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RATIO ANALYSIS AND WORKING

CAPITAL

STATEMENT ANALYSIS

SUMMER TRAINING PROJECT REPORT ON

DSCL

Submitted
In Partial Fulfillment of the Requirement

For the award of the Degree of M.B.A.

From Jaipur Engineering College, Jaipur (Rajasthan)

Academic Session 2009-2011

Submitted To: - Submitted By:

JAIPUR ENGINEERING COLLEGE AMIT PARETA

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FINANCIAL ANALYSIS OF DSCL

USING

RATIO ANALYSIS AND WORKING


CAPITAL

STATEMENT ANALYSIS

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Preface
Management of working capital & Ratio Analysis plays a significant role in the organization
as the blood plays its role in the human body .It not only provides energy to the business but
simultaneously it is essential for the success of any business organization management of
working capital has close implication with the two important factor’s that judge the overall
success of the business profitability and solvency.

Now–a-days, the major problem faced by every business organization is of finance because
of drastic changes in the size and scale of business and increased competition, which results
in the increase in credit business and shortage of financial brackets. In such an environment,
the working capital management has occupied one of the key positions in the business
management.

In our study, our main objective is to reflect our attention on the position of working capital
in DSCL Ltd. and discuss various aspects of working capital management in the company.
The DSCL Ltd. is leading company in the field of fertilizer, Cement, PVC resigns & caustic
soda. Our study discusses various aspects of the working capital management and effects
there of on ultimate performance of the company.

It gives me great pleasure to acknowledge my indebt ness to all those who have helped me
completing this project and bringing it out in its present form. I am very grateful to my
supervisor under whose kind supervision and able guidance, this work has completed.

(AMIT PARETA)

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ACKNOWLEDGEMENT
Sitting on the seashore we thought that it was an easy task to dive but it was only when we
dived into the ocean of the project, we realized how much helpful were so many people to us.
Without these people this exploration could never have been completed. It is a great pleasure
for me to acknowledge the contribution & support of a large number of individuals of this
effort.

Above all, I bow my head before Almighty “GOD” without whose blessing my present
project would not have existed and thanks for giving me patience and strength to overcome
the difficulties, which crossed my way in the accomplishment of this endeavor.

I am sincerely indebted to Mr. M Shyam Rau (Addl. General Manager Training


DSCL, Kota) for providing me the opportunity of 40 days training in the
organization.

I am also thankful to Mr. Kailash C. Jain for their valuable guidance during training
and motivating me at time for completion of project. I am grateful to Mr. Pramod
Vijay, Ms. Disha Maheshwari, Mr. B.N. Gupta and other members of Accounts &
Finance department and especially my colleagues for their suggestions incorporated
together with their precious time to help me during every course of my project and
encourage me to work hard, which helped me a lot.

I am also thankful to Mr. K.R.S. Khinchi (joint Manager Training) Last but not
least, I am thankful to all those who directly or indirectly lend me a helping hand at
the time of need in completing this project successfully.

(AMIT PARETA)

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EXECUTIVE SUMMARY

My project includes the company profile of the company DSCL.

 Company’s History

 Core Value of Company

 Awards & Testimonials

 Executive Team

 Business Team

 Products of the company.

Project Profile Includes Various Points like:

 Meaning Of Finance

 Ratios

The Summer Training being undertaking for the purpose of “WORKING CAPITAL &
RATIO ANALYSIS” where I come to realize various financial aspects such as performance
reviews, financial growth and impact, annual report and matter related to corporate
governance.

The study involved analysis of the financial impact of the company internally as well as
externally. I also intend to find out about how the leading brand image of “DSCL, KOTA”
In Financial sector has been performed by deeply undertaken their rations as schedule
affixed as annexure to the end of the summer training report.

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CONTENTS

Chapter Topic Page No.

1 Company profile 7-38

2 Research Methodology 39-42

3 Working capital management 43-54

4 Ratio analysis and interpretation 55-88

Swot Analysis 89-90

Conclusion 91

Suggestion 92

Bibliography 93

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CHAPTER 1

Company Profile

 Our Founders
 Introduction About DSCL, Kota
 DSCL’s Core Values
 Company Philosophy
 Our Businesses
 Business Team
 Awards and Testimonials

DCM SHRIRAM
CONSOLIDATED

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LIMITED

Company Profile

 OUR FOUNDERS:-
Sir Shri Ram
Nothing can better sum up the homage paid to great son and philanthropist of Delhi, Barey
Lalaji, Sir Shri Ram who began as a humble worker and went on to set up one of India's
largest business houses - the DCM Group. Not only did Lalaji achieve great height in
business enterprise; he also participated in full measure in the crucial early stages of nation
building. Everyone is familiar with the name of multiple facets of the industries and
institutions on which he left his imprint - be it the DCM Limited, Bengal Potteries, Jay
Engineering Works, many sugar mills, Sindri Fertilizers, the Lady Shri Ram College,
Shriram College of Commerce, Delhi School of Economics and umpteen others. But who is
this Barey Lalaji?

Born into a family of Agarwal banias of modest means, Shri Ram, in the 79 years of his life,
built an industrial empire manufacturing a vast variety of goods like - textiles, sugar, alcohol,
heavy, chemicals, vanaspati, pottery, fans, sewing machines, electric motors and capacitors.
The industrial legacy that he left behind was valued at Rs 600 million at the time of his death.
Reared in milieu, which graft nepotism, black marketing and tax evasion were considered a
must for success in business, Shri Ram set for himself rigid standards of morality in his
dealings with the public and government and made no compromises in order to earn more
money or gain a favor. While he deprived of opportunities for higher education, he
nevertheless understood how, important such education was in building the future of a nation.

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As a result he helped to finance a network of schools, colleges, industrial institutes and
research laboratories. He was also the founder chairman of the Industrial Finance Corporation
and Chairman of Sindri Fertilizers, the first national venture in the public sector in free India.

Little is known of Shri Ram's ancestors. Khuswant Singh writes in his "Shri Ram: A
Biography" of the oldest family name on records, is the one of Kanji Mal. Nothing more is
known about him. One of Kanji Mal's descendants was Rattanchand who was a confectioner.

He was the grandfather of Shri Ram's grandfather. Rattanchand was a man of influential
means. He was able to secure for his son Badri Das, the post of treasurer in the Karnal
Commissariat of the British Army.

Badri Das was very mature for his age and he fared well by saving and investing in buying
real estate in Firozpur and Delhi. He died in 1874 leaving behind four sons of whom the
youngest, Bishambar Das was somewhat more distinguished. Bishambar Das had three sons -
Gopal Rai, Girdhari Lal and Madan Mohan Lal. Shri Ram was born to Madan Mohan Lal and
his wife Chando Devi on April 27, 1884.

While Shri Ram lacked formal education he read extensively. His reading included religious
scriptures, Sanskrit classics, Urdu and Persian poetry and some English biographies. He
assiduously cultivated men of learning and culture.

But most of all he admired scientists on whom he pinned his hopes for the salvation of his
country. One of his lovable eccentricities was that he carried out experiments to produce new
varieties of food in his own room and then subjected his none too robust digestive system to
his new recipes.

The secret of Shri Ram's enlightened approach to people of different faiths lay in his basic
patriotism, making money was of little consequence to him; not once did he succumb to the
temptation of netting an extra buck or two in the black market or by evading tax.

He was an idealist who believed in raising India into an industrial nation. His love of India
did not make him dislike or distrust Pakistan. Many of his friends were the members of the
Muslim League. At the behest of his friend in Lyallpur Cotton Mills in Pakistan, Khan Sahib
Ahmed Islam Khan, he laid the foundation of a mushaira what in the later years came to be
known as the Shanker-Shad Mushaira.

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Shri Ram had this uncanny ability to spot the right man for the right job a rare quality that
contributed to his success. He made many mistakes in the choice of friends but seldom did he
err in the selection of a business executive.

Shri Ram's choice was not based on the scrutiny of a "Curriculum Vitae" but on an inborn
gift, a sort of built-in Geiger counter, which ticked when he came across the man he was
looking for.

This helped him to pick up a humble mystery and make him a work manager, to convert an
engineer into an administrator, to mould a perfume-seller into the

overall head of a vast enterprises producing precision instruments and so on. So sure was Shri
Ram with this instinct that once he made up his mind about the man, he gave that man every
latitude, there after his sole concern was with the results.

Shri Ram, described by his umpteen friends, was indeed a true friend. He refused to believe
that any of his friends exploited him.

And many did quite blantantly. He made friendship into an article of faith. "His house was
like a dharamshala,” remarks 90 years old freedom fighter Aruna Asaf Ali. He was unable to
eat food unless every seat at the table was occupied.

This indiscriminate hospitality at times caused great strain to the members of his family. But
his principle was, "the more, the merrier."

While just in his thirties, Shri Ram got himself known in the industrial as well as the
educational circles. He was nominated to the Delhi Municipal Committee. Through his
business connections with Ram Bahadur Lala Sultan Singh and more to with that of his son,
Raghubir Singh, who had started the Modern School in Delhi, Shri Ram began to think of
problems of education in India.

He ensured that his sons Murli Dhar, Bharat Ram and Charat Ram went to the Modern
School where children of more advanced Indian families were studying.

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Introduction About DSCL,
Kota
In this era of industrialization, Rajasthan Sate is also one of the leading Sate in industry. Kota
being an ideal situation for industrial location, as there is ample water from Chambal River,
proper Electric Supply from RAPP, Rana Pratap Sagar, Jawahar Sagar, Gandhi Sagar & Kota
Thermal Power Station, link with broad gauge line and easy availability of skilled labour.

The DSCL Ltd. Company was established in Kota in 1962, with its Head Office at New
Delhi. At present there 5000 employees in the company and the total investment in this
project is Rs. 1085 Crores.

P r e s e n t l y Company is m a i n l y manufacturing Urea, Cement, and PVC Resigns Caustic


Soda & L i q u i d C h l o r i n e .

The company is exporting its product too many countries and currently in 2008-09 earned Rs.
0.01 Crores as foreign exchange. The company maintaining good qu al it y control, ISO
Certification awarded for all its major products.

Other unique feature of this company is State-of-the-art-Technology for Process Control and
Instrumentation, computerized System and close Circuit TV monitoring to ensure fail-safe
system and optimized operational efficiency.

DSCL continues to move ahead with further strengthening of its competitive position and
building for sustained growth in future. Currently in 2008-09 its sales over 10 million and
increasing day to day.

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DSCL’s Core Values
DSCL’s core values and beliefs are a reflection of its commitment to build a world class,
learning organization, to excel and win in all its endeavors:

Customer Focus:

• Be sensitive to the needs of the customer; develop superior customer insight


• Commitment to surpass expectations and deliver superior value

Innovation and Excellence:

• Think differently and promote creativity


• Make continuous improvement a way of life; drive excellence

People Development:

• Continuously improve and upgrade the skills and competencies of our people
• Support people to realize their potential

Team Work:

• Work closely as a cohesive, well – knit team


• Inculcate a spirit of openness and collaboration

Relationships and Human Dignity:

• Value people and partnerships


• Nurture understanding, compassion, trust and respect in all relationships

CHAIRMAN’S & VICE CHAIRMAN’S


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DESK

The Road Ahead

We are an integrated business conglomerate, with a group turnover of Rs. 3253crores. Our
business portfolio comprises of primarily two types of business i.e.

(i) Energy Intensive products

(ii) Agri products (inputs as well as outputs) and services. We have manufacturing
facilities at Kota (Rajasthan), Bharuch (Gujarat), and Ajbapur, Rupapur, Hariawan
and Loni (UP). Our hybrid seed operations are at Hyderabad (India), Vietnam,
Philippines and Thailand. The Company also has its windows fabrication units at
Bhiwadi, Bangalore, Mumbai, Hyderabad and Chennai.

Our strengths are:

• Strong energy management expertise both in the area of generation as well as


effective utilization of energy.

• Deep understanding and knowledge of Indian rural milieu developed with over 40
years of close work with farmers to improve his economics.

• Well-established presence and strong brand across the entire agri-space in India.

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• Integration through Integrated manufacturing facilities and thru utilization of
competencies/resources across businesses is a major value enhancer.

We are building on the above strengths to develop a business profile which enjoys strong cost
competitive position and delivers superior value to our customers simultaneously.

We are further integrating our business portfolio to add value added products/services and
solutions to the commodity businesses.

We have implemented plans resulting in significant volume growth in past 2-3 years in most
of our existing commodity businesses and expect significant value/growth through value add
businesses in longer term.

The company has invested Rs.1300 crores in the past three years and plans to invest
approximately Rs. 500 crores in the next two years, to expand its business operations.

DSCL is a Rupees 15.50 billion, public listed company, based in North India with a core
sector business portfolio comprising fertilizers, Chlor alkali, chemicals, plastics, cement,
textiles and sugar.

A leading Indian organization, DSCL aspires to become a world-class enterprise that is


responsive to change, outward looking, competitive, delivers superior quality at low cost,
with focused businesses and robust financials.

DSCL has been built on core values of being caring, credible and fair with all stakeholders,
committed to continuous improvement; and being a responsible corporate citizen.

DSCL has built an enabling work culture and believes in releasing human energy within the
organization through participation, teamwork, professionalism, entrepreneurship, openness
and upholding human dignity.

The Company is committed to enhancing the employability of individuals through


competence building via continuous training and development activities.

DSCL believes in a pro-active Industrial Relations policy and has an enviable track record in
this field. Employee welfare is given utmost priority and is institutionalized across the
organization. DSCL has initiated several management initiatives in the recent past for

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upgrading the organization, the major ones being Institution Building, Quality Management.

COMPANY’S PHILOSOPHY
DSCL has strong brand equity reflective of credibility, ethical values and consistent high
quality product image. With over 30 years of experience in managing large scale process
industries with sustained high level of performance, DSCL meets the needs of a wide
range of customers from farmers to industrial users, from house builders to business
owners. Fostering enduring relationships is at the core of DSCL's business philosophy -
with vendors, business partners, and customers and within the organization between
employees.

The company operates in a range of energy intensive businesses in the Chlor-Vinyl and agri-
sectors. We are always seeking to produce multiple downstream products in a manner that we
derive the maximum earnings accrual from every unit of power that we generate in a
sustainable way and in varied market conditions. We follow this model across our
manufacturing operations at different locations with an endeavor to add value while we
curtail operating costs. Such an approach allows us to direct resources and inputs to various
downstream businesses in the most efficient manner and also become a cost competitive
producer in our chosen area.

As a leading equal opportunity employer in India, DSCL has a motivated and dynamic
management team of highly qualified professionals and dedicated workmen and staff whose
work has shown the way towards creating “Team Excellence ".

DSCL has a long history of accessing and employing the best technologies for its projects
and has worked successfully with renowned international and domestic technology partners.
As a learning organization DSCL has worked regularly with the national and international
consultants of repute, in diverse areas of Business Strategy, Quality, Organizational
Development etc. In a major IT initiative the company has networked all its locations on a
Wide Area Network (WAN) and implemented SAP R/3 Enterprise Resource Package (ERP)

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across the Company. Other key IT enabling initiatives are Customer Relationship
Management (CRM) and Business Information Warehousing (BIW).

Founded by Sir Shriram in 1889 (as DCM limited), today DSCL (which spun of as a separate
company in 1990) is managed by Mr. Ajay S. Shriram, Chairman and Senior Managing
Director and Mr. Vikram S. Shriram, Vice Chairman and Managing Director along with a
highly professional executive team.

DSCL has strong brand equity reflective of credibility, ethical values and consistent high
quality product image.

With over 30 years of experience in managing large scale process industries with sustained
high level of performance, DSCL meets the needs of a wide range of customers from farmers
to industrial users, from house builders to business owners.

Fostering enduring relationships is at the core of DSCL's business philosophy - with vendors,
business partners, and customers and within the organization between employees.

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OUR BUSINESSES

DCM Shriram Consolidated Ltd. DSCL, A Company with Turnover of Rs.3253 crores and
primary business interest in:

 Agri Businesses:

1. Urea
2. Fertilizers
3. Sugar
4. Hariyali Kissan Bazar
5. Agri inputs
6. Shriram Biosseds

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 Energy Intensive Businesses:

1. Chemicals (Chlor-Alkali)
2. PVC Resins
3. Calcium Carbide
4. Cement

 Value Added Businesses:

• Fenesta Building System


• PVC Compounds
• Energy Services

 Other Businesses:

1. Caustic soda
2. Textiles

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3. Bajra
4. Hydrogen
5. Hydrochloric Acid
6. Corn
7. Cotton
8. Sunflower

 Agri Businesses:—

We regard our agri business as a key growth driver for us. We believe that the agricultural
sector is a high potential area where we, with our expertise and strengths accumulated over
decades of presence in this sector, can add considerable value and capitalize on emerging
opportunities.

Over the years through our various agri-businesses we have developed extensive working
relationship and knowledge about the farmers.

Our agri business offerings comprise agricultural inputs, both manufactured and
merchandised, outputs, distribution and services. Our agri-inputs include Urea, Seeds and
Pesticides manufactured by us.

Additionally, we are also engaged in the marketing of a range of other agri inputs SSP, and
other nutrients such as Zinc Sulphate, soluble fertilizers etc.

In terms of agri outputs, we manufacture and market sugar and its by-products – Molasses
and Bagasse. With the objective to move towards providing total “Solutions” to the farmers,
we have initiated a “Rural Retailing” initiative recently, which we believe holds immense
promise in terms of untapped opportunities, scalability and growth potential. Being
implemented under our “Hariyali Kisaan Bazaar” initiative, we offer multiple products and
services to the rural and farming community, including agri inputs, diesel and petrol (under

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alliance with BPCL), consumer goods, durables, apparels, insurance, agronomy advisory,
credit, and contract farming as a part of this initiative. It is proposed to extend the offerings to
other products and services over a period.

All of our agri business activities are supported by a strong “Shriram” brand equity that our
products enjoy in the marketplace.

All our agri business units are supported by a robust and extensive distribution and retail
network. From about 3,000 retail outlets five years ago, we now have more than 6,000
retailers where all our manufactured and merchandised products are available to the country's
farming community. We also have around 900 wholesalers to distribute our agri products, a
large number of these have been with us for 3-4 decades.

We offer online agronomy services to farmers through 100 centers – Shriram Krishi Vikas
Kendra’s – established by us across the country that operate with the objective to increase
farmer profitability by providing them effective agronomy services.

We have a team of 102 agricultural graduates, recruited from local institutions and
universities, and 15 development officers who work along with farmers to assist them in their
endeavors. To ensure that our agronomists provide knowledgeable and unconditional advice,
we have not assigned any sales responsibilities to our agronomists.

The Shriram Krishi Vikas Kendra’s help upgrade farming methods and also provide
assistance to the farming and rural community in the educational, hygiene and sanitation
needs of the community as well as health care support for animal husbandry.

Such initiatives have made us one of the most reliable and trusted partners of the Indian agri
community.

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1. UREA

We are amongst the first “urea” manufacturers in the country starting way back in the 1960's.
Our fertilizer operations are characterized by highly optimized production process delivering
high capacity utilization & proven abilities in erection, commissioning, and operation &
troubleshooting of Ammonia/Urea plant.

Our Urea plant, commissioned in February has a Production capacity of 3, 30,000 TPA,
which includes a capacity of about 700 TPD of ammonia, which is an ingredient in the Urea
manufacturing process.

We are the lowest cost naphtha-based urea manufacturer in the country. Our urea operation
has consistently earned production and productivity awards for its performance.

Located within our Kota manufacturing complex, our urea plant benefits from access to
efficiently generated captive power and robust technical resources that reduce our cost of
manufacturing.

For the past several years we have been able to manufacture urea in a profitable manner with
naphtha as the feedstock. In line with our intent to continuously explore and adopt better
manufacturing practices and feedstock options, we have converted the plant into dual feed.

The facility can now accept dual feedstock of naphtha and gas in any proportions. The
necessary infrastructure for transporting gas from the source to the plant has also been put in

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place. Meanwhile, the Company has started running the plant on gas from Sep ’07 onwards.
This will further reduce our cost of production.

Over the last 4 decades of operations, our brand ‘SHRIRAM' has developed a strong presence
in the rural market and is identified with premium quality reliability and high trust. The
Company has also built up an extensive distribution network over the entire northern and
central India.

We have recently made a successful entry into the Southern region where our products are
gaining acceptance. Encouraged by the initial feedback from the farming community there,
we plan to further strengthen our presence in that market.

2. FERTILIZERS:

DSCL fertilizer operations are characterized by highly optimized production process


delivering high capacity utilization & proven abilities in erection, commissioning.

Operation & troubleshooting of Ammonia / Urea Plant.

• Highlight:

1. Date of Commissioning of plant February 1969

2. Present production capacity (Urea) 3,30,000 MT\Annum

DSCL's Urea operation has consistently earned production and productivity awards for its
performance. Its well-established distribution network in North and West India allows the
unit to service farmer needs effectively with a consistently high quality product. It is for these
reasons that SHRIRAM UREA enjoys a premium position its markets.

3. SUGAR:

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Sugar is a key component of our agri-business portfolio. Our sugar operations functioned as
an independent company within our Group until March 2004 when they were merged in
DSCL.

These sugar operations commenced in 1998 in central Uttar Pradesh, where the first sugar
mill was established through a green field project at Ajbapur.

We later acquired an existing sugar mill in the same region, at Rupapur, in 2003 emerging as
a major sugar producer in central Uttar Pradesh. Two new sugar mills at Hariawan and Loni
were commissioned this year.

We now have a combined installed capacity of 33,000 (tones crushed daily and a power
generating capacity (Bagasse based) of 70.5 MW. which is being further expanded to 94.5
MW, with an exportable surplus of 51.5 MW for the grid. .All our sugar plants are self-
sufficient to meet their own power requirements from Bagasse. We are also exporting power
to the UP state grid.

• GOMTI SUGAR LIMITED :

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Gomti Sugar Ltd., a unit of Ghaghara Sugar Ltd., an enterprise of DCM Shriram
Consolidated Limited, New Delhi, is a 6000 tcd sugar mill situated at Ajbapur village, JB
Ganj, Kheri district, in central UP.

The plant was commissioned in November 1997 with a crushing capacity of 3125 tcd. The
continued efforts in the cane development front and growth thrust of the Management have
made possible to reach today’s crushing level of 6000 tcd.

• Manufacturing Overview:

We have four sugar production facilities at Ajbapur, Rupapur, Hariawan and Loni located in
central UP. All of our production facilities are completely self-sufficient with access to
reliable captive power, based on bagasse, which is a sugar by-product, and are equipped with
modern equipment and machinery.

These in turn have made us one of the most efficient crushers and producers of sugar in the
country.

We established our Ajbapur facility as a Greenfield project in 1998. It is a new and modern
plant with high levels of automation and process control systems similar to a chemical plant.
Resultantly, this plant's output is of premium quality, commanding the highest prices in our
market region.

It is also one on India's fastest growing factory in terms of cane area, crushing and recovery,
and capacity.

At the time of inception, this plant had a capacity of 3,125 TCD, which has since been
expanded, to 10,500 TCD.

The plant has a captive power capacity of 38 MW which is used for meeting its own
requirements as well as export to the UP state grid. In addition to having in place a
technologically superior factory, we also have strong business processes in place for
continuous improvement of operating efficiency parameters. Our Ajbapur plant is supported
by ERP resources (SAP R/3) as well as TQM and institutional bidding initiatives. It is the
first sugar factory in the country to receive ISO 9000, ISO 14000, and OHSAS 18000
certifications simultaneously.

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We acquired our Rupapur unit in 2003. This factory had been established in 1996, with its
main machinery and plant supplied by Krupp, which is well regarded for superior technology.
This plant's capacity was increased after acquisition from 3500 TCD to 6500 TCD.

Two new sugar mills were commissioned in February 2007 at Hariawan and Loni (8000 tcd
and a 12 mw co-gen plant each), taking our total capacity to 33,000 TCD and making us the
fifth largest player in UP.

The expansion of Co-gen is being undertaken at these two units by additional 12 MW each to
be commissioned by November 08.

• Raw material:

Sugar cane procured from growers around our factories is the primary input for our sugar
operations. Over 2, 00,000 farmers supply us with cane.

In order to facilitate the procurement of sugarcane, we have set-up over 250 cane centers at
our sugar mills. This has significantly reduced the time taken in getting cane to our
manufacturing facilities.

The average distance covered by growers is around 5-7 kilometers and within 48 to 72 hours
cane reaches our factories after harvesting.

In order to ensure sustainable supply of high quality sugarcane, we invest time and resources
towards training farmers and helping them in improve their yields as well as recovery. We
also assist farmers with soil fertility mapping for judicious fertilizer usage.

Our team of experts has also been engaged in popularizing the use of bio-fillisters, modern
agricultural inputs, and other plant protection measures among cane growers, resulting in
improved yields per hectare.

With a view to improve post-harvest recovery, we help farmers with varietals propagation
and replacement of low yield/low recovery varieties.

We have also implemented an assured irrigation scheme in our cane areas, providing
irrigation means to ensure irrigation to the entire cane crop that we ultimately procure and use
for sugar production.

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This is also helping us popularize cost-effective irrigation methods within the farming
community.

Our efforts towards ensuring long-term, good quality cane supply are augmented by our
participation in infrastructure development for facilitating cane supplies, including
construction of road networks, providing means of transportation of cane, and assisting in the
computerization of the local banking operations.

Recognizing farmers as our principal partners in progress, our operating philosophy is to


enhance the economic status of sugarcane farmers while pursuing our own growth objectives.

We believe that our trust-based relations with farmers built on mutual respect and
understanding is an intangible asset that strengthens the overall operating profile of our sugar
business and allows us to also extend to them our other agri-business offerings.

4. HARIYALI KISAAN BAZAAR:

On 16th July 2002, the first retail outlet was inaugurated at village Del Pandarva (Distt.
Hardoi) on the Delhi-Lucknow highway near the DSCL's Gomti Sugar complex.

This 10,000 sq ft store is a one-stop shop providing the farmer with a range of multi-brand
agri inputs such as fertilizers, seeds pesticides, micro-nutrients, bio-fertilizers, agricultural
implements, tools and farm fuels.

The store is also geared to provide farmers with expert agronomic guidance and services like
soil testing, water testing, pesticide application services etc. Other value added farm services
are to be added in due course.

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After the initial pilot phase comprising of 4 stores in different parts of the country, it is
proposed to roll out the concept nationally.

In the future, Hariyali Kisan Bazaars plans to move beyond agri into other categories like
durables, furniture, electrical, fast-moving consumer goods, to cater to other needs of farmers
as customers.

"Hariyali Kisaan Bazaar" - a rural business centre, is a pioneering micro level effort, which is
creating a far-reaching positive impact in bringing a qualitative change and revolutionizing
the farming sector in India.

It is also an example of how well meaning corporate can contribute to development of


agriculture by building sustainable business models.

DCM Shriram Consolidated Ltd. (DSCL), capitalizing its over 35 years of experience in the
Agri-input markets & first hand knowledge of Indian farmers, is setting up a chain of centers
aimed at providing end-to-end ground level support to the Indian farmer & thereby improving
his "profitability" & "productivity".

The key constraints of the Indian farming sector, being addressed by "Hariyali" are:

• Lack of last mile delivery mechanism of modern agriculture know-how & practices.

• Lack of availability of critical good quality agri-inputs.

• "Middlemen" driven farmer interface.

• High cost credit.

• Lack of direct access to buyers of varied & high value crops.

The "Hariyali Kisaan Bazaar" chain, seeks to empower the farmer by setting up centers,
which provide all encompassing solutions to the farmers under one roof.

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Each "Hariyali Kisaan Bazaar" centre operates in a catchments of about 20 kms. A typical
centre caters to agricultural land of about 50000-70000 acres and impacts the life of approx.
15000 farmers. Each centre is engaged in:

• Bridging the last mile: Provides handholding to improve the quality of agriculture in
the area. Provides 24x7 support through a team of qualified agronomists based at the
centre.

• Quality Agri-Inputs: Provides a complete range of good quality, multi-brand Agri


inputs like fertilizers, seeds, pesticides, farm implements & tools, veterinary products,
animal feed, irrigation items and other key inputs like diesel, petrol at fair prices.

• Financial Services: Provides access to modern retail banking & farm credit through
simplified and transparent processes as also other financial services like insurance etc.

• Farm Output Services: Farm produce buyback opportunities, access to new markets &
output related services.

• Other Products and Services: Fuels, FMCG, Consumer Goods and Durables, Apparels
etc.

These centers provide the much-needed respect/dignity and freedom to the Indian farmer. In
the near future, Hariyali Kisaan Bazaars plan to move beyond agri to meet the other needs of
farmers as customers.

• Technology as an important enabler:

IT has been a critical backbone to the chain of centers. It is being used to provide online
support on latest technical advancements, weather forecasts, mandi (market) prices, fair &

28
transparent billing to farmers as well as in maintaining extensive farmer databases with micro
information about the farmers' field to provide customized service to the farmers.

• Farmer Response:

So far, over 185 "Hariyali" outlets have been set up in different states across India, which we
plan to scale up to 300 by March 09. The ground-level agri-support is already yielding
results in the farmer's fields. Whether it is adoption rate of high yielding seeds, right doses of
fertilization, productivity of cattle-feed, moisture conservation measures, adoption of new
crops/allied occupations or adoption of new technologies like zero tillage, the farmers in
catchments of Hariyali centers are already way ahead of the national averages.

• Future Plans:

Hariyali Kisaan Bazaar has plans to rapidly scale up the operations & create a national
footprint covering all the major agricultural markets of the country. This would mean catering
to cultivable land of over 30 million acres and touching the lives of over 10 million farmers.

• AGRI INPUTS

• Overview:
Leveraging a wide distribution network to build major agri-based business. The agriculture
sector is recognized a strategically important part of the economy and India is today the
world's second largest producer of food after the United.

DSCL agri-inputs business produces Urea fertilizer, is engaged in marketing of a range of


other fertilizers, pesticides and other agri-related products.States.

29
The Agri-Business is leveraging modern management practices to realize significant value:

• A strong "Shriram" brand equity.

• Over 3 decades of direct relationship with the farming community with supply of
agri-inputs, education, training and community development programs.

• Operations spanning the North, West & South of India.

• Infrastructure of over 30 sales offices, 12 distribution warehouses, 200 wholesales and


4800 retail outlets.

• Shriram Bio Seed Genetics India Ltd that produces high quality hybrid seeds at
Hyderabad, AP, India.

DSCL's strategic focus is to build on its existing activities & infrastructure in agri-inputs,
while also exploring opportunities in agri-outputs, food processing and agri-based end use
products.

We offer online agronomy services to farmers through 107 centers – Shriram Krishi Vikas
Kendra’s – established by us across the country that operate with the objective to increase
farmer profitability by providing them effective agronomy services.

We have a team of 102 agricultural graduates, recruited from local institutions and
universities, and 15 development officers who work along with farmers to assist them in their
endeavors.

30
To ensure that our agronomists provide knowledgeable and unconditional advice, we have
not assigned any sales responsibilities to our agronomists.

The Shriram Krishi Vikas Kendra’s help upgrade farming methods and also provide
assistance to the farming and rural community in the educational, hygiene and sanitation
needs of the community as well as health care support for animal husbandry.

Such initiatives have made us one of the most reliable and trusted partners of the Indian agri
community.

6. HYBRID SEEDS

• Overview:

DSCL offers a range of hybrid seeds in the country via its 100% subsidiary Shriram Bio Seed
Genetics India Ltd. The Company also operates its seeds business in Vietnam, Philippines
and Thailand and proposes to expand to other locations in Asia Pacific region. At present, the
Company deals in Corn, Bajra (Pearl Millet), Jowar, Paddy, BT Cotton, Vegetables and
Sunflower seeds.

Our seeds business is a strong R&D-led operation that develops, produces and markets high
quality hybrid seeds.

31
Currently, hybrid corn seeds account for most of our sales from this business. The other
hybrid seeds in our portfolio include cotton, sunflower, Bajra, Jowar, SSG, and paddy.

Having established ourselves as one of the country's top three players in the hybrid corn seeds
market, we are now actively engaged in conducting R&D towards the development of new
hybrids that possess robust disease resistance properties and offer a high and stable yield
performance across varying climate conditions, while ensuring high grain quality.

We have invested in establishing a robust R&D infrastructure in Hyderabad and Philippines.


Our team consists of qualified professionals and scientists working in the areas of genetics,
plant breeding, and seed technology who leverage modern biotechnology tools and
technologies to develop new and better value-added products.

The Company, keeping with best practices has also created a comprehensive physical
infrastructure encompassing a seed conditioning plant, a cold-storage facility besides quality
assurance facilities and multiple parent seed farms.

That along with an able workforce and process competencies allows DSCL to market its
products more profitably.

Furthermore, the company's existing marketing and distribution set up provides a ready
platform to sell the hybrid seeds, thus substantially lowering the cost of operations and time-
to-market for new products

The overseas operations for hybrid seeds are gaining traction, with the operations at Vietnam
already supplying to a fifth of the market.

 Energy Intensive Businesses:—

32
1. CHLOR ALKALI:

The Chemical Business derives its core strength from its Chlor-alkali operations with an
installed capacity of approx. The strategic thrust of the business is to use it existing
infrastructure and market presence to build value added products and services.

DSCL has two location plants for Chlor-alkali manufacturing facilities. First at Kota
(Rajasthan) and Second at Bharuch (Gujarat). Total production capacity of both plants is
1, 76,250 TPA. In Kota (1, 13,750 TPA) and in Bharuch (62,500 TPA).

As a first step, DSCL has moved aggressively to enter the water treatment area by setting up
a state-of-the-art plant situated at Kota, Rajasthan for a latest 3rd generation Poly aluminum
Chloride (capacity 39,000 TPA).

Marketed under the brand name Ecorite these products provide outstanding
coagulation/flocculation properties.

DSCL’s Chemical Business provides total customer solutions with its nationally accredited
Shriram Environment and Allied Services (SEAS) operations and laboratories.

2. PVC Resin:

33
Based on the Calcium carbide based process and closely linked with the Carbide and
Chemicals operations at Kota, DSCL’s PVC resin plant enjoys unique cost advantages with a
built in flexibility to quickly respond to customer needs.

• SHRIRAM POLYTECH LIMITED:

Shriram Polytech Limited (SPL) is a wholly owned new subsidiary company of DSCL, is
India’s largest integrated facility for manufacture of PVC Compounds.

It is the only plant in India to be integrated back to raw materials and to an R&D facility
(IPAC) for customized product development matching international standards. This allows
the company to service customer specific requirements both for bulk as well as in small
volumes.

Shriram Polytech a company that is here to perform, to lead.

DSCL's core philosophy is of a caring, credible and ethical organization. We believe in


building lasting relationships. The working philosophy is one of continuous improvement
through learning initiatives, technology and process up gradation. This has created exciting
new opportunities of growth and diversification for the group.

With its pioneering efforts in the area of plastics business, DSCL is today poised on the
threshold of creating a distinct position for itself in the field of providing innovative solutions
to consumers of Polymers.

Polytech is focused on providing enhanced value to the customers in diverse application areas
through customized solutions and quick and interactive response.

Backed by a highly qualified team of capable industry / professionals and a state-of-art


application development center, iPAC, Polytech is all set to establish new standards in
customers’ satisfaction in the plastics industry.

Polytech’s world class manufacturing facility at Kota (Rajasthan), which started in 1964 as a
pioneering venture today ranks amongst one of the most advanced plants in the country.

34
Polytech is certified by UL India for ISO 9001, IS0 14001 and OHSAS 18001 certifications
and the facilities are fully equipped to meet the demanding needs of diversified customer
applications.

Marching ahead with the philosophy of the parent group DSCL, Polytech believes strongly
in achieving excellence through people. The continuous training and development
programme further enhances the capabilities of the highly professional workforce.

Polytech’s wide portfolio of products meets the performance requirements of a broad range
of industries. The company's PVC compounds, sold under the brand name , reach all
consumption centers of the country and are now poised to reach a new focal point - the global
market.

3. CEMENT:

DSCL’s Cement Business is India’s only plant that converts waste generated at Kota in to
consistent quality, premium grade cement products. Shriram Cement is produced in a
computer process controlled highly automated plant. The product has created for itself strong
brand equity and is a recognized market leader in its areas of distribution.

• Converting waste in to premium-grade


products:

Our cement business allows us to create wealth from waste generated from our calcium
carbide plant. DSCL is the only manufacturer in the country that converts waste into
consistent quality, premium grade cement.

35
We have recently expanded our capacity to 4, 00,000 TPA to profitably utilize additional
sludge that is expected to be generated from the planned expansions of our calcium carbide
and PVC capacities.

The use of sludge and access to economic captive power makes this business a very efficient
and competitive operation.

The key quality parameters that differentiate cement are its high degree of whiteness, superior
strength, and quick-setting features that have translated into premium pricing.

Cement manufactured by us is marketed under the “Shriram” brand. Shriram cement has
created for itself strong brand equity, enjoying a premium over competitors brand, and is
recognized as a market leader in its areas of distribution.

36
Business Team
BOARD OF DIRECTORS

Shri Ajay S. Shriram Chairman & Senior Managing Director

Shri Vikram S. Shriram Vice- Chairman & Managing Director

Shri Rajiv Sinha Dy. Managing Director

Shri Ajit S. Shriram Director (Sugar)

Dr. N.J.Singh Whole Time Director (EHS)

Dr. S.S. Baijal Chairman

Shri Arun Bharat Ram

Shri Pradeep Dinodia

Shri Vimal Bhandari

Shri Sunil Kant Munjal

Shri D. Sengupta

Shri S.C. Bhargava L.I.C. Nominee

37
AWARDS AND TESTIMONIALS

2008 Best Assesses Award - Excise" Received by E.D & R.H " "Excise Trophy"

1998 Star Award "SAP R-3/SAP Star Customer Award 1998"

1996-97 NPC Award for "Second Best Productivity Performance in Fertilizers Industry"

1996-97 Energy Conservation Award in "Chemical Sector"

1995-96 FAI’s Runner Up Award for "Best Production Performance of Nitrogenous Fertilizer Unit"

1994-95 NPC Runner Award for "Best Productivity Performance in Cement Industry"

1993-94 NPC Award for "Best Productivity Performance in Fertilizers Industry"

1993-94 FAI Award for "Best Productivity Performance of Nitrogenous Fertilizers Unit"

National Council of Cement and Building Materials Award for "Best Improvement in
1992-93
Electrical Energy Performance and 2nd Best in Energy Performance"

National Award for " Public Recognition of Out-standing Activity for Prevention & Control of
1991-92
Pollution"

Indian Bureau of Mines Best Award for " Environment Conservation in Air and Noise
1990-91
Pollution "

1990-91 RPCB’s Award for " Excellence in Pollution Abatement Measures "

1990-91 NPC Award for “Best Productivity Performance in Fert. Industry "

38
CHAPTER 2
Research Methodology
 CONCEPT OF RESEARCH METHODOLOGY:-
The design of the research project, popularly know as the “research design”. Research design
is a basis of framework, which provides guideline for the rest of research process. It is the
map of blue print according to which, the research is to be conducted. The research design
specifies the method of study.

There are three basic types of research design via: exploratory, descriptive and
environmental. A research design helps to define the problem, method of data collection and
analysis, time and requirement for the project to estimate the expenses to be incurred. It is
purely and simply the framework or plan for a study that guides data collection. This project
based descriptive and statistical research design.

 OBJECTIVE OF RESEARCH:

 To study the applicability and concept of ratios analysis.

 To calculate various relevant financial ratios of the company and

determine the relevant financial position of the company.

 To study the change in working capital and working capital requirement

of DSCL.

 SCOPE OF RESEARCH:
 At DSCL our vision is to build world class organization in focused business, which is
profitable, with a culture of being quality driven, responsive to change and highly
competitive.

39
 The scope of the study was extended for five financial years

o 2004-2005

o 2005-2006

o 2006-2007

o 2007-2008

o 2008-2009

 TYPE OF RESEARCH:

A. ANALYTICAL RESEARCH: -

It includes the following steps:

1. Calculation of ratios

2. Analyzing and interpreting the ratios

3. Research findings and suggestions

4. Conclusion

40
RESEARCH PROCESS

Define research Problem

Review concepts Review previous

And theories research finding

Formulate Hypotheses

Design research

(Including sample design)

F FF
Collect data

FF (Execution)

Analyze data

(Test hypotheses If Any)

Interpret and Report

Where FF = Feed forward

F = Feed back

41
 SOURCES OF DATA:

o Secondary sources:

 Annual report of DSCL for 2009-10

 Credit monitoring arrangement (CMA) data files, which is prepared annually.

 Quarterly information system (QIS)

 Quarterly monitoring system (QMS)

 Internet

 Limitations of Study:

 As it is a private company, some of the information are being kept confidential and
was not disclosed for the study.

 All the information was collected from companies balance sheet which has its
inherent limitations

42
Chapter 3

WORKING CAPITAL
MANAGEMENT

OF

DSCL

43
WORKING CAPITAL MANAGEM
ENT

 Introduction of Working

Capital

 Concept of Working Capital

 Needs of Working Capital

 Types of Working Capital

 Components of Working

Capital

 Working Capital of DSCL.

44
INTRODUCTION

In day to day working of business concern, Working Capital plays an important role,

because Working Capital is required for payment of wages, expenses, raw materials and

payment to creditors. Whether a business firm is earning profit or incurring loss or facing

financial crises can be seen with the help of quantum of Working Capital due to shortage of

Working Capital a business firm is lame, because if there is no sufficient Working Capital a

business cannot run its business smoothly. Due to this reason working capital management

has assumed greater importance in every business firm.

The Management of Working Capital is concerned with the management of the firm’s current
accounts, which includes current assets and current liabilities. Working Capital plays
equivalent vital role in the business as blood plays in the human body. Shortage fixed can be
tolerated by a business concern for short period but shortage of working capital can create
lots of serious problems within a period of few days. In this modern area of cut – throat
competition, it has become essential to provide certain facilities to customers to capture the
market; the credit facility is one of them. Thus working capital is required as there is a time
gap between credit self and collection proceeds from the customers.

There exists a close relationship between growth and current assets. An enterprise can thus
moderate its investment in fixed assets such as Land, Building, and Plant & Machinery etc.
by renting or leasing but it cannot have control on reduction of investment in current assets

45
such as inventories, receivables and cash etc. This implies that Working Capital is required in
innumerable expenses of the enterprise, which cannot be diminished w i l l i n g l y . Working
Capital not only provides the energy to business but it is also advantageous in the following
respects-like it brings cash discount, increase good will, d i s t r i b u t i o n of adequate
d i v i d e n d which simulates the shareholders to invest in facing the natural c al am i t ie s and
meeting the market f l u c t u a t i o n s . From the above it is clear that the Working Capital
constitutes a pillar of imaginary business b u i l d i n g . Reciprocal relationship between current
assets and current liabilities is the main theme of the theory of Working Capital
management.

CONCEPTS OF WORKING CAPITAL:-

Working Capital means the funds available for day-to-day operation of an enterprise. There
are two concepts of Working Capital:-

(1) GROSS WORKING CAPITAL

(2) NET WORKING CAPITAL

(1) GROSS WORKING CAPITAL

Gross concept of Working Capital is quantitative in nature. It represents the total of all
current assets. It is also known as circulating capital or current capital. The word current
assets means, those assets, which can be converted into cash within an accounting period or
trade cycle like: -

 Inventory

 Trade debtors

 Loans and advances

 Investments

 Cash and Bank Balance

 Marketable securities

46
 Bills receivables

(2) NET WORKING CAPITAL:

Net Working Capital represents the excess of current assets over current liabilities or the
portion of current assets, which is financed by long-term funds. It is known as net working
capital. The net concept of Working Capital is qualitative in character.

Net working capital may be negative or positive. When current assets exceed over correct
liabilities there will be positive net working capital. If current liabilities exceed over current
assets it will be negative working capital. Current liabilities are those usually repaid within an
accounting you like.

 Account Payable / sundry creditors

 Bills Payable

 Trade Advances

 Outstanding Expenses

 Short Term Bonus

 Bank Overdraft

Both gross and net concepts have their own significance for management. The gross concept
of Working Capital is a going concern concept, because current assets are necessary for the
proper utilization of fixed assets.

The net concept of Working Capital shows the financial soundness and liquidity of a firm.
This concept creates the confidence to the creditors about the security of their amounts.

 NEEDS OF WORKING CAPITAL:-

47
Funds are required for an enterprise for day to day running. These funds are generated
usually through sales. However, sales don’t convert into cash instantaneously. This is
always time gap between the sales activity and receipt of cash. Working Capital is
required for this period in order to sustain operating activity of an enterprise.

Therefore, it is clear that Working Capital is required because of time gap between sales and
actual realization of cash. This time gap is technically termed as operating or cash cycle
of business.

o OPERATING CYCLE:

The continuous flow from cash to suppliers to inventory, to accounts receivable and back
into cash is what is called the term cash cycle refers to the length of time necessary to
complete the following cycle of events:-

1. The raw material and stores inventory stage

2. The working progress inventory stage

3. The finished goods inventory stage

4. The receivable stage

CASH

ACCOUNTS RAW MATERIAL


RECEIVABLE
OPERATING

CYCLE
48
FINISHED WORK-IN-
GOODS PROCESS

TYPES OF WORKING CAPITAL

To run an organization well, it is necessary to maintain funds in the organization. Generally,


Working capital of every business firm may be of many types:

Permanent, fixed or regular Working Capital

 Flexible or Temporary variable Working Capital

 Seasonal Working Capital or Special Working Capital

 Negative Working Capital

 Cash Working Capital and

 Balance Sheet Working Capital

 PERMANENT, FIXED OR REGULAR WORKING CAPITAL:-

This working capital is the minimum quantity, which required running the organization every
time; it also refers to the hard care Working Capital. If this quantity of Working capital is not
maintained then the business may be greatly handicapped in day to day working.

It is that the minimum level of investment in the current assets that is caved by the business at
all times to carry out minimum level of its activities. This part of Working Capital is as
permanent as the investment in fixed assets.

49
 FLEXIBLE OR TEMPORARY WORKING CAPITAL

It refers to that part of total Working Capital, which is required by a business over and above
permanent Working Capital. It is also called as variable Working Capital. Such type of
Working Capital represents such amount of additional current assets which are required at
different times during an accounting period of additional inventory and cash balance to cover
the pick selling period as assured by changed circumstances since the volume of temporary
Working Capital keeps on fluctuating from time to time according to the business activities it
may be finance from the short-term services. This type of Working capital changes with the
charge into operational activities.

 SEASONAL WORKING CAPITAL:-

It refers the extra Working Capital, which is required due to additional demand on some
special occasions. This working Capital is also additional amount of current assets like cash,
receipts and inventory, which are required during the accounting period of a business
concern. Additional Working Capital may also be needed on account certain abnormal
circumstances and it is termed as special Working Capital. Thus, this type of Working Capital
is needed to meet extra ordinary requirements or contingencies. The classification of the
seasonal Working Capital as regular and variable is also helpful in arranging finance for the
business firm.

 NEGATIVE WORKING CAPITAL:-

Negative Working Capital is when current liabilities exceed current assets. This position is
not accurate theoretically and occurs when a business firm is nearing a crisis. If any business
concerns to pay his liabilities, then it is called Negative Working Capital.

 CASH WORKING CAPITAL:-

This Working Capital is calculated at the time shown in profit and loss account of a business.
It is the real flow of money or value at accurate time and is considered to be most realistic
approach to Working Capital.

 BALANCE SHEET WORKING CAPITAL:-

50
It is that Working Capital which is calculated from the items appearing in the balance sheet of
organization.

COMPONENTS OF WORKING CAPITAL:-

Construction of Working capital is being made through current assets and current liabilities.
Current assets involve cash, marketable securities, inventories and receivables and current
liabilities involve o/d, creditors, and bills payable and outstanding expenses.

1. INVENTORY:

The inventory contributes a lot to the constitution of Working Capital. Before going to the
process the inventory creates the working Capital. According to American institute of
Accountants. “The aggregate of those items of tangible personal property which are:

(1) Are held for sale in the ordinary course of business,

(2) Are in the process of production for sale and

(3) Are to be currently consumed in the production of goods or be available for sale.”

For the point of study the inventory can be divided into the following four

Categories:

o RAW MATERIALS

Raw material is defined as the stock of materials on which manufacturing process is yet to be
carried on. Means Raw Materials is the first step in the production process. A firm maintains
proper stock of Raw Materials for uninterrupted production. It is not possible for a firm to
purchase whenever it needed. There is a time lag between demand and supply of Raw

51
Materials. There is a uncertainly in procuring raw material in time due to strike, flood, short
supply etc. therefore a firm maintain a proper level of raw materials for uninterrupted
production.

o GOODS IN PROCESS

Goods in process indicate incomplete process of manufacturing. To make clearer, good in


process means the stock of raw materials, which is still under manufacturing process and yet
has not become a finished product.

The size of good in process is determined by the length of the manufacturing cycle. Larger
the time of manufacturing process, larger will be size of goods in process. On the other hand,
if manufacturing process takes short time there will be low stock of goods in process.

o FINISHED STOCK

Finished stock is the last resort of the manufacturing process. In the finished product, raw
material is fully converted into the saleable product. The stock of finished goods inventory is
held by a firm to serve customers continuous basis and to meet fluctuating demand.

1. STORE AND SPARE PARTS

Stores and spares consist of innumerable items. Store and spares are kept to fight to break
dawn of machinery in the operation. The reasonable quantity and quality of spare parts must
be kept to get away from the interruption in the production.

2. RECEIVABLES

Receivable is the second most important component of Working Capital next to inventory. It
is essential for each and every business institution to sell their product on credit basis in this
though competition in order to maximum the profits. Credit sale bring out the receivables.
Looking to the profits we must consider both merits and demerits of credit sale. By merits we
mean the profit involved and demerits we means the risk occurred in the proceeds collection.
After all receivables effects profitability, liquidity and Working Capital of business concern.
Therefore a proper level of receivables should be maintained for the proper profitability.
Receivable plays an important role in contributing the short-term financial position and
profitability.

52
3. CASH

Cash in the business may be compared to the backbone of the human body, it gives the
strength to the human body and cash gives profit and solvency to the business. In a business
ultimately a transaction results either in flow or out flow of cash. The term cash is used in
two senses. In narrow sense it is used for cash, cheques, drafts and demand deposits in bank.
In broad sense it also includes near cash assets like-marketable securities and fixed deposits
in bank.

Cash in hand, as an asset it has no any earning power in itself. But a minimum cash balance is
essential to meet the requirements of the business. The question arise that what is the proper
level of cash or how much cash be kept by a business. There is no any formula to determine
the proper level of cash, which should be kept by a business. The proper level of cash
depends on various factors like- nature of business, period of credit sale and the position of
receivables and inventory.

Now the question arise that what is the aim keeping cash. According to Keynes there are
three motives for keeping cash:

1) Transaction motive

2) Precautionary motive and

3) Speculative motive

In general we can say that a business keeps cash to take day-to-day obligations, to take
benefit from favorable market conditions and to allow for contingencies.

53
WORKING CAPITAL OF DSCL

The following table shows Excess of Current Assets over current liabilities or Net Working
Capital of the DCM Shriram Consolidated Ltd. Kota for the last three Accounting years.

COMPUTATION OF WORKING CAPITAL IN DSCL

DURING 2006-07 TO 2008-09

Particulars as on as on as on

31.3.2007 31.3.2008 31.3.2009


A) Current Assets:

a) Inventories 558.13 783.06 745.32

b) Sundry Debtor's 502.20 239.34 339.54

c) Cash and Bank 52.91 46.56 33.30


Balances
220.7 402.5
d) Loan and Advances 8 332.27 0

e) Other current Assets — 143.48 175.52

Total (A) 1334.02 1544.81 1696.18

B) Current Liabilities:
& Provisions

a}Current Liabilities 812.1 402.95 450.82


b} Provisions 61.41 86.26 104.22

54
873.58 489.21 555.04
Total (B)
Working Capital (A-B) 460.44 1055.60 1141.14

Above table shown that the size of Working Capital was increased in 2006-07
and 2008-09

Chapter 4

RATIO ANALYSIS

 DEFINITION

 IMPORTANCE OF RATIO ANALYSIS

 LIMITATIONS OF RATIO ANALYSIS

 CLASSIFICATION OF RATIOS

 RATIO ANALYSIS AND INTERPRETATION

55
 DEFINITION:
A ratio can be defined as “the indicated quotient of two Mathematical expression", and as
“the relationship between two or more things".

 IMPORTANCE OF RATIO ANALYSIS:


As a tool of financial management, ratios are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis and enables the drawing
of inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects.

o Liquidity Position

o Operating efficiency

o Overall profitability

o Trend Analysis

o Liquidity Position:
A firm can be said to have the ability to meet its short-term liabilities if it has sufficient
liquid funds to pay interest on its short maturing debt usually within a year as well as to repay

56
the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are
particularly useful in credit analysis by banks and other suppliers of short-term loans.

o Operating Efficiency:
Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of
management is that it throws light on the degree of efficiency in the management and
utilization of its assets. The various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the
sales revenues generated by the use of its total assets as well as its components.

o Overall Profitability:

Unlike the outside parties which are interested in one aspect of the financial position of a
firm, the management is constantly concerned about the over all profitability of the
enterprise. That is, they are concerned about the ability of the firm to meet its short term as
well as long-term obligations to its creditors, to ensure a reasonable return to its owners &
secure optimum utilization of the assets of the firm.

o Trend Analysis:

Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
whether the financial position of a firm is improving or deteriorating over the years. This is
made possible by the use of trend analysis. The significance of a trend analysis of ratios lies
in the fact that the analysts can know the direction of movement that is, whether the
movement is favorable or unfavorable.

 LIMITATIONS OF RATIO ANALYSIS:


Financial statement analysis can be a very useful tool for understanding a firm's performance
& condition. However, there are certain problems & issues encountered in such analysis,
which call for care, circumspection & judgment in such exercise.

1. Heuristic & Intuitive character:

57
Most of the ratios we have computed & interpreted have been proposed in a somewhat
heuristic or intuitive fashion. The ratio is often not related logically to a well-defined
theoretical framework. Instead they have been suggested in a somewhat impressionistic
manner.

2. Development of benchmarks:

Many firms, particularly the larger ones, have operations spanning a wide range of industries.
Given the diversity of their financial performance & condition. Hence, it appears that
meaningful benchmarks may be available only for firm that have a well-defined industry
classification.

3. Window-dressing:

Firms may resort to window dressing to project a favorable financial picture. For e.g. a firm
may prepare its balance sheet at a point when its inventory level is low.

4. Price level changes:

Financial accounting, as it is currently practiced in India & most other countries, does not
take into account price level changes. As a result, balance sheet figures are distorted & profits
misreported. Hence, financial statement analysis can be vitiated.

5. Interpretation of results:

Though industry averages & other yardsticks are commonly used in financial ratios, it is
somewhat difficult to judge whether a certain ratio is good or bad. A high current ratio for
example, may indicate a strong liquidity position (something good) or excessive inventories
(something bad).

6. Correlations among ratios:

Several ratios have some common element (sales, for example, are used in various
Turnover ratios) & some items tend to move in harmony because of a certain common
underlying factor.

7. Variations in accounting policies:

58
Business firms have come latitude in the accounting treatment of items like depreciation,
valuation of stocks, research & development expenses, foreign exchange transactions,
investment, sales, preliminary & pre-operative expenses, provision of reserves & revaluation
of assets.

CLASSIFICATION OF RATIOS &


INTERPRETATION:

RATIOS

Structural
Functional
Classification Classification

1) Balance Sheet Ratio 1)


Liquidity Ratios
2) Profit & Loss A/c Ratio 2) Activity
Ratios
3) Combined Ratio 3)
Profitability Ratios
4) Leverage
Ratios

59
5)
Investment Analysis
Ratios

Structural Classification:
Balance Sheet Ratios:

The components for computation of these ratios are drawn from balance sheet. Examples of
such ratios are: current ratio, liquid ratio, debt equity ratio etc.

Profit & Loss A/c Ratios:

The figures used for the calculation of these ratios are usually taken out from the profit &
Loss A/c. Examples of these ratios are gross profit ratio, net profit ratio, operating ratio etc.

Combined Ratios:

The information required for the computation of these ratios is normally drawn from the
balance sheet and profit & Loss A/c. Examples of such ratios are: return on capital employed,
debtor’s turnover ratio, creditor’s turnover ratio etc.

Functional Classification:
I) Liquidity Ratios or short-term solvency Ratios:

Liquidity ratios study the firm's short-term solvency & its ability to pay off the liabilities.
Liquid Ratios as a group are intended to provide information about a firm's liquidity & the
primary concern is the firm's ability to pay its current liabilities. Consequently, these ratios
focus on current assets & current liabilities. These include:

60
1) Current Ratio
2) Liquid Ratio
3) Absolute Liquidity Ratio

1. Current Ratio:

Current Ratio = Total Current Assets/Total Current Liabilities

The total current assets include those assets, which are in the form of cash, near cash or
convertible into cash within a period of 1 year.

The total current liabilities include all types of liabilities, which will mature for payment
within a period of 1 year.

The current ratio shows the firm's ability to pay its liabilities out of its current assets. The
current ratio as calculated above is to be compared with a standard ratio. Generally, a current
ratio of 2:1 is considered to be satisfactory. Though this value of current ratio is industry
specific.

Total Current Assets:

(Rs. In Crores)

Particulars Inventory Sundry Cash Loans Total


debtors balance and
advance
s

2004-2005 304 303.61 25.50 96.61 729.72

2005-2006 440.58 416.97 32.59 140.13 1030.27

2006-2007 558.13 502.20 52.91 220.78 1334.02

2007-2008 783.06 239.34 46.56 332.37 1401.33

2008-2009 745.32 339.5461 33.30 402.50 1520.66


Particulars Provisions Other Total
Liabilities

2004-2005 55.71 337.11 392.82

2005-2006 58.33 513.53 571.88

2006-2007 61.41 812.17 873.58

2007-2008 86.26 402.95 489.21

2008-2009 104.22 450.82 555.04

Total Current Liabilities:


(Rs. In
Crores)

62
CURRENT RATIO OF DSCL

FROM 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-2008 2008-09

Current 729.72/ 1030.27/5 1334.02/ 1401.33/ 1520.66/


392.82 71.88 873.58 789.21 555.04
Ratio
= 1.85 = 1.80 =1.52 =2.86 =2.74

63
CURRENT RATIO:

3.5
3
2.5
2
Current Ratio
1.5
1
0.5
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09

INTERPRETATION:

DSCL current ratio was decreased in last three years. In 2004-05 was 1.85, which was low.
And it had fallen to 1.80 in 2005-2006. But it is able to maintain its ratio near to the standard
ratio 2:1. But we at this ratio of 2006-2007 it have fallen to 1.52 and in 2007-08 it rises to
2.86. But further it had fallen to 2.74 in 2008-2009. So we can say that company has very
sound position and sufficient assets to pay his liabilities.

2. QUICK RATIO/LIQUID RATIO

SIGNFICANCE:

This ratio establishes a relationship between Quick/Liquid assets & current liabilities. A
current asset is considered to be liquid, if it is convertible into cash without loss of time &
value. On the basis of this definition of liquid assets, as inventory in singled out of the total
current assets, as inventory is considered to be potentially illiquid. The reason for keeping
inventory out is that it may be obsolete, not saleable or out of fashion & always required time
for realization into cash. Moreover the inventories have tendency to fluctuate value. So the

64
quick ratio looks for the ready availability or convertibility into cash. The quick ratio may be
calculated as:

Quick Ratio = Liquid assets / Total current liabilities.

Or

Quick Ratio = Current Assets-(Inventory + Prepaid Expenses)/Current Liabilities

Generally an ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. The
idea is that for every rupee of current liabilities, there should at least be one rupee of liquid
assets. This ratio is a better test of short-term financial position of the company than the
current ratio, as it considers only those assets that can be easily and really converted in to
cash. Stock is not included in liquid assets as it may take a lot of time before it is converted
into cash. Quick ratio thus is a more rigorous test of liquidity than the ratio and when used
together with current ratio, it gives a better picture of the short-term financial position of the
firm.

Quick Ratio of DSCL

FROM 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Liquidity 425.72/392.82 590.69/571.88 775.89/873.58 618.27/489.11 775.34/555.04


ratio
= 1.08 =1.03 = 0.88 = 1.26 = 1.396

65
Quick Ratio

1.6
1.4
1.2
1
0.8 Quick Ratio
0.6
0.4
0.2
0
2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION:

The ideal liquid ratio is 1:1 from the analysis it is found that in year 2004-2005 the liquid
ratio was 1.08, which is near the ideal ratio but in 2005-2006, it has become 1.03, which is
near to the ideal ratio. Further it had fallen to 0.88 in 2006-2007, which is near the ideal ratio
and 2007-08 it has risen to 1.26. And further it has grown up to 1.396 in 2008-2009. It shows
that the company is efficiently using its liquid assets. It also indicates that the company is
having sufficient funds to meet its short-term liabilities.

3. ABSOLUTE LIQUIDITY RATIO:-

SIGNIFICANCE:

The absolute liquidity ratio is the relationship between the absolute liquid assets to liquid
liabilities. Absolute liquid assets refer to Cash; Bank; Marketable Securities. And Liquid
liabilities include all current liabilities except bank overdraft. This ratio pays more
significance to liquidity when used in conjunction with current and quick ratio. A standard of
0.5:1 in absolute liquidity ratio is an acceptable norm, because fifty paisa worth of absolute
liquid assets are considered sufficient for one rupee worth of current liabilities. However this
ratio is not in much use. This ratio may be calculated as:-

66
Absolute Liquidity Ratio = Absolute Liquid Assets/ Liquid Liabilities

Activity Ratios:
These ratios enable the management to measure the effectiveness or the usages of the
resources at the command of the firm. These ratios indicate the speed with which assets are
being converted into sales. As such activity ratio is the relationship between sales or cost of
goods sold and investment in various assets of the firm. It is important to note that these
ratios are always expressed as turnover or in no. of times. The following are important and
widely used ratios:-

1. Inventory or Stock Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Total Assets Turnover Ratio, etc.

1. Inventory or Stock Turnover Ratio:-

There exists direct relationship between inventory and profit in a business. Therefore, a firm
must have reasonable stock in comparison to sales. Inventory turnover ratio normally
establishes the relationship between cost of sales and average inventory. The stock turnover
ratio can be calculated as:

Stock Turnover Ratio= Cost of goods sold or sales/ average Inventory

*Cost of goods sold= Sales – Gross profit

67
*Cost of goods sold
(Rs. In crores)

years Sales Gross Cost of


profit sales

2004-2005 1800.14 227.10 1573.04

2005-2006 2332.57 283.74 2048.83

2006-2007 2701.46 236.21 2465.25

2007-2008 2489.55 209.99 2279.56

2008-2009 3390.78 369.23 3021.55

Average Inventory= Opening Inventory+ Closing Inventory

*Average Inventory:

68
(Rs. In crores)

Years Opening Closing Average


Inventory Inventory Inventory

2004-05 205.47 304 254.735

2005-06 304 440.58 372.29

2006-07 440.58 558.13 499.355

2007-2008 588.13 783.06 685.595

2008-09 783.06 745.32 764.19

69
Stock Turnover Ratio

From 2004-05 to 2008-09

Stock Turnover Ratio:

7
6
5
4 Stock Turnover
3 Ratio
2
1
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09

Interpretation:
The Stock turnover ratio was decreased in last 4 years from 2004 to 2008. From the analysis
it is found that in year 2004-2005 the Stock Turnover ratio was 6.175, and in 2005-2006, it
has become 5.503, Further it had fallen to 4.937 in 2006-2007, and 2007-08 it has fallen to
3.325. But in 2008-09 it has grown up to 3.954. It shows that the company is over investment

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Stock 1573.04/ 2048.83/ 2465.25/ 2279.56/ 3021.55/


Turnover 254.735 372.29 499.355 685.595 764.19
ratio =6.175 =5.503 =4.937 =3.325 =3.954

70
in inventory but in 5 years the ratio is above the 1. So it indicates that company is able to
meet the customer’s demand.

2.Debtors Turnover Ratio:-

Receivables normally include debtors and bill receivables and represent the uncollected
portion of credit sales. If a firm is not able to collect its debtors with in a reasonable time, its
funds are unnecessarily tied up in receivables. Therefore to know, how far the firm is
successful in realizing the credit, ‘Debtors turnover ratio’ is calculated. This ratio establishes
the relationship between net credit sales and average receivables of the year. The formula is
used for its calculation is as follows:

Debtors Turnover Ratio= Net Credit Sales/Average Receivables

Average Receivables = Opening debtors+ closing debtors/2

*Average Receivables:

(Rs. In crores)

71
Years Opening Closing Average
Receivables Receivables Receivables

2004-05 273.08 400.22 336.65

2005-06 400.22 557.10 478.66

2006-07 557.10 722.98 640.04

2007-2008 722.98 571.71 647.345

2008-09 571.71 742.04 656.875

72
Debtors Turnover Ratio
From 2004-05 to 2008-09

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Debtors 1573.04/ 2048.83/ 2465.25/ 2279.56/ 3021.55/


Turnove 336.65 478.66 640.04 647.345 656.875
r ratio =4.673 =4.280 =3.852 =3.521 =4.602

Debtors Turnover Ratio

5
4.5
4
3.5
3
Debtors Turnover
2.5
Ratio
2
1.5
1
0.5
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09

Interpretation:

73
The Debtors turnover ratio was decreased in last 4 years from 2004 to 2008 but not so much.
From the analysis it is found that in year 2004-2005 the Debtors Turnover ratio was 4.673,
and in 2005-2006, it has become 4.280, Further it had fallen to 3.852 in 2006-2007, and
2007-08 it has fallen to 3.521. But in 2008-09 it has grown up to 4.602. It shows that the
company is regularly fallen down but in positive way. Company’s efficiency in collection
from debtors is low and time in payment by debtors is delayed.

3.Creditors Turnover Ratio:

Creditors’ turnover ratio shows the relationship between net credit purchases for the year and
total payables. Firms from whom goods and services are purchased on credit are known
‘creditors’. When the company does not pay off its creditors with in time, it may face
difficulties in procuring further working capital. Therefore, it is essential to know in how
many days a company can payoff its creditors. This requires computation of creditors’
turnover:-

Creditors Turnover Ratio = Net credit purchase/ Average payables

3) Profitability Ratios or Income Ratios:


The main object of every business concern is to earn profits. A business must be able to earn
adequate profit in relation to the capital invested in it. The efficiency and the success of a
business can be measured with the help of profitability ratios. We can understand more about
these ratios by categories it into the following: -

Ratios Calculated on the Bases of Sales: -


{Net Sales means (sales + Income from Services)} these are as follows: -
1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Profit Ratio

1. Gross Profit Ratio:


SIGNIFICANCE
It is calculated by comparing gross profit of the firm with the Net sales. The gross profit is
the difference between the sales revenue & the cost of generating those sales. Therefore, the

74
Gross profit amount the GP ratio depends upon the relationship between the selling price &
the cost of production including direct expenses. The GP ratio reflects the efficiency with
which the firm produces and purchases the goods. The formula for calculating gross profit
ratio is:
Gross Profit Ratio = Gross profit / Net sales x 100

Gross Profit Ratio of DSCL


From 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Gross 227.10/ 283.74/ 236.21/ 134.78/ 369.23/


profit 1800.14 2332.57 2701.46 2489.55 3390.78
ratio =12.61% =12.16% =8.74% =5.41% =10.88%

Gross Profit Ratio

14
12
10
8
Gross Profit Ratio
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION:

75
The gross profit ratio of DSCL’S was 12.61% in 2004-05, which has come down to 12.16%
in 2005-06. But in 2006-07 it had fallen to 8.74%. The reasons for this fallen may be rise in
price of raw materials from the market. Earlier in 2004-2005 the total expenditure incurred
for raw materials, power and other manufacturing expenses was 1132.32 crores but as in
comparing with 2005-2006 the total expenditure had gradually increased to 1339.97 crores.
It is not a good sign for the company as company’s profit is not increasing as compare to its
expenditures. The sales is increased which is good for the company but the decreasing ratio
show that per unit margin have decreased. So fixed expenses should be control.

Comparing with earlier years 2007-08 the total expenditure as gradually decreased to 5.41%
with is not a good sign for the company as company’s profit are not increasing as compare to
expenditure. But in 2008-09 the ratio is increased to 10.88%. This is the good sign for
company. The sale is increase which is good for the company but the decreasing ratio and per
unit margin had decreased so fixed expenses should be control.

2. Net Profit Ratio:


SIGNIFICANCE

Net profit ratio establishes relationship between the net profits (after tax) of the firm & net
sales. The NP ratio measures the efficiency of the firm's management in generating additional
revenue over & above the total cost of operations. The NP ratio shows the overall efficiency
in manufacturing, administering, selling & distributing the product. This ratio also shows the
contributions made by every one rupee of the sales to the owner's funds.

The NP ratio indicates the proportion of sales revenue available to the owners of the firm &
the extent to which the sales revenue can decrease or the cost can increase, without inflicting
a loss on the owners. So the NP ratio shows the firm's capacity to face the adverse economic
conditions.

An increase in the ratio over the previous ratio indicates improvement in operational
efficiency of the business, provided the gross profit ratio is constant. The ratio is thus an
effective measure to check the profitability of the business. One can check the adequacy of

76
the ratio by taking into account the cost of capital, return in the industry as a whole & market
condition such as boom or a depression. The formula for calculating net profit ratio is: -

Net Profit Ratio = Net Profit / Sales x 100

Net Profit Ratio of DSCL


From 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Net profit 104.43/ 115.19/ 45.81/ 670.99/ 101.79/


Ratio 1800.14 2332.57 2701.46 2489.55 3390.78
=5.80% =4.97% =1.69% =26.95% =3.00%

Net Profit Ratio:

30

25

20

15 Net Profit ratio

10

0
2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION:

77
The net profit ratio of DSCL’S was 5.8% in 2004-05. But in 2005-06 it had fallen down to
4.97 %. Further it had fallen to 1.69 in 2006-2007. The manufacturing and other expenses
had been gradually increased it was 1339.97 crores in 2005-2006 and in 2006-2007 1837.34
crores. Another reason is that interest and deprecation in the year 2006-2007 had been
increased. But in 2007-08 N.P. ratio is increased up to 26.95% which is very high with
respected to last year due to their less expenditure and their increase in exceptional items
income. And further it had fallen to 3% in 2008-2009.

3. Operating Profit Ratio:


SIGNIFICANCE

It is calculated to evaluate operating performance of business. Operating profit means net


sales less cost of sales.

Operating Profit Ratio = Operating Profit / Sales x 100

Operating Profit Ratio of DSCL


From 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Operating 217.79/ 266.39/ 202.50/ 175.20/ 320.80/


profit 1800.14 2332.57 2701.46 2489.55 3390.78
x100 x100 x100 x100 x100
ratio
=12.09% =11.42% =7.50% =7.037% =9.461%

Operating Profit ratio

78
14
12
10
8 Operating Profit
6 Ratio

4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION

The operating profit ratio of DSCL shows that in the year 2004-05 the ratio was 12.09%,
which has fallen to 11.42% in 2005-2006. It had further fallen to 7.50% in 2006-2007 and the
ratio had decreased to 7.50% only indicating that the operational proficiency had not been
improved. Operational expenses should be tightening.

In 2007-08 it had further fallen and ratio decries to 7.037% only indication that the
operational proficiency had not been improved operating should be tighten. But the ratio is
increased in 2008-09 to 9.461%. This shows that operational proficiency is improved.

B) RATIO CALCULATED ON BASED OF CAPITAL: -


These are as follows: -

1. Return on Capital Employed

2. Return on Net Worth

1. Return on Capital Employed:


The primary objective of making investment in any business is to obtain adequate return on
capital invested. Therefore to measure the profitability of the company, it is essential to
compare profit with capital employed. With this objective, Capital employed is calculated. It
is also called “Return on Investment” This ratio expresses the relationship between profit and
capital employed and is calculated in percentage by dividing net profit by capital employed.

79
Capital employed means total assets – current liabilities. It measures that how efficiently the
capital employed in the company is being used. The formula used is as follows:

Return on Capital Employed= Net Profit before Int. & Tax/Capital Employed x100

2. Return on Net Worth:

SIGNIFICANCE

This ratio expresses the percentage relationship between net profit after tax & interest and net
worth or shareholder’s funds. It is used to ascertain the rate of return on resources provided
by the share holders. This ratio measures the amount of earnings for each rupee that the
shareholder’s have invested in the company. The ratio is calculated by using the formula:

Return on Net Worth = Net Profit after tax & interest/ net worth x100

IV) LEVERAGE & LONG TERM SOLVENCY RATIOS:

SIGNIFICANCE

The financial position of the firm can be studied & analyzed in two perspectives i.e. the short-
term position which is known as the short-term liquidity position, has already been discussed
with the help of liquidity ratios. In the following section the long-term financial position, its
composition & implications have been considered.

The long-term sources of funds for any firm comprise of the shareholder's funds & the long-
term borrowings.

Thus to know about the long-term financial position of a firm following ratios are calculated:

1. Debt-Equity Ratio

2. Proprietary Ratio

3. Interest Coverage Ratio

4. Fixed assets long term.

80
1. DEBT-EQUITY RATIO:

The Debt-Equity is the basic & the most measure of studying the indebt ness of the firm. The
Debt-Equity ratio is based on the assumption that the extent to which a firm should employ
the debt should be viewed in terms of the size of the cushion provided by the shareholders
funds. The Debt-Equity ratio is based on the assumption that the extent to which a firm
should employ the debt should be viewed in terms of the size of the cushion provided by the
shareholders funds. The Debt-Equity ratio is calculated as follows:

Debt-Equity = Debt/Net worth

Or

= Long-term debt/shareholder's fund's

Significance

The ratio indicates the proportion of owner's stake in the business. Ideal ratio is 2:1.
Excessive liabilities tend to cause insolvency. The ratio indicates the extent to which the firm
depends upon outsiders for its existence. The ratio provides the margin of safety to the
creditors. It tells the owners the extent to which they can gain benefits and maintain the
control with the limited investments.

2. PROPRIETARY RATIO:

SIGNIFICANCE:

This ratio focuses the attention on general financial strength of business enterprise. This ratio
is of particular importance to the creditors who can find out proportion of shareholders funds
in the total assets employed in business.

A low proprietary ratio will indicate greater danger to the creditors. A ratio below 50% may
be alarming for the creditors since they may have to suffer heavily, in the event of company's
liquidation on account of heavy losses. It is calculated as:

Proprietary Ratio =Shareholders fund /Total tangible assets x 100

81
3. INTEREST COVERAGE RATIO:

SIGNIFICANCE:
It measures the ability of the firm to pay the fixed interest liability. This ratio is calculated as:

INTEREST COVERAGE RATIO=EBIT/FIXED INTEREST CHARGES

Interest coverage ratio or the times interest earned is used to test the firm's debt serving
capacity. The interest coverage ratio is computed by dividing earning before interest & taxes
by interest. The interest coverage ratio the number of times the interest charges are covered
by funds that are ordinary available for their payment. A higher ratio is desirable but too high
ratio indicates that firm is very conservative in suing debt & that it is not using credit to the
best advantage of the shareholder's. A lower ratio indicates excessive use of debt or
inefficient operations.

4. FIXED ASSETS TO LONG TERM FUNDS:


SIGNIFICANCE

This ratio explains whether the firm has raised adequate long term funds to meet its fixed
assets requirements. It is expressed as follows

=Fixed assets/long-term funds

The ratio should not be more than 1.if less than one; it shows that the part of working capital
has been financed through long-term funds. This is desirable to some extend because a part of
working capital termed as core working capital is less of fixed nature .the ideal ratio is 0.67.

Fixed asset include net fixed asset (original cost- deprecation to date) and trade investments
including shares in subsidiaries. Long-term funds include share capital reserve and long term
loans.

The formula for calculating fixed assets to long-term funds ratio is:

Fixed Assets = Fixed assets/long-term funds

V) Investment Analysis Ratios:

82
1. Earnings per Share

2. Dividend per Share

Earnings per Share Ratio(EPS):


SIGNIFICANCE

The rate of dividend on shares depends upon the amount of profits earned by the firm.
Whatever profits remains, after meeting all expenses and paying preference share dividend
belongs to equity share holders. These are the profits earned on equity share capital.

The earning per share is calculated by dividing the profit available to equity shareholders by
the no. of share issued. Thus,

EPS= Profit after Tax- Preference Share Dividend/No. of Equity Shares

The Higher the ratio, the better are the performance and prospectus of the company and the
greater would be the market price of a company’s share or vice-versa.

Earnings per Share Ratio of DSCL

From 2004-05 to 2008-09

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Earnings per 6.3 7.1 2.6 0.5 7.4

share

Earnings per share ratio:

83
8
7
6
5
Earnings Per
4
share
3
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09

INTERPRETATION:

In the year 2004 – 05 the earnings per share ratio of DSCL was 6.3. But in year 2005 – 06
this ratio rises up to 7.1. But further in year 2006-07 it has gone up to 2.6. And in 2007-08 it
again decreases to 0.5. But in 2008-09 it is suddenly increases to 7.4. It clearly indicates that
DSCL is continuously maintained the earning per share ratio. This ratio shows the better
performance of the company and higher market price.

1. Dividend per Share (DPS):

SIGNIFICANCE

The DPS ratio represents the dividend paid to the shareholders on per share basis. Expressed
as formula, the ratio is:

Dividend per share = Dividend paid to equity share holders/No. of equity Share

outstanding

Companies follow dividend policies based on their financial requirements as well as


corporate philosophy. Investors generally prefer companies declaring higher dividends & it is

84
commonly found that high dividend distributing companies command a higher price than
others who distribute less provided they are equally profitable & similar in other respect).

Dividend per share of DSCL


From 2004-05 to 2008-2009

RATIO 2004-05 2005-06 2006-07 2007-08 2008-09

Dividend per 1.6 0.9 0.8 3.3 0.8


Share

Dividend per Share ratio

3.5
3
2.5
2 Dividend per
1.5 Share Ratio
1
0.5
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09

INTERPRETATION:

In the year 2004 – 05 the dividend per share ratio of DSCL was 1.6. But in year 2005 – 06 it
has fallen to 0.9. Further in year 2006-07 it has gone up to 0.8. But in 2007-08 it suddenly

85
increases to 3.3. But in 2008-09 it is again decreases to 0.8. It clearly indicates that DSCL is
continuously decrease dividend per share ratio. The company is not much more investment
when DPS ratio decreases. But it should be noted that DPS is not a measure of profitability of
a company.

86
Financial Highlights
2004 2005 2006 2007 2008 2009
Gross Sales 1556.6 1977.4 2535.80 2938.2 2770.1 3681.35

Net Sales

-Own Products 1182.7 1404.7 1788.9 2063.3 2211.0 2711.3

-Traded 280.7 464.2 603.0 704.1 363.0 789.5


Total 1463.4 1868.9 2391.9 2767.4 2573.9 3500.8
PBDIT 201.3 235.3 295.1 239.6 218.0 400.3

Interest 42.1 34.7 49.4 79.1 87.6 150.4

PBDT 159.2 200.6 245.7 160.5 130.4 249.9

Depreciation & 55.1 57.3 73.2 93.4 123.7 148.7

Misc. Exp. W/off

PBT 104.0 114.8 172.5 67.1 6.7 101.1

Profit after current 95.7 93.6 153.2 66.8 5.8 93.1


tax

Profit after
deferred tax 75.6 107.7 121.0 43.4 -1.3 122.6

Cash profit 105.9 162.8 226.6 160.2 126.6 241.9

Total Funds 920.7 1259.2 1775.0 2288.8 3104.0 3399.58


Utilized
Continued…

87
Share Capital

-Equity 16.7 16.7 33.34 33.34 33.34 33.34

Net Worth 333.0 443.2 525.5 554.1 1149.3 1268.53

Minority Interest 12.0 14.9 17.7 17.4 - -

Deferred tax liability 109.5 95.4 146.7 170.1 171.2 143.9

Long term loans 344.7 504.7 740.2 789.5 991.0 1234.4

Short term loan 121.5 201.1 344.9 757.7 792.5 752.7

Net Fixed Assets 652.8 870.0 1272.5 1780.8 2056.6 2288.8

Net Current Assets 260.1 356.2 490.9 498.9 1035.3 1097.3

Investment 7.7 33.0 11.7 9.1 12.0 13.4

Earnings per share 4.4 6.3 7.1 2.6 -0.1 7.4

Dividend per share 1.2 1.6 0.9 0.8 3.3 0.8

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Profit and Loss Account for the year ended March 31, 2008-09

Year ended Year ended


ITEMS March 31, 2009 March 31, 2008
Schedule (Rs. in Crores) (Rs. in Crores)
Income:
Sale of products (Gross) 3571.34 2685.59
Less: Excise duty 180.56 196.04
Net Sales 3390.78 2489.55
9
Other income 48.43 34.79
Total Income 3439.21 2524.34
Expenditure:
Manufacturing and other expenses 2250.44 1912.88
10
Purchases for resale 819.54 401.47
Interest – On Debentures and other 122.46 75.64
fixed loan
Others 24.34 9.09
Depreciation 146.41 122.13
Total Expenditure 3363.19 2521.21
Profit before tax and exceptional items 76.02 3.13
Exceptional items:
- Profit on sale of SBM land — 779.64
development project
Profit before tax 76.02 782.77
Provision for taxation 11 (25.77) 111.78

Profit after tax 101.79 670.99


Transfer from debenture redemption reserve 1.50 5.17
Balance brought forward from the previous year 461.53 251.37

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Profit Available for appropriation 564.82 927.53
Proposed dividends (equity shares)
- Interim — 49.77
- Final 13.27 6.64
Corporate dividend tax 2.26 9.59
General reserve 50.00 400.00

Balance carried to balance sheet 499.29 461.53

90
Balance Sheet as at March 31, 2008-09
As at As at
March 31, March 31,
Schedule 2009 2008
(Rs. Crores) (Rs. Crores

Sources of Funds
Shareholders' funds
Share capital 1 33.34 33.34
Reserves and surplus 2 1198.25 1111.99
1231.59 1145.33
Loan funds 3
Secured 1356.71 1234.21
Unsecured 604.91 523.70

1961.62 1757.91
Deferred tax liabilities 4 143.94 171.20

Total funds employed 3337.15 3074.44


Application of Funds
Fixed assets 5
Gross block 2865.21 2310.84
Less : Depreciation 753.35 617.00
Net block 2111.86 1693.84
Capital work in progress 28.52 270.36
2140.38 1964.20
Investments 6 55.63 54.64
Current assets, loans and advances 7
Inventories 745.32 783.06
Sundry debtors 339.54 239.34
Cash and bank balances 33.30 46.56
Loans and advances 402.50 332.37
Other current assets 175.52 143.48

1696.18 1544.81
Less : Current Liabilities and provisions 8
Current Liabilities
Provisions 450.82 402.95
104.22 86.26
555.04 489.21
Net current assets 1141.14 1055.60
Total funds utilized 3337.15 3074.44

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SWOT ANALYSIS
STRENGTH

 Power plant fulfill 90% requirement of power at lowest cost, thus increase in
profitability of different plants.

 DSCL is a diversified company manufacturing a wide range of product.

 The company is having its own power plant, thus reducing dependence on RSEB

 Computerized plant having less dependence on work force.

 Quality improvement program at kota plant improve the quality of the product

 DSCL cement business in India only plant converts waste generated at Kota into
consistent quality, premium grade cement product.

WEAKNESS

 Wet process of cement production consumes high power cost.

 Budgetary control is not implicated properly. Actual performance is very far from
budgeted estimates.

 The plant is not gas based, thus manufacturing costs are high.

OPPORTUNITIES

 Govt. infrastructure efforts provide good fortune for cement industry.

 Good monsoon in this year have great push to disposal income of the people in rural
area.

 Good financial help provided by banking sector also a good opportunity for cement
industry.

 The low per capita cement consumption in India also opens the way for extra
progress.

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THREATS

 Large plants are the big problem in India.

 Overall growth of Indian economy is very less comparison to other developing


countries.

 Change in govt. policy regard to tariff, electricity, custom duty, excise duty and power
production is a big threat for cement industry in determining cost structure.

 Increase in diesel prices encourages the major components of cement cost i.e. fried

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CONCLUSION
The project is based on the financial statement of the company for last five years. In this
comparison between the various ratios over the period have been done.

The company is doing better year after year. The study is restricted to only financial
statements. The comparative performance shows that the company is doing well. It had also
done overall as in comparison with its competitors.

The company has managed to expand favorably at a very cost effective level. The company
has been growing at a healthy rate with every ratio improving at a steadily rate except few
ratios. Therefore we can say that the company is moving towards excellence to achieve its
goals.

Efforts should be made to improve upon the lagging areas and a strong hold is required at the
places where company has managed to lead.

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SUGGESTIONS
 It should try more to keep the proprietary ratio high to provide greater sense of
security to the creditors.

 Payment of interest burden had increased so to reduce it company should regularly


pay interest.

 Selling price should be at certain level so that goods could be sold without
corresponding decrease in cost of goods sold and vice- versa, ultimately increase in
gross profit ratio.

 The company has to take into consideration the inventory turnover ratio. As the
control over stock has deteriorated over the years. The companies efficiency in
turning its inventory into sales had declined

 Capital turnover ratio, working capital turnover ratio, fixed asset turnover ratio are in
decreasing trend indicating that the company has not utilized the capacity. Therefore
it should try to improve its ratios and utilized capacity fully.

 Financial cost is more due to which net profit ratio suffers. Company should try to
reduce financial cost.

95
BIBLIOGRAPHY

Website

 www.dscl.com

 Dscl.net (Intranet)

 Annual report of DSCL of 2004-05 to 2008-2009.

Reference Books

 I.M pandey 9th edition

 M.R. Agrawal

 S.N. Maheshwari

 C.R. Kothari (Research Methodology) Second edition

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