Summer Training Report

On

(Project Title)STUDYING OF FINANCIAL STATEMENT OF DSCL

At

(Company’s Name) DSCL SHRIRAM CONSOLIDATE LTD

Submitted towards partial fulfillment of requirements of

Two Year Full Time PGDM (Equivalent to MBA)

Supervisor/ Guide’s Name: Submitted By:

................................................. Name:
Roll No.:
Batch: 2009-11

DPC INSTITUTE OF MANAGEMENT

(An Educational Wing of Delhi Productivity Council)
Approved by AICTE, Ministry of HRD, Govt. of India
Sector 9, Dwarka, New Delhi-110075

1
 Declaration

I VINAY PARKASH KATARIA Roll No 978 student of PGDM(Equivalent to MBA)

Batch (2009-11) at DPC Institute of Management Sector 9, Dwarka, New Delhi-110075
hereby declare that the project / report titled STUDYING OF FINANCIAL STATEMENT
OF DSCL has been completed by me independently by undergoing summer training at
“Company Name” and the concerned training report has not been submitted elsewhere for
any purpose.

Signature of Student

Signature of Faculty Supervisor

Signature of Director

2
 ACKNOWLEDGEMENTS

A lot of effort has gone into this project and my thanks are due to many people with whom
I have been closely associated. First of all I gratefully acknowledge the continues
assistances and inspiration given to me by college faculty.

Finally, I would like to thanks my family and friends for providing me monetary and non-
monetary support, as and when required, without which this project would not have been
completed on time.

I do hope this project manages to shed some light on a new marketing approach, and it will
be appreciated by students, academics and professionals.

Vinay Kataria

3
 INDEX

 Introduction and Objective 5

 Company Profile 9

 Project details 47

 Analysis and Findings 69

 Recommendations and Suggestions 87

4
 INTRODUCTION

In day to day working of business concern, Working Capital plays an important role, because
Working Capital is required for payment of wages, expenses, raw materials and payment to
creditors.

Whether a business firm is earning profit or incurring loss or facing financial crises can be seen
with the help of quantum of Working Capital due to shortage of Working Capital a business firm
is lame, because there is no sufficient Working Capital a business can not run its business
smoothly. Due to this reason working capital management has assumed greater importance in
every business firm.

The Management of Working Capital is concerned with the management of the firm’s
current accounts, which includes current assets and current liabilities. Working Capital plays
equivalent vital role in the business as blood plays in the human body. Shortage fixed can be
tolerated by a business concern for short period but shortage of working capital can create lots
of serious problems within a period of few days.

In this modern area of cut – throat competition, it has become essential to provide certain
facilities to customers to capture the market; the credit facility is one of them. Thus working
capital is required as there is a time gap between credit self and collection proceeds from the
customers.

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 INTRODUCTION

Cash is the medium of exchange on the common purchasing power and which are
the most significant components of working capital.

Cash is the basis input required to keep the organization running on a continuous basis. At the
same time it is the ultimate output, which is expected to be realized by selling goods and
services. An organization should hold sufficient cash, neither more, nor less.

Since excessive cash remain idle which in turn increases the cost without contributing anything
towards the profitability of the organization and in the opposite case, trading and / or
manufacturing operation will be disrupted.

In other words, it can be stated that the higher the level of unused cash, the greater is the cost
of holding it in the form of loss of interest which could have been earned either by investing it in
securities or by reducing the burden of interest charges by paying off the loans taken previously.
If the level of cash balance is more than the desired level it shows mismanagement of funds.
Therefore, for smooth functioning and higher profitability, proper and effective cash
management is of paramount importance.

Cash is the most liquid asset that a firm owns. It includes money and instruments like
cheques, money orders or bank drafts which banks normally accepts for deposit and
immediately credit to the depositor’s account.

Sometimes near- cash items, such as marketable securities or bank time deposits are also
included cash. The basis characteristic of near- cash assets is that they can easily be converted
into cash.

6
Cash is the basis input required to keep the organization running on a continuous basis. At the
same time it is the ultimate output, which is expected to be realized by selling goods and
services. An organization should hold sufficient cash, neither more, nor less.

Since excessive cash remain idle which in turn increases the cost without contributing anything
towards the profitability of the organization and in the opposite case, trading and / or
manufacturing operation will be disrupted.

In other words, it can be stated that the higher the level of unused cash, the greater is the cost
of holding it in the form of loss of interest which could have been earned either by investing it in
securities or by reducing the burden of interest charges by paying off the loans taken previously.
If the level of cash balance is more than the desired level it shows mismanagement of funds.
Therefore, for smooth functioning and higher profitability, proper and effective cash
management is of paramount importance.

Cash is the most liquid asset that a firm owns. It includes money and instruments like
cheques, money orders or bank drafts which banks normally accepts for deposit and
immediately credit to the depositor’s account.

Sometimes near- cash items, such as marketable securities or bank time deposits are also
included cash. The basis characteristic of near- cash assets is that they can easily be converted
into cash.

7
 OBJECTIVES
To study the importance and development of working capital in today’s
scenario.

To understand the various financing Strategies which DSCL has adopted to

survive?

To make a comparative study of the various financial years.

SWOT Analysis of the strategy adopted.

8
 Company Profile

Sir Shri Ram

Nothing can better sum up the homage paid to great son and philanthropist of Delhi, Barey
Lalaji, Sir Shri Ram who began as a humble worker and went on to set up one of India's largest
business houses - the DCM Group. Not only did Lalaji achieve great height in business
enterprise; he also participated in full measure in the crucial early stages of nation building.
Everyone is familiar with the name of multiple facets of the industries and institutions on which
he left his imprint - be it the DCM Limited, Bengal Potteries, Jay Engineering Works, many sugar
mills, Sindri Fertilizers, the Lady Shri Ram College, Shriram College of Commerce, Delhi School
of Economics and umpteen others. But who is this Barey Lalaji?

Born into a family of Agarwal banias of modest means, Shri Ram, in the 79 years of his life, built
an industrial empire manufacturing a vast variety of goods like - textiles, sugar, alcohol, heavy,
chemicals, vanaspati, pottery, fans, sewing machines, electric motors and capacitors. The
industrial legacy that he left behind was valued at Rs 600 million at the time of his death. Reared
in milieu which graft nepotism, black marketing and tax evasion were considered a must for
success in business, Shri Ram set for himself rigid standards of morality in his dealings with the
public and government and made no compromises in order to earn more money or gain a favor.
While himself deprived of opportunities for higher education, he nevertheless understood how,
important such education was in building the future of a nation. As a result he helped to finance
9
a network of schools, colleges, industrial institutes and research laboratories. He was also the
founder chairman of the Industrial Finance Corporation and Chairman of Sindri Fertilizers, the
first national venture in the public sector in free India.

Little is known of Shri Ram's ancestors. Khuswant Singh writes in his "Shri Ram: A Biography"
of the oldest family name on records, is the one of Kanji Mal. Nothing more is known about him.
One of Kanji Mal's descendants was Rattanchand who was a confectioner.

He was the grandfather of Shri Ram's grandfather. Rattanchand was a man of influential means.
He was able to secure for his son Badri Das, the post of treasurer in the Karnal Commissariat of
the British Army.

Badri Das was very mature for his age and he fared well by saving and investing in buying real
estate in Firozpur and Delhi. He died in 1874 leaving behind four sons of whom the youngest,
Bishambar Das was somewhat more distinguished. Bishambar Das had three sons - Gopal Rai,
Girdhari Lal and Madan Mohan Lal. Shri Ram was born to Madan Mohan Lal and his wife
Chando Devi on April 27, 1884.

While Shri Ram lacked formal education he read extensively. His reading included religious
scriptures, Sanskrit classics, Urdu and Persian poetry and some English biographies. He
assiduously cultivated men of learning and culture.

But most of all he admired scientists on whom he pinned his hopes for the salvation of his
country. One of his lovable eccentricities was that he carried out experiments to produce new
varieties of food in his own room and then subjected his none too robust digestive system to his
new recipes.

The secret of Shri Ram's enlightened approach to people of different faiths lay in his basic
patriotism, making money was of little consequence to him; not once did he succumb to the
temptation of netting an extra buck or two in the black market or by evading tax.

He was an idealist who believed in raising India into an industrial nation. His love of India did not
make him dislike or distrust Pakistan.

10
Many of his friends were the members of the Muslim League. At the behest of his friend in
Lyallpur Cotton Mills in Pakistan, Khan Sahib Ahmed Islam Khan, he laid the foundation of a
mushaira what in the later years came to be known as the Shanker-Shad Mushaira.

Shri Ram had this uncanny ability to spot the right man for the right job a rare quality that
contributed to his success. He made many mistakes in the choice of friends but seldom did he
err in the selection of a business executive.

Shri Ram's choice was not based on the scrutiny of a "Curriculum Vitae" but on an inborn gift, a
sort of built-in Geiger-counter which ticked when he came across the man he was looking for.

This helped him to pick up a humble mistry and make him a work manager, to convert an
engineer into an administrator, to mould a perfume-seller into the overall head of a vast
enterprises producing precision instruments and so on. So sure was Shri Ram with this instinct
that once he made up his mind about the man, he gave that man every latitude, there after his
sole concern was with the results.

Shri Ram, described by his umpteen friends, was indeed a true friend. He refused to believe that
any of his friends exploited him.

And many did quite blantantly. He made friendship into an article of faith. "His house was like a
dharamshala" remarks 90 years old freedom fighter Aruna Asaf Ali. He was unable to eat food
unless every seat at the table was occupied.

This indiscriminate hospitality at times Caused great strain to the members of his family. But his
principle was, "the more, the merrier."

While just in his thirties, Shri Ram got himself known in the industrial as well as the educational
circles. He was nominated to the Delhi Municipal Committee. Through his business connections
with Ram Bahadur Lala Sultan Singh and more to with that of his son, Raghubir Singh, who had
started the Modern School in Delhi, Shri Ram began to think of problems of education in India.

11
He ensured that his sons Murli Dhar, Bharat Ram and Charat Ram went to the Modern School
where children of more advanced Indian families were studying.

He also was instrumental in setting up several prestigious institutions of higher learning and arts
such as the Lady Shri Ram College and Delhi School of Economics, Shriram Center for
Performing Arts etc.

The Road Ahead

We are an integrated business conglomerate, with a group turnover of Rs. 2940 crores. Our
business portfolio comprises of primarily two types of business i.e.
(i) Energy Intensive products
(ii) Agri products (inputs as well as outputs) and services. We have manufacturing facilities
at Kota (Rajasthan), Bharuch (Gujarat), and Ajbapur, Rupapur, Hariawan and
Loni(UP). Our hybrid seed operations are at Hyderabad (India), Vietnam, Philippines
and Thailand. The Company also has its windows fabrication units at Bhiwadi,
Bangalore, Mumbai, Hyderabad and Chennai.

12
Our strengths are:

• Strong energy management expertise both in the area of generation as well as effective
utilisation of energy.
• Deep understanding and knowledge of Indian rural milieu developed with over 40 years
of close work with farmers to improve his economics.
• Well-established presence and strong brand across the entire agri-space in India.
• Integration through Integrated manufacturing facilities and thru utilization of
competencies/resources across businesses is a major value enhancer.

We are building on the above strengths to develop a business profile which enjoys strong cost
competitive position and delivers superior value to our customers simultaneously.

We are further integrating our business portfolio to add value added products/services and
solutions to the commodity businesses.

We have implemented plans resulting in significant volume growth in past 2-3 years in most of
our existing commodity businesses and expect significant value/growth through value add
businesses in longer term.

The company has invested Rs.1300 crores in the past three years and plans to invest
approximately Rs. 500 crores in the next two years, to expand its business operations.

13
DSCL is a Rupees 15.50 billion, public listed company, based in North India with a core sector
business portfolio comprising fertilizers, chlor alkali, chemicals, plastics, cement, textiles and
sugar.

A leading Indian organization, DSCL aspires to become a world-class enterprise that is

responsive to change, outward looking, competitive, delivers superior quality at low cost, with
focused businesses and robust financials.

DSCL has been built on core values of being caring, credible and fair with all stakeholders,
committed to continuous improvement; and being a responsible corporate citizen.

DSCL has built an enabling work culture and believes in releasing human energy within the
organization through participation, teamwork, professionalism, entrepreneurship, openness
and upholding human dignity.

The Company is committed to enhancing the employability of individuals through competence

building via continuous training and development activities.

DSCL believes in a pro-active Industrial Relations policy and has an enviable track record in
this field. Employee welfare is given utmost priority and is institutionalized across the
organization.

14
DSCL has initiated several management initiatives in the recent past for upgrading the
organization, the major ones being Institution Building, Quality Management.

ISO 9000 Certification, and implementation of SAP R/3 ERP package

Information Technology.

The Company provides aspiring professionals opportunities to grow in a

challenging and up-to-date environment.

DSCL’s recruitment policy values merit, are egalitarian, do not differentiate on the basis
of sex, caste or religion, and targets the best professionals.

Compensation is commensurate to qualifications, experience and ability.

15
 About DSCL

DSCL, a Rs.2770 crore+ diversified business group based in North India. Its primary businesses
are:

Agri-Business (Urea fertilizer, Sugar, Farm inputs marketing such as DAP, Pesticides,
Seeds, Agri retailing - Haryali Kisan Bazaar)
Plastics (PVC and PVC compounds)
Chemicals (Chlor-Alkali)
DSCL Building Products (Fenesta door and window profiles)

Other business interests comprise of Cement, Textiles and Energy Services.

Founded by Sir Shriram in 1889 (as DCM limited), today DSCL (which spun of as a separate
company in 1990) is managed by Mr. Ajay S. Shriram, Chairman and Senior Managing Director
and Mr. Vikram S. Shriram, Vice Chairman and Managing Director along with a highly
professional executive team.

DSCL has a strong brand equity reflective of credibility, ethical values and consistent high
quality product image.

With over 30 years of experience in managing large scale process industries with sustained high
level of performance, DSCL meets the needs of a wide range of customers from farmers to
industrial users, from house builders to business owners.
Fostering enduring relationships is at the core of DSCL's business philosophy - with vendors,
business partners, and customers and within the organization between employees.

As a leading equal opportunity employer in India, DSCL has a motivated and dynamic
management team of highly qualified professionals and dedicated workmen and staff whose
work has shown the way towards creating "Team Excellence".

Fertilizers
DSCL fertilizer operations are characterized by highly optimized production process delivering
high capacity utilization & proven abilities in erection, commissioning.
Operation & troubleshooting of Ammonia/Urea plant.

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HIGHLIGHTS:
·Date of Commissioning of plant February 1969
·Present production capacity(Urea)3,30,000MT/Annum

DSCL's Urea operation have consistently earned production and productivity awards for its
performance. Its well-established distribution network in North and West India allows the unit to
service farmer needs effectively with a consistently high quality product.

It is for these reasons that SHRIRAM Urea enjoys a premium position its markets.

17
Sugar is a key component of our agri-business portfolio. Our sugar operations functioned as an
independent company within our Group until March 2004 when they were merged in DSCL.

These sugar operations commenced in 1998 in central Uttar Pradesh, where the first sugar mill
was established through a green field project at Ajbapur.

We later acquired an existing sugar mill in the same region, at Rupapur, in 2003 emerging as a
major sugar producer in central Uttar Pradesh.Two new sugar mills at Hariawan and Loni were
commissioned this year.

We now have a combined installed capacity of 33,000 (tonnes crushed daily and a power
generating capacity (bagasse based) of 70.5 MW . which is being further expanded to 94.5
MW,with an exportable surplus of 51.5 MW for the grid. .All our sugar plants are self-sufficient to
meet their own power requirements from bagasse. We are also exporting power to the UP state
grid.

Gomti sugar

Gomti Sugar Ltd., a unit of Ghaghara Sugar Ltd., an enterprise of DCM Shriram Consolidated
Limited, New Delhi, is a 6000 tcd sugar mill situated at Ajbapur village, JB Ganj, Kheri district, in
central UP.
The plant was commissioned in November 1997 with a crushing capacity of 3125 tcd. The
continued efforts in the cane development front and growth thrust of the Management have
made possible to reach today’s crushing level of 6000 tcd.

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Manufacturing Overview :

We have four sugar production facilities,at Ajbapur, Rupapur, Hariawan and Loni located in
central UP. All of our production facilities are completely self-sufficient with access to reliable
captive power, based on bagasse which is a sugar by-product, and are equipped with modern
equipment and machinery.

These in turn have made us one of the most efficient crushers and producers of sugar in the
country.

We established our Ajbapur facility as a greenfield project in 1998. It is a new and modern plant
with high levels of automation and process control systems similar to a chemical plant.
Resultantly, this plant's output is of premium quality, commanding the highest prices in our
market region.

It is also one on India's fastest growing factory in terms of cane area, crushing and recovery,
and capacity.

At the time of inception, this plant had a capacity of 3,125 TCD which has since been expanded
to 10,500 TCD.

The plant has a captive power capacity of 38 MW which is used for meeting its own
requirements as well as export to the UP state grid.In addition to having in place a
technologically superior factory, we also have strong business processes in place for continuous
improvement of operating efficiency parameters.

Our Ajbapur plant is supported by ERP resources (SAP R/3) as well as TQM and institutional
bidding initiatives. It is the first sugar factory in the country to receive ISO 9000, ISO 14000, and
OHSAS 18000 certifications simultaneously.

Our Rupapur unit was acquired by us in 2003. This factory had been established in 1996, with
its main machinery and plant supplied by Krupp which is well-regarded for superior technology.
This plant's capacity was increased after acquisition from 3500 TCD to 6500 TCD.

19
Two new sugar mills were commissioned in February 2007 at Hariawan and Loni (8000 tcd and
a 12 mw co-gen plant each),taking our total capacity to 33,000 TCD and making us the fifth
largest player in UP.

The expansion of Co-gen is being undertaken at these two units by additional 12 MW each to be
commissioned by November 08.

Raw material

Sugar cane procured from growers around our factories is the primary input for our sugar
operations. Over 2, 00,000 farmers supply us with cane.

In order to facilitate the procurement of sugarcane, we have set-up over 250 cane centres at
our sugar mills.This has significantly reduced the time taken in getting cane to our
manufacturing facilities.

The average distance covered by growers is around 5-7 kilometres and within 48 to 72 hours
cane reaches our factories after harvesting.

In order to ensure sustainable supply of high quality sugarcane, we invest time and resources
towards training farmers and helping them in improve their yields as well as recovery. We also
assist farmers with soil fertility mapping for judicious fertiliser usage.

Our team of experts have also been engaged in popularising the use of bio-ferlisers, modern
agricultural inputs, and other plant protection measures among cane growers, resulting in
improved yields per hectare.

With a view to improve post-harvest recovery, we help farmers with varietals propagation and
replacement of low yield/low recovery varieties.

We have also implemented an assured irrigation scheme in our cane areas, providing irrigation
means to ensure irrigation to the entire cane crop that we ultimately procure and use for sugar
production.

20
This is also helping us popularise cost-effective irrigation methods within the farming
community.

Our efforts towards ensuring long-term, good quality cane supply are augmented by our
participation in infrastructure development for facilitating cane supplies, including construction of
road networks, providing means of transportation of cane, and assisting in the computerization
of the local banking operations.

Recognizing farmers as our principal partners in progress, our operating philosophy is to

enhance the economic status of sugarcane farmers while pursuing our own growth objectives..

We believe that our trust-based relations with farmers built on mutual respect and understanding
is an intangible asset that strengthens the overall operating profile of our sugar business and
allows us to also extend to them our other agri-business offerings.

21
Hariyali kisan bazar

On 16th July 2002, the first retail outlet was inaugurated at village Del Pandarva (Distt. Hardoi)
on the Delhi-Lucknow highway near the DSCL's Gomti Sugar complex.

This 10,000 sq ft store is a one-stop shop providing the farmer with a range of multi-brand agri
inputs such as fertilizers, seeds pesticides, micro-nutrients, bio-fertilizers, agricultural
implements, tools and farm fuels.

The store is also geared to provide farmers with expert agronomic guidance and services like
soil testing, water testing, pesticide application services etc. Other value added farm services
are to be added in due course.

After the initial pilot phase comprising of 4 stores in different parts of the country, it is proposed
to roll out the concept nationally.

In the future, Hariyali Kisan Bazars plans to move beyond agri into other categories like
durables, furniture, electrical, fast-moving consumer goods, to cater to other needs of farmers
as customers.

"Hariyali Kisaan Bazaar" - a rural business centre, is a pioneering micro level effort, which is
creating a far-reaching positive impact in bringing a qualitative change and revolutionizing the
farming sector in India.

It is also an example of how well meaning corporates can contribute to development of

agriculture by building sustainable business models.

22
DCM Shriram Consolidated Ltd. (DSCL), capitalising its over 35 years of experience in the agri-
input markets & first hand knowledge of Indian farmers, is setting up a chain of centres aimed at
providing end-to-end ground level support to the Indian farmer & thereby improving his
"profitability" & "productivity".

The key constraints of the Indian farming sector, being addressed by "Hariyali" are:

• Lack of last mile delivery mechanism of modern agriculture know-how & practices.
• Lack of availability of critical good quality agri-inputs.
• "Middlemen" driven farmer interface.
• High cost credit.
• Lack of direct access to buyers of varied & high value crops.

The "Hariyali Kisaan Bazaar" chain, seeks to empower the farmer by setting up centres, which
provide all encompassing solutions to the farmers under one roof.

Each "Hariyali Kisaan Bazaar" centre operates in a catchment of about 20 kms. A typical centre
caters to agricultural land of about 50000-70000 acres and impacts the life of approx. 15000
farmers.

Each centre is engaged in:

• Bridging the last mile: Provides handholding to improve the quality of agriculture in the
area. Provides 24X7 support through a team of qualified agronomists based at the
centre.
• Quality Agri-Inputs: Provides a complete range of good quality, multi-brand agri inputs
like fertilizers, seeds, pesticides, farm implements & tools, veterinary products, animal
feed, irrigation items and other key inputs like diesel, petrol at fair prices.
• Financial Services: Provides access to modern retail banking & farm credit through
simplified and transparent processes as also other financial services like insurance etc.
23
 • Farm Output Services: Farm produce buyback opportunities, access to new markets &
output related services.
• Other Products and Services:Fuels, FMCG, Consumer Goods and Durables,Apparels
etc.

These centers provide the much needed respect/dignity and freedom to the Indian farmer. In the
near future, Hariyali Kisaan Bazaars plan to move beyond agri to meet the other needs of
farmers as customers.

Technology as an important enabler

IT has been a critical backbone to the chain of centres. It is being used to provide online support
on latest technical advancements, weather forecasts, mandi (market) prices, fair & transparent
billing to farmers as well as in maintaining extensive farmer databases with micro information
about the farmers' field to provide customized service to the farmers.

Farmer Response

So far, over 185 "Hariyali" outlets have been set up in different states across India, which we
plan to scale up to 300 by March 09

The ground-level agri-support is already yielding results in the farmer's fields. Whether it is
adoption rate of high yielding seeds, right doses of fertilization, productivity of cattle-feed,
moisture conservation measures, adoption of new crops/allied occupations or adoption of new
technologies like zero tillage, the farmers in catchment of Hariyali centres are already way
ahead of the national averages.

Future Plans

Hariyali Kisaan Bazaar has plans to rapidly scale up the operations & create a national footprint
covering all the major agricultural markets of the country. This would mean catering to cultivable
land of over 30 million acres and touching the lives of over 10 million farmers.
24
Chlor alkali

The Chemical Business derives its core strength from its Chlor-alkali operations. With an
installed capacity of approx.

110,000 TPA (49,550 TPA based on mercury cells & 62,000 tpa based on membrane cells) and
a market share of approx. 8% in the Indian Chlor-alkali industry DSCL is a leading producer in
the country.

The strategic thrust of the business is to use it existing infrastructure and market presence to
build value added products and services.

As a first step, DSCL has moved aggressively to enter the water treatment area by setting up a
state-of-the-art plant situated at Kota, Rajasthan for a latest 3rd generation Polyaluminium
Chloride (capacity 39,000 tpa).

Marketed under the brand name Ecorite these products provide outstanding
coagulation/flocculation properties.

DSCL’s Chemical Business provides total customer solutions with its nationally accredited
Shriram Environment and Allied Services(SEAS) operations and laboratories.

25
Caustic soda

Caustic Soda is a basic product very widely used in diverse industrial sectors, either as a raw
material or as an auxiliary chemical. As mentioned ealier, it is produced along with chlorine.

It is mainly used in the manufacture of pulp and paper, newsprint, viscose yarn, staple fiber,
Aluminum, cotton, textiles, toilet and laundry soaps, detergents, dyestuffs, drugs and
pharmaceuticals, vanaspati, petroleum refining.

Caustic soda is produced in two forms - lye and solids. Solids can be in the form of flakes or
granules.

Three technologies are available world over for production of caustic soda – mercury cell
process, diaphragm process, and membrane cell process. All three processes are in use in
India, although there is strong trend indicating a shift towards the environmentally better
membrane cell process. We manufacture Caustic soda through more environmentally friendly
membrane technology.

Dscl have a total caustic soda capacity of approx.110,000 tons per annum at two locations in
India. At Kota, Rajasthan our capacity is 50,000 tons per annum of mercury (rayon) grade
caustic .

This plant is a part of the integrated vinyl complex that produces PVC. With a captive power
plant, this makes us one of the lowest cost manufacturers of caustic soda in India. At Bharuch,
Gujarat, we have a capacity for producing 60,000 tons of caustic soda per year.

The plant is based on the state of the art membrane technology in collaboration with Asahi of
Japan. Bharuch offers us a strategic advantage with respect to the proximity to the markets and
access to the sea port. The plant also has a flaking capacity of 33,000 tons per annum.
Our caustic soda flakes are sold under the brand name "SHRIRAM".
26
Plastics

DSCL’s core plastics business is based on a state-of-the-art computer process controlled PVC
Resin (33,000 tpa).
Based on the carbide manufacturing process this plant also generates valuable Other Products
such as high purity Calcium Carbide.

In a subsidiary company Shriram Polytech Limited (SPL) the business operates one of India’s
largest PVC Compounds facilities (20,000 tpa). This plant supplies
customizedproductstoover200industrialcustomers.

SPL has also set up an Innovative Polymer Applications Centre (IPAC) which is focusing on
development of further specialty and value added polymer products, innovative customer
specific application solutions and moving in a calibrated manner uptheproduct-valuechain

DSCL has introduced a new division, DSCL Building Products, the next step in plastics adding
on to the value chain.

PVC Resin
Based on the Calcium carbide based process and closely linked with the Carbide and
Chemicals operations at Kota, DSCL’s PVC resin plant enjoys unique cost advantages with a
built in flexibility to quickly respond to customer needs.

27
Shriram PolyTech Limited
Shriram PolyTech Limited (SPL) is a wholly owned new subsidiary company of DSCL, is India’s
largest integrated facility for manufacture of PVC Compounds.

It is the only plant in India to be integrated back to raw materials and to an R&D facility (IPAC)
for customized product development matching international standards. This allows the company
to service customer specific requirements both for bulk as well as in small volumes.

Shriram PolyTech a company that is here to perform, to lead..

DSCL's core philosophy is of a caring, credible and ethical organization. We believe in building
lasting relationships. The working philosophy is one of continuous improvement through learning
initiatives, technology and process up gradation. This has created exciting new opportunities of
growth and diversification for the group.

With its pioneering efforts in the area of plastics business, DSCL is today poised on the
threshold of creating a distinct position for itself in the field of providing innovative solutions to
consumers of Polymers.

PolyTech is focused on providing enhanced value to the customers in diverse application areas
through customized solutions and quick and interactive response.

Backed by a highly qualified team of capable industry / professionals and a state-of-art

application development center, iPAC, PolyTech is all set to establish new standards in
customers satisfaction in the plastics industry.

PolyTech's world class manufacturing facility at Kota (Rajasthan), which started in 1964 as a
pioneering venture today ranks amongst one of the most advanced plants in the country.
PolyTech is certified by UL India for ISO 9001, IS0 14001 and OHSAS 18001 certifications and
the facilities are fully equipped to meet the demanding needs of diversified customer
applications.

28
Marching ahead with the philosophy of the parent group DSCL, PolyTech believes strongly in
achieving excellence through people. The continuous training and development programme
further enhances the capabilities of the highly professional workforce.

PolyTech's wide portfolio of products meets the performance requirements of a broad range of
industries. The company's PVC compounds, sold under the brand name , reach all
consumption centers of the country and are now poised to reach a new focal point - the global
market.

Other Products
The plastics business also produces and markets other value added products such as:
Calcium Carbide

DSCL Building Products

DSCL's Building Products group is manufacturing and marketing UPVC window systems. In due
course other related products will also be developed to become a premier full range supplier of
building products to the industry.

To bring out the best in UPVC window systems, DSCL Building Products – in technical
collaboration with HW Plastics, UK – has introduced Fenesta UPVC Window Systems in India.
These products have a very wide acceptance in Europe and America and have several
advantages over existing products serving the same market.

HW Plastics is the pioneer and market leader in UK for UPVC doors and window systems. It is
also a part of £650 million Heywood Williams Group and has its presence in UK, Europe and
parts of Asia.

The DSCL-HW Plastics collaboration covers product development, extrusion, fabrication &
supply chain management.

This partnership brings together the DSCL's extensive knowledge in PVC resin and application-
specific compounds and HW Plastics strength as one the leading window manufacturers. DSCL
Building Products aims to provide high quality products and turnkey solutions to the consumer.

29
To do this the company has set up its first fabrication unit at Bhiwadi (Rajasthan). The company
also plans to set up more fabrication units in other parts of the country.

Subsequently an extrusion plant will be commissioned at Kota (Rajasthan) in early 2004.

This will confer the strengths of backward integrated and help bring process controls and quality
in strict adherence to international standards.

Further, DSCL Building Products has created a world-class service driven organization, which
endeavors to provide customized solutions and innovations to the consumer.

Cement
DSCL’s Cement Business is India’s only plant that converts waste generated at Kota
intoconsistentquality,premiumgradecementproducts.

Shriram Cement is produced in a computer process controlled highly automated plant. The
product has created for itself a strong brand equity and is a recognized market leader in its
areas of distribution.

Converting waste in to premium-grade products

Our cement business allows us to create wealth from waste generated from our calcium carbide
plant. DSCL is the only manufacturer in the country that converts waste into consistent quality,
premium grade cement.

30
We have recently expanded our capacity to 400,000 TPA to profitably utilize additional sludge
that is expected to be generated from the planned expansions of our calcium carbide and PVC
capacities.

The use of sludge and access to economic captive power makes this business a very efficient
and competitive operation.

The key quality parameters that differentiate cement are its high degree of whiteness, superior
strength, and quick-setting features that have translated into premium pricing.

Cement manufactured by us is marketed under the “Shriram” brand. Shriram cement has
created for itself strong brand equity, enjoying a premium over competitors brand, and is
recognized as a market leader in its areas of distribution.

Textiles

The textile group comprising of Swatantra Bharat Mills and DCM Silk Mills earlier situated in 112
acres of prime land in the heart of Delhi has relocated to Tonk, Rajasthan. Pursuant to the
relocation, the modern facility at Tonk is operating successfully while opportunities for realizing
value in the real estate are being explored.

31
Agri-business

We regard our agri business as a key growth driver for us. We believe that the agricultural
sector is a high potential area where we, with our expertise and strengths accumulated over
decades of presence in this sector, can add considerable value and capitalise on emerging
opportunities.

Over the years through our various agri-businesses we have developed extensive working
relationship and knowledge about the farmers.

Our agri business offerings comprise agricultural inputs, both manufactured and merchandised,
outputs, distribution and services. Our agri-inputs include Urea, Seeds and Pesticides
manufactured by us.

Additionally, we are also engaged in the marketing of a range of other agri inputs SSP, and
other nutrients such as Zinc Sulphate, soluble fertilisers etc.

In terms of agri outputs, we manufacture and market sugar and its by-products – Molasses and
Bagasse. With the objective to move towards providing total “ Solutions” to the farmers, we have
initiated a “ Rural Retailing” initiative recently which we believe holds immense promise in terms
of untapped opportunities, scalability and growth potential. Being implemented under our
“Hariyali Kisaan Bazar” initiative, we offer multiple products and services to the rural and farming
community, including agri inputs, diesel and petrol (under alliance with BPCL), consumer goods,
durables, apparels, insurance, agronomy advisory, credit, and contract farming as a part of this
initiative. It is proposed to extend the offerings to other products and services over a period.

All of our agri business activities are supported by a strong “Shriram” brand equity that our
products enjoy in the marketplace.

All our agri business units are supported by a robust and extensive distribution and retail
network. From about 3,000 retail outlets five years ago, we now have more than 6,000 retailers
where all our manufactured and merchandised products are available to the country's farming
32
community. We also have around 900 wholesalers to distribute our agri products, a large
number of these have been with us for 3-4 decades.

We offer online agronomy services to farmers through 100 centres – Shriram Krishi Vikas
Kendras – established by us across the country that operate with the objective to increase
farmer profitability by providing them effective agronomy services.

We have a team of 102 agricultural graduates, recruited from local institutions and universities,
and 15 development officers who work along with farmers to assist them in their endeavours.
To ensure that our agronomists provide knowledgeable and unconditional advice, we have not
assigned any sales responsibilities to our agronomists.

The Shriram Krishi Vikas Kendras help upgrade farming methods and also provide assistance to
the farming and rural community in the educational, hygiene and sanitation needs of the
community as well as health care support for animal husbandry.

Such initiatives have made us one of the most reliable and trusted partners of the Indian agri
community.

33
Overview

Leveraging a wide distribution network to build major agri-based business

The agriculture sector is recognized a strategically important part of the economy and India is
today the world's second largest producer of food after the United States.

DSCL agri-inputs business produces Urea fertilizer, is engaged in marketing of a range of other
fertilizers, pesticides and other agri-related products. The Agri-Business is leveraging modern
management practices to realize significant value:

• A strong "Shriram" brand equity.

• Over 3 decades of direct relationship with the farming community with supply of agri-
inputs, education, training and community development programs.
• Operations spanning the North, West & South of India.
• Infrastructure of over 30 sales offices, 12 distribution warehouses, 200 wholesales and
4800 retail outlets.
• Shriram BioSeed Genetics India Ltd that produces high quality hybrid seeds at
Hyderabad, AP, India.

34
DSCL's strategic focus is to build on its existing activities & infrastructure in agri-inputs, while
also exploring opportunities in agri-outputs, food processing and agri-based end use products.

We offer online agronomy services to farmers through 107 centres – Shriram Krishi Vikas
Kendras – established by us across the country that operate with the objective to increase
farmer profitability by providing them effective agronomy services.

We have a team of 102 agricultural graduates, recruited from local institutions and universities,
and 15 development officers who work along with farmers to assist them in their endeavours.

To ensure that our agronomists provide knowledgeable and unconditional advice, we have not
assigned any sales responsibilities to our agronomists.

The Shriram Krishi Vikas Kendras help upgrade farming methods and also provide assistance to
the farming and rural community in the educational, hygiene and sanitation needs of the
community as well as health care support for animal husbandry.

Such initiatives have made us one of the most reliable and trusted partners of the Indian agri
community.

We are amongst the first “urea” manufacturers in the country starting way back in the 1960's.
Our fertiliser operations are characterized by highly optimized production process delivering
high capacity utilization & proven abilities in erection, commissioning, operation &
troubleshooting of Ammonia/Urea plant.

35
Our Urea plant, commissioned in Februrary has a Production capacity of 379,000 TPA which
includes a capacity of about 700 TPD of ammonia which is an ingredient in the Urea
manufacturing process.

We are the lowest cost naphtha-based urea manufacturer in the country. Our urea operation
has consistently earned production and productivity awards for its performance.

Located within our Kota manufacturing complex, our urea plant benefits from access to
efficiently generated captive power and robust technical resources that reduce our cost of
manufacturing.

For the past several years we have been able to manufacture urea in a profitable manner with
naphtha as the feedstock. In line with our intent to continuously explore and adopt better
manufacturing practices and feedstock options, we have converted the plant into dual feed.

The facility can now accept dual feedstock of naphtha and gas in any proportions.The
necessary infrastructure for transporting gas from the source to the plant has also been put in
place. Meanwhile, the Company has started running the plant on gas from Sep ’07 onwards.
This will further reduce our cost of production.

Over the last 4 decades of operations, our brand ‘SHRIRAM' has developed a strong presence
in the rural market and is identified with premium quality reliability and high trust. The Company
has also built up an extensive distribution network over the entire northern and central India.

36
We have recently made a successful entry into the Southern region where our products are
gaining acceptance. Encouraged by the initial feedback from the farming community there, we
plan to further strengthen our presence in that market.

Overview

DSCL offers a range of hybrid seeds in the country via its 100% subsidiary Shriram BioSeed
Genetics India Ltd. The Company also operates its seeds business in Vietnam, Philippines and
Thailand and proposes to expand to other locations in Asia Pacific region. At present, the
Company deals in Corn, Bajra ( Pearl Millet), Jowar, Paddy, BT Cotton, Vegetables and
Sunflower seeds.

Our seeds business is a strong R&D-led operation that develops, produces and markets high
quality hybrid seeds.

Currently, hybrid corn seeds account for most of our sales from this business. The other hybrid
seeds in our portfolio include cotton, sunflower, bajra, jowar, SSG, and paddy.

Having established ourselves as one of the country's top three players in the hybrid corn seeds
market, we are now actively engaged in conducting R&D towards the development of new
hybrids that possess robust disease resistance properties and offer a high and stable yield
performance across varying climate conditions, while ensuring high grain quality.

37
We have invested in establishing a robust R&D infrastructure in Hyderabad and Philippines. Our
team consists of qualified professionals and scientists working in the areas of genetics, plant
breeding, and seed technology who leverage modern biotechnology tools and technologies to
develop new and better value-added products.

The Company, keeping with best practices has also created a comprehensive physical
infrastructure encompassing a seed conditioning plant, a cold-storage facility besides quality
assurance facilities and multiple parent seed farms.

That along with an able workforce and process competencies allows DSCL to market its
products more profitably.

Furthermore, the company's existing marketing and distribution set up provides a ready platform
to sell the hybrid seeds, thus substantially lowering the cost of operations and time-to-market for
new products

The overseas operations for hybrid seeds are gaining traction, with the operations at Vietnam
already supplying to a fifth of the market.

38
DSCL's core values and beliefs are a reflection of its commitment to build a world class, learning
organization, striving for excellence in all its endeavors.

Customer Focus

• Be sensitive to the needs of the customer; develop superior customer insight

• Commitment to surpass expectations and deliver superior value

Innovation and Excellence

• Strive to think differently and promote creativity

• Make continuous improvement a way of life; drive excellence

People Development

• Continuously improve and upgrade the skills and competencies of our people
• Support people to realize their potential

Team work

• Work closely as a cohesive, well-knit team

• Inculcate a spirit of openness and collaboration

Relationships and Human Dignity

• Value people and partnerships

• Nurture understanding, compassion, trust and respect in all relationships

Social Responsibility and Ethics

• Be a socially responsible corporate, addressing the needs of the community and

environment
• Conduct business ethically

Social Responsibility

39
A Responsible Corporate Citizen Continuing with the long history of social commitment projects
started by the founder Sir Shriram, DSCL has been making meaningful contributions to the
society in the different areas.

Agriculture Extension activity

DSL’s Shriram Krishi Vikas Kendra’s (SKVK's) operate with the objective to impart scientific
knowledge to the farmers to enhance their profitability covering crop cycle and harvesting etc.
SKVK's support the farmers in their work and life through adoption of villages.

The SKVK's provide help in meeting educational, hygiene, sanitation needs for the community
as well as healthcare support for animal husbandry.

Health Care

In its endeavor to serve the society around its operating locations, DSCL has equipped Maharao
Bhim Singh (MBS) Hospital, Kota with a state of art intensive care unit - 'The Shriram ICU' and
Private rooms- 'The Shriram Wards'.

The company organizes healthcare camps in its adopted villages and centres to create
awareness on diseases like AIDS and Cancer. Periodic Eye check-up camps are arranged and
Family Planning programmes encouraged by incentive schemes for the villages around its areas
of operation

Education

To encourage meritorious and needy students in the fields of Engineering, Medicine, Agriculture
and Management, the company has instituted Scholarships at various educational institutions in
Rajasthan. DSCL runs a 'Primary Education Programme' for the girl child, which provides for
support on books, school bags and uniforms.

The company has also contributed for construction of school buildings both in cities & rural
areas. A recent project was the reconstruction of the Primary School building at Gandhidham in
Bhuj district of Gujrat - its building was reduced to rubble in the Earthquake in Jan,2001

40
 BUSINESS TEAM
BOARD OF DIRECTORS Shri Ajay S. Shriram
Chairman & Senior Managing Director

DIRECTORS Shri Vikram S. Shriram

Vice- Chairman & Managing Director

Shri Rajiv Sinha

Dy. Managing Director

Shri Ajit S. Shriram

Director (Sugar)

Dr. N.J.Singh
Whole Team Director (EHS)

Dr. S.S. Baijal

Shri Arun Bharat Ram
Shri Pradeep Dinodia
Shri Vimal Bhandari
Shri Sunil Kant Munjai

Shri D. Sengupta

Shri S.C. Bhargava

LIC Nominee

41
 AWARDS AND TESTIMONIALS

LISTS OF AWARDS
2008 Best Assessee Award - Excise" Received by E.D & R.H " "Excise Trophy"
1998 Star Award "SAP R-3/SAP Star Customer Award 1998"
1996-97 NPC Award for "Second Best Productivity Performance in Fertilisers Industry"
1996-97 Energy Conservation Award in "Chemical Sector"
FAI’s Runner Up Award for "Best Production Performance of Nitrogenous
1995-96
Fertiliser Unit"
1994-95 NPC Runner Award for "Best Productivity Performance in Cement Industry"
1993-94 NPC Award for "Best Productivity Performance in Fertilisers Industry"
1993-94 FAI Award for "Best Productivity Performance of Nitrogenous Fertilisers Unit"
National Council of Cement and Building Materials Award for "Best
1992-93 Improvement in Electrical Energy Performance and 2nd Best in Energy
Performance"
National Award for " Public Recognition of Out-standing Activity for Prevention
1991-92
& Control of Pollution"
Indian Bureau of Mines Best Award for " Environment Conservation in Air and
1990-91
Noise Pollution "
1990-91 RPCB’s Award for " Excellence in Pollution Abatement Measures "
1990-91 NPC Award for " Best Productivity Performance in Fert. Inudstry "
FAI’s Runner up Award for " Best Production Performance of Nitrogenous
1990-91
Fertilisers Unit "
1989-90 EAR Silver Jubilee Award for " Better Industrial Relation in the Factory "
1989-90 NPC Award for " Best Productivity Performance in Fert.Industry "
1983-84 FAI’s Runner up Award for " Best Production Performance of Nitrogenous

42
 Fertilisers Unit "
1982-83 NPC Award for " Best Productivity Performance "

Products

To handle the requirements of a huge enterprise and the responsibilities of the firm as a huge
industry, DCM was restructured in 1990 into the following four companies.

1. DCM SHRIRAM CONSOLIDATED LIMITED

2. DCM SHRIRAM INDUSTRIES LIMITED
3. DCM LIMITED
4. SHRIRAM INDUSTRIES ENTERPRISES LIMITED

(A) DCM SHRIRAM CONSOLIDATED LIMITED-: The following are the various divisions of
DSCL.

S. No. Name of the unit Location Products

43
1. Shriram Fertilisers&Chemicals Kota Urea
2. Shriram Cement Works Kota Cement
3. Swatantra Bharat Mill/ Tonk Textile
DCM Silk Mill
4. Shriram Alkali & Chemicals Bharuch Chlor Alkali
5. DSCL Energy Services Co. Delhi Consulting
6. Shriram Polytech Kota PVC
Compounding
7. Fenesta Building Systems Kota/Bhiwadi/ Window/Door
Mumbai/Bangalore Profiles

SWOT ANALYSIS
STRENGTH

 Power plant fulfill 90% requirement of power at lowest cost, thus increase in profitability
of different plants.

 DSCL is a diversified company manufacturing a wide range of product.

 The company is having its own power plant, thus reducing dependence on RSEB

 Computerized plant having less dependence on work force.

 Quality improvement program at kota plant improve the quality of the product

44
  DSCL cement business in India only plant converts waste generated at Kota into
consistent quality, premium grade cement product.

WEAKNESS

 Wet process of cement production consumes high power cost.

 Budgetary control is not implicated properly. Actual performance is very far from
budgeted estimates.

 The plant is not gas based, thus manufacturing costs are high.

OPPORTUNITIES

 Govt. infrastructure efforts provide goods fortune for cement industry.

 Good monsoon in this year have great push to disposal income of the people in rural
area.

 Good financial help provided by banking sector also a good opportunity for cement
industry.

 The low per capita cement consumption in India also opens the way for extra progress.

THREATS

45
  Large plants are the big problem in India.

 Overall growth of Indian economy is very less comparison to other developing countries.

 Change in govt. policy regard to tariff, electricity, custom duty, excise duty and power
production is a big threat for cement industry in determining cost structure.

 Increase in diesel prices encourages the major components of cement cost i.e. freight.

RESEARCH METHODOLOGY

The design of the research project, popularly know as the “research design”. Research design is
a basis of framework, which provides guideline for the rest of research process.

It is the map of blue print according to which, the research is to be conducted. The research
design specifies the method of study.

There are three basic types of research design via: exploratory, descriptive and environmental.
A research design helps to define the problem, method of data collection and analysis, time and
requirement for the project to estimate the expenses to be incurred.

It is purely and simply the framework or plan for a study that guides data collection .This project
based descriptive and statistical research design.

OBJECTIVE OF RESEARCH
46
  To study the applicability and concept of ratio analysis.
 To calculate various relevant financial ratio of the company and determine the
relevant financial position of the company.
 To make a comparative analysis of ratio of competitive companies

Like CFCL and GSFC.

SCOPE OF RESEARCH
 At DSCL our vision is to build world class organization in focused business, which
is profitable, with a culture of being quality driven, responsive to change and
highly competitive.

 The scope of the study was extended for four financial years

o 2002-2003
o 2003-2004
o 2004-2005
o 2005-2006

SOURCES OF DATA

 Secondary sources

 Annual report of DSCL for 2007-08

 Credit monitoring arrangement (CMA) data files, which is prepared annually.
 Quarterly information system (QIS)
 Quarterly monitoring system (QMS)
 Internet

Limitations of Study:
47
 As it is a private company, some of the information are being kept confidential and was
not disclosed for the study.

 All the information was collected from companies balance sheet which has its inherent
limitations

WORKING CAPITAL MANAGEMENT

 Concept of Working Capital

 Needs of Working Capital

 Types of Working Capital

 Components of Working Capital

 Uses of Working Capital

48
 CONCEPTS OF WORKING CAPITAL

Working Capital means the funds available for day-to-day operation of an enterprise. There
are two concepts of Working Capital.

(1) GROSS WORKING CAPITAL

(2) NET WORKING CAPITAL

49
 (1) GROSS WORKING CAPITAL –

Gross concept of Working Capital is quantitative in nature. It represent the total of all current
assets. It is also known as circulating capital or current capital.

The word current assets means, those assets, which can be converted into cash within an
accounting period or trade cycle like: -

 Inventory
 Trade debtors
 Loans and advances
 Investments
 Cash and Bank Balance
 Marketable securities
 Bills receivables

(2) NET WORKING CAPITAL

Net Working Capital represents the excess of current assets over current liabilities or the portion
of current assets, which is financed by long-term funds. It is known as net working capital. The
net concept of Working Capital is qualitative in character.

50
Net working capital may be negative or positive. When current assets exceed over correct
liabilities there will be positive net working capital. If current liabilities exceed over current assets
it will be negative working capital.

Current liabilities are those usually repaid within an accounting you like.

 Account Payable / sundry creditors

 Bills Payable
 Trade Advances
 Outstanding Expenses
 Short Term Bonus
 Bank Overdraft

Both gross and net concepts have their own significance for management. The gross concept
of Working Capital is a going concern concept, because current assets are necessary for the
proper utilization of fixed assets.

The net concept of Working Capital shows the financial soundness and liquidity of a firm. This
concept creates the confidence to the creditors about the security of their amounts.

NEEDS OF WORKING CAPITAL

Funds are required for an enterprise for day to day running. These funds are generated
usually through sales. However, sales don’t convert into cash instantaneously. This is always

51
time gap between the sales activity and receipt of cash. Working Capital is required for this
period in order to sustain operating activity of an enterprise.

Therefore, it is clear that Working Capital is required because of time gap between sales
and actual realization of cash. This time gap is technically termed as operating or cash cycle of
business.

OPERATING CYCLE

The continuous flow from cash to suppliers to inventory, to accounts receivable and back into
cash is what is called the term cash cycle refers to the length of time necessary to complete the
following cycle of events:

52
 1. The raw material and stores inventory stage
2. The working progress inventory stage
3. The finished goods inventory stage
4. The receivable stage

CASH

ACCOUNTS RECEIVABLE RAW MATERIAL

FINISHED GOODS
WORK-IN-PROCESS

WORKING CAPITAL POLICIES

Conservative Working Capital Policies:

53
 A conservative polices suggest to carry higher level of current assets in relation to sales.
Surplus current assets enable the firm to absorb sudden variation in sales, production plan and
procurement time without disrupting production plans. Additionally, the higher liquidity levels
reduce the risk of insolvency.

But lower risk translates in to lower return. Large investment in current assets leads to higher
interests, carrying cost and encouragement for sufficient. But conservative policy will enable the
firm to absorb the day-to-day business risks.

It assures continuous flow of operation and eliminates worry about recurring obligations. Under
this policy long term financing covers more than the total requirement for working capital. The
excess cash is invested in short- term marketable securities and in need; the securities are sold
off in the market to meet the urgent requirement of working capital.

TYPES OF WORKING CAPITAL

To run an organization well, it is necessary to maintain funds in the organization. Generally,

Working capital of every business firm may be of many types:

 Permanent, fixed or regular Working Capital

 Flexible or Temporary variable Working Capital
 Seasonal Working Capital or Special Working Capital
 Negative Working Capital
 Cash Working Capital and
 Balance Sheet Working Capital

PERMANENT, FIXED OR REGULAR WORKING CAPITAL

This working capital is the minimum quantity, which required running the organization every
time; it also refers to the hard care Working Capital.

54
If this quantity of Working capital is not maintained then the business may be greatly
handicapped in day to day working.

It is that the minimum level of investment in the current assets that is caved by the business at
all times to carry out minimum level of its activities. This part of Working Capital is as permanent
as the investment in fixed assets.

FLEXIBLE OR TEMPORARY WORKING CAPITAL

It refers to that part of total Working Capital, which is required by a business over and above
permanent Working Capital.

It is also called as variable Working Capital. Such type of Working Capital represents such
amount of additional current assets which are required at different times during an accounting
period of additional inventory and cash balance to cover the pick selling period as assured by
changed circumstances since the volume of temporary

Working Capital keeps on fluctuating from time to time according to the business activities it
may be finance from the short term services. This type of Working capital changes with the
charge into operational activities.

SEASONAL WORKING CAPITAL OR SPECIAL WORKING CAPITAL

It refers the extra Working Capital, which are required due to additional demand on some
special occasions.

This working Capital is also additional amount of current assets like cash, receipts and
inventory, which are required during the accounting period of a business concern.

Additional Working Capital may also be needed on account certain abnormal circumstances and
it is termed as special Working Capital.

Thus, this type of Working Capital is needed to meet extra ordinary requirements or
contingencies. The classification of the seasonal Working Capital as regular and variable is also
helpful in arranging finance for the business firm.
55
NEGATIVE WORKING CAPITAL
Negative Working Capital is when current liabilities exceed current assets. This position is not
accurate theoretically and occurs when a business firm is nearing a crisis. If any business
concerns to pay his liabilities, then it is called Negative Working Capital.

CASH WORKING CAPITAL

This Working Capital is calculated at the time shown in profit and loss account of a business. It
is the real flow of money or value at accurate time and is considered to be most realistic
approach to Working Capital.

BALANCE SHEET WORKING CAPITAL

It is that Working Capital which is calculated from the items appearing in the balance sheet of
organization.

COMPONENTS OF WORKING CAPITAL

56
 Construction of Working capital is being made through current assets and current liabilities.
Current assets involve cash, marketable securities, inventories and receivables and current
liabilities involve o/d, creditors, and bills payable and outstanding expenses.

INVENTORY

The inventory contributes a lot to the constitution of Working Capital. Before going to the
process the inventory creates the working Capital.

According to American institute of Accountants. “The aggregate of those items of tangible

personal property which are:

(1) Are held for sale in the ordinary course of business,

(2) Are in the process of production for sale and

(3) Are to be currently consumed in the production of goods or be available for sale.” For
the point of study the inventory can be divided into the following four categories:

RAW MATERIALS

Raw material is defined as the stock of materials on which manufacturing process is yet to be
carried on. Means Raw Materials is the first step in the production process.

A firm maintains proper stock of Raw Materials for uninterrupted production. It is not possible for
a firm to purchase whenever it needed.

There is a time lag between demand and supply of Raw Materials. There is a uncertainly in
procuring raw material in time due to strike, flood, short supply etc. therefore a firm maintain a
proper level of raw materials for uninterrupted production.

GOODS IN PROCESS

57
Goods in process indicate incomplete process of manufacturing. To make clearer, good in
process means the stock of raw materials, which is still under manufacturing process and yet
has not become a finished product.

The size of good in process is determined by the length of the manufacturing cycle. Larger the
time of manufacturing process, larger will be size of goods in process.

On the other hand, if manufacturing process takes short time there will be low stock of goods in
process.

FINISHED STOCK

Finished stock is the last resort of the manufacturing process. In the finished product, raw
material is fully converted into the saleable product.

The stock of finished goods inventory is held by a firm to serve customers continuous basis and
to meet fluctuating demand.

STORE AND SPARE PARTS

Stores and spares consist of innumerable items. Store and spares are kept to fight to break
dawn of machinery in the operation. The reasonable quantity and quality of spare parts must be
kept to get away from the interruption in the production.

RECEIVABLES

Receivable is the second most important component of Working Capital next to inventory. It is
essential for each and every business institution to sell their product on credit basis in this
though competition in order to maximum the profits. Credit sale bring out the receivables.

Looking to the profits we must consider both merits and demerits of credit sale. By merits we
mean the profit involved and demerits we means the risk occurred in the proceeds collection.
After all receivables effects profitability, liquidity and Working Capital of business concern.
Therefore a proper level of receivables should be maintained for the proper profitability.
Receivable plays an important role in contributing the short-term financial position and
profitability.

CASH

58
Cash in the business may be compared to the backbone of the human body, it gives the
strength to the human body and cash gives profit and solvency to the business. In a business
ultimately a transaction results either in flow or out flow of cash.

The term cash is used in two senses. In narrow sense it is used for cash, cheques, drafts and
demand deposits in bank. In broad sense it also includes near cash assets like-marketable
securities and fixed deposits in bank.

Cash in hand, as an asset it has no any earning power in itself. But a minimum cash balance is
essential to meet the requirements of the business. The question arise that what is the proper
level of cash or how much cash be kept by a business.

There is no any formula to determine the proper level of cash, which should be kept by a
business. The proper level of cash depends on various factors like- nature of business, period of
credit sale and the position of receivables and inventory.

Now the question arise that what is the aim keeping cash. According to Keynes there are three
motives for keeping cash:

1) Transaction motive
2) Precautionary motive and
3) Speculative motive
In general we can say that a business keeps cash to take day-to-day obligations, to take benefit
from favorable market conditions and to allow for contingencies.

USES OF WORKING CAPITAL

59
 BUSINESS LOSSES
Working capital is also used to finance operational losses of companies. On the other hand if
a company is in profit then fund is created. Redemption of share capital and debentures or
repurchase of debentures, when cash is paid to redeem preference shares or debentures or
repurchase the debentures, the result is that Working Capital is reduced.

PAYMENT OF DIVIDEND IN CASH

There are two ways of dealing with proposed dividend and the subsequent payment. If the
proposed dividend is treated as a current liability, actual amount will not be shown as a use
of funds.

PAYMENT OF TAXES
Working Capital is also used to pay the taxes. When tax is paid from Working Capital, there
is reduction in Working Capital and this means use of working capital.

PURCHASE OF FIXED ASSETS

The purchase of fixed assets such as plant machinery either reduces current assets or increase
current liabilities.

STATEMENT SHOWING WORKING CAPITAL REQUIREMENT

PARTICULAR AMOUNT ( In Cores) TOTAL AMOUNT

A. Current Assets
1. Inventory 783.06
2. Debtors 239.34
3. Advances & Loans 332.37
4. Cash Balance 46.56
A. Total Current Assets 1401.33
B. Current Liabilities
1. Provisions 86.26
2. other Current Liabilities 402.95
B. Total Current Liabilities 489.21
Net Working Capital (A-B) 912.12

MANAGEMENT OF CASH

 Introduction
60
 Motives for Holding Cash

 Objective of Cash Management

 Control Over Cash Flows

MOTIVES FOR HOLDING CASH

61
 The term cash with reference to cash management is used in two senses. In a narrow
sense, it is used broadly to cover currency and generally accepted equivalents of cash, such as
cheques, drafts and demand deposits in banks.

The broad view of cash also includes near cash assets, such as marketable securities and
timely deposits in banks. The main characteristics of these are that they can be readily sold and
converted into cash. They serve as a reserve pool of liquidity that provides cash quickly when
needed. There are four primary motives for maintaining cash balances: (i) Transaction motive;
(ii) Precautionary motive; (iii) Speculative motive; and (iv) Compensating motive.

TRANSACTION MOTIVE

An important reason for maintaining cash balances is the transaction motive. This refers
to the holding of cash to meet routine cash requirements to finance the transaction that a firm
carries on in the ordinary course of business.

A firm enters into a variety of transactions to accomplish its objectives that have to be paid for in
the form of cash. Business concerns that have highly predictable inflows and outflows of funds
can hold relatively less cash then firms that have irregular cash flows.

PRECAUTIONERY MOTIVE

It is also related to the nature and level of business activity. Precautionary balances are those
which are set aside because cash inflows and outflows are not synchronized.

For example, precautionary balance may be used to meet unanticipated expenses as the result
of an unanticipated decline in sales revenues.

SPECULATIVE MOTIVE

62
 It refers to the desire of a firm to take advantage of opportunities which present themselves
at unexpected moments and which are typically outside the normal course of business.
The speculative balances are sensitive to interest rate changes and are usually hold in the form
of interest hearing securities.

COMPENSATING BALANCE

A compensating balance is the fourth motive for holding cash. This motive is with
commercial banks that require borrowers to leave a portion of their borrowed funds in deposit at
the bank. Banks may require, that 10% of a loan be left in deposit.

There are two reasons for requiring a compensating balance, it raises the effective interest rate
for banks and it provides banks with funds to make additional loans.

OBJECTIVE OF CASH MANAGEMENT

The basic objectives of cash management are: (a) to meet the cash disbursement needs
(payment schedule); and (b) to minimize funds committed to cash balances. These are
conflicting and mutually contradictory and the task of cash management is to reconcile them.

MEETING PAYMENTS SCHEDULE

The importance of sufficient cash to meet the payment schedule can hardly be
overemphasized.

MINIMISING FUNDS COMMITTED TO CASH BALANCES

The second objective of cash management is to minimize cash balances. In minimizing the cash
balances, two conflicting aspects have to be reconciled.

A high level of cash balance will, ensure prompt payment together with all the advantages. But it
also implies that large funds will remain idle, as cash is a non-earning assets and the firm will
have to forego profits.

63
CONTROL OVER CASH FLOWS

Drawing of cash plan is not enough; a strict compliance of plan is required through proper
control of cash collections and payments.

On the other hand inflow is to be accelerated, so as to cope with the growing requirements
whereas outflow must be checked.

There must also be a proper channel of arrangement of investment of surplus cash. For this
cash periodical reports are very much helpful.

64
 ALLOCATION OF CASH INFLOW

Cash can be conserved through maximized inflow and lesser permanent investment.
Reducing the time gap caused by waiting time can accelerate collection; to speed up collections
the followings techniques may prove useful:
LOCK BOX SYSTEM

In this system, a firm establishes the collection centers in accordance with the
concentration of customer’s and hire a post office box and instructs its customer to remit
the bills of cheques directly to this box. The firm’s authorized bank picks up the
remittance collects for the gain and supply the detail of cheques collected. Although it is a
costlier system but the cheques are collected immediately.

PROMPT PAYMENT BY CUSTOMERS

PROMPT CONVERSION OF PAYMENTS INTO CASH –
The early conversion of payments into cash, as a technique to speed up collections, is
done to reduce the time lag between posting the cheque by customer and the realization
of cheque from bank.

DECENTRALISED COLLECTIONS
When a number of collection centers are operating instead of single collection centers at
the head office, the time lag between mailing can be reduced. This is called decentralized
system of collection of bill at multiply centers. This is useful technique to speed up the
collection of accounts receivable.
Besides, collection of payments personally is one of the important means to accelerate
the inflow of funds.

SLOW DISBURSEMTNS
A firm should make its payments using the credit terms to their fullest extent. There is no
advantage in paying the amount sooner than expected or agreed to, as this source is free
from interest. But a firm must not make undue delays that may endanger its credit
standing.

65
DEFINITION:

A ratio can be defined as " the indicated quotient of two Mathematical expression",
and as " the relationship between two or more things".

IMPORTANCE OF RATIO ANALYSIS

As a tool of financial management, ratios are of crucial significance. The importance of ratio
analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of
inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of the following aspects.

 Liquidity Position
 Operating efficiency
 Overall profitability
 Trend Analysis

Liquidity Position
A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid
funds to pay interest on its short maturing debt usually within a year as well as to repay the
principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are
particularly useful in credit analysis by banks and other suppliers of short-term loans.

Operating Efficiency

Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of
management is that it throws light on the degree of efficiency in the management and utilization
of its assets. The various activity ratios measure this kind of operational efficiency. In fact, the
solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by
the use of its total assets as well as its components.

66
Overall Profitability
Unlike the outside parties which are interested in one aspect of the financial position of a firm,
the management is constantly concerned about the over all profitability of the enterprise. That
is, they are concerned about the ability of the firm to meet its short term as well as long-term
obligations to its creditors, to ensure a reasonable return to its owners & secure optimum
utilization of the assets of the firm.

Trend Analysis
Finally, ratio analysis enables a firm to take the time dimension into account. In other
words, whether the financial position of a firm is improving or deteriorating over the years. This
is made possible by the use of trend analysis. The significance of a trend analysis of ratios lies
in the fact that the analysts can know the direction of movement that is, whether the movement
is favorable or unfavorable.

LIMITATIONS OF RATIO ANALYSIS

Financial statement analysis can be a very useful tool for understanding a firm's performance &
condition. However, there are certain problems & issues encountered in such analysis, which
call for care, circumspection & judgment in such exercise.

1. Heuristic & Intuitive character

Most of the ratios we have computed & interpreted have been proposed in a somewhat
heuristic or intuitive fashion. The ratio is often not related logically to a well-defined
theoretical framework. Instead they have been suggested in a somewhat impressionistic
manner.

2. Development of benchmarks

Many firms, particularly the larger ones, have operations spanning a wide range of
industries. Given the diversity of their financial performance & condition. Hence, it
appears that meaningful benchmarks may be available only for firm that have a well-
defined industry classification.

67
3. Window dressing

Firms may resort to window dressing to project a favorable financial picture. For e.g. a
firm may prepare its balance sheet at a point when its inventory level is low.

4. Price level changes

Financial accounting, as it is currently practiced in India & most other countries, does not
take into account price level changes. As a result, balance sheet figures are distorted &
profits misreported. Hence, financial statement analysis can be vitiated.

5. Interpretation of results
Though industry averages & other yardsticks are commonly used in financial ratios, it is
somewhat difficult to judge whether a certain ratio is good or bad. A high current ratio for
example, may indicate a strong liquidity position (something good) or excessive
inventories (something bad).

6. Correlations among ratios

Several ratios have some common element (sales, for example, are used in various
turnover ratios) & some items tend to move in harmony because of a certain common
underlying factor.

7. Variations in accounting policies

Business firms have come latitude in the accounting treatment of items like depreciation,
valuation of stocks, research & development expenses, foreign exchange transactions,
investment, sales, preliminary & pre-operative expenses, provision of reserves &
revaluation of assets.

68
 DATA ANALYSIS AND INTERPRETATION

Ratio analysis is a power full tool of financial analysis. In financial analysis a ratio is used
as a benchmark for evaluating the financial position & performance of a firm.

The absolute accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance & financial position of a firm.

An accounting figure conveys meaning when it is related to some other relevant information.
The relationship between two accounting figures, expressed mathematically, is known as Ratio.

A ratio helps to summarize large quantity of financial data & to make qualitative judgment of the
firm's financial performance.

A ratio can be defined as “the indicated quotient of two Mathematical expression", and as
“the relationship between two or more things".

69
 LIQUIDITY RATIO

Liquidity ratios study the firm's short-term solvency & its ability to pay off the liabilities. These
include:

1) Current Ratio 2) Liquid Ratio

Liquid Ratios as a group are intended to provide information about a firm's liquidity & the
primary concern is the firm's ability to pay its current liabilities. Consequently, these ratios focus
on current assets & current liabilities.

CURRENT RATIO

CURRENT RATIO = Total current assets/Total current liabilities

The total current assets include those assets, which are in the form of cash, near cash or
convertible into cash within a period of 1 year. The current liabilities include all types of liabilities,
which will mature for payment within a period of 1 year. The current ratio shows the firm's ability
to pay its liabilities out of its current assets.

The current ratio as calculated above is to be compared with a standard ratio. Generally, a
current ratio of 2:1 is considered to be satisfactory. Though this value of current ratio is industry
specific.

70
 Total Assets
(Rs. In Lakhs)

Particulars Inventory Sundry Cash Loans and Total

debtors balance advances

2003-2004 205.47 182.51 41.09 108.60 537.67

2004-2005 304 303.61 25.50 96.61 729.72

2005-2006 440.58 416.97 32.59 140.13 1030.27

2006-2007 558.13 502.20 52.91 220.78 1334.02

2007-2008 783.06 239.34 46.56 332.37 1401.33

Total Current Liabilities

(Rs. In Lakhs)
Particulars Provisions Other Liabilities Total

2003-2004 33.09 234.62 267.71

2004-2005
55.71 337.11 392.82

2005-2006
58.33 513.53 571.88

2006-2007
61.41 812.17 873.58

2007-2008
86.21 402.95 489.21

71
 CURRENT RATIO OF DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

729.72/ 1030.27/5 1334.02/ 1401.33/

Current 538.71/
392.82 71.88 873.58 789.21
396.62
Ratio
= 1.85 = 1.80 =1.52 =2.86
=1.35

Current Ratio

3.5
3
2.5
2
Current
1.5
1
0.5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08

INTERPRETATION:

DSCL current ratio in 2003-04 was 1.35, which was low. But later the ratio had increased to 1.85
in 2004-2005 which is almost near to the ideal ratio of 2:1.but in 2004-2005 it had fallen to 1.80
in 2005-2006 further it had fallen to 1.52 in 2006-2007.in theyear03-06 it is able to maintain its
ratio near to the standard ratio. But we at these ratio of 2006-2007 it has fallen to 1.52 and in
2007-08 it rises to 2.86 so we can say that company has very sound position and sufficient
assets to pay his liabilities.

72
2. QUICK RATIO/LIQUID RATIO

SIGNFICANCE:

This ratio establishes a relationship between Quick/Liquid assets & current liabilities. A
current asset is considered to be liquid, if it is convertible into cash without loss of time & value.
On the basis of this definition of liquid assets, as inventory in singled out of the total current
assets, as inventory is considered to be potentially illiquid. The reason for keeping inventory out
is that it may be obsolete, unsaleable or out of fashion & always required time for realization into
cash. Moreover the inventories have tendency to fluctuate value. So the quick ratio looks for the
ready availability or convertibility into cash. The quick ratio may be calculated as:

Quick Ratio = Liquid assets / Total current liabilities.

Generally an ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.

The idea is that for every rupee of current liabilities, there should at least be one rupee of liquid
assets. This ratio is a better test of short-term financial position of the company than the current
ratio, as it considers only those assets that can be easily and really converted in to cash. Stock
is not included in liquid assets as it may take a lot of time before it is converted into cash. Quick
ratio thus is a more rigorous test of liquidity than the ratio and when used together with current
ratio, it gives a better picture of the short-term financial position of the firm.

73
 Quick Ratio of DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

Liquidity 332.24/393.62 425.72/392.82 590.69/571.88 775.89/873.58 618.27/489.21

ratio =. 84 =1.08 =1.03 =. 88 =1.26

Liquid Ratio

2
1.8
1.6
1.4
1.2
1 Liquidity Ratio
0.8
0.6
0.4
0.2
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08

INTERPRETATION

The ideal liquid ratio is 1:1 from the analysis it is found that in year 2003-2004 the liquid ratio
was.84, which is near the ideal ratio but in 2005-2006, it has become1.03, which is near to the
ideal ratio. Further it had fallen to .88 in 2006-2007, which is near the ideal ratio and 2007-08 it
has risen to 1.26. It shows that the company is efficiently using its liquid assets. It also indicates
that the company is having sufficient funds to meet its short-term liabilities.

74
3. LONG TERM SOLVENCY RATIOS

SIGNIFICANCE

The financial position of the firm can be studied & analyzed in two perspectives i.e. the
short-term position which is known as the short-term liquidity position, has already been
discussed with the help of liquidity ratios. In the following section the long-term financial position,
its composition & implications have been considered.

The long-term sources of funds for any firm comprise of the shareholder's funds & the
long-term borrowings.

Thus to know about the long-term financial position of a firm following ratios are
calculated:

1. Debt-Equity Ratio
2. Proprietary Ratio
3. Interest Coverage Ratio

4. Fixed assets long term.

A. DEBT-EQUITY RATIO

The Debt-Equity is the basic & the most measure of studying the indebt ness of the firm.
The Debt-Equity ratio is based on the assumption that the extent to which a firm should employ
the debt should be viewed in terms of the size of the cushion provided by the shareholders
funds. The Debt-Equity ratio is based on the assumption that the extent to which a firm should
employ the debt should be viewed in terms of the size of the cushion provided by the
shareholders funds. The Debt-Equity ratio is calculated as follows:

Debt-Equity = Debt/Net worth

Or

= Long-term debt/shareholder's fund's

75
Significance:- The ratio indicates the proportion of owner's stake in the business. Ideal ratio is
2:1. Excessive liabilities tend to cause insolvency. The ratio indicates the extent to which the
firm depends upon outsiders for its existence. The ratio provides the margin of safety to the
creditors. It tells the owners the extent to which they can gain benefits and maintain the control
with the limited investments.

B. PROPRIETARY RATIO

SIGNIFICANCE

This ratio focuses the attention on general financial strength of business enterprise. This
ratio is of particular importance to the creditors who can find out proportion of shareholders
funds in the total assets employed in business.A low proprietary ratio will indicate greater
danger to the creditors. A ratio below 50% may be alarming for the creditors since they may
have to suffer heavily, in the event of company's liquidation on account of heavy losses. It is
calculated as:

Proprietary Ratio = Shareholders fund/Total tangible assets x100

C. INTEREST COVERAGE RATIO

SIGNIFICANCE

It measures the ability of the firm to pay the fixed interest liability.

This ratio is calculated as: EBIT/FIXED INTEREST CHARGES

Interest coverage ratio or the times interest earned is used to test the firm's debt serving
capacity. The interest coverage ratio is computed by dividing earning before interest & taxes by
interest. The interest coverage ratio the number of times the interest charges are covered by
funds that are ordinary available for their payment. A higher ratio is desirable but too high ratio
indicates that firm is very conservative in suing debt & that it is not using credit to the best
advantage of the shareholder's. A lower ratio indicates excessive use of debt or inefficient
operations.

76
FIXED ASSETS TO LONG TERM FUNDS

SIGNIFICANCE
This ratio explains whether the firm has raised adequate long term funds to meet its fixed assets
requirements. It is expressed as follows:
Fixed assets/long-term funds
The ratio should not be more than 1.if less than one; it shows that the part of working capital has
been financed through long-term funds. This is desirable to some extend because a part of
working capital termed as core working capital is less of fixed nature .the ideal ratio is 0.67.
Fixed asset include net fixed asset (original cost- deprecation to date) and trade investments
including shares in subsidiaries. Long term funds include share capital reserve and long term
loans.
The formula for calculating fixed assets to long term funds ratio is:

FIXED ASSETS/LONG TERM FUNDS

4. PROFITABILITY RATIO OR INCOME RATIO

The main object of every business concern is to earn profits. A business must be able to earn
adequate profit in relation to the capital invested in it. The efficiency and the success of a
business can be measured with the help of profitability ratios. We can understand more about
these ratios by categories it into the following: -

(A) Ratios Calculated on the Bases of Sales: - {Net Sales means (sales + Income from
Services)} these are as follows: -

I. GROSS PROFIT RATIO

SIGNIFICANCE

It is calculated by comparing gross profit of the firm with the Net sales. The gross
profit is the difference between the sales revenue & the cost of generating those sales.
Therefore, the Gross profit amount the GP ratio depends upon the relationship between the
selling price & the cost of production including direct expenses.
The GP ratio reflects the efficiency with which the firm produces and purchases the
goods.The formula for calculating gross profit ratio is : -

77
 Gross profit Ratio = Gross profit / Net sales x 100

GROSS PROFIT RATIO OF DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

Gross profit 194.65/1381.5 227.10/1800. 283.74/2332. 236.21/2701. 134.78/2489.

ratio 1=14.08% 14=12.61% 57=12.16% 46=8.74% 55=5.41%

Gross Profit Ratio

16
14
12
10
8 Gross Profit Ratio
6
4
2
0
2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION:

The gross profit ratio of DSCL’S was 14.08% in 2003 – 2004, which has come down to 12.61%
in 2004 – 2005. But in 2005-2006 it had fallen to 12.16.Further it had fallen to 8.74 in 2006-
2007. The reasons for this may be raise in price of raw materials from the market. Earlier in
2003-2004 the total expenditure incurred for raw materials, power and other manufacturing
expenses was 959.10 crores but as in comparing with 2005-2006 the total expenditure had
gradually increased to 2666.56 crores. It is not a good sign for the company as company’s profit
are not increasing as compare to its expenditures. The sales is increased which is good for the
company but the decreasing ratio show that per unit margin have decreased. So fixed
expenses should be controlled. Comparing with earlier years 2007-08 the total expenditure as
gradually decreased to 5.41 with is not a good sign for the company as company’s profit are not

78
increasing as compare to expenditure .The sales is increase which is good for the company but
the decreasing ratio the per unit margin had decreased so fixed expenses should be control.

II. NET PROFIT RATIO

SIGNIFICANCE

NP ratio establishes relationship between the net profits (after tax) of the firm & net
sales. The NP ratio measures the efficiency of the firm's management in generating
additional revenue over & above the total cost of operations. The NP ratio shows the overall
efficiency in manufacturing, administering, selling & distributing the product. This ratio also
shows the contributions made by every one rupee of the sales to the owner's funds.

The NP ratio indicates the proportion of sales revenue available to the owners of the
firm & the extent to which the sales revenue can decrease or the cost can increase, without
inflicting a loss on the owners. So the NP ratio shows the firm's capacity to face the adverse
economic conditions.

An increase in the ratio over the previous ratio indicates improvement in operational
efficiency of the business, provided the gross profit ratio is constant. The ratio is thus an
effective measure to check the profitability of the business. One can check the adequacy of
the ratio by taking into account the cost of capital, return in the industry as a whole & market
condition such as boom or a depression.

The formula for calculating net profit ratio is : -

Net profit ratio = Net profit/Sales ×100

NET PROFIT RATIO OF DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

79
Net profit 76.68/1391.20 104.43/1800.14 115.19/2332.57 45.81/2701.46 670.99/2489.55
ratio =5.51% =5.80% =4.97% =1.69% =26.95%

Net Profit Ratio

30
25
20
15 Net Profit ratio
10
5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08

INTERPRETATION:

The net profit ratio of DFCL’S was 5.51% in 2003 – 2004 it had gone up by 5.8%. in 2004-2005.
But in 2005 – 2006 it had fallen down to 4.97 %. Further it had fallen to 1.69 in 2006-2007.the
manufacturing and other expenses had been gradually increased it was 1339.97 crores in 2005-
2006 and in 2006-2007 1837.34 crores. Another reason is that interest and deprecation in the
year 2006-2007 had been increased. But in 2007-08 N.P. ratio is increased upto 26.95% which
is very high with respected to last year due to their less expenditure and their increase in
exceptional items income.

III. OPERATING PROFIT RATIO

80
 SIGNIFICANCE

It is calculated to evaluate operating performance of business. Operating profit means net sales
less cost of sales.

OPERATING PROFIT RATIO = OPERATING PROFIT/SALES X 100

OPERATING PROFIT RATIO OF DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

Operating 145.27/1085.02 174.57/1381.51 227.39/1800.14 276.35/2332.74 97.38/2489.55

profit x 100=13.38 =3.91
x 100=12.63 x 100=12.63 x 100=11.84
ratio

Operating Profit ratio

14
12
10
8 Operating
6 Profit Ratio
4
2
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08

INTERPRETATION

The operating profit ratio of DSCL shows that in the year 2003-2004 the ratio was 12.63%,
which has fallen to 11.84% in 2005-2006. It had further fallen to 7.81% in 2006-2007 and the
ratio had decreased to 7.81% only indicating that the operational proficiency had not been
improved. operational expenses should be tighten. In 2007-08 it had further fallen and ratio
decries to 3.91% only indication that the operational proficiency had not been improved
operating should be tighten

(B) RATIO CALCULATED ON BASED OF CAPITAL: -

81
 These are as follows: -
The profitability can also be analyzed with reference to profit earned per rupee of
investments made in the firm.

C. DIVIDEND PAY OUT RATIO

SIGNIFICANCE

The pay out ratio indicates the percentage share of net profits after taxes &
preference dividend that is paid out as dividend to equity shareholders.

DIVIDEND PAY OUT RATIO = DIVIDENDS/ PAT

Companies follow dividend policies based on their financial requirements as well as

corporate philosophy. Investors generally prefer companies declaring higher dividends & it is
commonly found that high dividend distributing companies command a higher price than
others who distribute less (provided they are equally profitable & similar in other respect).

DIVIDEND PAYOUT RATIO OF DSCL FROM 2003-04 to 2007-2008

RATIO 2003-04 2004-05 2005-06 2006-07 2007-08

82
 Dividend 1.2 1.5 .9 .8 3.3
payout ratio

Dividend Pay Out

3.5
3
2.5
2 Dividend Pay
1.5 Out
1
0.5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08

INTERPRETATION:

In the year 2003 – 2004 the dividend payout ratio of DSCL was 1.2% . but in the year 2004 –
2005 it has gone up to 1.6% and in year 2005 – 2006 it has gone up to .9% .further in year
2006-07 it has gone up to .8% But in 2007-08 it suddenly increase to 3.3% it clearly indicates
that DSCL is continuously maintaining a dividend payout ratio of average 15%. This constant
payout ratio encourages investor to invest in the growing business.

DCM SHRIRAM CONSOLIDATED LIMITED

BALANCE SHEET as on 31st March, 2008
Schedule As at As at
83
 31 March 08 31 March 07
Rs. in crores Rs. in crores
Sources of Funds
Shareholders funds 1 33.34 33.34
Share Capital 2 1111.99 518.49
Reserves and surplus

1145.33 551.83
Loan Funds
3 1234.21 978.38
Secured
523.70 542.16
Unsecured
1757.99 1520.54
Deferred Tax Liabilities (net) 4 171.20 170.55

Total Funds employed 3074.44 2242.92

Application of Funds 5 2310.84 2145.61
Fixed Assets 617.00 498.74
Gross Block
Less : Depreciation
Net Block 1693.84 1646.87
Capital Work in Progress 270.36 101.62
1964.20 1748.49
Investments 6 198.12 33.99
Current Assets, Loans and Advances 7
Inventories 783.06 558.13
Sundry Debtors 239.34 502.20
Cash and Bank balances 46.56 52.91
Loans and advances 332.37 220.78
Less: Current liabilities and provision 1401.33 13340.02
- Current liabilities 8 402.95 812.17
- Provisions 86.26 61.41
489.21 873.58
Net Current Assets 912.12 460.44
Total Funds utilized 3074.44 2242.92

DCM SHRIRAM CONSOLIDATED LIMITED

PROFIT & LOSS ACCOUNT for the year ended 31st March 2008
84
 Schedule Year ended Year ended
31 March,08 31 March,07
Rs. in crores Rs. in crores
Income 9
Sale of product (gross) 2685.59 2872.16
Less: Excise duty 196.04 170.70
Sale of products (Net) 2489.55 2701.46
Income from services and other income 34.79 33.71
2524.34 2735.17
Expenditure 10
Manufacturing and other expenses 1903.36 1837.34
Purchases for resale 401.47 661.62
Profit for the year before Depreciation, 11
Interest, exceptional items and tax

Interest - on debentures and other fixed 75.64 60.92

loans 9.09 16.42
- on others

Profit for the year before Depreciation, 134.78 158.87

Interest, exceptional items and tax
Depreciation 122.13 90.26
Profit for the year before tax 782.77 68.61
Provision for taxation 12 111.78 22.80

Profit after tax 670.99 45.81

Transfer from debenture redemption 5.17 5.16
reserve 251.37 225.74
Balance b/f from the previous year
Profit available for appropriation 927.53 276.71
Proposed dividends
Equity Shares
- Interim 49.77 6.64
- Final 6.64 6.64
Corporate dividend tax 9.59 2.06
General reserve 400 10.00

Balance carried to Balance Sheet 461.53 251.37

0.39 2.76
Earning per share - basic/diluted (Rs.)

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 CONCLUSION
�

The project is based on the financial statement of the company for last four years. In this
comparison between the various ratios over the period have been done.

The company is doing better year after year. The study is restricted to only financial statements.
The comparative performance shows that the company is doing well. It had also done overall as
in comparison with its competitors.
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The company has managed to expand favorably at a very cost effective level. The company has
been growing at a healthy rate with every ratio improving at a steadily rate except few ratios.
Therefore we can say that the company is moving towards excellence to achieve its goals.

Efforts should be made to improve upon the lagging areas and a strong hold is required at the
places where company has managed to lead.

SUGGESTION

 It should try more to keep the proprietary ratio high to provide greater sense of
security to the creditors.

 Payment of interest burden had increased so to reduce it company should

regularly pay interest.

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 Selling price should be at certain level so that goods could be sold without
corresponding decrease in cost of goods sold and vice- versa, ultimately increase
in gross profit ratio.

 The company has to take into consideration the inventory turnover ratio. As the
control over stock has deteriorated over the years. The companies efficiency in
turning its inventory into sales had declined

 Capital turnover ratio, working capital turnover ratio, fixed asset turnover ratio are
in decreasing trend indicating that the company has not utilized the capacity.
Therefore it should try to improve its ratios and utilized capacity fully.

 Financial cost is more due to which net profit ratio suffers. Company should try to
reduce financial cost.

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 BIBLIOGRAPHY

website

 www.dscl.com

 Dscl.net (Intranet)

 Annual report of DSCL of 2007-2008

Reference Books

 I.M pandey 9th edition

 Agrawal M.R.

 Prasanna Chandra, Financial Management

 S.N. Maheshwari

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