A Project Report

On
Financial Ratios and Working Capital Management of
Shree Cement Limited – A Brief Study

DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF

REQUIREMENT FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
PREPARED BY
ROLL:PG/VUOAP02/MBA-IVS NO:
REGISTRATION NO: OF 2019-2020
MAJOR SPECIALISATION : FINANCE
SESSION:2019-2021
UNDER THE GUIDANCE OF
MR. SMARAJIT SENGUPTA
FACULTY, EIILM
SUBMITTED TO
EASTERN INSTITUTE FOR INTEGRATED LEARNING IN
MANAGEMENT, KOLKATA

AFFILIATED TO
VIDYASAGAR UNIVERSITY

MAY 2021
 DECLARATION
I, , do hereby declare that DISSERTAION Entitled “Financial Ratios and
Working Capital Management of Shree Cement Limited – A Brief Study is
submitted by me for the partial fulfilment of Master of Business Administration
in Vidyasagar University.
This Dissertation is exclusively prepared by me and has not been submitted to any
other institutions or published anywhere before.

Date : 10/05/2021
ROLL: PG/VUOAP02/MBA-IVS NO:
REGISTRATION : OF2019-2020
Place : KOLKATA MBA 4TH SEMESTER,
EIILM, KOLKATA
 ACKNOWLEDGEMENT

I would like to express my special gratitude and thanks to Dr.R.P.Banerjee (Director, Eastern
Institute for Integrated Learning in Management), for providing me this opportunity to
complete the Dissertation Project.
I also take the opportunity to express my profound gratitude and deep regard to my EIILM
faculty Mr. Smarajit Sengupta, for his Exemplary guidance monitoring and constant
encouragement through out the course of this study. The blessing, help and guidance given
by him time to time shall carry me along way in the journey of life.
Lastly, thanks and appreciations also go to the colleagues in developing the project And
people who have willingly helped us out with their liabilities.

Signature:
Name:
Date: 10/05/2021
 TABLE OF CONTENT
Serial Number Topic Page Number
1 Chapter 1 : Introduction 1-16
2 Chapter 2 : Significance of 16-17
the Study

3 Chapter 3 : Objective of the 18

Study
4 Chapter 4 : Research 19
Methodology
5 Industry Overview 20-21
6 Company Overview 22-23
Chapter 5 : Data Analysis 24-32
And Interpretation
7 Chapter 6 : Findings and 33-34
Suggestions
8 Chapter 7 : Conclusion 35
9 Bibliography 36
 Chapter 1 :
INTRODUCTION
INTRODUCTION

Working capital: -
Working capital, also known as net working capital (NWC), is the difference between a
Company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and
inventories of raw materials and finished goods, and its current liabilities, such as accounts
payable. Net operating working capital is a measure of a company’s liquidity and refers to
the difference between operating current assets and operating current liabilities. In many
cases these calculations are the same and are derived from company cash plus accounts
receivable plus inventories, less accounts payable and less accrued expenses.

Working capital is a measure of a company’s liquidity, operational efficiency and its short-
term financial health. If a company has substantial positive working capital, then it should
have the potential to invest and grow. If a company’s current assets do not exceed its current
liabilities, then it may have trouble growing or paying back creditors, or even go bankrupt.

Working capital can be understood as the capital needed by the firm to finance current assets.
It represents the funds available to the enterprise to finance regular operations, i.e. day to day
business activities, effectively. It is helpful in gauging the operating liquidity of the company,
i.e. how efficiently the company is able to cover the short-term debt with short-term assets. It
can be calculated as: Current Assets represents those assets which can be easily transformed
into cash within one year. On the other hand, current liabilities refers to those obligations
which are to be paid within an accounting year.

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Types of Working Capital

It can be classified under two category :

On the basis of Value
Gross Working Capital: It denotes the company’s overall investment in the current assets.
Net Working Capital: It implies the surplus of current assets over current liabilities. A
positive net working capital shows the company’s ability to cover short-term liabilities,
whereas a negative net working capital indicates the company’s inability in fulfilling short-
term obligations.
On the basis of Time
Temporary working Capital: Otherwise known as variable working capital, it is that
portion of capital which is needed by the firm along with the permanent working
capital, to fulfil short-term working capital needs that emerge out of fluctuation in the
sales volume.
Permanent Working Capital: The minimum amount of working capital that a
company holds to carry on the operations without any interruption, is called permanent
working capital.
Working Capital Cycle or popularly known as operating cycle, is the length of time between
the outflow and inflow of cash during the business operation. It is the time taken by the firm,
for the payment of materials, wages and other expenses, entering into stock and realizing cash
from the sale of the finished good.
In short, the working capital cycle is the average time required to invest cash in assets and
reconverting it into cash by selling the assets produced.
The working capital cycle may vary from enterprise to enterprise depending on various
factors, such as nature and size of business, production policies, manufacturing process,
fluctuations in trade cycle, credit policy, terms and conditions for purchase and sales, etc.
2

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Importance of Working Capital
Working capital is very essential to maintain smooth running of a business. No
business can however run successfully without an adequate amount of working
capital.

The main advantages or the importance of working capital are as follows:

Higher Return on Capital:- Firms with lower working capital will post a higher return
on capital. Therefore, shareholders will benefit from a higher return for every dollar
invested in the business.
Improved Credit Profile and Solvency:- The ability to meet short-term obligations is a
pre-requisite to long-term solvency. And it is often a good indication of counterparty’s
credit risk. Adequate working capital management will allow a business to pay on time
its short-term obligations. This could include payment for a purchase of raw materials,
payment of salaries, and other operating expenses.
Smooth Flow of Production:- To maintain a smooth flow of production, it is necessary
that adequate working capital is available for paying trade suppliers, hiring labour and
incurring other operating expenses.
Increase in Liquidity and Solvency Position:- It enhances the liquidity and solvency
position of the business concern.
Goodwill:- A firm with sound working capital position can make timely payment of its
outstanding bills. This enhances the reputation of the firm.
Advantages of Cash Discount:-It enables the firm to avail itself of the facilities like
cash discount by making prompt payments.
Regular Payment of Wages and Salaries The firm can make regular and timely
payment of wages and salaries to its employees. This increases the morale and
efficiency of employees.
Efficient Use of Fixed Assets:- Adequate amount of working capital enables the firm to
use its fixed assets more efficiently and extensively. If the fixed assets remain idle due
to paucity of working capital, depreciation of fixed assets and interest on borrowed
capital invested in fixed assets will have to be incurred unnecessarily.
 Meeting of Contingencies:- It can meet unforeseen contingencies of the firm.
Unforeseen contingencies like business depression, financial crisis due to huge losses
etc. can easily be overcome, if adequate working capital is maintained by a firm.

4
Completing operating cycle: A sound management of working capital helps in
completing the operating cycle quickly. This enables a firm to increase its profitability.
Security and Confidence:- It creates a sense of security and confidence in the mind of
management or officials of the firm

Different Sources of Working Capital:

A firm can use two types of sources to finance its working capital, namely:

Long-term source, and

Short-term source.

Long-Term Sources:
Every business organisation is required to maintain a minimum balance of cash and
other current assets at all the times—irrespective of the ups and downs in the level of
activity. The portion of working capital which is continuously maintained by the
business at all times to carry on its minimum level of activities is called permanent
working capital.
This type of working capital should be arranged from long-term sources of fund.

The following are the long-term sources of financing permanent working capital:

Issue of Equity shares

Issue of Preference shares
Retained earnings (ploughed-back profits)
Issue of Debentures and other long-term bonds
Long-term loans taken from financial institutions etc.

Short-Term Sources:
 The short-term financing of working capital is generally used to support the temporary
working capital which is usually needed to meet the seasonal increase or sudden spurt
in demand.
Various short-term sources of financing of temporary working capital are:

Bank credit (e.g., cash credit, letter of credit, bills finance, working capital demand loan,
overdraft facility etc.)

Public deposits
Trade credit

Outstanding expenses
Provision for depreciation
Provision for taxation
Advances from customers
Loans from directors
Security money received from employees
Receipts from factoring.
Liquidity, Risk and Profitability Trade-off
In connection with the trade-off between liquidity, risk and profitability, a firm can
adopt any one of the three types of working capital policies:
Conservative policy
Aggressive policy, and
Moderate policy.

Conservative Policy
In the case of conservative policy, a firm will hold a relatively high proportion of working
capital to play safe. As the rate of return on current assets is normally less than the rate of
return on total assets and it tends to lower the profitability, but at the same time firms will
have lower risk of failure to meet the current obligations.

Aggressive Policy
Here, the firm opts for a lower level of working capital thereby investing in current assets at a
lower proportion to total assets. When a firm adopts this policy, the profitability is high but at
high risk in meeting the current obligations.

Moderate Policy
A working capital policy adopted in between the conservative policy and aggressive policy is
termed as moderate policy. In this case, the investment in current assets is meither too high
nor too low. The profitability and risk are also moderate.

Ratio Analysis
Definition:

Ratio analysis is a commonly used tool of financial statement analysis. Ratio is a

mathematical relationship between one number to another number. Ratio is used as an
index for evaluating the financial performance of the business concern. An accounting
ratio shows the mathematical relationship between two figures, which have meaningful
relation with each other.

Advantage of Ratio analysis :-

Ratio Analysis is the most important tool of analysis financial statements. It helps the
reader in giving tongue to the mute heaps of figures given in financial statements. The
figures that speak of liquidity, solvency, profitability etc. of the business enterprise.
Some important objects and advantages derived by a firm by the use of accounting
ratios are: -

Helpful in analysis of Financial Statement: - Ratio analysis is an extremely device for

analyzing the financial statement. It helps the bankers, creditors, investors,
shareholders etc. in acquiring enough knowledge so acquired by them, they can take
necessary decisions about their relationships with the concern.

Simplification of accounting data: - Accounting ratio simplifies and summarizes a long

array of accounting data and makes them under stable. It discloses the relationship
between two such figures, which have a cause and effect relationship with each other.
 Helpful in comparative study: - With the help of ratio analysis comparison profitability
and financial soundness can be made between one firm and another in the same
industry. Similarly, comparison of current year figures can also be made with those of
previous years with the help of ratio analysis.
7

Helpful in locating the weak spots of the business: - Current year’s ratios are compared
with those of the previous years and if some weak spots are thus located, remedial
measures are taken to correct them.

Helpful in forecasting: - Accounting ratios are very helpful in forecasting and the plans
for the future.

Estimate about the trend of the business: - If accounting ratios are prepared for a
number of years, they will reveal the trend of costs, sales, profits and other important
facts.

Fixation of Ideal Standards: - Ratios helps us in establishing ideal standards of the

different item of the business. By comparing the actual ratios calculated at the end of
the year with the ideal ratios, the efficiency of the business can be easily measured.
Effective Control: - Ratio analysis disclose the liquidity, solvency, and profitability of
the business enterprise. Such information enables management to assess the changes
that have taken place over a period of time in the financial activities of the business. It
helps them in discharging their managerial functions e.g., planning organizing,
directing, communicating and controlling more effectively.

Disadvantage of Ratio Analysis :-

Limitations of Financial Statements:- Ratios are calculated from the information

recorded in the financial statements. But financial statements suffer from a number of
limitations and may, therefore, affect the quality of ratio analysis.
Historical Information:- Financial statements provide historical information. They do
not reflect current conditions. Hence, it is not useful in predicting the future.
 Different Accounting Policies:- Different accounting policies regarding valuation of
inventories, charging depreciation etc. make the accounting data and accounting ratios
of two firms non-comparable.
Lack of Standard of Comparison:- No fixed standards can be laid down for ideal ratios.
For example, current ratio is said to be ideal if current assets are twice the current
liabilities. But this conclusion may not be justifiable in case of those concerns which
have adequate arrangements with their bankers for providing funds when they require,
it may be perfectly ideal if current assets are equal to or slightly more than current
liabilities.
Window-Dressing:- The term ‘window-dressing’ means presenting the financial
statements in such a way to show a better position than what it actually is. If, for
instance, low rate of depreciation is charged, an item of revenue expense is treated as
capital expenditure etc. the position of the concern may be made to appear in the
balance sheet much better than what it is. Ratios computed from such balance sheet
cannot be used for scanning the financial position of the business.
Quantitative Analysis:- Ratios are tools of quantitative analysis only and qualitative
factors are ignored while computing the ratios. For example, a high current ratio may
not necessarily mean sound liquid position when current assets include a large
inventory consisting of mostly obsolete items.

Classification of Ratios: -
Ratios are classified into 5 categories. They are as follows:
Liquidity Ratio
Solvency Ratio
Profitability Ratio
Efficiency Ratio
Market Prospect Ratio

Liquidity Ratios: -
“Liquidity” refers to the ability of the firm to meet its current liabilities. The liquidity ratios,
therefore, are also called ‘Short-term Solvency Ratios.’ These ratios are used to assess the
short-term financial position of the concern. They indicate the firm’s ability to meet its
current
Obligations out of current resources.
In the word of Salomon J. Flink, “Liquidity is the ability of the firm to meet its current
obligations as they fall due.
Short-term creditors of the firm are primarily interested in the liquidity ratios of the firm as
they want to know how promptly or readily the term can meet its current liabilities. If the
term wants to take a short-term loan from the bank, the bankers also study the liquidity ratios
of the firm in order to assess the margin between current assets and current liabilities.
Liquidity ratios include the current ratio, quick ratio, and working capital ratio.
8

Solvency Ratios:-
A solvency ratio is a performance metric that helps us examine a company’s financial health.
In particular, it enables us to determine whether the company can meet its financial
obligations in the long term. The metric is very useful to lenders, potential investors,
suppliers, and any other entity that would like to do business with a particular company. It
usually compares the entity’s profitability with its obligations to determine whether it is
financially sound. In that regard, a higher or strong solvency ratio is preferred, as it is an
indicator of financial strength. On the other hand, a low ratio exposes potential financial
hurdles in the future. Examples of solvency ratios include debtequity ratio, debt-assets ratio,
and interest coverage ratio.
Profitability Ratios :-
Profitability ratios are financial metrics used by analysts and investors to measure and
evaluate the ability of a company to generate income (profit) relative to revenue, balance
sheet assets, operating costs, and shareholders’ equity during a specific period of time.
They show how well a company utilizes its assets to produce profit and value to shareholders.
A higher ratio or value is commonly sought-after by most companies, as this usually means
the business is performing well by generating revenues, profits, and cash flow. The ratios are
most useful when they are analyzed in comparison to similar companies or compared to
previous periods.
Profit margin, Return on assets, return on equity, return on capital employed, and gross
margin ratio are all examples of profitability ratios.

Efficiency Ratios :-
Efficiency ratios are metrics that are used in analyzing a company’s ability to effectively
employ its resources, such as capital and assets, to produce income. The ratios serve as a
comparison of expenses made to revenues generated, essentially reflecting what kind of
return in revenue or profit a company can make from the amount it spends to operate its
business.
The more efficiently a company is managed and operates, the more likely it is to generate
maximum profitability for its owners and shareholders over the long term. Key efficiency
ratios are the asset turnover ratio, inventory turnover etc.
9
Market Prospect Ratios :-
These are the most commonly used ratios in fundamental analysis and include dividend yield,
P/E ratio, earnings per share, and dividend pay-out ratio. Investors use these ratios to
determine what they may receive in earnings from their investments and to predict what the
trend of a stock will be in the future.

For example, if the average P/E ratio of all companies in the S&P 500 index is 20, with the
majority of companies having a P/E between 15 and 25, a stock with a P/E ratio of 7 would
be considered undervalued, while one with a P/E of 50 would be considered overvalued. The
former may trend upwards in the future, while the latter will trend downwards until it
matches with its intrinsic value.

Market Prospect ratios are used to compare publicly traded companies’ stock prices with
other financial measures like earnings and dividend rates. Investors use market prospect ratios
to analyze stock price trends and help figure out a stock’s current and future market value.
In other words, market prospect ratios show investors what they should expect to receive
from their investment. They might receive future dividends, earnings, or just an appreciated
stock value.
Liquidity Ratio

Current Ratio
The current ratio is one of two main liquidity ratios which are used to help assess whether a
business has sufficient cash or equivalent current assets to be able to pay its debts as they fall
due. In other words, the liquidity ratios focus on the solvency of the business. A business that
finds that it does not have the cash to settle its debts becomes insolvent.
Liquidity ratios focus on the short-term and make use of the current assets and current
liabilities shown in the balance sheet.
The current ratio is a simple measure that estimates whether the business can pay debts due
within one year out of the current assets. A ratio of less than one is often a cause for concern,
particularly if it persists for any length of time.
10

Quick Ratio
In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which
measures the ability of a company to use its near cash or quick assets to extinguish or retire
its current liabilities immediately. It is defined as the ratio between quickly available or liquid
assets and current liabilities. Quick assets are current assets that can presumably be quickly
converted to cash at close to their book values.
A normal liquid ratio is considered to be 1:1. A company with a quick ratio of less than 1
cannot currently fully pay back its current liabilities.
The quick ratio is similar to the current ratio, but provides a more conservative assessment of
the liquidity position of firms as it excludes inventory, which it does not consider as
sufficiently liquid.

Solvency Ratio
Debt-Equity Ratio
Debt to equity ratio (also termed as debt equity ratio) is a long term solvency ratio that
indicates the soundness of long-term financial policies of a company. It shows the relation
between the portion of assets financed by creditors and the portion of assets financed by
stockholders. As the debt to equity ratio expresses the relationship between external equity
(liabilities) and internal equity (stockholder’s equity), it is also known as “external-internal
equity ratio”. The ratio is used to evaluate a company’s financial leverage. The D/E ratio is an
important metric used in corporate finance. It is a measure of the degree to which a company
is financing its operations through debt versus wholly-owned funds. In general, debt should
be between 50 and 80 percent of equity.
11

Interest Coverage ratio

The interest converge ratio, also known as the times interest earned (TIE), measures the
ability of firm`s current operating earnings (EBIT) to meet current interest obligations. It is
the ratio of EBIT to interest charge. The ratio shows number of times the interest payment is
covered by the firm`s operating earnings. The larger the coverage the better their ability of
the firm to service interest obligations on debt.

EBIT = Earnings Before Interest and Tax

Profitability Ratio
Return on Assets
A company’s return on assets (ROA) is calculated as the ratio of its net income in a given
period to the total value of its assets.
Net Income/Total Assets—indicates how effectively the company is deploying its assets. A
12
very low return on asset, or ROA, usually indicates inefficient management, whereas a high
ROA means efficient management. However, this ratio can be distorted by depreciation or
any unusual expenses.

Return on Equity
Return on equity (ROE) is a measure of financial performance calculated by dividing net
income by shareholders’ equity. Because shareholders’ Equity is equal to a company’s assets
minus its debt, ROE could be thought of as the return on net assets. ROE is considered a
measure of how effectively management is using a company’s assets to create profits. ROE is
expressed as a percentage and can be calculated for any company if net income and equity are

both positive numbers.

Return on Capital Employed
Return on capital employed (ROCE) is a financial ratio that can be used in assessing a
company’s profitability and capital efficiency. In other words, this ratio can help to
understand how well a company is generating profits from its capital as it is put to use.
The ROCE ratio is one of several profitability ratios financial managers, stakeholders, and
potential investors may use when analyzing a company for investment.
Efficiency Ratio

Asset Turnover Ratio

Asset turnover (ATO), total asset turnover, or asset turns is a financial ratio that measures the
efficiency of a company’s use of its assets in generating sales revenue or sales income to the
company. Asset turnover is considered to be an Activity Ratio, which is a group of financial
ratios that measure how efficiently a company uses assets. Asset turnover can be further sub-
divided into fixed asset turnover, which measures a company’s use of its fixed assets to
generate revenue, and working capital turnover, which measures a company’s use of its
current assets minus liabilities to generate revenue.

13

Inventory Turnover Ratio

Inventory turnover is a financial ratio showing how many times a company has sold and
replaced inventory during a given period. A company can then divide the days in the period
by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.

Higher ratios—over six or seven times per year—are generally thought to be better, although
extremely high inventory turnover may indicate a narrow selection and possibly lost sales.
A low inventory turnover rate, on the other hand, means that the company is paying to keep a
large inventory, and may be overstocking or carrying obsolete items.

Debtors Turnover Ratio

Receivable Turnover Ratio or Debtor’s Turnover Ratio is an accounting measure used to
measure how effective a company is in extending credit as well as collecting debts. The
receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

A high ratio implies either that a company operates on a cash basis or that its extension of
credit and collection of accounts receivable is efficient. While a low ratio implies the
company is not making the timely collection of credit.
14

Creditors Turnover Ratio

The accounts payable turnover ratio, also known as the payables turnover or the creditor’s
turnover ratio, is a liquidity ratio that measures the average number of times a company pays
its creditors over an accounting period. The ratio is a measure of short-term liquidity, with a
higher payable turnover ratio being more favourable.

Market Prospect Ratios and Capital Structure Ratios

Earnings Per Share (EPS)

Earnings per share (EPS) is calculated as a company’s profit divided by the
outstanding shares of its common stock. The resulting number serves as an
indicator of a company’s profitability.
It is common for a company to report EPS that is adjusted for extraordinary items
and potential share dilution. The higher a company’s EPS, the more profitable it
is considered.

15

Dividend Pay-out Ratio

The dividend pay-out ratio is the ratio of the total amount of dividends paid out to
shareholders relative to the net income of the company. It is the percentage of
earnings paid to shareholders in dividends. The amount that is not paid to
shareholders is retained by the company to pay off debt or to reinvest in core
operations. It is sometimes simply referred to as the ‘pay-out ratio.
The dividend pay-out ratio provides an indication of how much money a company
is returning to shareholders versus how much it is keeping on hand to reinvest in
growth, pay off debt, or add to cash reserves (retained earnings).

DPR = Dividends per share / Earnings per share

 16

CHAPTER TWO
SIGNIFICANCE OF THE STUDY

This Report will help in understanding the working capital as well as Ratio
analysis of SHREE CEMENT LIMITED. Maintaining adequate working capital
is not just important in the short-term. Sufficient liquidity must be maintained in
order to ensure the survival of the business in the long-term as well. When
businesses make investment Decision, they must not only consider the financial
outlay involved with acquiring the new machine or the new building, etc., but
must also take account of the additional current assets that are usually required
with any expansion of activity. Ratio analysis is a cornerstone of fundamental
analysis. The various ratios are standardized, elegant and convenient to use.
Ratio analysis helps us to evaluate various aspects of a company’s operating and
financial performance such as its efficiency, liquidity, profitability and solvency.
The trend of these ratios over time can be used to check whether they are
improving or deteriorating.
Ratios can also be compared across different companies in the same sector to see
how they stack up, and to get an idea of comparative valuations.
Ratios are critical quantitative analysis tools. One of their most important
functions lies in their capacity to act as lagging indicators in identifying positive
and negative financial trends. The information a trend analysis provides allows to
you to make and implement ongoing financial plans and, when necessary, make
course corrections to short-term financial plans.
Ratio analysis also provides ways to compare the financial state of our business
against other businesses within our industry or between our business and
businesses in other industries. The sheer numbers of available financial ratios
make it important to research and choose ratios most applicable to our business.

17

CHAPTER THREE

Objective of the Study

To analyse the Financial Ratios of Shree Cement Limited for the period of
2015-2016 to 2019-2020

To estimate the liquidity position of the company

 18

CHAPTER FOUR
RESEARCH METHODOLOGY
Type of Study :- Descriptive Study
Classification of Data :- Secondary Data (Yearly)
Type of Data :- Quantitative

Source of Data:- Company’s Annual Reports (2015-2020), Profit and Loss

account(2015-2020), Balance Sheet (2015-2020)
Www. Moneycontrol.com
Www.ShreeCement.com
Time Frame:- 2015-2016 to 2019-2020 (Yearly)
Tools and Indicators Used: There are several ratios I have taken into
consideration to analyse the financial ratios of Shree Cement. They are
Liquidity Ratio Current Ratio, Quick Ratio
Debt to Equity Ratio, Interest Coverage
Solvency Ratio
Ratio
Profitability Ratio Return on Assets, Return on Equity,
 Return on Capital Employed
Inventory turnover ratio, Debtors turnover
Efficiency Ratio
ratio, Asset Turnover ratio
Market Prospect Ratios and
Earnings Per Share, Dividend Payout Ratio
Capital Structure Ratios

Software used: MS-Excel has been used for calculation and charts.
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INDUSTRY OVERVIEW
The Cement Industry globally has immense forward and backward linkages with a Nation’s
economy. For a developing and transitioning economy such as India, the value proposition of
the Cement Industry is even greater given the immense infrastructure requirements of a
growing and urbanising country, as well as its contributions by way of direct and indirect
employment. The Government of India has emphasised its focus on infrastructure
development with the announcement of several schemes that cut across manufacturing,
housing and education. At the heart of all the planned infrastructure development is the
cement sector and, as part of the Country’s bouquet of eight core industries, the Cement
sector’s value proposition for laying the foundations of a new India is unique.
Accounting for over 7% of the global installed capacity, the Indian Cement sector is the
second largest cement industry in the world, second only to China. India’s overall cement
production capacity was nearly 545 million tonnes (MT) in FY20. Of the total capacity, 98%
lies with the private sector and the rest with public sector. The top 20 companies account for
around 70% of the total cement production in India. As India has a high quantity and quality
of limestone deposits through-out the country, the cement industry promises huge potential
for growth.
The demand of cement industry is expected to reach 550-600 MT per annum (MTPA) by
2025 because of the expanding demand of different sectors, i.e., housing, commercial
construction, and industrial construction.
According to CLSA (institutional brokerage and investment group), the Indian cement sector
is witnessing improved demand. Key players reported by the company are ACC, Dalmia and
Ultratech Cement. In the second quarter of FY21, Indian cement companies reported a sharp
rebound in earnings and demand for the industry increased, driven by rural recovery. With
the rural markets normalising, the demand outlook remained strong. For FY21, CLSA
expects a 14% YOY increase in EBITDA in the cement market for its coverage stocks.
A total of 210 large cement plants account for a combined installed capacity of 410 MT in the
country, whereas, 350 mini cement plants make up for the rest. Of the total 210 large cement
plants in India, 77 are in the states of Andhra Pradesh, Rajasthan, and Tamil Nadu. Sale of
cement in India stood at Rs. 63,771 crore (US$ 9.05 billion) in FY20. India’s export of
cement, clinker and asbestos increased at a CAGR of 6.44% between FY16-FY19. In FY20
(till January 2020), it reached US$ 1.66 billion. To enhance the source of capital for
infrastructure financing, Credit Guarantee Enhancement Corporation, for which regulations
have been notified by the RBI, will be set up in FY20.
20

According to the data released by Department for Promotion of Industry and Internal Trade
(DPIIT), cement and gypsum products attracted Foreign Direct Investment (FDI) worth US$
5.28 billion between April 2000 and March 2020.
India’s export of cement, clinker and asbestos increased at a CAGR of 1.68% between FY16-
FY20 and stood at US$ 1.98 billion in FY20.
The Government of India is strongly focused on infrastructure development to boost
economic growth and is aiming for 100 smart cities. The Government also intends to expand
the capacity of railways and the facilities for handling and storage to ease the transportation
of cement and reduce transportation cost. These measures would lead to an increased
construction activity, thereby boosting cement demand. As per Union Budget 2019-20, the
Government expected to upgrade 1,25,000 KMs of road length over the next five years,
which would boost the demand for cement. Also, the Government of India extended an
additional outlay of Rs. 18,000 crore (US$ 2.43 billion) for the PM Awaas Yojana – Urban
over the already allocated Rs. 8,000 crore (US$ 1.08 billion); this is expected to be used for
the development of ~30 lakh houses (ground support for 12 lakh houses and completion of 18

lakh houses) and will likely create an additional 78 lakh jobs and boost production and sale in
the steel and cement sectors.
Source : https://www.ibef.org/industry/cement-india
COMPANY ANALYSIS
SHREE CEMENT
Shree Cement Ltd is one of India’s premier cement makers. The company’s manufacturing
operations are spread over North and East India across six states. The company has a
consolidated cement production capacity of 44.4 million tonnes per annum(MTPA) and a
power generation capacity of 742 MW. The company is an energy conscious & environment
friendly business organization. They have brands under their portfolio namely Shree Ultra
Jung Rodhak Cement Bangur Cement and Rockstrong Cement, Roofon Concrete Master and
Cement Bangur Power Cement.
Their manufacturing units are located at Beawar Ras Khushkhera Suratgarh and Jobner
(Jaipur) in Rajasthan Laksar (Roorkee) in Uttarakhand Aurangabad in Bihar Panipat in
Haryana Baloda Bazar in Chhattisgarh and Bulandshahr in Uttar Pradesh.
The company is headquartered in Kolkata India. Shree Cement Ltd was incorporated in the
year 1979. The company was promoted by Calcutta-based industrialists P D Bangur and B G
Bangur. The company is one of the largest cement producers in Rajasthan (Beawar) and is the
largest single location manufacturer in Northern India. Our operations span across India and
the UAE with 4 integrated plants in India, 1 in UAE and 8 Grinding Units. Shree Cement was
also among the industry pioneers for the use of alternate fuel resources in the production of
cement and today we have the highest installed capacity of Waste Heat Recover Power plants
in the world, second only to China.
The Shree Philosophy
आ नो भद्रा: क्रतवो यन्तु ववश्वत:
Let noble thoughts come to us from all over the World ~ Rigveda
ABOUT THE COMPANY
Business : Cement & Concrete Product Manufacturing
Incorporated: 1979
Chairman: Benu Gopal Bangur
Managing Director: Hari Mohan Bangur
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Industry : Building Materials
Listing: NSE- SHREECEM BSE – 500387
Headquarters: 21, Strand Road, Kolkata 700001, India
Website : https://www.shreecement.com

Financial Information
Market Cap 108440.51 Cr
Revenue (2020) 11904 Cr
EPS 445.08
Beta 0.92
52 Week High Rs. 32048
52 Week Low Rs. 16135
Promoters’ Ownership 62.55 %
Face Value Rs. 10
Dividend Yield 0.37
52 Week Range Rs. 16135-Rs.32048
Shares Outstanding 36080748
Dividend Declared Rs. 110/ share
There is no bonus, split and rights in the last five years.

23

CHAPTER FIVE 24
DATA ANALYSIS AND INTERPRETATION
STATEMENT OF WORKING CAPITAL

(In Crores)
CURRENT
2016 2017 2018 2019 2020
ASSETS
Current Investments 80.08 654.12 2311.04 32.74 3,086.26

Inventories 815.19 1,314.50 1,569.02 1,589.05 1,427.85

Trade Receivables 328.62 335.12 459.25 732.40 828.45

Cash And Cash
83.04 111.00 120.90 307.78 108.16
Equivalents
Short Term Loans
11.02 5.48 7.77 9.65 7.63
And Advances
Other Current
490.71 861.85 1,232.18 1,320.07 1,367.22
Assets
Total Current
1,808.66 3,282.07 5,700.16 3,991.69 6,825.57
Assets

CURRENT
2016 2017 2018 2019 2020
LIABILITIES
Short Term
195.75 773.74 1,185.86 467.95 708.74
Borrowings
Trade Payables 257.24 351.68 727.27 450.79 528.02
Other Current
707.66 862.74 1,053.07 1,066.89 1,963.15
Liabilities
Short Term
1.05 0.85 0.94 1.03 1.11
Provisions
Total Current
1,161.70 1,989.01 2,967.14 1,986.66 3,201.02
Liabilities

2018- 2019-
Particulars 2015-2016 2016-2017 2017-2018
2019 2020
Net Working

646.96 1393.06 2733.02 1405.03 3624.55

Capital(C.A – C.L)

Interpretation

The Net Working capital of the company has fluctuated quite in these 5 years. But, now in
2019-2020, the Net Working Capital is the highest among the last five financial years
amounting to Rs. 3624.55 Cr. This enables the company to meet its all expenses in daily basis
and in smooth functioning.

Working Capital Turnover Ratio

Net Working
Years Net Sales Ratio
Capital
2015-16 5513.62 646.96 8.52
2016-17 8,429.07 1393.06 6.05
2017-18 9,539.64 2733.02 3.49
2018-19 11,430.06 1405.03 8.14
2019-20 11,639.16 3624.55 3.21
25
Interpretation
The Working Capital Turnover Ratio of the company has varied from high to low. It indicates
company’s efficiency in generating sales revenue using total working capital available in the
business during a particular period of time. In 2019-2020, The Working Capital Turnover
Ratio is lowest among the last five years. It doesn’t look good but since the trend is like that,
so much improvement in the figures is expected.

LIQUIDITY RATIO

Current Ratio

Years Current Ratio

2015-16 1.56
2016-17 1.65
2017-18 1.92
2018-19 2.01
2019-20 2.13

Interpretation
The Current Ratio of the company is increasing from 2015-16. Now, the Current Ratio is
above 2. It is a very good sign for the company. A current ratio above 1 means that the
company have enough liquid assets to cover its short-term liabilities. This is the ideal
situation.

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Quick Ratio
Years Quick Ratio
2015-16 0.86
2016-17 0.99
2017-18 1.39
2018-19 1.21
2019-20 1.69

Interpretation
Quick Ratio of the company was highest in 2017-18 among the five years which is the ideal
ratio to have for any organization. But in the present year 2019-20, it has improved
considerably to 1.69. It signifies that the business has in its possession enough assets which
may be immediately liquidated for paying off the current liabilities.

SOLVENCY RATIO

Debt Equity Ratio

Years Debt Equity Ratio

2015-16 0.11
2016-17 0.17
2017-18 0.38
2018-19 0.29
2019-20 0.18

27

Interpretation
The Debt Equity Ratio of the company is less than 1. That means the companies assets are
more funded by equity rather than debt. It is appreciated that they do not have a high debt in
the market. But too much dependence of Equity is also not wanted.

Interest Coverage Ratio

Years Interest Coverage Ratio
2015-16 16.52
2016-17 12.83
2017-18 14.51
2018-19 6.10
2019-20 7.84

Interpretation
The Interest Coverage Ratio has fallen from 16.52 to 7.84. Higher ratio indicates a better
financial health as it means that the company is more capable to meeting its interest
obligations from operating earnings. The company still maintains a strong ratio despite the
decrease. A company that can’t pay back its debt means it will not grow. Most investors may
not want to put their money into a company that isn’t financially sound.

PROFITABILITY RATIO
Return on Assets (ROA)

Years ROA
2015-16 12.07 %
2016-17 11.99 %
2017-18 9.14 %
2018-19 6.25 %
2019-20 8.11 %
28
Interpretation
Return on assets (ROA) is an indicator of how well a company utilizes its assets in terms of
profitability. ROAs over 5% are generally considered good and over 20% excellent.
However, ROAs should always be compared amongst firms in the same sector. The ROA of
the Company is still good in the last 5 years still it has reduced.

Return on Equity
Years ROE
2015-16 16.69 %
2016-17 17.39 %
2017-18 15.55 %
2018-19 9.90 %
2019-20 12.13%

Interpretation
With return on capital, a ROE is a measure of management’s ability to generate income from
the equity available to it. ROEs of 15–20% are generally considered good. From 2015-18, it
was under the range of 15-20%. In 2018-19, it reduced substantially and now in the present
year it has improved to 12.13%.
Return on Capital Employed

Years ROCE
2015-16 13.77 %
2016-17 14.59 %
2017-18 11.36 %
2018-19 11.40 %
2019-20 13.92 %
29
Interpretation
The ROCE of the company is higher according to the industry average. A high and stable
ROCE can be a sign of a very good company, as it shows that a firm is making consistently
good use of its resources. A larger chunk of profits can be invested back into the company
for the benefit of shareholders. The reinvested capital is employed again at a higher rate of
return, which helps produce higher earnings-per-share growth. A high ROCE is, therefore, a
sign of a successful growth company.

EFFICIENCY RATIO
Inventory Turnover Ratio
Years Inventory Turnover Ratio
2015-16 6.76
2016-17 6.54
2017-18 6.27
2018-19 7.38
2019-20 8.34

Interpretation
Inventory Turnover Ratio tells us the number of times the inventory is sold and replaced. The
company has a higher Inventory turnover ratio in the present year which is 8.34 times. The
higher the inventory turnover, the better, is said in the market.
Asset Turnover Ratio
Years Assets Turnover Ratio
2015-16 58.26 %
2016-17 76.96 %
2017-18 64.93 %
2018-19 77.15 %
2019-20 61.55 %
30
Interpretation
The asset turnover ratio can be used as an indicator of the efficiency with which a company is
using its assets to generate revenue. The higher the asset turnover ratio, the more efficient a
company is at generating revenue from its assets. In the present year, the Asset Turnover
Ratio has fallen down to 61.55% . So, it is expected to increase the ratio in the coming years.

Debtors Turnover Ratio

Years Debtors Turnover Ratio

2015-16 13.70
2016-17 25.90
2017-18 24.76
2018-19 19.67
2019-20 15.25

Interpretation
A high receivables turnover ratio can indicate that the company’s collection of accounts
receivable is efficient and the company has a high proportion of quality customers that pay
their debts quickly. A high ratio can also suggest that a company is conservative when it
comes to extending credit to its customers. The company has a pretty good Debtors Turnover.
Though it has fallen from the last 3 years.

31

Market Prospect Ratios and Capital Structure Ratios

 Earnings Per Share(EPS)
Years EPS
2015-16 328.13
2016-17 384.39
2017-18 397.33
2018-19 273.00
2019-20 445.08

Interpretation
High Earrings Per Share (EPS) indicates greater value because investors will pay more for a
company’s shares if they think the company has higher profits relative to its share price. The
Company has achieved its highest EPS in the current year Rs. 445.08.

Dividend Pay-out Ratio

Years DPS
2015-16 7.31
2016-17 36.42
2017-18 12.58
2018-19 21.98
2019-20 24.71

Interpretation
The Ratio has gone from 7.31 to 36.42. Then it is maintaining an increasing trend. In the
current year, The DPS Ratio is 24.71. It indicates healthy earnings are expected to distribute
as dividends.
32
CHAPTER SIX
Finding and Suggestions
The net working capital of the company has been sufficient to meet its all expenses in
daily basis. Working capital of the company is positive for the last 5 years. Also the
Net working capital is increased to Rs. 3624.55 Cr. in 2019-2020 from Rs. 646.96 cr.
in 2016.

In 2019-2020, the company has lowest working capital turnover ratio which indicates
non efficient utilization of working capital. It indicates a not so good sign for the
company in the long term. But the net sales has increased in 2019-20 from the other
years.

The Current Ratio of the company currently stands at 2.13 :1. The ideal current ratio
value is 2:1. So, the company is having ideal current ratio. This ideal situation should
be maintained.

The Quick Ratio has increased over the years from 2015 to 2020. The Quick Ratio of
the company is 1.69:1. The ideal quick ratio value is 1:1 i.e. the firm is able to pay off
all quick assets with no liquidity problems, i.e. without selling fixed assets or
investments.

Debt-equity ratio has been fluctuated over the years. The debt equity ratio stands at
0.18:1 in 2019-2020. It indicates that there is too less debt financing in the company.

The Interest Coverage Ratio of the company has fallen from 16.52 to 7.84 from 2015-
16 to 2019-2020. Higher Ratio is expected in this case, but though the ratio has
decreased but it is still not in the red zone. So, the company should focus on bringing it
back up.

ROA has decreased over the years from 12.07 in 2015-16 to 8.11 in 2019-20. ROAs
over 5% are generally considered good for the company. It still depicts a very good
position of the company in terms of Return On Assets.
33

It is shown that the ROE value was 16.69 in 2015-16, 17.39 in 2016-17, 15.55 in 2017-
18, 9.90 in 2018-19 and 12.13 in 2019-2020. The ideal value of ROE is 15-20% for the
firm. It has decreased from the ideal situation but still it is worthy for the shareholders
to buy the share of this company.

ROCE value has been 13.77 in 2015-16, 14.59 in 2016-17, 11.36 in 2017-18, 11.40 in
2018-19, and 13.92 in 2019-2020. It shows an increased value and good amount of
return can be obtained from the capital employed. It helps the measurement for
comparing the relative profitability of companies.

The Inventory turnover ratio had been 6.76 in 2015-16, 6.54 in 2016-17, 6.27 in 2017-
18, 7.38 in 2018-19 and 8.34 in 2019-20. The ratio has increased, that is a great sign
for the company. It indicates that it doesn’t have lots of unsold products in warehouse
as it meets customer demand efficiently. The higher the inventory turnover, the better,
is said in the market.

It is shown that Asset Turnover ratio was 58.26 in 2015-16, 76.96 in 2016-17, 64.93 in
2017-18, 77.15 in 2018-19 and 61.55 in 2019-20 . The higher asset turnover ratio is
expected in the coming time since it has decreased in this year.

The debtors turnover ratio has decreased in the last 3 years. It was 13.70 in 2015-16,
25.90 in 2016-17, 24.76 in 2017-18, 19.67 in 2018-19, and 15.25 in 2019-20. The
company is utilizing the inventory in a well manner to convert them into sale. The
more sales will occur if the debtor turnover ratio increase.

It has seen that the dividend pay-out ratio was 7.31 in 2015-16, 36.42 in 2016-17,
12.58 in 2017-18, 21.98 in 2018-19 and 24.71 in 2019-20. It indicates healthy earnings
are expected to distribute as dividends.

34
 CHAPTER SEVEN

CONCLUSION
Liquidity Ratios: - Current ratio and liquid ratio both are in great position at the
moment. It also means that the short-term financial strength of the company is very
strong.

Solvency Ratio:- Debt equity ratio has reduced which is a good sign for the company.
Interest Coverage ratio has decreased in the last year’s, but it is not in bad position.
That means the long-term financial strength of the company is in good position.

Profitability Ratio :- ROA is above good, ROE is in an average level and ROCE is in
very good level. The long term earning power is good.

Efficiency Ratio :- Inventory Turnover, Asset Turnover and Debtors Turnover are all
in a good level for the company. Short-term investment utilization of the company is
very good.

Market Prospect Ratios and Capital Structure Ratios :- Earning per share and
dividend pay-out ratio both has increased. It means the long-term solvency position of
the company is very stable.

Net working capital :- Net working capital of this company has gradually increased in
five years. That means the company is very efficient to bear its short term expenses and
liabilities.

35
BIBLIOGRAPHY
Books
Working Capital Management
Book by V.K. Bhalla
FINANCIAL RATIO ANALYSIS:
Book by C’handra Sekhar

Websites

Www. Moneycontrol.com
Www. Investopedia.com
Www. Nseindia.com
Www. shreecement.com
Www. Ibef.org
Www. Yahoofinance.com

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