INTRODUCTION

INTRODUCTION ABOUT FINANCE:

In our present day economy, FINANCE is defined as the provision of money at the time
when it is required. Every enterprise, whether big, medium of small, needs finance to carry
on its operations and to achieve its targets.

Finance is so indispensable today that it is the

lifeblood of an enterprise. Without adequate finance, no enterprise can possibly accomplish

its objectives.
Finance is the life blood and nerve system of any business organization. Just as circulation
of blood, is necessary in the human body to maintain life. Finance is necessary in the business
org. for smooth running of the business.
Financial management involves managerial activities concerned with the procurement and
utilization of funds for business purpose the finance function does with procurement of
money taking in to consideration of todays as well as future need and its effective utilization.
Since finance is required to purchase of machinery and raw materials, to pay salaries and
wages also for day-to-day expenses.
Financial management entails planning for the future of a person or a business enterprise to
ensure a positive cash flow. It includes the administration and maintenance of financial
assets. Besides, financial management covers the process of identifying and managing risks.
The primary concern of financial management is the assessment rather than the techniques of
financial quantification. A financial manager looks at the available data to judge the
performance of enterprises. Managerial finance is an interdisciplinary approach that borrows
from both managerial accounting and corporate finance.
Some experts refer to financial management as the science of money management. The
primary usage of this term is in the world of financing business activities. However, financial
management is important at all levels of human existence because every entity needs to look
after its finances.

Financial Management: Levels

Broadly speaking, the process of financial management takes place at two levels. At the
individual level, financial management involves tailoring expenses according to the financial
resources of an individual. Individuals with surplus cash or access to funding invest their
money to make up for the impact of taxation and inflation. Else, they spend it on
discretionary items. They need to be able to take the financial decisions that are intended to
benefit them in the long run and help them achieve their financial goals.
From an organizational point of view, the process of financial management is associated with
financial planning and financial control. Financial planning seeks to quantify various
financial resources available and plan the size and timing of expenditures. Financial control
refers to monitoring cash flow. Inflow is the amount of money coming into a particular
company, while outflow is a record of the expenditure being made by the company.
Managing this movement of funds in relation to the budget is essential for a business.
At the corporate level, the main aim of the process of managing finances

Is to achieve the various goals a company sets at a given point of time. Businesses also seek
to generate substantial amounts of profits, following a particular set of financial processes.
Financial managers aim to boost the levels of resources at their disposal. Besides, they
control the functioning on money put in by external investors. Providing investors with
sufficient amount of returns on their investments is one of the goals that every company tries
to achieve. Efficient financial management ensures that this becomes possible.
NEED FOR STUDY:
Need of financial management study to diagnose the information contain in financial
statement. So as to judge the profitability and financial position of the firm.
Financial analyst analyses the financial statements with various tools of analysis
before commanding upon the financial health of the firm.
Essential to bring out the history.
Significance and meaning of the financial statements.
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Objectives:
1. To check the financial position of the organization by analyzing the financial statements.
2. Improve the allocation of working capital within business operations.
3. Review and fine tune financial budgeting, and revenue and cost forecasting
4. Review the financial health of the company or business unit using ratio analysis, such as
the gearing ratio, profit per employee and weighted cost of capital

RESEARCH METHODOLOGY :
RESEARCH DESIGN:
This is a systematic way to solve the research problem and it is important component for the
study without which researches may not be able to obtain the format. A research design is the
arrangement of conditions for collection and analysis of data in a manager that aims to
combine for collection and analysis of data relevance to the research purpose with economy
in procedure.

MEANING OF RESEARCH DESIGN:

The formidable problem that follows the task of defining the research problem is the
preparation of design of the research project, popularly known as the research design,
decision regarding what, where, when, how much, by what means concerning an inquiry of a
research study constitute a research design. A research design is the arrangement of
conditions for collection and analysis of data in a manager that aims to combine for collection
and analysis of data relevance to the research purpose with economy in procedure.

SOURCES OF DATA:
Data we collected based on two sources.
Primary data.
Secondary data.

Primary data:
The Primary data are those informations, which are collected afresh and for the first time,
and thus happen to be original in character.

Secondary Data:
The Secondary data are those which have already been collected by some other agency and
which have already been processed. The sources of Secondary data are Annual Reports,
browsing Internet, through magazines.
1. It includes data gathered from the annual reports of Kesoram.
2. Articles are collected from official website of Kesoram.

METHODOLOGY USED:

1. TYPES OF FINANCIAL STATEMENTS ADOPTED:

Following two types of financial statements are adopted in analyzing the firm
financial position

a. BALANCE SHEET.
b. INCOME STATEMENTS.

2. TOOLS OF FINANCIAL STATEMENT ANALYSIS USED:

The following financial analysis tools are used in order to interpret the financial
position of the firm.

LIMITATIONS OF FINANCIAL STATEMENT:

1. ONLY INTERIM REPORTS:
Only interim statements dont give a final picture of the concern. The data given in these
statements is only approximate. The actual position can only be determined when the
business is sold or liquidated.

2. DONT GIVE EXTRA POSITION:

The financial statements are expressed in monetary values, so they appear to give final and
accurate position. The values of fixed assets in the balance sheet neither represent the value
for which fixed assets can be sold nor the amount which will be required to replace these
assets.

3. HISTORICAL COSTS:
The financial statements are prepared on the basis of historical costs or original costs. The
value of assets decreases with the passage of time current price changes are not taken into
account. The statements are not prepared keeping in view the present economic conditions.
The balance sheet loses the significance of being an index of current economic realitie.

4. ACT OF NON MONITORY FACTORS IGNORED:

There are certain factors which have a bearing on the financial position and operating results
of the business but they dont become a part of these statements because they cant be
measured in monetary terms. Such factors may include in the reputation of the management.

NO PRECISION:
The precision of financial statement data is not possible because the statements deal with
matters which cant be precisely stated. The data are recorded by conventional procedures
followed over the years. Various conventions, postulates, personal judgments etc.

INDUSTRY PROFILE
In the most general sense of the word, cement is a binder, a substance which sets and hardens
independently, and can bind other materials together. The word "cement" traces to the
Romans, who used the term "opus caementicium" to describe masonry which resembled
concrete and was made from crushed rock with burnt lime as binder. The volcanic ash and
pulverized brick additives which were added to the burnt lime to obtain a hydraulic binder
were later referred to as cementum, cimentum, cement and cement. Cements used in
construction are characterized as hydraulic or non-hydraulic.
The most important use of cement is the production of mortar and concretethe bonding of
natural or artificial aggregates to form a strong building material which is durable in the face
of normal environmental effects.
Concrete should not be confused with cement because the term cement refers only to the dry
powder substance used to bind the aggregate materials of concrete. Upon the addition of
water and/or additives the cement mixture is referred to as concrete, especially if aggregates
have been added.
It is uncertain where it was first discovered that a combination of hydrated non-hydraulic
lime and a pozzolan produces a hydraulic mixture (see also: Pozzolanic reaction), but
concrete made from such mixtures was first used on a large scale by Roman engineers.They
used both natural pozzolans (trass or pumice) and artificial pozzolans (ground brick or
pottery) in these concretes. Many excellent examples of structures made from these concretes
are still standing, notably the huge monolithic dome of the Pantheon in Rome and the
massive Baths of Caracalla. The vast system of Roman aqueducts also made extensive use of
hydraulic cement. The use of structural concrete disappeared in medieval Europe, although
weak pozzolanic concretes continued to be used as a core fill in stone walls and column
Modern cement
Modern hydraulic cements began to be developed from the start of the Industrial Revolution
(around 1800), driven by three main needs:
Hydraulic renders for finishing brick buildings in wet climates
Hydraulic mortars for masonry construction of harbor works etc, in contact with sea water.
Development of strong concretes.
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In Britain particularly, good quality building stone became ever more expensive during a
period of rapid growth, and it became a common practice to construct prestige buildings from
the new industrial bricks, and to finish them with a stucco to imitate stone. Hydraulic limes
were favored for this, but the need for a fast set time encouraged the development of new
cements. Most famous was Parker's "Roman cement." This was developed by James Parker in
the 1780s, and finally patented in 1796. It was, in fact, nothing like any material used by the
Romans, but was a "Natural cement" made by burning septaria - nodules that are found in
certain clay deposits, and that contain both clay minerals and calcium carbonate. The burnt
nodules were ground to a fine powder. This product, made into a mortar with sand, set in 5
15 minutes. The success of "Roman Cement" led other manufacturers to develop rival
products by burning artificial mixtures of clay and chalk.
John Smeaton made an important contribution to the development of cements when he was
planning the construction of the third Eddystone Lighthouse (1755-9) in the English Channel.
He needed a hydraulic mortar that would set and develop some strength in the twelve hour
period between successive high tides. He performed an exhaustive market research on the
available hydraulic limes, visiting their production sites, and noted that the "hydraulicity" of
the lime was directly related to the clay content of the limestone from which it was made.
Smeaton was a civil engineer by profession, and took the idea no further. Apparently unaware
of Smeaton's work, the same principle was identified by Louis Vicat in the first decade of the
nineteenth century. Vicat went on to devise a method of combining chalk and clay into an
intimate mixture, and, burning this, produced an "artificial cement" in 1817. James
Frost,orking in Britain, produced what he called "British cement" in a similar manner around
the same time, but did not obtain a patent until 1822. In 1824, Joseph Aspdin patented a
similar material, which he called Portland cement, because the render made from it was in
color similar to the prestigious Portland stone.
All the above products could not compete with lime/pozzolan concretes because of fastsetting (giving insufficient time for placement) and low early strengths (requiring a delay of
many weeks before formwork could be removed). Hydraulic limes, "natural" cements and
"artificial" cements all rely upon their belite content for strength development. Belite
develops strength slowly. Because they were burned at temperatures below 1250 C, they
contained no alite, which is responsible for early strength in modern cements. The first
cement to consistently contain alite was made by Joseph Aspdin's son William in the early
1840s. This was what we call today "modern" Portland cement. Because of the air of mystery
with which William Aspdin surrounded his product, others (e.g. Vicat and I C Johnson) have
7

claimed precedence in this invention, but recent analysis of both his concrete and raw cement
have shown that William Aspdin's product made at Northfleet, Kent was a true alite-based
cement. However, Aspdin's methods were "rule-of-thumb": Vicat is responsible for
establishing the chemical basis of these cements, and Johnson established the importance of
sintering the mix in the kiln.
William Aspdin's innovation was counter-intuitive for manufacturers of "artificial cements",
because they required more lime in the mix (a problem for his father), because they required
a much higher kiln temperature (and therefore more fuel) and because the resulting clinker
was very hard and rapidly wore down the millstones which were the only available grinding
technology of the time. Manufacturing costs were therefore considerably higher, but the
product set reasonably slowly and developed strength quickly, thus opening up a market for
use in concrete. The use of concrete in construction grew rapidly from 1850 onwards, and
was soon the dominant use for cements. Thus Portland cement began its predominant role. it
is made from water and sand
Types of modern cement
Portland cement
Cement is made by heating limestone (calcium carbonate), with small quantities of other
materials (such as clay) to 1450C in a kiln, in a process known as calcination, whereby a
molecule of carbon dioxide is liberated from the calcium carbonate to form calcium oxide, or
lime, which is then blended with the other materials that have been included in the mix . The
resulting hard substance, called 'clinker', is then ground with a small amount of gypsum into a
powder to make 'Ordinary Portland Cement', the most commonly used type of cement (often
referred to as OPC).
Portland cement is a basic ingredient of concrete, mortar and most non-speciality grout. The
most common use for Portland cement is in the production of concrete. Concrete is a
composite material consisting of aggregate (gravel and sand), cement, and water. As a
construction material, concrete can be cast in almost any shape desired, and once hardened,
can become a structural (load bearing) element. Portland cement may be gray or white.
Portland cement blends
These are often available as inter-ground mixtures from cement manufacturers, but similar
formulations are often also mixed from the ground components at the concrete mixing plant.
Portland blastfurnace cement contains up to 70% ground granulated blast furnace slag,
with the rest Portland clinker and a little gypsum. All compositions produce high ultimate
strength, but as slag content is increased, early strength is reduced, while sulfate resistance
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increases and heat evolution diminishes. Used as an economic alternative to Portland sulfateresisting and low-heat cements.
Portland flyash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
ultimate strength is maintained. Because fly ash addition allows a lower concrete water
content, early strength can also be maintained. Where good quality cheap fly ash is available,
this can be an economic alternative to ordinary Portland cement.
Portland pozzolan cement includes fly ash cement, since fly ash is a pozzolan, but also
includes cements made from other natural or artificial pozzolans. In countries where volcanic
ashes are available (e.g. Italy, Chile, Mexico, the Philippines) these cements are often the
most common form in use.
Portland silica fume cement. Addition of silica fume can yield exceptionally high strengths,
and cements containing 5-20% silica fume are occasionally produced. However, silica fume
is more usually added to Portland cement at the concrete mixer.
Masonry cements are used for preparing bricklaying mortars and stuccos, and must not be
used in concrete. They are usually complex proprietary formulations containing Portland
clinker and a number of other ingredients that may include limestone, hydrated lime, air
entrainers, retarders, waterproofers and coloring agents. They are formulated to yield
workable mortars that allow rapid and consistent masonry work. Subtle variations of
Masonry cement in the US are Plastic Cements and Stucco Cements. These are designed to
produce controlled bond with masonry blocks.
Expansive cements contain, in addition to Portland clinker, expansive clinkers (usually
sulfoaluminate clinkers), and are designed to offset the effects of drying shrinkage that is
normally encountered with hydraulic cements. This allows large floor slabs (up to 60 m
square) to be prepared without contraction joints.
White blended cements may be made using white clinker and white supplementary
materials such as high-purity metakaolin.
Colored cements are used for decorative purposes. In some standards, the addition of
pigments to produce "colored Portland cement" is allowed. In other standards (e.g. ASTM),
pigments are not allowed constituents of Portland cement, and colored cements are sold as
"blended hydraulic cements".
Very finely ground cements are made from mixtures of cement with sand or with slag or
other pozzolan type minerals which are extremely finely ground together. Such cements can
have the same physical characteristics as normal cement but with 50% less cement

particularly due to their increased surface area for the chemical reaction. Even with intensive
grinding they can use up to 50% less energy to fabricate than ordinary Portland cements.
Non-Portland hydraulic cements
Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used by the
Romans, and are to be found in Roman structures still standing (e.g. the Pantheon in Rome).
They develop strength slowly, but their ultimate strength can be very high. The hydration
products that produce strength are essentially the same as those produced by Portland cement.
Slag-lime cements. Ground granulated blast furnace slag is not hydraulic on its own, but is
"activated" by addition of alkalis, most economically using lime. They are similar to pozzolan
lime cements in their properties. Only granulated slag (i.e. water-quenched, glassy slag) is
effective as a cement component.
Supersulfated cements. These contain about 80% ground granulated blast furnace slag, 15%
gypsum or anhydrite and a little Portland clinker or lime as an activator. They produce
strength by formation of ettringite, with strength growth similar to a slow Portland cement.
They exhibit good resistance to aggressive agents, including sulfate.
Calcium aluminate cements are hydraulic cements made primarily from limestone and
bauxite. The active ingredients are monocalcium aluminate CaAl 2O4 (CaO Al2O3 or CA in
Cement chemist notation, CCN) and mayenite Ca12Al14O33 (12 CaO 7 Al2O3 , or C12A7 in
CCN). Strength forms by hydration to calcium aluminate hydrates. They are well-adapted for
use in refractory (high-temperature resistant) concretes, e.g. for furnace linings.
Calcium sulfoaluminate cements are made from clinkers that include ye'elimite
(Ca4(AlO2)6SO4 or C4A3

in Cement chemist's notation) as a primary phase. They are used in

expansive cements, in ultra-high early strength cements, and in "low-energy" cements.

Hydration produces ettringite, and specialized physical properties (such as expansion or rapid
reaction) are obtained by adjustment of the availability of calcium and sulfate ions. Their use
as a low-energy alternative to Portland cement has been pioneered in China, where several
million tonnes per year are produced. Energy requirements are lower because of the lower
kiln temperatures required for reaction, and the lower amount of limestone (which must be
endothermically decarbonated) in the mix. In addition, the lower limestone content and lower
fuel consumption leads to a CO2 emission around half that associated with Portland clinker.
However, SO2 emissions are usually significantly higher.
"Natural" Cements correspond to certain cements of the pre-Portland era, produced by
burning argillaceous limestones at moderate temperatures. The level of clay components in
10

the limestone (around 30-35%) is such that large amounts of belite (the low-early strength,
high-late strength mineral in Portland cement) are formed without the formation of excessive
amounts of free lime. As with any natural material, such cements have highly variable
properties.
Geopolymer cements are made from mixtures of water-soluble alkali metal silicates and
aluminosilicate mineral powders such as fly ash and metakaolin.

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COMPANY PROFILE

COMPANY PROFILE
HISTORY OF INDIAN CEMENT INDUSTRY
By stating productions in 1914 the story of Indian Cement is a stage of continuous growth.
Cement is derived from the Latin word Cementam.
Egyptians and Romans found the process of manufacturing cement. In England during the
first century the hydraulic cement has become more versatile building material. Later on,
Portland cement was invented and the invention was usually attributed to Joseph Aspdin of
Enland.

12

India is the worlds 4th largest cement produced after China, Japan and U.S.A. The South
Industries have produced cement for the first time in 1904. The company was setup in
Chennai with the installed capacity of 30 tonnes per day. Since then the cement industry has
progressing leaps and bounds and evolved into the most basic and progressive industry. Till
1950 1951, the capacity of production was only 3.3 million tones. So far annual production
and demand have been growing a pace at roughly 78 million tones with an installed capacity
of 87 million tones.
In the remaining two years of 8th plan an additional capacity of 23 million tones will actually
come up.
India is well endowed with cement grade limestone (90 billion tones ) and coal (190 billion
tones). During the nineties it had a particularly impressive expansion with growth rate of 10
percent.
The strength and vitality of Indian Cement Industry can be gauged by the interest shown and
support give by World Bank, considering the excellent performance of the industry in
utilizing the loans and achieving the objectives and target. The World Bank is examining the
feasibility of providing a third line of credit for further upgrading the industry in varying
areas, which will make it global. With liberalization policies of Indian Government. The
industry is posed for a high growth rates in nineties and the installed capacity is expected to
cross 100 million tones and production 90 million tones by 2003 A.D.
The industry has fabulous scope for exporting its product to countries like the U.S.A., U.K.,
Bangladesh, Nepal and other several countries. But there are not enough wagons to transport
cement for shipment.

Cement The Product:

The natural cement is obtained by burning and crushing the stones containing clayey,
carbonate of lime and some amount of carbonate of magnesia. The natural cement is brown in
color and its best variety is known as ROMAN CEMENT. It sets very quickly after
addition of water.
It was in the eighteenth century that the most important advances in the development of
cement were which finally led to the invention of Portland cement.

13

In 1756, John Sematon showed that hydraulic lime which can resist the action of water can be
obtained not only from hard lime stone but from a limestone which contain substantial
proportion of clayey.
In 1796, Joseph Parker found that modules of argillaceous limestone made excellent
hydraulic cement when burned in the usual manner. After burning the product was reduced to
a powder. This started the natural cement industry.
The artificial cement is obtained by burning at a very high temperature a mixture of
calcareous and argillaceous material. The mixture of ingredients should be intimate and they
should be in correct proportion. The calcined product is known as clinker. A small quantity of
gypsum is added to clinker and it is then pulverized into very fine powder, which is known as
cement.
The common variety of artificial cement is known as normal setting cement or ordinary
cement. A mason Joseph Aspdn of Leeds of England invented this cement in 1824. He took
out a patent for this cement called it PORTLAND CEMENT because it had resemblance in
its color after setting to a variety of sandstone, which is found a abundance in Portland
England.
The manufacture of Portland cement was started in England around 1825. Belgium and
Germany started the same 1855. America started the same in 1872 and India started in 1904.
The first cement factory installed in Tamilnadu in 1904 by South India limited and then
onwards a number of factories manufacturing cement were started. At present there are more
than 150 factories producing different types of cements.

Composition of Cement:
The ordinary cement contains two basic ingredients, namely, argillaceous and calcareous. In
argillaceous materials the clayey predominates and in calcareous materials the calcium
carbonate predominates.
A good chemical analysis of ordinary cement along with desired range of ingredients.

Ingredients

Percent

Range

Lime (CaO)

62

62 67

Silica (SiO2)

22

17 25

Alumina (Al2O3)

38

14

Calcium Sulphate (CaSO4)

34

Iron Oxide (Fe2O3)

34

Magnesia (MgO)

13

Sulphur (S)

13

Alkalies

0.2 1

Industry Structure and Development:

With a capacity of 115 million tones of large cement plants, Indian cement industry is the
fourth largest in the world. However per capita consumption in our country is still at only 100
Kgs against 300 Kgs of developed countries and offers significant potential for growth of
cement consumption as well as addition to cement capacity. The recent economic policy
announcement by the government in respect of housing, roads, power etc., will increase
cement consumption.
Opportunities and Threats
In view of low per capita consumption in India, there is a considerable scope for growth in
cement consumption and creation of new capacities in coming years.
The cement industry does not appear to have adequately exploited cement consumption in
rural segment where damaged where damaged growth is possible.
Landed cost of cement (with import duty) continues to be higher than home market prices but
with reduced import duty, increasing imports, may pose a serious threat to the domestic
cement industry.
Outlook
The recent change in the budget 2001 2002 relating to fiscal incentives for individual
housing and reduction in borrowing cost for this purpose and with the government
reaffirmation to accelerate the reform process, infrastructure development should logically
get priority leading to increase in demand of cement in coming years. The addition capacity
of cement in the pipeline is limited and therefore the demand and supply situations is
expected to be more favorable and cement prices are likely to firm up.
Risks and concerns:

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Slow down of Indian economy or drop in growth rate of agriculture may adversely affect the
consumption. The recent increase in railway freight coupled with diesel / petrol price like will
increase the cost of production and distribution, as being dulky, cement is freight intensive
increase in Limestone royalty also adds to the cost of production, which is considerably
higher than corresponding costs of many other developing countries.
In our country there is a need to under take a massive programme of house construction
activity into the rural and urban areas. It is impossible to construct a house without cement
and steel, in other words, cement is one of the basic construction materials and therefore it is
one of the vital elements for the economic development of the nation.
India inspite of being the 4th biggest produces of cement in the world has still a very low per
capital consumption of cement.
Cement Companies

51 Nos

Cement Plants

99 Nos

Installed Capacity

64.8 mt

Total Investment (approx)

Rs. 10,000 Crores

Total Manpower

Over 1.25 Lakhs

Management Award of the Government of Andhra Pradesh. Kesoram is also conscious of its
social responsibilities. Its rural and community development programmes include adoption of
two nearby villages, running an Agricultural Demonstration Farm, a Model Dairy Farm etc.,
Impressed by these activities, FAPCCI chose Kesoram to confer the Award for Best efforts
of an Industrial Unit in the State to Develop Rural Economy twice, in the year 1994 as well
as in 1998. Kesoram also has to its credit the National Award (Shri. S.R. Rangta Award for
Social Awareness) for the year 1995 1996, for the Best Rural Development Efforts made by
the Company. In the same year Kesoram got the First Prize for Mine Environment and
Pollution Control for year 1999 too, for the 3 rd year in succession in July, 2001 Kesoram
annexed the Vana Mithra Award from the Government of Andhra Pradesh.
Quality conscious and progressive in its outlook, Kesoram Cement is an OHSAS 08001
Company and also joined the select brand of ISO9001-2000 Companies.

History:
The first unit was installed at Basanthnagar with a capacity of 2.5 lack TPA (tones per
annum) incorporating humble supervision, preheated system, during the year 1969.
The second unit followed suit with added a capacity of 2 lack TPA in 1971.
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The plant was further expanded to 9 lack by adding 2.5 lack tones in August, 1978, 1.13 lack
tones in January, 1981 and 0.87 lack tones in September, 1981.

Power:
Singareni Colleries makes the supply of coal for this industry and the power was obtained
from AP TRANSCO. The power demand for the factory is about 21MW. Kesoram has got 2
diesel generator sets of 4MW each installed in the year 1987.
Kesoram cement now has a 15 KW captive power plant to facilitate for uninterrupted power
supply for manufactured of cement

KESORAM CEMENT:
One among the industrial giants in the country today, serving the nation on the industrial front
Kesoram Industries Limited has a chequered and eventful history dates back to the Twenties
when the Industrial House of Birlas acquired it. With only a Textile Mill under it banner in
1924, it grew from strength to strength and spread its activities to never fields like Rayon,
Pulp, Transparent paper, Spun pipes and Refractoriness, Tyres, Oil Mills and Refinery
Extraction.
Looking to the wide gap between demand and supply, of a vital commodity, cement, which
plays an important role in nation building the Government of India de licensed the
Cement Industry in the year 1966 with a view to attract private entrepreneurs to argument the
cement product Kesoram rose to the occasion and decided to set up a few cement plants in
the country.
The first Cement Plant of Kesoram with a capacity of 2.5 lack tones per annum based on dry
process, was established in 1969 at Basanthnagar a backward area in Karimnagar District,
Andhra Pradesh, and christened it Kesoram Cement. The second unit followed suit, which
added a capacity of 2.00 lack tones in 1971. The plant was further expanded to 9.00 lack
tones by adding 2.5 lack tones in August 1978. 1.14 lack tones in January, 1981 and 0.87 lack
tones in September, 1981.
Kesoram Cement has outstanding track record of performance and distinguished itself among
all the Cement factories in India by bagging the coveted National Productivity Award for two
successive years, i.e., in 1985 and 1936, so also the National Awards for Mines Safety for two
year 1985 86 and 1986 - 87. Kesoram also bagged NCBMs (National Council for Cement
and Building Materials) National Award for Energy Conservation for the year 1989 90.
Kesoram got the prestigious State Award Yajamnya Ratna & Best Management Award
for the year 1989; so also the FAPCCI (Federation of Andhra Pradesh Chamber of Commerce
17

and Industry) Award for the Best Family planning effort in the State. For the year 1987 88,
Kesoram also got the FAPPCI Award for Best Industrial Promotion / Expansion effort in the
state. In the year 1991 Kesoram also got the May Day Award of the Government of Andhra
Pradesh for Best Management and Pandit Jawaharlal Nehru Silver Rolling Trophy for the
Best Productivity effort in the State, sponsored by FAPCCI, for 1993 Kesoram got the Best.

Performance:
The performance of Kesoram Cement industry had been outstanding achieving over cent per
cent capacity utilization although despite many odds like power cuts and which most 40%
was waste due to wagon shortage etc.
The Company being a continuous process industry works round the clock and has an
excellent record of performance achieving over 100% capacity utilization.
Kesoram has always combined technical progress with industrial performance. The company
had a glorious track record for the last 27 years in the industry.

Technology:
Kesoram Cement uses most modern technology and the computerized control in the plant. A
team of dedicated and well experienced experts manages the plant. The quality is
maintained much above the bureau of Indian Standards.
The raw materials used for manufacturing cement are:
Lime stone
Bauxite
Hematite
Gypsum

Environmental and Social Obligations:

For environmental promotion and to keep up the ecological balance, this section has
undertaken various social welfare programs by adopting ten nearly villages, organizing
family welfare camps, surgical camps, children immunization camps, animal health camps,
blood donation camps, distribution of fruit bearing trees and seeds, training for farmers etc.,
were arranged.

Welfare and Recreation Facilities:

For the purpose of recreation facility 2 auditoriums were provided for playing indoor games,
cultural function and activities like drama, music and dance etc.

18

The industry has provided libraries and reading rooms. About 1000 books are available in the
library. All kinds of newspaper, magazines are made available.
Canteen is provided to cater to the needs to the employees for supply snacks, tea, coffee and
meals etc.
One English medium and one Telugu medium school are provided to meet the educational
requirements.
The company has provided a dispensary with a qualified medical office and paramedical staff
for the benefit of the employees. The employees covered under ESI scheme have to avail the
medical facilities from the ESI hospital.
Competitions in sports and games are conducted every year for August 15, Independence day
and January 26, Republic Day among the employees.

Electricity:
The power consumption per ton for cement has come down to 108 units against 113 units last
year, due to implementation of various energy saving measures. The performance of captive
power plant of this section continues to be satisfactory. Total power generation during the
years was 84 million units last year. This captive power plant is playing a major role in
keeping power costs with in economic levels.
The management has introduced various HRD programs for training and development and
has taken various other measures for the betterment of employees efficiency / performance.
The section has installed adequate air polluting control systems and equipment and is ISO
14001 such as Environment Management System is under implementation.

Awards:
Kesoram cement bagged many prestigious awards including national awards for productivity,
technology, conservation and several state awards since 1984. The following are the some of
important awards.

19

THEORETICAL
FRAMEWROK

Financial Management is the process of managing the financial resources, including

accounting and financial reporting, budgeting, collecting accounts receivable, risk
management, and insurance for a business.
The financial management system for a small business includes both how you are financing it
as well as how you manage the money in the business.
In setting up a financial management system your first decision is whether you will manage
your financial records yourself or whether you will have someone else do it for you. There
20

are a number of alternative ways you can handle this. You can manage everything yourself;
hire an employee who manages it for you; keep your records in-house, but have an
accountant prepare specialized reporting such as tax returns; or have an external bookkeeping
service that manages financial transactions and an accountant that handles formal reporting
functions. Some accounting firms also handle bookkeeping functions. Software packages are
also available for handling bookkeeping and accounting.
Bookkeeping refers to the daily operation of an accounting system, recording routine
transactions within the appropriate accounts. An accounting system defines the process of
identifying, measuring, recording and communicating financial information about the
business. So, in a sense, the bookkeeping function is a subset of the accounting system. A
bookkeeper compiles the information that goes into the system. An accountant takes the data
and analyzes it in ways that give you useful information about your business. They can advise
you on the systems needed for your particular business and prepare accurate reports certified
by their credentials. While software packages are readily available to meet almost any
accounting need, having an accountant at least review your records can lend credibility to
your business, especially when dealing with lending institutions and government agencies.
Setting up an accounting system, collecting bills, paying employees, suppliers, and taxes
correctly and on time are all part of running a small business. And, unless accounting is your
small business, it is often the bane of the small business owner. Setting up a system that does
what you need with the minimum of maintenance can make running a small business not only
more pleasant, but it can save you from problems down the road.
The basis for every accounting system is a good Bookkeeping system. What is the difference
between that and an accounting system? Think of accounting as the big picture of how your
business runs -- income, expenses, assets, liabilities -- an organized system for keeping track
of how the money flows through your business, keeping track that it goes where it is
supposed to go. A good bookkeeping system keeps track of the nuts and bolts -- the actual
transactions that take place. The bookkeeping system provides the numbers for the
accounting system. Both accounting and bookkeeping can be contracted out to external firms
if you are not comfortable with managing them yourself.
Even if you outsource the accounting functions, however, you will need some type of
Recordkeeping Systems to manage the day-to-day operations of your business - in addition to
21

a financial plan and a budget to make certain you have thought through where you are headed
in your business finances. And, your accounting system should be producing Financial
Statements. Learning to read them is an important skill to acquire.
Another area that your financial management system needs to address is risk. Any good
system should minimize the risks in your business. Consider implementing some of these risk
management strategies in your business. Certainly, insurance needs to be considered not only
for your property, office, equipment, and employees, but also for loss of critical employees.
Even in businesses that have a well set up system, cash flow can be a problem. There are
some tried and true methods for Managing Cash Shortages that can help prevent cash flow
problems and deal with them if they come up. In the worst case you may have difficulties
meeting all you debt obligations. Take a look at Financial Difficulties to learn more about
ways to manage situations in which you have more debt than income.
It is possible you may even be at the a point where you want to sell the business or simply
close it and liquidate assets. There are financial issues involved for these circumstances too.
So, be certain that you know what steps you need to take in order to protect yourself
financially in the the long run.
Clearly, financial management encompasses a number of crucial areas of your business. Take
time to set them up right. It will make a significant difference in your stress levels and in the
bottom line for your business.

22

EFFECTIVE
FINANCIAL
MANAGEMENT

Financial Planning

Financial planning is often thought of as a way to manage debt, but a good financial
plan really is a way to make certain that you have financial security throughout your
life. Many small business owners consider their business as their investment in their
future, but that is a huge risk to take. As any economist will tell you, diversification is
the only sure way to create security in the long run. Your business is one stream of
income. Putting together a financial plan that allows for multiple streams of income is
what provides you security in the longer term.

23

The essential components of a good financial plan are investing, retirement planning,
insurance, borrowing and using credit, tax planning, having a will, and ensuring the
right people receive your assets. Financial planning is the process of meeting your life
goals through the proper management of your finances. Life goals can include buying a
home, saving for your child's education or planning for retirement.
The financial planning process involves gathering relevant financial information,
setting life goals, examining your current financial status and coming up with a plan for
how you can meet your goals given your current situation and future plans.
There are personal finance software packages, magazines and self-help books to help
you do your own financial planning. However, you may decide to seek help from a
professional financial planner if:

you need expertise you don't possess in certain areas of your finances. For
example, a planner can help you evaluate the level of risk in your investment
portfolio or adjust your retirement plan due to changing family circumstances.

you want to get a professional opinion about the financial plan you developed
for yourself.

you don't feel you have the time to spare to do your own financial planning.

you have an immediate need or unexpected life event such as a birth, inheritance
or major illness.

you feel that a professional adviser could help you improve on how you are
currently managing your finances.

you know that you need to improve your current financial situation but don't
know where to start.

A financial planner is someone who uses the financial planning process to help you
figure out how to meet your life goals. The planner can take a "big picture" view of
your financial situation and make financial planning recommendations that are right for
you. The planner can look at all of your needs including budgeting and saving, taxes,
24

investments, insurance and retirement planning. Or, the planner may work with you on
a single financial issue but within the context of your overall situation. This big picture
approach to your financial goals may set the planner apart from other financial advisers,
who may have been trained to focus on a particular area of your financial life.
In addition to providing you with general financial planning services, many financial
planners are also registered as investment advisers or hold insurance or securities
licenses that allow them to buy or sell products. Other planners may have you use more
specialized financial advisers to help you implement their recommendations. With the
right education and experience, each of the following advisers could take you through
the financial planning process. Ethical financial planners will refer you to one of these
professionals for services that they cannot provide and disclose any referral fees they
may receive in the process. Similarly, these advisers should refer you to a planner if
they cannot meet your financial planning needs.
Accountant
Accountants provide you with advice on tax matters and help you prepare and submit
your tax returns to the Internal Revenue Service. All accountants who practice as
Certified Public Accountants (CPAs) must be licensed by the state(s) in which they
practice.
Estate Planner
Estate planners provide you with advice on estate taxes or other estate planning issues
and put together a strategy to manage your assets at the time of your death. While
attorneys, accountants, financial planners, insurance agents or trust bankers may all
provide estate planning services, you should seek an attorney to prepare legal
documents such as wills, trusts and powers of attorney. Many estate planners hold the
Accredited Estate Planner (AEP) designation.
Financial Planner
Many financial planners have earned the Certified Financial Planners certification, or
the Chartered Financial Consultant (ChFC) or Personal Financial Specialist (CPA/PFS)
designations. Financial planners can take you through the financial planning process.

25

Insurance Agent
Insurance agents are licensed by the state(s) in which they practice to sell life, health,
property and casualty or other insurance products. Many insurance agents hold the
Chartered Life Underwriter (CLU) designation. Financial planners may identify and
advise you on your insurance needs, but can only sell you insurance products if they are
also licensed as insurance agents.
Investment Adviser
Anybody who is paid to provide securities advice must register as an investment
adviser with the Securities and Exchange Commission or relevant state securities
agencies, depending on the amount of money he or she manages. Because financial
planners often advise people on securities-based investments, many are registered as
investment advisers. Investment advisers cannot sell securities products without a
securities license. For that, you must use a licensed securities representative such as a
stockbroker.
Stockbroker
Also called registered representatives, stockbrokers are licensed by the state(s) in which
they practice to buy and sell securities products such as stocks, bonds and mutual funds.
They generally earn commissions on all of their transactions. Stockbrokers must be
registered with a company that is a member of the National Association of Securities
Dealers (NASD) and pass NASD-administered securities exams.
The government does not regulate financial planners as financial planners; instead, it
regulates planners by the services they provide. For example, a planner who also
provides securities transactions or advice is regulated as a stockbroker or investment
adviser. As a result, the term "financial planner" may be used inaccurately by some
financial advisers. To be sure that you are getting financial planning advice, ask if the
adviser follows the six steps.
The Financial Planning Process Consists of the Following Six Steps
1. Establishing and defining the client-planner relationship.
The financial planner should clearly explain or document the services to be
26

provided to you and define both his and your responsibilities. The planner
should explain fully how he will be paid and by whom. You and the planner
should agree on how long the professional relationship should last and on how
decisions will be made.
2. Gathering client data, including goals.
The financial planner should ask for information about your financial situation.
You and the planner should mutually define your personal and financial goals,
understand your time frame for results and discuss, if relevant, how you feel
about risk. The financial planner should gather all the necessary documents
before giving you the advice you need.
3. Analyzing and evaluating your financial status.
The financial planner should analyze your information to assess your current
situation and determine what you must do to meet your goals. Depending on
what services you have asked for, this could include analyzing your assets,
liabilities and cash flow, current insurance coverage, investments or tax
strategies.
4. Developing and presenting financial planning recommendations and/or
alternatives.
The financial planner should offer financial planning recommendations that
address your goals, based on the information you provide. The planner should
go over the recommendations with you to help you understand them so that you
can make informed decisions. The planner should also listen to your concerns
and revise the recommendations as appropriate.
5. Implementing the financial planning recommendations.
You and the planner should agree on how the recommendations will be carried
out. The planner may carry out the recommendations or serve as your "coach,"
coordinating the whole process with you and other professionals such as
attorneys or stockbrokers.
6. Monitoring the financial planning recommendations.
27

You and the planner should agree on who will monitor your progress towards
your goals. If the planner is in charge of the process, she should report to you
periodically to review your situation and adjust the recommendations, if needed,
as your life changes.
Best Practices When Approaching Financial Planning

Set measurable goals.

Understand the effect your financial decisions have on other financial issues.

Re-evaluate your financial plan periodically.

Start now - don't assume financial planning is for when you get older.

Start with what you've got - don't assume financial planning is only for the
wealthy.

Take charge - you are in control of the financial planning engagement.

Look at the big picture - financial planning is more than just retirement planning
or tax planning.

Don't confuse financial planning with investing.

Don't expect unrealistic returns on investments.

Don't wait until a money crisis to begin financial planning.

You are the focus of the financial planning process. As such, the results you get from
working with a financial planner are as much your responsibility as they are those of
the planner.
To achieve the best results from your financial planning engagement, you will need to
be prepared to avoid some of the common mistakes by considering the following
advice:

28

Set measurable financial goals.

Set specific targets of what you want to achieve and when you want to achieve
results. For example, instead of saying you want to be "comfortable" when you
retire or that you want your children to attend "good" schools, you need to
quantify what "comfortable" and "good" mean so that you will know when
you've reached your goals.

Understand the effect of each financial decision.

Each financial decision you make can affect several other areas of your life. For
example, an investment decision may have tax consequences that are harmful to
your estate plans. Or a decision about your child's education may affect when
and how you meet your retirement goals. Remember that all of your financial
decisions are interrelated.

Re-evaluate your financial situation periodically.

Financial planning is a dynamic process. Your financial goals may change over
the years due to changes in your lifestyle or circumstances, such as an
inheritance, marriage, birth, house purchase or change of job status. Revisit and
revise your financial plan as time goes by to reflect these changes so that you
stay on track with your long-term goals.

Start planning as soon as you can.

Don't delay your financial planning. People who save or invest small amounts of
money early, and often, tend to do better than those who wait until later in life.
Similarly, by developing good financial planning habits such as saving,
budgeting, investing and regularly reviewing your finances early in life, you
will be better prepared to meet life changes and handle emergencies.

Be realistic in your expectations.

Financial planning is a common sense approach to managing your finances to
reach your life goals. It cannot change your situation overnight; it is a lifelong
process. Remember that events beyond your control such as inflation or changes
29

in the stock market or interest rates will affect your financial planning results.

Realize that you are in charge.

If you're working with a financial planner, be sure you understand the financial
planning process and what the planner should be doing. Provide the planner
with all of the relevant information on your financial situation. Ask questions
about the recommendations offered to you and play an active role in decisionmaking.

Financial Analysis:
Introduction:- The term financial analysis also known as analysis and interpretation of
financial statements , refers to the process of determining financial strength and weaknesses
of the firm by establishing strategic relationship between the items of the balance sheet ,
profit and loss account and other operative data Analyzing financial statements by
Metcalf and Titard Financial analysis is a process of evaluating the relationship between
30

component parts of a financial statement to obtain a better understanding of a firms position

and performance by Myers The purpose of financial analysis is to diagnose the
information contained in financial statements so as to Jude the profitability and financial
soundness of the firm. Just like a doctor examines his patient by recording his body
temperature, blood pressure , ect. Before making his conclusion regarding the illness and
before giving his treatment, a financial analyst analysis the financial statements with various
tools of analysis before commenting upon the finanacial health or weaknesses of an
enterprise . The analysis and interpretation of financial statements is essential to bring out the
mystery behind the figures in financial statements. Financial statements analysis is an attempt
to determine the significance and meaning of the financial statement data so that forecast
may be made of the future earnings, ability to pay interest and debt maturities (both current
and long term) and profitability of a sound divided policy.

Types of financial analysis:Financial analysis into different categories depending upon

(1) The material used and
(2) The method of operation followed in the analysis or the modus operandi of
analysis
Types of financial analysis
On the basis of material used

on the basis of modus operandi

External

Internal

Horizontal

Vertical

Analysis

Analysis

Analysis

Analysis

1.On the basis of material used :- According to material used, financial analysis can be of two
types
External analysis
Internal analysis
External analysis :-

This analysis is done by outsiders who do not have access to the

detailed internal outsiders include investors,potential investors , Creditors, Potential

31

Creditors, Government Agencies , Credit Ggencies and General Public.for financial analysis,
these external parties to the firm depend almost entirely on the published financial statements.
Internal analysis:- The analysis conducted by persons who have access to the internal
accounting records of a business firm is known as internal analysis .
2 On the basis of modus operandi :-

According to the modus operandi financial analysis

can also be of two types

a.Horizontal analysis
b.Vertical analysis
a.Horizontal analysis:- Horizontal analysis refers to the comparison of financial data of a
company for several years. The figures for this type of analysis are presented horizontally
over a number of columns. The figures of the various years are compared with standard or
base year . a base year is year chosen as beginning point. This type of analysis is also called
dynamic analysis as it is based on the data form year to year rather than on data of any one
year . The horizontal analysis makes it possible to focus attention on items that have changed
significantly during the period under view
b. Vertical analysis:- Vertical analysis refers to the study of relationship of the various items
in the financial statements of one accounting period . in this types of analysis the figures from
financial statement of a year are compared with a base selected from the same years
statement
Methods of financial analysis:-The following methods of analysis are generally used:1. Comparative Statements.
2. Trend Analysis.
3. Common-Size Statements.
4. Funds flow Analysis.
5. Cash Analysis
6. Ratio Analysis
7. Cost-volume-Profit Analysis
Comparative statements:The comparative financial statements are statements of the financial position at different
periods of time .the elements of financial position are show in a
Comparative Statement provides an idea of financial position at two or more periods.
Generally two financial statements (balance sheet and income statement) are prepared in
comparative form for financial analysis.
32

THE COMPARATIVE STATEMENT MAY SHOW:1. Absolute figures(rupee amounts)

2. Changes in absolute figures i.e. increase or decrease in absolute figures.
3. Absolute data in terms of percentages.
4. Increase or decrease in terms of percentages.
THE TWO COMPARATIVE STATEMENTS ARE:1. Comparative balance sheet, and
2. Income statement.
(1) Comparative balance sheet:- The comparative balance sheet analysis is the study of the
trend of the same items, group of items and computed items in two or more balance sheets of
the same business enterprise on different dates. The change in periodic balance sheet items
reflect the conduct of a business the change can be observed by comparison of the balance
sheet at the beginning and at the end of a period and these changes can help in forming an
opinion about the progress of an enterprise.
GUIDE LINES FOR INTERPRETATION OF COMPARATIVE BALANCE
SHEET:While interpreting comparative balance sheet the interpreter is expected to study the
following aspects:1. Current financial position and liquidity position
2. Long-term financial position
3. Profitability of the concern.
COMMON SIZE STATEMENT:The common-size statements, balance sheet and income statement are show in analytical
percentages. The figures are shown as percentages of total assets, total liabilities and total
sales. The total assets are taken as 100 and different assets are expressed as a percentage of
the total similarly, various liabilities are taken as a part of total liabilities.
COMMON SIZE BALANCE SHEET:-

33

A statement in which balance sheet items are expressed as the ratio of each asset to total
assets and the ratio of each liability is expressed as a ratio of total liabilities is called common
size balance. The common size balance sheet can be used to compare companies of differing
size. The comparison of figures in different periods is not useful because total figures may be
affected by a number of factors. It is not possible to establish standard norms for various
assets. The trends of figures from year to year may not be studied and even they may not give
proper results.
TREND ANALYSIS OF BALANCE SHEET:Trend analysis is Very important tool of horizontal financial analysis.
This analysis enables to known the change in the financial function and operating efficiency
in between the time period chosen.
By studding the trend analysis of each item we can know the direction of changes and based
upon the direction of changes, the options can be changed.
Trend =Absolute Value of item in the statement understudy *100

Absolute Value of same item in the base statement

CASH MANAGEMENT
Good cash management can have a major impact on overall working capital management.
The key elements of cash management are:

Cash forecasting;

Balance management;

Administration;

Internal control.

Cash Forecasting. Good cash management requires regular forecasts. In order for these to
be materially accurate, they must be based on information provided by those managers
responsible for the amounts and timing of expenditure. Capital expenditure and operating

34

expenditure must be taken into account. It is also necessary to collect information about
impending cash transactions from other financial systems, such as creditors and payroll.
Balance Management: Those responsible for balance management must make decisions
about how much cash should at any time be on call in the Departmental Bank Account and
how much should be on term deposit at the various terms available.
There are various types of mathematical model that can be used. One type is analogous to the
ERQ inventory model. Linear programming models have been developed for cash
management, subject to certain constraints. There are also more sophisticated techniques.
Administration. Cash receipts should be processed and banked as quickly as possible
because:

They cannot earn interest or reduce overdraft until they are banked;

Information about the existence and amounts of cash receipts is usually not available
until they are processed.

Where possible, cash floats (mainly petty cash and advances) should be avoided. If, on
review, the only reason that can be put forward for their existence is that "we've always had
them", they should be discontinued. There may be situations where they are useful, however.
For example, it may be desirable for peripheral parts of departments to meet urgent local
needs from cash floats rather than local bank accounts.
Internal Control. Cash and cash management is part of a department's overall internal
control system. The main internal cash control is invariably the bank reconciliation. This
provides assurance that the cash balances recorded in the accounting systems are consistent
with the actual bank balances. It requires regular clearing of reconciling items.
The key to successful cash management is milestones:
o

Capital is provided to execute a business plan

Cash use must track growth in enterprise value

Enterprise value is measured by milestones, not the fiscal calendar

35

Cash management is not cost control

o

Cost control is a reactive measure using crude tools e.g. % cuts

Cost control often depletes value (e.g. by using people as accounting chips)

CREDITORS MANAGEMENT

Creditors are the businesses or people who provide goods and services in credit terms.
That is, they allow us time to pay rather than paying in cash.

There are good reasons why we allow people to pay on credit even though literally it
doesn't make sense! If we allow people time to pay their bills, they are more likely to
buy from your business than from another business that doesn't give credit. The length
of credit period allowed is also a factor that can help a potential customer deciding
whether to buy from a company or not: the longer the better.

Creditors will need to optimize their credit control policies in exactly the same way as
the debtors' turnover ratio.

DEBTORS MANAGEMENT
The objective of debtor management is to minimize the time-lapse between completion of
sales and receipt of payment. The costs of having debtors are:

Opportunity costs (cash is not available for other purposes);

Bad debts.

Debtor management includes both pre-sale and debt collection strategies.

Pre-sale strategies include:

Offering cash discounts for early payment and/or imposing penalties for late payment;

Agreeing payment terms in advance;

Requiring cash before delivery;

36

Setting credit limits;

Setting criteria for obtaining credit;

Billing as early as possible;

Requiring deposits and/or progress payments.

Post-sale strategies include:

Placing the responsibility for collecting the debt upon the center that made the sale;

Identifying long overdue balances and doubtful debts by regular analytical reviews;

Having an established procedure for late collections, such as

- a reminder;
- a letter;
- cancellation of further credit;
- telephone calls;
- use of a collection agency;
- legal action.

Objectives of Receivables management:

To maintain an optimum level of investment in receivables.

To maintain optimum volume of sales.

To control the cost of credit allowed & to keep it at the minimum possible level.

To keep down the average collection period.

To obtain benefit from the investment in debtors at optimum level.

Debt Control and Debt Collection Period

Debt control is an important part of business activity because although a debt is an asset, it is
not as liquid an asset as cash in the bank. Firms have to ensure they collect their debts as
efficiently as possible within the terms they have set for the debt.
37

The only way we can consider how efficient the firm's debt control has been is to use a ratio.
This ratio is known as the debt collection period.
The figure measures (in number of days) how long on average it has taken the firm to collect
its debts. The higher the figure the longer it has taken. However, the normal period for
collecting debts will differ between industries. For example, a figure of 10 days may sound
very impressive, but if this was the figure for a chain of supermarkets it would be high.
Therefore no debt is incurred and retail firms will tend to have very few debtors and a low
debt collection period. Firms who do a lot of business on credit though will have much higher
debt collection periods.
Debtors' Turnover
Debtors control is a vital aspect of working capital management. Many businesses need to
sell their goods on credit, otherwise they might find it difficult to survive if their competitors
provide such credit facilities; this could mean losing customers to the opposition

WORKING CAPITAL MANAGEMENT

Introduction:
Working capital management means management of current assets of the firm.
Working capital can be defined in simple terms as excess of current assets over current
liabilities. In short it is the difference between inflow and outflow of funds. Working capital
includes stock of raw material, semi-finished goods including work in progress, cash in hand
and bank and debtors after deducting current liabilities i.e. Sunday creditors for institutions
and other financial institutions within 12 months and creditors for purchase of Raw Material
and any short terms advances towards sale of goods.
The goal of working capital management is to manage the firms current assets and current
liabilities in such a way that a satisfactory level of working capital is maintain. This is
38

because if the firm cannot maintain the satisfactory level of working capital, it is likely to
become insolvent and may even force into bankruptcy. The current assets should be large
enough to cover its current liabilities in order to ensure a reasonable margin of safety.
Working capital is a circulating capital, means those assets which are changed to one form to
other form.
In managing the current assets effectively the following points to be considered:
CONCEPT OF WORKING CAPITAL
There are three types of working capital, Gross working capital, Net working capital
and fixed working capital.
1. Gross Working Capital: It refers to the firms investment in current assets i.e. mainly
stock, debtors, bills receivables and cash. This is also known as Current capital concept or
Circulating capital concept. It is represented by the sum total of the current assets of the
enterprise. It is known as Circulating capital because current assets of a company are
changed from one form to another, for e.g. from cash to inventories, inventories to receivable
to cash.
The Gross capital concept focuses attention on two aspects of current assets management:
a) Optimum investment in current assets and
Financing of current assets.
2. Networking capital: It is difference between the current assets and current liabilities.
Alternatively it is that portion of the firms current assets, which is financed by long-term
funds. Net working capital being the difference between current assets and current liabilities
is quantitative concepts.
a) It indicates the liquidity position of the firm.
b) Suggests the extent to which working capital needs may be financed by
Permanent sources of fund
3. Fixed working capital: Every firm is required to maintain balance of cash, inventory etc,
in order to meet the business requirement even in the slack seasons. This part of current
assets is called as permanent or fixed working capital.
COMPONENTS OF WORKING CAPITAL
39

Cash brought in the business is used for purchase of raw material or payment of wages and
other expenses incurred for converting raw material into finished goods.

Goods once

manufactured are sold and cash is realized from customers. So the working capital includes
the current assets like cash and bank, inventory, receivables etc. it is presented in the
following operations circle with the cash, raw material, finished goods and receivables
showing various linkages.
NEEDS OF WORKING CAPITAL
Every firm differs in the requirement of working capital. The firms aim is how
effectively utilized working capital to maximize the wealth and sufficient returns from its
operations. It depends upon the steady growth of profits and successful sales activity. For
this we have to invest enough funds in the current assets for the achievement of the sales
activity.

Investment in current assets is needed, as sales do not convert in to cash

intentionally, operating cycle involve, in conversion of sales in to cash. Operating cycle is

the duration of, time required to convey sales after conversion of resources in to inventory
and cash.
The working capital needs of a firm are influenced by numerous factors. The important ones
are
Nature of Business
Seasonality of operations
Production policy
Market condition
Conditions of supply
Several strategies are available to a firm for financing its capital requirement. An important
one is based on the matching principle. According to this principle, the maturity of the
sources of finance should match the maturity of the assets being financed. This means the
fixed assets and permanent current assets should be supported by long term sources of
finance whereas fluctuating current assets must be supported by short- term sources of
finance.
TYPES OF WORKING CAPITAL
Depending upon the nature of the funds blocked, working capital can be of two types
40

PERMANENT OR REGULAR WORKING CAPITAL

VARIABLE WORKING CAPITAL
PERMANENT OR REGULAR WORKING CAPITAL
The magnitude of the current assets depends upon the firms operating cycle. The
operating cycle is a continuous process and the need for current assets is also continuously.
But the level of current assets needed is not always same. It increase or decreases overtime.
However there is always minimum level of current assets which is continues required by a
firm to carry out its business operations. The minimum level of current assets which is
continues required by a firm to carry out its business operations. The minimum level of
current assets is called permanent or fixed working capital. It represents the minimum
amount of investment in current assets that is seemed necessary to carry on operations at
time. It is also known as hard core. It is of two kinds:
a) INITIAL WORKING CAPITAL:
At its inception and during the formation period of its operations, a company must
have enough cash funds to meet its obligations. In the initial year it as revenues may not be
regular and adequate credit arrangements may not be available from banks, financial
institutions, etc., till it has established its credit standing, credit may have to be granted on
sales to attract the customers.
b) REGULAR WORKING CAPITAL
It is the amount of working capital needed for the continuous operations of the
business of the company. It refers to the excess of current assets over the current liabilities so
that the process of conversion of cash into stock, stock into sales, receivables and collections
is maintained without any breaks.

VARIABLE WORKING CAPITAL

This working capital required over and above the permanent working capital depends
upon changes in production and sales are called fluctuating or variable working capital or
temporary working capital. There may be changes either increase or decrease in working
capital. Many the variable working capital required in season dependent. It represents
additional assets required at different times during the operating year to cover any change or
variability from the normal operations. It can be of two parts:
41

A. Seasonal working capital:

The amount to be blocked due to seasonal nature of industry. Examples are package
tours and summer tours. Obviously it refers to financial requirement that cope up during that
particular season. Beyond their initial and regular circulating capital most business will
require at started intervals a large amount of current assets to fill the demands of the seasonal
busy periods.

B. Special Working Capital:

Extra funds are needed to meet contingencies, festivals, and special occasions. All
business enterprises have to be prepared to meet unforeseen eventualities that may arise in the
course of their operations. Therefore, they must have extra funds at Unstated Periods to
meet contingencies.

COMPOSITION OF WORKING CAPITAL

Working capital consists of Current Assets and Current Liabilities:

Current Assets:
Current Assets are those, which can be converted into cash with one year without affecting
the operations of the firm. In the management of working capital, two characteristics of
current assets must be borne in mind:
1. Short life span, and
2. Swift transformation into other asset forms.
The life span of current assets depends upon the time required in the activities of
procurement, production, and sales.

List of Current Assets:

1. Cash and Bank Balances
2. Investments
a. Government and Other Trustee Securities
b. Fixed deposits with Banks
3. Receivables arising out of Sales
4. Installments of Deferred receivable due within a year
5. Raw Material and components used in the process of manufacture including those in
transit
6. Stock in Process including semi-finished goods
7. Other consumable spares
42

8. Advance payment of tax

9. Advance for purchase of raw materials, components and consumable stores
10. Prepaid Expenses
11. Deposits kept with public bodies for the business operations

Current Liabilities:
Current Liabilities are those, which are expected to fall due or mature for payment in
a short period not exceeding a year and represent short term sources of funds.

List of Current Liabilities:

1. Short term Borrowings (including bills purchased and discounted) from
a. Banks and

b. Others

2. Unsecured Loans
3. Public deposits maturing in one year
4. Sundry creditors for raw materials and consumable stores and spares
5. Interest and other charges accrued but not due for payment
6. Deposits from Dealers, Sellers agents, etc
7. Installments of tern Loans, Deferred payments, Credits, Debentures, Redeemable
preference shares and long term deposits, payable within one year
8. Statutory Liabilities
a. P F dues
b. Provision for taxation
c. Sales tax and excise tax
d. Obligations towards workers considered statutory
e. Others
9. Miscellaneous Current Liabilities
a. Dividends
b. Liabilities for expenses
c. Gratuity payable within one year
d. Other provisions
e. Any other payment due within one year

FACTORS DETERMINNING WORKING CAPITAL

43

Nature or character of business

The working capital requirements of a firm basically depend upon the nature of its
business. Public utility undertakings like electricity, water and railway need very limited
working capital because they offer cash sales only and supply services.

Size of business or Scale of operations

The working capital requirements of a concern are directly influenced by the size of
its business which may be measured in terms if scale of operations. Greater the size of
business unit, generally larger will be the requirement of working capital.

Production policy
In certain industries the wide fluctuations may be due to seasonal variations. The
requirements of working capital in such as a case depend upon the production policy.

Seasonal Variations:
In certain industries the raw material may not be available throughout the year. They have to
buy raw materials in bulk during the season to ensure an uninterrupted flow of production.

Working Capital cycle:

In a manufacturing concern the working capital starts with the purchase of raw
materials and ends with realization of cash from the sale of finished products. The speed with
which the working capital completes one cycle determines the requirements of working
capital. Longer the period of cycle larger is the requirement of working capital.

Credit Policy:
The credit policy of a concern in its dealings with debtors and creditors considerably
influence the requirements of working capital. A concern that purchases its requirements on
credit and sells its products on cash requires less amount of working capital.

Business cycle:
Business cycles refer to alternative expansion and contraction in general business
activity. In a period of boom i.e., when the business is prosperous, there is a need for larger
amount of working capital due to the increase in sales, rise in prices, optimistic expansion of
business, etc. On the contrary in the times of depression i.e., when there is down swing of the
cycle, the business contracts, sales decline, difficulties are faces in collections from debtors
and firms may have a large amount of working capital lying idle.

Growth Rate of business:

44

The working capital requirement of a concern increase with the growth and expansion
of its business activities. Although, it is difficult to determine the relationship between the
growth in the volume of business and working capital of a business, yet it may be concluded
that for normal rate of expansion in the volume of business, we may have retained profits to
provide for more working capital but in fast growing concerns, we shall require large
working capital.

Price level changes:

Changes in the price level also affect the working capital requirements. Generally, the
rising prices will require the maintain large amount of working capital as more funds will be
required to maintain the same current assets. The effect of rising prices may be different for
different firms. Some firms may be affected much while some others may not be affected at
all by the rise in prices.

Others factors:
Certain other factors such as operating efficiency, management ability, irregularities
of supply, import policy, asset structure, importance of labor, banking facilities, etc., also
influence the requirements of working capital.

FUNDS FLOW ANALYSIS

Funds Flow statement is a method by which we study changes in the financial
position of a business enterprise between beginning and ending financial statements dates.
Hence, the funds flow statement is prepared by comparing two balance sheets and worth the
help of such other information derived from the accounts as may be needed.
Broadly speaking, the preparation of funds flow statement consists of two parts:
1.

Statement of Schedule of Changes in Working Capital

2.

Statement of sources and Application of Funds

45

1. STATEMENT OF CHANGES IN WORKING CAPITAL:

Working Capital means the excess of current assets over current liabilities.
Statement of Changes in Working Capital Is prepared to show the changes in the
working capital between the two balance sheet dates. This statement is prepared with
the help of Current Assets and Liabilities derived with the help of Current Assets and
Current Liabilities derived from the two balance sheets as:

Working Capital = Current Assets Current Liabilities.

1. An increase in Current Assets increase Working Capital

2. A decrease in Current Assets decrease Working Capital
3. An increase in Current Liabilities decrease Working Capital
4. A decrease in current Liabilities increase Working Capital
The changes in all current assets and liabilities are merged into one figure only
either an increase or decrease in working capital over the period for which funds statements
has been prepared. If the working capital at the end of the period is more than the working
capital at the beginning thereof, the difference is expressed as Increase in working capital.
On the other hand, if the working capital at the end of the period is less than that at the
commencement, the difference is called Decrease in Working Capital
Working Capital Cycle
The way working capital moves around the business is modeled by the working capital
cycle. This shows the cash coming into the business, what happens to it while the business
has it and then where it goes.
The working capital cycle shows the movement of cash into and out of the business. The
components of working capital cycle are the debtors, creditors, raw materials and cash.

46

The cycle starts with buying of raw materials on credit from the suppliers. These suppliers
become the creditors of the company. The raw materials undergo through different value
addition stages and are converted into finished goods. The finished goods are sold to the
customers on credit who become the debtors of the company. At the end of the credit period
the company gets the cash from the debtors whom they pay to the creditors and the cycle
goes on.
It is must for any company to have an ideal working capital cycle. It should neither be too
long nor too short. If the cycle is too long the funds get stuck up with the debtors and prompt
payment to the creditors cannot be made.

A simple working capital cycle may look something like:

47

Payment
CASH

CREDITORS

Supply

Collection

RAW MATERIALS

DEBTORS

Sales

Production

FINISHED GOODS

W.I.P
Value added conversion

FORMS OF BANK FINANCE.

A firm can draw funds from its banks within the maximum credit limit sanctioned. It can
draw funds in the following forms.
Overdrafts
Cash credit
Bills purchasing or discounting
Working capital loan
Letter of credit
48

TANDON COMMITTEE
Like many other activities of the banks, method and quantum of short-term
finance that can be granted to a corporate was mandated by the Reserve Bank of
India till 1994. This control was exercised on the lines suggested by the
recommendations of a study group headed by Shri Prakash Tandon.
The study group headed by Shri Prakash Tandon, the then Chairman of Punjab
National Bank, was constituted by the RBI in July 1974 with eminent
personalities drawn from leading banks, financial institutions and a wide crosssection of the Industry with a view to study the entire gamut of Bank's finance
for working capital and suggest ways for optimum utilization of Bank credit.
This was the first elaborate attempt by the central bank to organize the Bank
credit. The report of this group is widely known as Tandon Committee report.
Most banks in India even today continue to look at the needs of the corporates
in the light of methodology recommended by the Group.
As per the recommendations of Tandon Committee, the corporates should be
discouraged from accumulating too much of stocks of current assets and should
move towards very lean inventories and receivable levels. The committee even
suggested the maximum levels of Raw Material, Stock-in-process and Finished
Goods which a corporate operating in an industry should be allowed to
accumulate these levels were termed as inventory and receivable norms.
Depending on the size of credit required, the funding of these current assets
(working capital needs) of the corporates could be met by one of the following
methods:
First Method of Lending:
Banks can work out the working capital gap, i.e. total current assets less current
liabilities other than bank borrowings (called Maximum Permissible Bank Finance or
MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of
long-term funds, i.e., owned funds and term borrowings. This approach was
49

considered suitable only for very small borrowers i.e. where the requirements of credit
were less than Rs.10 lacs. This method will give a minimum current ratio of 1:1
Second Method of Lending:
Under this method, it was thought that the borrower should provide for a
minimum of 25% of total current assets out of long-term funds i.e., owned funds plus
term borrowings. A certain level of credit for purchases and other current liabilities
will be available to fund the buildup of current assets and the bank will provide the
balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings
could not exceed 75% of current assets. RBI stipulated that the working capital needs
of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should
be appraised (calculated) under this method this method will give a current ratio of
1.3:1.
Working Capital assessment on the formula prescribed by the Tandon Committee.
Working Capital Requirement (WCR) = [Current assets i.e. CA (as per industry norms)
Current Liabilities i.e. CL]
Permissible Bank Financing [PBF} = WCR Promoters Margin Money i.e. PMM (to be
brought in by the promoter)
As per Formula 1: PMM = 25% of [CA CL] and thereby PBF = 75% of [CA CL]
As per Formula 2: PMM = 25% of CA and thereby PBF = 75%[CA] CL
As is apparent Formula 2 requires a higher level of PMM as compared to Formula 1. Formula
2 is generally adopted in case of bank financing. In cases of sick units where the promoter is
unable to bring in PMM to the extent required under Formula 2, the difference in PMM
between Formulae 1 and 2 may be provided as a Working Capital Term Loan repayable in
installments over a period of time.
METHODS FOR DETERMINING PERMISSIBLE BANK BORROWINGS

50

1st method

2nd method

(a)

Current
assets(CA)

100

100

(b)

Current
liabilities(CL)

20

20

(c)

Working capital
gap (CA-CL)(ab)

80

80

(d)

Borrowers
contribution

20(25% of c)

25(25% 0f a)

(e)

Permissible bank
finance,(c-d)

60

55

The main factors used in the estimation of working capital requirement:

The nature of business and sector-wise norms

Factors such as seasonality of raw materials or of demand may require a high level of
inventory being maintained by the company. Similarly, industry norms of credit
allowed to buyers determine the level of debtors of the company in the normal course
of business.

The level of activity of the business

Inventories and receivables are normally expressed as a multiple of a days production
or sale. Hence, higher the level of activity, higher the quantum of inventory,
receivables and thereby working capital requirement of the business. So in order to
arrive at the working capital requirement of the business for the year, it is essential to
determine the level of production that the business would achieve. In case of wellestablished businesses, the previous years actual and the management projections for
the year provide good indicators. The problems arise mainly in the case of
51

determining the limit for the first time or in the initial few years of the business.
Banks often adopt industry standard norms for capacity utilization in the initial years.
Steps involved in arriving at the level of working capital requirement:

Based on the level of activity decided and the unit cost and sales price projections, the
banks calculate at the annual sales and cost of production.

The quantum of current assets (CA) in the form of Raw Materials, Work-in-progress,
Finished goods and Receivables is estimated as a multiple of the average daily
turnover. The multiple for each of the current assets is determined generally based on
the industry norms.

The current liabilities (CL) in the form of credit availed by the business from its
creditors or on its manufacturing expenses are deducted from the current assets (CA)
to arrive at the Working Capital Requirement (WCR).

The issue of computation of working capital requirement has aroused considerable

debate and attention in this country over the past few decades. A directed credit
approach was adopted by the Reserve Bank of ensuring the flow of credit to the
priority sectors for fulfillment of the growth objectives laid down by the planners.
Consequently, the quantum of bank credit required for achieving the requisite growth
in Industry was to be assessed. Various committees such as the Tandon Committee
and the Chore Committee were constituted and studied the problem at length.

Norms were fixed regarding the quantum of various current assets for different
industries (as multiples of the average daily output) and the Maximum Permissible
Bank Financing (MPBF) was capped at a certain percentage of the working capital
requirement thus arrived at.

Negative Working Capital

Some companies can generate cash so quickly they actually have a negative working capital.
This is generally true of companies in the restaurant business (McDonalds had a negative
working capital of $698.5 million between 1999 and 2000). Amazon.com is another
example. This happens because customers pay upfront and so rapidly, the business has no
52

problems raising cash. In these companies, products are delivered and sold to the customer
before the company ever pays for them.
A negative working capital is a sign of managerial efficiency in a business with low inventory
and accounts receivable (which means they operate on an almost strictly cash basis). In any
other situation, it is a sign a company may be facing bankruptcy or serious financial trouble

2. FUNDS FLOW STATEMENT

Funds flow statement is a final statement. It shows the amount used in a particular
period of time i.e., Application of Funds and the how much amount comes into the
organization in a particular period. Finally those application and sources are balanced.

FUNDS FLOW ANALYSIS

Significant technique of financial analysis is FUNDS FLOW ANALYSIS. It is
designed to highlight changes in the financial condition of a business concern between
concern between two points of time which generally conform to beginning and ending
financial statement dates.
Although financial statements supply useful information to the management and
describe the nature of changes in ownership as a result of the periods productive and
commercial activities, these statements fail mirror the funds changes that have taken place
over a given time span. They do not spell out the movement of funds.
It is more important to describe the sources from which additional funds were derived
and the uses to which these funds were put, because the ultimate success of a business
enterprise depends on where got and where gone situations. The Funds Flow Statement is,

53

therefore, prepared to uncover the information which the financial statements fail to describe
clearly.
Thus, Funds Flow Statement is a report which summarizes the events taking between
the two accounting periods. It spells out the sources from which funds were derived and the
uses to which these funds were put. This statement is essentially derived from an analysis of
which these have occurred in assets and liabilities items between two balance sheet dates. In
this statement, only the net changes are shown so that the outcome of a transaction upon the
financial condition of a business enterprise reflected more sharply.
MEANING AND CONCEPT OF FUNDSFUND:
According to the dictionary meaning the term funds implies an accumulation or
deposit of resources from which supplies are may be drawn a more or less permanent store or
supply. It is also defined available pecuniary resources but these two meanings are broad in
nature and apt to macro level planning and control. A number of definitions of the term fund
have been given some people call fund as cash. But it is seen in practice that the current
assets are constantly circulating through cash account in business operations and many
transactions affect flow of cash at least later or sooner. For example, the sale of goods on
credit increases in accounts later or sooner. For example, the sale of goods on credit increases
in accounts payable rather than resulting in an immediate cash flow. Similarly, certain
expenses may result in a current liability since they might not have been paid immediately. In
other words, it may be said that any current assets and current liability has its impact on
working capital ( as working capital is the difference of current assets and current liabilities)
rather than cash. Therefore there is another view about meaning of fund that it means
working capital.
The term funds have been defined in a number of ways.
IN A NARROW SENSE:
It means cash only and a funds flow statement prepared on this is called a cash flow
statement. Such a statement enumerates net effects of the various business transactions on
cash and takes into account receipts and disbursements of cash.
54

The term Funds refers to money values in whatever from it may exist here Funds means
all means all financial resources used in business whatever in the firm of men, material,
money, machinery and others.
IN A POPULAR SENSE:
The term Funds means working capital i.e., the excess of current assets over current
liabilities. The working capital concept of funds has emerged due to fact that total resource of
a business are invested partly in fixed assets in the form of fixed capital and partly kept in
firm of liquid of near liquid form as working capital.

MEANING AND CONCEPT OF FLOW OF FUNDS

The term flow means movement and includes both inflow and out flow. The
term flow of funds means transfer of economic values from one asset of equality to
another. Flow of funds is said to have taken place when any transaction makes changes in
the amount of funds available before happening of the transaction. If the effect of
transaction results in the increase of funds, it is called source of funds and it results in the
decrease of funds, it if known as an application of funds.
RULE:
The flow of funds occurs when a transaction changes on one hand a non-current
account and on the other a current account and on the other a current account and vise
versa.

55

When a change in non-account e.g., fixed assets, long-term liabilities, reserves and
surplus, fictitious assets etc., is followed by change in another non-current account, it
dues no amount flow of funds.
FUNDS FLOW:
Here flow means changes, i.e., flow of fund means changes in working capital by a
business transaction. The business transaction brings the change in working capital either
in the form of decrease or increase. Flow of fund involves in flow or out flow of fund. It
means, transfer of economic values from one asset to another or equity to another, from
an asset to an equity

or vice versa. If there is change in current assets and current

liabilities in the same direction and by the same amount, there will be change only in their
amount. The working capital or fund will be same and hence there would be no flow in
such a situation.

DATA ANALYSIS & INTERPRETATION

56

profit & Loss account of

Kesoram Industries
Income
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Admin Expenses
Miscellaneous Expenses

------------------- in Rs. Cr. ------------------Mar '15

12 mths

Mar '14
12 mths

Mar '13
12 mths

Mar '12
12 mths

Mar '11
12 mths

5,710.82
0.00
5,710.82
131.04
55.96
5,897.82

6,282.60
364.40
5,918.20
31.67
-125.14
5,824.73

5,750.72
352.84
5,397.88
160.09
164.13
5,722.10

5,051.51
300.89
4,750.62
91.85
173.07
5,015.54

4,316.13
418.15
3,897.98
1.49
87.96
3,987.43

3,037.97
855.90
384.05
0.00
0.00
1,176.80

3,583.83
761.50
334.68
57.53
932.00
169.35

3,265.63
689.29
273.55
58.74
852.38
222.65

3,128.57
61.05
232.94
78.69
648.30
110.55

2,381.55
60.79
186.90
70.74
544.59
105.66

57

Preoperative Exp Capitalised

Total Expenses
Operating Profit
PBDIT
Interest
PBDT
Depreciation
Other Written Off
Profit Before Tax
Extra-ordinary items
PBT (Post Extra-ord Items)
Tax
Reported Net Profit
Total Value Addition
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

0.00
5,454.72
Mar '12
12 mths
312.06
443.10
514.36
-71.26
305.93
0.00
-377.19
0.00
-377.19
-47.96
-329.23
2,416.75
0.00
4.57
0.78

0.00
5,838.89
Mar '11
12 mths
-45.83
-14.16
410.15
-424.31
297.40
0.00
-721.71
12.76
-708.95
-329.21
-379.74
2,255.06
0.00
4.57
0.74

0.00
5,362.24
Mar '10
12 mths
199.77
359.86
239.83
120.03
272.59
0.00
-152.56
0.91
-151.65
57.99
-210.21
2,096.62
0.00
25.16
4.12

0.00
4,260.10
Mar '09
12 mths
663.59
755.44
109.21
646.23
172.80
0.00
473.43
2.07
475.50
238.16
237.34
1,131.53
0.00
25.16
4.22

0.00
3,350.23
Mar '08
12 mths
635.71
637.20
120.87
516.33
111.86
0.00
404.47
4.65
409.12
30.37
378.74
968.68
0.00
25.16
4.28

457.41
-71.98
10.00
126.85

457.43
-83.02
10.00
199.44

457.43
-45.95
55.00
283.62

457.43
51.88
55.00
335.97

457.43
82.80
55.00
289.87

Balance Sheet of Kesoram Industries

------------------- in Rs. Cr. ------------------Mar '15

Mar '14

Mar '13

Mar '12

452.85

927.42

1,627.44

1,262.50

434.16

Total Debt

4,405.19

4,105.34

3,999.27

3,126.22

1,970.43

Total Liabilities

4,985.43

5,020.35

5,299.52

4,666.46

3,300.53

Mar '12

Mar '11

Mar '10

Mar '09

Mar '08

12 mths

12 mths

12 mths

12 mths

12 mths

Gross Block

5,375.98

5,220.62

5,040.88

4,514.16

2,717.57

Less: Accum. Depreciation

1,929.21

1,633.41

1,349.16

1,082.34

913.22

Net Block

3,446.77

3,587.21

3,691.72

3,431.82

1,804.35

704.49

680.65

437.81

412.83

864.85

66.36

66.36

65.82

51.43

61.78

912.75

995.16

1,118.55

916.19

589.06

Unsecured Loans

Mar '11

Application Of Funds

Capital Work in Progress

Investments
Inventories

58

Sundry Debtors

835.67

673.58

631.34

542.89

380.17

83.66

69.59

71.88

80.14

56.57

Total Current Assets

1,832.08

1,738.33

1,821.77

1,539.22

1,025.80

Loans and Advances

424.20

1,154.09

434.60

665.06

554.62

0.00

1.07

1.76

0.31

0.28

2,256.28

2,893.49

2,258.13

2,204.59

1,580.70

Cash and Bank Balance

Fixed Deposits
Total CA, Loans & Advances
Deferred Credit
Current Liabilities
Provisions

0.00

0.00

0.00

0.00

0.00

1,408.72

1,800.10

1,139.02

1,076.88

665.87

79.75

407.26

14.94

357.34

345.29

1,488.47

2,207.36

1,153.96

1,434.22

1,011.16

767.81

686.13

1,104.17

770.37

569.54

0.00

0.00

0.00

0.00

0.00

4,985.43

5,020.35

5,299.52

4,666.45

3,300.52

Contingent Liabilities

555.32

423.68

513.86

557.85

356.00

Book Value (Rs)

126.85

199.44

283.62

335.97

289.87

Total CL & Provisions

Net Current Assets
Miscellaneous Expenses
Total Assets

LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current debt obligations. The short term
expenses or current liabilities are met by realizing amounts from current assets. The current
assets should be either liquid or near liquidity. These should be convertible into cash for
meeting the current debt obligations.
If current assets can pay off current liabilities, then liquidity position is said to be
satisfactory. If the liabilities are less, then the current assets cannot be met from them, then
the liquidity position is considered bad.

59

The bankers, suppliers of the goods and other short term creditors are interested in the
liquidity position of a business concern. They extend the credit only if they are sure that
current assets are adequate to pay out the obligations. To measure the liquidity position of a
business concern, the following ratios can be calculated.
A. Current Ratio.
B. Quick

Ratio.

Current Ratio
Current ratio may be defined as the relationship between current assets and current
liabilities. In other words, it is the ratio of current assets and current liabilities. The ratio
is also known as working capital ratio. It is measure of general liquidity and is most
widely used to make the analysis of a short term financial position or liquidity of a
business enterprise.
The two basic components of the ratio are: current assets and current liabilities. The
following table gives the details of the items constituting these two elements.

Components of Current Ratio

CURRENT ASSETS
. Bills receivables
. Cash at bank
. Cash in hand
. Inventories
.Sundry debtors
.Work in progress
.Prepaid expenses

CURRENT LIABILITIES
. Income tax payable
. Bills prepaid
. Out standing expenses
. Bank overdraft
.Sundry creditors.
.Dividend payable

60

Current ratio= Current assets

Current liabilities

particulars

2010

2011

20012

2013

2014

2015

Current assets

9863.10

12862.85

20928.86

19468.75

24792.71

24907.61

2161.25

2974.13

6925.63

7501.51

6989.21

8765.61

4.56

4.32

3.02

2.59

3.54

(Rs in lakhs)
Current
liabilities
(Rs in lakhs)
Current ratio

INTERPRETATION:

61

2.84

The current ratio of 2:1 is considered ideal. In other words, current assets
double the current liabilities are considered ideal. Here, the current ratio decreased from
4.56:1 in the year 2010 to 4.32:1 in the year 2011. And further decreased to 3.02:1 in the
year 2012. And later it decreased to 2.59:1 in the year 2013. And increased to 3.54:1 in
the year 2014 and later decreased to 2.84:1 in the year 2015

A Quick ratio/acid test ratio/liquid ratio

The term liquidity refers to the ability of a business enterprise to pay its short term liabilities.
Quick ratio may be defined as the relationship between quick assets and current liabilities. As
assets is said to be liquid, it can be converted in to cash with in a short period.

Components of quick ratio:

Quick assets
. Cash on hand
. Cash at bank
. Bills receivable
. Sundry debtors
. marketable securities

Quick liabilities
. Out standing expenses
. Bills payable
. Sundry creditors
. Dividend payable
. Bank over draft

Quick ratio= Quick assets

Current liabilities

Particulars

2010

2011

2012

62

2013

2014

2015

Quick

5392.08

5815.10 7502.20

11431.99

12923.39

15858.76

assets
Current

2161.25

2974.13 6925.63

7501.51

6989.21

8765.61

liabilities
Quick ratio

2.49

1.95

1.52

1.85

1.81

1.08

A quick ratio of 1 is considered as ideal, a quick ratio less than 1, indicates inadequate
liquidity of the firm. In the Super Spinning Mills, the quick ratio is more than 1 in all the
years during the period of project study. Liquidity of the firm is satisfactory.
Some of the activity ratios are given under:
Inventory turnover ratio= Sales
Inventory
63

Debtors turnover ratio= Sales

Debtors
Assets turnover ratio=Sales
Net assets
Total asset turnover ratio=Sales
Total assets
Fixed asset turnover ratio=Sales
Net fixed assets

Inventory turnover ratio:

This ratio is indicated the efficiency of the firm in selling its
products. It is calculated by dividing the sales by average inventory or the year ended
inventory. This ratio measures how quickly inventory is sold, a test of efficient management.
Usually a high inventory turn over ratio indicates efficient management of inventory because
more frequently the stocks are sold. The lesser amount of money is required to finance the
inventory. This implied under investment in or very low level of inventory. Low turn over
implies over investment in inventories, dull business.
Inventory turnover ratio= Sales
Inventory
Particulars
Sales
Inventory
Inventory turn

2010
29556.77
4471.02
6.61

2011
28101.73
7047.75
3.98

2012
33516.26
13416.66
2.49

over ratio

64

2013
36752.25
8036.77
4.57

2014
36316.52
11869.32
3.05

2015
39419.28
9048.85
4.35

Hence, in the case of SS mills, inventory turnover ratio is satisfactory

because, here there is an efficient management of inventory because frequently stocks are
sold.

Debtors turnover ratio

Debtors turnover ratio is the relationship between the credit sales and debtors of the firm.
Debtors turnover ratio= Sales
Debtors
Particulars
Sales
Debtors

2010
29556.77
1319.24

2011
28101.73
1114.02

2012
33516.26
1517.28

65

2013
36752.25
1954.56

2014
36316.52
1887.56

2015
39419.28
2375.64

Debtors turnover 22.4

25.2

22.0

18.8

19.2

ratio

Debtors turnover ratio indicates the number of times debtors turn over each year. Generally
higher the value of debtors turn over the more efficient is the management of credit. To an
outside analyst information about credit sales and opening and closing balances of debtors
may not be available. Hence the debtors turnover ratio regarding to the table is satisfactory.

Asset turnover ratio

Asset turnover ratio is also known as Investment turnover ratio. It is
based on the relationship between the cost of goods sold (sales) and the assets of the firm.
Asset turnover ratio=Sales
66

16.6

Net assets
Particulars

2010

2011

2012

2013

2014

2015

Sales

29556.77

28101.73

33516.26

36752.25

36316.52

39419.
28

Net assets

18005.2

2040.87

25538.71

25293.85

33415.72

33584.
48

Assets

1.64

1.37

1.31

1.45

1.08

1.17

turnover ratio

Note: Net assets = net fixed assets + net current assets.

As assets are used to generate sales, a firm should manage its assets efficiently to maximize
sales. The firm can compute the ratio by dividing sales by net assets. In 2015 the ratio of SS
mills is 1.17:1 times indicating that SS mills ltd producing Rs.1.17 of the sales for one rupee
of capital employed in net assets. It has to improve its operating performance.
67

Total asset turnover ratio

Total asset turnover ratio shows the firms ability in generating
sales from all the financial committed to total assets.
Total asset turnover ratio= Sales
Total assets
Particulars
Sales
Total assets
Total
asset

2010
29556.77
20166.27
1.46

2011
28101.73
23380
1.20

2012
33516.26
32416.73
1.03

turnover ratio

Note: Total assets=Total Net fixed assets + Total current assets.

68

2013
36752.25
32795.36
1.13

2014
36316.52
40404.93
0.89

2015
39419.28
47353.4
0.83

In 2014the ratio of SS mills is 0.89:1, that SS mills generated sales of Rs.0.89

for one rupee investment in fixed and current assets together.

Fixed asset turnover ratio

Fixed asset turnover ratio= Sales
Net fixed assets
Particulars

2010

2011

2012

2013

2014

2015

Sales

29556.77

28101.73

33516.26

36752.25

36316.52

Net
assets

fixed 10303.17

10517.15

11449.87

13326.61

15612.22

39419.2
8
19549.8
6

2.67

2.91

2.75

2.32

Fixed
asset 2.86
turnover ratio

69

2.02

The firm may wish to know its efficiency of utilizing fixed assets, calculating sales by net
fixed assets. Depreciated value of fixed assets in computing the fixed asset turn over may
render comparison of firms over period of time.

LEVERAGE RATIOS
To judge the long term financial position of the firm, the leverage or capital structure ratios are
calculated .These ratios indicate the funds provided by owners and creditors. As a general rule;
these should be appropriate mix of debt and owners equity in financing the firms assets.
Leverage ratios may be calculated from the balance sheet items to determine the proportion of debt
in total financing. And leverage ratios are also computed from the income statements items by
determining the extent to which operating profile are sufficient to cover the fixed charges.
The leverage ratios are calculated to measure the financial risk and the firms
ability of using debt for the benefits of shareholders. Leverage ratios are also known as capital structure
ratios. Some of the leverage ratios calculated is as follows.
Total debt ratio= Total debt
Capital employed
Debt equity ratio= Total debt
Net worth

Total debt ratio

By using this ratio, we can know the proportion of the interest bearing debt in the capital
structure.

Total debt ratio= Total debt

Capital employed
Particulars

2010

2011

2012

2013

2014

2015

Total debt

10321.81

11712.48

17124.51

16162.19

22257.95

26055.53

70

Capital
Employed

17341.92

19821.2

26027.75

25937.18

33769.28

38672.22

Total debt
ratio

0.60

0.59

0.65

0.62

0.66

0.67

INTERPRETATION:
Note: Capital employed =Net worth + Borrowings.
Where, Net worth = Share capital + Reserves and Surplus
Borrowings= Loans + Fund
If we take the debt ratio of 2015 i.e. 0.67 means that the lenders have finance 67% it is obviously
implies that the owners have been providing the remaining finance. They have 1-0.67=0.33=33% of the net
assets.
71

Debt equity ratio

Debt equity ratio can be computed by dividing the total debt by net worth
Particulars
2010
2011
2012
2013
2014

2015

Total debt

10321.81

11712.48

17124.51

16162.19.19

22257.95

26055.53

Net worth

7020.11

8108.72

8903.24

9774.99

11511.33

12616.69

Debt equity ratio

1.47

1.44

1.92

1.65

1.93

2.067

72

This ratio decreased in the year 2010 i.e. 1.47:1 when

Compared to the year 2015 i.e. 2.07.

Profitability ratios:
A company should earn profits to survive and grow over a long period of
time, the difference between total revenues and total expenses over a period of time. Profit is
the ultimate output of a company and it will have no future lift fails to make sufficient profits.
The profitability ratios are calculated to measure the operating efficiency of the company.
Besides the management of the company, creditors and owners are also interested in the
profitability of the firm. The profitability ratios can also be computed by relating the profits
of a firm to its investment in assets in the term of capital contributed by creditors and owners

73

of the company. If the company is unable to earn a satisfactory return on investment its
survival is threatened.

Gross profit ratio

This profitability is relation to sales is the gross profit margin. It is
calculated by dividing the gross profit by sales.
Gross profit ratio= Gross profit
Sales
Particulars

2010

2011

2012

2013

2014

2015

Gross profit

2346.57

3343.75

3103.12

3110.18

5373.13

4524.80

Sales

29556.77

28101.73

33516.26

36752.25

36316.52

39419.28

Gross profit ratio

0.07

0.11

0.09

0.08

0.14

0.11

74

INTERPRETATION:
This refers to the efficiency with which management produces each unit of product. This ratio
indicates the average spread between the cost of goods sold and the sales revenue. High gross
profit margin relative to the industry lower cost.
Here the ratio is increasing and decreasing indicates sales price has declined or the cost of
production has increased.

Net profit margin

Net profit is obtained when operating expenses interest and taxes are
subtracted from the gross profit. The net profit margin ratio is measured by dividing profit
after tax by sales.
Net profit ratio= Profit after taxes
Net sales

75

Particulars

2010

2011

2012

2013

2014

2015

Profit after taxes

891.96

1410.21

1040.95

1127.49

2241.89

1442.21

Net sales

29556.77

28101.73

33516.26

36752.25

36316.52

39419.28

Net profit

0.03

0.05

0.03

0.03

0.06

0.04

76

Net profit margin ratio established a relationship between net profit and sales and indicates
managements efficiency in manufacturing, administrating and selling the products. This ratio
is overall measure of the firms ability to turn rupee sales into net profit.

Operating expenses ratio

This ratio is an important ratio that explains the charges in the
profit margin ratio. This ratio is computed by dividing operating expenses that is cost of
goods sold plus selling expenses and general administrative expenses by sales.
Operating expenses ratio= Operating expenses
Sales
Where, Operating expenses= cost of goods sold (sales-gross profit) + Selling expenses +
general and administration
Expenses.
Particulars

2010

2011

2012

2013

2014

2015

Operating

28876.98

26918.69

32813.91

36641.15

33870.65

37915.44

Sales

29556.77

28101.73

33516.26

36752.25

36316.52

39419.28

Operating

0.97

0.95

0.98

0.91

0.93

0.96

expenses

expenses ratio

77

INTERPRETATION:
A higher operating expenses ratio is unfavorable since it will leave a small amount of
operating income to meet interest, dividends etc. This operating expenses ratio of SS mills is
changing may be due to changes in management policy.

Return on Equity:
A return on shareholders is calculated to see the profitability of the
owners investment.
The return on shareholders equity is net profit after taxes divided by shareholders equity.
Return on equity (ROE) = Profit after tax
Net worth

Particulars

2010

Net profit after 888.74

2011

2012

2013

2014

2015

1398.84

1042.71

1122.61

2338.05

1427.35

taxes
78

Net worth

7020.11

8108.72

8903.24

9774.99

1511.33

12616.69

ROE

0.12

0.17

0.11

0.11

0.20

0.11

INTERPRETATION:
This ratio is one of the most important relationships in financial analysis. Return on owners
equity of the company should be compared with the ratio for other similar companies and
industries which reveal the relative performance and strength of a company.

79

Findings:
2007-08
There is a decrease in inventories up to 297.24lakh.
There is decrease in cash up to 14898.11lakh
2008-09
There is a decrease in inventories up to 343.2lakhs
Decrease in sundry debtors up to 1695.99lakhs
80

 Decrease in cash up to 2793.63lakhs

Decrease in loans & advances up to 1761.16lakhs
2009-10
Decrease in inventories up to 411.54lakhs
Loans & advances are decreased up to 211.57lakhs
2010-11
Decrease in inventories up to 692.33lakhs
2011-12
The company has increased its inventories.
Increase in loans & advances.
Increase in cash balance.

Conclusion:
I conclude that the overall financial performance of the financial management is satisfactory
and the given data is not sufficient to calculate the financial performance of financial
management and also to the organization also.

Suggestions:
1)
2)
3)
4)

I suggest the company to improve the production controls

I suggest the company to reduce the production cost
Improve the better financial control management for good results
Control the overall financial flow of the fund in internal and external of
business
81

BIBLIOGRAPHY

1. KHAN, M Y and P K Jain, Financial Management, Tata McGraw-Hill

Publishing Co., New Delhi, 2007.
2. I M PANDEY, Essentials of Financial Management, Vikas Publishing House
Pvt Ltd, New Delhi, 1995.
3. RAMESH. S and A GUPTA, Venture Capital and the Indian Financial Sector,
Oxford university press, New Delhi, 1995.
82

Websites:
www.googlefinance.com
www.workingcapitalmanagement.com
www.kesoram.com
www.fundsflowmanagement.com

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