CONTENTS

Chapters Particulars Sl. Chapte No r . Subject Page No.

INTRODUCTION
a. Introduction b. Need for the Study c.Objectives d. Methodology e. Limitations

3 10

II

ORGANIZATION & COMPANY PROFILE

12 26

III

THERITICAL FRAME WORK

28 - 50

IV

DATA ANALASIS & INTERPETATION

52 - 67

FINDINGS AND SUGGESTIONS

68 - 69

BIBLIOGRAPHY

71 - 76

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INTRODUCTION

DEFINITION OF WORKING CAPITAL:2 |Page

In the words of Prof.S.C.Kuchhal, Working capital has to be, regarded as one of the conditioning factors in the long run operations of a firm which is often inclined to treat it as an issue of short run analysis and decisionmaking. In the words of Shubin, Working capital is the amount of funds necessary to cover the cost of operating the enterprise. In the words of Genestenbug, Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another as for example from cash to inventories, inventories to receivables, receivables into cash.

CONCEPTS OF WORKING CAPITAL:There are two concepts of working capital: 1. Gross working capital 2. Net working capital. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Working capital = Current assets Current liabilities.

Net working capital may be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. The gross working capital concept is financial or going concern whereas net working capital is an accounting of working capital. These two

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concepts of working capital are not exclusive; rather both have their own merits. Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the general practice net working capital is referred to simply as working capital.

NEED FOR WORKING CAPITAL

The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm which does not require any amount of working capital. Indeed, firms differ in their requirements of the working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavor to do, a firm should earn sufficiently return from its operations. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash.

TYPES OF WORKING CAPITAL

On Working capital may be classified in two ways: a.The basis of concept. b.On the basis of time. On the basis of concept, working capital can be further classified into: a. Gross working capital. b. Net working capital. On the basis of time, working capital can be further classified a. Permanent or Fixed working capital. b. Temporary or variable working capital.

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Gross working capital

Gross working capital is represented by the total sum of all current assets of an organization. The gross working capital is also known as current capital or circulating capital.

Net Working capital

Net working capital is the difference between the current liabilities. The concept of net working capital helps the management to look forward the permanent sources for financing the working capital. The working capital management has to examine the proportion of the current assets, which has to be financed by permanent capital or long term, borrowings.

Permanent working capital

Permanent working capital is that part of capital, which is permanently, locked up in the circulation of current assets and in keeping its moving. It can be classified into: i. ii. Regular working capital and Reserve margin working capital.

Regular working capital

It is the minimum amount of liquid capital needed to keep up the circulation of from cash to inventories to receivables and back again into cash.

Reserve margin working capital

It is the excess over the need for regular working capital that should be provided for contingencies such as raising prices, business depressions, and strikes, fibers, unexpected severe competition and special operations such as experiments with products or with the method of distribution and the like which can be undertaken only if sufficient funds are available.

Variable working capital

The variable working capital refers and denotes that the amount of funds over and above the fixed working capital to take care of seasonal shifts etc. this variable working capital also referred to as fluctuating or temporary working capital and should be financed by short-term sources of funds.
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The variable working capital changes with the volume of business. It may be sub-divided into: i. ii. Seasonal. Special working capital.

The capital required to meet the seasonal needs of industry is termed as seasonal working capital. On the other hand the special working capital is that part of the variable working capital which is required for financing operations such as inauguration of extensive marketing campaigns and carrying out special jobs and similar other operations that are outside the usual business of buying, fabricating and selling.

Excess Working Capital

There are problems associated with excess working capital. Firstly, more funds would make the management complacent and it may invest this money in unnecessary accumulation of inventory resulting in locking of investment. There is another possibility that the firm may think of speculation inventory items in quantities more than needed and these gains may not be realized due to price fluctuations. The excess working capital also known as surfeit of working capital, which promotes accumulation of inventories, permissive, credit policies and slack collection procedures. Due to excess working capital, complacency develops and management efficiency deteriorates

Inadequate Working Capital

If working capital is not adequate, the organization will come across certain problems. The adverse effects of inadequate working capital are business failures, reduction in profitability and consequent decline in return on investment (ROI). The company will not be able to take advantage of full capacity utilization and the growth that is desired cannot be achieved when enough funds are not available at the right point of time. All the operating plans cannot be

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successfully implemented when funds are in short supply. In adequate working capital can also lead to temporary insolvency of a firm. FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS The working capital requirements of a concern depend upon a large number of factors such as nature and size of business, the character of their operations, the length of production cycles, the rate of stock turnover and the state of economic situation.

1. Nature or character of business

The working capital requirements of a firm basically depend upon the nature of its business. Public utility undertakings like electricity, water supply and railways need very limited working capital because they offer cash sales only and supply services, not products and as such no funds are tied up in inventories and receivables

2. Size of business/scale of operations

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

3. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal variations. The requirements of working capital, in such cases, demand upon the production could be kept either steady by accumulating inventories during slack periods with a view to meet high demand during the peak season or the production could be curtailed during the slack season and increased during the peak season.

4. Manufacturing process/length of production cycle

Longer the process period of manufacture, larger is the amount of working capital required. The longer the manufacturing time, the raw materials and other supplies have to be carried for a longer period in the process with progressive increment of labor and service costs before the finished product is finally obtained.

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5. Seasonal variations
In certain industries raw material is not available throughout the year. They have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process them during the entire year.

6. Credit policy
The credit policy of a concern in its dealings with debtors and creditors influence considerably the requirements of working capital .a concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital.

7. Business cycle
Business cycle refers to alternate expansion and contraction in general an activity .In a period of i.e. when the business is prosperous there is a need for larger amount of working capital due to increase in sales, rise in prices, optimistic expansion of business, etc.

8. Working capital cycle

The working capital cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products. This cycle involves purchase of raw materials and stores. Its conversion into stocks of finished goods through work -in-progress with progressive increment of labor and service costs, conversions of finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.

9. Price level changes

Changes in the price level also affect the working capital requirements. Generally the rising prices will require the firm to maintain larger amount of working capital, as more funds will be required to maintain the same current assets. The effect of rising prices may be different for different firms.

10. Other factors

Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labor, banking facilities, etc, also influence the requirements of working capital.
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OBJECTIVES:
o To promote the growth of the cement interest o To promote the customer interest o To identify newer application of cement usage

OBJECTIVES OF THE STUDY

1. To Study working capital management in MADRAS CEMENTS Ltd.
2. To Examine 3. To

an overview of working capital management. at the possible remedial measures to improve

Analyze

companys working capital performance in the near future.

4. To Evaluate the efficiency of the company in utilizing its Current

Assets.

SCOPE OF THE STUDY

The scope of the study is limited only to MADRAS CEMNTS and is confined to 4 years i.e. 2005-06 to 2008-09 annual reports.

DESIGN OF THE STUDY 1.5.1. METHODOLOGY

The present study is mainly about the working capital management of MADRAS CEMENTS ltd. On the basis of the objectives of the study it was decided to use ratio analysis and analysis of individual components of working capital as these are universally accepted techniques for analyzing the short term liquidity position of the firm. For the purpose of the analysis the following ratios have been used:

1 WORKING CAPITAL MANAGEMENT RATIOS

1. 2. 3. Working capital ratio/Current ratio. Quick ratio/Acid test ratio. Working capital turnover ratio.

I. Working capital performance ratio.

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4.

Current asset turnover ratio.

I. CASH MANAGEMENT
1. Cash turnover ratio.

II. INVENTORY MANAGEMENT

1. 2. Raw materials turnover ratio. Work in process turnover ratio.

3. Finished goods turnover ratio

DEBTORS MANGEMENT
1.

Debtors turnover ratio.

SOURCES:
The study is based on the analysis of data from the annual reports of MADRAS CEMENTS Ltd. The data used in the present study are mainly of two types primary data and secondary data. 1. The primary data is collected through the discussions made with the officials of MADRAS CEMENTS Ltd. 2. The secondary data is collected through the annual reports published by the company and company website.

LIMITATIONS:
The present study limits itself to the study of working capital management. In the present study the analysis is mainly based on secondary data given in the annual reports published by MADRAS CEMENTS Ltd. The limitations prevailing in the secondary sources are self evident in the study. Despite their weakness, they continue to be the only source for comparison of the results of the analysis. The present study is carried taking this into consideration.

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COMPANY PROFILE
Madras Cements Ltd (MCL) is the flag ship company of Ramco Group, a well-known business group of South India. It is based at Chennai. The main product of the company is Portland cement manufactured through the four advanced production facilities spread over South India. The manufacturing products are: Ordinary Portland Cement Portland Pozzolana Cement

The company is the sixth largest cement producer in the country and the second largest in South India. Ramco Super grade is the most popular cement brand in South India. The company also produces Ready Mix Concrete and Dry Mortar products. In addition, the company also operates one of the largest wind farms in the country. They are: Pioneer in Cement technology, Sixth largest Cement Producer in India, Single largest Cement Brand in South and Sophisticated R&D Centre in Chennai. It has been known for its penchant for technology that has kept the company ahead of competition. MCL was the first to switch from the energy-guzzling wet process to the dry process for manufacture of cement. With energy costs continuously shooting up, it derived handsome savings and also was the beneficiary of software developed by the group extensively for the entire gamut of operations - from mining to the production of clinker and cement. MCL is the first company to implement a full-fledged ERP system in the cement industry and one of the early adaptors among corporation in India. MCL is equipped with a modern computer based quality control system. Madras Cements Ltd is managed by a board of directors comprising of eminent personalities as its members. The chairman of the board is Shri P.R. Ramasubrahmaneya Rajha, under whose dynamic leadership the company has grown into a massive organization. The provide company guidance board brings to together the a team of business, in administrative, financial and cement technology professionals who and direction company's operations

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a competitive business environment. Madras Cements Ltd has been a pioneer in adopting its corporate governance practices comparable to the best in the country. Factories location MCL operates four ultra modern production factories with a total capacity of 6 million tons per annum (MTPA) and they are (i) R R Nagar, Tamil Nadu (1.2 MTPA) (ii) Jayanthipuram, Andhrapradesh (1.6 MTPA) (iii) Alathiyur, Tamil Nadu (3.0 MTPA) (iv)Mathod, Karnataka (0.2 MTPA)

MISSION

To continuously improve productivity through quality, technology renewal and customer focused operations. To position ourselves in the cement business as a pace setter and grow in the same and related business. To seek green field locations for growth on the basis of developed synergies of the existing operations. To continuously seek quality enhancement in product, processes and responses to various stakeholders. To update management practices on a continuous basis and maintain a culture of professional management. To conserve, protect and enhance quality of life for our employees and community. To preserve the credence in our motto "our real resources are the human assets".

CORE VALUES AND BENEFITS:

Customers continued satisfaction and the sensitivity to their needs is our source of strength and security. If there is no customer, there is no business

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We do not look at productivity as a game in numbers. We try to learn from others, be committed to quality and always stay ahead in terms of technology

RAMCO GROUP COMPANIES:

Madras cements limited Ramco industries limited Raja palayam mills limited Rajapalam, Tamilnadu Sri Ramco spinning mills limited Rajapalam, Tamilnadu Sundaram spinning mills limited Rajapalam, Tamilnadu Sri Vishnu sankar limited Rajapalam, Tamilnadu Ramaraju surgical cotton mills limited Ramco systems limited Ramco lanka (pvt) limited Harini textiles

Some corporate responsibilities of Ramco group

Raja charity trust C. Rama Swamy Raja education charity trust P.A.C Rama Swamy Raja Poly technique P.A Chinnaih Raja memorial higher secondary school P.A.C.R Ammani animals higher secondary school Chinnaih vidyalaya P.A.C.R Raju matriculation higher secondary school S.S.R vidhya mandir

Plans are on to build a hospital in Rajapalam equipped with the most advanced medical facilities. The primary aim of this hospital would be to provide free medical to workers scheme society. In order to have impetus to ecology development a senior horticulturist is being appointed his services will be extended to the farmers of nearby villages to help them in going various fruit and vegetation using hybrid varieties. We are going ahead shortly for massive a forestation of ISO acres of our land located at the entrance of our factory premises.

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COMPANY HISTORY
In 1950's, investment in Cement Industry was not attractive due to price controls and the massive investments required. Only those entrepreneurs who were not profit minded but cared for country's development came forward in investing in Cement Industry. When Shri. Manubai Shah, Central Minister for Industries in late fifties came to Madras to meet the Industrialists, he called upon Shri P A C Ramasamy Raja and requested him to start a cement factory in TN . This was readily accepted by Shri PACR and this marked the birth of "Madras Cements Ltd" in 1961. On the night of September 3, 1962, while the whole city slept, PACR lay on his bed in the Madras General Hospital, seriously ill. As all his near and dear watched with tears in their eyes, PACR summoned his son Ramasubrahmaneya Rajha, to his bedside. "There is no more hope", he whispered : "You should take care of everything from now". My main concern is for Madras Cements. I have taken a lot of money as shares from well wishers I have not paid them back any dividends as yet. This has to be taken care of immediately ...." PACR's last wish was dutifully fulfilled by the present chairman

Shri.P.R.Ramasubrahmaneya Rajah. Today Madras Cements Ltd is not only one of the most respected cement companies in the country but also leads in giving the best return for the investors. With a cement capacity of 6 millions tons per annum, the company is the sixth largest producer of cement in India. It is also one of the largest wind energy producer in the country with a capacity of 45 MW. The first plant of MCL at Ramasamy Raja Nagar, near Virudhunagar in Tamil Nadu commenced its production in 1962 with a capacity of 200 tonnes, using wet process. In 70's, the plant switched over to more
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efficient dry process. A second kiln was also added to bring the total capacity to 12 lakh ton per annum. The second venture of MCL is its Jayanthipuram plant near Vijayawada in A.P set up in 1987 . The 16 lakh ton per annum plant employs the latest state of art technology. The third venture of MCL is at Alathiyur in TN set up in 1997 and expanded by addition of another line in 2001. The 30 lac ton per annum plant is the most modern plant in the country. In 2000 , MCL acquired Gokul Cements situated in Mathod in Karnataka whose capacity is 600 TPD. Being a eco-friendly company, MCL set up the Ramco Winfarm in 1993 at Muppandal TN. This was followed by wind farms in Poolavadi near Coimbatore in 1995 and Oothumalai in 2005. The combined capacity of these two put together is about 45 MW. In the year 1999, MCL commissioned the most sophisticated Ready Mix Concrete Plant in Medavakkam in South Chennai. In 2002, a state-of-art Dry Mortar plant was commissioned near Sriperumpudur, Tamilnadu which manufactures dry mortar, cement based putty and tile fix compound.

Birth of the first Ramco Venture

His visited Britain and other European countries to see firsthand working of the mills. There he had the chance to meet many business magnates. He returned to India full of ideas. After returning to Rajapalayam, he put his plans into action. To start the yarn mill, he found that he needed Rs.5 lakhs, which in 1936 was a huge sum. It was considered a Herculean task to raise such a big capital. But the determined Raja was not deterred. He decided to make the people "Shareholders".

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Rajapalayam Mills Ltd.,

Thanks to his illustrious background and his own reputation, he got the required capital ready, in next to no time. On September 05, 1938, the then State Minister forlabour, V.V. Giri inaugurated the mill and Rajapalayam Mills Ltd commenced operations. There was no looking back for Ramasamy Raja after this. The Mill was a grand success. He followed up this with other successful ventures. He started Rama Raju Surgical Cotton Mills along with his son-in-law Rama Raju.

Madras Cements Ltd

At that time, Cement was not considered as a favorable venture due to price controls. Shri.Manubai Shah, Central Minister for Industries called upon Ramasamy Raja and appealed to him to start a cement factory. This was how Madras Cements Ltd came into being in 1961. Ramasamy Raja needed one crore as capital. The State Government for the first time in the history of India, invested Rs.10 lakhs An indication of the total trust and implicit faith the Government had in him.

Concern for Shareholders and Workers

Ramasamy Raja had the well being of the people upper-most in his mind. He was very particular that the funds of his share holders be utilized usefully. He showed high concern for his workers. The famous trade unionist G Ramanujam once said :

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"In the case of Ramasamy Raja's companies, the workers are always thinking of the growth of the company, the Raja always has the well being of the workers and their families uppermost in his mind"

AWARDS

4 Leaves Award Centre for Science and Environment National Award for Energy Conservation Confederation of Indian industry

Best Energy Efficient Unit

National Council for Cement and Building Materials Corporate Performance Award Economic Times Best Improvement in Energy Performance International Congress on Chemistry of Cement The Analyst Award The Institute of Chartered Financial Analysts of India Best allround Industrial performance Federation of AP Chambers of Commerce & Industries Visvesvariah Industrial Award All India Manufacturers Organisation Business Excellence Award Industrial Economist Export Performance Award CAPEXIL State Safety Awards Tamil Nadu & AP Governments Good Industrial Relations Award

Tamil Nadu & AP Governments

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Technology Overview
Madras Cements Ltd is a trend-setter in adopting state-of-the-art technology for the manufacture of Cement, Ready Mix Concrete and Dry Mortar Products. MCL is the first to bring the following technologies in South India's cement industry.

The FUZZY Logic Software System for process Controls

Pre-calciner technology Most Modern Programmable Logic Controllers (PLC)

Surface Mining Technology Vertical Mills for Cement Grinding Latest and highly effective ESPs and Bag filters

Advanced X-Ray technology for Quality Control

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JAYANTHIPURAM UNIT
In 1986 the company ventured into the second unit Jayanthipuram in Andhrapradesh 75 kilometers from Vijayawada towards Hyderabad with a investment of Rs 100 corers per manufacture of Rs 7.50 lakhs tones of cement per annum. This plant was commissioned in 1986 six months ahead of schedule plans Madras cements is a ramco group of most ambitious diversification had. It is a profitable company today. Two were process plans were setup in 1987with a capacity of 600 tones to produce Portland cements. In the 1970s totals with over was made to the dry process of manufacture. The single largest dry kiln in India at the time of establishment with a capacity of 1200 tones was installed at ramaswamy rajanagar in Tamilnadu, for the first time in India, over the years the plant has modified and updated with preclaciner technology. This has increased the capacity by 115% in 1993. Ramco group has setup its second and Indias most technological advances cement unit which started its production in 1987 Jayanthipuram Krishna district and Andhra Pradesh with 1.1 million tons per annum. This is the first factory in India to be totally computerized. It is one of the most sophisticate plants in India with full computer controlled special software of F.L smiths and fuzzy logical system from Denmark for kiln control. This flagship company of Ramco producer of market cements with brand Ramco. The kiln was gradually upgraded from 2300 TPD in 1986, 1994 and to 3200 TPD in1995. During this period raw material and coal mill were also upgraded from 220 to 240 TPH and 26 to 30 TPH respectively. Horizontal impact crusher (HIC), was installed in 1995 in cement mill circuit to increase the output from 125 TPH to 180 TPH and the cement mill was optimized in 1996.with this the capacity has been increased to 11lack tones per annum. The plant has electrostatic precipitators (ESP) and deducting bag houses to ensure clean and pollution free environment. MCL has an uncompromising attitude towards the prevention of anti-environmental pollution.
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The above up gradation of kiln and other mills was carried out with and investment of Rs 25 crores. 2004-2005 in this period they build one power grid. It carried out with an investment of Rs 10 crores.

EXPANSION
Slag grinding unit Madras cements have always stayed in the forefront of the industry. Special task forces within the company keep track of the latest international development in cement technology and promote action to adopt the state of art technology. India generates about 70 million tones of Fly ash and 10 millions of slag annually. Disposal of Fly and slag problem to the environment. Concern for the environment and ecology is percolating very fast into customer awareness globally and there by a check on eco-hostile products is becoming an imperative exercise. Both the central and state governments are strongly propagating to use these products in cement manufacture. A working group has been constituted by the government of Andhrapradesh to study the generation and disposal of Fly ash and BD slag. Based on the recommendations of the working group the government of Andhrapradesh issued a GO instructing all government departments for utilization of 100% Pozzolana/slag cement, with in a period of 5 years. In line with the policies of the government and our philosophy of using otherwise no usable materials like Fly ash and slag to produce value added blended cement and there by conserve limestone and other materials like coal etc, and also to save energy apart from being ecofriendly and creating clean atmosphere by reducing carbon dioxide emission proud of serving our nation by preserving minerals and maintaining clean atmosphere for our future generations. MCL is the first to bring the following technologies in South India's cement industry. 1. The FUZZY Logic Software System for process Controls
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2. Pre-calciner technology 3. Most Modern Programmable Logic Controllers (PLC) 4. Surface Mining Technology 5. Vertical Mills for Cement Grinding 6. Latest and highly effective ESPs and Bag filters 7. Advanced X-Ray technology for Quality Control

ISO certification
Madras cements limited, Jayanthipuram unit also got ISO 9002 certification in may, 1998.

SILENT FEATURES OF MADRAS CEMENTS LIMITED JAYANTHIPURAM

For the first time in India the very latest computerized control system are introduced in the Jayanthipuram unit for efficient operation on energy conservation. The silent features of Jayanthipuram plant is furnished below A stacker re-claimer for pre blending and continuous flow silo for below Vertical roller mills for grinding raw material and coal Five stage per heater for their mail efficiency per calcinatory for efficiency use of low grade coal A scanner connected to a computer for refractory monitoring X ray analyzer for quality control on line process computerized control for consistent quality Fuzzy logical software for kiln control Electro static precipitator at 5 strategic points for pollution control Belt bucket elevators for energy conservations

2.4 DEPARTMENTS IN MCL

The following are the departments in Madras Cements Ltd. 1. Personnel department 2. Accounts department 3. Mines
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4. IT 5. Stores and Material department 6. Quality control lab 7. Process department 8. Engineering departments 10. Electrical and Mechanical department Civil and Power plant Instrumentation

9. Cement dispatch section Security liaison

DETAILS OF EMPLOYEES
The total workforce of MCL at Jayanthipuram is 600 out of which permanent employees are 346 and remaining 254 are contract labours. The following illustrates the details of the employees in MCL
S.No. 1 2 3 4 5 6 7 8 9 10 Category Officers Officer prob-with grade Officer trainee Staff Staff worker Staff prob-with grade Staff trainee Voucher staff Voucher worker Workers No. of employees 53 3 7 70 2 7 1 1 4 198

INDUSTRY PROFILE CEMENT INDUSTRY IN INDIA

The Cement industry in India has come a long way since 1914, when the first cement plant was commissioned with a production level of 1000 tons/ annum. The first true Portland cement was manufactured in Calcutta presently called as Kolkata. India is the second largest cement producer in the world. As cement is a basic construction material with virtually no substitute, it is used worldwide for all construction work. Thus the growth in the construction industry has a direct relation with the production and consumption of cement.
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India is the second largest cement producer in the world with a production level of about 99 million tons (about 5% of world production ~ 2000 million tons). The installed capacity is about 119 million tones and at an expected 10 % growth rate the production is likely to grow to about 158.5 million tons at the end of 2006-2007. Over the years, the growth of the industry has been uneven. With traditionally cement deficit regions covering the most of the major growth centers of the country. Cement industry in India has made tremendous strides in technological up gradation and assimilation of latest technology. At present ninety three per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only seven per cent of the capacity is based on old wet and semi-dry process technology. The major players of Indian cement industry are Madras cements, ACC, India cements, Gujarat Ambuja, Ultratech, Grasim, JK group, Jaypee group, Century textiles, Birla Corporation, Lafarge. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. Cement plants in the country have mostly changed from the wet process to the energy efficient dry process. In India, the cement factories are localized in the states of Tamil Nadu, Madhya Pradesh, Gujarat, Bihar, Rajasthan, Karnataka and Andhra Pradesh.

CEMENT INDUSTRY IN ANDHRA PREADESH

Cement industry is the most important the largest expending industry in Andhra Pradesh. It plays a vital role in development of state. Andhra Pradesh is having all the necessary natural resources required to produce cement large quantities. The state stands first in the country so far as limestone deposits are concerned. Out of approximate 90000 about 30000 million tones are available in Andhra Pradesh which account for 34% in the total limestone deposits. Andhra Pradesh cement industry started in year 1939. There were two cement plants opened one was at Vijayawada and another was
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associated cement company in Tadepally, Guntur district in 1939. As on 31st march2005, there are 8 large scale cement units with and installed capacity of 16 million tones and 24 mini cements and grinding units with an installed capacity of three million tones producing various types of cement in Andhra Pradesh. In these 18 large cement plants, only two cement units under public sector corporation I.e., cement corporation of India plants situated in Adilabad and Tandur in Rangareddy district. The entire Andhra Pradesh cement industry concentrated in the districts of Adilabad, Nalgonda, and Cuddappah which are having total lime stones reserves. Andhra Pradesh is having two lime stones deposits cluster viz., Yerraguntla and Nalgonda. 10 are major and 11 mini cement plants situated in Nalgonda district. As on 31st march, 1998 the Andhra Pradesh total major cement units installed capacity was only 12.60 million tones and this increased to 16million tones at the end of this year because two cement major units L&T, Visakha cement plants started their operations with installed capacities of 2 million tones and 1 million tones and the existent market leader Raasi cement limited. Expanding their capacity with another 20 million tones. The mini cement plant sector also having an installed capacity of 2.5 million tones. By the end of this year the total Andhra Pradesh cement industry installed capacity has reached to 18.5 million tones. The total production of entire Andhra Pradesh cement industry is approximate 12 million tones. In this the major cement plants contribution was 10.5 million tones where as the mini cement plants only producing the approximate 1.58 million tones. The cement consumption of Andhra Pradesh is only 6 million tones. In 1997-98 and this figure has increased to 7 million tons by the end of 1998 because of various development program taken up by the state government and the industrys dynamic promotional activities. The cement configuration in the state has been observing steady growth. In 1996-97 the cement the consumption was only 4.87 million tons and the further consumption increased to 5.87 million tons. As far as
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production and consumption is concurrent, Andhra Pradesh cement industry performance increased its 5.29% and 8% respectively in the year 1996-97. This percentage increase is very low when compared to national average i.e. 8.5% because in this no production activity from the newly erected plants as well as the existing plants which are increased their installed capacity. One more reason for this type if low growth rate was number of new plants and the existing plants which were increasing their capacities started their production in various parts of our country the cement exports in the year 1992-93, 36,200 tons exported to Bangladesh and some other countries and this export figure increased to 1, 35,000 tons in 1993-94, there is only 10,000 tons of cement exported to Burma from Vishakhapatnam. The following are the major contributors of cement industry in Andhra Pradesh. 1. Madras Cements Limited 2. India Cements Limited 3. Zuari cements limited

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WORKING CAPITAL MANAGEMENT:Working Capital is the firms holdings of current assets such as cash, receivables, inventory & marketable securities. Every firm requires working capital for its day to day transactions such as purchasing raw material, for meeting salaries, wages, rents, rates, advertising etc. Significance of Working Capital:The world in which real firms function is not perfect. It is characterized by the firms considerable uncertainty regarding the demand, market price, quality & availability of its own products and those suppliers. While the firm has many strategies available to address these circumstances, strategies that utilize investment or financing with working capital accounts often offer a substantial advantage over the techniques. The importance of working capital management is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities likeArranging short term financing. Negotiating favorable credit terms. Controlling the movement of cash. Administrating accounts receivables. Monitoring investment in receivables. Decisions concerning the above areas play a vital role in maximizing the overall value of the firm. Once decisions concerning these areas are reached, the level of working capital is also determined in active decision sense, but falls out as residual from the decision just made. The management of working capital plays an important role in maintaining the financial health during the normal course of business. This critical role can be enunciated by examining the flow of resources through the firm. By far the major flow is the working capital cycle. This is the loop (previous page) which starts at the cash and the marketable securities account, goes through the current account as direct labor and materials which are purchased and use to produce inventory, which in turn is sold and generates accounts receivables, which are finally collected to replenish cash. The major point to notice about this cycle is
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that the turnover or velocity of resources through this is very high related to the other inflows and outflows of the cash account. There are two concepts of working capital namely; Gross Working Capital and Net Working Capital. Gross Working Capital, simply called as working capital refers to the firms investment in current assets. Current assets are the assets, which in ordinary course o business can be converted into cash within an accounting year. Current assets include cash and bank balances, short term loans and advances bills receivables, sundry debtors, inventory, prepaid expenses, accrued incomes, money receivable ( within 12 months). The following are the few advantages of adequate working capital in the business: Cash Discount: Adequate working capital enables a firm to avail cash discount facilities offered to it by the suppliers. The amount of cash discount reduces the cost of purchase. Goodwill: Adequate working capital enables a firm to make prompt payment. Making prompt payment is a base to create and maintain goodwill. Ability to face crisis: The provision of adequate working capital facilities to meet situations of crisis and emergencies. It enables a business to with stand periods of depression smoothly. Credit-Worthiness: It enables a firm to operate its business more efficiently because there is not delay in getting loans from banks and other on easy and favorable terms. Regular supply of raw materials: It permits the carrying of inventories at a level that would enable a business to serve satisfactory the needs of its customers. That is it ensures regular supply of raw materials and continuous production. Expansion of markets: A firm which has adequate working capital can create favorable market condition i.e. purchasing its requirements in bulk when prices are lower and holding its inventories for higher. Thus profits are increased. Increased productivity.
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Research programs. High morale. Problems of inadequate working capital:Firm may not be able to take advantage of profitable business opportunities. Production facilities cannot be utilized fully. Short-term liabilities cannot be paid because of non-availability of funds. Its low liquidity may lead to low profitability. In the same way, low profitability results in low liquidity. It may not be able to take advantages of cash discounts. Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it may be lose its reputation; thereafter a firm may not be able get credit facilities. Working capital policy: Working capital management policies have a great effect on firms profitability, liquidity and its structural health. A finance manager should therefore, chalk out appropriate working capital policies in respect of each competent of working capital so as to ensure high profitability, proper liquidity and sound structural health of the organization. In order to achieve this objective the financial manager has to perform basically following two functions: Estimating the amount of working capital. Sources from which these funds have to be raised. Operating Cycle: Working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically terms as operating cycle of the business. In case manufacturing company, the operating cycle of time necessary to complete the following cycle of event. Conversion of cash into raw materials. Conversion of raw materials into work in progress. Conversion of work in progress into finished goods. Conversion of finished goods into accounts receivables.
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Conversion of accounts receivables into cash. This cycle is continuous phenomena. In case of Trading Firm the operating cycle will include the length of time required to: Cash into inventories. Inventories into accounts receivables. Accounts receivables into cash. In case of Financing Firm the operating cycle includes the length of time taken for 1 year. Conversion of cash debtors, and Conversion of debtors into cash.

IMPORTANT OR ADVANTAGES OF ADEQUATE WORKING CAPITAL: 1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. Goodwill: Sufficient working capital enables a business concern to make prompt payments and helps in creating and maintaining goodwill. 3. Easy loans: A concern having adequate working capital, high solvency and good credit standing can arrange from banks and other an easy and favorable terms. 4. Cash discount: Adequate we also enable a concern to avail cash discount on the purchases and hence it reduces costs. 5. Regular supply of raw material: Sufficient working capital ensures regular supply or raw material and continuous production. 6. Regular payment of salaries and wages and other day-to-day commitments: A company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments which raises the moral of its employees increase their efficiency, reduces wastages and costs and production and profits. 7. Exploitation of favorable market condition: Only concern with adequate we can exploit favorable market conditions such as purchasing its requirement in bulk when the prices are lower and by holding its inventories for higher prices. enhance

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8. Ability to face crisis: Adequate working capital enables a concern to face business crisis in emergency such as depression because during such periods, generally, there is much pressure on working capital. 9. Quick and regular return on investment: Every investor wants a quick and regular return his investment sufficiency of working capital enables a concern to pay quick and regular dividends to its investors as there may not be much pressure to plough back profits. This gains the confidence to raise additional funds in the future. 10. High morale: Adequacy of working capital creates an environment of security, confidence, high morale and creates overall efficiency in a business. EXCESS OR INADEQUATE WORKING CAPITAL Every business concern should have adequate working capital run its business operation. It should have neither redundant or excess working capital nor inadequate nor shortage or working capital. Both excess as well as short working capital positions are bad for any business. However, out of the two, it is the inadequacy of working capital, which is more dangerous from the point of view of the firm. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. When there is a redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and loses. Excessive working capital implies excessive debtors and defective credit policy which may cause higher incidence of bad debts. It may results into overall inefficiency in the organization. When there is excessive working capital, relation with banks and other financial institution may not be maintained. Due to low rate of return on investment, the value of share may also fall. The redundant working capital gives rise to speculative transactions. DISADVANTAGES OR DANGERS OF INADEQUATE WORKING CAPITAL

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A concern, which has inadequate working capital, cannot pay its short-

term liabilities in time. Thus it will lose its reputation and shall not be able to get good credit facilities. It cannot buy its requirements in bulk and cannot avail of discount, etc. It becomes difficult for the firm to exploit favorable market condition and undertake profitable projects due to lack of working capital. The firm cannot pay day-to-day expenses of its operations and its creates inefficiencies, increases costs and reduces the profits of the business. It becomes impossible to utilize efficiently the fixed asset due to nonavailability of liquid funds .The rate of return on investment also falls with the shortage of working capital. CHARACTERISTICS OF CURRENT ASSETS: In the management of working capital, there are two characteristics of working capital (1) short life span (2) swift transformation into other asset forms. Current assets have a short life span. Cash balances may be held idle for a week or two, accounts receivable may have a life span of 30 to 120 days, and inventories may be held for 30 to 100 days. The life span of current assets depends upon the time required in the activities of procurement, production, sales, and collection and the degree of synchronization among them. Each current asset is swiftly transformed into other asset forms cash is used for acquiring raw materials ; raw materials are transformed into finished goods (this transformation may involve several stages of work-in-progress); finished goods, generally sold on credit are converted into sundry debtors, on realization, generate cash. Below diagram shows the cycle of transformation.

CASH Cycle

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Finished goods Accounts receivable Work in progress

Wages, Salaries, Factory overheads

Raw materials

Cash

Supplier s

The short life span of working capital components and their swift transformation from one form into another has certain implications Decisions relating to working capital management are repetitive and frequent. The difference between profit and present value is insignificant. The close interaction among working capital components implies that efficient management of one component cannot be undertaken without simultaneous consideration of other components.

The investment in working capital is influenced by four key events in the production and sales cycle of the firm:
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Purchase of raw materials Payment of raw materials Sale of finished goods Collection of cash for sales

Above diagram depicts these events on the cash flow line. The firm begins with the purchase of raw materials which are paid for after a delay which represents the accounts payable period. The length of operating cycle of a manufacturing firm takes into account. Inventor Conversion period (ICP) Debtor Conversion period (DCP) Payment Deferred Period (PDP)

The Inventory Conversion Period is the total time needed for producing and selling the product .The firm converts the raw material in to finished goods and then sells the same. The time lag between the purchase of raw materials and the sale of finished goods is the inventory period. . Typically, it includes: Raw Material Conversion Period (RMPC) Work-in-Progress Conversion Period (WIPCP) Finished Goods Conversion Period (FGCP) is the time required to collect

The Debtor Conversion Period

Outstanding amount from customers. Customers pay their bills sometimes after the sales. The period that elapses between the date of sales and the date of collection of receivables is the accounts payable period or debtors period. The total of inventory conversion period and debtor collection period is referred to as Gross Operating Cycle (GOC). The Payments Deferred Period is the length of time the firm is able to defer payment on various resource purchases. Symbolically, ICP = RMCP + WIPCP + FGCP
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The difference between the gross

operating cycle and payment-deferred period is Net Operating Cycle (NOC).

GOC = ICP + DCP NOC = GOC PDP The duration of the cycle with reference to working capital is: Longer the cycle ----- Higher the working capital Shorter the cycle ----- Lower the working capital. It is helpful to monitor the behavior of overall operating cycle and its individual components. For this purpose, time-series analysis and cross-section analysis may be done. In time-series analysis, the duration of the operating cycle and its individual components is compared over a period of time for the same firm. In cross-section analysis, the duration of the operating cycle and its individual components is compared with that of other firms of a comparable nature

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Review of Literature
1) Sushma Vishnani and Bhupesh Kr. Shah have done a study in the area of Working Capital Management in comparison with various companies; the findings in the study indicate clearly that a companys inventory management policy, debtors management policy and creditors management policy play an important role in its profitability performance. It recommends that the concerned managers should give due attention towards policy formulation in this regard as well as implementation of such working capital policies. Relying on the findings of the study, they can see for themselves the practices followed by their peers in the area of working capital management. Corporate value is enhanced when return on capital employed (ROCE), a function of working capital management, exceeds cost of capital, a function of capital investment decisions. And, it is quiet obvious that return can be enhanced by limiting the investment in working capital to the adequate level. Though working capital management is of equal importance for big as well as small companies, but it is of special importance to managers of small sized companies because it is they who strive for finances and the opportunity cost of finances for them is usually on the higher side. Although, in this study, we have not drawn any line of demarcation between small and big sized companies, but yes definitely a study in that direction would help the budding managers of small companies. Also use of information technology in working capital management would help in improving operational efficiency. (Impact of Working Capital Management Policies on Corporate Performance An Empirical Study by Sushma Vishnani and Bhupesh Kr. Shah, Global Business Review 2007; 8; 267) 2) An underlying theme of this study is that high growth certainly does not ensure high operating performance. Consistent with prior research (Peterson and Rajan, 1997) this study provides further evidence that good working capital management is positively associated with better operating performance. Higher levels of accounts receivable are associated with higher operating performance, in all three of the
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growth rate categories. The study also finds that maintaining control over levels of cash, securities, inventory, fixed assets, and accounts payables is associated with higher operating performance. The study also indicates that firms which are experiencing very high growth will hold higher levels of cash, securities, inventory, fixed assets, and accounts payable to support the high growth. The study suggests that these firms are sacrificing operating performance (accepting lower operating returns) to support the high growth. This, in turn, increases financial and operating risk for these firms. Perhaps IPO firms should stay more focused on their operating performance, while maintaining more moderate growth levels. The underlying phenomena in the case is perhaps that many firms which are in a high growth phase tend to have an increased need for cash, securities, inventory, fixed assets, and accounts payable. Increasing the levels of these balance sheet items can place financial stress on the firm, as it is required to provide funding to support the increased levels. As a result of the higher level of assets, operating performance may decrease. It should be noted, as always, high growth does not necessarily equate with high performance. A combination of high growth and negative operating performance can result in disastrous results. The findings of this study suggest that perhaps IPO firms should stay more focused on their operating performance than on maintaining high growth levels. (Working Capital Management, Growth and Performance of New Public Companies, Credit & Financial Management Zhang,Yilei) 3) A questionnaire survey by Smith and Sell [ Working Capital Management in Practices published in 1978] indicate that 68% of the respondent firm used either cost balancing models or computerized inventory control. The survey evidence reports that the basic models of inventory management are widely used. Abstract Review, Third Quarter 2008 by Beneda, Nancy,

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The current study contributes to the literature by examining impact of working capital management on the operating performance and growth of new public companies. The study also sheds light on the relationship of working capital with debt level, firm risk, and industry. Using a sample of initial public offerings (IPO's), the study finds a significant positive association between higher levels of accounts receivable and operating performance. The study further finds that maintaining control (i.e. lower amounts) over levels of cash and securities, inventory, fixed assets, and accounts payables appears to be associated with higher operating performance, as well. We find that IPO firms which are experiencing unusually high growth tend not to perform as well as those with low to moderate growth. Further firms which are experiencing high growth tend to hold higher levels of cash and securities, inventory, fixed assets, and accounts payables. These findings tend to suggest that firms are willing to sacrifice performance (accept low or negative operating returns) to increase their growth levels. The higher level of growth is also associated with higher operating and financial risk. The findings of this study suggest that perhaps IPO firms should stay more focused on their operating performance than on maintaining high growth levels. Introduction and Literature Review Working capital policy refers to the firm's policies regarding 1) target levels for each category of current operating assets and liabilities, and 2) how current assets will be financed. Generally good working capital policy (i.e. under conditions of certainty) is considered to be one in which holdings of cash, securities, inventories, fixed assets, and accounts payables are minimized. The level of accounts receivables should be used as a means of stimulating sales and other income. Previous literature on working capital management has found a negative association, overall, between level of working capital and operating performance as measured by operating returns and operating margins (Peterson and Rajan, 1997). Under conditions of certainty (i.e. sales, costs, lead times, payment periods, and so on, are
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known), firms have little reason to hold more working capital than a minimum level. Larger amounts would increase the level of operating assets, increase the need for external funding, resulting in lower return on assets and a lower return on equity, without any increase in profit. However the picture changes when uncertainty (i.e. uncertain growth) is introduced (Brigham and Houston, 2000). Larger amounts of cash, securities, accounts receivables, marketable securities, inventories, and fixed assets will be needed to support increased sales Required levels will be based on expected sales levels and expected order lead times. Additional holdings may be needed to enable the firm to deal with departures from the expected values. Further, firms will also attempt to increase their accounts payable balances as a means of financing increased levels of current operating assets. Firms which are in high growth stages will face the challenge of maintaining the necessary level of operating assets to support subsequent growth, while at the same time attempting to maintain adequate performance indicators. This study focuses on understanding how IPO companies manage their working capital and other balance sheet items to support subsequent growth. This study supports the existing literature on working capital and contributes to the existing literature by examining a sample of firms (i.e. recent IPO firms) which have a wider range of growth levels than non-IPO firms. Our study examines the impact of working capital management on the operating performance and growth of new public companies. The study also examines these relationships under three categories of growth (i.e. negative growth, moderate growth, and high growth). The study also examines other selected firm characteristics in light of working capital management: firm operating and financial risk, amount of debt, firm size, and industry. An underlying theme of this study is that high growth certainly does not ensure high operating performance. Consistent with prior research (Peterson and Rajan, 1997) this study provides further evidence that good working capital management is positively associated with better
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operating performance. Higher levels of accounts receivable are associated with higher operating performance, in all three of the growth rate categories. The study also finds that maintaining control over levels of cash, securities, inventory, fixed assets, and accounts payables is associated with higher operating performance. We find that firms which are experiencing very high growth will hold higher levels of cash, securities, inventory, fixed assets, and accounts payable to support the high growth. The study suggests that these firms are sacrificing operating performance (accepting lower operating returns) to support the high growth. This, in turn, increases financial and operating risk for these firms. Perhaps IPO firms should stay more focused on their operating performance, while maintaining more moderate growth levels. Another aspect of this study is that it fills a void in the initial public offerings literature. Recent literature finds that new public companies underperform the market after going public. Ritter in his 1991 paper reports substantially lower stock returns for IPO firms between 1975 and 1984 than for a size-and-industry-matched sample of seasoned firms. Since then there is a growing literature explaining IPO underperformance as related to agency cost (Smith, 1990), institutional holdings (Field, 1995), venture capital (Jain and Gompers, 1997; Jain and Kini, 2000), market timing of IPO (Benninga, 2004), and earnings management (Teho et al., 1998; Ahmad-zaluki et al., 2008). However, there is no study linking the working capital management and post-IPO performance. Our paper tries to fill the void. The findings of this study would be interesting to investors and creditors of new public companies. Data and Descriptive Statistics The data set starts with initial public offerings (IPOs) reported in the "Corporate Market Data" section of the Investment Dealer's Digest over the period January 1995 to December 1998 and Hoovers.com for the period January 1999 to December 2004. The IPOs are required to have
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stock return data from CRSP and financial statement data from Compustat to be included in the sample. The resulting number of IPO firms in the sample consists of 2,210 IPO firms. The sample of IPO firm years is then constructed using this IPO data and four post trading years of accounting and return data. Once a firm becomes distressed (loses 90% of its market value) it is removed from subsequent sample years. All observations with negative equity were deleted from the sample, as well. This resulted in 7,373 IPO observations. All indicators are computed as of the beginning of each fiscal year, except growth in sales, operating return on assets, and return on equity, which occur during the first year subsequent to the computed indicators. Univariate analysis of the working capital components From Table 1, Panel A, IPO firms are characterized by large levels of cash and securities (the average ratio to sales is 6.94). Interestingly, when cash and securities are excluded from the computation of working capital, the resulting average ratio of working capital to sales is actually negative (i.e. -0.520). Upon further observation, on average, for the entire study sample, accounts receivable is 23% of sales, inventory is 18% of sales, and accounts payables are 93% of sales. The larger level of average accounts payable present in this sample causes working capital to be negative since accounts payable is subtracted in the computation of working capital. The large amount of accounts payable suggests that mese firms are probably funding growth in part with large levels of accounts payable and negative working capital (excluding cash and securities). Sample Descriptives The data set starts with initial public offerings (IPO's) reported in the "Corporate Market Data" section of the Investment Dealer's Digest over the period January 1995 to December 1998 and Hoovers.com for the period January 1999 to December 2004. The IPO's are required to have stock return data from CRSP and financial statement data from Compustat to be included in the sample. The resulting number of IPO firms in the sample consists of 2,210 IPO firms. The sample of IPO firm
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years is then constructed using this IPO data and four post trading years of accounting and return data. Once a firm becomes distressed (loses 90% of its market value) it is removed from subsequent sample years. AU observations with negative equity were deleted from the sample, as well. This resulted in 7,373 IPO firm years. AU indicators are computed as of the beginning of each fiscal year, except Growth in sales. Operating return on assets, and return on equity, which occur during the year after the indicators are computed. Firm size is computed as the total assets for each firm. Debt ratio is computed as debt divided by (debt equity). Operating margin is computed as earnings before interest and taxes divided by Sales. Growth in sales is computed as (Salest i - Sales,) divided by Salest. Operating return on assets is computed as earnings before interest and taxes divided by (beginning total assets minus current liabilities). Return on equity is computed as net income divided by beginning equity. Market-to-book ratio is calculated as (shares outstanding ? stock price) total assets BV equity) / total assets. NASDAQ index adjusted returns are calculated by subtracting the NASDAQ index returns from the post-IPO annual returns for the first, second, third and fourth years after going public. Idiosyncratic return variance is calculated as the variance of the residuals from a regression of daily returns on the NASDAQ index market returns. The variances are computed over the first 120 days after going public, and over the first, second, third, fourth, years to compute prior year return variances. Technology firms include those firms in the following industries: computer hardware, semiconductors, storage devices, and peripherals (SIC codes 3559, 3570, 3572, 3577, and 3674); computer networking, software, and services (SIC codes 7370, 7372, 7374, and 7389); and communications equipment (SIC codes 3576 and 3663). Also apparent from Table 1, Panel A is that operating profit is negative on average. Operating margin, computed as operating profit divided by sales is - 1 .07 and operating return on assets is 17.4% on average. It should also be observed that technology firms have lower debt ratios,
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lower growth rates, and lower operating returns. The returns on equity for the technology firms are not as low as those for non-technology firms which is as expected since technology firms have lower debt levels, (i.e. when firms exhibit negative operating performance, higher leverage from debt results in lower returns on equity.) From Table 1, Panel B, most notable is the decrease in cash and securities, inventory, fixed assets, and accounts payables for firms in the first two years after going public to the third and fourth years. This is consistent with lower average growth in the third and fourth years. Interestingly, net accounts receivables increases. These findings may indicate that firms are in a better position to improve their working capital management in years 3 and 4 because of lower growth rates. Also, operating margins increase, and operating returns and returns on equity decrease from the first two years to the third and fourth years. One of the attributes of using IPO companies to examine working capital management is the wide range of growth and performance characteristic of these firms. In Panel C of Table 1, the averages for the selected indicators are reported according to three categories of sales growth. It is apparent from examination of the reported results in Panel C that the sample firms in this study, on average, manage working capital differently for different levels of growth. Further it appears that, overall, high growth firms sacrifice operating performance and report lower operating returns and margins to support growth. First, a negative association between growth and performance for these new public companies is observed. IPO firms with moderate growth rates exhibit an average operating return of 3.5%, whereas firms in the high growth category have a negative average operating return of -14.4% and negative growth firms have an average operating return of -61.1%. Related to this observation is that the average accounts receivabletosales ratio is positive (0.72) only in the moderate sales growth category. The average of this ratio is negative in the negative growth category and zero in the high growth category.

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Second, the ratios to sales for cash and securities, inventory, fixed assets, and accounts payables are reportedly higher in the high growth category. These indicators are quite normal for the moderate sales growth category. The indicators are mixed for the negative sales growth category. Third, the reported averages for return variance, beta, and market-to-book ratio are all at their lowest levels in the moderate growth category, indicating lower operating and financial risk for these firms. The results of the univariate analyses, overall support the contention that firms which are experiencing high growth tend to hold higher levels of cash and securities, inventory, fixed assets, and accounts payables. These findings tend to suggest that firms are willing to sacrifice performance (accept low or negative operating returns) to increase their growth levels. The higher level of growth is also associated with higher operating and financial risk. The findings of this study suggest that perhaps IPO firms should stay more focused on their operating performance than on maintaining high growth levels. A. Working capital management and sales growth The result is reported in Table 2. The independent variable WC Management is working capital in model (1), working capital less cash and securities in model (2), cash and securities in model (3), net accounts receivable in model (4), inventory in model (5), accounts payable in model (6); and in model (7) net fixed assets is used to determine the effect of other balance sheet items. In model (8) all working capital structure variables and net fixed assets are included as independent variables to examine the implications of overall firm management for growth. Control variables include beta, stock return variance, debt ratio, operating return, technology dummy, markettobook ratio and firm size (computed as the log of total assets).

Relationship between working capital structure and sales growth

This table reports the results of the regressions where the dependent variable is Sales Growth defined as (salest - salest-i) divided by total assetst-i for each IPO. The independent variables are Working Capital
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(Model 1), Working Capital less Cash and securities (Model 2), Cash and securities (Model 3), Net Accounts Receivable (Model 4), Inventory (Model 5), Accounts Payable (Model 6), and Net Fixed Assets (Model 7), each computed by dividing the beginning of year balance by the total sales for the year. The control variables are as follows: 1) Beta calculated by regressing each IPO's daily returns on the NASDAQ Index daily returns which occur during the first year after the firm goes public; 2) Return Variance defined as the current year's return variance calculated as the variance of the residuals from a regression of daily returns on the NASDAQ index market returns; 3) Debt Ratio computed as the firm's beginning of year total debt divided by the sum of the firm's total debt and stockholders' equity; 4) Operating return defined as EBIT divided by the beginning of year operating assets (we compute operating assets as total assets minus accounts payable); 5) Technology Dummy equal to one if the firm is a technology firm as defined in Table 1 ; 6) Market-to-book ratio defined as each IPO firm's beginning of year stock price times the number of common equity shares outstanding divided by beginning year's stockholder equity; 7) Firm size calculated as the logarithm of the firm's total assets at the beginning of the year. Year After Dummy and Year of IPO are included (not reported). T-statistics are reported in parentheses. ***, ** and * denote significance level at the 1%, 5% and 10% levels, respectively. The results show that there are significant associations between sales growth and the independent variables. Interestingly sales growth is positively associated with working capital and negatively associated with working capital less cash and securities the level of cash and securities appears to be a dominant factor in the working capital/sales growth puzzle. The results show that cash and securities, inventory, accounts payable, and fixed assets are all associated with higher sales growth. Accounts receivable is not significant in the isolated regression model (4); but model (8) shows it is also positively related to growth when examining overall firm management for growth. In sum, our

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results point to the evidence that firm's growth is increasing with the relative amounts of most all of their balance sheet items.

B. Working capital management and performance

High growth, though important to the IPO firms, does not necessarily mean good performance. Therefore we further investigate the relationship between working capital management and performance. We use the following specification and report the results in table 3. EBIT divided by the beginning of year operating assets is used to proxy the firm's performance. We use the same independent and control variables as in equation 1 ; only that we also include sales growth as a control variable. So the regression shows the additional explanatory power of working capital management on performance controlling for the growth.

Relationship between working capital structure and performance

This table reports the results of the regressions where the dependent variable is Operating return defined as EBIT divided by the beginning of year operating assets. The independent variables are Working Capital (Model 1), Working Capital less Cash and securities (Model 2), Cash and securities (Model 3), Net Accounts Receivable (Model 4), Inventory (Model 5), Accounts Payable (Model 6), and Net Fixed Assets (Model 7), each computed by dividing the beginning of year balance by the total sales for the year. The control variables are as follows: 1) Beta calculated by regressing each IPO's daily returns on the NASDAQ Index daily returns which occur during the first year after the firm goes public; 2) Return Variance defined as the current year's return variance calculated as the variance of the residuals from a regression of daily returns on the NASDAQ index market returns; 3) Debt Ratio computed as the firm's beginning of year total debt divided by the sum of the firm's total debt and stockholders' equity; 4) Sales Growth defined as (sales^sub t^ - sales^sub t-1^) divided by total assets^sub t-1^; 5) Technology Dummy equal to one if the firm is a technology firm as defined in Table 1 ; 6) Market-to-book ratio defined as each IPO firm's
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beginning of year stock price times the number of common equity shares outstanding divided by beginning year's stockholder equity; 7) Firm size calculated as the logarithm of the firm's total assets at the beginning of the year. Year After Dummy and Year of IPO are included (not reported). T-statistics are reported in parentheses. ***, ** and * denote significance level at the 1%, 5% and 10% levels, respectively. Although working capital shows no association with performance, working capital less cash is positively related to performance. These results are inconsistent and not particularly consistent with regard to prior research, that maintaining moderate levels of working capital tends to support a higher level of firm performance. Further, the individual components of working capital show different but significant effects on firm and performance. accounts Specifically, are cash and securities, related to inventory, payable negatively

performance; while accounts receivable is positively related to performance. It is of practical implication to document that the working capital components, though they all support growth, influence performance differently.

C. The relationship of the life cycle of post IPO years

With regard to the inconsistent results observed in Tables 2 and 3, above, and the significant differences noted with regard to managing working capital for different growth levels (see Table 1, Panel C above), in this section three growth categories of sample firms are examined. One of the attributes of using IPO companies to examine working capital management is the wide range of growth and performance characteristic of these firms. The results reported in this section tend to provide further evidence that, overall, high growth firms sacrifice operating performance and report lower operating returns and margins to support growth. Reports the results for the regressions according to three categories of sales growth: negative growth, moderate growth, and high growth. It is apparent the sample firms in this study, on average, manage working capital differently for different levels of growth. Further it appears that,
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overall, high growth firms sacrifice operating performance and report lower operating returns and margins to support growth. To conserve space we do not report the coefficients on control variables.

Working capital management on sales growth and operating performance by growth category subsamples
The table reports the sales growth and performance regressions on subsamples of negative growth, moderate growth and high growth subsamples. Sales growth regression specification and variables are the same as in table 2. Performance regression specification and variables are the same as in table 3. Only working capital variables are reported to conserve space. T-statistics are reported in parentheses and denote significance level at the 1%, 5% and 10% levels, respectively. In Panel A and B, the independent variables are working capital and working capital less cash and securities. The level variables maintain the same effect throughout post-IPO years. However, it is interesting to see that the effects of working capital structure have both similarities and differences over years. From Panel C, for the moderate sales growth firms, sales growth is positively associated with accounts receivable and fixed assets. Further, cash and securities, accounts payables, and fixed assets have the highest positive and most significant association with sales growth in the high sales growth category. Also interesting is that in all three sales growth categories, inventory, accounts payable, and fixed assets are negatively associated and accounts receivable is positively associated with firm performance. These associations are more pronounced in the moderate sales growth category. Conclusion The purpose of this paper is to examine the effects of working capital management on firm performance for different levels of growth. The study provides evidence that good working capital management is positively associated with better operating performance. The study
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further indicates that, overall, high growth firms tend to sacrifice operating performance and report lower operating returns and margins to support growth. High growth firms also exhibit higher levels of risk. The underlying phenomena is perhaps that many firms which are in a high growth phase tend to have an increased need for cash, securities, inventory, fixed assets, and accounts payable. Increasing the levels of these balance sheet items can place financial stress on the firm, as it is required to provide funding to support the increased levels. As a result of the higher level of assets, operating performance may decrease. It should be noted, as always, high growth does not necessarily equate with high performance. A combination of high growth and negative operating performance can result in disastrous results. The findings of this study suggest that perhaps IPO firms should stay more focused on their operating performance than on maintaining high growth levels. References Ahmad-zaluki, N. A., K. Campell, and A. Goodcre, 2008, "Earnings management in IPOs: determinants and postIPO performance," Working paper. Benninga, S., Helmantel, M., and Sarig, O., 2005, "The timing of initial public offerings," Journal of Financial Economics 75, 115-132. Brav, S.A., and K. C. Chan, 1997, "Myth or reality? The long-run underperformance of initial public offerings: evidence from venture capital and nonventure capital-backed companies," Journal of Finance 52, 1791-1821. Brigham, E. F. and J. F. Houston, 2000, Fundamentals of Financial Management, Dryden. Field, L., 1995, "Is institutional investment in initial public offerings related to long-run performance of these firms?" Working paper, University of California, Los Angeles. Griffin, J. M., and M.L. Lemmon, 2002, "Book-to-market equity, distress risk, and stock returns," Journal of Finance 57, 2317-2336.

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Jain, B., Kini, O., 2000. Does the presence of venture capitalists improve the survival profile of IPO firms? Journal of Business, Finance & Accounting 27, 1139-1176. Petersen M. A. and R. G. Rajan (1997), "Trade Credit: Theory and Evidence," Review of Financial Studies 10, 661-691. Ritter, J., 1991, "The long-run performance of initial public offerings," Journal of Finance 46, 3-27. Smith, A., 1990, "Corporate ownership structure and performance: The case of management buyouts," Journal of Financial Economics 27, 143-164. Teho, S. H., I. Welch, and TJ. Wong, 1998, "Earnings management and the long-run market performance of initial public offerings," Journal of Finance 53, 1935-1974. By: Nancy Beneda, Ph.D., C.P.A. & Yilei Zhang Ph.D. Nancy Beneda, Ph.D., C.P.A. is the Robert Page Professor and Associate Professor of Finance at University of North Dakota. Dr. Beneda's teaching and research interests include risk management, corporate valuation, and valuation of initial public offerings (IPO's). She also serves as the Chairperson of the Finance Department. Dr. Beneda obtained her Ph.D. in finance from St. Louis University on August 6, 1999 and became a Certified Public Accountant in 1989. Previous to her service at UND she served as audit supervisor at the accounting firm, Price Waterhouse. Yilei Zhang, Ph.D., is an Assistant Professor at the Department of Finance at the University of North Dakota. Her research interest is in mergers and acquisitions, IPO and SEO, and corporate governance. She may be reached via email at yilei.

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DATA ANALYSIS & INTERPRETATION S

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SHORT TERM LIQUIDITY MANAGEMENT CURRENT RATIO:The current ratio is a measure of a firms short-term solvency. It indicates the availability of current assets in rupee for every one rupee of current liabilities. A ratio of greater than one means that firm has more current assents than current claims against them. A high ratio indicates high liquidity; while a low ratio indicates a low liquidity. For manufacturing CURRENT RATIO = CURRENT LIABILITIE S
CU RRENTS ASSETS

Table 1.1 CURRENT RATIO

CURRENT YEAER 2006-07 2007-08 2008-09 2009-10 CURRENT ASSETS 3149756052 3270733711 6147532582 7792358719 LIABILITIES RATIO 1656267950 1.9 2286973441 1.43 3945088370 1.56 4015124569 1.94

in Rs.

Interpretation:The Current Ratio during the period of the study was higher than the standard. This in turn indicates that the company is maintaining sufficient liquidity in their organization. For a manufacturing undertaking, a ratio of 2:1 is traditionally considered a benchmark of adequate liquidity.
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QUICK RATIO: Quick Ratio indicates the immediate liquidity of current assets. Recognizing that inventory might not be very liquid, this ratio takes into account quickly realizable assets and measures them against current liabilities. This is more accurate measure of estimating the units liquidity. Generally a quick ratio of 1:1 is considered to be a more satisfactory measure of liquidity position of a concern QUICK RATIO = CURRENT
Q ICK ASSETS U LIA BILITIE S

Table 1.2 QUICK RATIO in Rs

CURRENT YEAR 2006-07 2007-08 2008-09 2009-10

LIABILITIES QUICK ASSETS RATIO 1792815683 1656267950 1.08 2252011403 2286973441 0.98 4848409659 3945088370 1.22 5356761021 4015124569 1.33

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Interpretation The table reveals that the overall quick ratio is around 1.5. This is according to the standard, which indicates that the company has maintained sufficient current assets to meet the current of liquid assets are locked in current assets (which if effectively used can increase the productivity). WORKING CAPITAL TURNOVER RATIO:Working capital turnover ratio establishes a relationship between net sales and working capital. This ratio provides information as to how effectively a company is using its working capital to generate sales. A higher ratio indicates the managements efficient utilization of the assets while low turnover ratio indicates the underutilization of available resources and presence of idle capacity. WORKING CAPITAL TURNOVER RATIO= NET W RKING CAPITAL O
*

NET SALES

Net Working Capital = Current Assets Current

Liabilities

Table 1.3 WORKING CAPITAL TURNOVER RATIO

YEAR 2006-07 2007-08 2008-09 2009-10 NET SALES 7145429942 9863449724 15301309179 19246718554 NET WORKING CAPITAL 1493488102 983760270 2202444212 3777284150 RATIO 4.78 10.02 6.94 5.09

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Interpretation:
The working capital turnover ratio was 4.78 in the year 2006-07, increased to 10.02 in the year 2007-08 and again decreased to 6.94 in the year 2008-09 And again decreased 5.09 in the year 2009-10 Thus, the ratio during the period of the study is showing a fluctuating trend. But the average ratio during the period was high, which is an indication that the firm has been utilizing the assets efficiently.

WORKING CAPITAL PERFORMANCE RATIO:

This ratio indicates the mode of financing of debtors. It is used more to control the working capital of an enterprise. Often a minimum and maximum value of the ratio is known to lessen the dependence of financing from other sources. A ratio of 1:1 is considered to be a more satisfactory measure of performance of working capital of a firm.

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Working capital performance ratio =

TRADEDEBTO RS TRADECREDI TORS + ADVANCEPAY MENTS

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Table 1.4 Working Capital Performance Ratio

TRADE YEAR 2006-07 2007-08 2008-09 2009-10 TRADECREDITORS+ADVANCE 1069142870 1198528794 23834113029 4504830991 RATIO 0.42 0.41 0.23 0.13 DEBTORS PAYMENTS 452734619 493474854 653448795 616072465

Interpretation:
The working capital performance ratio was 0.42 during the year 2006-07 it decreased to0.41 in the year 2007-08 and it decreased to 0.23 in the year 2008-09 and it again decrease much higher than the standard ratio; this indicates that the company has been financing the debtors very well.

CURRENT ASSETS TURNOVER RATIO: -

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It explains the relationship between sales and current assets. This ratio indicates the sales generating capacity of current assets. The lower the ratio more is the amount of current assets required per unit of sales

Current Assets turnover ratio = CURRENTASS

SALES

ETS

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Table 1.5 Current Assets turnover ratio

YEAR 2006-07 2007-08 2008-09 2009-10 NET SALES CURRENT ASSETS RATIO 7145429942 3149756052 2.26 9863449724 3270733711 3.01 15301309179 6147532582 2.48 19246718554 7792358719 2.46

Interpretation: The current assets turnover ratio was 2.26 in the year 2006-2007, it increased to 3.01 in the year 2007-2008 and decreased to 2.48 in the year 2008-2009 and again decreased 2.46 in the year 2009-2010The current asset turnover ratio during the period under the study had a fluctuating trend. But when we refer 2006-2007 to 2007-2008, 2008-2009 and 20092010 we can see that there is an increase which indicates that the company has been using the current assets properly to generate sales. CASH MANAGEMENT Cash Turnover Ratio: This ratio focuses on the cash holding policy of the firm. A decline in this ratio indicates high levels of idle cash. A high ratio is more preferable. Cash Turnover ratio =
CASHOPERAT INGEXPENSE S CASHANDBAN KBALANCDES

Table 1.6 Cash Turnover Ratio

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YEAR 2006-07 2007-08 2008-09 2009-10

CASH OPERATING CASH AND BANK EXPENSES BALANCES RATIO 6330921229 434118131 14.58 8313160381 493065688 16.86 1028447999 565713869 18.13 13200044657 229435639 57.53

Interpretation:
The Cash turnover ratio was 14.58 in the year 2006-07 which increased to 16.86 in 2007-08 and increased to 18.17 in the year2008-09.again increased 57.53 in the year2009-10. The ratio has been above 14 .58 during the period of study, which indicates that the cash holding policy of the firm is good.

INVENTORY MANAGEMENT Activity Ratios:Funds of various creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios
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are also known as Turnover ratios because they indicate the speed with which the assets are being converted or turned over into sales. Activity ratios, thus involve a relationship between sales and assets. A proper balance between sales and assets generally reflect that assets are managed well.

Inventory Turnover Ratio:Inventory Turnover Ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing cost of goods sold by the average inventory.
COSTOFGOOD SSOLD AVERAGEINV ENTORY

Inventory Turnover Ratio= Table 1.7

Inventory Turnover Ratio

COST OF GOODS YEARS 2006-07 2007-08 2008-09 2009-10 SOLD 3820898207 4367281138 5788755562 7840396793 AVERAGE INVENTORY RATIO 117667878 32.47 362768945 12.03 293487301 19.72 279747059 28.02

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Interpretation:
The inventory turnover ratio indicates the number of times a rupee generates turn over with respect to inventory investment. A high ratio indicates a better conversion of inventory. The inventory turnover ratio in the year 2006-07 was 32.47 which decreased to 12.03 in 2007-08 and which further increase to 19.72 in 2008-09 and again increased 28.02 in the year 2009-10which shows an upward trend which is a very good sign for the company.

RAW MATERIAL INVENTORY TURNOVER:This ratio shows the efficiency of the firm in converting raw material into finished goods. Raw material turnover and holding period shows the number of times raw material is rotated during the period. It shows the number of times raw material is converted into work-in-progress. It also shows the number of days it takes to convert raw material into finished goods.

R A W M A T EL C O N SU M E D R IA AW Raw material Inventory Turnover = A V E R A G E RM A T E R IA L

Table 1.8 RAW MATERIAL INVENTORY TURNOVER
AVERAGE RAW MATERIAL YEAR 2006-07 2007-08 2008-09 2009-10 MATERIAL CONSUMED INVENTORY 1177843411 1520714101 2011500769 2564131071 67226226 8877554 128567141 227080390 RATIO 17.52 17.16 15.64 11.29

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Work in Progress Inventory Turnover =

COSTOFGOOD SSOLD AVERAGEWOR KINPROGREE SINVENTORY

Interpretation:
The raw material turnover ratio in the year 2006-07 was 17 .52which decreased to 17.16 in 2007-08 and which further decreased to 15.64 in 2008-09 and again decreased 11.29 in the year 2009-10The raw material turnover ratio is showing a downward trend which is not a good sign. A decrease in ratio is showing increase in raw material inventory levels or slow-moving inventory. A high level of raw material inventory indicates unnecessary tie-up of funds, reduced profit and increased cost

Work-in-progress Inventory Turnover:

Work-in-progress turnover helps in examining the efficiency with which the firm converts work-in-progress into finished goods. The ratio helps in knowing the number of times work-in-progress is converted into finished goods.

Table 1.9 Work in Progress Inventory Turnover

Average Work-inYEAR 2006-07 2007-08 2008-09 2009-10 Cost of goods sold Progress 3820898207 4367281138 5788755562 7840396793 20135147 250658932 197407203 1476644491 Ratio 189.76 17.42 29.32 53.1

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Interpretation:
The Work-in-progress inventory was189.76 in 2006-07, it decreased to 17.42 in 2007-08 and it further increased to 29.32 in 2008-09. And it again increased53.10in the year2009-10 It is showing a fluctuating trend, which is good for the organization. A high ratio indicates fast conversion of goods into finished goods.

FINISHED GOODS INVENTORY TURNOVER RATIO:Finished goods turnover indicates the efficiency of the management in managing the finished goods. A high level of inventory is an indication of inefficient management of finished goods inventory.
FINISHED GOODS TURNOVER RATIO = COSTOFGOOD SSOLD AVERAGEFIN ISHEDGOODS INVENTORY

Table 1.10 Finished Goods Inventory Turnover Ratio

Average Finished Goods Year 2006-07 2007-08 2008-09 2009-10 Cost of goods sold Inventory 3820898207 4367281138 5788755562 7840396793 101513919 11211003 112110013 132102568 Ratio 37.63 38.95 51.63 59.35

Interpretation: The finished goods turnover ratio was 37.63 in 2006-07, it

increased to 38.95 in 2007-08 and it further increased to 51.63 in 2008-09

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and again increased to 59.35in the year (2009-10) the conversion of finished goods into sales is getting quicker year-by-year.

DEBTORS MANAGEMENT
Debtors Turnover Ratio:Debtors turnover indicates the number of times debtors turnover each year. Generally the higher the value of debtors turnover, the more efficient is the management of credit.
NETSALES AVERAGEDEB TORS

Debtors Turnover Ratio = Table 1.11

Debtors Turnover Ratio

Year 2006-07 2007-08 2008-09 2009-10 Net Sales 7145429942 9863449724 15301309179 19246718554

Average Debtors
43,97,11,321 47,31,04,737

57,34,61,825 63,47,60,630

Ratio 16.25 20.84 26.68 30.32

Interpretation:
The Debtors turnover ratio was 16.25 in 2006-07. It increased to 20.84 in 2007-08 which increased to 26.68in 2008-09and again increased 30.32 in the year 2009-10 this continues increase in ratio in the year is a good sign because the higher the debtors turnover ratio, the more.
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COMPARITIVE BALANCE SHEET OF MADRAS CEMENTS

FOR THE YEAR ENDING DECEMBER 31st 2006 2007

PARTICULARS Assets Current Assets Cash & Bank Balances Loans & Advances Sundry Debtors Inventories

Year ending 31st December 2006 2007

Increase

Decrease

52,38,60,3 78 96,37,39,8 85 42,66,88,0 22 52,73,64,6 29

43,41,18,1 31 95,15,54,2 57 42,27,34,6 19 131,13,49, 045

78,39,84,4 16

8,97,42,24 7 1,21,85,62 8 39,53,40 3

Total Assets Liabilities and Capital Current Liabilities Provisions Total Liabilities 244,16,52, 914 135,50,17, 102 12,19,49, 253 147,69,66, 355 96,46,86,5 59 49,88,01,5 43 146,34,88, 102 314,97,56, 052 150,54,85, 367 15,07,82, 583 165,62,67, 950 146,34,88, 102 49,88,01,5 43 146,34,88, 102 78,39,84,4 16 78,39,84,4 16 15,04,68,2 65 2,88,33,3 30

Net working capital Increase in working capital

Total

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COMPARITIVE BALANCE SHEET OF MADRAS CEMENTS

FOR THE YEAR ENDING DECEMBER 31st 2007 2008 Year ending 31st December 2007 43,41,18,13 1 95,15,54,25 7 42,27,34,61 9 131,13,49,0 45 2008 49,30,65,68 8 127,47,15,77 0 49,34,74,85 4 100,94,77,39 9

PARTICULARS Assets Current Assets Cash & Bank Balances Loans & Advances Sundry Debtors Inventories

Increase

Decrease

5,89,47,557 32,31,61,51 3 70,740,23 5

30,18,71,6 46

Total Assets Liabilities and Capital Current Liabilities Provisions

311,97,56,0 52 135,50,17,1 02 12,19,49,2 53 147,69,66,3 55 146,34,88,1 02

327,07,33,71 1 184,14,55,50 4 44,55,17,93 7 228,69,73,44 1 98,37,60,270 48,64,38,4 02 32,35,68,6 84

Total Liabilities Net working capital

Decrease in working capital Total 146,34,88,1 02

47,97,27,832 146,34,88,10 2

47,97,27,83 2 111,18,78,7 32 111,18,78, 732

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COMPARITIVE BALANCE SHEET OF MADRAS CEMENTS LTD

THE YEAR ENDING DECEMBER 31st 2008 2009. Year ending 31st December 2008 49,30,65,6 88 127,47,15,7 70 49,34,74,8 54 100,94,77,3 99 327,07,33,7 11 2009 56,57,13,86 9 364,59,98,9 40 65,34,48,79 5 128,23,70,9 78 614,75,32,5 82

PARTICULARS Assets Current Assets Cash & Bank Balances Loans & Advances Sundry Debtors Inventories

Increase

Decrease

7,26,48,18 1 237,12,83,1 70 15,99,73,94 1 27,28,93,57 9

Total Assets Liabilities and Capital Current Liabilities Provisions

184,14,55,5 04 44,55,17,9 37 228,69,73,4 41 98,37,60,27 0 121,86,83,9 42 220,24,44,2 12

243,79,37,2 15 150,71,51,1 55 394,50,88,3 70 220,24,44,2 12 121,86,83,9 42 220,24,44,2 12 165,81,14,9 29

59,64,81,71 1 106,16,33,2 18

Total Liabilities

Net working capital Decrease in working capital Total

165,81,14,9 29

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COMPARITIVE BALANCE SHEET OF MADRAS CEMENTS LTD

FOR THE YEAR ENDING DECEMBER 31st 2009 2010.

PARTICULARS Assets Current Assets Cash & Bank Balances Loans & Advances Sundry Debtors Inventories

Year ending 31st December 2009 56,57,13,869 364,59,98,94 0 65,34,48,795 128,23,70,97 8 2010 22,94,35,63 9 451,98,15,38 1 61,60,72,4 65 242,70,35,23 4

Increase

Decrease

87,38,16,4 41 114,46,64, 256

33,62,78,23 0 37,376,33 0

Total Assets Liabilities and Capital Current Liabilities Provisions

614,75,32,58 2 243,79,37,21 5 150,71,51,15 5

779,23,58,71 9 290,76,23,18 7 110,75,01,38 2 39,96,49,7 73 46,96,85,97 2

Total Liabilities

Net working capital Decrease in working capital

394,50,88,37 0 220,24,44,21 2

401,51,24,56 9 377,72,34,15 0 157,47,89,93 8 157,47,89,9 38

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FINDINGS & SUGGESTIONS

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FINDINGS
1. The inventory turnover ratio of the form gradually increased 10.02 in year 2007-2008and in the year 2009-2010 5.09 decreased. 2. The proportion of current liabilities is very high. 3. During the overall study period the quick ratio of the from is not satisfactory 4. The networking capital of the company has largely increased during the year from 149, 34,88,102 to 377,72,34,150 the study of period in the working capital turnover ratio is satisfactory. 5. The current ratio of the firm is satisfactory and it is maintaining. It is ideal ratio. 6. Debtors turnover ratio of company is decreased during the current due to increased in closing debtors level. The debtors turnover ratio of the firm is not satisfactory. 7. Materials department and bin cards system maintain in MCL to control the WORKING CAPITAL. 8. The company implements the SAP (system application program) planning by June 2008.

Suggestions:
The company should maintain adequate cash & bank balances in order to meet the obligations of the suppliers timely. The company should use a just-in-time approach in managing rawmaterial, which makes cash available for other operations.

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BIBLIOGRAPHY

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Bibliography:
I.M Pandey ,Financical Management, Vikas Publishing house PVT ltd, New Delhi S.P Jain & K.L Advance Accountancy Kalyani Publications P.Mohana Rao Alok K.Pramanik, working Capital Management & Deep Publishing Pvt Ltd, New Delhi M.Y Khan, P.K Jain, Financial Management ,Tata McGraw Hill Publishing Company Limited, New Delhi James C.Van House, Financial Management Pearson Education

Websites:
www.madras cements.com www.naukrihub.com/india/cement industry/overview

Annexure:
Calculations: Current Assets:-

Particulars Inventories Sundry debtors Cash &bank balances Loans&advances Total

2006-07
131,13,49,045 45,27,34,619 43,41,18,131 95,15,54,257 314,97,56,052

2007-08
100,94,77,399 49,34,74,854 49,30,65,688 127,47,15,770 327,07,33,7 11

2008-09
128,23,70,978 65,34,48,795 56,57,13,869 364,59,98,940 614,75,32,5 82

2009-10
242,70,35,234 61,60,72,465 22,94,35,639 451,98,15,381 779,23,58 ,719

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Current Liabilities:-

Particulars Current liabilities Provisions Total

2006-07
150,54,85,367 15,07,82,583 165,62,67,950

2007-08
184,14,55,504 44,55,17,937 228,69,73,441

2008-09
243,79,37,215 150,71,51,155 394,50,88,370

2009-10
290,76,23,187 110,75,01,382 401,51,24,569

Quick Assets:Quick assets = current assets prepaid expenses Inventory Particulars Current assets Inventories Prepaid expenses Quick Assets 2006-07
314,97,56,05 2 131,13,49,04 5 4,55,91,324 179,28,15,68 3

2007-08
327,07,33, 711 100,94,77,399 92,44,909 225,20,11,403

2008-09
614,75,32, 582 128,23,70,978 1,67,51,945 484,84,09,659

2009-10
779,23,58 ,719 242,70,35,234 85,62,464 535,67,61,021

Net Working Capital:Net working capital = Current Assets current Liabilities Particulars Current assets Current Libilities Net working Capital 2006-07
314,97,56,05 2 165,62,67,95 0 149,34,88,10 2

2007-08
327,07,33, 711 228,69,73,441

2008-09
614,75,32, 582 394,50,88,370

2009-10
779,23,58 ,719 401,51,24,569

98,37,60,270

220,24,44,212

377,72,34,150

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Trade creditors + Advances Payments:Particulars Trade creitors Advances Pataments Total 2006-07
30,78,52,017 76,12,90, 853 1069142870

2007-08
35,88,65,3 33 83,96,63,461 1198528794

2008-09
71,17,56,017 212,23,57,012 23834113029

2009-10
108,55,75,288 314,92,45,708 4504830991

Current Assets Turnover:Particulars Net sales Current Assets 2006-07

714,54,29,94 2 314,97,56,05 2

2007-08

2008-09

2009-10
1,924,67,18 ,554 779,23,58,7 19

986,34,49, 1,530,13,09 724 711 ,179 82 327,07,33, 614,75,32,5

Cash Operating Expenses:Particulars Raw materials consumed Power &fuel Stores consumed Repairs & maintenance Salaries ,wages,& others Administrative expenses Rates & taxes 2006-07
117,78,43,411 213,09,90,165 17,65,89,866 10,20,11,133 40,50,21,168 18,84,79,404 12,43,47,388

2007-08
152,07,14,101 253,77,39,394 27,30,51,716 13,62,11,942 46,18,38,018 20,69,29,688 11,47,25,995

2008-09
201,15,00,369 309,96,30,439 39,18,96,722 16,69,12,337 56,51,83,734 23,57,84,081 3,52,73,732

2009-10
256,41,31,071 407,91,09,987 51,83,87,209 20,93,37,523 81,02,19,938 22,40,93,039 5,74,66,340

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Managing directors remuneration Packing charges Interest & finance charges Transportation & handling expenses Advertisements & other sales promotion expenses Donations Current Operating Expenses

1,91,32,8256

6,16,75,173

24,78,52,296

32,40,44,976

50,17,99,705 35,88,92,443

63,29,86,822 34,35,16,151

81,28,22,757 22,82,94,830

82,37,50,450 51,69,75,617

90,53,10550

169,86,74,224

221,42,08,346

285,85,53,827

22,91,27,610

31,18,74,555

26,01,20,007

19,69,26,956

1,13,75,561 633,09,21,229

1,32,22,602 831,31,60,381

1,09,96,686 1028,82,44,7999

1,72,07,803 1320,00,44,657

Cash and Bank Balances:Particulars Cash& bank balance Cash& bank balances Cost of goods sold:COGS=Opening Stock + Purchases Manufacturing/Direct Expenses Closing Stock Particulars Opening Stock Purchases Manufacturing/Di rect Expenses* 2006-07
23,53,35,756 94,09,54,038 301,50,03,420

2006-07
43,41,18,131 43,41,18,131

2007-08
49,30,65,688 49,30,65,688

2008-09
56,57,13,869 56,57,13,869

2009-10
22,94,35,639 22,94,35,639

+ 2009-10
23,18,31,768 209,93,72,884 583,68,54,491

2007-08
37,03,95,007 65,43,34,516 369,76,94,498

2008-09
35,51,42,883 105,05,39,210 461,49,05,237

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Closing Stock COGS Average Inventory:Average Inventory = Particulars Opening Stock Closing Stock Average Inventory

37,03,95,007 382,08,98,207

35,51,42,883 436,72,81,138

23,18,31,768 578,87,55,562

32,76,62,350 784,03,96,793

2006-07
23,53,35,756 37,03,95,007 11,76,67,878

2007-08
37,03,95,007 35,51,42,883 36,27,68,945

2008-09
35,51,42,883 23,18,31,768 29,34,87,301

2009-10
23,18,31,768 32,76,62,350 27,97,47,059

Average Raw Material:Average raw Material =

Particulars Opening Raw Material Closing Raw Material Average Raw Material

2006-07
6,33,17,601 7,11,34,851 6,72,26,226

2007-08
7,11,34,851 10,60,20,257 8,85,77,554

2008-09
10,60,20,257 15,11,14,024 12,85,67,141

2009-10
15,11,14,024 30,30,46,756 22,70,80,290

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Average work-in-progress:Average work-in-progress= Particulars Opening work-inprogress Closing work-inprogress Average Work-inprogress 2006-07
16,77,35,679 23,49,67,246 20,13,51,463

2007-08
23,49,67,246 26,63,50,618 25,06,58,932

2008-09
26,63,50,618 12,84,63,788 19,74,07,203

2009-10
12,84,63,788 16,65,25,194 19,76,44,491

Average Finished Goods:Average Finished Goods= Particulars Opening Finished Goods Closing Finished Goods Average Finished Goods Inventory Average Debtors:Average Debtors= Particulars Opening Debtors Closing Debtors Average Debtors 2006-07
42,66,88,022 45,27,34,619 43,97,11,32 1

2006-07
6,76,00,077 13,54,27,761 10,15,13,919

2007-08
13,54,27,761 8,87,92,265 11,21,10,013

2008-09
8,87,92,265 10,33,67,980 9,60,80,123

2009-10
10,33,67,980 16,08,37,156 13,21,02,568

2007-08
45,27,34,619 49,34,74,854 47,31,04, 737

2008-09
49,34,74,854 65,34,48,795 57,34,61,825

2009-10
65,34,48,795 61,60,72,465 63,47,60,630

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