DISSERTATION ON FINANCIAL STATEMENT ANALYSIS CARRIED OUT AT

Mangalam Cement Ltd.

UNDER THE GUIDANCE OF Mr. V. G. HARKUT

PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH.

INDORE

SUBMITTED BY: Vineet kimtee B.B.A. 5TH SEM. ROLL NO.90400

ACKNOWLEDGMENT

I acknowledge with thanks the valuable advice and immense guidance rendered to me by my company guide, Mr. R.C. Gupta, President (F&A) and Company Secretary of Mangalam Cement Ltd. In spite of his busy schedule, he spared and spent time to help me execute this project. Mr. V.G. Harkut, Manager (Finance), Mangalam Cement Ltd, provided me various information and data in compiling this project, to whom I express my grateful thanks. An authority in finance matters and company affairs, his wholehearted help would always remain an unfading light in my thoughts and actions.

I also thank my faculty guide, Ms. Priyanka Jain whose advice and encouragement throughout, stood as a moving spirit behind compilation of the project, Financial statement Analysis of Mangalam Cement Ltd.

My grateful thanks are also due to Mr. A.S.Dadhich and Mr. S.K.Shringi of Stores department, Mr.Anil Mandot and Mr. Ashok Jain of Accounts Department and Mr. Ajit Singhvi of Purchase Department of Mangalam Cement Ltd., for their sincere, cordial and

unstinted guidance and support throughout the course of this project.

INDEX

S.N o. 1.

Particulars Introduction a. Cement b. Types of Cement c. Domestic players

Page No.

About MCL

2.

Introduction of the report b. Need and significance of the study

3.

Research methodology a. Typology of the study b. Sources of data Calculation and interpretation 3

4.

Abstract:

The Project is being conducted at Mangalam Cement Ltd. Morak, a company of B.K. Bola Group of Companies. The project concentrates on the financial statement analysis of the organization. The project is all about analysis of the companys financial statements. The project demands for a thorough study of various tools and techniques involved in analysis of financial statements, understanding of the various financial statements. The project also includes interpretation of the financial results to derive meaningful information from the statements.

CHAPTER 1
INTRODUCTION

Cement
Cement is a fine, soft, powdery-type substance. In the most general sense of the word, cement is a binder, a substance that sets and hardens independently, and can bind other materials together. The name cement goes back to the Romans who used the term opus caementitium to describe masonry which 5

resembled concrete and was made from crushed rock with burnt lime as binder. Cement is a hydraulic powder material, which reacts with water to produce strength-bearing lattices. The mixture of aggregates, cement and water is concrete. In simple terms, cement is a manmade mineral structure created at high temperatures, mainly comprising lime (CaO), Silica (SiO2) and oxides of aluminium and iron (Al2O3 and Fe2O3). Four essential elements are needed to make cement. They are calcium, silicon, aluminium and iron. Cement is usually grey. White cement can also be found but it is expensive.

Types of cement:
The types of cement in India have increased over the years with the advancement in research, development, and technology. Some of the various types of cement produced in India are: Clinker Cement

Ordinary Portland cement: it has 95 per cent clinker and 5 per cent gypsum and other materials. It accounts for 70 per cent of the total consumption.

Portland Blast Furnace Slag Cement: PBFSC consists of 45 per cent clinker, 5 per cent gypsum and accounts for 10 per cent of the total cement consumed, generally used in the construction of dams and similar massive constructions Portland Pozzolana Cement: PPC has 80 per cent clinker, 15 per cent pozzolona and 5 per cent gypsum and accounts for 18 per cent of the total cement consumption. It is manufactured because it uses fly ash/burnt clay/coal waste as the main ingredient. Rapid Hardening Portland cement: Rapid Hardening Portland Cement is similar to OPC, except that it is ground much finer. Water proof cement: Water Proof Cement is similar to OPC, with a small portion of calcium stearate or non- saponifiable oil to impart waterproofing properties. White Cement: White cement is basically OPC clinker using fuel oil (instead of coal) with iron oxide content below 0.4 percent to ensure whiteness. A special cooling technique is used in its production. Sulphate Resisting Portland Cement

Portland Pozzolana Cement, Ordinary Portland cement, and Portland Blast Furnace Slag Cement account for around 99% of the total cement production.

Leading Domestic Players While the Cement Corporation of India, a central public sector undertaking, comprises 10 units; the various State governments own 10 large cement plants. Among the leading domestic players in terms of cement manufacturing are: 1. Ambuja Cement 2. Birla Group 3. Associated Cement Companies Ltd 4. Binani Cement 5. J K Cement.

MANGALAM CEMENT LIMITED:

Mangalam Cement Limited was incorporated on 25 October 1976, and was promoted by Kesoram Industries, Century Textiles and Industries, Grasim Industries, Rajasthan State Industrial and Mineral Development Corporation and Pilani Investment Corporation in the year 1978. It was started with an initial investment of 25 crores. It is a professionally managed 8 and well-established cement

manufacturing company enjoying the confidence of consumers because of its superior quality product and excellent customer service. The company started its commercial production in March 1981 with an installed capacity of 4 lakh tonnes p.a. and is engaged in the manufacturing of Ordinary Portland cement, Pozzolana Portland cement by the use of dry processes at the Morak facility in Rajasthan. The company sells the cement under the brand name Birla Uttam. The company added one more feather to its cap in the year 1994; by commissioning its state of the art new cement plant, with German technology for producing 7 lakh tonnes p.a. cement at its existing site at Morak, Distt. Kota, Rajasthan, under the name Neer Shree Cement. The new plant is completely computerized. Some of the latest equipments form the unique feature for the plant: Vibrating Screen, to ensure that only very clean limestone goes into the process of manufacturing cement; Stacker Reclaimer, to perfectly homogenize the main raw material i.e. limestone; Roller Mills, for coal and raw material grinding and roller press for clinker grinding to ensure uniform particle size of cement for greater strength; X-Ray Analyser, for quick and accurate analysis of all raw materials, clinker and cement and Electronic Packers, for consistent results and prompt delivery. A central control room (CCR) is there which controls the whole unit electronically.

The company has taken up various schemes for cost saving and enhancement in the capacity in phased manner. With a view to reducing power cost, the company has set up a coal based 17.5 MW Captive Thermal Power plant, The company is operating its both the units at more than 100% capacity. In order to increase the production, the company has taken steps for up gradation of its existing plants to increase clinker production capacity of Unit-I by 500 MT per day and of Unit-II by 200MT per day.

The company has enjoyed cordial relations with its

employees at all levels, which have accounted for accelerated growth of the company. The company is well aware of its social responsibilities

and thus has taken up a number of development projects in the nearby villages. The company is also taking steps to control pollution by

improving its environmental performance and controlling the impact of its activities on the environment. The company also creates environment awareness among employees by celebrating Environment Day. Performance of all Pollution Control Equipments is monitored by a qualified team having latest monitoring equipments. All equipments are designed and located to conform to the noise norms in order to avoid noise pollution.

The company operates in northern region with a key presence in the markets of Rajasthan, Western U.P., Gujarat and Delhi. The company has a market share of 5.5% in northern India. It has 29 offices across five states of Haryana, Madhya Pradesh, Rajasthan, Uttar Pradesh and Delhi.

10

Corporate Vision:
The company belongs to B.K. Birla Group of Companies. The group has a corporate vision which is as follows:

Cement manufacturing process at Mangalam: using advanced technology :

At MANGALAM (old plant): at NEER SHREE (new plant) All processes controlled by CCR. The raw materials mixture is prepared by mixing local limestone (morak), high grade and latterite. The raw materials are next ground together in a raw mill. Raw mill is the equipment used to grind raw materials into raw mix during the manufacture of cement. Then the material goes through following stages:

Storage

silos

in

which

raw

material

is

fed

(capacity

4000tonnes, 2 silos), at NEER SHREE (new plant) (capacity 8000 tonnes). When air is introduced material comes out and through conveyors and elevators fed to constant head feeder (a head of material kept constant there).

11

 After that Weigh feeder then controls the amount to be fed to pre-heaters with the help of chain conveyor which transfers R/M to pre heaters through elevators. In pre heater 4 cyclones are there having different

temperatures to heat material before entering into kiln. The temperature in the cyclones varies from 380C to 850C. Finally the heated material enters into kiln. The cement kiln consists of a tube made from steel plate, and lined with firebrick. The tube slopes slightly (1-4) and slowly rotates on its axis at between 30 and 250 revolutions per hour. The raw mixture is heated up to a peak temperature of 1400-1450 C. The mixture of raw materials enters at the high end of the cylinder and slowly moves along the length of the kiln due to the constant rotation and inclination. At the low end of the kiln, a fuel is injected and burned, thus providing the heat necessary to make the materials react. As the mixture moves down the cylinder, it progresses through different stages of transformation. Clinker is the solid material produced by the cement kiln stage that has sintered into lumps or nodules, typically In of diameter,1-25 those mm. Clinker is are called discharged and on cooling, it is conveyed to storage bins(gantry). CSPs(bins) Finally gypsum is added and grinded into clinkers to form cement which is then packed through electronic packers. Neer shree gantries

The chemical composition for a typical Portland cement is as follows: Cement Compound Tricalcium silicate Dicalcium silicate Tricalcium aluminate Weight Percentage 50 % 25 % 10 % 12 Chemical Formula 3CaO.SiO2 2CaO.SiO2 3CaO .Al2O3

Tetracalcium aluminoferrite Gypsum

10 % 5%

4CaO.Al2O3.Fe2 O3 CaSO4.2H2O

Cement mill is the equipment used to grind the hard, nodular clinker into the fine grey powder that is cement.

FINANCIAL STATEMENT ANALYSIS 13

Financial statements are prepared by the company for the purpose of presenting a periodical review or report on the progress by the management. According to Accounting Standards, the term financial statements covers balance sheets, income statements or profit and loss accounts, notes and other statements and explanatory material which are identified as being part of the financial statements. The financial statements based on accounting policies, vary from enterprise to enterprise, and must be clear and understandable. Financial statement analysis pinpoints the strong points and weaknesses of a business unit, and provides scope for understanding the liquidity, solvency, profitability and operational efficiency of the business concerned. A number of parties and bodies like banks, trade unions, important customers etc. have an interest in the financial results of a company. Financial analysis reduces reliance on guesses and thus helps reducing uncertainty. Financial analysis does not lessen the need for judgment rather establishes a sound and systematic basis for its rational application.

14

Need and significance of the study:This study would help to determine that how was this year as compared to previous years because inflation, recession, capacity expansion all happened this year. So this study would provide in depth knowledge of how the companys financial figures were affected and what all changes have occurred in financial statements, finally whose analysis is done through ratios and working capital which reveal the changes so far. The project is all about analysis of the companys last five years financial statements. The project demands for a thorough study of various tools and techniques involved in analysis of financial statements, understanding of the various financial statements to derive meaningful information from the statements. Financial statements (or financial reports) are formal records of business financial activities. These statements provide an overview of a business profitability and financial condition in both short and long term.

There are three basic financial statements: 1.Balance Sheet - often described as a snapshot of the companys financial condition (also referred to as statement of financial condition) 2.Income Statement - also referred to as Profit or loss statement, reports on a companys results of operations over a period of time. 15

3.Cash Flow Statement - reports on a companys cash flow activities, particularly its operating, investing and financing activities

Generally, users of financial statement are: 1. Internal Users: are owners, managers, employees and other parties who are directly connected with a company. 2. External Users: are potential investors, banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analysis are often used by investors and is prepared by professionals (Financial Analysts), thus providing them with the basis in making investment decisions. Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities to finance expansion and other significant expenditures. Government entities (Tax Authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. Media and the general public are also interested in financial statements for a variety of reasons. Financial analysis reduces reliance on guesses and thus helps reducing uncertainty. Financial analysis does not lessen the need for judgment rather establishes a sound and systematic basis for its rational application. 16

It also helps to understand how various tools can be used to analyse the position of company.

Scope of the study:The primary focus of the study is on the financial statement analysis of Mangalam Cement Limited. Among the tools used are: - ratio analysis, The reference period is five years for ratio analysis......

Ratio analysis
Meaning of ratio: Relationship between two figures, expressed in arithmetical terms is called a ratio. In the words of R.N. Anthony: A ratio is simply one number expressed in terms of another. It is found by dividing one number into the other. Ratio may be expressed in the following four ways: 1.Proportion or pure ratio or simple ratio: - it is expressed by simple division of one number by another. 2.Rate or so many times: - In this type, it is calculated how many times a figure is, in comparison to another figure. 3.Percentage: - in this type, the relationship between two figure is expressed in hundredth. 4.Fraction: - say, net profit is one- fifth of capital

Objective of ratio analysis:

17

 To locate the weak spots of business which need more attention. To provide deeper analysis of liquidity, solvency, activity and profitability of the business. To provide information for making cross- sectional analysis i.e. for making comparison with that of some selected firms in the same industry. To provide information for making time- series analysis i.e. for making comparison of a firms present ratios with its past ratios. To provide information useful for making estimates and preparing the plans for the future. Classification of ratios:

Ratios may be classified into the four categories as follows: Liquidity ratios Solvency ratios Activity or turnover ratios Profitability ratios or income ratios

I. Liquidity ratios: liquidity refers to the ability of the firm to meet its current liabilities. Also called as short term solvency ratios. They indicate the firms ability to meet its current obligations out of current resources. Liquidity ratios include two ratios:1. Current ratio or working capital ratio: Current ratio may be defined as the relationship between current assets and current liabilities. This is a measure of general liquidity and is most widely

18

used to make the analysis of a short-term financial position of a firm.

Current ratio = current assets/current liabilities

2. Quick ratio or acid test ratio: Quick ratio also known as acid test or liquid ratio is a more rigorous test of liquidity than the current ratio. Quick ratio may be defined as the relationship between liquid asset and current liabilities. If a company looks good while testing it against current ratio, then quick ratio should be the next test to apply. Companies with steadily rising inventories may look good with the current ratio, but will have a deteriorating effect on the quick ratio, since we subtract the inventory out. Therefore it is more stringent test of liquidity. The quick ratio rising over time is favourable. Quick ratio = liquid assets/current liabilities

19

II. Activity Ratios

These ratios help in commenting on the efficiency of the firm in managing its assets. The speed with which assets are converted into sales is captured by activity ratios. The activity of any business enterprise is reflected by the volume of sales it is able to generate. All assets are used by the business in the quest of generating sales. So, one can comment on the efficiency of different assets in relation to sales generated during a defined period. There are four ratios in this group, which are:

1. Accounts Receivables Turnover Ratio This ratio measures the efficiency with which the debtors are converted into cash. This ratio indicates both the quality of debtors and the collection efforts of the business enterprise. The ratio is calculated as

Accounts Receivables turnover Ratio = average debtors

Net credit sales /

A high or increasing Accounts Receivable Turnover shows the company is successfully executing its credit policies. A possible negative aspect indicates the company may be too strict in its credit policies and missing out on potential sales.

20

2. Inventory Turnover Ratio

Inventory turnover ratio measures the efficiency with which inventory has been converted into sales. The ratio is calculated as Inventory Turnover Ratio = Inventory Cost of Goods Sold / Average

A higher inventory turnover ratio is considered a positive indicator of operating efficiency, since inventory that remains in place produces no revenue and increases the cost associated with maintaining those inventories. Carrying high inventory costs the organization and reduces its profits. On the other hand, carrying insufficient inventory saves the costs and creates opportunity cost for lost sales because of stock out.

3. Working Capital Turnover Ratio

The Working Capital Turnover ratio measures the companys Net Sales from the Working Capital generated. The ratio is calculated as Working Capital Turnover Ratio = Working Capital cost of goods sold /

A high or increasing Working Capital Turnover is usually a positive sign, showing the company is better able to generate sales from its Working Capital. Either the company has been able to gain more Net Sales with the same or smaller 21

amount of Working Capital, or it has been able to reduce its Working Capital while being able to maintain its sales.

4. Fixed assets turnover ratio This ratio is of particular importance in manufacturing firms where the investment in fixed assets is quite high. This ratio reveals how efficiently the fixed assets are being utilised. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilisation of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year.

Fixed assets turnover ratio = cost of good sold / net fixed assets

III.Profitability Ratios
Profit is important for every business enterprise. It is so because without profits a business will find it difficult to attract capital, and assure its creditors and owners regarding the safety of their funds. Further, profit acts as a touchstone to comment on the soundness (or otherwise) of the policies and decisions of the management. These ratios measure the efficiency of the firms activities and its ability to generate profits.

22

1. Gross Profit Margin Ratio Gross profit ratio is the ratio of gross profit to sales. The gross profit ratio represents the excess of what the concern is able to charge as sale price over the cost of purchasing/manufacturing the goods. This excess is available to meet other operating expenses (administrative, selling and distribution expenses), interest on borrowings and income tax. The ratio is calculated as Gross Profit Margin Ratio= Gross Profit / Net Sales

The higher the Gross Profit Margin, the better the company is able to control costs - either by reducing the costs of production of their products or services, or passing some of the costs to the customer.

2. Net Profit Margin Ratio

The Net Profit Margin measures the Net Earnings in relation to the Net Sales. After all the bills are paid and expenses covered, this ratio measures how much net profit remains out of each rupee of sales. The ratio is calculated as Net Profit Margin Ratio= Net Profit / Net Sales

As with the other margin ratios, the higher the Net Profit Margin, the better. Taxes, Interest, and expenses not associated 23

with operations will lower this ratio compared to the other margin ratios.

3. Return on capital employed This ratio reflects overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. The term capital employed here refers to long-term funds deployed in the enterprise. Return on capital = profit after interest, tax and dividends / capital employed * 100

It measures how efficiently the capital employed in the business is being used. It can be used to judge the borrowing policy of enterprise. Lenders like bankers and financial institutions will be able to determine whether the enterprise is viable for giving credit or extending loans or not. With its help shareholders can also find out whether they will receive regular and higher dividend or not. 4. Return on total shareholders funds:

This ratio reveals how profitably the proprietors funds have been utilised by the firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability and strength of the firm.

Return on Equity = PAT / total shareholders funds *100

24

5. Earnings per Share

This number represents the profit of the company equally split among each share of the stock. In essence, if you own one share of the company, how much of that profit is designated to your share. The ratio is calculated as Earnings per Share = shares Net Income (PAT) / no. of equity

As a companys earnings increase, Earnings per share will look better, but certain things affect Earning Per Share: share buybacks the company may conduct (resulting in less shares), or the company releasing more shares, which increases the number of total shares further diluting the Net Earnings.

6. Price- Earnings Ratio The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the income or profit earned by the firm per share. The ratio is calculated as Price- Earnings Ratio = share Market Price of the Share / earnings per

25

By relating price and earnings per share for a company, one can analyze the markets valuation of a companys shares relative to the income the company is actually generating. A higher P/E ratio means that investors are paying more for each unit of income.

IV.Leverage Ratios
These ratios analyses the long- term solvency of a firm. The term solvency implies the ability of the enterprise to meet its obligations on the due date. Long-term lenders are primarily interested in this type of analysis. A long-term lender of funds is basically interested in two things. The safety of principal which is to be given by way of a loan, and regular servicing of the loan, in the form of payment of interest commitments and repayment of instalment of loan. To capture these two aspects of long-term liquidity these ratios are calculated.

1. Debt- Equity Ratio Debt-equity ratio refers to the relationship of the long-term debt and the equity of the enterprise. Long-term lender wants to know about the status of outsiders long- term funds being used by a business enterprise vis--vis owners funds. The ratio is calculated as 26

Debt- Equity =

Debt / equity Or

Debt equity = long term loans / shareholders funds Generally debt equity ratio of 2:1 is considered safe. The higher is the ratio the more risky is the financial position of the company from long term point of view (as it indicates that more and more funds invested in the business are provided by long term lenders). This ratio helps in measuring the financial risk of the company as well as to forecast future borrowing prospects. 2. Debt to total funds ratio: In this ratio debt is expressed in relation to total funds. Debt to total funds ratio = debt / equity + debt Or Debts to total funds ratio = long term loans / shareholders funds + long term loans

Generally debt to total funds ratio of 0.67:1 is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds. A higher ratio than this 27

is generally treated an indicator of bad financial position from the long term point of view, because it means that the firm depends too much upon outside loans for its existence.

1. Proprietary ratio: This ratio indicates the proportion of total assets funded by owners or shareholders. Proprietary ratio = shareholders funds / total assets

A higher ratio is generally treated an indicator of sound financial position from long term point of view, because it means that a proportion of total assets is provided by equity and hence the firm is less dependent on external sources of finance. On the contrary, a low proprietary ratio is a dangerous for long term lenders as it indicates a low margin of safety available to them. Lower the ratio, the less secured are the long term loans and they face the risk of losing their money.

4. Interest Coverage Ratio The Interest Coverage Ratio measures how readily the company can pay its Interest Expense payments on its debt obligations. The ratio is calculated as Interest Coverage Ratio = net profit before interest and tax / fixed interest charges

28

A high or increasing Interest Coverage Ratio is usually a positive sign, showing the company is better able to pay its Interest Expense with its earnings.

29

RESEARCH METHODOLOGY It is a scientific and systematic search for pertinent information on a specific topic. TYPOLOGY OF THE STUDY This study is appraising the financial position of the firm by using various tools for financial statement analysis. Therefore it has an evaluative component. It also contains statistical analysis of quantitative data; therefore it is an analytical study also.

SOURCES OF THE DATA Our method of study was primarily based on the collection of companys financial statements therefore source was basically secondary data. The secondary data is that data which has already been collected by some one else and which have already been passed through the statistical process. The source used for the purpose of collecting secondary data was: The company executives told various details about companys financial report, also gave us annual reports whose observation made our task easy. We also met their manager of store, purchase, marketing and personnel to have in depth knowledge of their working and effect of all environmental changes on their working. 30

Data processing and analysis plan Several approaches were followed to make it a meaningful study. These include informal discussions with finance manger of the firm as well as with executives of other department. For the quantitative data analysis is in the form of description and interpretation. The quantitative data was statistically processed to form frequency distribution line diagrams. Appropriate statistical measures were employed to arrive at presentable formats, mostly charts. For ratio analysis first the data was processed then line diagram was made and finally it was interpreted to draw useful information for the study and firm as well.

31

LIQUIDITY RATIOS: a. CURRENT RATIO YEAR CURRENT ASSETS CURRENT LIABILITIES 2010 2009 2008 22051.31 18417.53 11183.62 32 14758.16 10668.55 5766.89 RATIO C.L.) 1.49 1.73 1.93 (C.A. /

2007 2006

8256.20 5990.15

3857.03 2641.89

2.14 2.27

Current ratio for the year 2009-2010 has decreased as compared to previous year. Current ratio is constantly falling since 2007 because of increase in current liabilities. Before that it was above 2:1 which is an ideal one. No doubt current assets have also increased over the years but because of proportionate increase in current liabilities this ratio has fallen indicating not so good short term financial position of company.

b. QUICK RATIO YEAR LIQUID ASSETS CURRENT LIABILITIES 14758.16 10668.55 5766.89 3857.03 2641.89 RATIO /C.L.) 1.18 0.93 1.19 1.25 1.15 (L.A.

(C.A.- stock) 2010 2009 2008 2007 2006 17426.19 9925.35 6865.39 4838.95 3044.66

33

r y 0 1 Q a e . u t a 8 6 4 9 2 1 i i r 8 3 9 5 c o 2 k 0 1 0 R 0 9 8 7 6

a t i o

Current ratio does not disclose true short term financial position of company as it may include a large amount of stock which may not be quickly convertible into cash. Quick ratio removes this shortcoming by excluding the amount of stock. Quick ratio of the company is showing remarkable improvement if compared with last year. The more it is, the better it is as it indicates sound financial position of company, relief for companys short term creditors.

Turnover ratios:
a. INVENTORY TURNOVER RATIO Year Cost of goods Average stock sold 2010 2009 2008 2007 40214.07 34938.09 31680.24 32232.02 34 4625.12 8492.18 4318.23 3417.25 8.69 4.11 7.33 9.43 Ratio

2006

26463.79

2945.49

8.98

R Y y 1 6 2 0 4 7 9 8 I a e 0 . n t a 6 1 3 4 9 v i r 9 1 3 8 o e 2 n 0 t 1 0 0 9 8 7 6 o

r y T u r n o v e r R a t i o

This ratio has shown improvement when compared with last years score. But the highest value during these 5 yrs was in the year 2006 indicating stocks efficient utilisation. It shows the frequency with which the stock is rotated into sales. In 2010, situation is better than 2009 which means stock is selling quickly. This also means that stock policy of the management is efficient.

b. WORKING CAPITAL TURNOVER RATIO Year Cost of goods Working sold 2010 40214.07 35 capital 7293.15 5.51 Ratio

2009 2008 2007 2006

34938.09 31680.24 32232.02 26463.79

7748.99 5416.73 4399.17 3348.26

4.51 5.84 7.32 7.90

R Y y 9 8 6 3 2 1 0 4 5 7 R W a e y . a o t a e 5 8 3 9 t r i r a 1 4 2 i k o r 2 o i 0 2 n 1 0 g 9 8 7 0 6

C a p i t a l T u r n o v e r R a t i o

This years working capital turnover ratio is better than last year meaning more efficient use of working capital. It shows that this FY working capital has been rotated more no. of times in producing sales. The least working capital ratio is in the year

36

2009 which means under-utilisation of working capital. This means most efficiently working capital was used in FY 2006.

c. FIXED ASSETS TURNOVER RATIO Year Cost of goods Net sold 2010 2009 2008 2007 2006 40214.07 34938.09 31680.24 32232.02 26463.79 assets 28131.33 25785.89 19417.38 12853.12 11272.75 1.42 1.35 1.63 2.50 2.34 fixed Ratio

37

R A Y y 3 0 1 2 F a m e . i t o a 4 6 5 3 x i u r 2 5 3 4 o n e t 2 d 0 1 0 0 9 8 7 6 A

s s e t s T u r n o v e r R a t i o

This ratio is of particular importance in manufacturing firms where the investment in fixed assets is quite high. This ratio reveals how efficiently the fixed assets are being utilised. This years ratio is higher than previous year thereby meaning that fixed assets are being efficiently utilised than last year. Highest value was in FY 2007. This means after that fixed assets are not as efficiently utilised as in 2007.

Leverage ratios:
38

a. DEBT EQUITY RATIO Year Long-term loans 2010 2009 2008 2007 2006 1551.39 7239.34 7656.17 4370.07 10370.46 29433.19 22206.52 15269.19 11242.47 8104.81 0.052 0.326 0.50 0.39 1.28 Net worth Ratio

r R Y y 0 1 D a e . e t a 8 6 4 0 5 3 2 b i r 5 2 9 8 o 2 6 t 2 0 1 0 0 9 8 7 6 E

q u i t y R a t i o

Ideal debt-equity ratio is 2:1. Lower values indicate better position of firm from long term lenders point of view. High debt-equity ratio is a danger signal for them. This firms lower values since 2007 indicate less of funds invested in business are provided by long term lenders. It shows long term financial position of company is sound. This means more funds provided by the owners i.e. shareholders. b. DEBT TO TOTAL FUNDS RATIO

39

Year

Long-term loans

Net

worth

+long Ratio

term loan 30984.58 29445.86 22925.36 15612.54 18475.27 0.050 0.25 0.33 0.28 0.56

2010 2009 2008 2007 2006

1551.39 7239.34 7656.17 4370.07 10370.46

R A Y y 0 D a m e . e t o a 6 4 1 0 3 2 5 b i u r 5 3 8 6 t o n t 2 0 t 1 0 o 0 9 8 7 6

T o t a l F u n d s R a t i o

Satisfactory value of this ratio is 0.67:1(67%). A higher ratio than this is considered bad because it means firm is dependent too much upon outside loans for its existence. This implies proportion of long term loans should not be more than 67% of total funds. In the year

40

2010 it is very less, only 5%. During all these 5 years the value was well below 67%. It is good from long term solvency point of view.

c. PROPRIETARY RATIO Year Shareholders funds 2010 2009 2008 2007 2006 29433.19 22206.52 15269.19 11242.47 8104.81 Fixed assets + Ratio C.A. 50990.74 44800.41 30711.25 21219.57 17373.15 0.58 0.49 0.50 0.53 0.47

R Rati Y y 0 P a o e . r t a 7 6 3 2 1 5 4 o i r 8 9 3 7 p o 2 r 0 i 1 0 e 0 9 8 7 6

t a r y

R a t i o

A higher proprietary ratio is generally treated an indicator of sound financial position from long term point of view, because it means that firm is less dependent on external sources of finance. This FY firm has highest proprietary ratio thereby meaning that 41

firm took least amount of loans and more proportion of assets provided by equity.

d. Year

INTEREST COVERAGE RATIO PBIT Fixed interest Ratio

charges 2010 2009 2008 2007 2006 16200.86 16049.80 13918.60 10717.25 3828.01 317.66 294.64 129.00 860.32 1072.97 51.0 54.47 107.89 12.45 3.56

This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures margin of safety for long term lenders. The higher the ratio, more secure the lender is in respect of payment of interest regularly. This ratio is satisfactory for this firm. Its values are higher and improving indicating firm is able to pay the interest on long term loans regularly. Long term solvency position of the firm is quite satisfactory. The firm also is less dependent on external sources of 42

finance, therefore has to give less of interest. Therefore this ratio of the firm appears satisfactory. PROFITABILITY RATIOS: a) GROSS PROFIT RATIO YEAR GROSS PROFIT NET SALES RATIO /N.S.) 2010 2009 2008 2007 2006 16200.86 16049.8 13918.60 10717.25 3828.01 56414.93 50987.89 45598.84 42949.27 30291.8 28.72% 31.5% 30.52% 24.95% 12.64% (G.P.

Gross profit ratio has declined in 2009-2010 if we compare it with last 2 years. There is increase in net sales in 2010 as compared to previous year but gross profit has not increased in proportion. No ideal standard is fixed for this ratio but it should be sufficient enough to cover the operating expenses as well as interest on loans (which was least this year), depreciation, dividends. If gross profit has declined this year reason may be the hike in prices of materials purchased (like fuel, raw material etc. because of inflation), freight, wages, direct charges etc. but the selling price

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may not have gone up(because of a bit slowdown in demand due to recession) in proportion to the increase in costs.

b) NET PROFIT RATIO YEAR NET PROFIT NET SALES RATIO (N.P. / N.S.) 2010 2009 2008 2007 2006 9716.4 11354.97 8385.74 6902.36 1677.33 56414.93 50987.89 45598.84 42949.27 30291.80 17.22% 22.27% 18.39% 16.07% 5.54%

Net profit ratio has also declined as compared to previous year. This means decrease in the profitability and efficiency of business. Net profit was less this year as compared to last year. In the year 2009 net sales as well as net profit increased proportionately as compared to last year which led to its very good performance in the last 5 years. c) RETURN ON CAPITAL EMPLOYED YEAR
Profit before int., tax Capital & div.

Ratio

employed 44

2010 2009 2008 2007 2006

16200.86 16049.80 13918.60 10717.25 3828.01

36232.58 34131.86 25444.36 17362.54 14731.26

44.71% 47.02% 54.70% 61.7% 25.98%

R Y y 7 3 1 0 4 5 6 2 R a e 0 7 4 1 5 a O t a . t C i r 0 7 9 i E o 2 8 2 o 0 1 0 0 9 8 7 6

ROCE ratio is falling since 2008 after having a peak value in the year 2007. In the year 2010 it is lower than previous year. It measures how efficiently the capital employed in the business is being used. Though the value has decreased but is still satisfactory to conclude that shareholders will receive regular dividends.

d) Return on total shareholders funds Year Net profit after Total int & tax shareholders funds 45 Ratio

2010 2009 2008 2006 2005

9716.40 11354.97 8385.74 6902.36 1677.33

29433.19 22206.52 15269.19 11242.47 8104.81

33.01% 51.13% 54.91% 61.4% 20.7%

R A Y y 7 4 1 0 3 5 6 2 R a m e 3 4 1 0 O t o a . T i u r 0 1 9 4 7 S o n 3 1 t 2 F 0 1 0 0 9 8 7 6

This ratio reveals how profitably the proprietors funds have been utilised. This value is also satisfactory for the firm but the highest value is in the year 2007 i.e. best utilisation of their funds was in 2007 followed by 2008. In the current year this value is quite low than last year decreasing the amount of dividend that can be offered to the shareholders because of decrease in net profit.

e) Earning per share Year Net profit- div. No. of equity Ratio shares 2010 971640000 46 28033198 34.7

2009 2008 2007 2006

1135497000 838574000 690236000 167733000

28246758 28246758 28246758 28246758

40.2 29.7 24.4 05.9

r R Y y 1 0 3 4 2 5 E a e 5 0 9 4 . P t a . 9 S i r 2 7 4 o 2 0 1 0 0 9 8 7 6

Because of decrease in net profit as seen in above case also EPS has decreased for this FY 2010 in spite of buy back of shares. It was at its peak during last year. It means the capacity of firm has decreased in declaring dividends on equity shares.

INTERPRETATION:
Companys short term liquidity position is sound as shown by its quick ratio indicating company is in position to pay off its liabilities, if required, within a year. 47

Turnover ratios for the year 2007 are very good indicating efficient utilisation of resources or assets to produce sales.

For the current year inventorys utilisation to produce sales is satisfactory but working capital is under utilised.

Long term solvency position of the firm is quite satisfactory. Firm is less dependent on external sources of finance. Proprietary ratio is highest this year indicating more proportion of assets provided by equity.

Gross profit ratio as well as net profit ratio has declined this year as compared to last year decreasing the return on capital employed, return on total shareholders funds and earning per share.

This shows more of expenditure in producing sales because the firm has undergone capacity expansion this year (more than 1 lacs MT)

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APPENDIX

Balance Sheet of Mangalam cement Ltd.

Schedule Rs. In lacs 49 31st march , 2010 Rs. In lacs

I. Sources of funds 1 Shareholders' Funds a. Capital b. Reserves & Surplus 2. Loan Funds a. Secured Loans b. Unsecured Loans Deferred Tax Liabilities (Net) Total II. Application of funds 1. Fixed Assets a. Gross Block b. Less: Dep./ Amortisation c. Net Block d. Capital work in progress

1 2

2803.32 26629.87 29433.19

3 4

654.65 896.74 1551.39 5248 36232.58

50151.86 22498.04 27653.82 477.51 28131.33

2. Investments

808.1

3. Current Assets, Loans & Advances a. Interest Accrued on Investment b. Inventories 7 c. sundry debtors 8 d. cash and bank balances 9 e. loans and advances 10 Less: Current liabilities & Provisions a. Liabilities b. Provisions Net current assets Total

0.15 4625.12 576.35 4407.79 12441.9 22051.31

11 5065.11 9693.05 14758.16 7293.15 36232.58

Profit and Loss Account of Mangalam Cement Ltd.

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Profit & Loss Account For the year ended 31st March, 2010 Schedule I. Income sales (Gross) Less: Excise Duty Sales (Net) Other Income Increase/ (Decrease) in stock TOTAL II. Expenditure Raw Materials consumed Manufacturing, Selling and Admin. expenses TOTAL 31st March,2010 Rs. In Lacs 64631.05 8216.12 56414.93 2575.98 -1313.8 57677.11

12 13

14 15

7412.11 34064.14 41476.25 16200.86 317.66 15883.2 2436.14 9.19 2426.95 13456.25 255.57 13200.68 3450 0.37 34.65 9716.4 14742.88 24459.28

Profit before depreciation & interst Interest and financial charges 16 Profit after interest Depreciation LESS: Recouped from Revaluation Reserve

Profit after Depreciation Exceptional items Loss on sale of investment Profit before tax Provision for tax ADD: Fringe benefit tax Refund Fringe benefit tax Profit after tax Profit brought forward from previous yr. Profit available for appropriations

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III. Appropriations General Reserve proposed div. on equity shares corporate div. tax Surplus carried to balance sheet

2000 1541.83 262.03 20665.42 24459.28 34.41

Basic and diluted EPS(in Lakhs)

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http: // www.mangalamcement.com http:// www.buildeazy.com/newplans/eazylist/cement.html http:// business.mapsofindia.com/cement/types/ Management Accounting and Financial Control: by S.N.Maheshwari. Management Accounting: by Shashi K. Gupta Financial Management: by M.R.Agrawal

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