Project

Financial Accounting for Managers

PGDM 2013-2015






RAMCO CEMENT LIMITED












Submitted To Submitted By
Dr. Pawan Jain Minal Garg
Course Instructor FAM 2013153
(Section C)

INDEX






































1.
INTRODUCTION
2.
REVENUE GENERATING ACTIVITIES
3.
MAJOR GROWTH DRIVERS
4.
ACCOUNTING POLICIES
5.
RATIO ANAYSIS
5.
MAJOR EXPENSE HEADS

6.
CASH FLOW STATEMENT ANALYSIS

INTRODUCTION OF THE COMPANY

The Ramco Cements Limited (Formerly Madras Cements Ltd) is the flagship company of the
Ramco Group, a well-known business group of South India. It is headquartered at Chennai.
The main product of the company is Portland cement, manufactured in five state-of-the art
production facilities spread over South India, with a current total production capacity of 13.0
MTPA. The company is the fifth largest cement producer in the country. is
the most popular cement brand in South India. The company also produces Ready Mix
Concrete and Dry Mortar products, and operates one of the largest wind farms in the country.

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 70s,
the plant switched over to more efficient dry process. A second kiln was also added to bring
the total capacity to 15 lakh tons per annum. The second venture of MCL is its Jayanthipuram
plant near Vijayawada in A.P., set up in 1987. The 36.50 lakh ton per annum plant employs
the latest state-of-the-art technology.

The Ramco Cements Limited (Formerly 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 company board brings together a team of business,
administrative, financial and cement technology professionals who provide guidance and
direction to the company's operations in a competitive business environment. The Ramco
Cements Limited (Formerly Madras Cements Ltd) has been a pioneer in adopting corporate
governance practices comparable to the best in the country.

Ramco cement has won many award till now, the few among them are listed below:-
THE FOUR LEAVES AWARD
THE CLEANER PRODUCTION MESURE AWARD
CII ENVIRONMENTAL BEST PRACTICE AWARD



ANALYSIS

1. The main revenue generated by the company or main business is through dealing in
Cement and power generation from windmills. This revenue is further divided into
two parts i.e. Domestic Sales and Exports. There were evident enough changes in the
figures of last two financial years. The sale of cement has increased to 83.60 lakh
tonnes compared to 75.50 lakh tonnes of the previous year. The sale value of cement
for the current year, net of Excise Duty and VAT amounts to Rs.3,627.30 crores as
against Rs.3,093.83 crores for the previous year. Out of the total sales for the year,
0.84 lac tonnes of cement was exported as against 0.46 lac tonnes during the previous
year. The export turnover of the Company for the year was Rs.28.70 crores as against
Rs.14.26 crores of the previous year.

2. The major growth drivers of the industry are as follows:-
Increase in investments by Government of India (GOI) in housing and
infrastructure development projects underpinned by economic growth.
Increase in per capita income.
Rising demand for real estate and infrastructure construction sector.
Entry barriers due to high capital cost and low gestation period.

3. The mandatory Accounting Standards issued by the Institute of Charted accountant
of India (ICAI) and notified under the companies rules, 2006 and relevant provisions
of the Companies Act, 1956 are consistently adopted by the company. The areas
which are being covered by the company in its Accounting Policies are given below:-
Tangible Fixed Assets -
Depreciation has been provided on straight-line basis at the rates specified
under rules/ Schedule XIV to the Companies Act, 1956, prevailing at the time of
acquisition of the asset.

Intangible Assets -
Costs incurred to secure right to extract mineral reserves are capitalised which are not
amortised in accordance with AS-26.

Investment Property -
Depreciation on building component of investment property is calculated on straight-
line basis using the rate prescribed under Schedule XIV to the Companies Act, 1956.

Valuation Of Inventories
Finished goods are valued at cost or net realisable value whichever is lower.
Process Stock is valued at weighted average cost, including the cost of
conversion.
Raw Materials, Components, Stores & Spares, Coal, Packing Materials etc.,
are valued at cost, computed on a moving weighted average basis.

Borrowing Costs
Borrowing costs that are directly attributable to the acquisition and construction of
qualifying assets are capitalised as part of the cost of those assets as per AS-16.

Income Tax
The tax provision is considered as stipulated in AS-22 (Accounting for Taxes on
Income) and includes current and deferred tax liability.

Segment Reporting
The company identifies business segment as the primary segment as per AS-1.

4. Ratio analysis for the year 2011-2012 & 2012-2013:-

Return on Investment Ratio

Return on Assets (ROA) = Profit After Tax+ Finance Cost
Total Assets Capital Work In Progress

Return on Invested Capital (ROIC) =Profit After Tax
Non-Current Liabilities + Shareholders Fund

Return on Net Worth (RONW) = Profit After Tax
Net Worth
Net Worth = Shareholders Funds + Share Application Money Pending Allotments


Ratio 2011-2012 2012-2013
ROA 0.095 0.090
ROIC 0.084 0.083
RONW 0.18 0.17





0.095
0.084
0.18
0.09
0.083
0.17
ROA ROIC RONW
RETURN ON INVESTMENT RATIO
2011-2012 2012-2013

Activity / Turnover Ratio
Total Asset Turnover Ratio (TATR) = Sales Revenue(Net of returns & Excise)
Total Assets Capital Work In Progress

Invested Capital Turnover Ratio (ICTR) = Sales Revenue
Non-Current Liabilities+ Shareholders Fund

Average Collection Period (ACP) = Trade Receivables x 365
Net Sales

Inventory Turnover Ratio (ITR) = Cost Of Goods Sold
Closing Inventory
Cost of Goods Sold = Material consumed + Change in Stock + Manufacturing Expenses +
Purchase of Stock In Trade


Change in Stock = Opening Stock Closing Stock


Working Capital Turnover Ratio (WCTR) = Sales (net)
Working Capital

Working Capital = Current Assets Current Liabilities


Days Inventory (DI) = 365 / Inventory Turnover Ratio

RATIO 2011-2012 2012-2013
TATR 0.588 0.605
ICTR 0.715 0.788
ITR 2.869 2.738
WCTR -6.935 -10.624


0.605 0.788 2.738
-10.624
0.588 0.715 2.869
-6.935
TATR ICTR ITR WCTR
ACTIVITY/TURNOVER RATIO
2011-2012 2012-2013







Liquidity Ratio

Current Ratio (CR) = Current assets
Current Liabilities


Acid Test Ratio (ATR) = Current Assets ( Inventory + Prepaid Expenses )
Current Liabilities



RATIO 2011-2012 2012-2013
CR 0.688 0.358
ATR 0.358 0.399



24
128
29
134
ACP DI
PERIODICAL RATIOS
2011-202 2012-2013
0.688
0.358
0.776
0.399
CR ATR
LIQUIDITY RATIO
2011-2012 2012-2013
RATIO 2011-2012 2012-2013
ACP 24 29
DI 128 134
Solvency Ratio

Debt Equity Ratio (DER) = Non-Current Liability
Shareholders Fund

Debt to Total Invested Capital (DTTIC) =Non-Current Liability
Non-Current Liabilities + Shareholders Fund


Interest Coverage Ratio (ICR) = Earnings before Interest & Tax
Total Interest Charges

RATIO 2011-2012 2012-2013
DER 1.22 1.05
DTTIC 0.55 0.51
ICR 4.93 4.52






Profitability Ratio

Gross Profit Ratio (GPR) = Gross Profit x 100
Sales net of returns & Excise

Gross Profit = Sales Cost of Goods Sold


Operating Profit Ratio (OPR) = Operating Profit x 100
Sales net of returns & Excise

Net Profit Ratio (NPR) = Net Profit x 100
Salesnet of returns & Excise
1.22 0.55
4.93
1.05 0.51
4.52
DER DTTIC ICR
SOLVENCY RATIO
2011-2012 2012-2013

Prediction of Financial Health of the company for different users:-
1. Shareholders (Present & Potential)

Shareholders (Present & Potential) are basically interested in two categories of ratio i.e.
Profitability Ratio and Return on Investment Ratios.

A. Return on Assets-
There is a slight decrease in the ratio from the year 2011-2012 to 2012-2013 i.e.
0.095 to 0.090. These changes occur due to an increase in Profit After Tax, Financial
Cost and Total assets but the main reason behind the change in the ratio is due to
decrease in working capital where some of the liabilities are being paid on account of
current assets mainly Inventory.

B. Return on Invested Capital & Return On Net Worth-
There were only slight changes in these 2 ratios which were not evident enough.
These changes took place due to ongoing activities.

C. Gross Profit Ratio-
There was an increase from the year 2011-2012 to 2012-2013 i.e. 56.72% to 57.48%,
the reason behind is the increase in Gross Profit & Net Sales.



2011-
2012
2012-
2013
GPR 56.72% 57.48%
OPR 21.03% 18.93%
NPR 12.34% 10.59%
56.70%
21.03%
12.34%
57.40%
18.93%
10.59%
GPR OPR NPR
PROFITABILITY RATIO
2011-2012 2012-2013

D. Operating Profit& net Profit Ratio-
The reason behind decrease in these two ratios is that there is an increase in other
expenses, Depreciation & amortization expenses, Employee Benefit Expenses and
Financial cost as well.

2. Managers-

Managers are generally interested in Activity & Profitability Ratio. We have already
discussed about the Profitability Ratio so given below is the brief explanation of Activity
Ratio:-

A. Total assets Turnover Ratio and Invested Capital Turnover Ratio-
There is an increase in both the ratio which is due to change in working capital.

B. Inventory Turnover Ratio & Working capital Ratio-
The reason behind decrease in both the ratios is change in inventory.

3. Lenders (Short Term & Long Term)

The Lenders are interested in evaluating three ratios basically which are discussed
below:-

A. Interest Coverage Ratio-
There is a decrease in interest coverage ratio from 4.93 to 4.52 which is due to an
increase in PBIT & Finance cost as well.

B. Debt equity Ratio-
The Debt Equity ratio is decreased which shows that some part of the Non- Current
Liability is being paid over the Shareholders Fund.

C. Net Profit Ratio-
The Net Profit Ratio has decreased due to the increase in Finance cost and Tax
provisions.

5. For the financial year ending on 2012- 2013, the major expense heads for the
company during period of study are as follows:-

Cost of material consumed
Change in inventories of finished goods and work in progress
Employee benefit expenses
Finance costs
Depreciation & amortization expenses
Other expenses (Manufacturing, Selling & Distribution and Establishment)



EXPENSES 2011-2012 2012-2013
Cost of material consumed 437.60 575.27
Change in inventory (0.78) (45.33)
Employee benefit expense 171.21 196.02
Finance cost 158.45 178.51
Depreciation & amortization 280.58 253.90
Other expenses 1678.68 2098.93




6. Overview of Cash Flow Statement:-
A. Cash Flow From Operating activities-
There is a decrease in net cash flow from operating activities from 863.79 to
701.40.
The reason behind decrease in cash flow are increase in depreciation and interest
paid. There was a mark able increase in creditors and debtors as well.

B. Cash Flow From Investing activities-
There is a decrease in net cash used in investing activities from 552.24 to
382.78.The reason behind this is the decrease in purchase of fixed assets or it can
be termed as reduction in purchase of assets.

C. Cash Flow From Financing activities-
There is a decrease in net cash used in financing activities from 329.22 to
288.55.The reason behind that is proceeds from short term borrowings, repayment
of long term borrowings and repayment of short term borrowings. The above
mention Transactions were evident enough to change in the cash flow.

7. There is no MDA given in annual reports of the company.
437.6
-0.78
171.21 158.45 280.58
1678.68
575.27
-45.33
196.02 178.51 253.9
2098.93
MATERIAL INVENTORY EB EXP FIN COST DEP OTHER
EXPENSES DISTRIBUTION
2011-2012 2012-2013