IMPACT: International Journal of Research in

Business Management (IMPACT: IJRBM)

ISSN(E): 2321-886X; ISSN(P): 2347-4572
Vol. 3, Issue 7, Jul 2015, 43-50
Impact Journals

FINANCING OF WORKING CAPITAL IN SELECT CEMENT

COMPANIES OF ANDHRA PRADESH
P. VENKATESWARLU1 & B. KRISHNA REDDY2
1

Lecturer, Department of Commerce, Government Degree College, Banaganapalli, Andhra Pradesh, India
2

SKIM, Sri Krishnadevaraya University, Anantapuram, Andhra Pradesh, India

ABSTRACT
The primary aim of working capital management of any business firm is to maintain a balance between two
contradictory factors i.e. liquidity and profitability. It depends upon the financing of working capital of the firm.
A business firm can explore various sources of financing to meet its investment in current assets. Generally the long term
sources of finance provide support for a relatively small proportion of current assets requirements. On the other hand,
short-term sources provide for a major portion of investment in current assets. Depending upon the extent of the use of
long term and short term sources to finance its current assets, a firm is said to be following conservative or aggressive or
matching approach. This paper makes an attempt to analyze the pattern of financing the current assets in select cement
companies and also examine the over or under-utilization of bank finance for working capital requirements when compared
to the norms of Tandon Committee. The analysis of financing of current assets revealed the heavy dependence of the
select units on short term borrowings, account payables and other current liabilities. Long term sources have minor share in
this regard. It is further found that excesses borrowings were noticed in all units except DCL as per first method and in all
units as per second method in some years during the study period.

KEYWORDS: Bank Finance, Liquidity, Long Term Sources, Net Working Capital, Profitability
INTRODUCTION
The primary aim of working capital management of any business firm is to maintain a balance between two
contradictory factors i.e. liquidity and profitability. It depends upon the financing of working capital of the firm.
A business firm can explore various sources of financing to meet its investment in current assets. Generally the long term
sources of finance, like, equity share capital, preference share capital, long-term debts, etc., provide support for a relatively
small proportion of current assets requirements; such finance is known by the name of net working capital or working
capital margin or working capital gap. On the other hand, short-term sources, such as bank credit, public deposits,
commercial papers and spontaneous sources like, trade credit, accrued expenses and deferred income provide for a major
portion of investment in current assets.
Depending upon the extent of the use of long term and short term sources to finance its current assets, a firm is
said to be following conservative or aggressive or matching approach. If the dependence on long term sources is high, the
firm is said to be following conservative approach. On the other hand, if the dependence on the short term sources is high,
the firm is said to be following aggressive approach. Both these policies are not good from the point of view of efficient
management of working capital because the conservative approach gives importance to only liquidity at the cost of

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44

P. Venkateswarlu & B. KrishnaReddy

profitability, while the aggressive approach gives importance to profitability at the cost of liquidity. Therefore, a firm is
suppose to follow a trade off or matching approach which gives equal weightage to both liquidity and profitability. A trade
off approach suggests that the portion of permanent working capital should be financed by the long term sources and the
temporary working capital from short term sources. However, it is very difficult for external analysts to categorize
permanent and seasonal working capital in any firm.
This section makes an attempt to analyze the pattern of financing the current assets in select cement companies
and also examine the over or under-utilization of bank finance for working capital requirements when compared to the
norms of Tandon Committee.

REVIEW OF LITERATURE
A brief review of the different researches in the field is attempted in the following paragraphs.
Sherin: in her article on Liquidity v/s profitability - Striking the right balance writes about the implications of
liquidity and profitability in a pharmaceutical company. A firm is required to maintain a balance between liquidity and
profitability while conducting its day to day operations. Investments in current assets are inevitable to ensure delivery of
goods or services to the ultimate customers. A proper management of the same could result in the desired impact on either
profitability or liquidity.
Elijelly: in the study on Liquidity profitability tradeoff: An empirical investigation in an emerging market
empirically examined the relation between profitability and liquidity, as measured by current ratio and cash gap
(cash conversion cycle) on a sample of joint stock companies in Saudi Arabia. The study found significant negative
relation between the firms profitability and its liquidity level, as measured by current ratio.
Nandi Chandra Kartik: in his paper on Trends in Liquidity Management and Their Impact on Profitability:
A Case Study makes an attempt to assess the trends in liquidity management and their impact on profitability. An attempt
has been made to establish the linear relationship between liquidity and profitability with the help of a multiple regression
model. On the basis of overall analysis, it is therefore important to state that the selected company always tries to maintain
adequate amount of net working capital in relation to current liabilities so as to keep a good amount of liquidity throughout
the study period.
Brahma: conducted a study to examine and evaluate the importance of liquidity management on profitability as a
factor accountable for poor financial performance in the private sector steel Industry in India.

OBJECTIVES OF THE STUDY

To analyze the pattern of financing the current assets in select cement companies

To examine the over or under-utilization of bank finance for working capital requirements when compared to the
norms of Tandon Committee.

RESEARCH METHODOLOGY
Sample under Study
Samples of six cement companies of Andhra Pradesh have been purposefully selected for the study. They are:
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Financing of Working Capital in Select Cement Companies of Andhra Pradesh

Anjani Portland Cements Ltd. (APCL)

Bheema Cements Ltd. (BCL)

Deccan Cements Ltd. (DCL)

NCL Industries Ltd. (NCL)

Panyam Cements and Mineral Industries Ltd. (PCMIL)

Sagar Cements Ltd. (SCL)

45

Scope of the Study

The present study is restricted to the above mentioned six select cement companies of Andhra Pradesh.
Period of the Study
The study was performed on data of 10 years from 2003-04 to 2012-13.
Data Collection
To achieve the aforesaid objectives data is gathered from secondary sources like annual reports of select cement
companies, journals, related other research papers, websites etc.
Tools of Analysis
To analyze the data, percentages and norms of Tandon Committee are used for the present study.

LIMITATIONS OF THE STUDY

The study covers the period from 2003-04 to 2012-13. The changes that took place before and after thisPeriod
were not taken into consideration,

The data are secondary in nature and any bias in them is reflected in the analysis and the conclusion of the study.

DATA ANALYSIS

Analysis of the Pattern of Financing the Current Assets in Select Cement Companies

The financing pattern of current assets in select cement companies has been presented in the table 1.This table reveals
that the proportion of long term sources has fluctuated between -130.26 per cent and 60.37 per cent during the study period
in the industry and on an average, it was 4.92 per cent. It can be said that the long term sources has contributed a minor
share on an average in the industry. In select units also, this source has been showing a fluctuating trend. Individually, the
average proportion of this source was 37.25 per cent in APCL, 46.96 per cent in BCL, 40.89 per cent in DCL, 9.62 per cent
in NCL, -124.87 per cent in PCMIL and 19.69 per cent in SCL during the study period. However, it was a major source in
APCL, BCL and DCL and a minor source in NCL and SCL. But, PCMIL could not use this source in financing its current
assets in half of the years of study period and that too, the proportion of this source was negative in this unit.

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46

P. Venkateswarlu & B. KrishnaReddy

Table 1: Financing Pattern of Current Assets in Select Cement Companies

Particulars
APCL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
BCL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
DCL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
NCL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
PCMIL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
SCL
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions
AVERAGE
a) Long term sources
b) Short-term borrowings
c) Trade payables
d) Other Current Liabilities
e) Short-term provisions

2004

2005

2006

(In percentage)
2007
2008

2009

2010

2011

2012

2013

C.V.

53.21
23.43
18.70
4.66
0.00

48.00
25.96
20.77
5.19
0.07

59.68
19.95
16.00
4.01
0.36

54.91
16.55
13.26
3.33
11.94

38.72
20.53
16.43
4.11
20.22

47.18
8.82
21.02
0.15
22.83

65.74
6.88
25.79
0.24
1.34

1.29
40.66
10.93
45.14
1.97

2.12
33.20
16.40
44.09
4.19

1.62
39.59
14.90
43.48
0.41

37.25
23.56
17.42
15.44
6.33

65.18
46.78
23.37
122.56
131.71

15.82
42.36
33.83
8.00
0.00

59.18
20.41
16.30
4.11
0.00

52.91
23.57
18.84
4.68
0.00

66.95
7.56
10.11
9.79
5.60

67.21
6.98
7.22
4.76
13.83

65.20
19.74
6.06
3.64
5.36

78.63
5.43
6.25
3.23
6.47

46.27
22.32
24.95
6.46
0.00

16.85
49.37
17.20
16.58
0.00

0.63
41.46
32.95
24.95
0.00

46.96
23.92
17.37
8.62
3.13

53.68
62.35
57.04
77.04
141.26

21.15
34.40
27.51
6.86
10.09

14.44
36.92
29.53
7.39
11.71

37.39
26.07
20.84
5.21
10.49

63.36
4.86
4.65
5.63
21.49

44.04
5.10
4.49
9.45
36.92

32.86
19.53
5.86
8.79
32.97

56.70
7.02
16.65
6.48
13.16

29.47
16.37
11.54
34.10
8.52

29.53
21.06
15.57
22.81
11.02

79.93
6.26
6.38
3.34
4.09

40.89
17.76
14.30
11.01
16.05

47.13
64.28
62.05
83.84
64.45

-11.81
52.45
41.97
10.49
6.91

-0.46
44.29
35.42
8.84
11.91

13.26
37.10
29.68
7.41
12.55

23.88
30.00
24.01
6.00
16.11

50.21
10.64
5.15
21.24
12.75

46.15
9.49
10.67
20.00
13.69

55.60
17.67
14.82
7.69
4.22

69.71
13.74
1.81
9.98
4.76

-53.06
46.50
18.54
74.39
13.64

-97.31
53.11
28.62
112.03
3.54

9.62
31.50
21.07
27.81
10.01

518.16
52.69
59.29
122.69
44.01

-119.66
65.89
43.94
109.83
0.00

-178.97
83.68
55.81
139.49
0.00

-948.20
314.41
209.69
524.10
0.00

-187.92
86.33
57.55
143.88
0.16

-40.45
42.10
28.08
70.18
0.09

68.52
3.42
3.74
21.26
3.06

64.36
9.39
6.94
12.58
6.73

64.09
7.39
8.46
13.23
6.83

27.15
20.23
7.18
43.11
2.33

2.44
26.88
12.96
53.46
4.26

-124.87
65.97
43.44
113.11
2.35

-232.13
133.18
135.42
127.93
112.49

29.29
35.32
28.25
7.07
0.07

33.64
30.72
24.57
6.15
4.91

3.38
44.88
35.91
8.97
6.85

6.52
33.03
26.41
6.62
27.43

19.35
26.99
21.60
5.40
26.65

54.39
16.25
17.79
5.72
5.86

41.20
21.81
25.03
5.04
6.92

43.20
23.51
21.32
6.55
5.42

-29.48
38.29
36.96
44.42
9.81

-4.61
30.91
24.16
47.16
2.37

19.69
30.17
26.20
14.31
9.63

123.93
26.43
22.20
110.31
94.03

-2.00
42.31
32.37
24.49
2.85

-4.03
40.33
30.40
28.53
4.77

-130.26
77.66
55.16
92.40
5.04

4.62
29.72
22.67
29.61
13.79

29.85
18.72
13.83
19.19
18.41

52.38
12.88
10.86
9.93
13.96

60.37
11.37
15.91
5.88
6.47

42.34
20.67
13.17
19.24
4.58

-1.15
34.78
18.64
40.90
6.83

-2.88
33.04
20.00
47.40
2.45

4.92
32.15
23.30
31.72
7.92

1033.36
57.10
53.99
74.17
65.52

Source: Annual Reports of Select Cement Companies.

A short term borrowing from banks was the major source in the industry. The proportion of this source has been
showing a fluctuating trend during the study period and constituted on an average 32.15 per cent of the total current assets
in the industry. In select units also, the proportion of short term borrowings has been showing a fluctuating trend during the
study period. On an average, the proportion of this source was 23.56 per cent in APCL, 23.92 per cent in BCL, 17.76 per
cent in DCL, 31.50 per cent in NCL, 65.97 per cent in PCMIL and 30.17 per cent in SCL during the study period.
Individually also, it was a major source in NCL PCMIL and SCL.
The proportion of trade payables has been showing a fluctuating trend during the study period and constituted on
an average 23.30 per cent of total current assets in the industry. In select units also, the proportion of trade payables has
been showing a fluctuating trend during the study period. On an average, the proportion of trade payables was 17.42 per
cent in APCL, 17.37 per cent in BCL, 14.30 per cent in DCL, 21.07 per cent in NCL, 43.44 per cent in PCMIL, and 26.20
per cent in SCL during the study period.
The major source of financing the current assets was the other current liabilities in the industry. The proportion of
this source has been showing a fluctuating trend during the study period and constituted on an average 31.72 per cent, of
total current assets in the industry. In select units also, the proportion of other current liabilities has been showing a
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Financing of Working Capital in Select Cement Companies of Andhra Pradesh

47

fluctuating trend during the study period. On an average, the proportion of other current liabilities was 15.44 per cent in
APCL, 8.62 per cent in BCL, 11.01 per cent in DCL, 27.81 per cent in NCL, 113.11 per cent in PCMIL, and 14.31 per cent
in SCL during the study period.
The short term provisions also contributed to the extent of 7.92 per cent in the industry, 6.33 per cent in APCL,
3.13 per cent in BCL, 16.05 per cent in DCL, 10.01 per cent in NCL, 2.35 per cent in PCMIL and 9.63 per cent in SCL on
an average during the study period.
Thus, it can be concluded that the industry has been financing their major portion of current assets from other
current liabilities, short term borrowings and trade payables. The portion of long term sources in this regard were very
minor and therefore, said to be following aggressive approach. This implies that the industry has been giving much
importance to the profitability at the cost of liquidity.

Analysis of the Over or Under-Utilization of Bank Finance for Working Capital Requirements When
Compared to the Norms of Tandon Committee
With regard to the utilization of bank credit, the borrowing of individual units has been compared with

recommendations of the Tandon Committee, which has quantified the desirable level of net working capital and maximum
permissible lending by commercial banks in meeting working capital needs. The committee, taking a pragmatic view of the
situation, suggested three methods of determining the eligible bank finance in such a manner that each successive method
would call for a larger proportion of involvement by companies of their long term funds in current assets and decrease in
bank finance. Keeping in view the recommendations of the Tandon Committee to consider the existing status of bank
borrowings in select units, the deviations of actual bank borrowings from maximum permissible limits under the first and
second methods of financing have been presented in the tables 2 and 3.
Table 2: Maximum Limit under First Method and Actual Borrowings in Select Cement Companies
Year
2004

2005

2006

2007

2008

2009

2010

Component
Max.Limit
Actual borrowings
Deviation
Max.Limit
Actual borrowings
Deviation
Max.Limit
Actual borrowings
Deviation
Max.Limit
Actual borrowings
Deviation
Max.Limit
Actual borrowings
Deviation
Max.Limit
Actual borrowings
Deviation
Max.Limit

APCL
8.15
3.32
4.83
7.48
3.50
3.98
9.97
3.33
6.64
15.93
4.92
11.01
18.40
8.50
9.90
17.00
3.57
13.43
31.21

BCL
DCL
4.97
14.09
4.82
11.63
0.15
2.46
9.01
11.42
3.08
10.94
5.93
0.48
10.54
19.19
4.33
10.51
6.21
8.68
15.98
38.71
2.16
3.68
13.82
35.03
21.28
38.11
2.67
5.27
18.61
32.84
50.16
54.02
15.54
26.85
34.62
27.17
42.59
48.89
Table 2: Contd.,

NCL
12.62
21.71
-9.10
14.16
19.08
-4.92
22.28
21.88
0.40
34.39
25.53
8.86
64.85
15.12
49.73
60.95
13.86
47.09
78.17

PCMIL
-11.08
18.10
-29.18
-16.73
19.58
-36.31
-38.27
25.31
-63.58
-29.15
33.03
-62.18
1.00
33.86
-32.86
72.20
4.58
67.62
82.19

( Rs. In Crore )
SCL
Total
13.98
42.73
10.19
69.77
3.79
-27.05
15.54
40.88
9.89
66.07
5.65
-25.19
8.56
32.27
10.61
75.97
-2.05
-43.70
11.60
87.46
12.52
82.24
-1.32
5.22
21.29
164.93
16.53
81.95
4.76
82.98
66.80
321.13
20.49
84.89
46.31
236.24
64.59
347.64

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48

P. Venkateswarlu & B. KrishnaReddy

Actual borrowings
3.94
3.67
7.18
Deviation
27.27
38.92
41.71
2011 Max.Limit
28.21
43.14
47.24
Actual borrowings
36.45
18.72
22.49
Deviation
-8.24
24.42
24.75
2012 Max.Limit
29.35
46.10
60.26
Actual borrowings
36.78
45.83
33.44
Deviation
-7.43
0.27
26.82
2013 Max.Limit
39.68
34.40 314.57
Actual borrowings
50.82
45.18
30.46
Deviation
-11.15
-10.78 284.11
Source: Annual Reports of Select Cement Companies.

25.14
53.03
107.59
23.62
83.97
-8.79
83.03
-91.82
-49.01
78.51
-127.52

13.95
68.24
78.44
10.81
67.63
53.29
30.34
22.95
25.80
31.54
-5.74

29.81
34.78
86.56
40.67
45.89
13.42
77.71
-64.29
43.78
68.59
-24.81

83.69
263.95
391.18
152.76
238.42
193.63
307.13
-113.50
409.22
305.10
104.11

The table reveals that the industry has succeeded in controlling bank credit in six years during the study period as
per first method. In select units, DCL has succeeded fully in controlling bank credit throughout the study period. BCL also,
except in 2012-13, has succeeded in controlling bank credit. APCL, NCL, PCMIL and SCL have exceeded their
borrowings in three years, four years, six years and four years respectively during the study period as per first method.
Table 3: Maximum Limit under Second Method and Actual Borrowings in Select Cement Companies
Year
2004

Component
APCL BCL
DCL
Max.Limit
7.32
3.78
10.33
Actual borrowings
3.32
4.82
11.63
Deviation
4.00
-1.05
-1.30
2005 Max.Limit
6.60
8.24
7.81
Actual borrowings
3.50
3.08
10.94
Deviation
3.10
5.16
-3.13
2006 Max.Limit
9.12
9.46
15.50
Actual borrowings
3.33
4.33
10.51
Deviation
5.79
5.13
4.99
2007 Max.Limit
13.81
14.15
32.70
Actual borrowings
4.92
2.16
3.68
Deviation
8.89
11.99
29.02
2008 Max.Limit
14.18
18.81
24.96
Actual borrowings
8.50
2.67
5.27
Deviation
5.68
16.14
19.69
2009 Max.Limit
12.55
47.20
37.65
Actual borrowings
3.57
15.54
26.85
Deviation
8.98
31.66
10.80
2010 Max.Limit
27.29
39.90
39.61
Actual borrowings
3.94
3.67
7.18
Deviation
23.35
36.23
32.43
2011 Max.Limit
15.20
36.56
28.63
Actual borrowings
36.45
18.72
22.49
Deviation
-21.25 17.84
6.14
2012 Max.Limit
11.43
38.26
40.64
Actual borrowings
36.78
45.83
33.44
Deviation
-25.35 -7.57
7.20
2013 Max.Limit
20.81
18.63 297.78
Actual borrowings
50.82
45.18
30.46
Deviation
-30.01 -26.55 267.32
Source: Annual Reports of Select Cement Companies.

NCL
6.47
21.71
-15.24
8.11
19.08
-10.97
14.96
21.88
-6.92
24.58
25.53
-0.95
50.94
15.12
35.82
44.75
13.86
30.89
68.67
25.14
43.53
100.48
23.62
76.86
-56.36
83.03
-139.39
-102.30
78.51
-180.81

PCMIL
-21.64
18.10
-39.74
-28.15
19.58
-47.73
-53.03
25.31
-78.34
-48.44
33.03
-81.47
-18.78
33.86
-52.64
62.81
4.58
58.23
72.44
13.95
58.49
68.00
10.81
57.19
33.56
30.34
3.22
5.07
31.54
-26.47

( Rs. In Crore )
SCL
Total
11.43
17.69
10.19
69.77
1.24
-52.09
12.67
15.28
9.89
66.07
2.78
-50.79
5.50
1.51
10.61
75.97
-5.11
-74.46
5.69
42.49
12.52
82.24
-7.23
-39.75
13.07
103.18
16.53
81.95
-3.46
21.23
57.55
262.51
20.49
84.89
37.06
177.62
51.95
299.86
29.81
83.69
22.14
216.17
72.16
321.03
40.67
152.76
31.49
168.27
-32.84
34.69
77.71
307.13
-110.55 -272.44
2.90
242.89
68.59
305.10
-65.70
-62.22

The table 3 shows the deviations of actual borrowings from permissible bank borrowings as per second method.
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Financing of Working Capital in Select Cement Companies of Andhra Pradesh

49

As per this method the industry has exceeded its limit in six years during the study period. In select units, excesses
borrowings were noticed in all units during the study period. APCL and BCL in three years each, DCL in two years, NCL
and PCMIL in six years each and SCL in five years have exceeded their borrowings.
From this analysis, it can be concluded that majority of the units under the study are required to reduce the
proportion of bank borrowings as a source of working capital even to satisfy the second alternative as suggested by the
Tandon Committee.

CONCLUSIONS
The analysis of financing of current assets revealed the heavy dependence of the select units on short term
borrowings, account payables and other current liabilities. Long term sources have minor share in this regard.
This indicates the aggressive attitude of the management of the select units in financing the working capital. It is further
found that excesses borrowings were noticed in all units except DCL as per first method and in all units as per second
method in some years during the study period.

REFERENCES
1.

H.L. Verma, op.cit. p.124.

2.

B. Ramachandra Rao Balance Sheet Analysis and Credit Appraisal for Bankers, Bombay: Progressive
Corporation Pvt. Ltd., 1976, p.260.

3.

B. Ramachandra Rao, op.cit. p.260.

4.

Luther, C.T.R. (2007). Liquidity, Risk and Profitability Analysis: A Case Study of Madras Cements Ltd. The
Management Accountant, 42(10), 784-789.

5.

Nandi Chandra Kartik (2012), Trends in liquidity management and their impact on profitability- a case study,
Great Lakes Herald, Vol 6, No 1, pp 16-30

6.

Abuzar, M.A., Elijelly, (2004). Liquidity profitability tradeoff: An empirical investigation in an emerging
Market, International journal of commerce and management, 14(2), 48-61

7.

Kumar, A.V., and Venkatachalam, A. (1995). Working Capital & ProfitabilityAn Empirical Analysis.
The Management Accountant, 30(10), 748-750.

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