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ASSIGNMENT of FINANCIAL ACCOUNTING

Analyze the Annual Report and Performance of ACC Cement for the year 2008 & 2009

GROUP No. 6 (MBA-I, B-Batch)

Submitted by: PRN 10020741068 10020741074 10020741080 10020741086 10020741092 10020741098 10020741104 10020741110 10020741116 NAME Pansare Saurabh Shrinivas Radhakrishnan Divya Sadhotra Mohit Shah Chintan Bharat Shinde Vikram Vasant Sundar Ray Siddhartha Uchil Supriya Subhashchandra Wadher Bhushan Dayal Jhunjhunwala Honey

Submitted to: Mrs. Shilpa S. Parkhi SIOM, Nashik

10020741122 Singh Divya A balance sheet is a snapshot of a company's financial position at a particular point of time in contrast to an income statement, which measures income over a period of time.

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FINANCIAL RATIOS The importance of ratio analysis lies in the fact that it presents data on a comparative basis and enables the drawing of inferences regarding the performance of the firm. Ratio analysis helps in concluding the following aspects: Liquidity Position: Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have the ability to meet its current obligations when they become due. It is measured with the help of liquidity ratios. Long- Term Solvency: Ratio analysis helps in assessing the long term financial viability of a firm. Long- term solvency measured by leverage/capital structure and profitability ratios. Operating Efficiency: Ratio analysis determines the degree of efficiency of management and utilization of assets. It is measured by the activity ratios. Over-All Profitability: The management of the firm is concerned about the overall profitability of the firm which ensures a reasonable return to its owners and optimum utilization of its assets. This is possible if an integrated view is taken and all the ratios are considered together. Inter- firm Comparison: Ratio analysis helps in comparing the various aspects of one firm with the other.

1. Current Ratio : The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's

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current assets to its current liabilities. The ideal Current Ratio preferred by Banks is 1.33 : 1 Current Ratio = Current Assets/Current Liabilities FOR ACC (CONSOLIDATED AC 2009 SHEET REFERRED) current ratio = current assets / current liabilities 2008 2009 % CHANGE Current Assets 2727.2 2330.17 -14.56 Current Liabilities 1900.68 2172.38 14.29 current ratio 1.434854894 1.072634622 -25.24

Interpretation: The current ratio has come down by 25% AS COMPARED TO 2008. This was a result of an increase in the current liabilities and reduction in current assets. The company has lost on its capability to pay short term debts. 2. Net Working Capital : This is worked out as surplus of Long Term Sources over Long Tern Uses, alternatively it is the difference of Current Assets and Current Liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. NWC = Current Assets Current Liabilities For ACC: Net working capital= Current Assets Current Liabilities 2008 (Rs. Crore) 2009(Rs. Crore) Current Assets 2727.2 2330.17 Current Liabilities 1900.68 2172.38 NWC 826.52 157.79 Interpretation: The NWC has reduced by 80.9%. This implies that the companies may not have sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses in the coming future.

% CHANGE -14.56 14.29 -80.90

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3. Acid test or Quick ratio : It is the ratio between Quick Current Assets and Current Liabilities. It should be at least equal to 1. It is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company Quick Current Assets: Cash/Bank Balances + Receivables upto 6 months + Quickly realizable securities such as Govt. Securities or quickly marketable/quoted shares and Bank Fixed Deposits Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities For ACC Quick Ratio = Quick Current Assets/Current Liabilities 2008 (Rs. Crore) 2009(Rs. Crore) Quick Current Assets 2170.66 1826.73 Current Liabilities 1900.68 2172.38 Quick Ratio 1.1420439 0.840888795 Quick Current Assets'=Current Assets, Loans and Advances - Loans and Advances

% CHANGE

-26.36

Interpretation: The company is losing its capability to pay short term debts.

4. Debt Equity Ratio: It comes under Leverage ratios or long term solvency ratios. A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the

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calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones. For ACC (Balance Sheet-2008, 2009 and Financial Analysis Report 2008, 2009 referred) Debt-Equity ratio = Total Liabilities / Shareholder Equity 2008 2009 Total Liabilities 2,741.29 3,152.22 Share Holder Equity 4,927.73 6,016.22 current ratio 0.5562 0.5239 Interpretation: Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firms assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. However, the interpretation of the ratio depends upon the financial and business policy of the company. Liabilities have increased by 14.99% as compared to previous year primarily on account of higher provision for marketing and sales expenses, which in turn is arising out of higher sales during the year and increase in provision for expenses in line with the increase in turnover etc. Debt Equity Ratio being less than unity indicates healthy state of the company, but there is 5.81 % drop in it in 2009 when compared to 2008 because of the increase in the liabilities. 5. Operating Profit Ratio :

% CHANGE 14.99 22.08 -5.81

OPERATING PROFIT RATIO= (Operating Profit / Net Sales) x 100

Operating profit Net Sales Operating Profit ratio

2008 (in Cr.) 1,512.66 8234.02 18.37

2009 (in Cr.) 2,259.16 8724.00 25.90

Interpretation: Higher operating profit ratio indicates higher operational efficiency. It shows the profit earned by company from its business operations & not from other sources. Also it shows whether business is able to stand in market or not. It means Operational efficiency of ACC in 2009 is higher as compared to 2008.

6. Net Profit Ratio : NET PROFIT RATIO= (Net Profit / Net Sales) x 100

Net profit Net Sales Operating Profit ratio Interpretation:

2008 (in Cr.) 1099.64 8234.02 13.35

2009 (in Cr.) 1563.91 8724.00 17.93

Net Profit ratio measures overall profitability. Net Profit ratio measures the overall profitability of company. It means overall profitability of ACC is more in 2009 as compared to 2008.

7. Proprietary Ratio Proprietary Ratio = (Tangible Net Worth/Total Tangible Assets) x 100 As there is no tangible asset hence tangible net worth will normal my net worth. 2009 Total Tangible Assets= 6793.89
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Tangible Net Worth =5868.97 Proprietary Ratio=(5868.97/6793.89)*100= 86.38% So,( 100-86.38)=13.62 ,which implies that 13.62% of total assets is debt for the company for the year 2009. 2008 Total Tangible Assets= 5650.81 Tangible Net Worth =4823.12 Proprietary Ratio=(4823.12/5650.81)*100= 85.35% Hence,14.65% of total assets is debt for the company for the year 2008. 2008 &2009 Proprietary Ratio comparison Hence it seen that in 2009 the company repaid debt of around (14.65-13.62)1.03% of total assets.

8. Gross Profit Ratio Gross Profit Ratio = (Gross Profit / Net Sales ) x 100 For ,2009 Gross profit=(Sales Cost of goods sold) Sales=8725.41 Cost of goods sold=6017.28 Gross Profit=(8725.41-6017.28)=2708.13 Gross Profit Ratio=(2708.13/8725.41)*100=31.03% Hence the gross profit of the company is 31.03% For,2008 Gross profit=(Sales Cost of goods sold) Sales=7974.28
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Cost of goods sold=6031.53 Gross profit=(7974.28-6031.53)=1942.75 Gross Profit Ratio=(1942.75/7974.28)*100=24.36% Hence the gross profit of the company is 24.36% 2008 and 2009 Gross Profit Ratio comparison Hence on comparing the data between 2008 and 2009 the gross profit of the company increases from 24.36% to 31.03%. 9. Inventory Turnover Ratio A ratio showing how many times a company's inventory is sold and replaced over a period. Generally calculated as,

For ACC: (Reference: Balance sheet 2008, 2009 & Financial Analysis Report) For the year 2008 Net Annual Average Sales Stock/Inventory Inventory / Stock (Fig.in turnover ratio (Fig.in Rs.Cr.) Rs.Cr.) 7,282.87 228.135 31.9235102

Opening Stock (Fig.in Rs.Cr.) 227.97

Closing Stock (Fig.in Rs.Cr.) 228.3

Opening Stock (Fig.in Rs.Cr.) 228.3

Closing Stock (Fig.in Rs.Cr.) 257.04

For the year 2009 Net Annual Average Sales Inventory / Stock (Fig.in (Fig.in Rs.Cr.) Rs.Cr.) 8,027.20 242.67

Stock/Inventory turnover ratio 33.0786665

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High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. A low turnover ratio implies poor sales and, therefore, excess inventory. A high turnover ratio implies good sales .therefore, less inventory. Inference: If we compare Balance sheet for the year 2008 and 2009 for ACC then Inventory ratio for the year 2009 is higher than 2008 by 3.62% ( please refer above table) which indicate the net sales done by ACC is increased and inventory carried is reduced.

10. Price-Earnings Ratio "P/E" A valuation ratio of a company's current share price compared to its per-share earnings. It is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.

Calculated as:

For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters. Also sometimes known as "price multiple" or "earnings multiple".
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Interpretation: It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years, which can be interpreted as "number of years of earnings to pay back purchase price", ignoring the time value of money. In other words, P/E ratio shows current investor demand for a company share. The reciprocal of the PE ratio is known as the earnings yield. The earnings yield is an estimate of expected return to be earned from holding the stock if we accept certain restrictive assumptions. For ACC P/E ratio for ACC in 2009:10.23 from up from 2008 value of 7.39 this shows that expense incurred due to stock has increased for investors. They have to pay more in 2009 than 2008 to pay back purchase price and that marginal earnings per share has decreased.

11. Debt service coverage ratio:

What Does Debt-Service Coverage Ratio - DSCR Mean? The debt service coverage ratio (DSCR), is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender; it may be a loan condition or covenant. Breaching a DSCR covenant can, in some circumstances, be an act of default.

1. In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.

2. In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.
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3. In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.

In general, it is calculated by:

To calculate an entitys debt coverage ratio, you first need to determine the entitys net operating income. To do this you must take the entitys total income and deduct any vacancy amounts and all operating expenses. Then take the net operating income and divide it by the propertys annual debt service, which is the total amount of all interest and principal paid on all of the propertys loans throughout the year. If a property has a debt coverage ratio of less than one, the income that property generates is not enough to cover the mortgage payments and the propertys operating expenses. A property with a debt coverage ratio of .8 only generates enough income to pay for 80 percent of the yearly debt payments. However, if a property has a debt coverage ratio of more than 1, the property does generate enough revenue to cover annual debt payments. For example, a property with a debt coverage ratio of 1.5 generates enough income to pay all of the annual debt expenses, all of the operating expenses and actually generates fifty percent more income than is required to pay these Typically, most commercial banks require the ratio of 1.15 - 1.35 times (net operating income or NOI / annual debt service) to ensure cash flow sufficient to cover loan payments is available on an ongoing basis. Interpretation :Debt Service Coverage Ratio year ended 2009 is 10.37 vs that of ended 2008 Rs 49.62 ( Debt Service Coverage Ratio = Earnings before Interest, Depreciation and Tax / (Interest on debt + Principal repayment)).Thus DSCR has reduced by about 5 times ,this has reduced
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ACCs capability to generate operating income in order to cover interest on debt, repayment, but since this ratio is more than 1 thus technically ACC still generates10 times the income required to cover up all debt expenses. 12. Asset turnover ratio Tangible Asset for 2008 : 5092.67 Tangible Asset for 2009 : 6324.99 Net sales for 2008 : 8234.02 Net sales for 2009 : 8724 Fixed asset for 2009 : 6314.5 Fixed asset for 2008 : 5072.56

Asset turnover ratio : Net Sales/Tangible Assets Asset turnover ratio For 2008 : 8234.02/5092.67 = 1.635 Asset turnover ratio For 2009 : 8724/6324.99 = 1.379 Fixed asset turnover ratio : Net sales/Fixed Asset Fixed asset turnover ratio For 2008 : 8234.02/5072.56 = 1.62 Fixed asset turnover ratio For 2009 : 8724/6314.5 = 1.38

13. Return on Equity Capital (ROEC) Ratio: In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of
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the company. Return on equity capital which is the relationship between profits of a company and its equity, can be calculated as follows: Formula of return on equity capital or common stock: Formula of return on equity capital ratio is: Return on Equity Capital = *(Net profit after tax Preference dividend) / Equity share capital+ 100 Components: Equity share capital should be the total called-up value of equity shares. As the profit used for the calculations are the final profits available to equity shareholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits. Return on equity capital for 2008 :[(1607 -20) /187.88 )] 100 =844.68 Return on equity capital for 2009 :[(1213 -23) /187.94)] 100= 633.18

14. Earnings Per Share (EPS) Ratio: Definition: Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. Formula of Earnings Per Share Ratio: The formula of earnings per share is: *Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of equity shares (common shares)]

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Significance: The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.

Earning Per Ratio for 2008 : 60.53 Earning Per Ratio for 2009 :84.37

15.Return on Assets : Return on Assets : Net Profit after Taxes / Total Assets For the year 2008 : Net Profit after Taxes :121,278.78 Total Assets : 5,745.55 Return on Assets For 2008 : 121,278.78 / 5,745.55 = 21.108

For the year 2009 : Net Profit after Taxes : 160,673.35 Total Assets : 6,932.39 Return on Assets For 2009 : 160,673.35 / 6,932.39 = 23.177

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16.Return on Capital Employed : Return on Capital Employed : (Net Profit before Interest & Tax / Average Capital Employed) x 100 Average Capital Employed is the average of the equity share capital and long term funds provided by the owners and the creditors of the firm at the beginning and end of the accounting period. For the year 2009 : Net Profit before Interest & Tax : 1,727.70 crore Equity Share Capital : 187.88 crore Long term funds : 5,745.55 crore Average Capital Employed = (187.88 + 5745.55)/2 = 2966.715 Return on Capital Employed : (1,727.70 / 2966.715)*100 = 58.23%

For the year 2009 : Net Profit before Interest & Tax : 2,378.6941 crore Equity Share Capital : 187.94 crore Long term funds : 6,932.39 crore Average Capital Employed = (187.94 + 6932.39)/2 = 3560.165 Return on Capital Employed : (2,378.6941 / 3560.165)*100 = 66.81%

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