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Finance is the life blood of business. Finance is of the basic foundations of all kinds of economic activities. Like any other functional management firm (such as production, marketing, finance etc) Finance is a vital functional organ of the firm. If the finance function does not operate well, the whole organizational activity will be collapsed. The subject matter of financial management has been defined in many ways depending upon the study of the subject.


Financial statement analysis is the collective name for the tools and techniques that are intended to provide relevant information to decision makers. The purpose of financial statement analysis is to access a company financial health and performance. Financial statement analysis consists of comparisons for the same company over periods of time and comparisons of different companies either in the same industry or in different industries. Financial statement analysis enables investors and creditors to evaluated past performance and financial position, and to predict future performance.



2.1. OBJECTIVES OF THE STUDY 1. To measure the operating performance of the company. 2. To measure Liquidity position of the company. 3. To measure long term solvency of the company 2.2. LIMITATIONS OF THE STUDY This study mainly depends on the Secondary data i.e., Annual reports of ACC Ltd. Operating and Financial performance of the company is analyzed using 5 years data alone. The Study does not consider the time value of money. The validity of analysis and suggestions depends on the financial statements and reports alone, provided by the company.


RESEARCH DESIGN The research design that is adopted in this study is descriptive design. Descriptive

research is used to obtain information concerning the current status of the phenomena to describe, "what exists" with respect to variables or conditions in



2.4.1. SAMPLIE SIZE:The sample size for this study is 2007 2011 annual reports of Profit and Loss Account, Balance Sheet. 2.4.2. SAMPLE UNIT:One year Financial Report will constitute a sample unit.


Data were collected through both secondary data sources. The Secondary data was collected mainly from 1. Annual Reports 2. Internal Records 3. Books

2.4.4. TOOLS USED:-

The collection of data were tabulated and presented in the appropriate places of various chapters. Besides the performance of business was evaluated by analyzing and interpreting financial statement with the help of Ratio Analysis, Trend Percentages, Common Size financial statement, Dupont Analysis.

3.COMMON-SIZE FINANCIAL STATEMENT Common-size Financial statements are those in which figures reported are converted into percentages to common base. The comparative common-size financial statements show the percentage of each cash item to the total in each period but from period to period.


The method of calculating trend percentage involves the calculation of percentage relationship that each item bears to the same item in the base year. Any year may be taken as the base year. It is usually the earliest year. Any intervening year made be taken as the base year. Each item of base year is taken as 100 and on that basis percentages for each of the items of each of the years are calculated. These percentages can also be taken as index numbers showing relative changes in the financial showing relating changes in the financial data resulting with the passage of time.

The method of trend percentages is a useful analytical device for the management since by substituting percentages for absolute figure.

However, Trend percentages are not calculated for all of the items in financial statements. They are usually calculated only for major items since the purpose is to highlight important changes.

5. RATIO ANALYSIS Ratio analysis is widely used tool of financial analysis. Ratios are

relationships expressed in mathematical terms between figures which are connected with each in some manner.

It is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. This relationship can be expressed as Percentages, Fractions and proportion of numbers.

Financial ratios are used to evaluate Profitability, Liquidity, Capital structure of the Company.

Types of ratios: Ratios can be classified for the purpose of exposition into four broad groups. 1. Profitability Ratios 2. Activity Ratios 3. Liquidity Ratios 4. Capital structure Ratios


1. Ratio simplifies Financial statements. 2. Ratio facilities inter-firm and intra-firm comparison. 3. It helps in decision-making.


The profitability ratios are calculated to measure the overall efficiency of the business. The management is naturally eager to measure its operating efficiency.

Profitability ratios are used as an indicator of the efficiency with which the operation of the business.

The following ratios are calculated:

1. Net profit ratio 2. Operating profit ratio 3. Earning per share 4. Price earnings ratio 5. Earnings yield ratio 6. Return on equity 7. Return on investments 8. Return on total assets


Net profit ratio indicates net margin earned on sales. Net profit Ratio expressed the relationships between the net profit and net sales. This ratio helps in determining the

efficiency with which affairs of the business are being managed.

Net profit after tax Net profit Ratio = ---------------------------- x 100 Net sales

Table 3.2 Net profit ratio for the yea 2007-2011 Year 2007 2008 2009 2010 2011 Net profit after tax Crore 1,439 1,213 1,607 1,120 1,325 Net sales Crore 6,991 7,283 8,027 7,717 9,439 Net profit ratio % (20.58) (16.64) (20.02) (14.51) (14.04)

(Source: ACC LTD Annual Reports year 2007-2011) The companys net profit has decreased throughout the five years, it indicates the poor administration capability of the concern. This ratio also indicates that firms capacity to face adverse economic conditions such as price competition, lower demand etc. If the profit of the firm is not sufficient or the firm incurred loss, the firm shall not be able to achieve a satisfactory return on its investment.

5.1.2. OPERATING PROFIT RATIO: The operating expense ratio explains the changes in the profit margin (EBIT to Sales) ratio. This ratio is computed by dividing operating expenses viz. cost of goods sold plus operating expenses. The Ratio is a complementary of net profit ratio. This ratio is measure of the operating efficiency with which the businesses is being carried. A comparison of the cost component is high or low in the figure of sales.

EBITDA Operating ProfitRatio = -------------------------- *100 Net sales (Operating cost = Cost of sales + Operating Expenses)

Table 3.3 operating ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 EBITDA Crore 1,993 1,899 2,644 1,812 1,921 Net sales Crore 6,991 7,283 8,027 7,717 9,439 Operating Profit ratio % 28.51 26.07 32.94 23.48 20.35

(Source: ACC LTD Annual Reports year 2007-2011)

It indicates operating efficiency of the firm. The operating ratio of the firm was increased for the first three years. In this periods the firm has spent more operating expenses. Hence it indicates the low efficiency of the firm. But there after in the year 2011 operating cost is decreased. So in this period the has tried to reduce the cost.


EarningPer Share highlights the overall success of the concern from owners point of view and it is helpful in determining market price of equity share.

Net profit after tax Earning per share = -----------------------------------------------------Number of Equity Shares

Table 3.4 Earning per share Ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Net profit after tax Crore 1,439 1,213 1,607 1,120 1,325 No.of equity shares 187624404 187681819 187740292 187745356 187745356 Earnings per share % (Rs.) 76 65 85 60 71

(Source: ACC LTD Annual Reports year 2007-2011)

This table reflects the capacity of the concern to pay dividend to its equity sharesholders. It has heavy loss in the year 2009-10. Hence it degrade the reputation of the firm as well as interest of the shareholders of the company.


This ratio indicates the number of times the earning per share is covered by its market price. Price earning ratio helps the investor in deciding whether to buy or not buy the shares of a company at a particular market price. Market price per share Price earnings ratio = --------------------------------Earnings per share

Table 3.5 Price Earnings Ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Market Price per Share 1223 1171 865 444 948 Earning per Share (Rs.) 76 65 85 60 71 Price Earnings Ratio 16.10 18.03 10.18 7.40 13.36

(Source: ACC LTD Annual Reports year 2007-2011) Usually higher the Price earnings ratio, better it is. The Management should look into the causes that have resulted into the fall of this ratio. Hence Price Earnings Ratio

decreasing, it affects the market price of shares, and also the company fails to get good name from its shareholders.


The earning yield may be defined as the ratio of earnings per share to the market value per ordinary share. The earning yield ratio is also called the earning price ratio. Earning per share Earning yield = ----------------------------- x 100 Market price per share Table 3.6 Earning yield Ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Earning per Share (Rs.) (1.54) (1.65) (1.59) (2.63) (8.82) Market Price per Share 10 10 10 10 10 Earning yield (15.4) (16.5) (15.9) (26.3) (88.2)

(Source: ACC LTD Annual Reports year 2007-2011)

Earnings yield shows negative value. It is also increasing trend. It reveales the poor performance of the company.


In real sense, equity shareholders are the real owners of the company. They assume the highest risk in the company. Equity shareholders are getting residual claim after paying interest and performance dividend. Return on equity capital, which is the relationship between profits of a company an its equity capital, can be calculated as:

Net profit after tax Return on Equity = -------------------------------- * 100 Net worth

Table 3.7 Return on equity for the year 2007-2011 Year 2007 2008 2009 2010 2011 Net profit after tax Crore 1,439 1,213 1,607 1,120 1,325 Crore 4,153 4,928 6,016 6,469 7,192 Net worth ROE % (34.65) (24.61) (26.71) (17.31) (18.42)

(Source: ACC LTD Annual Reports year 2007-2011) Here, the company has not earned profit, hence, the net loss erode the shareholders net worth year after year. The return on equity ratio has also showed decreasing trend . The companys profitability position was not good.


The Conventional approach of calculating return on investment is to divide PAT by investment. Investment represent pool of funds supplied by shareholders ad lenders, while PAT represent reside income of shareholders therefore it is conceptually unsound to use PAT in the calculation of ROI.

Operating profit ROI = -------------------------------- *100 Capital employed

Table 3.8 Return on investment for the year 2007-2011 Year 2007 2008 2009 2010 2011 Net profit after tax Crore 1,439 1,213 1,607 1,120 1,325 Capital employed Crore 4,791 5,746 6,932 7,355 8,221 Ratio % (30.04) (21.11) (23.18) (15.22) (16.12)

(Source: ACC LTD Annual Reports year 2007-2011)

In the year 2007-2011 the company has incurred operational loss. Eventhough the company employed huge amount of capital but due to its inefficient operation, its operating profit turned into loss.

5.1.8. RETURN ON TOTAL ASSETS: The ROTA may also be called profit to asst Ratio. There are various approaches possible to define net profits and assets, according to the purpose and intent of the calculation of the ratio.

The ROTA based on this ratio would be an under estimate as the interest paid to the creditors is excluded from the net profits.

Net profit after Tax ROTA = ------------------------------------- * 100 Total assets

Table 3.9. Return on total asset for the year 2007-2011 Net profit after tax Crore 1,439 1,213 1,607 1,120 1,325 Total asset Crore 7,489 8,517 10,059.15 11,041.34 11,816.71 Return on Total Assets % (19.41) (14.24) (15.98) (10.14) (11.21)


2007 2008 2009 2010 2011

(Source: ACC LTD Annual Reports year 2007-2011) In the year 2009-2010 the company incurred net loss. The return on total assets showed negative (loss) balance in all the 5 years. It was not good indication to conduct the business in forthcoming years.

5.2. ACTIVITY / TURNOVER RATIOS: Turnover ratios are also known as Activity or Efficiency ratios. These indicate the efficiency with which the capital employed is rotated in the business. Activity ratio measures the efficiency of asset management. Turnover ratio indicates the number of times the capital has been rotated in the process of doing business.

The following ratios are calculated:


Fixed assets turnover ratio indicates the extent to which the investments in fixed assets contribute towards coast of goods sold. If compared with a previous period it indicates whether the investment in fixed assets has been judicious or not. Cost of goods sold Fixed assets turnover ratio = -------------------------------------Fixed assets Table 3.10. Fixed assets turnover ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Cost of goods sold 1026302079 1085499769 713705801 2757442192 3814339033 Fixed Assets 4599847844 1317459132 1233959900 8727028918 8195640982 Ratio 0.22 0.8 0.57 0.31 0.46

(Source: ACC LTD Annual Reports year 2007-2011) The above table dealt with fixed assets turnover ratio. Higher the ratio, more is the efficiency in probability of a business concern. A lower ratio is the indication of under utilization of fixed assets in the year 2006-07 and 2009-10 is lower, is indicates lower utilization of fixed assets.


Debtors turnover is found out by dividing credit sales for average debtors. Debtors turnover indicates the number of times debtors turnover each year. The higher the value of debtors turnover, the more efficient is the management of credit. The average number of days for which debtors remain outstanding is called the average collection period.

Net credit sales Debtors Turnover Ratio = ----------------------------------Closing debtors

Table 3.11 Debtors turnover ratio for the year 2007-2011 Net Credit Sales Year Crore Closing Debtors Debt Turnover Ratio 2007 2008 2009 2010 2011 4,991 5,283 7,027 6,717 8,439 293.65 310.17 203.90 178.28 260.41 16.99 17.03 34.46 37.67 32.40 Debt collection period (Days) 22 21 11 10 11

(Source: ACC LTD Annual Reports year 2007-2011)

Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover more efficient in the management of debtors. Similarly, lower debtor turnover implies inefficient management of debtor. From the table the ratio for the year 2009-10 was very low, when compared with other remaining years performance.

5.3. LIQUIDITY RATIOS Liquidity is the ability of company meets its short-term obligations when they fall due. As company should have enough cash and the current assets, which can be converted into cash so that it can pay its suppliers and lenders on time. The following ratios are calculated: 1. Current ratio 2. Quick ratio / Liquid ratio 3. Net working capital ratio 4. Cash ratio 5.3.1. CURRENT RATIO: Current ratio is a widely used indicator of companys ability to pay its debts in the short-term. It is the relationships between current assets and current liabilities. Current assets are those assets which can be easily converted into cash within a short period of time or with in an operating cycle generally one year. Current liabilities are those which are payable with in a short period of time generally one year.

Current assets Current ratio = ------------------------------------Current liabilities Table 3.14 Current Ratio for the year 2007-2011 Year Current Assets (In Crores) 2007 2008 2009 2010 2011 2,203 2,760 2,256 2,753 3,618 Current Liabilities (in Crores) 2,221 2,766 3,114 3,746 3,664 0.99 0.99 0.72 0.73 0.99 Ratio

(Source: ACC LTD Annual Reports year 2007-2011) From the table, it reveals the current ratio was steady in the year 2007 and 2008 ,but it dropped after that.Then it increased again in 2011. Internationally accepted current ratio is 2:1 i.e., current assets shall be 2 times of current liabilities. The ability of the concern also depends on current asset position. Here, current assets are not sufficient to meet its current

liabilities. Hence the companys solvency position is not good for all the years indicated above.

5.3.2. QUICK RATIO This ratio is also termed as Acid Test Ratios and Liquidity Ratio. This ratio is ascertained by comparing the liquid assets to current liabilities. Prepaid expenses and stock are not taken as quick assets. Bank overdraft is not taken as quick liability.

Quick assets Quick Ratio = ---------------------------Current liabilities

Table 3.15.Quick ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Quick assets (in crores ) 1710.17 1631.94 1463.58 2659.66 2418.24 Current liabilities ( in crores) 2,221 2,766 3,114 3,746 3,664 Ratio 0.77 0.59 0.47 0.71 0.66

(Source: ACC LTD Annual Reports year 2007-2011) From the above table in 2007-2011 the ratio is less than the ideal ratio 1. Here, quick liabilities are twice when compared with quick assets. Hence, this position is not healthy for the soundness of the business.


Net working capital represents the excess of current assets over current liabilities. Net working capital measures the firms potential reservior of funds. Net working capital is a measures of liquidity.

Net working capital Net Working capital ratio = --------------------------------Capital employed Net working capital = Current assets Current liabilities

Table 3.16 Net working capital ratio for the year 2007-2011 Net working capital (inRs.) 18 6 858 993 46 Net Assets (or) Capital employed (inRs.) 4,791 5,746 6,932 7,355 8,221 (0.003) (0.001) (0.123) (0.135) (0.005) Ratio


2007 2008 2009 2010 2011

(Source: ACC LTD Annual Reports year 2007-2011)

The table revealed the networking capital ratio from the year 2007 to 2011. The company borrowed loan for its working capital requirements, because current liabilities were higher than that of current assets, in every year. Hence liquidity position is not good.

5.3.4. CASH RATIO Cash ratio means the availability to meet out the current liabilities. This ratio is also named as Absolute Liquid Ratio. It is the Relationship between the Absolute liquid assets include cash in hand, cash at bank and marketable securities or temporary investments.

Cash Cash ratio = ------------------------Current liabilities

Table 3.17 Cash ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Cash 1,489 1,438 1,876 2,288 2,832 Current liabilities 2,221 2,766 3,114 3,746 3,664 Ratio 0.67 0.52 0.60 0.61 0.77

(Source: ACC LTD Annual Reports year 2007-2011)

An ideal cash ratio is 0.75:1. This ratio is more regorious measure of a firms liquidity position. The table indicates from the year 2007 to 2011. For the 5 years the companys cash position is not sufficient to meet its obligations. Because the five years its position is lower than ideal ratio.

5.4. CAPITAL STRUCTURE RATIOS: Capital structure ratios are also called as Leverage Ratios and Solvency Ratios. The long term solvency of a company is affected by the extent of debt used to finance the assets of the company. These ratios explain how the capital structure of firm is made up or the debt equity mix adopted by the firm. Long term solvency ratios indicate a firms ability to meet the fixed interests and repayment schedules associated with its long-term borrowings. The important capital structure ratios are: 1. Debt-Equity ratio 2. Proprietary ratio 3. Debt ratio 5.4.1. DEBT EQUITY RATIO: The debt-equity ratio is calculated to ascertain the soundness of the long-term financial policies of the company. It is also known as External - Internal equity ratio. The relationship between borrowed funds and owners capital is popular measure of the long-term financial solvency of the firm. The relationship is shown by the debt-equity ratio. The ratio is Long-term debt Debt - equity ratio = -----------------------------------Shareholders funds Table 3.18 Debt equity ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Long-term debt 324.69 394.21 541.45 646.95 503.49 Share holders funds 4058.72 4,927.73 6,016.22 6,469.49 7,192.27 Debt Equity Ratio % .08 .08 .09 .10 .07

(Source: ACC LTD Annual Reports year 2007-2011) The table dealt with debt equity ratio from the year 2007 to 2011. The standard norm is 1:1. The company has borrowed more long-term debt for its operation. It is not healthy for the soundness of the firm. A high debt-equity ratio indicates that the claim of outsiders are greater than those of owners. Hence, this position affect the financial position of the concern

5.4.2. PROPRIETARY RATIO: Proprietary ratio is variant of debt-equity ratio. Proprietary ratio establishes relationship between the proprietors funds and the total tangible assets. This ratio focused the attention on the general financial strength of the business enterprise. This is of particular importance to the creditors who find out the proportion of shareholders funds in the total assets employed in the business.

Total Shareholders Fund Proprietary Ratio = ----------------------------------Total Tangible Assets

Table 3.19 Proprietary ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Share holders funds 4058.72 4,927.73 6,016.22 6,469.49 7,192.27 Total tangible Assets 2793.56 3,446.16 4,129.10 5,059.63 6,206.26 Proprietary ratio % 1.45 1.43 1.46 1.28 1.15

(Source: ACC LTD Annual Reports year 2007-2011) The proprietary ratio for the year 2007 is 1.45% and subsequently it deceased to (1.15 in 2010-11). The company fails to improve or retain its shareholders funds. Higher the ratio or the share of shareholders in the total capital of the company, better is the long term solvency position of the company.

5.4.3. DEBT RATIO:

Debt ratios may be used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure. It may therefore, compute debt ratio by dividing total debt by capital employed or net assets.

Total debt Debt ratio = ----------------------------Net asset

Table.3.20 Debt ratio for the year 2007-2011 Year 2007 2008 2009 2010 2011 Total debt 306.41 482.03 566.92 523.82 510.73 Total Tangible Assets 2793.56 3,446.16 4,129.10 5,059.63 6,206.26 Debt ratio % 10.96 13.98 13.72 10.35 8.23

(Source: ACC LTD Annual Reports year 2007-2011) The debt ratio for the year 2007 is 10.96% and it is has increased subsequently to 13.72 in the year 2008-09. This position was not good to conduct business in future. Hence, the company has to take necessary step to avoid borrowing loan from bank or others. Huge debts carries huge amount of interest, it affects the profitability of the concern.