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Working Capital Management in Cement Industry

This document provides an overview of the Indian cement industry and My Home Cement Industries Limited. It discusses the company's establishment, location, and production capacity. The document also outlines the objectives and methodology of the study, which includes analyzing the company's liquidity, profitability, operating cycle, recovery efficiency, and cash management over a four-year period using ratio analysis and other tools. Key findings include low current ratios, poor cash balances, inefficient inventory management, and high investment in debtors. Suggestions focus on improving sales, collection periods, and utilizing reserves and surplus. In conclusion, the company's working capital position is satisfactory but it needs to focus on timely collection and reducing reliance on debtors.

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Ragul Anjaneyulu
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20 views6 pages

Working Capital Management in Cement Industry

This document provides an overview of the Indian cement industry and My Home Cement Industries Limited. It discusses the company's establishment, location, and production capacity. The document also outlines the objectives and methodology of the study, which includes analyzing the company's liquidity, profitability, operating cycle, recovery efficiency, and cash management over a four-year period using ratio analysis and other tools. Key findings include low current ratios, poor cash balances, inefficient inventory management, and high investment in debtors. Suggestions focus on improving sales, collection periods, and utilizing reserves and surplus. In conclusion, the company's working capital position is satisfactory but it needs to focus on timely collection and reducing reliance on debtors.

Uploaded by

Ragul Anjaneyulu
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

A Study on Working Capital Management

INDUSTRY PROFILE Overview 1. Indian cement industry dates back to 1914 - first unit was set-up at Porbandar with a capacity of 1000 tones 2. Currently India is ranked second in the world with an installed capacity of 114.2 million tones. Industry estimated at around Rs. 18,000crores (US $ 4185mn) 3. Current per capita consumption - 85kgs. as against world standard of 256kgs 4. Cement grade limestone in the country reported to be 89bt. A large proportion however is un exploitable. 5. 55 - 60% of the cost of production are government controlled 6. Cement sales primarily through a distribution channel. Bulk sales account for < 1% of the total cement produced. 7. An estimated capacity of 11.10 million tons per annum. 8. Ready mix concrete a relatively nascent market in India COMPANY PROFILE Establishment: The Organization My Home Cement Industries Limited is a fast growing and leading Indian industrial group having its head office at Hyderabad and works at Meelacheruvu in Nalgonda district in Andhra Pradesh. It belongs to the groups of my home constructions limited, a leading construction company in South India. The company is new entrant in the field of cement manufacturing where already leading brands like Priyadarshini, Ram co, Raasi and Kakatiya have got deep penetration into the market. The brand name of the cement produced by the company is Maha Cement which is expected to have an image of Maha Shakti and Maha value.

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A Study on Working Capital Management M/s My Home Cement Industries Limited is a public limited company, which is incorporated in 1955. The company commenced its commercial products from 1st July 2000. The cement conforms to the ISI standards and is being marketed under the name of Maha Cement. Maha Cement Industries, a leading cement manufacturing company in Andhra Pradesh having an installed capacity of 6 Million tonnes per annum for immediate placement at their 3 plants located in Andhra Pradesh. Location of plant The factory is situated at Mellacheruvu, Nalgonda District. The principal raw material for the plant is limestone and is available in abundant quantities near the plan INTRODUCTION: Working capital may be regarded as the lifeblood of a business. Its effective provisions can do much to ensure the success of business, which its inefficient management can lead not only to loss of projects but also the ultimate downfall of what otherwise, might be considered as promising concern. Thus, its management is considered as one of the most important aspects of firm's Financial Management. The term working capital stands for that part of the capital which is required for the financial working of the company in simple words; we can say that working capital is the investment needed for carrying out day to day operations of the business smoothly. According to Genestenberg, "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 receivable, and receivables into cash". METHODOLOGY OF RESEARCH RESEARCH DESIGN: In view of the objectives of the study an expletory research is one. Which cargely interprets the already available information, and it lies particularly explains on analysis and interpretation of the existing and available information. It makes use of secondary dated.

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A Study on Working Capital Management SOURCES OF DATA: The study is based on secondary data and discussing with the officials of the company the secondary data consists of the annual reports of 'My Home Cement Industries Ltd' ranging for the last 4 years. Yarning other reports is collected from the company's magazines, published book and from web sites.

TOOLS OF ANALYSIS: Ratio Analysis Percentage Method Regression Analysis Operating cycle Method.

OBJECTIVE OF THE STUDY The present study in my home industries ltd is under taken to palmate the working capital strategy in the organization by establishing the following objections.

To study and know the liquidity of the company its profitability. To calculate and compare the operating cycle duration of the company of the study period. To evaluate the recovery efficiency of the company. To judge the cash management ability of the company. To give flexible solution to improve the Liquidity performance of the company.

SCOPE OF THE STUDY: There is more number of methodologies used in financial analysis present study stage extended to ratio analysis of the companies' audited financial reports. The scope of the study is defined below in terms of concepts adopted and period under focus. First a study on management of working capital is unfired only to the My Home Cement Industries Ltd.

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A Study on Working Capital Management Secondly the laniary concepts of working capital gross and Net is used in marketing profitability and Liquidity respectively and also to arrive at varying objectives of the study. Thirdly the study is based on the annual reports of the company for the period of 4 years 2007 08 to 2010 - 11. Thus on the whole the purpose of the work/study is to analyze the past and present Liquidity performance of the company on varying financial areas life Cash management Inventory management Receivable management

STATEMENT OF THE PROBLEM: In order to maintain forms of revenue from operating every firm needs to maintain certain amount of current assets. For example cash required to pay expenses or to met current obligations for services received or goods purchased etc., by a firm on the identical plan inventories area required to provide the link between production and sale, similarly accounts receivable generates when goods are sold on credit. Economics like mead, backer and field are of the optimum that the whole of these current assets the working capital of a firm. But optimum working capital management must be the objective of any manufacturing concern. Optimum many there shall not be of employment and under employment of the working capital. Therefore, the present studies focus or in the My Home Cement Industries Ltd. is working capital to improve Liquidity and Profitability.

LIMITATIONS OF THE STUDY: The information used is primary from historical annual reports available to the public and the same does not indicate the current situation of the firm. Detailed analysis could not be carried for the project work because of the limited time gone. Since financial matters are sensitive in nature the same would not be acquired easily.

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A Study on Working Capital Management

FINDINGS & SUGGESTIONS

In the present chapter some of the important conclusions drawn from the study of short-term financial management of My Home Cement Industries Ltd., are summed up. Further some variable and appropriate measures, which can be adopted by the company, are also suggested for bettering its performance.

There is low current ratio when compared to the standard ratios; this is due to higher stock turnover of the company. A study on the absolute quick ratio reveals a poor cash base of the company but, the further study witness a low recovery from debtors and early payments creditors is causing for poor cash balance in the company. There is a poor raw material stock turnover and a high finished goods stock turnover of the company. Therefore, companys inventory management position may be viewed as dissatisfactory. Most of the current assets are in the form of debtors, followed by inventory. That is the amount of investment in debtors is highs in the whole investment of the working capital. This is because of the new system of loaning to former. The recent performance of the debtor's turnover indicates a speedy recovery of debtors and it may be viewed as a positive working capital performance of the company.

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A Study on Working Capital Management

CONCLUSION:

The working capital position of the company (My home cement industries ltd) is satisfactory .It should focus on sales and marketing. The company is maintaining the normal levels of current assets and current liabilities. So it is not finding any difficulties to discharge its obligations. The company can utilize the reserves and surplus by either capitalizing or invest the money some were as investment get benefit. They should see that the debtors should be collected within a specified time by the company. So that they can discharge some of its creditors or current liabilities and avoid payment of interest.

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Common questions

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Working capital encompasses the current assets of a company which are pivotal for its daily operations. This includes cash, inventories, and receivables. Cash is necessary to meet expenses and obligations, inventories create a link between production and sales, and receivables arise from credit sales. Optimal management of these components ensures that the company can maintain operations smoothly without over- or under-utilization of resources, which is crucial for sustaining profitability and liquidity .

The recent focus on speeding up the recovery of debtors has positively influenced My Home Cement Industries' working capital performance by improving liquidity. The high investment in debtors, previously a significant component of the working capital, reflects the company's historical credit policies. Swift recovery of receivables allows for improved cash flow and enhanced ability to manage liabilities .

My Home Cement Industries struggles with a poor raw material stock turnover while maintaining a high turnover of finished goods, indicating inefficiencies in inventory management. This imbalance suggests that the company may be overproducing or holding excess raw materials, which ties up capital and hampers effective working capital management. Addressing these challenges is critical to optimizing stock levels and improving overall financial performance .

The study on working capital management at My Home Cement Industries Ltd. used exploratory research, relying primarily on secondary data, including annual reports and discussions with company officials. Analytical tools such as ratio analysis, percentage methods, regression analysis, and operating cycle methods were utilized. The objective was to understand the company's liquidity, profitability, and cash management practices, and provide insights for improving the firm's liquidity and working capital strategies .

The cement industry in India started in 1914 with the establishment of the first unit at Porbandar with a capacity of 1000 tones. Over the years, it has grown significantly, making India the second-largest producer globally, with an installed capacity of 114.2 million tones. The industry is valued at approximately Rs. 18,000 crores (US $4185mn). However, India's per capita consumption of cement is still low at 85 kgs compared to the world standard of 256 kgs, indicating further growth potential .

My Home Cement Industries is financially stable, maintaining balance in current assets and liabilities without difficulty in discharging obligations. Recommendations for improvement include enhancing sales and marketing efforts, optimizing inventory management to improve stock turnover, and utilizing surplus reserves for investment opportunities. Collecting debtors promptly will allow for improved liquidity management and addressing current liabilities more effectively .

My Home Cement Industries shows a poor cash base due primarily to low recovery from debtors and early payments to creditors. This situation results in a low current ratio and an inadequate quick ratio, directly impacting the company's cash liquidity. However, efforts to improve debtor turnover indicate a positive trend, suggesting potential for better liquidity management if the trends continue .

The study focuses on liquidity and profitability assessment using financial analysis methods such as ratio analysis for data over four years. Although limited to historical data, the findings are vital for strategic planning, presenting insights into current asset management, debt recovery, and inventory handling. These insights are applicable in refining the company’s strategies for better financial management and ensuring sustainable growth despite data limitations .

Maintaining an optimal working capital is crucial for My Home Cement Industries to ensure liquidity without hampering profitability. Adequate working capital means sufficient cash flow to meet short-term liabilities and fund operations, essential for sustaining profitability. At the same time, under-utilizing working capital can constrain growth, while over-utilization could increase costs and reduce margins. Thus, balancing these factors is key for the company's financial health and competitive position within the industry .

The study concludes that My Home Cement Industries should improve its cash management by addressing the low current ratio and enhancing debtor recovery efficiency. Recommendations include better inventory practices to decrease raw material stockholding and focusing on sales and marketing to boost turnover. The company's financial statements are balanced regarding current assets and liabilities, thus not facing difficulty in meeting obligations. However, leveraging reserves and surplus for investments could enhance performance further .

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