ACTIVITY RATIO OF THE CEMENT COMPANIES

ACTIVITY RATIO OF THE CEMENT COMPANIES

CHAPTER V ACTIVITY PARAMETERS OF THE CEMENT COMPANIES 5.1. Introduction Having studied the short term and long term solvency of select units in earlier chapters, the present chapter aims to study the activity parameters. Important Activity ratios viz., Stock Turnover ratio, Debtors Turnover ratio, Average collection period, Creditors turnover ratio, Average payment period, Working capital ratio, Cash turnover ratio, Total Assets turnover ratio, Fixed Assets turnover ratio, and Capital turnover ratio have been computed and analyzed. Funds are invested in various assets in business to sell products and earn profits. The efficiency with which the assets are managed directly affects the volume of sales. The better the management of assets, the larger the sales and the profits. Activity ratios measure the effectiveness with which a firm manages its resources. These ratios are also called "turnover ratios" because they indicate the speed with which assets are turned over into sales. 5.2. Stock Turnover Ratio Stock turnover ratio establishes the relationship between cost of goods sold and the average amount of inventory held during a given period of time. This ratio reveals the number of times the finished stock is turned

128 over during a given accounting period. The object is to see whether only the required minimum funds have been locked up in inventory. Usually the higher the rate of inventory turnover, the larger the amount of profit, and the smaller the amount of working capital tied up in inventory, the more the stock merchandise.1 However, there is no rule of thumb for interpreting inventory turnover ratio. The norms may be different for different firms depending upon the nature of business. The Stock turnover ratio of the sample units computed is presented in Table 5.2.1. TABLE 5.2.1 Stock Turnover Ratio of the Sample Units Year (in times) Sample Units Cie Cli 1.- ON ON v.. C1 c2;\ ON GN v..t c= 95 cp, ON ON le. 1 1 c4, CZ esi I es1 4:1) 1 4 el eel A C) ev er 9' en el tr) 9' mi. en1. tri es1 lc--,.. el Chettinad 5.36 5.38 5.58 5.5 4.47 5.39 5.94 5.56 5.25 8.61 Dalmia 3. 2.61 2.27 2.17 2.5 2.66 2.17 2.43 3.4 4.92 India Cements 4.54 6.14 6.24 6.44 5.14 4.88 6.42 6.34 7.38 9.72 Madras Cements 8.4 9.22 8.14 8.81 1.57 9.6 11.25 7.85 8.65 13.71 TANCEM 6.2 4.6 4.9 4.58 5.39 7.35 7.81 7.67 7.35 7.46 Source: Computed from the Annual Reports of the Select Cement Companies. The range of stock turnover ratio is 2.17 to 13.71. Madras Cements has recorded a maximum turnover of 13.71 times while Dalmia has recorded the lowest ratio of 2.17. As the level of activity has a direct 1 Cliften, H.K and R.F.Wacht. 1975. Financial Administration, The Dryden Press, Illinois, p.45.

129 impact on the profitability of the firm, the improvement in this ratio is considered as a core area by the firms. The highest stock turnover ratio recorded in Madras Cements during 26-7 would push up the gross profit ratio, which will be analyzed in a later chapter. Increased level of - investment in inventory will affect the turnover and as a result Gross profit ratio will also fall. Hence firms take all possible efforts to improve their top line as well as to reduce inventory holdings. The results of ANOVA relating to stock turnover ratio are presented in the following Table 5.2.2. TABLE 5.2.2 ANOVA of Stock Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D. F Mean Square Calculated F Value Result Between companies 233.57 4 5.91 6.9 Significant Between years 53.21 9 58.39 6.15 Significant Error 34.94 36.97 Total 321.74 49 6.56 The calculated F value of the stock turnover ratio among the select cement companies (6.9) is greater than the table value (2.633) at 5% level of significance. This indicates that there is a significant difference in the stock turnover ratio among the cement companies. Hence, the null hypothesis H1 is rejected. The inter-firm comparison of this ratio shows

significant differences among companies. The size of inventory as well as components of cost of goods sold greatly vary among companies over the years. Hence it is no surprise that there is absence of uniformity. 13 The calculated F value over the years is 6.15, which is greater than the table value of 2.153 at 5% level of significance. Therefore, the null hypothesis H2 is rejected. It implies that there is a significant difference in the stock turnover ratio over the years. During the study period, noticeable variations are found in the level of inventory holding as well as the components of cost of goods sold. Further, a static trend in the activity ratio is not a preferred one. With a view to study the variability vis-à-vis consistency of the Stock turnover ratio over the study period the Co-efficient of variation of Stock turnover ratio has been calculated and presented in the following Table 5.2.3. TABLE 5.2.3 Co-efficient of Variation of the Stock Turnover Ratio Standard Co-efficient Sample Units Mean Deviation of Variation Chettinad 5.66 1.11 19.61 Dalmia 2.73.84 3.76 India Cements 6.32 1.47 23.25 Madras Cements 9.53 1.83 19.2 TANCEM 6.18 1.54 24.91 Overall Average 6.8 1.9 17.92 Source: Computed from the Annual Reports of the Select Cement Companies.

131 It is seen in the above analysis that the variation in the stock turnover ratio is found to be high in Dalmia Cements (3.76%) followed by TANCEM (24.91%), and it is least in Madras Cements (19.2%). The overall co-efficient of variation is (17.92%), which reveals that there is a moderate stability in the stock turnover ratio of the select cement companies. Improving the stock turnover ratio is a major area of focus for the companies as it has a direct bearing on their Gross profit ratio as well as on the level of inventories. Hence variability in this ratio is inevitable. The co-efficient of variation of select companies is represented by the following bar diagram in figure 5.2.1 FIGURE 5.2.1 Co-efficient of Variation of Stock Turnover Ratio 35-1 3-1 Co-efficient of Variation 25-2- 15 1-5 Chettinad Dalmia India Madras TANCEM Cements Cements Companies

132 The AGR, LAGR, CAGR of the Stock turnover ratio of the select units over the study have been calculated and presented in Table 5.2.4 TABLE 5.2.4 Annual, Linear Annual and Compound Annual Growth Rates of the Stock Turnover Ratio Sample Units Annual Growth Rate Linear Annual Growth Rate Compound Annual Growth Rate Chettinad 7.32 3.41 2.92 Dalmia 8.26 4.81 3.78 India Cements 1.36 5.32 5.7 Madras Cements 8.84 3.27 2.92 TANCEM 4. 6.43 6.98 Overall Average 6.5 4.5 4.24 Source: Computed from the Annual Reports of the Select Cement Companies. It is inferred from the above analysis that the overall annual growth rate of the stock turnover ratio is 6.5 and India Cements has highest annual growth rate (1.36) followed by Madras Cements (8.84), and it is least in TANCEM (4.). In the case of linear annual growth rate, TANCEM has the highest growth rate of 6.43. Madras Cements has registered the lowest linear annual growth rate (3.27). The compound annual growth rate of the select cement companies shows increasing trend during the study period and it is the highest in TANCEM (6.98) followed

by India Cements (5.7). The overall CAGR of sample unit is 4.24 and all the sample units have recorded CAGR almost near overall CAGR. 133 5.3. Debtors Turnover Ratio Debtors' turnover ratio explains the extent of trade credit granted and the firm's efficiency in the collection of trade debts. The debtors turnover ratio indicates the firm's efficiency in the management of current assets. Generally, the higher the value of debtors turnover, the more efficient the management of debtors and receivables. Similarly, low debtors turnover implies inefficient management of debtors and lenient credit collection policy. This ratio shows how the credit policy of the company is implemented. There is no rule of thumb, which may be used as a norm to interpret the ratio. It may differ from firm to firm, depending upon the nature of business. This ratio may be compared with ratios of other firms doing similar business. The Debtors' turnover ratio of the sample units computed is presented in Table 5.3.1.

134 TABLE 5.3.1 Debtors Turnover Ratio of the Sample Units (in times) Year Sample Units U CA CA wo o ON CT 1... t CA CA 1.-1 I ri I 1 4 ev I e si CI I en r4 I er el \ o tfl e I it--- %.C) eal Chettinad 31.67 27.71 26.73 18.19 12.16 13.19 18.71 25.93 28.56 44.86 Dalmia 12.6 12.18 11.39 1.87 11.63 14.8 14.72 11.46 1.2 13.84 India Cements 17.44 16.29 9.7 7.57 4.84 4.62 7.43 6.98 7.21 8.99 Madras Cements 26.9 15.46 13.15 13.51 13.86 11.73 13.83 16.57 21.13 27.43 TANCEM 5.46 3.39 3.74 4.89 3.21 2.32 2.16 2.36 2.6 3.2 Source: Computed from the Annual Reports of the Select Cement Companies. The Debtors turnover ratio of sample units is in the range of 2.16 to 44.86 times. Chettinad cements has recorded the highest ratio of 44.86 times where as TANCEM has recorded the lowest ratio of 2.16 times. Management of receivables is considered as a core area and companies implement credit collection policy at varying levels, in between very tight to lenient. When the credit collection policy is lenient it adversely affects the debtors turnover ratio and results in increase in uncollectible.

135 The results of ANOVA relating to Debtors turnover ratio are presented in the following Table 5.3.2. TABLE 5.3.2 ANOVA of Debtors Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D.F Mean Square Calculated F Value Result Between companies 2649.2 4 63.34 2.94 Significant Between years 57.7 9 662.3 3.76 Significant Error 774.92 36 21.52 Total 3994.19 49 81.51 The calculated F value of the debtors' turnover ratio among the select cement companies is 2.94, which is greater than the table value of 2.633 at 5% level of significance. This reveals that there is a significant difference in the debtors' turnover ratio among the cement companies. Therefore, the null hypothesis H1 is rejected. The calculated F value over the years is 3.76, which is greater than the table value of 2.153 at 5% level of significance. It indicates that there is a significant difference in the debtors' turnover ratio over the years. Therefore, the hypothesis H2 is rejected. Selling on credit and administering suitable credit collection policy are the two core activities, which decide the success of business entities.

136 Depending upon the magnitude of receivables and volume of turnover, the Debtors' Turnover ratio varies from firm to firm and year to year. Hence, the inter-firm comparison as well as inter-temporal analysis of this ratio shows significant difference. Corporates take every possible step to improve this ratio as their survival depends very much on their operations. Hence this ratio varies very much among companies and over the years under study. With a view to study the variability vis-a-vis consistency of the Debtors turnover ratio over the study period the Co-efficient of variation of Debtors turnover ratio has been calculated and presented in the following Table 5.3.3. TABLE 5.3.3 Co-efficient of Variation of the Debtors Turnover Ratio Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad 24.77 9.73 39.28 Dalmia 12.32 1.6 12.98 India Cements 9.11 4.38 48.7 Madras Cements 17.28 5.63 32.58 TANCEM 3.35 1.11 33.13 Overall Average 13.37 3.56 26.62 Source: Computed from the Annual Reports of the Select Cement Companies.

137 It is inferred from the above analysis that the variation in the debtors' turnover ratio is found to be high in India Cements (48.7%) followed by Chettinad Cements (39.28%) and it is least in Dalmia Cements (12.98%). The overall co-efficient of variation of the select cement companies is 26.62%, which reveals that there exists a moderate stability in the debtors turnover ratio. The lowest average ratio in the case of TANCEM indicates the lenient policy pursued by this firm with respect to receivable management. As said earlier, firms adopt different degrees credit of collection policy. When the credit policy is very tight, the level of receivables is reduced and Debtors' turnover ratio is improved. The result will be reverse if they adopt a lenient policy. Any how, companies have to review their credit collection policy as situations warrant and accordingly the Debtors turnover ratio also varies. A static Debtors' turnover ratio is not a preferred one.

138 The co-efficient of variation of select companies is represented by the following bar diagram in figure 5.3.1 FIGURE 5.3.1 Co efficient of Variation of Debtors Turnover Ratio 5 45 Co efficient of variation Debtors Turnover Ratio 4 35 3-1 25-2 15 1 Ctlettined //Via cernents114adras cern 4 CE/14 ern: Companies

139 The AGR, LAGR, CAGR of the Debtors' turnover ratio of the select units over the study have been calculated and presented in Table 5.3.4. TABLE 5.3.4 Annual, Linear Annual and Compound Annual Growth Rates of the Debtors Turnover Ratio Sample Units Linear Compound Annual Annual Annual Growth Rate Growth Rate Growth Rate Chettinad 8.33 3.2 2.6 Dalmia 2.91.85.72 India Cements -2.99-1.24-7.81 Madras Cements 3.26 2.37 2.27 TANCEM -2.87-7.82-7.1 Overall Average 2.41.1. Source: Computed from the Annual Reports of the Select Cement Companies. The overall annual growth rate of the debtors' turnover ratio of the select cement companies is 2.41 during the study period. Chettinad Cements has the highest annual growth rate (8.33) followed by Madras Cements (3.26). The India Cements and TANCEM have registered a negative annual growth rate during the study period. India Cements and TANCEM have registered negative linear annual growth rates. The linear annual growth rate is high (3.2) in Chettinad Cements followed by Madras Cements (2.37). The compound annual growth rate is high in

14 Madras Cements, whereas India Cements and TANCEM have registered negative compound growth rates during the study period. The negative CAGR can be justified if their Debtors' turnover ratios are looked into. Debtors' turnover ratio of Tancem has come down from 5.46 times to 3.2 times and in the case of India Cements it has come down to 8.99 times from 17.44 times. 5.4. Average Collection Period Average collection period represents the average number of days for which the firm has to wait before its receivables are converted into cash. It measures the quality of debtors, since it indicates the rapidity or slowness of their realization. The better the quality of debtors, the shorter the average collection period. The average collection period should be compared with the firm's credit terms and policy to judge its credit and collections efficiency. There is no "rule of thumb", which may be used as a standard for analysis. Therefore, a comparison of the firm's average collection period with the period of some other firms may be done. The Average collection period ratio of the sample units computed for the period of study is presented in Table 5.4.1.

141 TABLE 5.4.1 Average Collection Period of the Sample Units Year (in months) Sample Units it4 1 CP 1 C1 1 1-1 CiD 1-4 r I (N1 CID el tr NI NC) tin CID Chettinad.38.43.45.66.99.91.64.46.42.27 Dalm ia.99.99 1.5 1.1 1.3.81.82 1.5 1.18.87 India Cements.69.74 1.24 1.58 2.48 2.6 1.61 1.72 1.66 1.33 Madras Cements.46.78.91.89.87 1.2.87.72.57.44 TANCEM 2.2 3.35 3.21 2.45 3.73 5.17 5.56 5.9 4.62 3.75 Source: Computed from the Annual Reports of the Select Cement Companies. As pointed out earlier, the average collection period of receivables is a function of credit policy adopted by a firm. A tight credit collection policy will reduce the number of months/days of collection and vice versa. The average collection period of receivables of the sample cement units is in the range of.27 to 5.56 months, TANCEM, which has recorded the highest credit policy, has followed a very lenient credit collection policy whereas Chettinad Cement has followed a fairly tight policy, which has rendered its collection period.27 months.

142 The results of ANOVA relating to this ratio are presented in the following table 5.4.2. TABLE 5.4.2 ANOVA of Average Collection Period among Companies over the Years Source of Variation Sum of Squares D.F Mean Square Calculated F Value Result Between companies 75.16 4 18.79 62.34 Significant Between years 5.82 9.64 2.14 Not Significant Error 1.85 36.3 Total 91.84 49 1.87 The calculated F value of the average collection period among the select cement companies (62.34) is greater than the table value (2.633) at 5% level of significance. This reveals that there is a significant difference in the average collection period among the cement companies. Therefore, the null hypothesis Ho l is rejected. When an inter-firm comparison of collection period of receivable is made, a significant difference is observed. Firms adopt different degrees of collection policy depending upon the market considerations and other related factors. Levels of receivables also vary from firm to firm. Hence, inter firm difference in this ratio is quite acceptable.

143 The calculated F value over the years is 2.14, which is less than the table value of 2.153 at 5% level of significance. It implies that there is no significant difference in the average collection period over the years. Hence, the null hypothesis H2 is accepted. As the same time, we get a different result when an inter- temporal analysis is made. Over the years, no significant difference is observed in the average collection period. This suggests that the sample units per se, have followed almost uniform collection policy over the study period. With a view to study the variability vis-à-vis consistency of the Average collection period over the study period the Co-efficient of variation of Average collection period has been calculated and presented in the following Table 5.4.3. TABLE 5.4.3 Co-efficient of Variation of the Average Collection Period Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad.56.24 42.85 Dalmia.99.12 12.12 India Cements 1.57.63 4.12 Madras Cements.75.2 26.66 TANCEM 3.91 1.16 29.66 Overall Average 1.56.36 23.7 Source: Computed from the Annual Reports of the Select Cement Companies.

144 The consistency in the average collection period is tested with the help of analysis of co-efficient of variation. The overall co-efficient of variation of the select cement companies is found to be 23.7%. The variation in the average collection period is high (42.85%) in Chettinad Cements followed by India Cements (4.12%), and the least is 12.12% in Dalmia Cements. It shows the efficiency of the companies in the management of receivables. The mean of the average collection period of Chettinad Cements, Dalmia Cements and Madras Cements shows their efficiency in the collection of receivables. The AGR, LAGR, CAGR of the Average Collection period of the select units over the study have been calculated and presented in Table 5.4.4 TABLE 5.4.4 Annual, Linear Annual and Compound Annual Growth Rates of the Average Collection Period Sample Units Linear Compound Annual Annual Annual Growth Rate Growth Rate Growth Rate Chettinad.47-1.24-1.98 Dalmia -.17 -.5 -.64 India Cements 12.16 5.74 8.4 Madras Cements 2.6-2.2-2.2 TANCEM 9.59 6.66 7.63 Overall Average 5.51 4.16 4.82 Source: Computed from the Annual Reports of the Select Cement Companies

1 45 In the case of Chettinad, Dalmia and Madras Cements, CAGR of Debtors' turnover ratio (as seen in Table 5.3.4) has recorded a positive rate which has been corroborated with their negative CAGR in Average collection period. 5.5. Creditors Turnover Ratio Creditors' turnover ratio indicates the number of times the creditors are turned over during a year. Generally, the lower the value of creditors turnover, the greater the advantage to the company. This ratio shows firm's the liquidity point of view. There is no rule of thumb, which may be used as a norm to interpret this ratio, as it may be different from firm to firm, depending upon the nature of business. This ratio may be compared with the ratios of other firms doing similar business. The Creditors' turnover ratio of the sample units computed for the period of study is presented in Table 5.5.1.

146 TABLE 5.5.1 Creditors Turnover Ratio of the Sample Units Year (in times) Sample Units oe a, v-1 e9i en "zr tri %ID Ir.- c:7 o cd., o d, c? o. o 4 9' cr F- oo 7-4 r'l eel kr),ci ON Cr ON C) e:::. ON CTs ON 1...1 1 v.* el r.i t",4 el eni t`,1 est Chettinad.96 1.12 1.21 1.4 1.26 1.3 1.63 3.42 1.94.83 Dalm ia 2.74 2.7 3.19 2.83 1.43.87 2.7 1.49.59.25 India Cements 1.73.72.65.63.5.16.46.91.88 1.21 Madras Cements 1.81.99 2.43.81 1.4 1.82.67 7.4 1.6 2.47 TANCEM 3.6 3.16 2.73 4.33.42 2.9 2.39 4.4 3.3 4.35 Source: Computed from the Annual Reports of the Select Cement Companies. The range of this ratio is.16 times to 4.33 times. India Cements has recorded the lowest Creditors turnover ratio (.16 times), which has moved to a maximum of 1.73 times. But in the case of TANCEM this ratio has recorded a maximum of 4.33 times. A low ratio indicates liberal credit policy of suppliers whereas the high ratio indicates non-availability of liberal credit period from the suppliers. A low ratio reduces the investment in working capital thereby enhancing the short term liquidity of the firms. In this respect India Cements has enjoyed an advantage over other firms.

147 The results of ANOVA relating to Creditors turnover ratio are presented in the following Table 5.5.2. TABLE 5.5.2 ANOVA of Creditors Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D. F Mean Square Calculated F Value Result Between companies 26.483 4 6.621 5.792 Significant Between years 2.34 9 2.26 1.977 Not significant Error 41.15 36 1.14 Total 87.97 49 1.79 The calculated F value of the creditors' turnover ratio among the companies is 5.792, which is greater than the table value of 2.633 at 5% level of significance. This implies that there is a significant difference in the Creditors turnover ratio among the cement companies. Hence, the hypothesis Hol is rejected. The behaviour of Creditors turnover ratio of sample units shows a mixed trend. The ratio is greatly influenced by the volume of purchase of raw material and magnitude of accounts payable. These components vary from firm to firm. Hence the inter firm comparison of this ratio has shown significant difference.

148 The calculated F value over the years is 1.997, which is less than the Table value of 2.153 at 5% level of significance. It reveals that there is no significant difference in the creditor's turnover ratio over the years. Therefore, the hypothesis H2 is accepted. The inter-temporal analysis of this ratio shows a different result. Over the years this ratio shows on insignificant difference. This may be due to the factors like operations at a specific level of production, plant capacity and requirement of raw material. When there is no sizable expansion of plant capacity the purchase and size of creditors are obviously moving around a specific level. With a view to study the variability vis-à-vis consistency of this ratio over the study period the Co-efficient of variation has been calculated and presented in the following Table 5.5.3. TABLE 5.5.3 Co-efficient of Variation of the Creditors Turnover Ratio Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad 1.48.76 51.35 Dalmia 1.82 1.4 57.14 India Cements.79.44 55.69 Madras Cements 2.1 1.88 93.57 TANCEM 3.1 1.2 39.86 Overall Average 1.82.67 36.81 Source: Computed from the Annual Reports of the Select Cement Companies.

149 The overall co-efficient of variation of the select cement companies is 36.81%, which reveals that there is a significant variation in the creditors turnover ratio. The variation in the creditors turnover ratio is found to be high in Madras Cements (93.57%) followed by Dalmia Cements (57.14%) and it is least in TANCEM (39.86%). The co-efficient of variation of select companies is represented by the following bar diagram in figure 5.5.1. FIGURE 5.5.1 Co efficient of Variation of Creditors Turnover Ratio 1 - Co - efficent of variation Creditors turnover ratio 9 8 7 6-1 5-4 3 2 1 Chettinad Dalmia India Madras TANCEM Cements Cements Companies

15 The AGR, LAGR, CAGR of the Creditors turnover ratio of the select units over the study have been calculated and presented in Table 5.5.4. TABLE 5.5.4 Annual, Linear Annual and Compound Annual Growth Rates of the Creditors Turnover Ratio Sample Units Linear Compound Annual Annual Growth Rate Annual Growth Rate Growth Rate Chettinad 8.86 6.58 4.96 Dalmia -1.15-16.19-2.3 India Cements 17.75-2.4-1.33 Madras Cements 119.17 8.98 5.34 TANCEM 49.12 1.66 1.95 Overall Average 1.7.16 -.49 Source: Computed from the Annual Reports of the Select Cement Companies. The annual growth rate of the creditors turnover ratio of the select cement companies altogether is 1.7 during the study period. Madras Cements has the highest annual growth rate (119.17) followed by TANCEM (49.12) and India Cements (17.75). The Dalmia Cements has registered negative annual growth rate during the study period. Dalmia Cements and India Cements have registered negative linear annual growth rates during the study period. The linear annual growth rate is high (8.98) in Madras Cements followed by Chettinad Cements (6.58). There is a

15 1 negative value (.49) in the overall compound annual growth rate of the select cement companies. Dalmia Cements and India Cements have registered negative compound growth rates during the study period. 5.6. Average Payment Period Ratio The average payment period represents the average number of days /months taken by the firm to pay its creditors. Generally, the better the liquidity position of the firm, the lower the ratio and the converse. But a higher payment period also implies the greater credit period enjoyed by the companies from suppliers. But one has to be careful in interpreting this ratio, as a higher ratio may also imply lower discount facilities or higher prices paid for the goods purchased on credit. The Average Payment period ratio of the sample units computed for the period of study is presented in Table 5.6.1.

152 TABLE 5.6.1 Average Payment Period of the Sample Units Year (in months) Sample Units Cji t-- ON ON 1 C71 1 I oe 1 ON 1 1 I a, 1 C1 m I 1-1 4, NI e4 9) -, el AI ev A NI c? el el f"1 Chettinad 12.47 1.76 9.96 8.58 9.55 11.61 7.34 3.51 6.17 14.49 Dahnia 4.38 4.44 3.76 4.25 8.4 13.79 5.8 8.7 2.46 48.81 India Cements 6.92 16.58 18.47 19. 24.1 73.48 25.84 13.13 13.69 9.92 Madras Cements 6.62 12.15 4.94 14.87 11.58 6.59 17.89 1.7 11,35 4.85 TANCEM 3.33 3.8 4.39 2.77 28,32 5.74 5.2 2.97 3.96 2.76 Source: Computed from the Annual Reports of the Select Cement Companies. As Creditors' payment period is calculated from Creditors' turnover ratio, the lower the Creditors' turnover ratio the greater the payment period and vice versa. The payment period is in the range of 1.7 months to 73.48 months. India Cement has enjoyed the maximum payment period. The deferral period is generally on the higher side. All sample units have liberally used trade credit as a major source of working capital. The results of ANOVA relating to this ratio are presented in the following Table 5.6.2

153 TABLE 5.6.2 ANOVA of Average Payment Period among Companies over the Years Source of Variation Sum of Squares D F Mean. Square Calculated F Value Result Between companies 1485.2 4 371.3 2.84 Significant Between years 1156.86 9 128.54.98 Not Significant Error 4696.93 36 13.47 Total 7338.99 49 149.77 It is seen from the above table that the calculated F value of the average payment period among the select cement companies is 2.84, which is greater than the table value of 2.633 at 5% level of significance. This implies that there is a significant difference in the average payment period among the cement companies. Hence, the hypothesis Hol is rejected. The inter-firm comparison discloses that there is a significant difference in this ratio among the sample units. As said earlier, the volume of purchase of raw materials and spares as well as the magnitude of payables vary among companies, and a significant difference is noticeable. The calculated F value over the years is.98, which is less than the table value of 2.153 at 5% level of significance. It indicates that there is no significant difference in the average payment period over the years. Therefore, the hypothesis H2 is accepted. The inter-temporal analysis

154 gives a different picture. Over the years, this ratio does not record significant differences. Absence of expansion of plant and operations at a specific level of production may be the contributory factors for this insignificant difference. With a view to study the variability vis-a-vis consistency of the Average payment period over the study period the Co-efficient of variation of Average payment period has been calculated and presented in the following Table 5.6.3. TABLE 5.6.3 Co-efficient of Variation of the Average Payment Period Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad 9.44 3.2 33.89 Dalmia 12.22 13.9 113.74 India Cements 22.1 18.98 85.88 Madras Cements 9.25 5.9 55.2 TANCEM 6.31 7.8 123.61 Overall Average 11.86 5.7 42.74 Source: Computed from the Annual Reports of the Select Cement Companies. It is inferred from the above table that the overall co-efficient of variation of the average payment period is found to be 42.74%. TANCEM has registered the highest co-efficient of variation (123.61%) followed by

155 Dalmia Cements (113.74%), and it is least (33.89%) in Chettinad Cements. The higher rate of co-efficient of variation reveals that there exists a vast fluctuation in the average payment period in TANCEM and Dalmia Cements. The AGR, LAGR, CAGR of the Average Payment period of the select units over the study have been calculated and presented in Table 5.6.4. TABLE 5.6.4 Annual, Linear Annual and Compound Annual Growth Rates of the Average Payment Period Sample Units Linear Compound Annual Annual Annual Growth Rate Growth Rate Growth Rate Chettinad 13.28-3.7-4.75 Dalmia 48.24 26.97 25.62 India Cements 27.66 1.37 1.36 Madras Cements 83.48-2.2-5.9 TANCEM 87.23-2.59-1.9 Overall Average 2.76 4.97 5.1 Source: Computed from the Annual Reports of the Select Cement Companies. The annual growth rate of the average payment period of the companies is (2.76%) during the study period. The TANCEM has registered the highest annual growth rate (87.23%) followed by Madras

156 Cements (83.48%) and it is least in Chettinad Cements (13.28%). The linear annual and compound annual growth rates show negative values for Chettinad Cements, Madras Cements and TANCEM over the years. The Dalmia Cements has registered the highest linear annual and compound annual growth rates followed by India Cements. 5.7. Working Capital Turnover Ratio Working capital turnover ratio indicates the velocity of the utilization of net working capital in the business operations. This ratio indicates the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital is used by a firm. A higher ratio indicates the efficient utilization of working capital and a low ratio indicates the opposite. However, a very high turnover of working capital is a sign of overtrading and may put the concern into financial difficulties. This ratio can be used for trend analysis for different firms in the same industry and for various periods. The working capital turnover ratio of the sample units computed for the period of study is presented in Table 5.7.1

157 TABLE 5.7.1 Working Capital Turnover Ratio of the Select Cement Companies Year (in times) Sample Units cu' <7\ \ 1. IN <71 1 N I <17 \ 1 1..4,--1 (-4 r-li 1..1 (NI en el ev -er 141 c-i In el. CD c-4 r-- o. (-1 Chettinad 9.97 8.99 7.98 4.34 3.46 6.47 7.32 5.2 7.27 17.19 Dalmia 1.72 1.57 1.66 1.66 2.5 1.39 1.19 1.59 1.9 2.15 India Cements 2.3 7.87 3.69 1.68.9 2.77 2.64 4.65 4.65 6.23 Madras Cements 3.68 5.35 4.29 4.87 6.57 5.73 7.9 4.84 1.5 7.11 TANCEM 3.82 2.94 3.7 4.47-4.8 2.74 2.39 2.84 2.79 3.11 Source: Computed from the Annual Reports of the Select Cement Companies. Working capital turnover ratio measures the efficiency of a firm in managing and utilizing the working capital to improve its turnover. The higher this ratio, the more efficient is the management and utilization of working capital and lower ratio shows the reverse. Working capital turnover of select units is in the range of.9 times to 17.19 times. Chettinad cement has recorded the highest (17.19 times) and India cements has recorded the lowest (.9 times).

158 The results of ANOVA relating to this ratio are presented in the following Table 5.7.2 TABLE 5.7.2 ANOVA of Working Capital Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D. F Mean Square Calculated F Value Result Between companies 255.24 4 63.81 13.72 Significant Between years 9.95 9 1.1 2.17 Significant Error 167.38 36 4.64 Total 513.57 49 1.48 The calculated F value of the working capital turnover ratio among the select cement companies (13.72) is greater than the table value (2.633) at 5% level of significance. This reveals that there is a significant difference in the working capital turnover ratio among the cement companies. Hence, the null hypothesis H1 is rejected. Inter firm comparison of Working capital turnover ratio shows significant difference. The variations in the magnitude of turnover as well as in the components of working capital of individual units might have contributed to this difference.

159 The calculated F value over the years is 2.17, which is greater than the table value of 2.153 at 5% level of significance. It implies that there is a significant difference in the working capital turnover ratio over the years. Therefore, the null hypothesis H2 is rejected. Inter-temporal analysis also shows significance difference over years. Both the variables considered for computation of this ratio vary year after year to a significant extent. Further, turnover current assets and current liabilities of firms cannot be expected to remain constant over years. With a view to study the variability vis-à-vis consistency of this ratio over the study period the Co-efficient of variation has been calculated and presented in the following Table 5.7.3. TABLE 5.7.3 Co-efficient of Variation of the Working Capital Turnover Ratio Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad 7.82 3.86 49.36 Dalmia 1.69.29 17.15 India Cements 3.74 2.15 57.48 Madras Cements 5.96 1.84 3.87 TANCEM 2.49 2.39 95.98 Overall Average 4.34 1.42 32.71 Source: Computed from the Annual Reports of the Select Cement Companies.

16 It is inferred from the above analysis that the overall co-efficient of variation of the select cement companies is 32.71%. The variation in the working capital turnover ratio is found to be high in TANCEM (95.98%) followed by India Cements (57.48%) and it is least in Dalmia Cements (17.15%). The mean of the working capital turnover ratio reveals the inefficiency in the utilization of working capital in Dalmia Cements. The co-efficient of variation of select companies is represented by the following bar diagram in figure 5.7.1. FIGURE 5.7.1 Co efficient of Variation of Working Capital Turnover Ratio Co efficient of variation 1 9-8- 7-6 - 5 4 3-2 - 1 Chettinad Dalmia India Madras TANCEM Cements Cements Companies

161 The AGR, LAGR, CAGR of the Working capital turnover ratio of the select units over the study have been calculated and presented in Table 5.7.4. TABLE 5.7.4 Annual, Linear Annual and Compound Annual Growth Rates of the Working Capital Turnover Sample Units Linear Compound Annual Annual Annual Growth Rate Growth Rate Growth Rate Chettinad 17.83 3.95 2.12 Dalmia 4.47 1.35 1.6 India Cements 44.6 3.63 5.56 Madras Cements 14.62 7.36 7.5 TANCEM -34.65-2.28 # Overall Average 14. 3.92 3.34 Source: Computed from the Annual Reports of the Select Cement Companies. # Divide by zero could not be computed The overall annual growth rate of the working capital turnover ratio is 14. during the study period. India Cements has the highest annual growth rate (44.6) followed by Chettinad Cements (17.83), and it is least in Dalmia Cements (4.47). The TANCEM has registered negative annual growth rate during the study period. In the case of linear annual growth rate, TANCEM has registered negative growth rate. The linear annual growth rate is high (7.36) in Madras Cements followed by Chettinad

162 Cements (3.95). The overall compound annual growth rate of the select cement companies is found to be 3.34 and the compound annual growth rate is high in Madras Cements followed by India Cements, whereas Dalmia Cements has registered lower compound growth rate during the study period. 5.8. Cash Turnover Ratio Cash turnover ratio establishes the relationship between sales and cash. It indicates the number of times the amount of cash is turned over during the accounting period. "The higher the turnover, the lesser the cash balance required for any given level of sales and, other things being equal, implies greater efficiency".2 There is no 'rule of thumb', which may be used as a standard to examine and interpret this ratio. This ratio may be compared with ratios of other firms doing similar business, which is called inter-firm comparison. The Cash turnover ratio of the sample units computed for the period of study is presented in Table 5.8.1. 2 Clarksor, G.P.E and B.J.Elliot. 1983. Managing Money and Finance, Gower Press Limited, Hants, p.92.

163 TABLE 5.8.1 Cash Turnover Ratio of the Sample Units Year (in times) Sample Units oo 1 C71 oe (2% ON.1 1 C 1 1 e=3 c I o e4 e-4 cid,-1 o csi en 'SD e4 o fq -tzt SD en cz t's1 tr) = 4 o eq '..A o o e-4 t--- 9) ' o evi c> Chettinad 47.94 3.4 3.9 22.61 18.97 25.7 23.41 25.89 24.26 27.34 Dalmia 11.45 12.67 13.8 14.56 17.18 17.96 13.9 19.56 9.65 9.46 India Cements 42.39 48.28 56.94 128.3 349.7 138.64 268.88 392.6 35.2 9.78 Madras Cements 6.37 15.34 18.84 16. 18.5 17.69 13.1 16.78 2.27 27.81 TANCEM 15.52 25.21 37.73 13.89 18.35 8.83 14.62 17.19 12.21 11.95 Source: Computed from the Annual Reports of the Select Cement Companies. Cash Turnover ratio indicates the efficiency of utilization of liquid cash in generating sales turnover. In the case of India Cements Re 1 cash has generated sales turnover of Rs 392.6, which is the maximum. But on the other hand, in the case Madras cements, it has recorded the minimum (Rs 6.37). Cash holding of a firm depends upon many factors. Firms focus upon improving the level of their performance through increase in top line. This ratio looks better in the case of units which have recorded good turnover.

164 The results of ANOVA relating to this ratio are presented in the following Table 5.8.2. TABLE 5.8.2 ANOVA of Cash Turnover Ratio among Companies over the Years Source of Variation Sum of Squares DX Mean Square Calculated F Value Result Between companies 13272.95 4 3318.23 8.23 Significant Between years 34165.95 9 3796.21.94 Not significant Error 144264.75 36 47.35 Total 3153.67 49 6336.81 The calculated F value of the cash turnover ratio among the select cement companies (8.23) is greater than the table value (2.633) at 5% level of significance. This reveals that there is a significant difference in the cash turnover ratio among the companies. Therefore, the null hypothesis H1 is rejected. Inter-firm comparison of this ratio shows significant difference. Variation in the volume of sales vis-a-vis cash holding among the sample units is the contributory factor for this kind of difference The calculated F value over the years is.94, which is less than the table value of 2.153 at 5% level of significance. It reveals that there is no significant difference in the cash turnover ratio over the years. Hence, the null hypothesis H2 is accepted. Inter-temporal analysis of this ratio has

165 recorded insignificant difference over the study period, which implies that cash holding pattern has been almost the same over the years. With a view to study the variability vis-a-vis consistency of the Cash turnover ratio over the study period the Co-efficient of variation has been calculated and presented in the following Table 5.8.3 TABLE 5.8.3 Co-efficient of Variation of the Cash Turnover Ratio Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad 27.68 7.96 28.75 Dalmia 13.94 3.43 24.6 India Cements 147.3 14.18 95.34 Madras Cements 17.7 5.43 31.81 TANCEM 17.55 8.36 47.63 Overall Average 44.65 27.55 61.7 Source: Computed from the Annual Reports of the Select Cement Companies. It is seen from the above table that the overall co-efficient of variation of the cash turnover ratio is found to be 61.7%. India Cements has the highest co-efficient of variation (95.34%) followed by TANCEM (47.63%), and the least is 24.6% in Dalmia Cements. The mean of the cash turnover ratio reveals that the cash turnover ratio is good in India

166 Cements followed by Chettinad Cements and it is not satisfactory in Dalmia Cements during the study period. The AGR, LAGR, CAGR of the Cash turnover ratio of the select units over the study have been calculated and presented in Table 5.8.4 TABLE 5.8.4 Annual, Linear Annual and Compound Annual Growth Rates of the Cash Turnover Ratio Sample Units Linear Compound Annual Annual Annual Growth Rate Growth Rate Growth Rate Chettinad -3.93-5.36-4.23 Dalmia 1.92 -.6-1.3 India Cements 27.36 6.2-2.69 Madras Cements 24.44 7.37 8.85 TANCEM 9.2-8.5-6.98 Overall Average 13.8 3.31.78 Source: Computed from the Annual Reports of the Select Cement Companies. The overall annual growth rate of the cash turnover ratio of the select cement companies is 13.8% during the study period. India Cements has registered the highest annual growth rate (27.36) followed by Madras Cements (24.44) and it is least in Dalmia Cements (1.92). In the case of linear annual growth rate, Chettinad Cements, Dalmia Cements

167 and TANCEM have registered negative growth rates. The linear annual growth rate is high (7.37) in Madras Cements followed by India Cements (6.2). The overall compound annual growth rate of the cash turnover ratio of select cement companies is found to be.78%. Except Madras Cements, the compound annual growth rate of the cash turnover ratio of other cement companies has registered negative values during the study period. 5.9. Total Assets Turnover Ratio Total assets turnover ratio establishes the relationship between assets and total sales of a firm. A high ratio is an indicator of overtrading of total assets while low ratio reveals idle capacity. The rule of thumb for the total assets turnover ratio is two times. The Total Assets Turnover ratio of the sample units computed for the period of study is presented in Table 5.9.1.

168 TABLE 5.9.1 Total Assets Turnover Ratio of the Sample Units (in times) Year Sample Units cr. ti., cr as 1...1 C" ; 1 C" 1 1 'IT. ch 1 CP, 1 4...4, o ci (".4 I,-, e'..1 en.4? CI 'et es4 lf) el `..Z el IN l"%1 Chettinad.57.53.57.39.36.48.57.7.78 1.4 Dalm ia.51.54.55.59.48.51.46.42.4.41 India Cements.46.48.43.41.33.29.26.31.4.57 Madras Cements.54.6.5.49.54.48.55.53.7.8 TANCEM 1.38 1.1 1.2 1.6.91.87.93.99 1.4 1.17 Source: Computed from the Annual Reports of the Select Cement Companies. Total Assets turnover ratio is in the range of Re.29 to Rs 1.38. This ratio measures the efficiency of a firm in managing and utilizing its assets. The higher this ratio, the more efficient is the management and utilization of the assets while low turnover ratios are indicative of underutilization of a variable resources and presence of idle plant capacity.

169 The results of ANOVA relating to this ratio are presented in the following Table 5.9.2. TABLE 5.9.2 ANOVA of Total Assets Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D. F Mean Square Calculated F Value Result Between companies 2.46 4.615 48.741 Significant Between years.318 9.35 2.796 Significant Error.454 36.13 Total 3.232 49.66 The calculated F value of the total assets turnover ratio among the select cement companies is 48.741, which is greater than the table value of 2.633 at 5% level of significance. This reveals that there is a significant difference in the total assets turnover ratio among the cement companies. Hence, the null hypothesis 111 is rejected. Inter-firm comparison shows significant difference mainly due to the varying volume of turnover and investment in assets. The calculated F value over the years is 2.796, which is greater than the table value of 2.153 at 5% level of significance. It indicates that there is a significant difference in the total assets turnover ratio over the years. Therefore, the hypothesis H2 is rejected. The inter-temporal

17 comparison of this ratio has also recorded significant difference. It seems firms have taken continuous efforts to improve their top line over the years. With a view to study the variability vis-à-vis consistency of this ratio over the study period the Co-efficient of variation has been calculated and presented in the following Table 5.9.3. TABLE 5.9.3 Co-efficient of Variation of the Total Assets Turnover Ratio Sample Units Mean Standard Deviation Co-efficient of Variation Chettinad.6.2 33.33 Dalmia.49.6 12.24 India Cements.39.1 25.64 Madras Cements.57.1 17.54 TANCEM 1.4.15 14.42 Overall Average.62.8 12.9 Source: Computed from the Annual Reports of the Select Cement Companies. It is seen from the above table that the overall co-efficient of variation of the total assets turnover ratio is found to be 12.9% and it implies that there is a moderate variation in the total assets turnover ratio of the companies over the study period. Chettinad Cements has registered the highest co-efficient of variation (33.33%) followed by India Cements

171 (25.64%), and it is least (12.24%) in Dalmia Cements. The mean of the total assets turnover ratio ranges between.39 and 1.4 and it is not satisfactory, since it is less than two times which the traditional standard for total assets turnover ratio. The co-efficient of variation of select companies is represented by the following bar diagram in figure 5.9.1 FIGURE 5.9.1 Co-efficient of Variation of Total Assets Turnover Ratio 35 Co - efficient of variation of the Tota l Assets Turnover 1.1= CO 3 25-2- 15 1 Chettinad Dalmia India Cements Madras Cements TAN C EM Companies

172 The AGR, LAGR, CAGR of the Total Assets Turnover ratio of the select units over the study have been calculated and presented in Table 5.9.4. TABLE 5.9.4 Annual, Linear Annual and Compound Annual Growth Rates of the Total Assets Turnover Ratio Sample Units Annual Growth Rate Linear Annual Growth Rate Compound Annual Growth Rate Chettinad 8.99 7.38 6.62 Dalmia -2.2-3.6-3.63 India Cements 4.23-1.2-1.49 Madras Cements 5.43 3.5 3.16 TANCEM -1.6-1.32-1.13 Overall Average 2.11.97.79 Source: Computed from the Annual Reports of the Select Cement Companies. The annual growth rate of the total assets turnover ratio of the cement companies altogether is 2.11%. The annual and compound annual growth rates of the Dalmia Cements and TANCEM have registered negative values during the study period. The annual and linear annual growth rates are high in Chettinad Cements followed by Madras Cements. India Cements has registered negative value of linear annual and compound annual growth rates.

173 5.1. Fixed Assets Turnover Ratio This ratio expresses the number of times fixed assets are turned over in the stated period. It shows how well the fixed assets are used in the business. The ratio is important in the case of manufacturing concerns, because sales are made not only by the use of current assets but also by the amount invested in fixed assets. The better the performance, the higher the ratio. On the other hand, a low ratio indicates that fixed assets are not efficiently utilized. The Fixed Assets Turnover ratio of the sample units computed for the period of study is presented in Table 5.1.1 TABLE 5.1.1 Fixed Assets Turnover Ratio of the Select Cement Companies (in times) Year Sample Units oe C2' I CA 1 r..4 crs CT. I C a 1 r c::) I CY 1 Il,-1 I cz r4 el cip 14 f".1 I f`41 r`4 I en = el..zer (NI 1 CP NI I C:::* NI Chettinad.7.65.7.48.45.62.77.99 1.9 1.48 Dalmia.95 1.4 1.1 1.26.88 1.1 1..72.72.73 India Cements.77.77.78.83.7.62.43.52.72.77 Madras Cements.73.79.67.64.69.63.74.74 1. 1.25 TANCEM 5.95 3.36 2.95 3.15 3.13 3.56 3.69 3.94 4.26 5.5 Source: Computed from the Annual Reports of the Select Cement Companies.

174 Fixed Assets turnover ratio is in the range of Re.45 to Rs 5.95. TANCEM has recorded the maximum. Higher ratio is indicative of the effective use of fixed assets, particularly in the case of manufacturing concerns, in generating sales. Lower ratio indicates underutilization of fixed assets. Firms have to take the lower ratio as a warning signal and to take corrective measures to improve their top line. The results of ANOVA relating to this ratio are presented in the following Table 5.1.2 TABLE 5.1.2 ANOVA of Fixed Assets Turnover Ratio among the Companies over the Years Source of Variation Sum of Squares D.F Mean Square Calculated F Value Result Between companies 77.2 4 19.3 96.45 Significant Between years 2.61 9.29 1.45 Not significant Error 7.2 36.2 Total 87.3 49 1.77 The calculated F value of the fixed assets turnover ratio among the select cement companies is 96.45, which is greater than the table value of 2.633 at 5% level of significance. This reveals that there is a significant difference in the fixed assets turnover ratio among the cement companies.

175 Hence, the null hypothesis 111 is rejected. Inter firm comparison of this ratio has recorded a significant difference. This difference may be justified by the varying volume of turnover vis-a-vis size of investment in fixed assets of different firms. The calculated F value over the years is 1.45, which is less than the table value of 2.153 at 5% level of significance. It indicates that there is no significant difference in the fixed assets turnover ratio over the years. Therefore, the hypothesis H2 is accepted. The inter-temporal analysis of this ratio yields a different result. It has recorded an insignificant difference over the years. This indicates more or less static volume of turnover and fixed assets of individual units. With a view to study the variability vis-à-vis consistency of the Fixed Assets turnover ratio over the study period the Co-efficient of variation of fixed assets turnover ratio has been calculated and presented in the following Table 5.1.3.