CHAPTER IX

SUMMARY OF FINDINGS AND SUGGESTIONS

This final chapter sums up the leading findings and suggestions for

improvements. A short conclusion and the scope for further research in this

direction are also added suitably well.

9.1 THE CHIEF OBJECTIVES OF THE STUDY:

The primary objective of the study is to analyse the financial performance

of the India Cements Limited, Tirunelveli from 1995-96 to 2009-10. Analysis of

liquidity position, leverage strength, activity performance, profitability condition,

and examination of socio-economic conditions of workers of the India Cements

Limited are the plans of the study.

9.2 SUMMARY OF FINDINGS:

The study has examined throughly the objectives with appropriate

statistical methods of analysis. Following are the leading findings of the study:

1. A company has to maintain adequate liquidity to meet its short term

obligations. Otherwise the business has to run out of liquidity which brings

its operation to a grinding halt. But the liquidity position of a company

depends on the amount invested in current assets and its nature. For
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analysing the liquidity position of the India Cements Limited, current ratio,

quick ratio, absolute liquidity ratio, working capital to capital employed

ratio, inventory to working capital ratio, cash to working capital ratio and

cash to current assets ratio have been adopted. The following inferences are

drawn on the basis of such analysis.

a. The current ratio is an effective tool for measuring the short term

stability of the company. An ideal current ratio acts as an umbrella

for its creditors against the rainy day. The India Cements Limited

has maintained its current ratio above the general standard norm

during the study period. The highest ratio is 6.62 times in 2003-04

but the lowest ratio is 1.86 times in 2008-09 The average current

ratio was 3.42 times. The current ratio acts as a cushion of

protection to the creditors of the India Cements Limited.

b. The quick ratio provides a more penetrating measure of liquidity as

it excludes inventories. The quick ratio of the India Cements

Limited is above the general standard norm throughout study period.

The lowest liquidity ratio being 1.42 times in the year 1996-97 and

the highest ratio being 5.94 times in the year 2003-04. The average

quick ratio was 2.88 times. Thus, the India Cements Limited’s liquid

resources have been quite sufficient to meet its current obligations.

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c. The absolute liquidity ratio focuses on the company’s ability to

repay its short term obligations from operations rather than

additional funding. The absolute liquidity ratio of the India Cements

Limited implies that the cash position is adequate enough to meet its

short term obligations during the study period. Generally, the cash

ratio of 0.5:1 is considered satisfactory. In 1996-97 the ratio was

1.00 time but rose to 5.08 times in 2003-04. The statistical analysis

indicates that on an average the cash ratio of the India Cements

Limited is 2.35 times.

d. The working capital to capital employed ratio measures a

company’s potential reservoir of funds. Larger the ratio, greater is

the ability to meet the current obligations. The average working

capital to capital employed ratio of the India Cements Limited was

0.76 times. In 2001-02 the ratio was 1.78 times but it decline to 0.27

times in 2008-09 It is proved that the India Cements Limited has

maintained adequate working capital to meet its short term

obligations during the study period.

e. Inventory to working capital ratio helps to ascertain whether the

company has over stocking or not. Since inventories have least

liquidity, a company should have minimum stock. The inventory to

working capital ratio showed fluctuating trend during the study

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period. In 1996-97 the ratio was 0.66 times but declined to 0.12

times in 2003-04. Thus, the India Cements Limited has maintained

the inventory level at the lowest during the study period.

f. The India Cements Limited has maintained adequate cash to

working capital ranging from 0.003 times in 2001-02; 2003-04;

2004-05 to 0.37 times in 2007-08. The average cash to working

capital ratio is 0.09 times.

g. Cash to current assets ratio indicates the extent to which a company

can pay current liability without relying on the other components of

current assets. The highest ratio was 0.16 times in 1995-96 and the

lowest ratio was 0.002 times in the years 2001-02 and 2004-05

respectively. The statistical analysis shows that on an average the

cash to current assets ratio 0.05 times which indicates a tight control

over cost.

2. Leverage ratio throws light on the important aspects to long term solvency

of the company. A highly leveraged company does well in boom periods

but quickly falls into difficulty in recession. For analysing the leverage

position of the India Cements Limited, debt equity ratio, interest coverage

ratio. fixed assets to capital employed ratio and financial leverage ratio

were used. Following are the findings on the basis of such analysis.
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a. The debt - equity ratio indicates how much the company is

leveraged by comparing what is owed. It measures a company’s

ability to borrow and repay money. It shows how much of the

company’s assets are financed by debt and equity. The debt - equity

ratio of the India Cements Limited indicates that the ratio gradually

declines during the study period. The highest ratio was 2.91 times in

the year 2001-02 while the lowest ratio was 0.52 times in the years

2009-10. The average debt - equity ratio was 1.46 times.

b. The interest coverage ratio measures the margin of safety a

company enjoys with respect to its interest burden. A highly

profitable company has highest interest coverage ratio. The interest

coverage ratio of the India Cements Limited indicates that it can

easily meet its interest burden. The lowest ratio being 0.25 times in

2002-03, whereas the highest ratio was 8.69 times in 2007-08. The

average interest coverage ratio was 2.67 times. The study indicates

that the interest coverage ratio steadily increased during the study

period.

c. Fixed assets to capital employed ratio explains whether the company

has adequate long term funds to meet its fixed assets requirements.

But the adequacy of fixed assets in a business affects its profit. The

fixed assets to capital employed ratio of the India Cements Limited

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fluctuated during the study period. In 1995-96, the ratio was 1.31

times but it dropped to 1.12 times in 2009-10. The average fixed

assets to capital employed ratio was 1.60 times.

d. Financial leverage ratio indicates the ability of a company to use

fixed financial charges to improve the operating income. The

financial leverage of the India Cements Limited indicates its ability

to use fixed financial charges to expand the operating profit. In

2001-02 it was 27.85 times in negative and it shows the highest ratio

as 15.47 times in the year 2004-05. The average financial leverage

ratio of the India Cements Limited was 0.94 times.

3. Activity ratios are employed to evaluate the efficiency of a company in

managing the assets. These ratios are also called turnover ratio because

they indicate the speed with which assets are being converted into sales.

Activity ratios involve the relationship between sales and assets. A proper

balance between sales and assets reflects that assets are managed well. For

the purpose of the study, inventory turnover ratio, assets turnover ratio,

fixed assets turnover ratio, working capital turnover ratio, capital turnover

ratio, current assets turnover ratio and debtors turnover ratio have been

critically evaluated.

a. Inventory turnover ratio indicates whether investment in inventory

is within limit or not. The ratio reveals how well inventory is being
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managed. A high ratio implies that the company manages the

inventory as good. The ratio of six to seven times is considered

satisfactory. In 1995-96 the ratio was 8.47 times and fluctuated

during other period and finally increased to 9.43 times in 2009-

2010. The highest ratio was 11.49 times in 2006-07 while the lowest

ratio was 5.67 times in 1997-98. The average inventory turnover

ratio of the India Cements Limited was 8.78 times.

b. This ratio indicates a company’s effectiveness in generating sales

revenue from investment. High assets turnover ratio increases the

profit. The highest assets turnover ratio of the India Cements

Limited was 1.05 times in 1995-96 and the lowest ratio way 0.32

times in 2003-04. The average assets turnover ratio was 0.60 times.

c. Fixed assets turnover ratio is used to measure the efficiency with

which the fixed assets are employed. A high ratio indicates effective

use of fixed assets in generating operating income. The fixed assets

turnover ratio of the India Cements Limited showed fluctuating

trend during the study period. In 1995-96, it was 1.44 times, but it

declined to 0.91 times in 2009-10. The average fixed assets turnover

ratio of India Cements Limited was 0.90 times.

d. The working capital turnover ratio indicates the number of times the

working capital is turned over in a stated period. A high ratio

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indicates efficient use of working capital. The working capital

turnover ratio of the India Cements Limited showed a fluctuating

trend. The highest ratio was 5.18 times in 1995-96 while the lowest

ratio was 1.11 times in 2003-04. The average working capital ratio

of the India Cements Limited was 2.36 times. The study infers that,

the India Cements Limited managed with less amount of working

capital in relation to sales.

e. Capital turnover ratio indicates a company’s effectiveness in

generating revenue from capital employed. The higher the ratio

greater is the profits. The highest ratio of the India Cements Limited

showed 2.13 times in 2001-02. The lowest ratio was 0.74 times in

2003-04. The average ratio was 1.45 times.

f. The current assets turnover ratio ascertains the efficiency with

which current assets are used in a business. A high ratio indicates

greater circulation of current assets. The current assets ratio of the

India Cements Limited showed a fluctuating trend. The lowest ratio

was 0.79 times in 2002-03 and the highest ratio was 2.76 times in

1995-96. The average current assets ratio of the India Cements

Limited was 1.47 times.

g. Debtors turnover ratio indicates how quickly the customers are

paying their due to the company. A high ratio indicates the effective
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debtor management. The debtors turnover ratio of the India Cements

Limited showed a fluctuating trend during the study period. In 1995-

96 the ratio was 25.32 times and the lowest the ratio of 5.50 times in

2001-02. The average debtor turnover ratio of the India Cements

Limited was 11.83 times which reflects effective trade credit

management.

Financial performance is the right tool for studying the efficiency of an

organization. The activity analysis proves that the India Cements Limited has

managed its assets effectively during the study period.

4. Profitability ratios measure the overall performance and effectiveness of a

company. It also measures the trend and projection venture of an

organization in connection with sales and investments. Profitability

performance of the India Cements Limited was evaluated with the help of

net profit ratio, return on capital employed, return on equity, return on total

assets, and operating expenses ratio. The major findings are summarized as

follows:

a. Profit earning is considered essential for the survival of the business.

It is the engine that drives the business enterprises. The business has

to earn profits so as to discharge its obligation to the various

segments of the society. Net profit is the money left over after

paying all the expenses of an endeavour.

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When the profit is high, the company has better control over its cost

of production. The net profit ratio of the India Cements Limited has shown

a fluctuating trend during the study period, In 1995-96 the ratio was 10.03

per cent and in 2009-10 the ratio was 12.59 per cent. The highest ratio of

India Cements Limited was 23.43 per cent in 2007-08 and the lowest ratio

of India Cements Limited was 29.74 per cent in negative in the year 2002-

03. The average net profit is 10.23 times.

b. The return on capital employed is an index to the profitability of

company’s investment. High ratio indicates the managerial

efficiency. The return on capital employed ratio of the India

Cements Limited indicates that the funds are invested profitably. In

1995-96, the ratio was 18.90 per cent and in 2009-10 the ratio was

12.85 per cent. The average ratio was 14.07 per cent.

c. The return on equity is one of the most important indicatiors of a

company’s profitability and potential growth. Companies that boost

a high return on equity with little debt are able to grow without large

capital expenditure. Generally the investor prefers a company with

high return on equity as its shares have greater market value. The

return on equity of the India Cements Limited has indicated that it

has secured a satisfactory return to its shareholders. In 1995-96 the

ratio was 18.90 per cent but fluctuated to 12.85 per cent in 2009-10.
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The highest return on equity of the India Cements Limited was

25.43 in 2007-08 and the lowest return on equity of the India

Cements Limited was (–48.37) per cent in 2002-03. The average

return on equity was 14.07 per cent.

d. The return on total assets ratio measures how well a company uses

all its assets to generate operating surplus. The ratio is the key

indicator of profitability for a company. Higher the ratio, greater is

the return on assets. The return on total assets of the India Cements

Limited has revealed that the company effectively utilized its assets

for earning profits. In 1995-96 the ratio was 10.57 per cent and in

2009-10 the ratio was 8.10 per cent. The average ratio was 4.11 per

cent.

e. The operating expenses ratio indicates the operational efficiency of

a business. The ratio establishes a relationship between operating

expenses and sales. When the ratio is low, higher is the profitability.

But high operating expenses ratio does not indicate awareness. In

1995-96 the operating expenses of the India Cements Limited were

`69871.18 lakh but sales were `80643.94 lakh (86.64 per cent). In

2009-10 the operating expenses were `316029.03 lakh but sales

were `422169.20 lakh (74.86 per cent).

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5. The analysis of the opinion given by the workers, trade union leaders and

managerial personnel about the labout welfare facilities available in the

company and the work environment prevent their were made and the

following findings have been drawn:

a. It is found from age-wise classification of the workers that 55.7 per cent

of them were in the age group of 41-50 years. It might be either due to

the merger rate of the fresh recruitments or the appointments of already

experienced workers to a great extent or both.

b. It is found that 36 per cent of the workers had their education only upto

the matriculation level and 22 per cent of them are found to have

studied upto the higher secondary level.

c. Of the total number of workers, the manual labourers constitute 70 per

cent.

d. Among the workers, only 3 per cent of them are found to have

remained as unmarried while all the others are married.

e. Regarding the size of the family, 75 per cent of the workers have their

family size between 4 to 6 members.

f. It is found that, the majority of the workers, that is 64 per cent of the

them are in the monthly income range of `7501 to `10000.

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g. Among the workers, those who have put in a service of above 20 years

are found to be in large number accounting for 43 per cent followed by

41 per cent of the workers with a service of 10 to 20 years.

h. Among the reasons given for changing their employment from their

previous jobs, inadequate wages and excess workload had occupied the

first and second positions with 46 per cent and 24 per cent of the

responses respectively. It implies that the majority of those who had left

their previous jobs were found to be under the impression that they

were underpaid in their earlier jobs.

i. Of the total number of workers, only 57 per cent of them are found to

be members of some political party while the remaining were not

members of any political party.

j. Among the total number of workers, 80 per cent are found to have

expressed their complete satisfaction by revealing their perceptions as

“Good” with regard to the extent of labour welfare facilities provided in

their factory.

k. Among the various welfare facilities, provision of uniforms, shoes and

washing soaps are found to be very important in the perceptions of the

workers on the basis of the computed ‘F’ statistics and ‘P’ values, it

was found different length of service on the provision of welfare

facilities had not differed significantly.

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l. In the opinion of the trade union leaders, provision of uniforms,

housing facilities and the supply of washing soaps are found to be

important welfare facilities. As revealed by the ‘F’ and ‘P’ values the

opinion of the trade union leaders did not differed significantly except

for the provision of shoes as a welfare facility.

m. The significant differences among the three groups of managerial

personnel are identified regarding their opinion on welfare facilities

such as first aid and medical facilities, educational allowances, supply

of washing soaps and shoes are revealed by the computed ‘F’ statistics

and ‘P’ values.

n. It is found from the analysis of the opinion of workers, the trade union

leaders and those of the managerial personnel on the provision of

welfare facilities that the opinions had significantly differed except for

those items such as the provisions of uniforms, supply of soaps and

providing housing facilities.

o. Regarding the existing pension scheme arrangements, 61 per cent of the

workers are found to have felt that it was inadequate while 38 per cent

of the workers are found to have expressed their satisfaction about the

prevailing system. The dissatisfaction over the pension scheme might

have been due to the general improved conditions that had been

prevailing in India since the adoption of the new economic policies.

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p. As far as the prevalence of work environment is concerned, 85 per cent

of the workers had expressed their satisfaction. Dissatisfaction was

reported by about 15 per cent of them.

q. Work environment such as light and ventilation, provision of drinking

water, safety arrangements for emergency situations are found to be the

most important facilities according to the opinion of the workers. The

significant difference among opinion of the workers are identified

regarding their opinions on work environment such as light and

ventilation, cleanliness and rest room facilities with the help of the

computed ‘F’ statistic and ‘P’ values.

r. As per the opinion of the trade union leaders on work environment such

as provision of good light and ventilation, drinking water, safety

arrangements for emergency situations are found to be the most

important facilities. As revealed by the computed ‘F’ value and ‘P’

values, the opinions of the different categories of the trade union

leaders have not significantly differed except on those items of facilities

such as drinking water and light and ventilation. Trade union leaders

are found to have felt alike in most cases of the facilities provided for

improving work environment in the study unit.

s. The managerial personnel are also found to have felt that the provision

of drinking water, adequate light and ventilation and rest-room

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facilities, were as important as those of the working conditions. Their

differences in the opinion have been found to be statistically significant,

except for facilities provided such as drinking water, cleanliness, rest

room facilities and safety arrangements for emergencies.

t. As revealed by the computed ‘F’ statistics and ‘P’ values, the opinions

of the workers, the trade union leaders and that of the managerial

personnel are found to have differed only on those items of work

environment such as those of cleanliness and rest room facilities.

9.3. A FEW SUGGESTIONS

The study has brought to light some specific problems faced by the India

Cements Limited. A few suggestions to overcome the problems are given below:

The ability of the India Cements Limited to meet its financial

obligations is more than standard norms. The India Cements

Limited should ensure that it does not suffer from both lack of

liquidity and also excess liquidity. A very high degree of

liquidity is very bad as idle funds earn nothing. Funds should not

be unnecessarily tied up in current assets because it will affect

the profitability of the India Cements Limited. The management

of the India Cements Limited should take necessary steps to

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invest its funds in short term securities to strike a proper balance

between high liquidity and low liquidity.

The debt equity ratio of the India Cements Limited declined

sharply during the period of study and at present, it is at the

lowest level. The management of the India Cements Limited

should increase its debt base so as to bring the benefits of

trading on equity for contributor of capital. Hence, the India

Cements Limited should take measures to reorganize its capital

structure so as to increase debt base. The funds collected through

this channel should be effectively used for modernization and

expansion activities.

The cash position ratio of the company has to be improved to a

satisfactory level to meet the current obligations of the company.

The fixed assets turnover ratio shows under utilization of fixed

assets. The company should take remedial measures to increase

the intensive utilization of fixed assets.

Proper efforts must be taken to increase the sales through sales

promotional activities like advertisement as they help to buildup

the brand image in the mind of consumers.

There should be proper planning and control in the production

and sales sectors into earn more profit.

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In order to raise the goodwill of the company, more attention is

to be given to its suppliers.

As a Public Limited Company, it is always better to keep a lower

price with a small margin compared to others.

The company should take efforts to produce different types of

cements such as coloured cements by using latest technologies

and export to different countries.

The managements of the study unit should ensure the provision

of better safer drinking water, good light and ventilation

arrangements, safety arrangement during emergencies and rest

room facilities to their workers. Provision of these facilities in a

much better way could promote the work environment and

ensure promotion of the harmonious labour management

relationships.

Provision of welfare measures and creation of a proper work

environment for maintaining a peaceful labour management

relationship were considered to be the most important factors as

per the opinions of the workers and that of the trade union

leaders, to achieve optimum productivities.

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9.4. CONCLUSION

With the introduction of the concept of globalization throughout the world,

it has become a challenge to all developing countries to fall in line with the

massive changes taking place in counties like China. So, India was forced to

rethink its economic priorities in the 90’s. The need for rapid improvements in

infrastructure became imperative. To finance massive infrastructure projects, the

traditional avenues of resource mobilization like taxation and World Bank

borrowings were inadequate. The public sector itself faced financial crisis because

the government was unable to pump in money to help it to expand and modernize

in order to meet global standards. India is a complex racial, multi lingual and

multi religious and multi regional society. It is characterized by mass poverty with

micro affluences. The public enterprise is the only sector to cater to the needs and

fulfill the aspirations of various segments of the people. The India Cements

Limited, Tirunelveli has served its purpose adequately since its inspection.

The present study has been undertaken to reveal the factors affecting the

financial performance of India Cements Limited in Tirunelveli district. The study

highlights the financial performance of India Cements Limited in Tirunelveli

district for a period of 15 years (1995-96 to 2009-10). It may be concluded that

the financial position of the company is highly satisfactory adequate to meet to a

great extent.
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It can be said that the company is not only a financially sound one but also

has more social responsibility. The company has continued its active involvement

for improvement of socio-economic conditions and bring about development of

infrastructure, human resources, environment, sports and cultural activities. Infact,

the company’s corporate social responsibility activities encompass as on date 108

villages in 14 taluks of 13 districts of the four States namely Tamilnadu, Andhra

Pradesh, Rajasthan and Maharashtra where the cement plants are situated and

have benefited nearly one lakh people. The company has plans to increase its

focus in future on education and community development.

9.5 SCOPE FOR FURTHER RESEARCH

The following areas may be suggested for further research.

1. A study on the problems faced by the India Cements Limited in marketing

their product.

2. A study on the problems faced by the employees (Workers)

3. A study on the recruitment of workers and the schemes provided to the

employees of the India Cements Limited and

4. A study on the training given to the employees of the India Cements

Limited.