RESEARCH PLAN PROPOSAL

Impact of Working Capital Management on Profitability of Selected

Cement Companies.

For registration to the degree of

Doctor of Philosophy

IN THE FACULTY OF COMMERCE & MANAGEMENT

THE IIS UNIVERSITY, JAIPUR

Submitted by:

Ms. Rajshree Shekhawat

IISU/2019/------

Under the Supervision of:

Dr. --------------
Department of Management Studies
The IIS University

Department of Commerce
2019

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CONTENTS

S. No Particulars Page No.

1. Introduction 3-6
2. Review of Literature 6-9
3. Research Gap 9-10
4. Relevance of the Study 10
6. Research Objectives 10-11
7. Hypotheses 11
8. Research Methodology
Type of Research 11-12
Sampling Design 12
12
Sample size
12-13
Data Collection
13-14
Tools and Techniques

9. Scheme of Chapters 15
10. References 16-17

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1.0 Introduction

1.1 Concept of Working Capital Management

In the context of financial statements analysis, the term working capital refers to the difference
between current assets and current liabilities which is in fact net-working capital. For
accounting purposes working capital means management of all aspects of current assets and
current liabilities. There are two concepts of working capital, net working capital and gross
working capital. Net working capital is the difference between current assets and current
liabilities. Excess of current liabilities over current assets is deficit working capital. Such a
situation occurs when a firm is facing a crisis and that is known as deficit working capital.
Working capital is also known as circulating capital or current capital. The use of the term
circulating capital instead of working capital indicates that it's nature is circular.

Gross working capital, on the other hand, refers to the current assets. It is pertinent that the
assets in commercial firm are of two kinds. These are; fixed assets and current assets. Fixed
assets include land, building, plant and furniture etc., investment in these assets represents that
a part of firm’s capital is permanently blocked on a permanent or fixed basis and is also called
fixed capital that generates productive capacity. The form of these assets does not change in
the normal course. In contrast, current assets consist of raw materials, work in progress,
finished goods, bills receivables, cash and bank balances etc.

These assets are bought for the purpose of production and sales, like raw material into semi-
finished products, semi-finished products into finished products, finished products into debtors
and debtors turned over cash or bills receivables. The fixed assets are used in increasing
production of an organization and the current assets are utilized in day to day operations.
Working Capital may be regarded as the lifeblood of a business enterprise. It refers to that part
of the firm's capital which is required for short-term financing.

1.1.2 Need for Working Capital

The firm is required to invest in current assets for a smooth and uninterrupted functioning. It
needs to maintain liquidity to purchase raw materials and pay expenses such as wages and
salaries, other manufacturing, administrative and selling expenses and taxes as there is hardly a
matching between cash inflows and outflows. The manner of administration of working capital
determines to a very large extent, the success or failure of overall operations of an enterprise.
In the event of failure of a business concern, shortage of working capital is considered as its

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main cause, it may be mismanagement of resources of the firms that converts successful
business into an unsuccessful one. Inadequacy of working capital is a symptom and excuse of
business failure. The proper management of working capital is therefore of crucial importance
for the success of an enterprise which involves the administration of all current assets.

1.1.3 Working Capital Cycle

A firm can be very profitable if it translates the cash from operation within the same operating
cycle otherwise the firm would need to borrow to support its continued working capital needs.
The time gap between the sale of goods and realization of cash is called operating cycle.
Investment in current assets is inevitable to ensure delivery of goods or services to the ultimate
customers and a proper management of the same gives the desired impact on either
profitability or liquidity. If resources are blocked at different stages of the supply chain, it will
prolong the cash operating cycle.

Figure 1: Working Capital Cycle

1.1.4 Dimensions of Working Capital

Working capital management involves planning and controlling of current assets and current
liabilities to meet due short term obligations of the risk of liquidity on one hand and to avoid
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excessive investment in these assets on the other. It plays an important role of overall corporate
strategy in order to create shareholder value. It is three dimensional in nature:
1. It is concerned with the formulation of policies with regard to profitability, liquidity and
risk.
2. It is concerned with the decisions about the composition and level of current assets.
3. It is concerned with the decisions about the composition and level of current liabilities.

Figure 2: Dimensions of Working Capital

1.1.5 TYPES OF WORKING CAPITAL

a. Classification on the basis of concept

- Gross working capital: This concept is also known as quantitative concept It takes
current assets i.e. cash, accounts receivables, merchandize, debtors etc. into account
When die organization considers long-term funds, this concept is significant.
- Net working capital: This concept is also known as qualitative concept. According to
this concept, working capital is the excess of current assets over current liabilities. This
concept shows how much amount is left for operating activities. For determining the
financial position (i.e. liquidity) this concept is significant
- Deficit Working Capital: Excess of current liabilities over current assets is deficit
working capital. Such a situation is not absolutely theoretical and occurs when a firm is
nearly a crisis of some magnitude.

b. Classification on the basis of financial statement

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 This classification has been done on the basis of financial statement because the
information regarding the working capital is collected from the profit and loss account or
balance sheet.

- Balance sheet: When the information regarding the working capital is collected from the
balance sheet (i.e. the items appearing in balance sheet), then this type of working capital is
known as balance sheet working capital.

The basis can now again classified as:

- Gross Working Capital

- Net working Capital

- Deficit Working Capital

- Profit & Loss Account: Cash working capital: Cash working capital arises when the items
regarding the working capital is collected from the profit and loss account i.e. the items
appearing in P&L A/c. It shows the real flow of money and values at a particular time and is
considered to be then more realistic approach and having great significance to working capital
management in recent years as it shows the adequacy of cash flow in business. It is based on
operating cycle concept. The duration of time required to complete the different events like
conversion of cash into raw materials, raw material into work-in-progress, work-in-progress
into finished goods, finished goods to debtors and bill receivable through sales and conversion
of bill receivable to cash etc. in case of manufacturing firm.

c. Classification On The Basis Of Variability:

- Permanent working capital: The working capital which is permanent in nature i.e. which
cannot be varied due to variation in sales. It is the minimum level of current assets kept by the
organization required always for business operation even if there is fluctuation in sales.
Normally it consists of low level of inventory cash, bill receivable, and material in process,
finished goods. These can be obtained any day of the year because it is permanent in nature.
Amount of such investment is called as Permanent Working Capital. Permanent Working
Capital is also known as fixed or regulating Working Capital. This amount varies year-to-year
depending upon the growth and stage of business cycle in which it operates.

(b). Variable working capital: It is required during the most active seasons of the year. It is
most suited to the business, which is seasonal and cyclical in nature. It represents as additional

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asset required for normal functioning of business in favorable seasons. It changes according to
variation in sales.

- Temporary Working Capital: Total Current Assets - Permanent Current Assets. It changes
according to change in operational activity. This type of working capital is also known as
Temporary, Seasonal or Special Working Capital.

1.1.6 Liquidity and Profitability

The firm would make just enough investment in current assets if it is possible to estimate
working capital needs exactly under perfect certainty and current assets holdings would be at
the minimum level. A larger investment in current assets under certainty would mean a low
rate of return of investment for the firm, as excess investment in current assets will not earn
enough return. A small investment in current assets, on the other hand, would mean interrupted
production and sales, because of frequent stock cuts and inability to pay to creditors in time
due to restrictive policy. As it is not possible to estimate working capital needs accurately, the
firm must decide about levels of current assets to be carried. A different way of looking into
the risk-return trade-off is in terms of the cost of maintaining a particular level of current
assets. There are two types of costs involved. These are cost of liquidity and cost of illiquidity.
If the firm's level of current assets is very high, it has excessive liquidity. Its return on assets
will be low, as funds tied-up in idle cash and stocks earn nothing and high level of debtors
reduces profitability.

Thus, the cost of liquidity increases with the level of current assets. The cost of illiquidity is
the cost of holding insufficient current assets. The firm will not be in a position to honor its
obligations if it carries too little cash. This forces the firm to borrow at high rates of interest.

This also adversely affects the credit worthiness of the firm and it faces difficulties in
obtaining funds in the future. All this may force the firm into insolvency. Similarly, the low
levels of stock result in loss of sales and customers may shift to competitors. Also low level of
debtors may be due to right credit policy which may impair sales further. Thus, the low level
of current assets involves cost that increases as this level falls.

Working Capital Management is the functional area of finance that covers all the current
accounts of the firm. It involves the relationship between a firm's short-term assets and its

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short-term liabilities. A firm is required to maintain a balance between liquidity and
profitability while conducting its day to day operations. Liquidity is a precondition to ensure
that firms are able to meet short-term obligations and continuous flow can be guaranteed from
a profitable venture. The importance of cash as an indicator of continuing financial health, has
a crucial role within the business. The goal of working capital management is to ensure that a
firm is able to continue its operations and that it has sufficient ability to satisfy both; maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivable and accounts payable and cash. The basic
objective of financial management is to maximize shareholders wealth.

This objective can be achieved when the company earns sufficient profits. The amount of
profits largely depends on the magnitude of sales. But sales do not convert into cash instantly.
There is a time lag between the sale of goods and the receipt of cash. Working capital is
required to purchase the materials, pay wages and other expenses in order to sustain sales
activity. Thus, the twin objectives of profitability and liquidity must be synchronized.

Working capital management plays an important role in firm's profitability and risk as well as
its value. There are a lot of reasons for the importance of working capital management. For a
typical manufacturing firm, the current assets account for over half of its total assets. For a
distribution, level of current assets can easily result more. Excessive levels of current assets
may have a negative effect on a firm's profitability. Whereas, low level of current assets may
lead to lower liquidity and stock outs, resulting in difficulties in maintaining smooth
operations. Further, efficient management of working capital plays an important role of overall
corporate strategy in order to create shareholder value. It is regarded as the result of the time
lag between the expenditure for the purchase of raw material and the collection for the sale of
finished goods.

Working Capital management involves planning and controlling current assets and current
liabilities to meet due short term obligations of the risk of liability on one hand and avoid
excessive investment in these assets on the other. Thus, business success heavily depends on
the ability of the financial managers to effectively manage receivables, inventory and payable.
Firms can decrease their financing costs and raise the funds available for expansion project by
minimizing the amount of investment tied up in current assets.

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Most of the financial manager's time and efforts are consumed in identifying the non-optimal
levels of current assets and liabilities and bringing them to optimal levels. An optimal level of
working capital is a balance between risk and efficiency. It asks continuous monitoring to
maintain the optimum level of various components of working capital such as cash,
receivables, inventory and payables. A popular measure of working capital management is the
cash conversion cycle which is defined as the sum of days of sales outstanding. The longer this
time lag, the larger is investment in working capital. A longer cash conversion cycle might
increase profitability because it leads to higher sales. Corporate profitability also decreases
with cash conversion cycle. If the cost of the higher investment in working capital is higher
and rises faster than the benefits of holding more inventories and granting more inventories
and trade credit to customers.

Lastly, working capital management and profitability in order to help managers, take a lot of
solutions to create value for their shareholders especially in emerging markets. Keeping in
view the relevance of working capital to the firms, the research is an endeavor to study
working capital management of the cement industry in India.

2.1 Background of Cement Industry in India

Cement Industry one of the major and oldest established manufacturing industries in the
modern sector of the Indian economy. It is an indigenous industry in which the country is well-
endowed with all the necessary raw materials, skilled man-power, machinery, equipment‘s,
technology and know-how. It is one of the key, capital-intensive, energy and transport-
intensive industries in India. It is both a basic and consumer industry. A country‘s economic
growth is defined by the growth of its core sector activities. Construction is one such vital area
where a nation‘s progress is shaped by the bridges, roads, buildings, factories, flyovers, airport
terminals, railway stations, office complexes, educational hubs, hospital etc., which are all part
of its future design all held by the spell of the power of cement. Thus it is regarded as a major
nation building industry, whose importance in a developing economy can never be over-
emphasized.

Therefore, with the ushering in of the era of planned economic development in India, cement
industry has been assigned an important role and has been accorded a pride place in the
scheme of priorities for development of industry. But unfortunately with the massive
development programs, envisaged especially in the rural , industrial and urban sector , the
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demand for the product has outstripped its availability and is expected to rise more steeply in
the future. The gap between its supply and demand has been steadily and in fact it seems to be
an ever-widening one. And if the industry is in the limelight in recent years, it is because of the
serious shortage of the product, which has become the most profile begetter of black money
and public corruption.

Portland cement replaced Natural cement, which is a predictable, known product of steadily
high quality. Portland cement produced in the plant established by Aspdin in Wakefield was
used in 1828 in the construction of the Thames River Tunnel. Almost 20 years later J.D. White
and Sons established thriving factory in Kent which was greatest period of early expansion, in
England as well as in Belgium and Germany. In 1859, Portland cement was used to
construction the London sewer system. Thomas A. Edison won forerunner in the advance
development of the rotary overs .In his Edison Portland Cement Works in New village, in
1902; he introduced the first long furnaces used in the industry which was 150 feet long in
contrast to the customary 60 to 80 feet. Now a day some of furnaces are more than 500 feet
long.

2.2 Indian Cement Industry

The history of the cement industry in India dates back to the 1889 when a Kolkata-based
company started developing cement from Argillaceous. In early 1900s, the industry started
getting structured shape. In 1914, in porbandar, India Cement Company Ltd was established
with a capacity of 10,000 tons and production of 1000 installed. In the year 1956, the Indian
cement industry observed the price and distribution control system and established a model to
guarantee unbiased price for consumers as well as manufacturers. Government sanctioned new
manufacturing units later in 1977, to put a higher tag for their products. After few years,
government introduced a three-tier pricing system with different pricing on cement produced
in high, medium and low cost plants. In any country the Cement industry plays a key role in
the development of the nation. Indian Cement industry was controlled and supervised fully by
the government. After the economic reform, however, it got liberation at a large extent. But
still in India government interference is still evident especially in the pricing. All though India
is the second largest producer in the world it falls in the list of lowest per capita consumption
of cement with 125 kg. A poor rural person who leaved in mud huts and cannot afford to have
the commodity is the basic reason behind this. Regardless of this fact the demand and the
supply of cement in India has grown up. There is always a large possibility of enhancement of
cement industry, in a fast developing economy like India. There are two clear discrete Phases.
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The first phase has been a long phase of seven-and-a-half decades of the ―Full Control‖ since
1914 till the ―Complete Decontrol‖ in the year 1989. Second Phase is the Post-Decontrol
period, which was relatively small of two-and-a-half decades.

3.1 Review of Literature

Lal C. Jagetia (2007), this research discusses the techniques for assessing the financial health
of the company. Debt ratios, quality ratios and debt coverage ratios are helpful in providing
insight into corporate financial health. He is of the option that one must look at other sources
of data also to make a meaningful interpretation of ratios.

Maji (2003) Analyzed the efficiency of working capital using regression analysis and it was
found that there is an inverse relationship between EBIT and CCC, positive relation between
Payable Period and EBIT, which means profitable firms delay their payables. Further analysis
found that there was positive relationship between collection period and EBIT. This means
credit facility increases sales of firm which ultimately increases profitability.

Asghar Ali & Syed Atif Ali (2012) attempted to investigate whether working capital is really
affecting profitability of Pakistan industries. Working Capital Management is applying
Investment and Financing Decisions to Current Assets. Most of the researchers found a
positive impact of working capital management decisions on profitability of organizations. It
directly affects the liquidity and profitability of the firm. In this research article, 15 research
papers of different scholars have been studied and compared. The results showed impact of
working capital on profitability and supported the hypotheses.

Khalaf Taani (2012) examined the impact of working capital management policy and
financial leverage on financial performance of Jordanian companies measured in terms of net
income, return on equity (ROE) and return on asset (ROA). Pearson's rank correlation test,
ANOVA F- test, and multiple regression analysis were used on 45 companies included in the
industrial sector in Jordan ranked in terms of gross revenues. Results of the study indicated that
firm's working capital management policy, financial leverage, and firm size have significant
relation to net income. However working capital management policy has no significant impact
on return on equity (ROE) and return on assets (ROA)

Agyemang Badu Ebenezer, Michael Kwame Asiedu (2013) examined the effect of working
capital management on the profitability of companies listed on the Ghana Stock Exchange.
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Secondary data from the Ghana Stock Exchange on manufacturing companies within the Accra
metropolis was used to examine whether working capital management influence the
profitability of manufacturing companies in the country. The study found out that, the major
component of working capital management such as inventory days, account payable and cash
conversion cycle have influence on the profitability of manufacturing companies. The study
recommended that, manufacturing companies should adopt efficient and effective ways of
efficiently managing these components of working capital management.

Paul Muoki Nzioki et.al., (2013) analyzed the effects of working capital management on the
profitability of manufacturing firms listed on the Nairobi Securities Exchange. Diagnostic
research design was utilized and the study targeted the nine listed manufacturing firms trading
on the Nairobi Securities Exchange. Multiple regression and correlation analyses were carried
out to determine the relationships between components of working capital management and the
gross operating profit of the firms. The results from the study revealed that gross operating
profit was positively correlated with average collection period and average payment period but
negatively correlated with cash conversion cycle. The relationship between inventory turnover
in days and gross operating profit was insignificant. From this study, it is recommended that
managers focus on reducing cash conversion cycles and try to collect receivables as soon as
possible.

Vijayalakshmi and Bansal (2013) tried to identify the factors which determine the working
capital requirement in Indian cement industry. A case study was performed on ACC cements, a
company listed on both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange)
of India. 12 years data (2000-2012) was considered for this study. A regression analysis was
performed using WCR (working capital requirement) as dependent variable and growth in
sales, size of the firm, performance, operating cash flow, operating efficiency, debt equity
ratio, business indicator, price of raw materials as independent variables. It was found that only
debt to equity ratio plays a significant role in determining working capital requirement of the
firm.

Hina Agha (2014) investigated the relationship between working capital and profitability of
Glaxo Smith Kline pharmaceutical company the author collected secondary data from Glaxo
Smith Kline pharmaceutical company.. For this purpose, he used variable of return on assets
ratio to measure the profitability of company and variables of account receivable turnover,

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creditor’s turnover, inventory turnover and current ratio as working capital management
criteria. The results of the research showed that there was a significant impact of the working
capital management on profitability of company. Therefore, managers should enhance the
profitability of their firms by minimizing the inventory turnover, account receivables ratio and
by decreasing creditors turnover ratios but there was no significant effect of increasing or
decreasing the current ratio on profitability. So, the results indicated that through proper
working capital management, the company could increase its profitability.

Venkateswarlu (2014) The study was undertaken to analyze the working capital management
of Panyam Cements and Mineral Industries Limited. Based on this analysis proper conclusion
has been given, regarding the working capital position of the company. It can be conclude that
overall working capital efficiency is satisfactory. But it is found that the company suffers from
certain weakness and some suggestions are given to overcome it. If the suggestions are
implemented, the company can increase its working capital and overall performance at the
right time. The company has to identify the possible ways to control and increase overall
working capital efficiency checks at different level which will contribute to the overall growth
of the company.

Hoque et. al., (2015) in their study is decorated to outline the profitability and working capital
position of selected cement industries, correlation between them and whether the profitability
is affected by working capital management. Ratio Analysis have been used to show
Profitability position and Working Capital position, Correlation Matrix have been used to
show correlation between them and Regression Analysis have been used to show the impact of
Working Capital management on Profitability respectively. The study is mainly based on
secondary data and reveals that Profitability position & Working Capital position over the
study period is not satisfactory. It is also found that there is significantly positive correlation
between profitability and working capital components as well as impact of Day Sales
Outstanding (DSO) on profitability ratios is negatively significant. It recommended that
sample cement industries should reduce their Day Sales Outstanding (DSO) for improving
their profitability position.

Raja and Kumar (2015) analyzed whether working capital consists of a study of relationship
and determined whether or not the firms liquidity position was good to meet day - to - day
obligation of a business. The statement of changes in working capital for the year ended 2009 -

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2013 was used for the study. The main objectives of the study were to examine and evaluate
the working capital management in ACC Limited and also examined the management pattern
of inventory, liquidity, cash position and receivables management.

Sangeetha and Saravanan ( 2016) in their paper on „Working Capital management in

Cement industries in Ariyalur - a comparative study‟ indicated that net working capital of
India cements is very good and they recorded highest net working capital over the selected
period of study, while compared to other cement companies. Whereas the Ultratech cement
recorded the negative working capital, which means the current liabilities of the company are
higher than current assets which is not a good sign of the financial health of the company.
Hence through their study, it is recommended to the key officials of Ultra tech cements that
they have to take measure to control the current liabilities of the company, in order to ensure
financial health or liquidity of the company for day-to-day operations.

Sabo Muhammad, Rabi’U Saminu Jibril (2015) examined the impact of working capital
management on corporate profitability through the periods of 2008 to 2012. The total of seven
firms listed on the floor of the Nigerian Stock Exchange was studied, using secondary data
generated from annual reports and accounts of the sampled companies and the Nigerian Stock
Exchange Fact book. The data were analysed by means of descriptive statistics and GLS
regression analysis using STATA 11. The study finds a positive relationship among Average
Collection Period (ACP), Current Ratio (CR) and the size of the firm (LOGSIZE) with
Profitability and a negative relationship with Inventory Turnover Period (ITP), Average
Payment Period (APP). The paper therefore recommends that cash collected should be re-
invested into short-term investment to generate profits and fund left idle in the cash or
excessive liquidity is costly and do not lead to profitability.

Mbawuni et. al., (2016) examined the impact of working capital management on the
profitability of petroleum retail firms in Ghana over a six year period (2008-2013). Audited
annual reports from a sample of five selected petroleum retail firms in Ghana were employed
in the study. Using, descriptive analysis, correlation and regression analysis, the results
indicate that, in the profitability of petroleum retail firms in Ghana, there was favourable net
working capital for the firms and a favourable networking capital to total assets ratio. The rest
of working capital management components, cash conversion cycle, average days inventory
and average days receivables did not have significant relationship with profitability. The study

14
further found that working capital management practices among the five selected profitability
of petroleum retail firms support the conservative strategy of working capital management,
rather than an aggressive working capital management strategy.

Author Name Title Study Country/ Sample Findings/

Objective/Study Geographi Size/
Description cal Area Limitations
covered Data
Analysis
Method

Lal C , Jagetia Examine the trends India 10 cement The researcher

Ratio
(2013) in rates of profit of companies stated that the
Analysis in
Evaluation select Indian Cement of Indian management
of Industries. Origin must look at
Financial other sources
Health of a of data also to
Company make a
meaningful
interpretation
of ratios and
even using the
ratios.

Ghosh , Maji The firm’s Analyzed the India Overall there is an

(2003) efficiency efficiency of cement inverse
in WCM in working capital industry relationship
the cement using regression between EBIT
industry in analysis and CCC,
India positive
relation
between
Payable Period
and EBIT,
which means
profitable firms
delay their
payables.

Asghar Ali & Working investigate whether Pakistan Madras The results
Syed Atif Ali Capital working capital is Cement showed impact
(2012) Manageme really affecting Limited, of working
nt: Is It profitability of Chennai capital on

15
 Really Pakistan industries profitability
Affects the and supported
Profitabilit the hypotheses
y?
Evidence
from
Pakistan

Khalaf Taani Impact of Analyze the liquidity Jordan Cement firm's working
(2012) Working performance of Tata companies capital
Capital Iron and Steel of Jordan management
Manageme Company (TISCO). policy,
nt Policy financial
and leverage, and
Financial firm size have
Leverage significant
on relation to net
Financial income.
Performanc
e:
Empirical
evidence
from
Amman
Stock
Exchange –
listed
companies

Agyemang The Evaluate the Ghana Cement managers can

Badu Relationshi relationship between and other increase the
Ebenezer , p between working capital infrastruct profitability of
Michael Working management and ure related their firms by
Kwame Capital firm’s profitability companies lengthening the
Asiedu (2013) Manageme of Ghana payable
nt and deferral period
Profitabilit
y of ring
Companies
in Ghana

Paul Muoki Manageme determinants of firm Nairobi Cement firm

Nzioki, nt of Profitability and Companie profitability
Stephen working quantified their s of predominantly
Kirwa Kimeli, capital and determined

16
Marcella its effect on relative importance Nairobi firm level
Riwo Abudho profitability characteristics,
and Janiffer of and that sector
Mwende manufactur effects were
Nthiwa (2013) ing relevant, but to
companies a much smaller
listed on extent
Nairobi
securities
exchange
(NSE),
Kenya

Vijayalakshmi Determinan Profitability analysis India companies size was an

and Nikhel ts of of Indian important
Bansal (2013) Working origin determinant of
Capital in profits and
Cement larger firms in
Industry -A industry were
case study more efficient
of ACC Ltd than small
firms

Hina Agha Impact Of Evaluate India energy

(2014) Working productivity growth efficiency and
Capital and the role of productivity
Manageme technological change improvements
nt On within the context of that could be
Profitabilit global environment achieved by
y change employing
more efficient
technologies

Venkateswarl Working Evaluate the India Overall Most of the

u (2014) Capital financial health of Indian cement
Manageme cement industry Z cement producing
nt of score analysis and companies in
Panyam mineral India has been
Cements industry caught in a
and vicious down
Mineral cycle facing a
Industries threat to their
Limited viability
(PCMIL)

17
Ariful Hoque, Working Analysis of working India 21 Paper fifty percent of
A Mia, R Capital capital management mills the executives
Anvar, (2015) Manageme in paper industry followed
nt and budgetary
Profitabilit method in
y: A Study planning
on Cement working capital
Industry in and working
Bangladesh capital
management
was inefficient
due to sub-
optimum
utilization of
working capital

Govt. Reports
and Pub. , 11

Indian Studies,
32
International
Studies , 19

Figure 3: Percentage of Literature Reviewed

4.1 Research Gap

This present study is conducted on the profitability of the cement industry, considering the
cement manufacturing units from the state of Rajasthan. As a matter of fact this is not a new
area to be researched, rather a number of studies were conducted on this topic in the recent
past, and then again this present research will bring about some of the financial perils which
are not apparently touched in the previous studies. It has been seen from the literatures of
various authors regarding the working capital and its impact on profitability of various

18
industrial sectors. Though few studies are found on different dimensions of working capital
and profitability of many industrial sectors, none of these studies covered trends in working
capital and trends profitability of cement industry altogether. In a fast developing economy like
India, there is always large possibility of expansion of cement industry. In order to fulfill this
gap, the researcher has tapped this area as his research topic.

5.1Relevance of the Study

The study has academic and practical significance. It helps the academicians and researchers to
develop new ideas for future study. The study focuses on the performance of profitability of
cement industry, which may interest not only those who are interested in manufacturing
cement or related products but also others to see the process of change within the industry.

This study will be useful to the management to take investment decisions and anticipate future
conditions, identification of its areas of strength and weakness, and to take appropriate
decisions for the maximization of its intrinsic value. The study will help the policy makers in
the evaluation of profitability of cement industry. The study may also be useful to creditors and
the financial institutions in their effective credit policy formulation. The study will act as a
guide to investors in their investment decisions.

6.1 Objective of the Study

1. Examining the structure of working capital in the select cement companies;

2. Evaluating the performance of sampled cement companies on the basis of liquidity ratio and
activity ratio.

3. Investigating into the utilization of cash resources in select cement companies;

4. Identifying the pattern of financing working capital needs in select cement companies; and

5. Making suggestions for the efficient management of working capital in select cement
companies.

7.1 .Hypothesis of the Study

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There is a relationship between the working capital of a company and its profitability and
quality of earnings Growth of a company depends on its internal factors, namely, financial
policies relating to capital structure and operating performance levels reflected by its profit
margin.

Hypothesis 1

Ho: There is no significant difference of the mean values of liquidity ratios among the cement
companies with respect to between years and between companies.

Ho: There is a significant difference of the mean values of liquidity ratios among the cement
companies with respect to between years and between companies.

Hypothesis 2

H0: There is no significant difference of the mean values of activity ratios among the cement
companies with respect to between years and between companies.

H1: There is a significant difference of the mean values of activity ratios among the cement companies
with respect to between years and between companies.

8.1 Research Methodology

Type of research – The type of research will be used will be exploratory type of research in
nature. Exploratory research “aims at finding a solution for an immediate problem facing a
society, or an industrial/business organization, whereas Descriptive research is mainly
concerned with generalizations and with the formulation of a theory”. Exploratory research is
considered to be non-systematic inquiry and it is usually launched by a company, agency or an
individual in order to address a specific problem.

Sampling Design

Population Size –The population of the study will be the total number of companies that are
engaged in cement manufacturing in the state of Rajasthan.

Sampling Element – The sampling element will be taken from the above mentioned population
of cement manufacturing units in the state of Rajasthan.

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Sampling Technique – Considering the production of cement as a common phenomenon Non
Probability Sampling technique is used in this present research and for the purpose of
exploratory research financial statements of respective companies are being analyzed.

Sample size- As a matter of fact this present study is based on secondary data, the researcher
has considered 5 cement manufacturing units of Rajasthan, the detail of the companies is given
as under:

1. Ambuja Cement Limited, Pali

2. ACC Limited, Bundi
3. Binani Cement Limited, Sikar
4. J.K. Lakshmi Cement Ltd., Sirohi
5. Ultra Tech Cement Ltd., Chittorgarh

Data Collection: The Annual published financial reports of the companies will used for
random checking of the data. The Stock Exchange Official Directory, Mumbai and Kotharis’
Industrial Directory of India will also be used to supplement the data wherever necessary. The
Reserve Bank of India Bulletin, CMIE Monthly and Yearly Reports on Corporate Sector,
Industrial Sector and Economic Intelligence Service will also be used. The Fortnightly issues
of "Cement News Digest" and Quarterly journal published by the Cement Manufacturers'
Association (CMA) will be used as a data source.

Tools for data analysis-

 The data have been analyzed with the help of different accounting and statistical
techniques such as ratios, ‘f’ test, co-efficient of variation, growth rates, inter-
correlation analysis, multiple regression analysis, and least square analysis.
 The ratio analysis has been employed to find out the liquidity and activity positions of
the cement industry. ‘f’ test has been employed to find if there is any significant
difference in the liquidity and activity positions among the select cement companies.
Analysis of variance has been applied to find out whether the variables like deposits,
loans, advances and ratios differ significantly or not among the banks and years. The
‘F’ value is calculated and is compared with the table values. If the calculated value of
‘F’ is greater than the table value at pre-assigned levels of significance, the null
hypothesis is rejected otherwise it is accepted.
 The co-efficient of variation has been employed to test the consistency of the liquidity
and activity ratios of the cement companies.

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  The inter-correlation analysis has been employed to find out the interrelationship among
the liquidity, and activity ratios of the cement companies over the study period.
 The multiple regression analysis has been used to find out the impact of the activity
ratios on the profitability ratios of the cement companies.
 The least square analysis has been employed to find out the anticipated trend value of
the working capital of the cement companies. For the purpose of carrying out the
analysis, the data available in the financial statements have been regrouped and
rearranged.

9.1 Scheme of Chapters

Chapter 1: Scenario of Cement Industry in India

Chapter 2: Working Capital Avenues in Cement Industry

Chapter 3: Literature Review

Chapter 4: Research Methodology

Chapter 5: Data Analysis and Interpretation

Chapter 6: Findings, Suggestion and Conclusion

Bibliography

Appendices:

Appendix 1: Relevant Data Tables

Appendix 2: Published Research Work

22
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