WORKING CAPITAL ANALYSIS OF SELECT CEMENT COMPANIES IN INDIA

CHAPTER - IV WORKING CAPITAL ANALYSIS OF SELECT CEMENT COMPANIES IN INDIA

CHAPTER IV WORKING CAPITAL ANALYSIS OF SELECT CEMENT COMPANIES IN INDIA In this chapter an attempt has been made to analyse the ratios of select cement companies in India regarding current ratio, quick ratio, working capital turnover ratio, inventory to sales ratio, inventory to current assets, inventory to working capital, raw material turnover ratio, work-in-progress turnover ratio, finished goods turnover ratio, debtors turnover ratio, average collection period, cash in current assets ratio, cash turnover ratio, creditors turnover ratio, creditor to working capital, Creditor to cash, operating cash flow to sales, debt-equity ratio, Interest coverage ratio, operating profit ratio, gross profit ratio, net profit ratio, total assets turnover ratio, return on capital employed, return on capital employed to net worth, average payment period and dividend payout ratio. Summary statistics tools such as minimum value, maximum value, standard deviation, co-efficient of variation and trend analysis have been used. 106

CURRENT RATIO The ratio of current assets to current liabilities is called current ratio in order to measure the short term liquidity or solvency of a concern, Comparison of current assets and current liabilities is inevitable. Current ratio indicates the ability of a concern to meet the current obligation as and when they are due for payment. It demonstrates how quickly a company meets its short term solvency and vice- versa. While a very high ratio may indicate an excessive amount of the current assets and management s failure to utilize the firm s resources properly, a low ratio may indicate the firm s inability to pay its future obligation on time. Current ratio = Current assets Current liabilities The term current assets include stock, sundry debtors, bills receivable, cash and bank balance, prepaid expenses, income due and short term investments. The term current liabilities include sundry creditors, bank over draft, outstanding expenses and income received in advance. The ideal current ratio is 2:1 Current assets shall be 2 times to current liabilities. 107

Name of the Companies Min. TABLE - 4.1 CURRENT RATIO Max. consistent performance of this ratio. 108 Mean Std. Deviation (In Times) C.V (Percent) ACC CEMENT 0.96 1.43 1.12 0.15 13.13 AMBUJA CEMENT ULTRATECH CEMENT 1.5 2.29 1.90 0.27 15.31 0.99 1.5 1.24 0.17 13.97 GRASIM CEMENT 1.15 8.74 2.33 2.28 97.86 INDIA CEMENT 0.65 5.47 2.25 1.15 51.15 JK CEMENT 1 2.88 1.66 0.57 33.97 MADRAS CEMENT 1.54 2.39 1.96 0.29 15.94 Source: Annual Reports of the select cement Companies from 2001-2002 to2010-2011 The table 4.1 presents the current ratio of the select companies. The ACC Cement and Ultra tech Cement companies had higher stability in their current ratio and Grasim Cement and India Cement had lower stability in their current ratio. The mean current ratio ranged from 1.12 to 2.33 among the companies and it was found to be higher for Grasim Cement companies, whereas it was least for ACC Cement during the period undertaken for study. The co-efficient of variation stands least (13.13 per cent) for ACC cement companies, which indicates the

FIGURE - 4.1 CURRENT RATIO QUICK RATIO The ratio is similar to the current ratio except that it excludes inventory from the numerator of the ratio. All current assets have different degrees of risk and liquidity. Among them inventory is generally the least liquid current assets as it needs more time for conversion than other components of current assets (or) it would have no value at all at the time of real crisis. The quick ratio therefore emphasizes the relationship of liquid assets (example current assets less inventory) to liquid liabilities (example current liabilities less bank over draft). The term liquid assets refer to current assets, which can be converted in to cash immediately (or) at a short notice (or) quick computed as follows. 109

Liquid as quick in Acid test Ratio = Liquid assets Liquid liabilities As the rule thumb, acid test for ratio of 1:1 is considered satisfactory for a firm, since the term has sufficient current assets which can easily be converted to cash to liquidate the firm s currently maturing obligation. TABLE - 4.2 QUICK RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 0.42 0.89 0.57 0.13 23.67 AMBUJA CEMENT 0.45 0.75 0.61 0.10 16.61 ULTRATECH CEMENT 0.3 0.54 0.40 0.07 17.97 GRASIM CEMENT 0.54 1.29 0.73 0.21 28.16 INDIA CEMENT 1.23 3.37 2.20 0.71 32.17 JK CEMENT 0.65 1.64 1.04 0.43 41.29 MADRAS CEMENT 0.51 1.49 0.69 0.29 42.24 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011. From the above table 4.2, it is clear that there had been stable quick ratio during the study period for Ambuja Cement and Ultra Tech cement 110

companies since their co-variance values were found to be very low. The Madras Cement Companies and J.K. Cement Companies had higher volatility in their quick ratio during the same study period. The mean value of quick ratio ranged from 0.57 to 2.20 among the cement Companies and it was found to be higher in India Cement whereas it is least in for ACC Cement during the period, of study. The co-efficient of variation was calculated (16.61) for Ambuja Cement, which indicates the consistent performance of this ratio. TABLE - 4.2 QUICK RATIO 111

WORKING CAPITAL TURNOVER RATIO Working capital of a concern is directly related to sales. The current assets like debtors, bills receivable, cash, stock, extra charges, with the increase or decrease in sales. The working capital is taken as; Working capital Ratio is = Current assets Current liabilites Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of a year. This ratio measured the efficiency with which the working capital is being used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio is not a good situation for any firm and hence care must be taken while interpreting the ratio. This ratio can at best be used by making comparative and trend analysis for different firm in the same industry and for various periods. This ratio can be calculated as, Working capital turnover ratio = Sales Networking capital 112

TABLE 4.3 WORKING CAPITAL TURNOVER RATIO Name of the company Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 8.49 39.58 20.53 12.22 59.49 AMBUJA CEMENT 7.89 88.28 35.22 25.69 70.10 ULTRATECH CEMENT 11.73 33.11 22.08 7.65 35.63 GRASIM CEMENT 8.76 43.01 27.43 10.95 39.94 INDIA CEMENT 1.6 9.51 5.63 2.72 48.31 JK CEMENT 7.82 38.25 17.40 8.04 46.21 MADRAS CEMENT 3.79 8.77 6.24 1.71 27.45 Source: Annual Reports of the select cement Companies from2001-2002 to 2010-2011 The above table 4.3 exhibits the working capital turnover ratio of the sample cement companies. With regard to working capital turnover ratio, there is evidence for the stable ratio for Madras Cement Companies and Ultra Tech Cement. Ambuja Cement Company had higher volatility in its working capital turnover ratio. The mean value of working capital turnover ratio ranged from 5.63 to 35.22 among the cement companies and it is higher for Ambuja Cement, whereas it is least for India Cement during the period for study. The Co-efficient of variation is least (27.45) percent for Madras Cement, which indicates the consistent performance of this ratio. 113

FIGURE - 4.3 WORKING CAPITAL TURNOVER RATIO INVENTORY TURNOVER RATIO Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. It is harmful to hold more inventories for the following reasons: It unnecessarily blocks capital which can otherwise be profitably used somewhere else. Over-Stocking will require more gowdown space rent will be paid. There are chances of obsolescence of stock; consumers will referrer goods of latest design etc. 114

Slow disposal of stocks will mean slow recovery of cash which will adversely affect liquidity. There are changes of deterioration in quantity the stocks are held for more periods. It will therefore be advisable to dispose of inventory as early as possible. On the other hand, too low inventory may value less of business opportunities. Thus, it is very essential to keep sufficient stock in business. Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold / average inventory. It would indicate weather inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover ratio indicates the number of times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. The inventory turnover ratio is calculated as follows: Inventory turnover ratio = Cost of goods sold Average inventory 115

Name of the company TABLE - 4.4 INVENTORY TURNOVER RATIO Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 5.37 27.51 13.49 8.64 65.09 AMBUJA CEMENT 5.45 15.41 9.67 2.74 28.35 ULTRATECH CEMENT 8.75 31.16 15.79 7.81 52.83 GRASIM CEMENT 6.77 25.79 15.24 6.21 40.74 INDIA CEMENT 5.29 27.47 12.57 9.74 77.51 JK CEMENT 5.45 49.34 17.52 16.79 95.82 MADRAS CEMENT 5.68 37.03 15.43 9.62 62.32 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011. In the case of inventory turnover ratio from the table 4.4, the stability and instability of inventory turnover was found to be for Ambuja Cement Company and JK Cement Company respectively. The value of co-variance for Ambuja cement is very low and it is very high for JK cement companies. The mean value of Inventory turnover ratio ranged from 9.67 to 17.52 among the select sample Companies and it is higher for JK Cement companies whereas it is low for Ambuja Cement companies during the period for study. The coefficient of variation was found to be least for Ambuja Cement, which indicates that there had been smaller fluctuations in the inventory turnover ratio period of time. 116

TABLE - 4.4 INVENTORY TURNOVER RATIO INVENTORY TO SALES RATIO Inventory to sales ratio is the relationship between inventory and sales. This ratio indicates the rate at which the inventory is turned to in sales. The low the ratio, the more efficient the management of inventories and vice- versa. It is a valuable yardstick for measured selling- efficient and quality of inventory. Inventory to sale ratio is to be computed as, Inventory to sales ratio = Inventory 100 Sales 117

Name of the company TABLE - 4.5 INVENTORY TO SALES RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (Percent) ACC CEMENT 0.16 3.53 1.08 0.98 90.66 AMBUJA CEMENT 0.78 5.05 2.16 1.35 62.34 ULTRATECH CEMENT 0.98 2.8 1.84 0.58 31.57 GRASIM CEMENT 0.16 10.75 2.66 3.06 115.13 INDIA CEMENT 9.51 16.33 12.55 2.41 19.20 JK CEMENT 7.17 18.75 11.95 3.86 32.33 MADRAS CEMENT 7.56 17.88 11.37 3.18 27.94 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The table 4.5 reveals the stability of ratio of inventory to sales, by analyzing the values of co-variance. India Cement is more stable in the ratio of inventory to sales during the study period and it was found that Grasim Cement had lesser stability in this ratio. The mean value of inventory to sales ratio ranged from 1.08 to 12.55 percent among the select cement companies and it is higher for India Cement whereas it is lower for ACC Cement during the period of study. The Co-efficient of variation is least (19.2) percent for India Cement, which indicates the consistent performance of this ratio. 118

TABLE - 4.5 INVENTORY TO SALES RATIO INVENTORY TO CURRENT ASSETS Inventory to current ratio is the relationship between total inventory and total current assets. This ratio indicates the proportion of inventory in the current assets. A high ratio indicates inefficient inventory management of the firm. Likewise a low ratio indicates poor performance of a firm and loosing the opportunity of sales. This ratio is to be computed as follows. Inventory to current assets = Inventory 100 Current assets 119

Name of the company TABLE - 4.6 INVENTORY TO CURRENT ASSET RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 53.31 86.85 66.16 9.30 15.06 AMBUJA CEMENT 36.54 86.84 67.36 13.34 19.81 ULTRATECH CEMENT 37.89 73.28 57.13 11.56 20.24 CRASIM CEMENT 39.25 67.18 51.87 8.26 15.93 INDIA CEMENT 35.29 55.33 48.98 5.94 12.12 JK CEMENT 42.1 59.68 49.37 5.36 10.85 MADRAS CEMENT 36.8 75.16 55.41 13.34 25.51 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 From the table 4.6, it was found that the JK Cement Company had more stable ratio of inventory to current assets and Madras Cement Companies had the lowest stable ratio. The mean value of Inventory to current asset ratio ranged from 48.98 to 67.36 percent among the select sample companies and it is higher for Ambuja Cement whereas it is less for India Cement over a period of time. The coefficient of variation is less (10.85) percent for JK Cement, which indicates the consistent performance of this ratio. 120

TABLE 4.6 INVENTORY TO CURRENT ASSET RATIO INVENTORY TO WORKING CAPITAL Inventory to working capital ratio is useful for studying the liquid financial position of any business enterprise. Any reduction value during the period would mean a small percentage of reduction of working capital. A lower ratio indicates a sound working capital position. The inventory to working capital ratio is to be computed as follows: Inventory to working capital ratio = Inventory Working Capital 121

TABLE -4.7 INVENTORY TO WORKING CAPITAL RATIO Name of the company Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 1.91 7.71 5.19 1.90 45.40 AMBUJA CEMENT 1.35 7.62 3.76 2.32 61.69 ULTRATECH CEMENT 0.37 6.92 3.03 1.95 65.55 GRASIM CEMENT 3.34 20.41 10.38 6.47 62.34 INDIA CEMENT 0.7 3.6 1.59 1.04 65.69 JK CEMENT 0.99 1.82 1.42 0.31 22.15 MADRAS CEMENT 0.53 2.42 1.27 0.74 58.44 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The table 4.7 portrays inventory to working capital ratio. It is found that this ratio was lower for JK Cement Company and higher for India Cement Company. From these values it is inferred that there has been stability in the ratio of inventory to working capital for JK Company and instability for India Cement Company. The mean value of inventory to working capital ratio ranged from 1.27 to 10.38 among the sample companies and it is higher in Grasim Cement whereas it is least for Madras Cement during the period for study. The coefficient of variation is less (22.15) percent for JK Cement, which indicates the consistent performance of this ratio. 122

FIGURE 4.7 INVENTORY TO WORKING CAPITAL RATIO RAW MATERIALS TO TURNOVER RATIO Raw material to turn over ratio shows the relationship between raw material and sales. This ratio indicates the proportion of raw materials which is held against sales. A high ratio indicates inefficiency in administrating the raw materials. On the other hand a low ratio indicates a sound working capital position. Raw material to turnover ratio is to be computed as follows; Raw materials to turnover ratio = Raw materials 100 Sales 123

Name of the company TABLE 4.8 RAW MATERIAL TO TURNOVER RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 1.5 2.57 1.99 0.42 21.20 AMBUJA CEMENT 1.29 2.35 1.80 0.43 23.99 ULTRATECH CEMENT 1.88 3.18 2.50 0.41 16.56 GRASIM CEMENT 3.27 6.46 5.52 0.94 20.76 INDIA CEMENT 0.96 1.6 1.29 0.24 18.28 JK CEMENT 1.1 2.53 2.00 0.40 20.15 MADRAS CEMENT 1.5 3.41 2.41 0.69 28.47 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The table 4.8 shows the raw material turnover ratio. The Ultra tech Cement Company experienced the strong stability during the study period starting from 2001 to 2010, and Madras Cement Company experienced higher instability in the same study period. The mean value of raw material to turnover ratio ranged from 1.29 to 5.52 among the samples companies and it is higher for Grasim Cement whereas it is least for India Cement during the period undertaken for study. The coefficient of variation is least (16.5) percent for Ultra tech Cement, which indicates the consistent performance of this ratio. 124

TABLE 4.8 RAW MATERIAL TO TURNOVER RATIO WORK-IN-PROGRESS TO TURNOVER RATIO Work in progress to turn over ratio shows the relationship between work in progress and sales. This ratio indicates the proportion of work in progress which is held against sales. A high ratio indicates inefficiency in administrating the work in progress. On the other hand a low ratio indicates a sound working capital position. Work in progress to turnover ratio is to be computed as follows: Work in progress to turnover ratio = Work in progress 100 Sales 125

TABLE 4.9 WORK-IN-PROGRESS TO TURNOVER RATIO Name of the company Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 6.84 13.19 10.61 1.84 17.31 AMBUJA CEMENT 11.09 28.12 16.81 6.28 37.33 ULTRATECH CEMENT 10.5 15.74 13.02 1.53 11.77 CRASIM CEMENT 9.85 25.26 17.12 5.99 29.17 INDIA CEMENT 6.35 19.78 12.93 5.89 37.84 JK CEMENT 9.25 25.78 15.38 5.06 35.20 MADRAS CEMENT 8.87 28.78 15.92 6.96 43.76 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 It is seen from table 4.9 that work in progress turnover ratio shows strong stability to Grasim cement during the study period and the stability was lower for ACC Cement at the starting year of the study period. The mean value of work in progress to turnover ratio ranged from 10.61 to 17.12 percent among the sample Companies and it is higher in Grasim Cement whereas it is least for ACC Cement during the period of study. The co-efficient of variation is less (11.77) percent for Ultra tech Cement, which indicates the consistent performance of this ratio. 126

FINISHED GOODS TO TURNOVER RATIO Finished goods to turnover ratio shows the relationship between finished goods and sales. This ratio indicates the proportion of finished goods which is held against sales. A high ratio indicates inefficiency in administrating the finished goods and on the other hand a low ratio indicates a sound working capital position. Finished goods to turnover ratio are to be computed as follows Finished goods turnover ratio = Finished goods 100 Sales Name of the company TABLE 4.10 FINISHED GOODS TO TURNOVER RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 22.65 40.65 31.81 7.00 21.99 AMBUJA CEMENT 27.99 65.76 43.30 13.93 32.17 ULTRATECH CEMENT 30.91 47.53 36.41 5.34 15.68 GRASIM CEMENT 13.04 31.36 21.52 6.14 28.53 INDIA CEMENT 6.35 72.15 40.41 25.57 60.79 JK CEMENT 37.16 60.31 45.70 6.94 15.18 MADRAS CEMENT 25.23 70.27 48.81 15.99 32.75 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 127

The finished goods to turnover ratio was given in the above table 4.10. The Madras cement company had the strong stability while the Ultra Tech Cement Company had the lowest co-variance. The mean value of finished goods to turnover ratio ranged between 21.52 to 48.81 percent among the sample companies and it is higher for Madras Cement whereas it is least in Grasim Cement during the period of study. The Co-efficient of variation is least (15.68) percent for Ultra Tech Cement, which indicates the consistent performance of this ratio. DEBTORS TURNOVER RATIO This is also called Debtors Velocity or Receivable turnover. A firm sells goods on credit and cash basis. When the firm extends credits to its customers, book debts (debtors (or) Accounts Receivable) are credited in the firm s accounts. Debtors expected to be converted to cash over short period and thus included in current assets, Debtor are included as the amount of Bills receivable and Book debts at the end of accounting period. It is most essential that a reasonable quantitative relationship between outstanding Receivables and sales should always be maintained. If the firm has not been able to collect its debts within a reasonable time its funds are uncerssaily locked up in Receivables. In such cases short 128

term loan have to be arranged for paying off its current liabilities and the liquidity position of the firm depends on the quality of debtor. The question of accounts receivable arises only against credit sales. Debtors turnover established through the relationship between net sales of the year and Average Receivable. That is, it measures the number of times the Receivables rotate in a year in terms of sales. It shows how quickly debtors are converted in to cash. Debtors turnover ratio = Credit Sales Average debtors The purpose of this ratio is to measure the liquidity of the Receivable (or) to find out the period over which Receivable remain uncollected. To solve the difficulty arising out of the availability of the information in respect of credit sales and average debtor s alternative method is to calculate the debtors turnover in terms of the relationship between total sales and closing balance of debtors. Debtors turnover = Total sales Closing debtors 129

Name of the company TABLE 4.11 DEBTORS TURNOVER RATIO Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 10.2 31.22 20.26 7.18 35.42 AMBUJA CEMENT 8.4 91.7 38.38 22.51 58.66 ULTRATECH CEMENT 11.1 35.04 20.42 9.18 45.98 GRASIM CEMENT 7.8 18.21 13.24 3.93 29.67 INDIA CEMENT 5.69 10.66 7.78 1.96 25.20 JK CEMENT 6.65 21.26 10.45 5.02 48.09 MADRAS CEMENT 11.93 33.41 20.70 7.87 38.02 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The above table 4.11 reveals the debtors turnover ratio. It had been fluctuating during the study period. The Ambuja Cement Company had strong stability in debtor s turnover ratio while it was instable for India Cement. The mean value of debtor s turnover ratio ranged from 7.78 to 38.38 among the select companies and it is higher for Ambuja Cement whereas it is least for India Cement during the period of study. The co-efficient of variation is least (25.20) percent for India Cement, which indicates that India Cement was good at this ratio over the period for study. 130

AVERAGE COLLECTION PERIOD The average collection period represents the average number of days for which a firm has to wait before their receivables are converted into cash. The ratio can be calculated as follows: Average Collection Period = No. of days in a year Debtor's turnover TABLE - 4.12 AVERAGE COLLECTION PERIOD (In days) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 11.69 35.78 20.44 7.98 39.02 AMBUJA CEMENT 3.98 43.45 13.60 11.09 81.54 ULTRATECH CEMENT 2.1 28.62 17.56 8.81 50.19 GRASIM CEMENT 20.04 46.79 30.21 10.14 33.56 INDIA CEMENT 35.24 77.82 50.14 15.73 29.38 JK CEMENT 11.99 51.82 31.08 18.27 58.80 MADRAS CEMENT 10.92 30.59 19.97 7.07 35.40 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 It is clear from the table 4.12 that the average collection period was shorter for Ambuja Cement Company while it was longer for India Cement during the study period. The Ambuja Cement Company had the 131

stability in the average collection period. The mean value of average collection period ranged from 13.60 to 50.14 among the sample companies and it is higher for India Cement whereas it is least for Ambuja cement during the period for study. The co-efficient of variation is least 29.38 percent for India Cement, which indicates the consistent performance of this ratio. CASH IN CURRRENT RATIO There are two ratios namely current ratio and acid ratio outlined to measure the short term liquidity of a company but these do not throw any light on the quantitative of optimum cash required for a business. At best, these ratios indicate an overall picture of the company s current liabilities along with its short term solvency. A current ratio of 3:1 may indicate somewhat excess liquidity. This can be done by determining first the optimum with the actual cash balance. The ratio of the cash balance to that of total current assets provides necessary guide to assess the likely cash balance requirements of a business on a broad basis as against the more detailed cash budgets. The ratio is expressed as: Cash in current ratio = Cash balance 100 Current assets 132

TABLE 4.13 CASH IN CURRENT ASSETS RATIO (In percentage) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 5.48 15.43 7.70 3.40 45.14 AMBUJA CEMENT 5.61 43.62 15.67 12.01 81.87 ULTRATECH CEMENT 7.46 12.67 10.60 1.51 15.20 GRASIM CEMENT 0.76 19.33 7.04 5.38 76.44 INDIA CEMENT 0.23 29.81 3.73 9.18 246.41 JK CEMENT 10 45.45 22.53 10.22 45.35 MADRAS CEMENT 5.88 33.41 18.77 8.91 47.50 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011. The cash in current asset ratio is tabulated in the table 4.13. From this table it is very clear that, JK Cement Company had strong liquidity position during the study period. But Grasim Cement Company had low liquidity position. The mean value of cash in current asset ratio ranged from 7.04 to 22.53 among the select sample companies and it is higher for JK Cement whereas it is least in Grasim Cement during the period for study. The co-efficient of variation is least 15.20 percent for Ultra Tech Cement. 133

CASH TURNOVER RATIO Cash turnover ratio indicates the relationship between the sales and the cash. High ratio indicates that the liquidity position is good and the efficient cash sales position and vice versa. The ratio is to be calculated as follows: Cash turnover ratio = Sales Cash TABLE - 4.14 CASH TURNOVER RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 5.27 105.28 56.95 38.61 67.80 AMBUJA CEMENT 5.2 78.28 32.54 25.60 78.67 ULTRATECH CEMENT 56.66 79.69 66.17 6.87 10.39 CRASIM CEMENT 0.09 88.02 55.03 30.47 55.37 INDIA CEMENT 5.09 175.59 50.47 57.13 113.21 JK CEMENT 5.31 15.09 7.70 3.95 51.30 MADRAS CEMENT 13.99 110.25 36.42 31.03 85.20 Source: Annual Reports of the select cement companies from 2001-2002 to 2010-2011 134

From the table 4.14, it is clear that Ultra tech Cement Company had longer cash turnover while the JK Cement Company had lower cash turnover ratio. The mean value of cash turnover ratio ranged from 7.07 to 66.17 among the sample companies and it is higher for Ultra tech Cement whereas it is least for JK Cement during the period for study. The co-efficient of variation was found to be least 10.39 percent for Ultra tech Cement, which indicates the consistent performance of this ratio. CASH TO TOTAL FUND To test the efficiency of cash management is the ratio of cash balances to the total fund flow during a particular period. Say one year, it measures the ratio of turnover of cash in the total fund flow movement during a given period. The ratio is computed as: Cash turn over total fund = Total fund flow 100 Initial cash Initial cash balance refers to the cash available in the beginning of the period where total fund flow is the aggregate of the sources and use of funds during the period. 135

Name of the company TABLE - 4.15 CASH TO TOTAL FUND Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 3.45 39.17 22.72 15.26 67.17 AMBUJA CEMENT 5.18 35.65 16.06 9.46 58.93 ULTRATECH CEMENT 17.83 45.11 31.48 6.95 22.07 GRASIM CEMENT 17.14 75.35 45.59 22.59 49.55 INDIA CEMENT 2.99 67.7 28.30 21.35 75.44 JK CEMENT 2.87 37.1 18.89 15.48 81.96 MADRAS CEMENT 6.39 55.93 17.78 16.49 92.72 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The table 4.15 illustrates the ratio of cash to total fund. The overall cash to total fund of Madras Cement had strong stability during the study period. But, Ultra tech Cement Company had instability from the year 2001 to 2010. The mean value of cash to total fund ratio ranged from 16.06 to 45.59 percent among the sample companies and it is higher for Grasim Cement whereas it is less in Ambuja Cement during the period for study. The co-efficient of variation is least 22.07 percent for Ultra tech Cement, which indicates the consistent performance of this ratio. 136

FIGURE - 4.9 CASH TO TOTAL FUND CREDITORS TURNOVER RATIO In the course of business operation a firm has to make credit purchases and incurred short term liabilities. As a supplier of goods for example, creditors, are naturally interested in finding out how much time the firm is likely to take in repaying its trade creditors. The analysis of creditors turnover is basically the same as of debtors turnover ratio except that in place of trade debtors, the trade creditors are taken as one of the components of the ratio and in place of average daily sales, average daily purchases are taken as the other components of the ratio. 137

It information about credit purchases is not available, the figure of total purchases may be taken as the numerator and the trade creditors includes sundry creditors and bills payable. If opening and closing balances of creditors are not known, the balance of creditors given is taken to find out the ratio. The ratio indicates the velocity with which the creditors are turned over in relation to purchases. Generally, higher the creditor s velocity, better it is (or) otherwise lower creditor s velocity less favorable are the results. The ratio is to be computed as follows: Creditors turnover ratio = Purchase Creditors TABLE 4.16 CREDITORS TURNOVER RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 2.19 23.87 9.06 8.06 88.91 AMBUJA CEMENT 0.98 6.48 3.53 2.18 61.78 ULTRATECH CEMENT 3.89 7.52 5.62 1.17 20.83 GRASIM CEMENT 5.09 7.13 5.79 0.65 11.19 INDIA CEMENT 2.68 8.01 5.64 1.83 32.38 JK CEMENT 3.47 6.13 5.57 1.21 26.48 MADRAS CEMENT 9.36 21.92 13.75 5.22 30.69 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 138

The table 4.16 depicts the creditor s turnover ratio. The Grasim Cement Company had strong stability in creditor s turnover ratio while the ACC cement company had longer period in collecting the dues from its creditors. The mean value of creditor s turnover ratio ranged from 3.53 to 13.75 percent among the sample cement companies and it is higher for Madras Cement whereas it is least for Ambuja Cement during the period for study. The coefficient of variation is least 20.83 percent for Ultra tech Cement, which indicates the consistent performance of this ratio. AVERAGE PAYMENT PERIOD The average payment period ratio represents the average number of days taken by the firm to pay its creditors. Generally, lower the ratio the better is the liquidity position of the firm and higher the ratio, less liquidity is the position of the firm. But a higher payment period also implies greater credit period enjoyed by the firm and consequently larger than the benefit repaid from credit suppliers. But one has to be careful interpreting this ratio has a higher ratio may also imply lesser discount facilities availed or higher prices paid for the goods purchased on credit. This ratio is to be computed as follows: Average Payment Period = Number of days in a year Creditors turnover 139

TABLE - 4.17 AVERAGE PAYMENT PERIOD (In days) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 15.29 166.67 71.09 53.53 75.30 AMBUJA CEMENT 38.2 345.33 141.21 117.09 82.92 ULTRATECH CEMENT 43.1 93.83 63.47 19.48 30.70 GRASIM CEMENT 51.19 71.7 63.80 6.60 10.35 INDIA CEMENT 45.06 136.19 72.46 28.46 39.27 JK CEMENT 51.25 103.39 68.90 17.42 25.28 MADRAS CEMENT 16.65 38.99 28.69 7.98 27.81 Source: Annual Reports of the select cement companies from 2001-2002 to 2010-2011 The table 4.17 shows the average payment period of various cement companies chosen for the study. The stability in payment of dues by the company is determined by its performance on settlement. The mean value of average payment period ranged from 28.69 to 141.21 percent among the sample cement companies and it is higher for Ambuja Cement whereas it is least for Madras Cement during the period for study. The co-efficient of variation is least (10.35) percent for Grasim Cement, which indicates the consistent performance of this ratio. 140

CREDITORS TO INVENTORIES Creditors to inventory ratio shows the relationship between sundry creditors and inventories. The ratio indicates the position of creditors in inventory. A lower ratio implies higher cash purchase and efficient payables management and a high ratio implies inefficient payable management and so on. The creditors to inventory ratio can be calculated as follows: Creditors Inventories = Creditors Inventories TABLE - 4.18 Name of the company CREDITORS TO INVENTORIES Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 1.21 27.13 11.70 9.28 79.27 AMBUJA CEMENT -6.16 9.58 3.52 5.10 116.60 ULTRATECH CEMENT 3.13 10.17 6.75 1.93 28.64 GRASIM CEMENT 2.51 11.65 6.22 3.24 52.06 INDIA CEMENT 0.18 7.97 1.70 2.31 135.95 JK CEMENT 0.1 85 10.17 26.32 258.90 MADRAS CEMENT 0.47 10.28 2.63 3.08 117.31 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The creditors to inventories was tabulated in table 4.18 The mean value of creditors to inventories ratio ranged from 3.52 to 10.17 percent among the select sample cement companies and it is higher for JK 141

Cement whereas it is least for Ambuja Cement during the period of study. The co-efficient of variation is least (28.64) percent for Ultra Tech Cement, which indicates the consistent performance of this ratio. CREDITORS TO WORKING CAPITAL Creditors to Working Capital explains the relationship between creditors and working capital. Creditors are the main components in the current liabilities. The higher ratio indicates efficiency in administrating the Working Capital Management and low ratio indicates its inefficiency. This can be computed as follows: Creditors to Working Capital = Creditors Working capital TABLE -4.19 CREDITORS TO WORKING CAPITAL RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 0.28 6.99 2.15 2.34 109.01 AMBUJA CEMENT 0.43 5.96 2.53 1.88 75.19 ULTRATECH CEMENT 0.53 6.86 2.37 1.81 76.32 GRASIM CEMENT 0.63 5.24 2.22 1.20 55.22 INDIA CEMENT 0.29 0.98 0.60 0.25 41.65 JK CEMENT 0.46 5.21 2.92 2.03 69.62 MADRAS CEMENT 0.11 0.49 0.27 0.11 43.13 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 142

The table 4.19 shows the creditors to working capital ratio. The Madras Cement Company has lower percentage of creditors to working capital ratio and the ratio level is higher for ACC Company. The ACC Cement Company has stronger stability. The mean value of creditors to working capital ratio ranged from 0.27 to 2.92 percent among the select sample cement companies and it is higher for JK cement whereas it is least for Madras Cement during the period for study. The co-efficient of variation is least 41.65 percent for India Cement, which indicates the consistent performance of this ratio. CREDITORS TO CASH Creditors to cash is a measure of relationship between creditors and cash. This ratio explains whether adequate cash balance is maintained by the firm to pay of its creditors or not. A higher ratio indicates inefficient administration of cash and a low ratio indicates efficient cash management. The ratio is to be calculated as follows: Creditors to Cash = Creditors Cash 143

Name of the company TABLE - 4.20 CREDITORS TO CASH Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 0.06 29.89 6.04 9.49 157.13 AMBUJA CEMENT 0.56 3.75 1.63 0.93 57.16 ULTRATECH CEMENT 0.29 5.45 0.95 1.27 135.56 GRASIM CEMENT 0.16 3.5 1.56 1.13 72.78 INDIA CEMENT 0.52 109.8 20.45 35.49 168.70 JK CEMENT 0.01 12.9 2.19 3.80 175.11 MADRAS CEMENT 0.29 28.62 5.30 8.62 200.67 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The table 4.20 shows the ratio of creditors to cash of various sample cement companies. The mean value of creditors to cash ratio ranged from 0.95 to 20.45 among the select sample cement companies, while the co-variance of the same ratio is ranged from 57.16percent to 200.67 percent and it is higher for India Cement whereas it is less for Ultra Tech Cement during the period for study. The co-efficient of variation is least 57.16 percent for Ambuja Cement, which indicates the consistent performance of this ratio. 144

OPERATING CASH FLOW TO SALES The ratio is established by the relationship between operating cash flow and sales. A high ratio indicates that substantial position of sales is on cash basis which is a sign of sound cash management. A low ratio may on the other hand, warrant detailed analysis. It is possible that the business has disproportionately high figure of credit sales and is indulging in over trading. Operating Cash Flow to Sales = Operating cash flow 100 Sales Name of the company TABLE 4.21 OPERATING CASH FLOW TO SALES Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 8.51 26.92 16.17 6.56 40.57 AMBUJA CEMENT 7.19 39.66 20.32 9.30 45.76 ULTRATECH CEMENT 5.6 22.02 13.16 7.13 55.17 GRASIM CEMENT 8.07 25.23 15.69 5.04 32.10 INDIA CEMENT 1.81 26.46 12.08 9.58 79.30 JK CEMENT 5.6 36.1 21.59 10.19 47.21 MADRAS CEMENT 12.2 25.78 17.31 5.54 26.24 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 145

The table 4.21 shows the operating cash flow to sales of the various sample cement companies during the study period starting from the year 2001 to 2010. The mean operating cash flow to sales ranged from 13.16 to 21.59 percent among the sample cement companies and it is higher for JK Cement whereas it is least for Ultra Tech Cement during the period of study. The co-efficient of variation is least (32.10) percent for Grasim Cement, which indicates the consistent performance of this ratio. DEBT EQUITY RATIO Debt equity ratio also known as external internal equity ratio is calculated to measure the relative claims of outsiders and the owners (example share holders) against the firm assets. The ratio indicates the relationship between the external equities on the outsiders fund and the internal equities or the share holders funds, thus Debt equity ratio = Long term debt Shareholders fund The two basic components of the ratio are outsider s fund. Example external equities and share holder funds (i.e.) internal equities. The outsiders fund includes all debts/ liabilities whether long term (or) short term (or) whether in the form of debentures, bonds, mortgages or bills. The share holders fund consist of equity share capital, preference 146

share capital, capital reserve, revenue reserve and reserve representing accumulated profits and surplus like reserve for contingencies, sinking fund etc. The accumulated losses and deferred expenses are deducted from the total to find out share holders funds. When the accumulated losses and deferred expenses are deducted from the share holder s fund, it is called net worth and the ratio may be termed as debt to be 2:1.A higher debt equity ratio is allowed in the case of capital intensive industries. A norm of 4:1 is used for fertilizer and cement units and a norm of 6:1 is used for shipping units. The debt equity ratio shows the extent to which debt financing has been used in the business. A very high ratio is unfavorable from the firm s point of view. This introduces inflexibility in the firm s operation due to the increasing interference and pressures from creditors. A high debt company, also known as highly leveraged (or) geared, is able to borrow implies a greater claim of owners than creditors. From the point of view of creditors it represents satisfactory capital structure of the business. A high proportion of equity provides larger margin of safety for them. 147

Name of the company TABLE -4.22 DEBT EQUITY RATIO Min. Max. Mean Std. Deviation (In Times) C.V (percent) ACC CEMENT 0.07 1.48 0.71 0.58 81.40 AMBUJA CEMENT 0.01 7.42 1.54 2.62 170.22 ULTRATECH CEMENT 0.35 1.44 0.96 0.36 37.32 GRASIM CEMENT 0.15 0.76 0.49 0.18 36.92 INDIA CEMENT 0.6 5.95 2.71 2.09 77.16 JK CEMENT 0.21 9.85 1.67 2.91 175.83 MADRAS CEMENT 1.02 2.78 1.92 0.51 26.76 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011. The table 4.22 shows debt equity ratio. It is clearly seen that the mean value of debt equity ratio ranged from 0.49 to 2.71 percent among the select sample companies and it is higher for India Cement whereas it is least for Grasim Cement during the periods for study. There had been existence of stable debt equity ratio for Madras Cement Company and JK Cement Company had more instable debt equity ratio over the period for study. The co-efficient of variation is least 26.76 percent for Madras Cement, which indicates the consistent performance of this ratio. 148

INTEREST COVERAGE RATIO This ratio establishes the relationship between profit before interest and tax and fixed interest charges Interest coverage ratio = Profit before interest and tax Fixed interest charges This ratio is meaningful to debentures and lenders long-term loans. It highlights the ability of the concern to meet interest commitments and its capacity to raise additional funds in future. TABLE - 4.23 INTEREST COVERAGE RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 1.16 22.39 10.13 8.87 87.59 AMBUJA CEMENT 2.19 62.52 19.30 22.07 115.34 ULTRATECH CEMENT 0.85 19.81 7.81 7.06 90.35 GRASIM CEMENT 2.69 20.66 10.75 6.42 59.76 INDIA CEMENT 0.15 9.66 3.05 3.33 108.93 JK CEMENT 1.01 7.78 2.78 2.56 92.25 MADRAS CEMENT 1.37 21.52 5.89 6.48 110.09 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 149

The table 4.23 shows the interest coverage ratio. Regarding interest coverage ratio, Grasim Cement was found to be stable during the study period and Ambuja Cement had no such stable ratio during the same period. The mean value of interest coverage ratio ranged from 2.78 to 19.30 percent among the select cement companies and it is higher for Ambuja Cement whereas it is least for JK Cement during the period for study. The co-efficient of variation is least 59.76 percent in Grasim Cement, which indicates the consistent performance of this ratio. OPERATING PROFIT RATIO It is the ratio of profit made from operating sources to the sales, usually shown as a percentage. It shows the operational efficiency of the firm and is a measure of the management s efficiency in running the routine operations of the firm. Operating profit ratio = Operating profit 100 Sales Operating profit = Net profit + non-operating expenses non-operating incomes 150 Or Gross profit operating expenses Operating expenses include administration, selling and distribution expenses. Finance expenses are generally excluded.

Name of the company TABLE -4.24 OPERATING PROFIT RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 11.73 31.95 19.65 6.74 35.29 AMBUJA CEMENT 10.2 36.2 25.13 7.88 31.34 ULTRATECH CEMENT 12.11 31.33 19.91 7.95 39.93 GRASIM CEMENT 17.3 32.54 25.43 5.78 19.57 INDIA CEMENT 5.67 35.88 20.65 9.98 48.35 JK CEMENT 10.82 51 23.21 10.77 46.42 MADRAS CEMENT 20.5 37.26 27.78 5.77 20.76 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011 The above table 4.24 shows the operating profit ratio. In the case of operating profit ratio, the more stability was found to be in India Cement and the least stability was found to be in Grasim Cement. The mean value of Operating profit ratio ranged from 19.65 to 27.78 percent among the Companies and it is higher in Madras Cement whereas it is least in ACC Cement during the period for study. The Co-efficient of variation is less 19.57 percent in Grasim Cement, which indicates the consistent performance of this ratio. 151

GROSS PROFIT RATIO Gross profit ratio measures the relationship of gross profit to net sales and is usually represented in percentages. The gross profit ratio indicates the extent to which selling prices of goods per unit may decline without resulting in losses on operation of a firm. It reflects the efficiency with which a firm produces. As the gross profit is found by deducting cost of goods sold from the net sales, higher the gross profit ratio better the result. There is no standard norm for gross profit ratio and it may vary from business to business but the gross profit should be adequate to cover the operating expenses and to provide for fixed charges, dividends and accumulation of reserve. A low gross profit ratio generally indicate high cost of goods sold due to unfavorable purchasing policies, lesser sales, lower selling price, excessive competition, over investment in plant and machinery etc. The ratio can be calculated as follows: Gross profit = Gross profit 100 Sales 152

Name of the company TABLE -4.25 GROSS PROFIT RATIO Min. Max. Mean Std. Deviation (In percentage) C.V (percent) ACC CEMENT 6.55 29.94 18.46 9.42 51.01 AMBUJA CEMENT 10.17 46.1 25.26 10.11 41.69 ULTRATECH CEMENT 10.51 28.06 16.82 6.29 37.42 GRASIM CEMENT 2.03 28.08 15.97 8.53 53.38 INDIA CEMENT 3.04 37.22 18.22 11.89 65.25 JK CEMENT 0.15 20.66 7.35 8.10 110.17 MADRAS CEMENT 11.63 29.98 17.57 6.22 35.42 Source: Annual Reports of the select cement Companies From 2001-2002 to 2010-2011 The table 4.25 shows the gross profit ratio of the sample cement companies in India. The highest and least stability of gross profit ratio were found to be for Madras Cement companies and JK Cement companies. The mean value of gross profit ratio ranged from 7.35 to 25.26 percent among the sample cement companies and it is higher for Ambuja Cement whereas it is less in JK Cement during the period for study. The co-efficient of variation is least 35.42percent for Madras Cement, which indicates the consistent performance of this ratio. 153

NET PROFIT RATIO Net profit ratio establishes a relationship between net profit (after tax) and sales, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. The ratio is very useful as if the profit is not sufficient, the firm shall not be able to achieve a satisfactory return on investment. This ratio also indicates the firm capacity to face adverse economic conditions such as price competition, low demand etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio, it should be kept in mind that the performance of profit must also be seen in relation to investment (or) capital of the firm and not only in relation to sales. This ratio is the overall measure of firm s profitability and is calculated as: Net profit ratio = Net profit after tax 100 Net sales TABLE 4.26 NET PROFIT RATIO 154 (In percentage) Std. C.V Deviation (percent) Name of the company Min. Max. Mean ACC CEMENT 1.8 20.44 11.34 6.99 61.69 AMBUJA CEMENT 2.31 32.84 17.05 10.42 61.13 ULTRATECH CEMENT 0.1 17.99 8.77 6.57 75.86 GRASIM CEMENT 7.69 25.58 15.18 5.41 38.18 INDIA CEMENT 0.07 22.52 10.30 8.68 85.34 JK CEMENT 1.73 16.38 7.65 5.54 59.36 MADRAS CEMENT 2.05 20.21 10.19 6.34 62.20 Source: Annual Reports of the select cement Companies from 2001-2002 to 2010-2011

The table 4.26 depicts the net profit ratio of the sample cement company. The mean value of net profit ratio ranged from 7.65 to 17.05 percent among the select cement Companies and it is higher for Ambuja Cement whereas it is least for JK Cement during the period for study. The co-efficient of variation is least 38.18 percent in Grasim Cement, which indicates the consistent performance of this ratio. But net profit ratio has a different scenario. The stable flow of net profit ratio was found low for Grasim Cement and it was calculated to be higher in the case of India Cement. FIGURE 4.10 NET PROFIT RATIO 155

TOTAL ASSET TURNOVER RATIO The total asset turnover represents the amount of revenue generated by a company as a result of its assets on hand. This equation is a basic formula for measuring how efficiently a company is operating. Total Asset Turnover = Sales Total assets TABLE 4.27 TOTAL ASSET- TURNOVER RATIO (In Times) Name of the company Min. Max. Mean Std. Deviation C.V (percent) ACC CEMENT 0.92 1.55 1.23 0.20 15.93 AMBUJA CEMENT 0.55 1.43 0.87 0.31 35.90 ULTRATECH CEMENT 0.41 1.47 0.97 0.37 38.24 GRASIM CEMENT 0.85 17.3 2.57 5.18 201.21 INDIA CEMENT 0.39 0.75 0.57 0.14 25.06 JK CEMENT 0.47 1.3 0.84 0.35 41.31 MADRAS CEMENT 0.55 1.17 0.77 0.18 23.99 Source: Annual Reports of the select cement Companies from 2001-2002to 2010-2011. The table 4.27 shows the total asset turnover ratio of the sample cement companies during the study period. The stability of this ratio was calculated with the help of mean values and standard deviations of 156

concern cement company s total assets and turnover. The mean value of total asset turnover ratio ranged from 0.57 to 2.57 percent among the sample cement companies and it is higher for Grasim Cement and it is least for India Cement during the period for study. The co-efficient of variation is least (15.93) percent for ACC Cement, which indicates the consistent performance of this ratio. RETURN ON CAPITAL EMPLOYED Return on capital employed established the relationship between operating profits and the capital employed. It is the primary ratio which is most widely used to measure the overall profitability and efficiency of a firm. It is a prime test of the efficiency of business. It measures not only the overall efficiency of the business but also helps in evaluating the performance of various departments. The higher return on investment will enable better payment to workers and other factors of production. The ratio is measured in terms of percentages and to be computed as follows: Return on Capital Employed = Operating profit 100 Capital employed 157