The document summarizes a study on the working capital management of Madras Cements Limited conducted by S. Balavenkatachalam for a Master's degree. It provides an overview of the company's cement production, sales, financial performance, and challenges faced in 2010-11. It saw a decline in turnover, profits, and earnings per share compared to the previous year due to lower demand growth and excess capacity additions in the cement industry. The objective of the project was to analyze the working capital management of Madras Cements Limited and explore its potential through understanding concepts, ratios, and estimating working capital requirements.

1. A STUDY ON THE WORKING CAPITAL MANAGEMENT OF
MADRAS CEMENTS LIMITED
Report submitted in partial fulfillment of the requirements
For the award of degree in
Master of Business Administration
Submitted by
Bala venkatachalam.s
Register no: 3511110836
Under the guidance of
DR.V.BALASUBRAMAIAN
Apr – May 2012
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2. Reg No – 3511110836
DECLARATION BY THE CANDIDATE
S.BALAVENKATACHALAM
Reg No – 3511110836
I MBA
SRM UNIVERSITY
CHENNAI
I hereby state that the report entitled, “A study on the working
capital management of Madras Cements Limited” was undertaken at
Madras Cements Limited (corporate head office) , R k salai,
Mylapore, Chennai, submitted to SRM UNIVERSITY, Chennai in
partial fulfillment of Master of Business Administration Degree is a
record of original work done by me and no part of this internship
report has been submitted for the award of any other Degree,
Diploma, Fellowship or other similar studies.
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3. ACKNOWLEDGEMENT
I put forth my heart and soul to thank The Almighty for being with me all
through my achievements, success and failures.
I express my sincere and whole hearted gratitude to the management of
Madras Cements Limited, Chennai for giving me a golden opportunity to
pursue a valuable project.
I extend my gratitude to Mr.Ramanarayanan (Manager-Accounts) for
guiding and helping me to solve all kinds of queries regarding the project
work. I would also like to thank him for his valuable suggestions and constant
encouragement at every step of my project work.
I sincerely thank Dr.jayashree suresh, SRM UNIVERSITY, for her
encouragement.
I extend my deep sense of gratitude to Dr.v.Balasubramanian, Faculty, and
SRM UNIVERSITY for providing support guidance and valuable ideas which
helped me to complete this project successfully.
Finally, I extend my heartfelt thanks to my friends and family members who
have been a source of inspiration and support throughout the project.
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4. EXECUTIVE SUMMARY
Madras Cements Ltd. is an India-based company that is principally engaged in the
manufacture of cement, ready mix concrete and dry mortar products. The
Company operates in two segments: cement and power generation from windmills.
The Company’s products include ordinary portland cement, portland pozzolana
cement and wind power. During the fiscal year ended March 31, 2011, the
Company’s cement production was 7.305 million tons; ready mix concrete division
had produced 59,589 cubic meters of concrete; dry mortar division had produced
27,156 tons of dry mortar, and wind farm division had generated 357200000
kilowatts hour.
The project entitled “Working Capital Management in Madras Cements Ltd”
deals in this segment. The term of study was kept limited to make the title true.
The purpose of the report is to get the in depth understanding of the process of
working capital management. With the growing Indian economy and the
government policies for infrastructure the demand for cement is increasing and
seeing this as an opportunity is under taking many new projects for expansion of
the production which are under implementation for increasing the capacity of the
plants. Working capital has been analyzed in two ways – overall study of the
working capital of Madras Cements Ltd and secondly, plant-wise working
capital of Madras cements ltd, since the company has fifteen plants in different
region and each plant has its own working capital.
The performance of the cement division of the company during the year was
satisfactory. During 2010-11 the cement production was 73.05 lacks tonnes,
compared to 80.26 lacks tonnes of the 2009-10.The clinker production at Alathiyur
and Jayanthipuram was lower at 34.96 in 2010-11 lacks tones as compared to
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5. 40.56 lacks tones the previous year of 2009-10 . The cement production at
Alathiyur and Jayanthipuram was lower at 36.31 lack tones as compared to 47.9
lack tones during the previous year. The cement dispatches of Alathiyur and
Jayanthipuram units where 34.89 lack tones as compared to 47.5 lack tones during
last year.
During the 2010-11, the sale of cement was at 72.55 lack tonnes compared to 79.54
lacks tonnes the previous year of 2009-10.
The demand growth for the cement industry as a whole for the year of 2010-11 was
5%, compared to the growth of 11% for the previous year of 2009-10. The growth
percentage is the lowest in last several years.
The Southern Region witnessed a decline of 4% in 2010-11 compared to a growth
of 5% during the previous year of 2009-10. Within the Southern Region, the
States of Andhra Pradesh and Kerala, which are important market segments for the
Company, had witnessed negative growth. Lower infrastructure spending and
slow-down in the realty sector have contributed to this subdued growth. While
there has been a decline in the demand, the cement industry has seen a growth in
the capacity additions on All India basis and specifically in the Southern Region.
These factors have adversely affected the sales volume of the Company for the
year.
It has shown substantial decline in turnover, cash profit, profit before tax
and profit after tax. The total turnover of company has registered a decline of
4.61% in 2010-11 whereas operating profits for the year where lower by 27.10% in
2010-11 mainly on account of decrease in the volume of blended cement in the
overall cement sales, lower realisation and ineffective cost control.
The profit before tax was down by 43.97% at Rs.297.19 crores in 2010-11 as
against Rs.530.45 crores in the previous year of 2009-10. The profit after tax is
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6. 210.98 crores in 2010-11 as against Rs. 353.68 crores in the previous year of
2009-10. EPS was 8.87 as against 14.86 in the previous year.
The objective of this project work is to focus on the working capital of the Madras
Cements Ltd and exploring its potential in the company. The project contain the
basic postulates of working capital, procedure of analysis of working capital, ratio
being used to define the working capital and the impact of working capital in the
company in case of excess or inadequacy. Also, the project contains analysis of
estimation of working capital requirement and the procedure to estimate working
capital requirement in manufacturing and trading concern and from the data
available it can be concluded that it holds a very strong position in the market.
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7. CONTENTS
CHAPTER PARTICULARS PAGE NO
1 INTRODUCTION
1.1 INTRODUCTION ABOUT THE STUDY
1.2 Need of working capital
1.3 Objective of the study
1.4 Scope and design of the study
1.5 Limitations
2 ORGANISATIONAL PROFILE
2.1.Company profile
2.2. Company history
3 INDUSTRY PROFILE
3.1.Cement industry in India
3.2. Cement industry
4 THEORITICAL FRAME WORK
5 DATA ANALYSIS AND INTERPRETATION
6 CONCLUSION
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8. INTRODUCTION
Chapter1
1.1 DEFINITION OF WORKING CAPITAL:
In the words of Prof.S.C.Kuchhal, “Working capital has to be, regarded as one of
the conditioning factors in the long run operations of a firm which is often inclined
to treat it as an issue of short run analysis and decision-making”. In the words of
Shubin, “Working capital is the amount of funds necessary to cover the cost of
operating the enterprise”. In the words of Genestenbug, “Circulating capital means
current assets of a company that are changed in the ordinary course of business
from one form to another as for example from cash to inventories, inventories to
receivables, receivables into cash.
CONCEPTS OF WORKING CAPITAL:-
There are two concepts of working capital:
1.Gross working capital
2.Net working capital.
In the broad sense, the term working capital refers to the gross working capital and
represents the amount of funds invested in current assets. Current assets are those
assets, which in the ordinary course of business can be converted into cash with in
a short period of normally one accounting year. In a narrow sense, the term
working capital refers to the net working capital. Net working capital is the excess
of current assets over current liabilities.
Working capital = Current assets – Current liabilities.
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9. Net working capital may be positive or negative. When the current assets exceed
the current liabilities the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities
which are intended to be paid in the ordinary course of business within a short
period or normally one accounting year out of the current assets or the income of
the business. The gross working capital concept is financial or going concern
whereas net working capital is an accounting of working capital. These two
concepts of working capital are not exclusive; rather both have their own merits.
Gross concept is very suitable to the company form of organization where there is
divorce between ownership, management and control. The net concept of working
capital may be suitable only for proprietary form of organizations such as sole-
trader or partnership firms. However, it may be made clear that as per the general
practice net working capital is referred to simply as working capital
1.2 NEED FOR WORKING CAPITAL
The need for working capital to run the day-to-day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any
amount of working capital. Indeed, firms differ in their requirements of the
working capital. We know that a firm should aim at maximizing the wealth of its
shareholders. In its endeavor to do, a firm should earn sufficiently return from its
operations. Earning a steady amount of profit requires successful sales activity.
The firm has to invest enough funds in current assets for generating sales. Current
assets are needed because sales do not convert into cash instantaneously. There is
always an operating cycle involved in the conversion of sales into cash.
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10. TYPES OF WORKING CAPITAL:
Working capital may be classified in two ways:
a. The basis of concept.
b. On the basis of time.
On the basis of concept, working capital can be further classified into:
a. Gross working capital.
b. Net working capital.
On the basis of time, working capital can be further classified
a. Permanent or Fixed working capital.
b. Temporary or variable working capital.
Gross working capital
Gross working capital is represented by the total sum of all current assets of an
organization. The gross working capital is also known as current capital or
circulating capital.
Net Working capital
Net working capital is the difference between the current liabilities. The concept of
net working capital helps the management to look forward the permanent sources
for financing the working capital. The working capital management has to examine
the proportion of the current assets, which has to be financed by permanent capital
or long term, borrowings.
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11. Permanent working capital.
Permanent working capital is that part of capital, which is permanently ,locked up
in the circulation of current assets and in keeping it’s moving. It can be classified
into:
i. Regular working capital and
ii. Reserve margin working capital.
Regular working capital
It is the minimum amount of liquid capital needed to keep up the circulation of
from cash to inventories to receivables and back again into cash.
Reserve margin working capital
It is the excess over the need for regular working capital that should be provided
for contingencies such as raising prices, business depressions, and strikes, fibers,
unexpected severe competition and special operations such as experiments with
products or with the method of distribution and the like which can be undertaken
only if sufficient funds are available.
Variable working capital
The variable working capital refers and denotes that the amount of funds over and
above the fixed working capital to take care of seasonal shifts etc. This variable
working capital also referred to as fluctuating or temporary working capital and
should be financed by short-term sources of funds.
The variable working capital changes with the volume of business. It maybe sub-
divided into:
I .Seasonal.
ii. Special working capital.
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12. The capital required to meet the seasonal needs of industry is termed as seasonal
working capital. On the other hand the special working capital is that part of the
variable working capital which is required for financing operations such as
inauguration of extensive marketing campaigns and carrying out special jobs and
similar other operations that are outside the usual business of buying, fabricating
and selling.
Excess Working Capital
There are problems associated with excess working capital. Firstly, more funds
would make the management complacent and it may invest this money in
unnecessary accumulation of inventory resulting in locking of investment. There is
another possibility that the firm may think of speculation inventory items in
quantities more than needed and these gains may not be realized due to price
fluctuations. The excess working capital also known as surfeit of working capital,
which promotes accumulation of inventories, permissive, credit policies and slack
collection procedures .Due to excess working capital, complacency develops and
management efficiency deteriorates
Inadequate Working Capital
If working capital is not adequate, the organization will come across certain
problems. The adverse effects of inadequate working capital are business failures,
reduction in profitability and consequent decline in return on investment (ROI).
The company will not be able to take advantage of full capacity utilization and the
growth that is desired cannot be achieved when enough funds are not available at
the right point of time. All the operating plans cannot be successfully implemented
when funds are in short supply. In adequate working capital can also lead to
temporary insolvency of a firm.
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13. FACTORS DETERMINING THE WORKING CAPITAL
REQUIREMENTS:
The working capital requirements of a concern depend upon a large number of
factors such as nature and size of business, the character of their operations, the
length of production cycles, the rate of stock turnover and the state of economic
situation.
1. Nature or character of business
The working capital requirements of a firm basically depend upon the nature of its
business. Public utility undertakings like electricity, water supply and railways
need very limited working capital because they offer cash sales only and supply
services, not products and as such no funds are tied up in inventories and
receivables
2. Size of business/scale of operations
The working capital requirements of a concern are directly influenced by the size
of its business which may be measured in terms of scale of operations. Greater the
size of a business unit, generally large will be the requirements of working capital.
3. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirements of working capital, in such cases, demand upon the
production could be kept either steady by accumulating inventories during slack
periods with a view to meet high demand during the peak season or the production
could be curtailed during the slack season and increased during the peak season.
4. Manufacturing process/length of production cycle
Longer the process period of manufacture, larger is the amount of working capital
required. The longer the manufacturing time, the raw materials and other supplies
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14. have to be carried for a longer period in the process with progressive increment of
labor and service costs before the finished product is finally obtained
5. Seasonal variations
In certain industries raw material is not available throughout the year. They have to
buy raw materials in bulk during the season to ensure an uninterrupted flow and
process them during the entire year.
6. Credit policy
The credit policy of a concern in its dealings with debtors and creditors influence
considerably the requirements of working capital .a concern that purchases its
requirements on credit and sells its products/services on cash requires lesser
amount of working capital.
7. Business cycle
Business cycle refers to alternate expansion and contraction in general an activity
.In a period of i.e. when the business is prosperous there is a need for larger
amount of working capital due to increase in sales, rise in prices, optimistic
expansion of business, etc.
8. Working capital cycle
The working capital cycle starts with the purchase of raw materials and ends with
the realization of cash from the sale of finished products. This cycle involves
purchase of raw materials and stores. Its conversion into stocks of finished goods
through work -in-progress with progressive increment of labor and service costs,
conversions of finished stock into sales, debtors and receivables and ultimately
realization of cash and this cycle continues again from cash to purchase of raw
material and so on.
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15. 9. Price level changes
Changes in the price level also affect the working capital requirements. Generally
the rising prices will require the firm to maintain larger amount of working capital,
as more funds will be required to maintain the same current assets. The effect of
rising prices may be different for different firms.
10. Other factors
Certain other factors such as operating efficiency, management ability,
irregularities of supply, import policy, asset structure, importance of labor ,banking
facilities, etc, also influence the requirements of working capital.
OBJECTIVES:
promote the growth of the cement interest
To promote the customer interest
To identify newer application of cement usage
1.3 OBJECTIVES OF THE STUDY:
1. To Study working capital management in MADRAS CEMENTS Ltd.
2. To Examine an overview of working capital management.
3. To Analyze at the possible remedial measures to improve company’s working
capital performance in the near future.
4. To Evaluate the efficiency of the company in utilizing its Current Assets.
1.4 SCOPE OF THE STUDY
The scope of the study is limited only to MADRAS CEMNTS and is confined to 4
years i.e. 2005-06 to 2008-09 annual reports.
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16. DESIGN OF THE STUDY
METHODOLOGY
The present study is mainly about the working capital management of MADRAS
CEMENTS ltd. On the basis of the objectives of the study it was decided to use
ratio analysis and analysis of individual components of working capital as these are
universally accepted techniques for analyzing the short term liquidity position of
the firm. For the purpose of the analysis the following ratios have been used:
1 WORKING CAPITAL MANAGEMENT RATIOS
1. Working capital ratio/Current ratio.
2. Quick ratio/Acid test ratio.
3. Working capital turnover ratio.
4. Working capital performance ratio.
5. Current asset turnover ratio.
I. CASH MANAGEMENT
1. Cash turnover ratio.
II. INVENTORY MANAGEMENT
1. Raw materials turnover ratio.
2. Work in process turnover ratio.
3. Finished goods turnover ratio
DEBTORS MANGEMENT
1. Debtor’s turnover ratio.
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17. SOURCES:
The study is based on the analysis of data from the annual reports of MADRAS
CEMENTS Ltd. The data used in the present study are mainly of two types:
primary data and secondary data.
1. The primary data is collected through the discussions made with the officials of
MADRAS CEMENTS Ltd.
2.The secondary data is collected through the annual reports published by the
company and company website.
1.5 LIMITATIONS:
The present study limits itself to the study of working capital management. In the
present study the analysis is mainly based on secondary data given in the annual
reports published by MADRASCEMENTS Ltd. The limitations prevailing in the
secondary sources are self evident in the study. Despite their weakness, they
continue to be the only source for comparison of the results of the analysis. The
present study is carried taking this into consideration.
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18. COMPANY
PROFILE
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19. Chapter 3
3.1 COMPANY PROFILE
Company Overview:
Madras Cements Ltd is the flagship company of the Ramco Group, a
well-known business group of South India. It is headquartered at Chennai. The
main product of the company is Portland cement, manufactured in five state-of-the
art production facilities spread over South India, with a current total production
capacity of 10.49 MTPA. The company is the fifth largest cement producer in the
country. Ramco Group is the most popular cement brand in South India. The
company also produces Ready Mix Concrete and Dry Mortar products, and
operates one of the largest wind farms in the country.
Integrated Cement Plants
Ramasamy Raja Nagar, Virudhunagar, Tamil Nadu
Alathiyur, Ariyalur District, Tamil Nadu
Ariyalur, Govindapuram, Ariyalur District, Tamil Nadu
Jayanthipuram, Andhra Pradesh
Mathodu, Chitradurga District, Karnataka
Grinding Units
Uthiramerur, Kanchipuram District, Tamil Nadu
Valapady, Salem District, Tamil Nadu
Kolaghat, Purba Medinipur District, West Bengal
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20. Packing Terminals
Nagercoil Packing Unit, Kumarapuram, Aralvaimozhi, Kanyakumari
District, Tamil Nadu
Hyderabad Packing Plant, Pochampally Road, Malkapur, Nalgonda District,
Andhra Pradesh
State-of-the-Art Research Centre
Ramco Research Development Centre (RRDC), Chennai
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".
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21. CORE VALUES AND BENEFITS:
• 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
RAMCO GROUP COMPANIES:
•Madras cements limited
•Ramco industries limited
•Raja palayam mills limited Rajapalam, Tamilnadu
•Sri Ramco spinning mills limited Rajapalam, Tamilnadu
•Sundaram spinning mills limited Rajapalam, Tamilnadu
•Sri Vishnu sankar limited Rajapalam , Tamilnadu
•Ramaraju surgical cotton mills limited
•Ramco systems limited
•Ramco lanka (pvt) limited
•Harini textiles
Some corporate responsibilities of Ramco group:
•Raja charity trust
•C. Rama Swamy Raja education charity trust
•P.A.C Rama Swamy Raja Poly technique
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22. •P.A Chinnaih Raja memorial higher secondary school
•P.A.C.R Ammani animal’s higher secondary school
•Chinnaih vidyalaya P.A.C.R Raju matriculation higher secondary school
•S.S.R vidhya mandir Plans are on to build a hospital in Rajapalam equipped with
the most advanced medical facilities. The primary aim of this hospital would be to
provide free medical to workers scheme society. In order to have impetus to
ecology development a senior horticulturist is being appointed his services will be
extended to the farmers of nearby villages to help them ingoing various fruit and
vegetation using hybrid varieties. We are going ahead shortly for massive a
forestation of ISO acres of our land located at the entrance of our factory premises.
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23. COMPANY
HISTORY
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24. 3.2 COMPANY HISTORY
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
CRamasamy Raja and requested him to start a cement factory in TN . This was
readily accepted by Shri PACR and this marked the birth of "MadrasCements Ltd"
in 1961.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 ...."PACR's last wish
was dutifully fulfilled by the present 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 millions tons per annum,(Mtpa) 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 45 MW. The first plant of MCL
at Ramasamy Raja Nagar, near Virudhunagar in Tamil Nadu commenced its
production in 1962 with a capacity of 200tonnes, 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
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25. is at Alathiyur in TN set up in 1997 and expanded by addition of another line in
2001. The 30 lakh ton per annum plant is the most modern plant in the country .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 windfarms 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.
Birth of the first Ramco Venture
His visited Britain and other European countries to see firsthand working of the
mills. There he had the chance to meet many business magnates .He returned to
India full of ideas .After returning to Rajapalayam, he put his plans into action. To
start they yarn mill, he found that he needed Rs.5 lakhs, which in 1936 was a huge
sum. It was considered a Herculean task to raise such a big capital .But the
determined Raja was not deterred. He decided to make the “shareholders”
Rajapalayam Mills Ltd.,
Thanks to his illustrious background and his own reputation, he got the required
capital ready, in next to no time. On September 05, 1938, the State Minister for
labor, V.V. Giri inaugurated the mill and Rajapalayam Mills Ltd commenced
operations. There was no looking back for Ramasamy Raja after this. The Mill was
a grand success .He followed up this with other successful ventures. He started
Rama Raju Surgical Cotton Mills along with his son-in-law Rama Raju.
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26. Madras Cements Ltd
At that time, Cement was not considered as a favorable venture due to price
controls. Shri.Manubai Shah, Central Minister for Industries called upon
Ramasamy Raja and appealed to him to start a cement factory. This was how
Madras Cements Ltd came into being in 1961.Ramasamy Raja needed one crore as
capital. The State Government for the first time in the history of India, invested
Rs.10 lakhs An indication of the total trust and implicit faith the Government had
in him. Concern for Shareholders and Workers Ramasamy Raja had the well being
of the people upper-most in his mind .He was very particular that the funds of his
share holders be utilized usefully. He showed high concern for his workers. The
famous trade unionist G Ramanujam once said :
"In the case of Ramasamy Raja's companies, the workers are always thinking of
the growth of the company, the Raja always has the well being of the workers and
their families uppermost in his mind"
AWARDS & ACHIEVEMENTS:-
AWARDS:
 4 Leaves Award
Centre for Science and Environment
 National Award for Energy Conservation
Confederation of Indian industry
 Best Energy Efficient Unit
National Council for Cement and Building Materials
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27.  Corporate Performance Award
Economic Times
 Best Improvement in Energy Performance
International Congress on Chemistry of Cement
 The Analyst Award
The Institute of Chartered Financial Analysts of India
 Best all round Industrial performance
Federation of AP Chambers of Commerce & Industries
 Visvesvariah Industrial Award
All India Manufacturers Organization
 Business Excellence Award
Industrial Economist
 Export Performance Award
CAPEXIL
 State Safety Awards
Tamil Nadu & AP Governments
 Good Industrial Relations Award
Tamil Nadu & AP Governments
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28. Technology Overview
Madras Cements Ltd is a trend-setter in adopting state-of-the-art technology for the
manufacture of Cement, Ready Mix Concrete and Dry Mortar Products. MCL is
the first to bring the following technologies in South India's cement industry.
• The FUZZY Logic Software System for process Controls
• Pre-calciner technology
• Most Modern Programmable Logic Controllers (PLC)
• Surface Mining Technology
• Vertical Mills for Cement Grinding
• Latest and highly effective ESPs and Bag filters
• Advanced X-Ray technology for Quality Control
JAYANTHIPURAM UNIT
In 1986 the company ventured into the second unit Jayanthipuram in
Andhrapradesh 75 kilometers from Vijayawada towards Hyderabad with a
investment of Rs 100 corers per manufacture of Rs 7.50 lakhs tones of cement
per annum. This plant wa s commi ssioned in 1986 six month s ahead
of schedule plans Madras cements is a ramco group of most ambitious
diversification had. It is a profitable company today. Two were process plans were
setup in 1987with a capacity of 600 tones to produce Portland cements. In
the1970’s totals with over was made to the dry process of manufacture. The single
largest dry kiln in India at the time of establishment with a capacity of 1200 tones
was installed at ramaswamy rajanagar in Tamilnadu, for the first time in India,
over the years the plant has modified and updated with preclaciner technology.
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29. This has increased the capacity by 115% in 1993.Ramco group has setup its
second and India’s most technological advances cement unit which started its
production in 1987 Jayanthipuram Krishna district and Andhra Pradesh with
1.1 million tons per annum. This is the first factory in India to be totally
computerized.It’soneof the most sophisticate plants in India with full
co mputer controlled special software of F.L smiths and fuzzy logical system
from Denmark for kiln control. This flagship company of Ramco producer of
market cements with brand Ramco. The kiln was gradually upgraded from
2300 TPD in 1986, 1994 and to 3200 TPD in1995. During this period raw
material and coal mill were also upgraded from 220 to 240 TPH and 26 to 30 TPH
respectively.
Horizontali m p a c t c r u s h e r ( H I C ) , w a s i n s t a l l e d i n 1 9 9 5 i n c e m e n
t m i l l c i r c u i t t o increase the output from 125 TPH to 180 TPH and the
cement mill was optimized in 1996.with this the capacity has been
increased to 11 lakh tones per annum. The plant has electrostatic
precipitators(ESP)anddeductingbagh o u s e s t o e n s u r e c l e a n a n d p o l l
u t i o n f r e e e n v i r o n m e n t . M C L h a s a n uncompromising attitude towa
rds the prevention of anti-environmental pollution.
The above up gradation of kiln and other mills was carried out with and investment
of Rs 25 crores. 2004-2005 in this period they build one power grid. It carried out
with an investment of Rs 10 crores.
EXPANSION
Slag grinding unit Madras cements have always stayed in the forefront of the
industry. Special task forces within the company keep track of the latest
international development in cement technology and promote action toad opt the
state of art technology. India generates about 70 million tones of Fly ash and 10
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29

30. millions of slag annually. Disposal of Fly and slag problem to the environment.
Concern for the environment and ecology is percolating very fast into customer
awareness globally and there by a check on eco-hostile products is becoming an
imperative exercise. Both the central and state governments are strongly
propagating to use these products in cement manufacture .A working group has
been constituted by the government of Andhra Pradesh to study the generation and
disposal of Fly ash and BD slag. Based on the recommendations of the working
group the government of Andhrapradesh issued a GO instructing all government
departments for utilization of 100% Pozzolana/slag cement, with in a period of 5
years. In line with the policies of the government and our philosophy of using
otherwise no usable materials like Fly ash and slag to produce value added blended
cement and there by conserve limestone and other materials like coal etc, and also
to save energy apart from being eco-friendly and creating clean atmosphere by
reducing carbon dioxide mission proud of serving our nation by preserving
minerals and maintaining clean atmosphere for our future generations.
MCL is the first to bring the following technologies in South India's cement
industry.
1.The FUZZY Logic Software System for process Control
2.Pre-calciner technology
3.Most Modern Programmable Logic Controllers (PLC)
4.Surface Mining Technology
5.Vertical Mills for Cement Grinding
6.Latest and highly effective ESPs and Bag filters
7.Advanced X-Ray technology for Quality Control
ISO certification
Madras cements limited, Jayanthipuram unit also got ISO 9002certification in may,
1998.
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31. SALIENT FEATURES OF MADRAS CEMENTS LIMITED
JAYANTHIPURAM:
For the first time in India the very latest computerized control system are
introduced in the Jayanthipuram unit for efficient operation on energy
conservation. The silent features of Jayanthipuram plant is furnished below:
•A stacker re-claimer for pre blending and continuous flow silo for below
•Vertical roller mills for grinding raw material and coal
•Five stage per heater for their mail efficiency per calcinatory for efficiency use of
low grade coal
•A scanner connected to a computer for refractory monitoring
•X ray analyzer for quality control on line process computerized control for
consistent quality
•Fuzzy logical software for kiln control
Electro static precipitator at 5 strategic points for pollution control
•Belt bucket elevators for energy conservations
DEPARTMENTS IN MCL
The following are the departments in Madras Cements Ltd.
1.Personnel department
2.Accounts department
3.Mines
4.IT
5.Stores and Material department
6.Quality control lab
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31

32. 7.Process department
8. Engineering departments
-Electrical and Mechanical department
-Civil and Power plant
-Instrumentation
9.Cement dispatch section
10.Security liaison
DETAILS OF EMPLOYEES
Sl no catagories No of
employees
1 officers 53
2 Officers prob with 3
grade
3 tarinee 7
4 Staff 70
5 Staff worker 2
6 Staff prob with 7
grade
7 trainee 1
8 Voucher staff 1
9 Voucher worker 4
10 workers 198
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33. INDUSTRY PROFILE
CEMENT INDUSTRY IN INDIA
The Cement industry in India has come a long way since 1914, when the first
cement plant was commissioned with a production level of 1000tons/ annum. The
first true Portland cement was manufactured in Calcutta presently called as
Kolkata. India is the second largest cement producer in the world. As cement is a
basic construction material with virtually no substitute, it is used worldwide for all
construction work. Thus the growth in the construction industry has a direct
relation with the production and consumption of cement.
India is the second largest cement producer in the world with a production level of
about 99 million tons (about 5% of world production ~2000 million tons). The
installed capacity is about 119 million tones and at an expected 10 % growth rate
the production is likely to grow to about158.5 million tons at the end of 2006-
2007.Over the years, the growth of the industry has been uneven. With
traditionally cement deficit regions covering the most of the major growth centers
of the country. Cement industry in India has made tremendous strides in
technological up gradation and assimilation of latest technology.
At present ninety three per cent of the total capacity in the industry is based on
modern and environment-friendly dry process technology and only seven per cent
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33

34. of the capacity is based on old wet and semi-dry process technology. The major
players of Indian cement industry are Madras cements, ACC, India cements,
Gujarat Ambuja, Ultratech, Grasim, JK group, Jaypee group, Century textiles,
Birla Corporation, Lafarge. There is tremendous scope for waste heat recovery in
cement plants and thereby reduction in emission level. Cement plants in the
country have mostly changed from the wet process to the energy efficient dry
process. In India, the cement factories are localized in the states of Tamil Nadu,
Madhya Pradesh, Gujarat, Bihar, Rajasthan, Karnataka and Andhra Pradesh.
Cement Industry
Cement industry is one of the important industries to country development in the
light of the main important basis for construction industry and also the important
indicator showing domestic economic growth. In the past, the domestic demand of
cement used to be up to 36 million tons. But, the severely negative effects from
economic crisis in 1997 have caused real estate and
construction industry subdued; the domestic demand of cement has shrunk and
been in oversupply atmosphere.
Until 2001–2003, the government has launched many economic actuating policies.
This has made real estate and construction industry recovered and the demand of
cement has been increasing gradually from 21 million tons in 2001 to 25 million
tons and 26.82 million tons in 2002 and 2003 respectively; and the price level is
higher in line with increase production cost.
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35. Cement Industry originated in India when the first plant commenced
production in 1914 at Porbandar, Gujarat. The industry has since been growing
at a steady pace, but in the initial stage ,particularly during the period before
Independence, the growth had been very slow. Since indigenous production was
not sufficient to meet the entire domestic demand, the Government had to control
its price and distribution statutorily. Large quantities of cement had to be imported
for meeting the deficit. The industry was partially decontrolled in 1982 and this
gave impetus to its pace of growth. Installed capacity increased to more than
double from 27 million tones in 1980-1981 to 62 million tones in 1989-1990.
The cement industry responded positively to liberalization policy and the
Government decontrolled the industry fully on 1st March 1989. From 1991
onwards cement industry got the status of a priority industry in schedule III of the
industry policy statement, which made it eligible for automatic approval for
foreign investment up to 51% and also for technical collaboration on normal terms
of payment of royalty.
DURING 2010-2011:
Growth in domestic cement demand is likely to remain strong, with the resumption
in the housing markets, regular government spending on the rural sector and
infrastructure spend accomplished by rise in the number of infrastructure projects
implemented by the private sector. Furthermore, it is expected that the industry
players will continue to increase their annual cement output in coming years and
India’s cement production will grow at a compound annual growth rate (CAGR) of
around 12 per cent during 2011-2012 - 2013-2014 to reach 303 Million Metric
Tons, according to Indian Cement Industry Forecast to 2012. Cement
Manufacturing Association (CMA) is targeting to achieve 550 MT capacities by
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35

36. 2020. A large number of overseas players are also expected to enter the industry in
the coming years as 100 per cent FDI is permitted in the cement industry. Our
country is the second major cement producing country following the China having
a total capacity of around 230 MT (including mini plants). However, on account of
low per capita consumption of cement in the country (156 kgs/year as compared to
world average of 260 kgs) there is an enormous potential for growth of the
industry.
This chart represents the total cement production during(2009-
2010)
cement production cement despatches
98.81
97.84
96.75
96
2010-11 2009-10
The demand for cement mainly depends on the level of development and the rate
of growth of the economy. There are no close substitutes for cement and hence the
demand for cement is price inelastic. During the October – 2011, 14.78 MT were
produced and 14.38MT was consumed. For the FY 2011 – 2012 (Apr - Oct), MT
97.84 was consumed form the 98.91 MT produced. During the first half of the
year, there was marginally poor off take in cement demand due to passive
construction activity, which lead to excess supply, thus putting downward pressure
on realizations. This has been coupled with rise in input costs, especially prices of
coal and petroleum products. As a result, both the top line and bottom line have
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36

37. been affected. This demand supply mismatch scenario is expected to prevail for
some time. Good agricultural income will support demand.
ABOUT THE SECTOR:
Our country is the second major cement producing country following the
China; we have 137 large and 365 mini cement plants. Leading players in the
industry are Ultratech Cement, Gujarat Ambuja Cement Limited , JK Cements,
ACC Cement, Madras Cements etc. Cement is an adhesive that holds the concrete
together and is therefore vital for meeting economy’s needs of Housing &
accommodation and necessary infrastructure such as roads & bridges, schools,
hospitals etc. Hence, the cement is one of the fundamental elements for setting up
strong and healthy infrastructure of the country and plays an important role in
economic development and welfare of the nation.
Cement industry is being segmented regionally i.e. Northern, Central,
Western, Southern and Eastern. Cement, being a bulk item transporting it over
long distances can prove to be uneconomical as it attracts very high amount of
freight. Thus, it has resulted in cement being largely a regional play with the
industry divided into five main regions. As it is a freight intensive industry, the
segment is completely domestic driven and exports account for very negligible
percentage of the total cement off take.
Major players in Indian cement sector:-
Lafarge
Gujarat Ambuja Cement
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37

38. Ultratech Cement
India Cements
Century Cements
Jaypee Group
Madras Cements
Birla Corporation Limited
Jk cements
Dalmia cements
Chettinad cements
ANNUAL INSTALLED CAPACITY:
The Indian cement industry is highly fragmented with the top few accounting for
more than 50% of the industry capacity. The rest is distributed among the large
number of small players. The cement industry in India has come forward as the
second largest in the world, showing a total capacity of around 230 millions tones
MT (including mini plants).
This table represents the annual capacity of various cement comapies
Annual
Name of Cement Company Installed
Capacity (MT)
Grasim Industries Ltd. 25.65
UltraTech Cement Ltd. 24.3
Jaiprakash Associates Ltd. 17.15
India Cements Ltd 14.05
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39. Madras Cements Ltd. 10.49
Shree Cement Ltd. 12
Dalmia Cement 9
J.K. Cement Ltd. 8.42
Chettinad Cement 8.2
Century Textiles & Ind 7.8
Lafarge India Pvt. Ltd. 7.55
Birla Corp. Ltd. 7.38
Kesoram Industries Ltd. 7.2
Penna Cement Ind 6.5
Binani Cement 6.25
Total capacity held by majors 170.14
(77% of the industry)
Others (23% of the industry) 51.68
Overview of the performance of the Cement Sector :-
The Indian cement Industry not only ranks second in the production of cement in
the world but also produces quality cement, which meets global standards.
However, the industry faces a number of constraints in terms of high cost of
power, high railway tariff; high incidence of state and central levies and duties;
lack of private and public investment in infrastructure projects; poor quality coal
and inadequate growth of related infrastructure like sea and rail transport, ports and
bulk terminals. In order to utilize excess capacity available with the cement
industry, the government has identified the following thrust areas for increasing
demand for cement.
 Housing development programmers.
 Promotion of concrete highways and roads.
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39

40.  Use of ready-mix concrete in large infrastructure projects.
 Construction of concrete roads in rural areas under Prime Ministers Gram
Sadak Yojana.
The types of cement in India have increased over the years with the advancement
in research, development, and technology. The Indian cement industry is
witnessing a boom as a result of which the production of different kinds of cement
in India has also increased. By a fair estimate, there are around 11 different types
of cement that are being produced in India. The production of all these cement
varieties is according to the specifications of the cement.
Some of the various types of cement produced in India are:
Clinker Cement
Ordinary Portland Cement
Portland Blast Furnace Slag Cement
Portland Pozzolana Cement
Rapid Hardening Portland Cement
Oil Well Cement
White Cement
Sulphate Resisting Portland Cement
In India, the different types of cement are manufactured using dry, semi-dry, and
wet processes. In the production of Clinker Cement, a lot of energy is required. It
is produced by using materials such as limestone, iron oxides, aluminum, and
silicon oxides. Among the different kinds of cement produced in India, Portland
Pozzolana Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag
Cement are the most important because they account for around 99% of the total
cement production in India.
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40

41. THEORITICAL
FRAME WORK
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41

42. Chapter 4
Working capital management:
Working Capital is the firm’s holdings of current assets such as cash, receivables,
inventory & marketable securities. Every firm requires working capital for its day
to day transactions such as purchasing raw material, for meeting salaries, wages,
rents, rates, advertising etc.
Significance of Working Capital:
The world in which real firms function is not perfect. It is characterized by the
firms’ considerable uncertainty regarding the demand, market price, quality &
availability of its own products and those suppliers. While the firm has many
strategies available to address these circumstances, strategies that utilize
investment or financing with working capital accounts often offer a substantial
advantage over the techniques. The importance of working capital management is
reflected in the fact that financial managers spend a great deal of time in managing
current assets and current liabilities like
Arranging short term financing
Negotiating favorable credit terms
Controlling the movement of cash
Administrating accounts receivables
Monitoring investment in receivables.
Decisions concerning the above areas play a vital role in maximizing the overall
value of the firm. Once decisions concerning these areas are reached, the level of
working capital is also determined in active decision sense, but falls out as residual
from the decision just made.
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42

43. The management of working capital plays an important role in maintaining the
financial health during the normal course of business. This critical role can be
enunciated by examining the flow of resources through the firm. By far the major
flow is the working capital cycle.
This is the loop (previous page) which starts at the cash and the marketable
securities account, goes through the current account as direct labor and materials
which are purchased and use to produce inventory ,which in turn is sold and
generates accounts receivables, which are finally collected to replenish cash. The
major point to notice about this cycle is that the turnover or velocity of resources
through this is very high related to the other inflows and outflows of the cash
account. There are two concepts of working capital namely;
Gross Working Capital and Net Working Capital. Gross Working Capital, simply
called as working capital refers to the firm’s investment in current assets. Current
assets are the assets, which in ordinary course o business can be converted into
cash within an accounting year. Current assets include cash and bank balances,
short term loans and advances bills receivables, sundry debtors, inventory, prepaid
expenses, accrued incomes, money receivable ( within 12months).
The following are the few advantages of adequate working capital in the
business:
Cash Discount: Adequate working capital enables a firm to avail cash discount
facilities offered to it by the suppliers. The amount of cash discount reduces the
cost of purchase.
Goodwill: Adequate working capital enables a firm to make prompt payment.
Making prompt payment is a base to create and maintain goodwill.
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43

44. Ability to face crisis: The provision of adequate working capital facilities to meet
situations of crisis and emergencies. It enables a business to with stand periods of
depression smoothly.
Credit-Worthiness: It enables a firm to operate its business more efficiently
because there is not delay in getting loans from banks and other on easy and
favorable terms.
Regular supply of raw materials: It permits the carrying of inventories at a level
that would enable a business to serve satisfactory he needs of its customers. That is
it ensures regular supply of raw materials and continuous production.
Expansion of markets: A firm which has adequate working capital can create
favorable market condition i.e. purchasing its requirements in bulk when prices are
lower and holding its inventories for higher. Thus profits are increased .
Increased productivity.
Research programs.
High morale.
Problems of inadequate working capital:-
Firm may not be able to take advantage of profitable business opportunities.
Production facilities cannot be utilized fully.
Short-term liabilities cannot be paid because of non-availability of funds. Its low
liquidity may lead to low profitability. In the same way, low profitability results in
low liquidity.
It may not be able to take advantages of cash discounts. Credit worthiness of the
firm may be damaged because of lack of liquidity. Thus it may be lose its
reputation; thereafter a firm may not be able get credit facilities.
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44

45. Working capital policy:
Working capital management policies have a great effect on firm’s profitability,
liquidity and its structural health. A finance manager should therefore, chalk out
appropriate working capital policies in respect of each competent of working
capital so as to ensure high profitability, proper liquidity and sound structural
health of the organization.
In order to achieve this objective the financial manager has toper form basically
following two functions:
Estimating the amount of working capital.
Sources from which these funds have to be raised.
Operating Cycle:
Working capital is required because of the time gap between the sales and their
actual realization in cash. This time gap is technically terms as operating cycle of
the business.
In case manufacturing company, the operating cycle of time necessary to complete
the following cycle of event.
Conversion of cash into raw materials.
Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods.
Conversion of finished goods into accounts receivables
Conversion of accounts receivables into cash.
This cycle is continuous phenomena. In case of “Trading Firm” the operating
cycle will include the length of time required to:
Cash into inventories.
Inventories into accounts receivables.
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45

46. Accounts receivables into cash.
In case of “Financing Firm” the operating cycle includes the length of time taken
for 1 year.
Conversion of cash debtors, and
Conversion of debtors into cash
IMPORTANT OR ADVANTAGES OF ADEQUATE WORKING
CAPITAL:
1. Solvency of the business: Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt
payments and helps in creating and maintaining goodwill.
3. Easy loans: A concern having adequate working capital, high solvency and good
credit standing can arrange from banks and other an easy and favorable terms.
4. Cash discount: Adequate we also enable a concern to avail cash discount on the
purchases and hence it reduces costs.
5. Regular supply of raw material: Sufficient working capital ensures regular
supply or raw material and continuous production.
6. Regular payment of salaries and wages and other day-to-day commitments:
A company which has ample working capital can make regular payment of
salaries, wages and other day-to-day commitments which raises the moral of its
employees increase their efficiency, reduces wastage’s and costs and enhance
production and profits.
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46

47. 7. Exploitation of favorable market condition: Only concern with adequate we can
exploit favorable market conditions such as purchasing its requirement in bulk
when the prices are lower and by holding its inventories for higher.
8. Ability to face crisis: Adequate working capital enables a concern to face
business crisis in emergency such as depression because during such periods,
generally, there is much pressure on working capital.
9. Quick and regular return on investment: Every investor wants a quick and
regular return his investment sufficiency of working capital enables a concern to
pay quick and regular dividends to its investors as there may not be much pressure
to plough back profits. This gains the confidence to raise additional funds in the
future.
10. High morale: Adequacy of working capital creates an environment of security,
confidence, high morale and creates overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate working capital run its business
operation. It should have neither redundant or excess working capital nor
inadequate nor shortage or working capital. Both excess as well as short working
capital positions are bad for any business. However, out of the two, it is the
inadequacy of working capital, which is more dangerous from the point of view of
the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE
WORKING CAPITAL
Excessive working capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
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47

48. When there is a redundant working capital, it may lead to un necessary purchasing
and accumulation of inventories causing more chances of theft, waste and loses.
Excessive working capital implies excessive debtors and defective credit policy
which may cause higher incidence of bad debts. It may results into overall
inefficiency in the organization.
When there is excessive working capital, relation with banks and other financial
institution may not be maintained.
Due to low rate of return on investment, the value of share may also fall. The
redundant working capital gives rise to speculative transactions.
DISADVANTAGES OR DANGERS OF INADEQUATE
WORKING CAPITAL
 A concern, which has inadequate working capital, cannot pay its short-term
liabilities in time. Thus it will lose its reputation and shall not be able toget good
credit facilities.
 It cannot buy its requirements in bulk and cannot avail of discount, etc.It
becomes difficult for the firm to exploit favorable market condition andundertake
profitable projects due to lack of working capital.
 The firm cannot pay day-to-day expenses of its operations and itscreates
inefficiencies, increases costs and reduces the profits of thebusiness.
 It becomes impossible to utilize efficiently the fixed asset due to non-
availability of liquid funds .The rate of return on investment also falls withthe
shortage of working capital.
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48

49. CHARACTERISTICS OF CURRENT ASSETS:
In the management of working capital, there are two characteristics of working
capital
(1) short life span
(2) swift transformation into other asset forms.
Current assets have a short life span. Cash balances may be held idle for a week or
two, accounts receivable may have a life span of 30 to 120 days, and inventories
may be held for 30 to 100 days. The life span of current assets depends upon the
time required in the activities of procurement, production ,sales, and collection and
the degree of synchronization among them.
Each current asset is swiftly transformed into other asset forms cash is used for
acquiring raw materials ; raw materials are transformed into finished goods (this
transformation may involve several stages of work-in-progress);finished goods,
generally sold on credit are converted into sundry debtors, on realization, generate
cash.
The short life span of working capital components and their swift transformation
from one form into another has certain implications Decisions relating to working
capital management are repetitive and frequent.
The difference between profit and present value is insignificant. The close
interaction among working capital components implies that efficient management
of one component cannot be undertaken without simultaneous consideration of
other components
The investment in working capital is influenced by four key events in the
production and sales cycle of the firm
Purchase of raw materials
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49

50. Payment of raw materials
Sale of finished goods
Collection of cash for sales Above diagram depicts these events on the cash flow
line. The firm begins with the purchase of raw materials which are paid for after a
delay which represents
the accounts payable period. The length of operating cycle of a manufacturing firm
takes into account.
Inventor Conversion period (ICP)
Debtor Conversion period (DCP)
Payment Deferred Period (PDP)
The Inventory Conversion Period is the total time needed for producing and
selling the product .The firm converts the raw material in to finished goods and
then sells the same. The time lag between the purchase of raw materials and the
sale of finished goods is the inventory period.. Typically, it includes:
Raw Material Conversion Period (RMPC)
Work-in-Progress Conversion Period (WIPCP)
Finished Goods Conversion Period (FGCP)
The Debtor Conversion Period Is the time required to collect Outstanding amount
from customers. Customers pay their bills sometimes after the sales. The period
that elapses between the date of sales and the date of collection of receivables is
the accounts payable period or debtor’s period. The total of inventory conversion
period and debtor collection period is referred to as Gross Operating Cycle
(GOC).
The Payments Deferred Period is the length of time the firm is able to defer
payment on various resource purchases. The difference between the gross
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50

51. operating cycle and payment-deferred period is Net Operating Cycle
(NOC).Symbolically,
ICP = RMCP + WIPCP + FGCP
GOC = ICP + DCP
NOC = GOC – PDP
The duration of the cycle with reference to working capital is:
Longer the cycle ----- Higher the working capital
Shorter the cycle ----- Lower the working capital.
It is helpful to monitor the behavior of overall operating cycle and its individual
components. For this purpose, time-series analysis and cross-section analysis may
be done. In time-series analysis, the duration of the operating cycle and its
individual components is compared over a period of time for the same firm. In
cross-section analysis, the duration of the operating cycle and its individual
components is compared with that of other firms of a comparable nature.
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51

52. DATA
INTERPRETATION
&
ANALYSIS
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52

53. CHAPTER 5
5.1 GROWTH RATE OF MADRAS CEMENTS LTD
This chapter is allotted to analysis the growth of madras cements ltd .the analysis is
carried out of with following variables cost of equity, cost of debt, cost of
preference shares, retained earnings.
The variable selected to study the growth are
1. Fixed assets
2. Net current assets
3. Sales
4. Loan funds
5. Capital employed
5.1.1 FIXED ASSETS
Fixed asset, also called noncurrent assets, are assets that are expected to produce
benefits for more than one year. These assets may be tangible or intangible fixed
assets include items such as land, building, plant, machinery, furniture, and
computers. Intangible fixed assets include items such patent, copy right,
trademarks, and good will.
Tangible fixed assets are reported in the balance sheet at their net block
value, which is simply the gross value less accumulated depreciation represents the
allocation of the cost of a tangible fixed assets to various accounting periods that
benefits from its use. Likewise, intangible fixed assets are reports their net book
value, which is simply the gross value accounting period that benefits from its use.
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53

54. The following table presents the data relating to the fixed assets
Years fixed assets (Rs in cr) Growth rate in %
2006-2007 1258 100
2007-2008 2482 197
2008-2009 3635 289
2009-2010 4010 319
2010-2011 4489 357
Average growth rate 252
The following chart represents the data relating to the fixed assets
fixed assets (Rs in cr)
5000
4500
4000 4489
3500 4010
3635
3000
2500
2000 2482 fixed assets (Rs in cr)
1500
1000 1258
500
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
INTERPRETATION
It is observed from the above chart that the Fixed Assets of MADRAS CEMENTS
Ltd. For past five years (2007-2011) have been increased continuously ,it shows
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54

55. that Fixed Assets is properly used and maintain. The average company growth rate
of fixed assets increased at 252 %. So the company is performing well.
5.1.2 NET CURRENT ASSETS
An indication of how much capital is being generated or used up by day to day
activities .It is also known as working capital or current capital., and it is calculated
by the following,
current assets minus current liabilities
CURRENT ASSETS
Current assets are cash and other assets expected to be converted to cash, sold, or
consumed either in a year or in the operating cycle. These assets are continually
turned over in the course of a business during normal business activity.
1. Cash and cash equivalents
It is the most liquid asset, which includes currency, deposit accounts and
negotiable instruments (e.g., money orders, cheque, and bank drafts).
2. Short term investments
Include securities bought and held for sale in the near future to generate
income on short term price differences (trading securities).
3. Receivables
Usually reported as net of allowance for uncollectable accounts
4. Inventory
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55

56. Trading these assets is a normal business of a company. The inventory value
reported on the balance sheet is usually the historical cost or fair market value,
whichever is lower. This is known as the “lower of cost or market” rule.
The following table presents the data relating to the Net Current Assets.
Years Net current assets growth rate in %
(Rs in cr)
2006-2007 2202 100
2007-2008 3777 171
2008-2009 4734 215
2009-2010 5894 268
2010-2011 5088 231
Average growth rate 197
The following chart represents the data relating to Net Current Assets.
Net current assets (Rs in cr)
7000
6000
5894
5000
5088
4000 4734
3777
3000 Net current assets (Rs in cr)
2000
2202
1000
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
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56

57. INTERPRETATION
It is observed from the above chart that the Net Current Assets of MADRAS
CEMENTS Ltd. has been increased continuously form 2007 to 2010 and it is
slightly decreased in 2011, it shows that Net Current Assets is properly maintained.
The company average growth rate of Net Current assets decreased at 197%
5.1.6 NET SALES
A sale is the pinnacle activity involved in selling products or services in return for
money or other comparison. It is an act of completion of a commercial activity.
The “deal is closed”, means the customer has consented to the proposed product or
service by making full or partial payment (as in case of installments) to the seller.
A sale is completed by the seller, the owner of the goods. It starts with consent (or
agreement) to an acquisition or appropriation or request followed by the passing of
title (property or ownership) in the item and the application and due settlement of a
price, the obligation for which arises due to the sellers requirement to pass
ownership, being a price the seller is happy to part with ownership of or any claim
upon the item. The purchaser, though a party to the sale does not execute the sale,
only the seller does that. To be precise the sale completes prior to the payment and
gives rise to the obligation of payment. If the seller completes the first two above
stages (consent and passing ownership) of the sale prior to settlement of the price
the sale is still valid and gives rise to an obligation to pay.
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58. The following table shows that data relating to the sales value.
Years Net sales (amt in cr) Growth rate in%
2006-2007 1567 100
2007-2008 2005 127.9
2008-2009 2529 161.3
2009-2010 2807 179.1
2010-2011 2620 167.1
Average growth rate 147.08
The following chart shows that data relating to the net sales value.
Net sales (amt in cr)
3000
2500 2807
2529 2620
2000
2005
1500
1567 Net sales (amt in cr)
1000
500
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
INTERPRETATION1.43
It is observed from the above chart that the net sales of MADRAS
CEMENTS Ltd has been increased continuously form 2006 to 2007 and it is
decreased little in 2011. The Average Company Growth rate of sales increased at
147.08 %. So company is functioning in satisfactory level
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58

59. 5.1.7 LOAN FUNDS
Under certain circumstances and at the specific request of a borrower, the bank
may agree to the use of surplus loan amounts in the borrower’s loan account
(commonly referred to as “surplus loan funds”) for purposes that are in accordance
with or even outside the broad objectives of the project, provided these funds are
not required to meet other needs of the project. The authority to approve
reallocation differs according to the purpose.
Surplus loan funds comprise those funds that are available (pr are expected to be
available) in the loan account of a borrower after arrangements for procurements of
all goods or services and payments for any other expenditures to cover any
contingencies), and it is clear that there will still be funds remaining.
The following table presents the data relating to the loan funds.
Years Loan funds(amt in cr) Growth rate in %
2006-2007 677 100
2007-2008 1635 241.50
2008-2009 2463 363.81
2009-2010 2566 379.02
2010-2011 2791 412.25
Average growth rate 299.316
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59

60. The following chart shows that data relating to the loan funds.
Loan funds(amt in cr)
3000
2500 2791
2463 2566
2000
1500 1635
Loan funds(amt in cr)
1000
500 677
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
INTERPRETATION
It is observed from the above table that the loan fund of MADRAS CEMENTS
Ltd. For past five years (2007-2011) has been increased continuously, it shows
that loan funds is properly used and maintained. The average company growth rate
is increased at 299.316%. So company is functioning in good level.
5.1.8 WORKING CAPITAL AS A % OF CAPITAL EMPLOYED
Capital employed has many definitions and is not easily analyzed. In general, it
represents the capital investment necessary for a business to function.
Consequently, it is not a measure of assets, but of capital investment: stock or
shares and long term liabilities. Capital employed can be defined as equity plus
loans which are subject to interest of one can say that it is total assets less non
bearing interest liabilities.
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61. Capital employed can be defined as share holder’s funds (i.e. share capital and
reserves) plus creditors > 1 year (long – term liabilities) plus provisions for
liabilities and charges. This must equal total assets less current liabilities. Capital
employed is the value of the assets that contribute to a company’s ability to
generate revenue, i.e. their liquidity.
The following table shows that the data relating capital employed.
Years Capital employed ( amt Growth rate In %
in cr)
2006-2007 874 100
2007-2008 1936 221.51
2008-2009 2898 331.57
2009-2010 3113 356.17
2010-2011 3408 389.93
Average growth rate 279.836
The following chart shows that the data relating capital employed.
Capital employed ( amt in cr)
4000
3500
3000 3408
3113
2500 2898
2000
1936 Capital employed ( amt in cr)
1500
1000
500 874
0
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
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62. INTERPRETATION
It is observed from the above table that the net capital employed of
MADRAS CEMENTS Ltd. For past five years(2007-2008) has been increased
continuously .This shows that capital employed is properly used and maintained.
The average company growth rate of capital employed is increased at 256.72%. So
company is functioning in good level.
RATIO ANALYSIS
5.2 Ratios
Ratio Analysis is describing the significant relationship which exists between
various items of a balance sheet and a profit and loss account of a firm. As a
technique of financial analysis, accounting ratios measure the comparative
significance of the individual items of the income and position statements It is
possible to assess the profitability, solvency and efficiency of an enterprise through
the technique of ratio analysis.
1. Profitability: has the business made a good profit compared to its turnover?
2. Return Ratios: compared to its assets and capital employed, has the business
made a good profit?
3. Liquidity: does the business have enough money to pay its bills?
4. Asset Usage or Activity: how has the business used its fixed and current
assets?
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63. 5. Gearing: does the company have a lot of debt or is it financed mainly by
shares?
SHORT TERM LIQUIDITY MANAGEMENT
CURRENT RATIO:-
The current ratio is a measure of a firm’s short-term solvency. It indicates the
availability of current assets in rupee for every one rupee of current liabilities. A
ratio of greater than one means that firm has more current assents than current
claims against them. A high ratio indicates high liquidity; while a low ratio
indicates a low liquidity. For manufacturing
CURRENTS ASSETS
CURRENT RATIO =
CURRENT LIABILITIE S
Table 1.1
CURRENT RATIO in Rs.
YEAER CURRENT ASSETS CURRENT LIABILITIES RATIO
2006-07 3149756052 1656267950 1.9
2007-08 3270733711 2286973441 1.43
2008-09 6147532582 3945088370 1.56
2009-10 7792358719 4015124569 1.94
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64. Current Ratio
2
1.5
1 Current Ratio
0.5
0
2006-07 2007-08 2008-09 2009-10
Interpretation:-
The Current Ratio during the period of the study was higher than the standard. This
in turn indicates that the company is maintaining sufficient liquidity in their
organization. For a manufacturing undertaking, a ratio of 2:1 is traditionally
considered a benchmark of adequate liquidity.
QUICK RATIO:
Quick Ratio indicates the immediate liquidity of current assets. Recognizing that
inventory might not be very liquid, this ratio takes into account quickly realizable
assets and measures them against current liabilities. This is more accurate measure
of estimating the unit’s liquidity. Generally a quick ratio of 1:1 is considered to be
a more satisfactory measure of liquidity position of a concern
QUICK ASSETS
QUICK RATIO =
CURRENT LIABILITIE S
Table 1.2
QUICK RATIO in Rs
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64

65. CURRENT
YEAR QUICK ASSETS LIABILITIES RATIO
2006-07 1792815683 1656267950 1.08
2007-08 2252011403 2286973441 0.98
2008-09 4848409659 3945088370 1.22
2009-10 5356761021 4015124569 1.33
Quick Ratio
1.4
1.2
1
0.8
Quick Ratio
0.6
0.4
0.2
0
2006-07 2007-08 2008-09 2009-10
Interpretation
The table reveals that the overall quick ratio is around 1.5. This is according to the
standard, which indicates that the company has maintained sufficient current assets
to meet the current of liquid assets are locked in current assets (which if effectively
used can increase the productivity).
WORKING CAPITAL TURNOVER RATIO:-
Working capital turnover ratio establishes a relationship between net sales and
working capital. This ratio provides information as to how effectively a company is
using its working capital to generate sales. A higher ratio indicates the
management’s efficient utilization of the assets while low turnover ratio indicates
the underutilization of available resources and presence of idle capacity.
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66. NET SALES
WORKING CAPITAL TURNOVER RATIO=
NETWORKING CAPITAL
*
Net Working Capital = Current Assets – Current Liabilities
Table 1.3
WORKING CAPITAL TURNOVER RATIO In Rs.
NET WORKING
YEAR NET SALES RATIO
CAPITAL
2006-07 7145429942 1493488102 4.78
2007-08 9863449724 983760270 10.02
2008-09 15301309179 2202444212 6.94
2009-10 19246718554 3777284150 5.09
Net Working Capital Turnover Ratio
12
10
8
6 Net Working Capital
Turnover Ratio
4
2
0
2006-07 2007-08 2008-09 2009-10
Interpretation:
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66

67. The working capital turnover ratio was 4.78 in the year 2006-07, increased to
10.02 in the year 2007-08 and again decreased to 6.94 in the year 2008-09 And
again decreased 5.09 in the year 2009-10 Thus, the ratio during the period of the
study is showing a fluctuating trend. But the average ratio during the period was
high, which is an indication that the firm has been utilizing the assets efficiently.
WORKING CAPITAL PERFORMANCE RATIO:
This ratio indicates the mode of financing of debtors. It is used more to control the
working capital of an enterprise. Often a minimum and maximum value of the ratio
is known to lessen the dependence of financing from other sources. A ratio of 1:1
is considered to be a more satisfactory measure of performance of working capital
of a firm.
TRADEDEBTORS
Working capital performance ratio =
TRADECREDITORS ADVANCEPAY
MENTS
Table 1.4
Working Capital Performance Ratio In Rs.
TRADE TRADECREDITORS+ADVANCE
YEAR DEBTORS PAYMENTS RATIO
2006-07 452734619 1069142870 0.42
2007-08 493474854 1198528794 0.41
2008-09 653448795 23834113029 0.23
2009-10 Working capital performance ratio
616072465 4504830991 0.13
0.45
0.4
0.35
0.3
0.25 Working capital
0.2 performance ratio
0.15
0.1
0.05
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2006-07 2007-08 2008-09 2009-10

68. Interpretation:
The working capital performance ratio was 0.42 during the year 2006-07 it
decreased to0.41 in the year 2007-08 and it decreased to 0.23 in the year 2008-09
and it again decrease much higher than the standard ratio; this indicates that the
company has been financing the debtors very well.
CURRENT ASSETS TURNOVER RATIO: -
It explains the relationship between sales and current assets. This ratio indicates the sales
generating capacity of current assets. The lower the ratio more is the amount of current assets
required per unit of sales
SALES
Current Assets turnover ratio =
CURRENTASSETS
Table 1.
Current Assets turnover ratio In Rs.
YEAR NET SALES CURRENT ASSETS RATIO
2006-07 7145429942 3149756052 2.26
2007-08 9863449724 3270733711 3.01
2008-09 15301309179 6147532582 2.48
2009-10 19246718554 7792358719 2.46
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69. Current Assets turnover ratio
3.5
3
2.5
2
Current Assets turnover
1.5 ratio
1
0.5
0
2006-07 2007-08 2008-09 2009-10
Interpretation:
The current assets turnover ratio was 2.26 in the year 2006-2007, it increased to
3.01 in the year 2007-2008 and decreased to 2.48 in the year 2008-2009 and again
decreased 2.46 in the year 2009-2010The current asset turnover ratio during the
period under the study had a fluctuating trend. But when we refer 2006-2007 to
2007-2008, 2008-2009 and 2009-2010 we can see that there is an increase which
indicates that the company has been using the current assets properly to generate
sales.
CASH MANAGEMENT
Cash Turnover Ratio: This ratio focuses on the cash holding policy of the firm. A
decline in this ratio indicates high levels of idle cash. A high ratio is more
preferable.
CASHOPERAT
INGEXPENSES
Cash Turnover ratio =
CASHANDBANKBALANCDES
Table 1.6 Cash Turnover Ratio In Rs.
CASH OPERATING CASH AND BANK
YEAR EXPENSES BALANCES RATIO
2006-07 6330921229 434118131 14.58
2007-08 8313160381 493065688 16.86
2008-09 1028447999 565713869 18.13
2009-10 13200044657 229435639 57.53
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70. Cash Turnover Ratio
60
50
40
30 Cash Turnover Ratio
20
10
0
2006-07 2007-08 2008-09 2009-10
Interpretation:
The Cash turnover ratio was 14.58 in the year 2006-07 which increased to 16.86 in
2007-08 and increased to 18.17 in the year2008-09.again increased 57.53 in the
year2009-10. The ratio has been above 14 .58 during the period of study, which
indicates that the cash holding policy of the firm is good.
INVENTORY MANAGEMENT
Activity Ratios:-
Funds of various creditors and owners are invested in various assets to generate
sales and profits. The better the management of assets, the larger the amount of
sales. Activity ratios are employed to evaluate the efficiency with which the firm
manages and utilizes its assets. These ratios are also known as Turnover ratios
because they indicate the speed with which the assets are being converted or turned
over into sales. Activity ratios, thus involve a relationship between sales and assets.
A proper balance between sales and assets generally reflect that assets are managed
well.
Inventory Turnover Ratio:-
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71. Inventory Turnover Ratio indicates the efficiency of the firm in producing and
selling its product. It is calculated by dividing cost of goods sold by the average
inventory.
COSTOFGOOD SSOLD
Inventory Turnover Ratio=
AVERAGEINV
ENTORY
Table 1.7
Inventory Turnover Ratio In Rs.
YEAR AVERAGE
S COST OF GOODS SOLD INVENTORY RATIO
2006-07 3820898207 117667878 32.47
2007-08 4367281138 362768945 12.03
2008-09 5788755562 293487301 19.72
2009-10 7840396793 279747059 28.02
Inventory Turnover Ratio
35
30
25
20
15 Inventory Turnover Ratio
10
5
0
2006-07 2007-08 2008-09 2009-10
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71

72. Interpretation:
The inventory turnover ratio indicates the number of times a rupee generates turn
over with respect to inventory investment. A high ratio indicates a better
conversion of inventory. The inventory turnover ratio in the year 2006-07 was
32.47 which decreased to 12.03 in 2007-08 and which further increase to 19.72 in
2008-09 and again increased 28.02 in the year 2009-10which shows an upward
trend which is a very good sign for the company.
RAW MATERIAL INVENTORY TURNOVER:-
This ratio shows the efficiency of the firm in converting raw material into finished
goods. Raw material turnover and holding period shows the number of times raw
material is rotated during the period. It shows the number of times raw material is
converted into work-in-progress. It also shows the number of days it takes to
convert raw material into finished goods.
RAWMATERIA
LCONSUMED
Raw material Inventory Turnover =
AVERAGERAWMATERIAL
Table 1.8
RAW MATERIAL INVENTORY TURNOVER In Rs.
MATERIAL AVERAGE RAW MATERIAL
YEAR CONSUMED INVENTORY RATIO
2006-07 1177843411 67226226 17.52
2007-08 Raw Material Inventory Turnover8877554
1520714101 17.16
2008-09 2011500769 128567141 15.64
18
2009-10 2564131071 227080390 11.29
16
14
12
10 Raw Material Inventory
8 Turnover
6
4
2
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72
2006-07 2007-08 2008-09 2009-10

73. Interpretation:
The raw material turnover ratio in the year 2006-07 was 17 .52which decreased to
17.16 in 2007-08 and which further decreased to 15.64 in 2008-09 and again
decreased 11.29 in the year 2009-10The raw material turnover ratio is showing a
downward trend which is not a good sign. A decrease in ratio is showing increase
in raw material inventory levels or slow-moving inventory. A high level of raw
material inventory indicates unnecessary tie-up of funds, reduced profit and
increased cost
Work-in-progress Inventory Turnover:
Work-in-progress turnover helps in examining the efficiency with which the firm
converts work-in-progress into finished goods. The ratio helps in knowing the
number of times work-in-progress is converted into finished goods.
COSTOFGOODSSOLD
Work in Progress Inventory Turnover =
AVERAGEWORKINPROGREESINVENTORY
Table 1.9 Work in Progress Inventory Turnover In Rs.
YEAR Cost of goods sold Average Work-in-Progress Ratio
2006-07 3820898207 20135147 189.76
2007-08 4367281138 250658932 17.42
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74. 2008-09 5788755562 197407203 29.32
2009-10 7840396793 1476644491 53.1
Work-in-Progress Inventory Turnover
200
150
100 Work-in-Progress
Inventory Turnover
50
0
2006-07 2007-08 2008-09 2009-10
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74