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After deregulation
in 1982, Growth in housing sector, Government focus on infrastructure and 100
smart city developments has scope for increase in cement demands. The cement
industry has been facing various challenges and constraints due to mismatch of demand
and supply, excess capacity, actuate shortage of coal, railway wagon
availability for transportation, lime stone availability, and energy crisis.
Changes in monsoon, rising cost of production, GST tax reform, currency
demonetization, Real Estate Regulatory Authority Bill, Shortage in Sand supply
have also poses major challenges to cement industry. Hence, it is worth to
study on operational performance, working capital management, financial
healthiness and wealth creation possibilities of cement companies and explore
the chances of improving their performance. 

 

STATEMENT OF THE PROBLEM:

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The
major problems of cement industry in India are the requirement of large capital
investment, latest production technology, improved labour productivity and
efficient management. The cement production in India is affected by scarcity of
raw materials, energy crisis and inefficient administration and more production
cycle time enhances production cost. High fluctuation of cement prices and global
competition are the main problems for this sector. Therefore it is the immense
need to measure the performances and wealth created by cement companies in
India.

 

NEED
FOR THE STUDY:

This study has been undertaken to assess
the operational performance and wealth creation of the select cement companies
namely, Ultratech cement and Birla Corporation. The present study has focused
on analyzing the various aspects related to the operational performance and
wealth creation of the cement industry in India. The companies in cement
industry in India will also be able to know their existing financial strength
by this study so as to take the policy decisions relating to finance in future.
This study will be of immense help to the society by enabling the prospective
investors and other stakeholders of the cement industry in India to take
economic decisions.

 

 

REVIEW OF LITERATURE:

Saleem and
Rehman (2011)
examined the relationship between liquidity and profitability in the oil and
gas companies of Pakistan. The study findings established that there was a
significant impact of only liquid ratio on ROA while insignificant on ROE and
ROI. In addition, the findings established that ROE had no significant effect
on three ratios current ratio, quick ratio and liquid ratio while ROI was
greatly affected by current ratios, quick ratios and liquid ratio.

Al Debi’e
(2011) examined the relationship between profitability and working
capital management measures for industrial companies listed on Amman Stock
Exchange in Jordan during the period 2001-2010. Industrial companies in Jordan
invest significantly in working capital. Therefore, efficient working capital
management is expected to enhance the profitability of these companies. The
results showed that less profitable companies wait longer to sell their
products, to collect credit sales, and to pay their supplies of goods.
Moreover, the results showed that regardless of the level of profitability
industrial companies in Jordan pay their suppliers before collecting credit
sales. The control variables (Size, Leverage, and GDP growth) included in all
regression models were significant and have the expected signs. Profitability
increased with Size and GDP growth and decreased with leverage.

Hajihassani
(2012)
presented A Comparison of Financial Performance in Cement Sector in Iran. This
study presents comparison of financial performance for the period 2006 – 2009
by using financial ratios and measures of cement companies working in Iran.
Financial ratios are divided into three main categories and measures including
two indicators. This work concludes that the performance of cement companies on
the basis of profitability ratio is different than on the basis of liquidity
ratio, leverage financial.

Islam and
Mili (2012) attempted
to study the financial health, strength and weakness of

Pharmaceutical
industry of Bangladesh by measuring financial performance and risks. The study
observed that the liquidity, profitability and solvency position of most of the
selected pharmaceuticals are in average position. The factors behind this
position were unsound financial management, inadequate working capital, slow
conversion of receivables and inventory into cash, lower position of sales,
higher amount of debt, no professional distribution house, restrictions on
patent right, fixed mark-up system, contrary policy of the government, vulnerability
of environmental risk and increased cost of production.

Dr Pratibha
Jain & Prof. Megha Mehta (2013) In their study on financial
performance of automobile companies finds that Hero Honda company performed
well because of its usage of latest technology and Tata motors weak performance
due to increased manufacturing overheads and company’s inability to face
competition.

Dr.Shishir
Pandey and Vikas Kumar Jaiswall(2014) in their paper”Comparative Study of
Profitability Analysis of Indian Aluminium Industries between public and
private sector “the main objective of this research paper is to analysis the
profitability position of the selected Aluminium companies for 5 year (2008 – 2014).the
study based  on the secondary data the
tools used for the analysis is different profitability ratio and  regression analysis, the study found that
Aluminium industries in India shows  Satisfactory
performance in concern with profitability.

Dr.M.
Thyigarajan and Mr J.Uday Kumar (2015) in their paper “Profitability
analysis of select aluminium companies in India” the main objective of this
research paper is to analyse the profitability position of the selected
aluminium companies for 10 years (2005-2014). The study based on the secondary
data, the tools used for analysis are Mean, Standard deviation, co-efficient of
variation and compound annual growth. The study ascertains the National
Aluminium Company Limited shows satisfactory performance in concern with
profitability.

Poonam Gautam Sharma and Preet Kaur (2015) examine the impact of working capital management on profitability
of Bharti Airtel Telecom Company. The study period was 2007-08 to 2014-15 and statistical
and econometric tools were used for study. The results reveal that there is
significant negative relationship between liquidity and profitability of the
company and it also reveals that quick ratio, inventory turnover ratio, debtors
turnover ratio of company shows satisfactory performance and current ratio of
company was found not satisfactory.

 Mohmad
Mushtaq Khan1, Dr. Syed Khaja Safiuddin2(2016) Indian pharmaceutical market (IPM) is one of the fastest growing
pharmaceutical markets, highly fragmented with about 24000 players out of which
330 belong to organized sector. There are approximately 250 large units and
8000 small scale units, which form the core of the pharmaceutical industry in
India. The market is dominated by the branded generics, as we see the top ten
companies make up for more than 3/4th of the market,  that means nearly 70% to 80% of the market. As
far as the reputation and rank of the IPM is concerned, it tops amongst the
India’s science based industries; is 3rd largest in terms of its volume, and
13th largest as per its value in the world pharmaceutical market. Indian
pharmaceutical market is expected to expand at a CAGR of 23.9 % to reach US$ 55
billion by 2020. Indian pharmaceutical companies receive a large sum of
revenues from the exports besides the domestic market, as some of them focus on
the generics market in US, Europe and semi regulated markets; and some of them
focus on custom manufacturing for innovator companies. The study through
empirical approach, may use ratios and indicators to measure the performance
and identify the financial health status of the companies operating under one
of the most dynamic sector in Indian economy.

Dr.Hemant Bhanawat (2017), Working capital is considered to be
life -giving force to an economic entity and managing working capital one of
the most important activity of corporate management. Working capital management
(WCM) is the management of short-term financing requirements of a firm which
includes maintaining optimum balance of working capital components –
receivables, inventory and payables – and using the cash efficiently for
day-to-day

operations.  The main objectives of this study are to
examine and evaluate the working capital management in ACC Limited, examine the
management pattern of inventory, liquidity, cash position and receivables
management. This also finds the relationship between Working Capital Efficiency
and Profitability, Profitability and Market ratios.

 

OBJECTIVES OF THE STUDY:

Based
on the issues stated above, the following objectives are framed for the:

1.            
To analyse operational and financial performance
of select cement companies in India.

2.            
To analyse the wealth creation of select
cement companies in India..

3.            
To offer suggestions for the improvement
of performances

 

HYPOTHESES: 

 The study has been undertaken to test the
following hypothesis:

1.        
There
is no significant relationship between working capital management and
profitability of  
select cement companies in India.

2.        
There
is no significant relationship between wealth creation, solvency, leverage and
working capital and profitability.

3.        
There is no significant
difference in the profitability of select cement companies in India.

4.        
There is no significant difference in the
market capitalisation of the select cement companies in India.

SCOPE OF THE STUDY:

This study intends to analyse the Operational
performance and wealth creation of the selected companies. It has identified
areas which can be improved. Further, the study has made suggestions to help
the management of cement companies to better utilize corporate resources. The
present study analyses the efficiency of working capital management and its
components i.e. inventory, cash and bank balances, and various current
liabilities. The study attempts to determine the efficiency and effectiveness
of management in each segment of working capital.

 

LIMITATIONS OF THE STUDY:

Here
are some limitations of the study:

 (1) 
This study based on secondary data taken from published annual reports
and accounts of selected companies and as such its finding depends on integrity
of such data.

(2)  The selected companies for study are based on
market capitalisation and hence, limited the scope of study to few companies.

 (3) 
This study was limited to a few numbers of companies within the
selection criteria due to lack of availability of data.

 

RESEARCH METHODOLOGY:

The methodology proposed
in the study is to analyze the impact of performance on the profitability and
wealth creation.

Period
of Data: Data related to the select tow cement
companies in India have been taken from Annual reports for the 11 years from
2006-2007 to 2016-2017.

Frame
work of Analysis: After the collection of
secondary data of select cement companies, various statistical tools and
techniques are used to complete the study.

Selection
of Companies: Based on Market Capitalization one small
cap –Birla company having capitalization up to 2,000 cr and one large Cap
–Ultra tech Company having market cap between above 10,000 cr have been taken
for the study.

 

 

DATA
ANALYSIS:

OPERATIONAL
PERFORMANCE:

The operational performance can be measured
using Accounts receivable turnover ratio,
Inventory turnover ratio, Accounts payable, Total Assets turn over ratios,
Operating expense ratios, Return on Investment etc., The quicker a company can
sell its inventory, the better. Quicker turnover allows for more opportunities
to generate profit.

Table No.1 working
capital management ratios

 

 
ULTRATECH

 
BIRLA

 
 
Year

Working
Capital Turn Over Ratio

Asset Turn
Over ratio

Inventory
Turn Over

Operating
Cash Flow Ratio

Debtor Turn
Over Ratio

Working
Capital Turn Over Ratio

Asset Turn
Over ratio

Inventory
Turn Over Ratio

Operating
Cash Flow Ratio

Debtor Turn
Over Ratio

2007

0.04

1.05

13.49

1.43

26.75

-0.06

1.07

14.44

0.51

1.67

2008

-0.05

0.88

12.05

0.87

25.45

-0.06

0.85

11.62

0.48

0.68

2009

-0.03

0.83

11.00

0.94

34.30

0.08

0.87

10.35

0.78

0.59

2010

0.02

0.84

10.21

1.17

32.63

0.05

0.71

10.01

0.62

0.89

2011

0.14

0.66

10.77

0.39

21.93

0.48

0.59

7.58

0.39

0.70

2012

0.12

0.79

10.30

0.76

23.72

0.44

0.56

6.70

0.36

0.91

2013

0.08

0.74

10.42

0.57

19.84

0.32

0.58

6.07

0.29

0.81

2014

0.16

0.68

9.75

0.57

15.83

0.45

0.62

6.41

0.41

0.73

2015

-0.04

0.65

10.14

0.46

19.06

0.53

0.64

6.92

0.44

0.59

2016

-0.08

0.64

10.56

0.39

17.04

0.48

0.64

6.73

0.25

0.62

2017

0.18

0.61

10.74

0.59

18.72

0.24

0.52

6.53

0.58

0.44

Average

0.05

0.76

10.86

0.74

23.21

0.27

0.70

8.49

0.46

0.78

Std.dev

0.09

0.13

1.06

0.34

6.10

0.23

0.17

2.73

0.15

0.33

CV

52%

570%

1028%

220%

380%

118%

416%

311%

304%

241%

CAGR

16%

-5%

-2%

-8%

-3%

-214%

-6%

-7%

1%

-11%

Interpretation: Working capital ratios indicates cover of short-term assets by its
short-ter

x

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