A PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

BY
AMRUTA SARJERAO PATIL

(BBA) (2014 – 2015)

IN PARTIAL FULFILLMENT OF

Bachelor of Business Administration

Savitribai Phule Pune University

MITSOM College

PUNE: 411038

[1]
 CERTIFICATE

This is to certify that Ms.AMRUTA SARJERAO PATIL of MAEER’s MITSOM College

has successfully completed the project work on WORKING CAPITAL OF
MANAGEMENT.

In partial fulfillment of requirement for the award of BACHELOR OF BUSINESS

ADMINISTRATION prescribed by the University of Pune.

This project is the record of authentic work carried out during the academic year
2014-2015.

Mr. (Prof.) Hemant Bhise (Dr.) R.M.Chitnis

Project Guide Principal

INTERNAL EXAMINER EXTERNAL EXAMINER

[2]
 DECLARATION

I, Ms. AMRUTA PATIL hereby declare that this project is the record of authentic work

carried out by me during the academic year 2014-15 and has not been submitted to any other

University or Institute towards the award of any degree.

AMRUTA PATIL
(Signature of student)

[3]
 ACKNOWLEDGEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all who have helped me
in completing this project to the best of my ability. Being a part of this project has certainly
being a unique and a very productive experience on my part.

I would like to thanks to my project guide Prof. Hemant Bhise sir for giving me the valuable
suggestion and guiding me throughout the project tenure.

Thanks again to all who helped me in the project, so I have completed the project in the given
period.

I am really thankful to them who helped me in the collection of the data, research process as
well as making of the project.

Amruta Sarjerao Patil

[4]
 INDEX

Sr. No. Title Page No.

1 Company Profile 8
2 Theoretical Background 13-25
3 Data Analysis And
Interpretation Of Data 26-42
4 Observation 43
5 Bibliography 44

[5]
 LIST OF GRAPHS

Sr. No. Title Page No.

1 Current Ratio 37
2 Quick ratio 38
3 Super Quick Ratio 39
4 Stock Turnover Ratio 40
5 Debtors Turnover Ratio 41
6 Working Capital Turnover 42
Ratio

[6]
 COMPANY
PROFILE
OF
AMBUJA CEMENT

[7]
 AMBUJA CEMENT

Ambuja Cements Ltd, a part of a global conglomerate Holcim, is one of India’s leading
cement manufacturers and has completed over 25 years of operations.

The cement industry is literally the building block of a nation. In that context Ambuja plays a
key role in India’s development and its blueprint for the future. It has always stayed on the
fast track to growth and has gone on to become a major player in the country’s cement sector.

The company, initially called Gujarat Ambuja Cements Ltd, was founded by Narotam
Sekhsaria in 1983 in partnership with Suresh Neotia. Global cement major Holcim acquired
management control of Ambuja in 2006. The Company has also made strategic investments
in ACC Limited.

Ambuja Cement is an established brand in India for Ordinary Portland Cement (OPC) and
Pozzolana Portland Cement (PPC), with significant footprints across western, eastern and
northern markets of India. Our customers range from individuals house builders (IHB) to
governments to global construction firms.

Ambuja has grown dynamically over the past decade. Its current cement capacity is 27.25
million tons. The Company has five integrated cement manufacturing plants and eight cement
[8]
grinding units across the country. It is the first Indian cement manufacturer to build a captive
port with four terminals along the country’s western coastline to facilitate timely, cost
effective and environmentally cleaner shipments of bulk cement to its customers. The
Company has its own fleet of ships.

Today, the Company has established itself as one of the most efficient cement manufacturers
in the world. Its environment protection measures are on par with the finest in the country. It
is one of the most profitable and innovative cement companies in India. The Company has
also pioneered the development of multiple bio-mass co-fired technologies for generating
greener power in its captive plants.

The Company’s most distinctive attribute is its approach to business. Ambuja follows a
unique home grown philosophy called I CAN, that gives people the authority to set their own
targets and the freedom to achieve their goals. Its focus has been consistent on two major
building blocks that are resonated through its daily operations – Quality (of the product) and
Safety (of the human resources involved in the creation of the product).

Date of Establishment 20-10 1981

Revenue 1677.45 ( USD in Millions )
Market Cap 402623.9552028 ( Rs. in Millions )
Corporate Address P O Ambujanagar,Taluka Kodinar, Junagadh Dist-
362715, Gujarat
www.ambujacement.com
Business Operation Cement & Construction Materials
Background Ambuja Cements was set up in 1986. In the last decade
the company has grown tenfold. The total cement
capacity of the company is 18.5 million tones. Its plants
are some of the most efficient in the world. With
environment protection measures that are on par with
the finest in the developed world. The company's most
distinctive attribute, however, is its approach to the
business. Ambuja follows a unique home.

[9]
Financials Total Income - Rs. 95291.6 Million ( year ending
Dec 2013)
Net Profit - Rs. 12945.7 Million ( year ending
Dec 2013)

Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold. The
total cement capacity of the company is 18.5 million tones. Its plants are some of the most
efficient in the world. With environment protection measures that are on par with the finest in
the developed world. The company's most distinctive attribute, however, is its approach to
the business. Ambuja follows a unique homegrown philosophy of giving people the authority
to set their own targets, and the freedom to achieve their goals. This simple vision has created
an environment where there are no limits to excellence, no limits to efficiency. And has
proved to be a powerful engine of growth for the company. As a result, Ambuja is the most
profitable cement company in India, and one of the lowest cost producer of cement in the
world.
When the company started out, it approached the cement business with an open mind. To
compete with the older, established players who had already written off their plant cost, it
was important to have the lowest capital cost per ton of cement. Their plants would have to
be set up in record time. Their capacity utilization would have to be above 100%. And their
power consumption would have to set a record low these were the main theme of company.
Today, Ambuja is the 3rd largest cement company in India, with an annual plant capacity of
16 million tonnes including Ambuja Cement Eastern Ltd. and revenue in excess of Rs.3298
crore.
In 1993, Ambuja Cement set up a complete system of transporting bulk cement via the sea
route. Making it the first company in India to introduce bulk cement movement by sea.
Others followed and today, about 10% cement travels by this new route.
Port terminal of the company is situated at Muldwarka, Gujarat: Its an all weather port, 8 kms
from the company’s Ambujanagar plant. Handles ships with 40,000 DWT. It is also equipped
to export clinker and cement and import coal and furnace oil.
In 2013 the company approved a proposal, wherein Ambuja will first acquire from Holderind
Investments Ltd., Mauritius (Holcim), a 24% stake in Holcim India for a cash consideration
of Rs 3,500 crores, followed by a merger of Holcim India into Ambuja. These intra–group
transactions will result in Ambuja holding 50.01% stake in ACC.In addition, the Board also

[10]
 provided its approval for Ambuja to make commercially reasonable efforts to invest upto Rs
3,000 crores to acquire an economic ownership in ACC of up to 10% without triggering a
mandatory open offer, subject to shareholders and regulatory approvals as applicable.
Bulk Cement Terminals of the company:
Surat: Bulk Cement Terminal with a storage capacity of 15,000 tonnes has bulk cement
unloading facility.
Panvel: Strategically located near India’s biggest cement market, has a storage capacity of
17,500 tonnes and a bulk cement unloading facility.
Galle: 120 kms from Colombo, Sri Lanka. Handles 1 million tonnes of cement annually.
Cochin: The latest addition to our configuration of Bulk Cement Terminal
Ambuja Cement exports almost 17% of its production in a very competitive international
environment. For the last ten years, Ambuja Cement remains India’s highest exporter of
cement.

Business area of the company:

 The company is engaged in manufacture and market cement and clinker for both domestic
and export markets.

Milestones:

 2010

On 24th February 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant
(grinding unit) at Dadri, Uttar Pradesh. Capacity: 1.5 million tonnes..
On 27 March, 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant
(grinding unit) at Nalagarh, Himachal Pradesh. Capacity: 1.5 million tonnes.
In December 2010, the Dadri Grinding Unit in its very first year of operation
received the Integrated Management System (IMS) Certification, including ISO 9001:2008,
ISO 14001:2004, and OHSAS 18001:2007 by BSI (U.K.).

 2009– The Company launched its knowledge initiative i.e. Ambuja Knowledge Center,to
enable industry professionals get a first–hand feel of the world of cement and concrete.
During the year, three centers became operational in the cities of Jaipur, Ahmedabad and
Kolkata.

[11]
 2008– The Company also sets up the Corporate Communications department, thus marking
its deep commitment to be a responsive organisation, answerable and accountable to
its key internal and external stakeholders.
 2009– The Company launched its knowledge initiative i.e. Ambuja Knowledge Center,to
enable industry professionals get a first–hand feel of the world of cement and concrete.
During the year, three centers became operational in the cities of Jaipur, Ahmedabad and
Kolkata.
 Opening of Dadri Plant On 24th February 2010, Ambuja Cements Ltd (ACL) inaugurated
its cement plant (grinding unit) at Dadri, Uttar Pradesh. Capacity: 1.5 million tonnes.
 On 27 March, 2010, Ambuja Cements Ltd (ACL) inaugurated its cement plant (grinding
unit) at Nalagarh, Himachal Pradesh. Capacity: 1.5 million tonnes.
 In December 2010, the Dadri Grinding Unit in its very first year of operation received the
Integrated Management System (IMS) Certification, including ISO 9001:2008, ISO
14001:2004, and OHSAS 18001:2007 by BSI (U.K.).

Achievements/ recognition:
Achievements

 Environment protection measure that conform to the worlds best.

 Benchmarking quality standards for the industry.
 Reinventing cement transportation.
 Ambujanagar has won 'Best Environmental Excellence in Plant Operation' – National
award by NCBM 2009
 'Certificate of Appreciation' for Accident Free million man hour our worked – Gujarat
Safety Council – Baroda 2009

Recognition

 National Award for commitment to quality by the Prime Minister of India.

 National Award for outstanding pollution control by the Prime Minister of India.
 ISO 9002 Quality Certification.
 ISO 14000 Certification for environmental systems.
 Best Award for highest exports by CAPEXIL.
 Economic Times – Harvard Business School Association Award for corporate excellence.

[12]
THEORETICAL
BACKGROUND

[13]
WORKING CAPITAL MANAGEMENT
DEFINITION
A managerial accounting strategy focusing on maintaining efficient levels of both
components of working capital, current assets and current liabilities, in respect to each other.
Working capital management ensures a company has sufficient cash flow in order to meet its
short-term debt obligations and operating expenses.

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization or other entity, including governmental entity.
Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Gross working capital equals to current assets. Working capital is
calculated as current assets minus current liabilities.[1] If current assets are less than current
liabilities, an entity has a working capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and cash.

Introduction to Working Capital

Capital is what makes or breaks a business, and no business can run successfully without
enough capital to cover both short- and long-term needs. Maintaining sufficient levels of
short-term capital is a constantly ongoing challenge, and in today’s turbulent financial
markets and uncertain business climate external financing has become both harder and more
costly to obtain. Companies are therefore increasingly shifting away from traditional sources
of external financing and turning their eyes towards their own organizations for ways of
improving liquidity. One efficient but often overlooked way of doing so is to reduce the
amount of capital tied-up in operations, that is, to improve the working capital management
of the company.

[14]
Working capital is a financial metric of operating liquidity which describes the amount of
cash tied up in operations and defines the short term condition of a company. A positive
working capital position is required for the continuous running of a company’s operations,
i.e. to pay short term debt obligations and to cover operational expenses. A company with a
negative working capital balance is unable to cover its short-term liabilities with its current
assets.

Working capital is calculated with the following

formula:

Working Capital =

Current Assets - Current Liabilities

In business two types of assets are used:-

1.FixedAssets
2.Current Assets

Fixed Assets are used in business for a long period and they are not purchased for the
purpose of selling them to earn profit.

Current Assets are used for day to day operation of business. Current assets include cash,
bank, stocks, debtors, bill receivables, marketable securities etc. The capital employed in
these assets is called working capital. Hence in any business there should be proper balance
between fixed capital and working capital for efficient operation of business.

Current Liabilities are those liabilities, which are to be paid in short period i.e. one year or
within normal operating cycle. Those include creditors, bills payables, bank over draft, short-
term loans, and outstanding expenses.

Working capital management is related with the problems that arise in attempting to manage
the current assets, current liabilities and the inter relationship that exists between them.

The needs and problems for every business are different but generally the following factors
must be considered while determining the requirement of working capital :-

[15]
-Nature of the business,

-Business fluctuations,

-Production policy,

-Credit policy,

-Availability of raw material and bank credit,

-Turnover of inventories,

-Operating efficiency

So, the main objective of working capital management is to manage current assets and
current liabilities so that:-

There should be full utilization of fixed assets.

There is an increase in Debt capacity and Goodwill.

There is the advantage of favourable opportunities.

OBJECTIVES
The objectives of project on Management of working capital are as follows –

To determine policy regarding profitability, liquidity and risk by considering company

objective.

To determine the quantum and structure of current assets.

Determine the relationship between current assets and current liabilities and hence liquidity is
determined.

Optimization of the amount of sales and investment in receivables.

Analysis of Financial Statement

[16]
SCOPE
The management of working capital helps us to maintain the working capital at a satisfactory
level by managing the current assets and current liabilities.

It also helps to maintain proper balance between profitability, risk and liquidity of the
business significantly.

By managing the working capital, current liabilities can be paid in time.

If the firm makes payment to it creditors for raw material in time, it can have the availability
of raw material regularly, which doesn’t cause any obstacles in production process.

Adequate working capital increases paying capacity of the business but the excess working
capital causes more inventory, increases the possibility of delay in realization of debts.

On the other hand, absence of adequate working capital leads to decrease in return on
investment.

WORKING CAPITAL CYCLE

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets
and current liabilities into cash. The longer the cycle is, the longer a business is tying up
capital in its working capital without earning a return on it. Therefore, companies strive to

[17]
reduce its working capital cycle by collecting receivables quicker or sometimes stretching
accounts payable.

Factors Affecting Working Capital

1) Nature of Business:
The requirement of working capital depends on the nature of business. The nature of business
is usually of two types: Manufacturing Business and Trading Business. In the case of
manufacturing business it takes a lot of time in converting raw material into finished goods.
Therefore, capital remains invested for a long time in raw material, semi-finished goods and
the stocking of the finished goods.

Consequently, more working capital is required. On the contrary, in case of trading business
the goods are sold immediately after purchasing or sometimes the sale is affected even before
the purchase itself. Therefore, very little working capital is required. Moreover, in case of
service businesses, the working capital is almost nil since there is nothing in stock.

(2) Scale of Operations:

There is a direct link between the working capital and the scale of operations. In other words,
more working capital is required in case of big organisations while less working capital is
needed in case of small organisations.

(3) Business Cycle:

The need for the working capital is affected by various stages of the business cycle. During
the boom period, the demand of a product increases and sales also increase. Therefore, more
working capital is needed. On the contrary, during the period of depression, the demand
declines and it affects both the production and sales of goods. Therefore, in such a situation
less working capital is required.

[18]
(4) Seasonal Factors:
Some goods are demanded throughout the year while others have seasonal demand. Goods
which have uniform demand the whole year their production and sale are continuous.
Consequently, such enterprises need little working capital.

On the other hand, some goods have seasonal demand but the same are produced almost the
whole year so that their supply is available readily when demanded.

Such enterprises have to maintain large stocks of raw material and finished products and so
they need large amount of working capital for this purpose. Woolen mills are a good example
of it.

(5) Production Cycle:

Production cycle means the time involved in converting raw material into finished product.
The longer this period, the more will be the time for which the capital remains blocked in raw
material and semi-manufactured products.

Thus, more working capital will be needed. On the contrary, where period of production
cycle is little, less working capital will be needed.

(6) Credit Allowed:

Those enterprises which sell goods on cash payment basis need little working capital but
those who provide credit facilities to the customers need more working capital.

[19]
Ratio Analysis

Ratio meaning

In mathematics, a ratio is a relationship between two numbers of the same kind.

Expressed as "a to b" or “a:b”, sometimes expressed arithmetically as a
dimensionless quotient of the two.

In layman's terms a ratio represents, for every amount of one thing, how much there is of
another thing. For example, supposing one has 8 oranges and 6 lemons in a bowl of fruit, the
ratio of oranges to lemons would be 4:3 (which is equivalent to 8:6) while the ratio of lemons
to oranges would be 3:4. Additionally, the ratio of oranges to the total amount of fruit is 4:7
(equivalent to 8:14). The 4:7 ratio can be further converted to a fraction of 4/7 to represent
how much of the fruit is oranges.

Ratio Analysis meaning

Ratio analysis is a fundamental means of examining the health of a company by studying the
relationships of key financial variables. Many analysts believe ratio analysis is the most
important aspect of the analysis process.

It is the most widely used tool since it compares risk and return relationships of firms from
various aspects. Ratio analysis is the method or process by which the relationship of items or
group of items in the financial statements are computed, determined and presented.
It is an attempt to derive quantitative measures or guides concerning the financial health and
profitability of a business enterprise. It can be used both in trend and static analysis. There are
several ratios at the disposal of an analyst but the group of ratios he would prefer depends on
the purpose and objectives of analysis.

[20]
Importance of Ratio Analysis in Business
Management
 Ratio analysis is an invaluable tool to a business management to determine the
performance of a business entity and to take cost controlling measures as and when
necessary.
 The concept of ratio analysis is very much helpful to a business, as it involves
providing essential facts by establishing a measure of relationship between two
variables through which the interpretation is easier.
 Ratio analysis provides a clear understanding about profitability, liquidity, solvency
and efficiency of business entity.
 Ratios serve as yardsticks in judging the quality, value and success of a business.
They reveal the relative importance in terms of the items being presented in the
financial statements while establishing the relationship between them.
 The importance of ratio analysis emerges due to the fact that the process of ratio
analysis summarizes and simplifies the mass of accounting data derived from the
financial statements. It provides the information in such a simple and concise manner
that not only the comprehension of financial statements is made with a very little
effort, but also it enables to predict the events in the future so that necessary actions or
precautionary measures may be taken accordingly.
 When used properly, ratio analysis is very much helpful in evaluating the current
position and performance of a business while highlighting the capital gearing capacity
of a business entity.
 Ratio analysis is of great help in making comparative study with other business or
businesses. It is by means of ratio analysis that the current performance as well as the
profitability in terms of the trends can be identified accurately.
 On the one hand the Ratio analysis provides the necessary information through which
the interpretation of Financial Statements becomes easier; on the other hand, ratios are
helpful to disclose the whole story of changes in the financial position and
performance of a business entity. Thus the Ratio Analysis is a great way to provide
the overall value of a business enterprise.

[21]
IMPORTANCE OF RATIO ANALYSIS
Accounting ratios are very useful in assessing the financial position and profitability of a
business enterprise. This can be achieved through comparison by ratios in the following
ways:
•For same enterprise over a no. of years(horizontal analysis)
•For one enterprise against another in the same industry(third-dimension analysis)
•For one enterprise against the industry as a whole
•For one enterprise against the pre-determined standards
•For inter departmental comparisons within an organization.

STEPS INVOLVED IN RATIO ANALYSIS

Depending upon the objective of the analysis, the following steps may be followed.

1. Selection of the relevant data from the financial statement.

2. Calculation of appropriate ratio based on the data selected for the purpose.

3. Comparisons of ratios so calculated with those of the same firm in the past or with the ratio
of some other firm in same industry.

4. Interpretation of ratios.

Four Basic Types of Financial Ratios

[22]
  LIQUIDITY RATIOS
 These ratios analyze short term and immediate financial position of a business
organization and indicate the ability of the firm to meet its short term
commitments(current liabilities)out of its short term resources(current assets).They
are also known as Solvency Ratios.
 LEVERAGE RATIOS
 These ratios measure the relationship between proprietor’s funds and borrowed
funds. They indicate the degree of debt financing in a firm.
 ACTIVITY RATIOS
 These ratios are designed to indicate the effectiveness of the firm in utilizing its
funds, its degree of efficiency, and its standards of performance. Hence they are also
known as Efficiency and Performance ratios.
 PROFITABILITY RATIOS
 These ratios are intended to reflect the overall efficiency of the organization, its
ability to earn a reasonable return on capital employed or on shares issued and the
effectiveness of its investment policies.

Liquidity

The most common liquidity ratio is the current ratio, which is the ratio of current assets to
current liabilities. This ratio indicates a company's ability to pay its short-term bills. A ratio
of greater than one is usually a minimum because anything less than one means the company
has more liabilities than assets. A high ratio indicates more of a safety cushion, which
increases flexibility because some of the inventory items and receivable balances may not be
easily convertible to cash. Companies can improve the current ratio by paying down debt,
converting short-term debt into long-term debt, collecting its receivables faster and buying
inventory only when necessary.

Three commonly used liquidity ratios are given below:

1. Current ratio or working capital ratio
2. Quick ratio or acid test ratio
3. Absolute liquid ratio

[23]
Current ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources
to pay its debts over the next 12 months. It compares a firm's current assets to its current
liabilities. It is expressed as follows:

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's
demands. Acceptable current ratios vary from industry to industry and are generally between
1.5 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally
indicates good short-term financial strength. If current liabilities exceed current assets (the
current ratio is below 1), then the company may have problems meeting its short-term
obligations. If the current ratio is too high, then the company may not be efficiently using its
current assets or its short-term financing facilities. This may also indicate problems
in working capital management.

Quick ratio
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use
its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick
assets include those current assets that presumably can be quickly converted to cash at close
to their book values. A company with a Quick Ratio of less than 1 cannot currently fully pay
back its current liabilities.

Quick Ratio = Current Assets – Stock or Inventories / Current Liabilities – Bank Over Draft
Note that Inventory is excluded from the sum of assets in the Quick Ratio, but included in
the Current Ratio. In contrast, if the business has negotiated fast payment or cash from
customers, and long terms from suppliers, it may have a very low Quick Ratio and yet be
very healthy.

[24]
Absolute liquid ratio
Absolute liquid ratio extends the logic further and eliminates accounts receivable (sundry
debtors and bills receivables) also. Though receivables are more liquid as comparable to
inventory but still there may be doubts considering their time and amount of realization.
Therefore, absolute liquidity ratio relates cash, bank and marketable securities to the current
liabilities. Since absolute liquidity ratio lays down very strict and exacting standard of
liquidity, therefore, acceptable norm of this ratio is 50 percent. It means absolute liquid assets
worth one half of the value of current liabilities are sufficient for satisfactory liquid position
of a business. However, this ratio is not as popular as the previous two ratios discussed.

Absolute liquid ratio = Absolute liquid assets / Current liabilities

Where absolute liquid assets = Cash + Bank + marketable securities.

[25]
 DATA
ANAYSIS
AND
INTERPRETATION
OF
DATA

[26]
STATEMENT SHOWING WORKING CAPITAL CHANGES OF AMBUJA CEMENT 2010-
2011

PARTICULARS P.Yr C.Yr CHANGES IN WORKING

2010 2011 CAPITAL
(RS. (RS. Increase Decrease
CRORES) CRORES) (RS. CRORES) (RS. CRORES)

CURRENT
ASSETS
INVENTORIES 901.86 924.97 23.11
SUNDRY 128.18 240.85 112.67
DEBTORS
CASH AND 1648.17 2071.23 423.06
BANK BALANCE
OTHER 16.17 23.66 7.09
CURRENT
ASSETS
LOANS & 440.55 567.61 127.06
ADVANCES
TOTAL (A) 3135.33 3828.32
CURRENT
LIABILITIES
CURRENT 1297.61 1588.13 290.52
LIABILITIES
PROVISIONS 1096.57 1106.11 9.54
TOTAL (B) 2394.18 2694.24
NET WORKING 741.15 1134.08
CAPITAL (A-B)
NET INCREASE 392.93 392.93
IN WORKING
CAPITAL
TOTAL 1134.08 1134.08 692.99 692.99

[27]
INTERPRETATION (2010-2011)
The company is showing positive working capital in both the years 2010 and 2011.Even
though there is increase in inventories, sundry debtors, other current assets, loans and
advances of the company in the year 2011. There is increase in Cash and Bank balance in the
year 2011. There is increase in other current liabilities & provisions in current liabilities
which has resulted in increase in current liabilities and thus has resulted in much of the
change in this year. Although the working capital has increased in 2011. It can affect the
reputation of the company as the investor may not hesitant to invest. This implies that
business position sound and the company didn’t needs additional funds to meet its short term
requirement.

[28]
STATEMENT SHOWING WORKING CAPITAL CHANGES OF AMBUJA CEMENT 2011-
2012

PARTICULARS P.Yr C.Yr CHANGES IN WORKING CAPITAL

2011 2012 Increase Decrease
(RS. (RS. (RS. CRORES) (RS. CRORES)
CRORES) CRORES)

CURRENT
ASSETS
CURRENT 768.94 1543.83 774.89
INVESTEMENT
INVENTORIES 924.97 983.93 58.96
TRADE 240.85 213.37 27.48
RECEIVABLES
CASH AND BANK 2069.08 2253.72 184.64
BALANCE
SHORT TERMS 236.51 249.05 12.54
LOANS &
ADVANCES
OTHER 23.93 30.95 7.02
CURRENT
ASSETS
TOTAL (A) 4264.28 5274.85
CURRENT
LIABILITIES
SHORT TERM 1173.34 1420.53 247.19
PROVISIONS
TRADE 951.16 934.54 16.62
PAYABLE
OTHER 639.77 655.87 16.1
CURRENT
LIABILITIES
TOTAL (B) 2764.27 3010.94
NET WORKING 1500.01 2263.91
CAPITAL (A-B)
NET INCREASE 763.9 763.9
IN WORKING
CAPITAL
TOTAL 2263.91 2263.91 1054.67 1054.67

[29]
INTERPRETATION (2011 – 2012)
The company shows a positive working capital in the year 2011 – 2012. There is a huge
increase in current investment i.e. short term investment, cash and bank balance, short term
loans and other current assets in year 2012. And slight decrease in trade receivables in 2012.
In the year 2012 short term provisions & trade payables have decreased. As the company
shows positive working capital it affects the reputation of the company as the investor may
not hesitant to invest. This implies that the business position is sound and the company didn’t
needs additional funds to meet its short term requirements.

[30]
STATEMENT SHOWING WORKING CAPITAL CHANGES OF AMBUJA CEMENT 2012-
013

PARTICULARS 2012 2013 CHANGES IN WORKING

(RS. (RS. CAPITAL
CRORES) CRORES) Increase Decrease
(RS. (RS.
CRORES) CRORES)

CURRENT ASSETS
CURRENT 1543.83 1683.94 140.11
INVESTMENT
INVENTORIES 983.93 933.94 49.99
TRADE 213.37 231.51 18.14
RECEIVABLES
CASH AND BANK 2253.72 2341.09 87.37
BALANCE
SHORT TERM LOANS 248.98 289.41 40.43
& ADVANCES
OTHER CURRENT 32.57 57.15 24.58
ASSETS
TOTAL (A) 5276.40 5537.04
CURRENT
LIABILITIES
TRADE PAYABLES 934.54 974.52 39.98
OTHER CURRENT 655.87 792.39 136.52
LIABILITIES
SHORT TERM 1308.93 1076.29 232.64
PROVISION
TOTAL (B) 2899.34 2843.20
NET WORKING 2377.06 2693.84
CAPITAL (A-B)
NET INCREASE IN 316.78 316.78SS
WORKING CAPITAL
TOTAL 2693.84 2693.84 543.27 543.27

[31]
INTERPRETATION (2012 – 2013)
The company in 2013 there is an increase in current investment, trade receivables, other
current assets, cash & bank balance and short term loans & advances. There is decrease in
inventories or stock. In current liabilities in the year 2012 there is decrease in trade payables
and other current liabilities and increase in short term provisions. The company shows a
positive working capital in the year 2012 – 2013. All these factor leads to increase in current
liabilities only short term provisions is decrease than current assets which show the positive
working capital. This is good for the company. This creates a positive image in front of
investors and the not hesitant to invest. This implies that the business position is a sound and
company didn’t needs additional funds to meet its short term requirements.

[32]
STATEMENT SHOWING WORKING CAPITAL CHANGES OF AMBUJA CEMENT2013-14

PARTICULARS P.Yr C.Yr CHANGES IN WORKING

2013 2014 CAPITAL
(RS. (RS. Increase Decrease
CRORES) CRORES) (RS. CRORES) (RS. CRORES)

CURRENT ASSETS
CURRENT 1683.94 2067.00 383.06
INVESTMENT
INVENTORIES 933.94 888.39 45.55
TRADE 231.51 227.98 3.53
RECEIVABLES
CASH AND BANK 2341.09 2458.12 117.03
BALANCE
SHORT TERM 289.41 308.32 18.91
LOANS &
ADVANCES
OTHER CURRENT 57.15 45.40 11.75
ASSETS
TOTAL (A) 5537.04 5995.21
CURRENT
LIABILITIES
SHORT TERM 963.43 1176.22 212.79
PROVISIONS
TRADE PAYABLES 557.28 618.49 61.21
OTHER CURRENT 1322.49 1352.89 30.4
LIABILITIES
TOTAL (B) 2843.20 3147.60
NET WORKING 2693.84 2847.61
CAPITAL (A-B)
NET INCREASE IN 153.77 153.77
WORKING CAPITAL
TOTAL 2847.61 2847.61 519 519

[33]
INTERPRETATION (2013 – 2014)
The company in 2014 there is an increase in current investment, cash & bank balance and
short term loans & advances. There is decrease in inventories, trade receivables and other
current assets. In current liabilities in the year 2013 there is decrease in trade payables, other
current liabilities and short term provisions. The company shows a positive working capital in
the year 2013 – 2014. All these factor leads to increase in current liabilities than current
assets which show the positive working capital. This is good for the company. This creates a
positive image in front of investors and they may not hesitant to invest. This implies that the
business position is a sound and company didn’t needs additional funds to meet its short term
requirements.

[34]
ESTIMATED WORKING CAPITAL REQUIREMENT FOR THE FINANCIAL Yr. 2014-15

PARTICULARS C.Yr
2015
(RS. CRORES)

(A)CURRENT ASSETS
CURRENT INVESTMENT 3068.04
INVENTORIES 792.09
TRADE RECEIVABLES 217.99
CASH AND BANK BALANCE 2569.17
SHORT TERM LOANS & ADVANCES 332.19
OTHER CURRENT ASSETS 40.55
TOTAL (A) 7020.03
(B)CURRENT LIABILITIES
TRADE PAYABLES 722.65
OTHER CURRENT LIABILITIES 1429.98
SHORT-TERM PROVISIONS 1388.54
TOTAL (B) 3541.17
ESTIMATED NET WORKING CAPITAL (A-B) 3478.86

INTERPRETATION (2014 – 2015)

The company in 2015 there is an increase in current investment, cash & bank balance and
short term loans & advances. There is decrease in inventories, trade receivables and other
current assets. In current liabilities in the year 2015 there is increase in trade payables, other
current liabilities and short term provisions. The company shows a positive net working
capital in the year 2015. All these factor leads to increase in current liabilities than current
assets which show the positive working capital. This is good for the company. This creates a
positive image in front of investors and they may not hesitant to invest. This implies that the
business position is a sound and company didn’t needs additional funds to meet its short term
requirements.

[35]
AS PER TONDON COMMITTEE RECOMMENDATION CALCULATION OF
MAXIMUM PERMISSIBLE BANK FINANCE (MPBF):-

 METHOD-1:-

TOTAL CA = 5995.21

(-)TOTAL CL = 3147.60

WORKING CAPITAL = 9142.81

(-)25%OF OWN CONTRIBUTION OF W.C = 2285.70

MPBF 6857.11

 METHOD-2:-

TOTAL CA = 5995.21

(-)25%OF OWN CONTRIBUTION OF CA = 1498.80

4496.41

(-)TOTAL CL = 3147.60

MPBF 1348.81

[36]
CURRENT RATIO= CURRENT ASSETS / CURRENT LIABILITIES

YEARS 2010 2011 2012 2013 2014

CURRENT 3135.33 3828.32 5274.85 5537.04 5995.21
ASSETS
CURRENT 2394.18 2694.24 3010.94 2843.20 3147.60
LIABILITIES
RATIO 1.31:1 1.42:1 1.75:1 1.95:1 1.90:1S

Current ratio
2.5

1.95 1.9
2
1.75

1.5 1.42
1.31

Current ratio
1

0.5

0
2010 2011 2012 2013 2014

INTERPRETATION

The ideal current ratio of a firm should be 2:1. The current ratio measures the ability of the
firm to meet its short term obligations and reflect the short term financial solvency of a firm.

A relative low current ratio represents that the liquidity position of the company is not good
and the firm shall not be able to pay its current liabilities in time without facing difficult. The
current ratio for the year 2010 is 1.31:1 which means those companies have one asset to pay
off its one liability which is good. In the next year the ration increase to 1.9:1 this shows that
the working capital of the firm is more than required.

[37]
QUICK RATIO = CURRENT ASSETS – STOCK OR INVENTORIES / CURRENT
LIABILITIES – BANK OVER DRAFT
YEARS 2010 2011 2012 2013 2014
CURRENT 2233.47 2903.35 4290.92 4603.1 5106.82
ASSETS-
STOCK OR
INVENTORIES
CURRENT 2394.18 2694.24 3010.94 2843.20 3147.60
LIABILITIES-
BANK OVER
DRAFT
RATIO 1:1 1.077:1 1.43:1 1.62:1 1.62:1

Quick ratio
1.8
1.62 1.62
1.6
1.43
1.4

1.2 1.077
1
1

0.8 Quick ratio

0.6

0.4

0.2

0
2010 2011 2012 2013 2014

INTERPRETATION

It indicates rupee of quick assets available for each rupee of current liabilities. Ideal standards
ratio is 1:1 However, this traditional rule should not be used blindly since a firm having
quick ratio of more than 1, may be meeting its short term obligations in time. We can see that
in the year 2010 the firm has quick ratio of 1:1 and next year 1.077:1 and in 2012 it’s 1.43:1
and in the year 2013 & 2014 it’s 1.62:1 which implies that the firm’s performance is that
satisfactory.

[38]
SUPER QUICK RATIO or ABSOLUTE CASH RATIO = CASH + BANK BALANCE
+ SHORT TERM INVESMENT / CURRENT LIABILITIES

YEARS 2010 2011 2012 2013 2014

CASH+BANK 1648.17 2071.23 3797.55 4025.03 2458.12
BALANCE+SHORT
TERM
INVESTMENT
CURRENT 2394.18 2694.24 3010.94 2843.20 3147.60
LIABILITIES
RATIO 1:1 1:1 1.26:1 1.41:1 1:1

Super quick ratio

1.6
1.41
1.4
1.26
1.2
1 1 1
1

0.8
Super quick ratio
0.6

0.4

0.2

0
2010 2011 2012 2013 2014

INTERPRETATION

This ratio judges absolute liquidity in the company. Its standard ratio should be less than 1. If
ratio is higher than 1 then liquidity will be more but profitability will be affected. In the year
2010 the ratio is 1 which is equal to 1. The next year the ratio is 1. Then the next year that is
2012 the ratio rises up to 1.26 and the next year it increase to 1.41 and the last year is 1. It
should increase more then 1 as the profitability will be affected.

[39]
STOCK TURNOVER RATIO = COST OF GOOD SOLD (COGS) / AVERAGE
STOCK AVERAGE STOCK = OPENING STOCK + CLOSING STOCK / 2

YEARS 2010 2011 2012 2013 2014

COST OF 8257.03 9588.33 55.36 73.51 67.42
GOODS
SOLD
AVERAGE 901.86 913.415 1908.9 1917.87 888.39
STOCK
RATIO 9.15 times 10.49 times 0.029 times 0.038 times 0.075 times

Stock turnover ratio

12
10.49
10 9.15

6
Stock turnover ratio

0.029 0.038 0.075

0
2010 2011 2012 2013 2014

INTERPRETATION

Low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate of
return of zero. It also implies either poor sales or excess inventory. A low turnover rate can
indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a
planned inventory buildup in the case of material shortages or in anticipation of rapidly rising
prices.
High inventory turnover ratio implies either strong sales or ineffective buying. A high
inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage or
inadequate inventory levels, which may lead to aloes in business. In the year 2010 the
inventory was 9.15 and the next year it increase to 10.49.In the year 2012 the inventory ratio
is more decreased to 0.029 and in the year 2013 there was a slightly increase in inventory
ratio is 0.038 & in the year 2014 there was a increase in inventory ratio is 0.075.

[40]
DEBTOR TURNOVER RATIO = NET.CREDIT SALES / AVEAGE DEBTORS

ACCOUNT RECEIVABLE TURNOVER RATIO = NET.CREDIT SALES /

AVERAGE ACCOUNT RECEIVABLE

AVEAGE DEBTORS = OPENING DEBTORS + CLOSING DEBTORS / 2

YEARS 2010 2011 2012 2013 2014

NET CREDIT 8257.03 9588.33 55.36 73.51 67.42
SALES
AVERAGE 128.18 184.515 213.37 231.51 229.74
DEBTORS
RATIO 64.41 times 51.97 times 0.26 times 0.32 times 0.29 times

Debtors turnover ratio

70 64.41

60
51.97
50

40

Debtors turnover ratio

30

20

10
0.26 0.32 0.29
0
2010 2011 2012 2013 2014

INTERPRETATION

Debtor turnover ratio indicates no. of time credit sales is as compared to Average Debtors.
Using Debtors Turnover Ratio we can find out average collection period. Average collection
period means in how much time debtors pay are cash. Higher the debtor’s turnover ratios
lower the average collection period. In the year 2010 the ratio was 64.41 times. It slightly
decreased in 2011 is 51.97. There was a big great fall in the year 2012 the ratio was 0.26
times, and the ratio 2013 is 0.32 & the ratio 2014 is 0.29 times.

[41]
WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD (COGS) /
WORKING CAPITAL

WORKING CAPITAL = CURRENT ASSTES –CURRENT LIABILITIES

YEARS 2010 2011 2012 2013 2014

COST OF 8257.03 9588.33 55.36 73.51 67.42
GOODS
SOLD
WORKING 741.15 1134.08 2263.91 2693.84 2847.61
CAPITAL
RATIO 11.14 times 8.45 times 0.024 times 0.027 times 0.023 times

Working capital turnover ratio

12 11.14

10
8.45
8

6
Working capital turnover ratio

0.024 0.027 0.023

0
2010 2011 2012 2013 2014

INTERPRETATION

A company with a high working capital ratio is not risk of bankruptcy. A company with too
high a ratio is not doing enough to put its assets to work. The goal, then, is to find a company
whose asset ratio reflects an ability to immediately meet all current liabilities but just rarely
in most cases. In the year 2010 the ratio was 11.14 which went down in the next year due to
decrease in the working capital is 8.45. In the year 2012 the ratio has huge decreased to 0.024
as working capital. In the year 2013 the ratio has slightly increased in the ratio is 0.027. And
in the year 2014 ratio has decrease in the ratio is 0.023. This is lowest working capital ratio in
the last three years.

[42]
 OBSERVATION

The company all four years working capital is showing a positive balance. That is a good
thing for a company as it creates a positive image in front of investors and they may not
hesitant to invest. This implies that the business position is a sound and company didn’t needs
additional funds to meet its short term requirements. The Liquidity position of the company is
a sound. All the factors lead to the decrease in current liabilities than current assets which
shows the positive working capital. Liquidity or short term solvency is the ability to pay short
term liability. In ability to pay its short term liabilities affects its credibility as well as its
credit rating. Continuous default on the part of the business leads to commercial bankruptcy.
Bankruptcy may lead to its sickness and dissolution. Short term lenders and creditors of the
business are very much interested in knowing the liquidity state of the company because of
their financial stake. The company should make certain changes in order to make their
working capital positive. It should pay off its liabilities in order to maintain sound working
capitals.

[43]
 BIBLIOGRAPHY

Annual report of AMBUJA CEMENT

Financial Management – Khan & Jain

Financial Management – I. M. Pandey

http://www.banknetindia.com/banking/metlend.html

http://www.bangaloreicai.org/downloads/2010/o7_07_10.pdf

www.ambujacement.com

[44]