007 324.69 4058.72 .08

2008 394.21 4,927.73 .08

2009 541.45 6,016.22 .09

2010 646.95 6,469.49 .10

2011 503.49 7,192.27 .07


The table dealt with debt equity ratio from the year 2007 to 2011. The standard norm

is 1:1. The company has borrowed more long-term debt for its operation. It is not healthy for

the soundness of the firm. A high debt-equity ratio indicates that the claim of outsiders are

greater than those of owners. Hence, this position affect the financial position of the concern


36/40

.


37/40

5.4.2. PROPRIETARY RATIO:

Proprietary ratio is variant of debt-equity ratio. Proprietary ratio establishes

relationship between the proprietors funds and the total tangible assets. This ratio focused

the attention on the general financial strength of the business enterprise. This is of particular

importance to the creditors who find out the proportion of shareholders funds in the total

assets employed in the business.

Total Shareholders Fund

Proprietary Ratio = -----------------------------------

Total Tangible Assets

Table 3.19 Proprietary ratio for the year 2007-2011

Year Share holders funds Total tangible AssetsProprietary ratio

%

2007 4058.72 2793.56 1.45

2008 4,927.73 3,446.16 1.43

2009 6,016.22 4,129.10 1.46

2010 6,469.49 5,059.63 1.28

2011 7,192.27 6,206.26 1.15


The proprietary ratio for the year 2007 is 1.45% and subsequently it deceased to (1.15

in 2010-11). The company fails to improve or retain its shareholders funds. Higher the ratio

or the share of shareholders in the total capital of the company, better is the long term

solvency position of the company.


38/40


39/40

5.4.3. DEBT RATIO:

Debt ratios may be used to analyze the long-term solvency of a firm. The firm may

be interested in knowing the proportion of the interest bearing debt in the capital structure. It

may therefore, compute debt ratio by dividing total debt by capital employed or net assets.

Total debt

Debt ratio = -----------------------------

Net asset

Table.3.20 Debt ratio for the year 2007-2011

YearTotal debt

Total Tangible AssetsDebt ratio

%

2007 306.41 2793.56 10.96

2008 482.03 3,446.16 13.98

2009 566.92 4,129.10 13.72

2010 523.82 5,059.63 10.35

2011 510.73 6,206.26 8.23


The debt ratio for the year 2007 is 10.96% and it is has increased subsequently to

13.72 in the year 2008-09. This position was not good to conduct business in future. Hence,

the company has to take necessary step to avoid borrowing loan from bank or others. Huge

debts carries huge amount of interest, it affects the profitability of the concern.


40/40

a report on acc cements

Documents