CHAPTER- 1

INTRODUCTION TO
THE STUDY

1 CHAPTER 1
INTRODUCTION
  
 
  

1.1 Introduction to the Study

Managing credit risk in today's liberalized market situation is a difficult
challenge. Increasing market volatility has brought out the need for smart
analytics and specialized applications in credit risk management. A well-defined
policy framework will ensure required assistance & help is provided to the
operational staff to identify the possible risk event, assign a probability the
likelihood of each event , quantify the probable loss, assess the acceptability of
the exposure, and determine the price and value of the risk, and monitor them to
the level where that are paid off.
Banks in India for managing credit and credit risk use several procedures to
evaluate a proposal through the Standard tools of project financing, computing
maximum permissible limits, assessing management capabilities and prescribing a
ceiling for an industry exposure. As banks are making a shift into a new high
powered world of improving financial operations and trading, with new risks, the
need an importance for more sophisticated and versatile instruments which have
the capacity to firstly, assess risk, monitor it and finally control risk exposures. It
is, therefore, time that banks managements equip them fully to combat with the
demands of creating tools and systems capable of assessing, monitoring and
controlling risk exposures in a more scientific manner.

Credit Risk
Credit Risk Credit risk is the risk due to which the uncertainty of the ability of a
counterpart (also called a debtor or credit) to meet its obligations. There are plenty
of stakeholder and players who contribute to the occurrence and intensity of credit
risk, from individuals to sovereign governments, combined with different types of
obligations, from auto loans to derivatives transactions, credit risk can be
identified in many forms. Institutions constantly manage it in numerous ways. It
has been estimated that credit risk is carried around 70% and the remaining 30%
constantly is shared between the other two main risks, namely market risk
(change in market price and operational risk, i.e. failure of internal controls, etc.).
Quality borrowers can be classified in two tiers i.e., Tier I borrowers & Tier II
borrowers The Tier - I were easily able to access the capital market directly
without having to adopt the debt route. Therefore, the credit route is now more
open to lesser mortals (Tier II borrowers). With margin levels going down, banks
cannot absorb the level of credit losses. Even in banks that regularly adjust credit
policies and simplify credit processes, it is a real challenge for credit risk
managers to correctly identify sources of risk concentration, quantify the extent of
risk assumed, identify opportunities for diversification and balance the risk. risk-
return trading. in your loan portfolio. Bank management should strive to embrace
the notion of 'uncertainty and risk' on their balance sheets and instill the need to
approach credit management from a 'risk perspective' throughout the system,
putting well-written strategies in the hands of operational staff. . with due material
 support for its successful implementation. Even though it natural to have credit
losses fluctuate over time and with economic conditions, there is (ceteris paribus)
a statistically measured long-term average loss level. Losses can be divided into
two categories, that is, expected losses (EL) and unexpected losses (UL). Once
the distribution of credit losses is constructed at the bank level, the economic
credit capital is determined simply by the bank's tolerance for credit risk, that is,
the bank must decide how much capital it wants to hold to avoid insolvency due
to credit losses. unexpected during the period. next year. A safer bank must have
sufficient capital to bear losses that are larger and rarer, that is, that extend further
down the loss distribution queue. In practice, therefore, the choice of the
confidence interval in the loss distribution corresponds to the bank's target credit
rating (and the related probability of default) for its own debt.
Credit risk may be in the following forms:
* In case of the direct lending
* In case of guarantees and the letter of the credit
* In case of the treasury operations
* In case of the securities trading businesses
* In case of the cross border exposure

1.2 Need and Importance of study

 Credit risk management is one of the key components of financial decision
making.

 It marks its significance because management must see that an excessive

investment in current assets should protect the company from liquidity shortage
problems.

 Current assets are taken into account to determine the liquidity position of the
company.

 The objective of credit risk management is to help manage the current assets and
current liabilities of the company in such a way that a satisfactory level of
working capital is maintained.

 If the business cannot maintain a satisfactory level of working capital, it is likely

to become insolvent and even be forced to file for bankruptcy.
 1.3 Objectives of the study -

1.  To analyze the credit policies of ZUARI CEMENT LTD

 
 
2.  To find out debtor turnover ratio and average collection period.
 
 
3.  To find out whether it is profitable to extend credit period or reduce credit
Period.
 
4.  To suggest measures to increase profits.
 
5.  How all areas of business are influenced by Credit Risk Management

1.4 Research Method

 By using financial ratios, trend analysis and Performing sensitivity analysis on
the compnay’s different risks we will able to perform an analysis can evaluate a
firm's creditworthiness position
 Financial ratios
 Sensitivity Analysis
 Trend analysis

1.4.1 Research Design

The Information derived for the analysis and interpretation is from Zuari cement's
annual reports of the company and information and primary financials provided
by executives of the organization that is secondary forms of data. DDR, ACP and
Increase in credit period analysis are the Techniques used for calculation purpose.
The data calculated and interpreted is presented by using tables, graphs. 
 
  
 
1.4.2 Data Sources

Primary data-
Primary data is collected from the Executives of the organization

Secondary data-
Secondary data has been collected and curated from the annual reports, books,
magazines and websites.
1.4.3 Statistical tools and Techniques

 Financial ratios
 Sensitivity Analysis
 Trend analysis

1.5 Scope of the study

 The scope of the study is limited to the collection of financial data published in
the company's annual reports each year.

 Analysis is done to suggest possible solutions. The study is carried out over 5
years (2016-20).

 Credit risk is the risk that arises from the uncertainty of a debtor's ability to meet
its contractual obligations.

 Credit risk could come from both on- and off-balance sheet transactions.

 An institution is also exposed to credit risk from various financial instruments,

such as trade finance products and acceptances, currencies, financial futures,
swaps, bonds, options, commitments and guarantees.

 This study is restrained to only Zuari cement

 1.6   Chapterisation
1.6.1 Chapter I Introduction
The FIRST CHAPTER consists of an introduction to the study which includes the
need and importance of the study, objectives, research methodology, research
design, data sources, sample design- sample size, sample technique, tools &
techniques used for data analytics, the scope of the study and chapterization.
1.6.2 Chapter II Review of literature
The SECOND CHAPTER consists of a Review of literature that reflects the
theoretical data of the study and previous studies done on the topic.
1.6.3 Chapter III Industry and company profile
The THIRD CHAPTER consists of an introduction to industry, present scenario
of the industry, pestal analysis and company profile which contains the
information about the company where the project has been conducted and
includes the history, services being offered, number of employees working and
various departments in the organization.
1.6.4 Chapter IV Data Presentation, Analysis, and Interpretation
The FOURTH CHAPTER consists of Data Presentation, Analytics, and
Interpretation based on collected data.
1.6.5 Chapter V Findings, suggestions, and conclusions
The FIFTH CHAPTER consists of findings, conclusions, and Limitations along
with suggestions.
CHAPTER- II
LITERATURE
REVIEW
 
  CHAPTER-2

LITERATURE REVIEW
 
 

1.7 Meaning and definition

Good risk management at a strategic level helps protect an organization’s
reputation, safeguard against financial loss, minimize disruption to services and
increase the likelihood of achieving business objectives successfully.
This also gives assurance on how an organization’s business is managed and at
the same time will satisfy any compliance requirements of the organization, where
an internal control mechanism is established. Internal control includes-
●        The establishment of clear business objectives, standards, processes and
procedures
●        Clear definition of responsibilities
●        Measurement of inputs, outputs and performance outcomes in relation to
objectives
●        Performance Management
●        Financial controls over expenditure and budget.

What does it require?

●        The establishment and understanding of a risk management policy and
framework
●        The identification, assessment and judgement of threats to the achievement
of clear business objectives
●        Effecting the right action to anticipate and mitigate against risk - this
includes establishing effective internal controls to counter key risks
●        Where necessary, to take reasonable and calculated risks based on well
informed management decisions
 ●        Balancing risks by design control to give reasonable assurance to contain
risks and offer value for money
●        Monitoring risks and reviewing progress
●        Quantifying risks by assessing any potential costs or benefits arising from
possible impact
●        Reporting on the above

1.8 Objectives /Functions/types

1.8.1 Objectives
It’s not unusual for a small business to both implement and abide by the rules of a
credit risk management policy. The goal is to set and maintain a balance between
the risks and rewards of extending credit. A business that both extends credit to its
customers and is itself a credit customer experiences both sides of a process that
works to ensure a company remains financially healthy
 Create a Decision-making Framework
Policy directives establish a clear, unbiased process for collecting information,
processing credit applications and dealing with slow paying customers or those
who stop paying entirely. A well-developed decision-making framework is vital
to detecting fraudulent applications, reducing the number of accounts in
collection, reducing write-offs and minimizing losses that can result from making
judgment calls, especially with customers having mid-range credit scores or a mix
of both timely and late payments.

 Establish a Communication Policy

Credit-based risk management communications focus on what and how you
distribute information to your customers and employees. External
communications that describe your credit policy and make sure customers
understand debt collection procedures can reduce late payments and default
accounts. Internal communications define company-approved methods for
distributing information, which for most companies includes both written and
electronic methods. Internal communications objectives also work to make sure
your employees receive timely and accurate information.

 Create Internal Accountability

 Even a well-thought out and communicated credit risk management plan won’t
work if your employees don’t take it seriously. Internal accountability objectives
focus on internal controls such as separation of duties, transaction audits and
mandatory authorizations that make sure employees in every department comply
with credit-risk management rules. For a business that extends credit to its
customers, accountability also refers to complying with federal consumer credit
regulations as required in the Sarbanes-Oxley Act and in the Credit Card
Accountability, Responsibility and Disclosure Act of 2009.
 Balance Risks with Good Customer Service
Balancing credit risks while providing superior customer service is a primary risk
management objective. Well-defined credit-related customer service standards are
vital to achieving this goal. These standards can include risk-based decision-
making options, such as increasing or decreasing interest rates or a required down
payment. This also means treating customers with respect and dignity no matter
what a credit decision might be.
1.8.2 Functions
Credit risk management is essential to the ongoing creditworthiness and day-to-
day financial functioning of a business. It is possible for a business to successfully
make sales but find itself unable to meet its day-to-day financial obligations
because it employs poor credit management practices. Credit management
involves several distinct functions that contribute to the financial health of a
successful business.

 Credit Checking
Most commercial enterprises are sales-driven, which is to say that a great
emphasis is placed on finding new customers and getting customers to place
product orders. The function of credit management in this process is to check the
creditworthiness of prospective new customers and continue to monitor the
creditworthiness of existing customers. It may be that some prospective customers
have such a bad credit rating that it is not worth doing business with them. Credit
management is also responsible for negotiating payment terms and conditions
with new and existing customers with the intention of minimizing the potential
exposure to bad debt. For example, if a customer orders products monthly but
only has a payment due every three months, credit managers might renegotiate the
credit terms offered to this customer if they suspect that the customer's credit
rating has lowered. Monthly terms, or even cash on delivery terms would
minimize the amount of outstanding bad debt owed by the customer.
 Invoices and Billing
Credit management is responsible for ensuring that invoices, statements and bills
are issued to customers, reflecting accurately the current status of the customer's
 account and the amounts and details of payments due. Invoices must be
dispatched early enough for the customer to have time to evaluate the details
contained in them and make payment by the due date. An important credit
management function is the checking of the details of invoices and statements for
accuracy. Inaccuracies could lead to the customer disputing the invoice, resulting
in a subsequent delay in payment, which would then adversely effect cash-flow.
 Credit Collection
Credit management officers are responsible for identifying bad debts and for
taking steps to recover bad debts. This can involve the renegotiation of lines of
credit (the cash-value of goods and services that will be supplied to the customer
on account), renegotiation of terms of payment for subsequent purchases, and the
negotiation of terms to repay currently outstanding amounts. Where a customer is
not willing or able to negotiate the repayment of a debt, credit management
officers may decide to pass the debt to commercial credit rating and credit
collection agencies. In extreme cases, civil actions are instigated, allowing the
courts to mandate the recovery of the debt.
1.8.3 Types

Figure 2.1 Types of Risk

Market demand risks: changes in demand leading to changes in pricing and/or

industry structure - says that it maintains a globally-diversified portfolio, with top-
3 positions in 80% of its markets, and that it trades in clinker, cement and other
products to take advantage of shifting demand between countries;
Legal and compliance risk: such as being found to have violated law covering
business conduct such as bribery, corruption, terrorism and unfair competition -
 maintains a comprehensive risk-based compliance programme with dedicated
resources, alongside comprehensive training;
Energy prices: the risk being that energy costs rise, or that certain alternative
fuels become unavailable - that fuel mix and energy efficiency are key areas of
focus for all plants, and that it uses ‘derivative instruments’ to hedge part of its
exposure to these risks;
Raw materials risk: ‘That raw materials cannot be supplied at economical cost
or suitable quality’ (eg sand and limestone) -says that ‘We apply a range of tactics
including strategic sourcing, changing input mixtures and maintaining minimum
long-term reserve levels. At Group level our R&D is devoted to finding ways to
mitigate this risk while at the same time lowering our environmental footprint, eg
by using waste-derived materials’;
Sustainability risk: ‘The cement industry is associated with significant negative
externalities, notably high CO2 emissions - By 2030 aims to reduce net CO2/tonne
of cement by 40% compared to 1990 levels, and advocates a carbon price, while
increasingly aiming the business towards sustainable products and solutions;
Political risk: Due to political instability in its operating markets
Talent risks: Does the company have enough of a ‘talent pipeline’ for its global
ambitions?
Cyber risk:  has established a Group cyber-security roadmap to protect critical
assets from cyber attacks and to improve its cyber resilience;
Goodwill and asset impairment: Significant under-performance of any unit says
it monitors units on a timely basis, or when a ‘triggering event materialises;’
Financial risks: Including liquidity, interest rates, foreign exchange and credit
risk, possibly causing a downgrade of the Group’s credit rating and the
availability and cost of future funding - buried deep in the Annual Report, it says
that a 1% change in interest rates would cost the group

Insurance risks: Not all risks can be insured -monitors its status to determine if
additional insurance is required;
Defined benefit pension risk: These pensions are volatile and the Group may
have to pay into them to ‘top them up’ - Where possible, has closed such pension
schemes and actively manages the remainders

1.9 Characteristics/Nature
There are three characteristics that define credit risk:
1. Exposure (to a party that may possibly default or suffer an adverse change in its
ability to perform).

2. The likelihood that this party will default on its obligations (the default
probability).

3. The recovery rate (that is, how much can be retrieved if a default takes place).

Note that, the larger the first two elements, the greater the exposure. On the other
hand, the higher the amount that can be recovered, the lower the risk.
All firms should devote significant attention and resources to credit risk
management for their own survival, profitability, and return on equity:

■ Survival. It’s a concern primarily for financial institutions for which large losses
can lead to bankruptcy, but even a nonfinancial corporation can have credit losses
that can cause bankruptcy.

■ Profitability. It sounds trivial to state that the less money one loses, the more
money one makes, but the statement pretty much summarizes the key to
profitability, especially of low‐margin businesses.

■ Return on equity. Companies cannot run their business at a sufficient return on

equity if they hold too much equity capital. Holding large amounts of debt capital
is not the solution either, because debt does not absorb losses and can introduce
more risk into the equation. The key to long‐term survival is a sufficiently high
amount of equity capital complemented by prudent risk management. 

NATURE OF CREDIT POLICY-

A firm’s investment in accounts receivable depends on –
a) The volume of credit sales, and
b) The collection period
For example; if a firm’s credit sales are Rs. 30, 00,000 per day and customers, on
an average, take 45 days to make payment then the firm’s average investment in
accounts receivable is- Daily credit sales x ACP
30, 00,000 x 45 = 1, 350, 00,000
The investment in receivables may be expressed in terms of cost of sales instead
of sales value. The volume of credit sales is a function of the firm’s total sales
and the % of credit sales to total sales. Total sales depends on market size, firm’s
share, product quality, intensity of competition, economic condition etc. The
financial manager hardly has any control over these variables. The % of credit
 sales to total sales are mostly influence by the nature of the business and industry
norms.
They required the customers to make payments at the time of delivery. Some of
them even asked for the payment to be made in advance this were so, because of
the absence of genuine competition and a wide gap between demands for and
supply of cars in India. This position changed after economic liberalization which
led to intense competition. In contrast, the textile manufacture sold 2/3 rd of their
total sales on credit to the wholesale dealers. The textile industry is still going
through a difficult phase.

There are three characteristics that define credit risk:

1. Exposure (to a party that may possibly default or suffer an adverse change in its
ability to perform).

2. The likelihood that this party will default on its obligations (the default
probability).

3. The recovery rate (that is, how much can be retrieved if a default takes place).

Note that, the larger the first two elements, the greater the exposure. On the other
hand, the higher the amount that can be recovered, the lower the risk.

All firms should devote significant attention and resources to credit risk
management for their own survival, profitability, and return on equity:

■ Survival. It’s a concern primarily for financial institutions for which large
losses can lead to bankruptcy, but even a nonfinancial corporation can have credit
losses that can cause bankruptcy.

■ Profitability. It sounds trivial to state that the less money one loses, the more
money one makes, but the statement pretty much summarizes the key to
profitability, especially of low‐margin businesses.

■ Return on equity. Companies cannot run their business at a sufficient return on

equity if they hold too much equity capital. Holding large amounts of debt capital
is not the solution either, because debt does not absorb losses and can introduce
more risk into the equation. The key to long‐term survival is a sufficiently high
amount of equity capital complemented by prudent risk management. 

1.10 Importance
In recent years, a revolution is brewing in risk as it is both managed and
measured. There are seven reasons as to why certain surge in interest for credit
risk management:
1. Structural increase in bankruptcies:
Although the most recent recession hit at different time in different countries,
most statistics show a significant increase in bankruptcies, compared to prior
recession. To the extent that there has been a permanent or structural increase in
bankruptcies worldwide- due to increase in the global competition- accurate credit
risk management and  analysis become even more important today than in past.
2. Disintermediation:
As capital markets have expanded and become accessible to small and mid sized
firms, the firms or borrowers “left behind” to raise funds from banks and other
traditional financial institutions (FIs) are likely to be smaller and to have weaker
credit ratings.

3. More Competitive Margins:

In short, the risk-return trade off from lending has gotten worse. A number of
reasons can be cited, but an important factor has been the enhanced competition
for low quality borrowers especially from finance companies, much of whose
lending activity has been concentrated at the higher risk/lower quality end of the
market.
4. Declining and Volatile Values of Collateral:
Concurrent with the recent Asian and Russian debt crisis in well developed
countries such as Switzerland and Japan have shown that property and real assets
value are very hard to predict, and to realize through liquidation. The weaker (and
more uncertain) collateral values are, the riskier the lending is likely to be. Indeed
the current concerns about deflation worldwide have been accentuated the
concerns about the value of real assets such as property and other physical assets.
5. The Growth Of Off- Balance Sheet Derivatives:
In many of the very large U.S. banks, the notional value of the off-balance-sheet
exposure to instruments such as over-the-counter (OTC) swaps and forwards is
more than 10 times the size of their loan books. Indeed the growth in credit risk
off the balance sheet was one of the main reasons for the introduction, by the
Bank for International Settlements (BIS), of risk based capital requirements in
1993. Under the BIS system, the banks have to hold a capital requirement based
on the mark- to- market current values of each OTC Derivative contract plus an
add on for potential future exposure.
 6. Technology
Advances in computer systems and related advances in information technology
have given banks and FIs the opportunity to test high powered modeling
techniques. A survey conducted by International Swaps and Derivatives
Association and the Institute of International Finance in 2000 found that survey
participants (consisting of 25 commercial banks from 10 countries, with varying
size and specialties) used commercial and internal databases to assess the credit
risk on rated and unrated commercial, retail and mortgage loans.
7. The BIS Risk-Based Capital Requirements
Despite the importance of above six reasons, probably the greatest incentive for
banks to develop new credit risk models has been dissatisfaction with the BIS and
central banks’ post-1992 imposition of capital requirements on loans. The current
BIS approach has been described as a ‘one size fits all’ policy, irrespective of the
size of loan, its maturity, and most importantly, the credit quality of the borrowing
party. Much of the current interest in fine tuning credit risk measurement models
has been fueled by the proposed BIS New Capital Accord (or so Called BIS II)
which would more closely link capital charges to the credit risk exposure to retail,
commercial, sovereign and interbank credits.

1.11 Process
How to identify risks?
Step 1 - Clarity of Objectives
Be clear first of all about the overall objectives of the organisation and understand
how departmental objectives are aligned to the delivery of same. Think about-
●        What needs to be done
●        By when
●        Who is accountable for delivery.
Step 2 - Identify Risks
With your objectives in mind, ask the following questions-
1.      What can go wrong?
2.      How and why can it happen?
3.      What do we depend on for continued success?
4.  What could happen?
Consult with staff and others as appropriate and consider a range of possible
scenarios including the best and worst cases. Be as creative with this process as
possible. Consider the cause and effect' and scope of the risk and state as clearly
as possible to avoid misunderstanding and misinterpretation. Try to quantify
where possible based on what the effect might be.
Go back to Step 1 above and do the same for external risks by considering the
relationship between the organisation and its wider environment and follow the
steps above. Consider potential external cause of business disruption, issues
affecting relationship with partners, suppliers and any possible changes in
government policy and legislation.
 
Step 3 - Assess Risks
●        Identify existing controls and their effectiveness
●        Assess what other controls may be necessary
●        Determine likelihood / impact - use a bespoke template-
o    Likelihood of risk occurring is used as a qualitative description of probability
or frequency
o    Impact is the outcome of the risk impacting and is expressed qualitatively or
quantitatively, i.e. being a loss, injury, disadvantage or gain. NB - there may be a
range of possible outcomes.
●        Set out a realistic timeframe for managing / mitigating risk.
Step 4 - Address Risks
This involves practical steps to managing and controlling risks. Think about-
●        what actions or responses are required to control risks
●        what are the associated cost of these actions
●        are the costs proportionate to the risk that it is controlling
●        What information is needed to make an informed decision to accept,
manage, avoid, transfer or reduce the risks
●        Is it better to work to eliminate or innovate through taking reasonable
calculated risks.
Step 5 - Review, Quantify and report Risks
Although policy may dictate a review and half yearly update should be enacted,
risk owners need to regularly review to ensure there is ongoing relevant
management of risks
 Advice should be sought where quantification / confirmation is needed, i.e.
Finance or Audit Department
Build into the current reporting structure via the business planning round. Where
key risks need to be considered, ensure it is given priority within the agreed
framework.
Risk Defined
Risk- is the actual exposure of something of human value to a hazard and is often
regarded as the product of probability and loss - Source- Smith K 2001;
Environmental Hazards Assessing Risk and Reducing Disaster- London-
Routledge- 6 -7.
Risk Assessment- The evaluation of a risk to determine its significance, either
quantitatively or qualitatively.
Risk Management- Determines the levels at which risk acceptability is set and
methods of risk reduction are evaluated and applied.
Resilience- The ability at every relevant level to detect, prevent and, if necessary
handle disruptive challenges. Source- CCS Resilience
Business Continuity- A proactive process which identifies the key functions of an
organization and the likely threats to those functions; from this information plans
and procedures which ensure that key functions can continue, whatever the
circumstances, can be developed.

1.12 Methods

CREDIT POLICIES  -
 The first decision area is credit policies;-
The credit policy of a firm provides the frame work to determine –
 a)  whether or not to extend credit to a customer and
 b)  How much credit to extend.
The credit policy decision of firm has two broad dimensions are;
 CREDIT POLICY VARIABLES- 
 In establishing an optimum credit policy.  The financial manager must consider
the important decisions variables which influence the level of receivables.
  The major controllable decision variable include the following – 
●       Credit standards
●       Credit analysis
●       Credit terms
●       Collection policies and procedures
 
CREDIT STANDARDS
 The term credit standards represent the basic criteria for the extension of credit to
customers. The quantitative basic of establishing credit standards or
factors such as credit  rating, credit reference, average payment period and certain
financial ratio’s since we are  Interested in illustrating the trade – off between
benefit and cost to the firm as a whole. We do not consider here these individual
components of credit standards. To illustrate the effect,
   We have divided the overall standards into –
 a)  Tight or restrictive and 
 b)  Liberal or non- restrictive i.e., to say our aim is to show what happens to
the trade-off
 when standards are relaxed or alternatively, tighten.
 The trade – off with reference to credit standards covers –
 i)    The collection cost
 ii)  The  average collection period  or investment in receivables
 iii) Levels of bad debts losses and
 (iv) Level of sales.
These factors should be considered while deciding whether to relax credit
standards or not. 
●       If standards are relaxed, it means more credit will be extended while. If
credit standards are tightened. Less credit will be extended.
 The implication of four factors are elaborated below – 

Table 2.1 Effects of Standards

EFFECT OF STANDARDS
CREDIT ANALYSIS
Credit standards influence the quality of the firm’s customers. There are two
aspects of the quality of customers –
The time taken by customers to repay credit obligations, The default rate. The
ACP determines the speed of payment by customers. It measures the number of
days for which credit sales remains outstanding. The longer the ACP, he higher
the firm’s investment in accounts receivables.
DEFAULT RATE - Can be measured in terms of bad debts losses ratio’s – the
proportion of uncollected receivable. Bad debts losses ratio indicates default risk.
DEFAULT RISK - Is the likelihood that a customer will fail to repay the credit
obligation. On the basis of past practice and experience, the financial or credit
manager should be able to form a reasonable judgment regarding the chance of
default. To estimate the probability of default, the financial or credit manager
should consider
3 c’s –
a) Character
b) capacity
c) Conditions
CHARACTER--
Refers to the customers willingness to pay the financial or credit manager should
Judge whether the customer will make honest efforts to honor their credit
obligation. the moral factor is considerable importance in credit evaluation in
practice.
CAPACITY -
Refers to the customers ability to pay can be judged by assessing the customers
capital and assets which he may offer as security capacity is evaluated by the
financial position of the firm’s as indicated by analysis of ratio’s and trends in
firm’s cash and working Capital position. The financial position or credit manager
should determine the real worth of assets offered as collateral (security ).

CONDITIONS --
Refers to the prevailing economy and other conditions which may effects the
customers ability to pay. Adverse economic conditions can affect the ability or
willingness of a customer to pay. An experienced financial or credit manager will
be able to judge the extent and genies ness to which the customer’s ability to pay
is effected by the economic conditions. Information on these variables may be
collected from the customers themselves, their published financial statement and
outside agencies which may keeping credit information about customers. A firm
should use this information in preparing categories of customers according to
their credit worthiness and default risk. This would be an important input for the
financial or credit manager in formulating its credit standards.The firm may
categorized its customers at least, in the following 3 – categories- GOOD
ACCOUNTS - that is financially strong customers. BAD ACCOUNTS - that is
financially very weak, high risk customers. MARGINAL ACCOUNTS - that is
customers with moderate financial health and risk (falling between good and bad
accounts ).
The firm will have no difficulty in quickly deciding about the extension of credit
to Good accounts and Rejecting the credit request of bad accounts. Most of
the firm’s time will be taken in evaluating marginal accounts. i.e., customers who
are not financially very strong but are also not so bad to be rightly rejected. A
firmcan expand its sales by extending credit to marginal account’s but the firms
cost and bad debts losses may also increases. Therefore credit standards should be
relaxed upon the point where incremental return equals incremental cost ( IR =
IC ).

Figure 2.2 Exposure to risk in the market

CREDIT TERMS--
The 2nd decision area in accounts receivable management is the credit terms. After
the credit standards have been established and the worthiness of the customers has
been assessed the management of a firm must determine the terms and conditions
on which trade credit terms. These relate to the repayment of the amount under
the credit sale. Credit term is the stipulation under which the firm sells on credit to
customers are called credit terms.
These stipulations include;-
The credit period
Cash discount
Cash discount period
CREDIT PERIOD;-
The length of time which credit is to customers is called the credit period. It is
generally stated in net terms of a net date. A firms credit period may governed by
the industry norms. But depending on its objective the firm can lengthen the credit
period. On the other hand, the firm may lengthen its credit period if customers are
defaulting to frequently and bad debts losses are building up.
A firm lengthens to credit period to increases its operating profit through
expanding sales however, there will be net increases in operating profit when the
cost of extended credit period is less than the incremental operating profit. With
increased sales and extended credit period receivable would increases.
Incremental sales result in incremental receivables and Excising customer will
take more time to repay credit obligations i.e. the average Collection period will
increase. The 2nd component of credit terms is the credit period. The expected
effect of an increase in the credit period is summarized in table below.

Table 2.2 Effect in credit Period

EFFECT OF INCRESE IN CREDIT PERIOD

A reduction in the credit period is likely to have an opposite effect. The above
table indicates the credit period decision.
B) CASH DISCOUNT;-
A cash discount is a payment offered to customers to induce them to repay credit
Obligations with in a specified period of time which is less than the normal credit
period. It is usually expressed as a percentage of sales cash discount terms
indicate the rate of discount and the period for which it is available. It the
customer does not avail the offer, he must make payment with in the normal
credit period. Credit term would include.Rate of cash discount .The cash discount
period.The net credit period
 A firm uses cash discount as a tool to increases sales & accelerates collections
from customers. Thus the level of receivable & associated costs may be reduced
the cost involved in the discounts taken by customers. The effects of increasing
the cash discounts are summarized in below table.
The effect of decreasing cash discount will be exactly opposite.

Table 2.3 effects of increase in Cash discount

EFFECTS OF INCREASE IN CASH DISCOUNT

The above table indicates cash discount decision

CASH DISCOUNT PERIOD-
Which refers to the duration during which the discount can be availed of these
terms are usually written in abbreviation for instance 2/10 net 30 i.e. 2% 10 days
(time available) 30 days (maxi)

COLLECTION POLICY & PROCEDURES-

A collection policy is needed because all customers do not pay the firm’s bill in
time, some customers are slow payers while some are non payers. The collection
effort should, therefore aim at accelerating collections from slow payers and
reducing bad debts losses. A collection policy should ensure prompt and regular
collection. Prompt collection is needed for fast turn over or working capital
keeping collection costs & bad debts within limits & maintaining collection
efficiency’s. Regularity in collection keeps dr’s alert & they tend to pay their
dues promptly.
The collection policy should lay down clear cut collection procedures. The
collection procedures for past dues or delinquent accounts should also be
established in unambiguous terms. The slow paying customers should be handled
very tactfully, some of them maybe permanent customers the collection process
initiated quickly. With out giving any chance to them may antagonize them, and
the firm may loss them to competitors.
The accounting dept maintains the credit records and information it is responsible
for collection, it should consult the sales dept before initiating an action against
non paying
customers similarly the sales dept must obtain past information about customers
from the Accounting dept before granting credit to him. Through collection
procedure should be firmly established, individual cases should be dept with on
their merits. Some customers may be temporarily in tight financial position and in
spite of their best intention may not be able to pay on due date this may be due to
recessionary –conditions, or other factors beyond the contract of the customers,
such cases need special consideration. The collection procedure against them
should be initiated only after they have over come their financial difficulties and
do not intend to pay promptly.

CREDIT GRANTING DECISION

Once a firm has assessed the credit worthiness of a customer, it has to decide
whether or not. Credit should be granted. The firm should use the NPV (net
present value) rule to make the decision, if the NPV is positive, credit should be
granted. If the firm chooses not to grant any credit, the firm avoids the possibility
of any losses but losses the opportunity of increasing its profitability. On the other
hand if it grants credit then it will benefit if the customer pay’s. There is some
profitability that a customer will default, and then the firm may lose its
investment. The expected net pay-off of the firm is the differences between the
present values of net benefit and present value of the expected loss.
 Figure 2.3 Credit Granting Decision

CREDIT LIMIT--
A credit limit is a maximum amount of credit which the firm will extend at a
point of time it indicates the extent of risk taken by the firm by supplying goods
on credit to a customer. Once the firm has taken a decision to extend credit to the
applicant, the amount and duration of the credit has to be decided. The decision
on the magnitude of credit will depend upon the amount of contemplated scale
and the customer’s financial strength in case of customers who are frequent
buyers of the firm’s goods, a credit limit can be establish. This would avoid the
need to investigate each order from the customers. Depending on the regularity of
payment, the line of credit for a customer can be fixed on the basis of his normal
buying pattern... The credit limit must be reviewed periodically. If tendencies of
slow paying are found. the credit can be revised downward.

1.13 Models
CREDIT RISK MEASUREMENT APPROACHES:
1. CREDIT SCORING MODELS
Credit Scoring Models use data on observed borrower characteristics to calculate
the probability of default or to sort borrowers into different default risk classes.
By selecting and combining different economic and financial borrower
characteristics, a bank manager may be able to numerically establish which
factors are important in explaining default risk, evaluate the relative degree or
importance of these factors, improve the pricing of default risk, be better able to
screen out bad loan applicants and be in a better position to calculate any reserve
needed to meet expected future loan losses.
To employ credit scoring model in this manner, the manager must identify
objective economic and financial measures of risk for any particular class of
borrower. For consumer debt, the objective characteristics in a credit -scoring
model might include income, assets, age occupation and location. For corporate
debt, financial ratios such as debt-equity ratio are usually key factors. After data
are identified, a statistical technique quantifies or scores the default risk
probability or default risk classification.
Credit scoring models include three broad types: (1) linear probability models, (2)
logit model and (3) linear discriminant model.
LINEAR PROBABILITY MODEL:
The linear probability model uses past data, such as accounting ratios, as inputs
into a model to explain repayment experience on old loans. The relative
importance of the factors used in explaining the past repayment performance then
forecasts repayment probabilities on new loans; that is can be used for assessing
the probability of repayment.
Briefly we divide old loans (i) into two observational groups; those that defaulted
(Zi = 1) and those that did not default (Zi = 0). Then we relate these observations
by linear regression to s set of j casual variables (Xij) that reflects quantative
information about the ith borrower, such as leverage or earnings. We estimate the
model by linear regression of:
Zi = ΣβjXij + error
Where βj is the estimated importance of the jth variable in explaining past
repayment experience. If we then take these estimated βjs and multiply them by
the observed Xij for a prospective borrower, we can derive an expected value of
Zi for the probability of repayment on the loan.
LOGIT MODEL:
The objective of the typical credit – or loan review model is to replicate
judgments made by loan officers, credit managers or bank examiners. If an
accurate model could be developed, then it could be used as a tool for reviewing
and classifying future credit risks. Chesser (1974) developed a model to predict
noncompliance with the customer’s original loan arrangement, where non-
compliance is defined to include not only default but any workout that may have
been arranged resulting in a settlement of the loan less favorable to the tender than
the original agreement.
Chesser’s model, which was based on a technique called logit analysis, consisted
of the following six variables.
X1 = (Cash + Marketable Securities)/Total Assets
X2 = Net Sales/(Cash + Marketable Securities)
X3 = EBIT/Total Assets
X4 = Total Debt/Total Assets
X5 = Total Assets/ Net Worth
X6 = Working Capital/Net Sales
The estimated coefficients, including an intercept term, are
Y = -2.0434 -5.24X1 + 0.0053X2 – 6.6507X3 + 4.4009X4 – 0.0791X5 –
0.1020X6
Chesser’s classification rule for above equation is If P> 50, assign to the non
compliance group and If P≤50, assign to the compliance group.
LINEAR DISCRIMINANT MODEL:
While linear probability and logit models project a value foe the expected
probability of default if a loan is made, discriminant models divide borrowers into
high or default risk classes contingent on their observed characteristic (X).
Altman’s Z-score model is an application of multivariate Discriminant analysis in
credit risk modeling. Financial ratios measuring probability, liquidity and
solvency appeared to have significant discriminating power to separate the firm
that fails to service its debt from the firms that do not. These ratios are weighted
to produce a measure (credit risk score) that can be used as a metric to
differentiate the bad firms from the set of good ones.
Discriminant analysis is a multivariate statistical technique that analyzes a set of
variables in order to differentiate two or more groups by minimizing the within-
group variance and maximizing the between group variance simultaneously.
Variables taken were:
X1::Working Capital/ Total Asset
X2: Retained Earning/ Total Asset
X3: Earning before interest and taxes/ Total Asset
X4: Market value of equity/ Book value of total Liabilities
X5: Sales/Total Asset
The original Z-score model was revised and modified several times in order to
find the scoring model more specific to a particular class of firm. These resulted
in the private firm’s Z-score model, non manufacturers’ Z-score model and
Emerging Market Scoring (EMS) model.
3.2 New Approaches
TERM STRUCTURE DERIVATION OF CREDIT RISK:
One market based method of assessing credit risk exposure and default
probabilities is to analyze the risk premium inherent in the current structure of
yields on corporate debt or loans to similar risk-rated borrowers. Rating agencies
categorize corporate bond issuers into at least seven major classes according to
perceived credit quality. The first four ratings – AAA, AA, A and BBB – indicate
investment quality borrowers.
MORTALITY RATE APPROACH:
Rather than extracting expected default rates from the current term structure of
interest rates, the FI manager may analyze the historic or past default experience
the mortality rates, of bonds and loans of a similar quality. Here p1is the
probability of a grade B bond surviving the first year of its issue; thus 1 – p1 is the
marginal mortality rate, or the probability of the bond or loan dying or defaulting
in the first year while p2 is the probability of the loan surviving in the second year
and that it has not defaulted in the first year, 1-p2 is the marginal mortality rate
for the second year. Thus, for each grade of corporate buyer quality, a marginal
mortality rate (MMR) curve can show the historical default rate in any specific
quality class in each year after issue.
RAROC MODELS:
Based on a banks risk-bearing capacity and its risk strategy, it is thus necessary —
bearing in mind the banks strategic orientation — to find a method for the
efficient allocation of capital to the banks individual siness areas, i.e. to define
indicators that are suitable for balancing risk and return in a sensible manner.
Indicators fulfilling this requirement are often referred to as risk adjusted
performance measures (RAPM).
RARORAC (risk adjusted return on risk adjusted capital, usually abbreviated as
the most commonly found forms are RORAC (return on risk adjusted capital),
Net income is taken to mean income minus refinancing cost, operating cost, and
expected losses. It should now be the banks goal to maximize a RAPM indicator
for the bank as a whole, e.g. RORAC, taking into account the correlation between
individual transactions. Certain constraints such as volume restrictions due to a
potential lack of liquidity and the maintenance of solvency based on economic
and regulatory capital have to be observed in reaching this goal. From an
organizational point of view, value and risk management should therefore be
linked as closely as possible at all organizational levels.
OPTION MODELS OF DEFAULT RISK (kmv model):
KMV Corporation has developed a credit risk model that uses information on the
stock prices and the capital structure of the firm to estimate its default probability.
The starting point of the model is the proposition that a firm will default only if its
asset value falls below a certain level, which is function of its liability. It
estimates the asset value of the firm and its asset volatility from the market value
of equity and the debt structure in the option theoretic framework. The resultant
probability is called Expected default Frequency (EDF). In summary, EDF is
calculated in the following three steps:
i) Estimation of asset value and volatility from the equity value and volatility of
equity return.
ii) Calculation of distance from default
iii) Calculation of expected default frequency
Credit METRICS:
It provides a method for estimating the distribution of the value of the assets n a
portfolio subject to change in the credit quality of individual borrower. A
portfolio consists of different stand-alone assets, defined by a stream of future
cash flows. Each asset has a distribution over the possible range of future rating
class. Starting from its initial rating, an asset may end up in ay one of the possible
rating categories. Each rating category has a different credit spread, which will be
used to discount the future cash flows. Moreover, the assets are correlated among
themselves depending on the industry they belong to. It is assumed that the asset
returns are normally distributed and change in the asset returns causes the change
in the rating category in future. Finally, the simulation technique is used to
estimate the value distribution of the assets. A number of scenario are generated
from a multivariate normal distribution, which is defined by the appropriate credit
spread, the future value of asset is estimated.
CREDIT Risk+:
CreditRisk+, introduced by Credit Suisse Financial Products (CSFP), is a model
of default risk. Each asset has only two possible end-of-period states: default and
non-default. In the event of default, the lender recovers a fixed proportion of the
total expense. The default rate is considered as a continuous random variable. It
does not try to estimate default correlation directly. Here, the default correlation is
assumed to be determined by a set of risk factors. Conditional on these risk
factors, default of each obligator follows a Bernoulli distribution. To get
unconditional probability generating function for the number of defaults, it
assumes that the risk factors are independently gamma distributed random
variables. The final step in Creditrisk+ is to obtain the probability generating
function for losses. Conditional on the number of default events, the losses are
entirely determined by the exposure and recovery rate. Thus, the distribution of
asset can be estimated from the following input data:
i) Exposure of individual asset
ii) Expected default rate
iii) Default ate volatilities
iv) Recovery rate given default

Merits/Demerits/Limitations
Demerits/Limitations

When a bank fails to put in place a good credit risk management, she will find
herself faced with a lot of problems and negative consequences associated to
them. There may be many interrelated problems but the most basic ones which are
so obvious and interrelated revolve around trying to be profitable, at the same
time trying to be solvent and trying to be liquid:

Losses or no profitability:
Profitability is the proof of an effective and well managed business. In this case, it
is an indicator of the bank‟s capacity to carry risk and / or to increase its capital
by revealing indicator of its competitiveness in the banking markets and the
quality of its management. The bank as a FI is into business like any other firm
with the purpose of making a profit. For this to be attained, losses have to be
minimized.

Capital inadequacy (insolvency):

Capital adequacy means the financial capability of the bank to meet up with its
financial obligations or uncertainties that may arise and thus will reduce the risk
that it may face to some extent. This is because its primary role or main function
is to absorb unexpected and exceptional losses that it might experience especially
in situations of uncertainty This way, if by giving out credit, the bank does not
carry out a good risk management, and the borrower fails to fulfill his or her
payments, this will lead to a shortage in capital (given uncertainty) and increase in
the risk because operationally speaking, the capital of a bank acts as an internal
insurance fund against uncertainty.

Lack of liquidity:
A more liquid bank will be more able to meet up with financial demands from its
customers and thus create more value. Banks as FI have as main service, the
creation of liquidity, but, this good can be destroyed by the behavior of individual
financial institutions .This being because when the monetization of the various
types of collaterals (such as land or capital) turns over slowly, the bank‟s liquidity
is lost.

Credit risk and financial distress

One of the bank‟s main reasons of fighting for a good credit risk management is
to avoid financial distress. The financial viability of a bank is very important for
its success. Managers are more and more being obliged to meet up with the
financial obligations and expectations, manage risks and increase shareholders
value.
some of these consequences include;
Loss of confidence especially if the customers suspect that there can be a
bankruptcy in the near future. Customers often need assurance that the bank can
be sufficiently stable to deliver on promise.
Loss in shareholders‟ value. - Demotivation of employees in a struggling firm as
they sense increased job insecurity and few prospects of advancement. -
Movement of best staff to posts in safer companies - Companies are forced to sell
off their profitable operations in an attempt to raise cash - The cost of paying for
lawyers fees, accountants‟ fees, court fees and management time increases. Credit
risk managers are then called upon to act appropriately by following the
company‟s policies when granting and recovering loans. If they default in their
duties, it can also lead to a default in loan repayment or recovering. This will lead
to capital inadequacy to meet up with the demands of customers (creditors) and
thus lead to other negative consequences.
Articles

Sharon Sophia (2013) Credit risk management is becoming increasingly

important element in Indian banks as its regulatory framework by BASEL II
makes banks compulsory to implement credit risk management. The study
attempts to identify the application and implementation of credit risk management
in banks. Survey method and MANOVA analysis is done to evaluate and identify
the implementation of credit risk management.

Natalija Konovalova , Ineta Kristovska & Marina Kudinska(2016)The article

proposes a model of credit risk assessment on the basis of factor analysis of retail
clients/borrowers in order to ensure predictive control of the level of risk posed by
potential clients in commercial banks engaged in consumer lending. The aim of
the study is to determine the level of risk represented by different groups (classes)
of retail clients (borrowers) in order to reduce and prevent credit risk in the future
as well as to improve the management of banking risks. The main results of the
study are the creation of a model of borrowers’ internal credit ratings and the
development of the methods of improving credit risk management in commercial
banks.

Ken Brown Peter Moles(2012) While the credit decision is relatively

straightforward in principle (a lender must decide whether to give credit or refuse
credit to a potential client), in practice it involves experience, judgement and a
range of analytic and evaluative techniques that are designed to determine the
likelihood that money will be repaid or, equally, that the money will be lost by the
credit not being able to repay.

MISS. ROOPA KURNE (2015) The Indian Banking Industry is making a great
advancement in terms of quality, quantity, expansion, diversification and is
keeping up with updated technology, ability, stability and thrust of financial
system, where commercial bank play very important role and emphasize a need of
strong effective control system with extra concerned for risk involved in the
business. Risk is inherent part of bank’s business. Effective risk management is
critical to any bank for achieving financial soundness.

Stephen Owusu Afriyie, Kong Yusheng, Li Kaodui, Ayamba Emmanuel Caesar

and Michael Owusu Akomeah(2018) Credit risk is the risk that a financial
institution will incur losses because the financial position of a borrower has
deteriorated to the point that the value of an asset (including off-balance-sheet
assets) is reduced or extinguished. The purpose of this work is to expatiate
strategies to mitigate challenges resulting from unpaid loans, which could be used
further in understanding the components of credit risk management (CRM)
system of commercial banks (CBs) in a less developed economy. This was
accomplished through the use of both primary (interviews) and secondary
(various relevant documents) information from CBs and key management
officials dealing with credit management. The investigation proved that credit risk
can be managed and minimized when formidable strategic approaches are
implemented and adhered to. This implies that the strategy operated by a bank is
an important consideration for a CRM system to be successful. Ghana, a less
developed economy, provides an excellent case for studying how CBs operating
in economies with less developed financial sector manage their credit risk.

Merton (1974) has applied options pricing model as a technology to evaluate the
credit risk of enterprise, it has been drawn a lot of attention from western
academic and business circles.Merton’s Model is the theoretical foundation of
structural models. Merton’s model is not only based on a strict and
comprehensive theory but also used market information stock price as an
important variance toevaluate the credit risk.This makes credit risk to be a real-
time monitored at a much higher frequency.This advantage has made it widely
applied by the academic and business circle for a long time.Other Structural
Models try to refine the original Merton Framework by removing one or more of
unrealistic assumptions.

Black and Cox (1976) postulate that defaults occur as soon as firm’s asset value
falls below a certain threshold. In contrast to the Merton approach, default can
occur at any time. The paper by Black and Cox (1976) is the first of the so-called
First Passage Models (FPM). First passage models specify default as the first time
the firm’s asset value hits a lower barrier, allowing default to take place at any
time. When the default barrier is exogenously fixed, as in Black and Cox (1976)
and Longstaff and Schwartz (1995), it acts as a safety covenant to protect
bondholders. Black and Cox introduce the possibility of more complex capital
structures, with subordinated debt.

Vasicek (1984) introduces the distinction between short and long term liabilities
which now represents a distinctive feature of the KMV model.Under these
models, all the relevant credit risk elements, including default and recovery at
default, are a function of the structural characteristics of the firm: asset levels,
asset volatility (business risk) and leverage (financial risk).

Kim, Ramaswamy and Sundaresan (1993) have suggested an alternative approach

which still adopts the original Merton framework as far as the default process is
concerned but, at the same time, removes one of the unrealistic assumptions of the
Merton model; namely, that default can occur only at maturity of the debt when
the firm’s assets are no longer sufficient to cover debt obligations. Instead, it is
assumed that default may occur anytime between the issuance and maturity of the
debt and that default is triggered when the value of the firm’s assets reaches a
lower threshold level. In this model, the RR in the event of default is exogenous
and independent from the firm’s asset value. It is generally defined as a fixed ratio
of the outstanding debt value and is therefore independent from the PD.The
attempt to overcome the shortcomings of structural-form models gave rise to
reduced-form models. Unlike structural-form models, reduced-form models do
not condition default on the value of the firm, and parameters related to the firm’s
value need not be estimated to implement them.

Jarrow and Turnbull (1995) assumed that, at default, a bond would have a market
value equal to an exogenously specified fraction of an otherwise equivalent
default-free bond
 Zhou (2001) attempt to combine the advantages of structural-form models – a
clear economic mechanism behind the default process, and the ones of reduced-
form models – unpredictability of default. This model links RRs to the firm value
at default so that the variation in RRs is endogenously generated and the
correlation between RRs and credit ratings reported first in Altman (1989) and
Gupton, Gates and Carty (2000) is justified.Lately portfolio view on credit losses
has emerged by recognising that changes in credit quality tend to comove over the
business cycle and that one can diversify part of the credit risk by a clever
composition of the loan portfolio across regions, industries and countries. Thus in
order to assess the credit risk of a loan portfolio, a bank must not only investigate
the creditworthiness of its customers, but also identify the concentration risks and
possible comovements of risk factors in the portfolio.

CHAPTER- III

INDUSTRY AND
COMPANY PROFILE
 2 CHAPTER – 3

2.1 Industry Profile

In the most general sense of the word, cement is a binder, a substance which sets
and hardens independently, and can bind other materials together. The word
"cement" traces to the Romans, who used the term "opus caementicium" to
describe masonry which resembled concrete and was made from crushed rock
with burnt lime as binder. The volcanic ash and pulverized brick additives which
were added to the burnt lime to obtain a hydraulic binder were later referred to as
cementum, cimentum, cäment and cement. Cements used in construction are
characterized as hydraulic or non-hydraulic.

2.1.1 Introduction to industry

 The most important use of cement is the production of mortar and concrete—the
bonding of natural or artificial aggregates to form a strong building material
which  durable in the face of normal environmental effects. 
 Concrete should not be confused with cement because the term cement refers only
to the dry powder substance used to bind the aggregate materials of concrete.
Upon the addition of water and/or additives the cement mixture is referred to as
concrete, especially if aggregates have been added.

It is uncertain where it was first discovered that a combination of hydrated non-

hydraulic lime and a Pozzolan produces a hydraulic mixture (see also- Pozzolanic
reaction), but concrete made from such mixtures was first used on a large scale by
engineers. They used both natural pozzolans (trass or pumice) and artificial
pozzolans (ground brick or pottery) in these concretes. Many excellent examples
of structures made from these concretes are still standing, notably the huge
monolithic dome of the Pantheon in Rome and the massive Baths of Caracalla.
The vast system of Roman aqueducts also made extensive use of hydraulic
cement. The use of structural concrete disappeared in medieval Europe, although
weak pozzolanic concretes continued to be used as a core fill in stone walls and
columns.
2.1.2 Present scenario of Industry
India is the second largest producer of cement in the world. It accounts for more
than 7% of the global installed capacity. India has a lot of potential for
development in the infrastructure and construction sector and the cement sector is
expected to largely benefit from it. Some of the recent initiatives, such as
development of 98 smart cities, is expected to provide a major boost to the sector.
Aided by suitable Government foreign policies, several foreign players such as
Lafarge-Holcim, Heidelberg Cement, and Vicat have invested in the country in
the recent past. A significant factor which aids the growth of this sector is the
ready availability of raw materials for making cement, such as limestone and coal.
Market Size

Cement production reached 329 million tonnes (MT) in FY20 and is projected to
reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and
will reach 379 MT by FY22. The cement production capacity is estimated to
touch 550 MT by 2020. As India has a high quantity and quality of limestone
deposits through-out the country, the cement industry promises huge potential for
growth.
According to CLSA (institutional brokerage and investment group), the Indian
cement sector is witnessing improved demand. Key players reported by the
company are ACC, Dalmia and Ultratech Cement. In the second quarter of FY21,
Indian cement companies reported a sharp rebound in earnings and demand for
the industry increased, driven by rural recovery. With the rural markets
normalising, the demand outlook remained strong. For FY21, CLSA expects a
14% YoY increase in EBITDA in the cement market for its coverage stocks.
Investments

According to the data released by Department for Promotion of Industry and

Internal Trade (DPIIT), cement and gypsum products attracted Foreign Direct
Investment (FDI) worth US$ 5.28 billion between April 2000 and September
2020.
Some of the major investments in Indian cement industry are as follows:
In March 2021, UltraTech Cement acquired 3B Binani Glassfibre Sarl
Luxembourg, a subsidiary of Binani Industries
In February 2021, IBM collaborated with Shree Cement to run their database and
core business applications using AIX and Red Hat on IBM POWER9-based IBM
Power Systems. The implementation will allow Shree Cement to seamlessly
enhance its productivity and enable supply chain efficiencies across its
manufacturing plants.
In January 2021, the company announced its plan to invest US$ 137 million to
increase production capacity of its integrated cement plant in Guwahati, Assam,
by 2 MTPA. The expansion plan is likely to complete by mid-2023.
In January 2021, ACC commissioned its new grinding unit at Sindri, in Dhanbad
District of Jharkhand, adding an additional capacity of 1.4 million tonnes per
annum to the existing 3 MTPA unit.
In December 2020, Dalmia Cement announced a capacity addition of 2.3 MTPA
at its Bengal Cement Works (BCW) unit in West Midnapore with an investment
of Rs. 360 crores (US$ 49.47 million).
In December 2020, the company planned to invest Rs. 5,477 crore (US$ 776.99
million) to raise its capacity by 12.8 mtpa. The expansion includes existing
approval for the cement plant at Pali in Rajasthan, in addition to capacity
expansion of 6.7 mtpa that is currently underway in Uttar Pradesh, Odisha, Bihar
and West Bengal.
In November 2020, Ramco Cements Ltd. acquired an additional stake worth Rs
2.48 crore (US$ 335.34 thousand) in Lynks Logistics.
In November 2020, Dalmia Cement has signed a contract with Paytm for
digitising its payment processes. Paytm will help customers purchase Dalmia
Cement products from >30,000 dealers and distributors across 22 Indian states
and union territories using Paytm Wallet, Unified Payments Interface (UPI) and
other cashless modes of payment.
In October 2020, Dalmia Bharat Group announced plans to invest ~Rs 2,000 crore
(US$ 270.44 million) for setting up a cement plant in Kalaburgi, Karnataka.
JK cement planned to invest Rs. 1,700 crore (US$ 246.7 million) to increase its
production capacity to 15 million tonnes by end of 2020.
In November 2020, Shiva Cement Ltd, a subsidiary of JSW Cement Ltd, has
announced plans to invest over Rs. 1,500 crore (US$ 203.21 million) in a new
1.36 million tonne per annum clinker unit project in Odisha.
Government Initiatives

In order to help private sector companies, thrive in the industry, the Government
has been approving their investment schemes. Some of the initiatives taken by the
Government off late are as below:
In Union Budget 2021-22, the Government of India extended benefits, under
Section 80-IBA of the Income Tax Act, until March 31, 2021, to promote
affordable rental housing in India.
As per the Union Budget 2021-22, the government outlaid Rs. 1,18,101 crore
(US$ 16.22 billion) for the Ministry of Road Transport and Highways.
As per the Union Budget 2021-22, National Infrastructure Pipeline (NIP)
expanded to 7,400 projects from 6,835 projects.
The Union Budget allocated Rs. 13,750 crore (US$ 1.88 billion) and Rs. 12,294
crore (US$ 1.68 billion) for Urban Rejuvenation Mission: AMRUT and Smart
Cities Mission and Swachh Bharat Mission, respectively and Rs. 27,500 crore
(US$ 3.77 billion) has been allotted under Pradhan Mantri Awas Yojana.
Road Ahead

The eastern states of India are likely to be the newer and untapped markets for
cement companies and could contribute to their bottom line in future. In the next
10 years, India could become the main exporter of clinker and gray cement to the
Middle East, Africa, and other developing nations of the world. Cement plants
near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an
added advantage for export and will logistically be well armed to face stiff
competition from cement plants in the interior of the country. India’s cement
production capacity is expected to reach 550 MT by 2025.
Due to the increasing demand in various sectors such as housing, commercial
construction and industrial construction, cement industry is expected to reach
550-600 million tonnes per annum (MTPA) by the year 2025.
Figure 3.4Present Senario of Cement Industry

Figure 3.5 Trends and sector wise composition of Cement Industry

Table 3.4 Characteristics of the Industry 

2.1.3 PESTSEL analysis

 POLITICAL
The price of cement is primarily controlled by the coal rates, power tariffs,
railway tariffs, freight, royalty and cess on limestone. Interestingly, government
controls all of these prices. Government is also one of the biggest consumers of
the cement in the country. Most state governments, in order to attract investments
in their respective states, offer fiscal incentives inthe form of sales tax
exemptions/deferrals. States like Haryana offer a freeze on power tariff for 5
years, while Gujarat offers exemption from electric duty. (India Infoline Ltd n.d.)
 ECONOMIC
Currently, the industry is on the boom, with a lot of government infrastructure and
housing projects under construction. In spite of seeing a fall during 2008-09, the
export segment of theindustry is expected to grow again on account of various
infrastructure projects that are beingtaken up all over the world and numerous
outstanding cement plants coming up in near future in the country

 SOCIAL
Usually, the cement industry in India consists of both the organized sector and the
unorganized sector. Organized sector comprises of the well-known cement
manufacturing companies while the main players of the unorganized sector are
the regional and local cement-producing units in various states across the state.
Indian consumers prefer buying branded cement likeULTRATECH, JAYPEE
CEMENT, LAFARGE CEMENT etc. It has been seen in the past, a well, that
mini cement plants with low brand value and image are not able to survive against
thecement giants. With a population of more than 100 billion people, it is
expected that cementindustry will create another 25 lakhs jobs in the next 4-5
years.

TECHNOLOGY
From mining to production the entire process depends on technology. The
Government of Indiaplans to study and possibly acquire new technologies from
the cement industry of Japan. The government is discussing technology transfer in
the field of energy conservation and environment protection to help improve
efficiency of the Indian cement industry.Cement industry has made tremendous
strides in technological up-gradation and assimilation of latest technology. At
present 93% of the total capacity in the industry is based on modern and
environment-friendly dry process technology.

2.2 Company of the profile

Zuari Cement is part of the worldwide HeidelbergCement Group, a global
construction material major, which is Number 1 in aggregates, number 2 in
cement, and number 3 in ready-mixed concrete globally.
 Zuari Cement Limited is a Public incorporated on 16 February 2000. It is
classified as Non-govt company and is registered at Registrar of Companies,
Vijayawada. Its authorized share capital is Rs. 4,400,000,000 and its paid up
capital is Rs. 2,749,614,080. It is involved in Manufacture of non-metallic mineral
products n.e.c.
Zuari Cement has a total cement manufacturing capacity of 7.1 million tons in
India, which includes two integrated manufacturing units at Sitapuram and
Yerraguntla, along with two grinding centres at Chennai and Solapur respectively
and a cement terminal at Kochi, Kerala. This makes Zuari Cement a formidable
brand in the South Indian Cement Market. The states of Karnataka, Andhra
Pradesh, Telengana, TamilNadu & Kerala form the core markets for Zuari
Cement with notable footprint in Maharashtra, Orissa & Chattisgarh. Gulbarga
Cement Limited and Sitapuram Power Limited are of 
Zuari Cement Limited's Annual General Meeting (AGM) was last held on 21 June
2019 and as per records from Ministry of Corporate Affairs (MCA), its balance
sheet was last filed on 31 December 2018.

2.2.1 History
Founded in 1864, Italcementi was quoted for the first time on the stock markets,
at the Milan Stock Exchange, in 1925, under the name of “Società Bergamasca
per la Fabbricazione del Cemento e della Calce Idraulica” and has been operating
since 1927 under the name of Italcementi Spa. Zuari Cement is part of the
Italcementi Group, the fifth largest cement producer in the world and the biggest
in the Mediterranean region. With net sales over 6 billion Euros in2009 and a
capacity of 70 million tones. Italcementi Group combines the expertise, know-
how and culture of a number of companies from more than 22 countries in 4
continents. Zuari entered the Cement business in 1994 to operate the Texmaco
Cement Plant. In1995, Texmaco’s Plant at Yerraguntla was taken over by Zuari
and a Cement Divisionwas formed. The fledging unit came into its own in the
year 2001 when Zuari Industries entered into a Joint Venture with the Italcementi
Group, the 5th largest producer of Cement in the world , Zuari Cement Limited
was born. Zuari Cement took over SriVishnu Cement Limited in 2002. Today, the
Company is amongst the topmost cement produces in South India.Thanks to a
careful plan of investments and take-overs of other cement producers, the
company expanded, quickly reaching a strong position on the market and
becoming the leading cement manufacturer in Italy.
2.2.2 Vision and Mission

Figure 3.6 Vision and Mission of Zuari Cement

2.2.3 Organizational structure

Figure 3.7 Organizational Structure of Zuari cement

2.2.4 Products and services provided by the company

Zuari Cement products are preferred by professionals throughout all disciplines
of the construction industry. Wheather sparked by an architect a owner or a
building engineer, any project's vision is only as realistic as access to materials
capable of achieving precise details in their purest form. At Zuari, we are proud to
provide materials that are uncompromising in creative breadth, technical quality
and practical applicability.

Figure 3.8 Types of Cement in Zuari Cement

2.2.5 SWOT analysis
This comprehensive SWOT profile of Zuari Industries Limited provides you an
in-depth strategic analysis of the company’s businesses and operations. The
profile has been compiled bring to you a clear and an unbiased view of the
company’s key strengths and weaknesses and the potential opportunities and
threats. The profile helps you formulate strategies that augment your business by
enabling you to understand your partners, customers and competitors better.

Figure 3.9 SWOT Analysis of Zuari Cement

2.2.6 Corporate social responsibility

OBJECTIVE
To set guidelines for Corporate Social Responsibility (CSR) as per the Companies
Act, 2013. SCOPE
This procedure is applicable to Zuari Cement Limited.

DETAILS
Zuari Cement aims at:
Building relationship with its stakeholders based on mutual commitment, active
partnership, trust, openness and long term cooperation.
Building relations with the communities starts from understanding their needs,
supporting sustainable local projects without creating dependency, and fostering
stakeholder consultation when opening new facilities, running existing ones and
closing plants at the end of their productive lives.
The Company will not knowingly support organizations that are not in line with
the Group’s Values, Codes and Policies and that discriminate based on race, caste,
national origin, religion, disability, gender, pregnancy, sexual orientation, political
affiliation or age.
The new Companies Act, 2013 seeks to make CSR spending compulsory for the
Companies that meets certain criteria with effect from FY 2014-15.
Companies with net worth of Rs. 500 Crores or more or turnover of Rs.1000
Crores or more or net profit of Rs. 5 Crores or more will have to spend 2% of the
previous three years average profit for CSR activity. For this spending “Average
Profit of last 3 years shall be calculated in accordance with provision of law”.
As per the provisions of law, the Corpus for CSR shall include:
a) 2% of Average Net profit (before tax) of last 3 years.
b) Any income arising from the corpus.
c) Surplus arising out of CSR activities.

As per the Act, a CSR committee of the Board to be formed consisting of three or
more Directors, out of which one Director shall be an independent Director.

Companies shall give preference to the local areas, where it operates for spending
the amount earmarked for CSR activities. A small team consisting of Technical
Head, Plant Heads and HR will recommend the proposed CSR activities to the
CSR Committee and monitor its effective implementation.

The CSR policy will be subject to any amendment to the Companies Act, 2013 or
any modification thereof or other applicable laws.

The activities which can come under CSR as per the Companies Act, 2013
a) eradicating extreme hunger and poverty;
b) promotion of education;
c) promoting gender equality and empowering women;
d) reducing child mortality and improving maternal health;
e) combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases;
f) ensuring environmental sustainability;
g) employment enhancing vocational skills;
h) social business projects
i) contribution to the Prime Minister's National Relief Fund or any other fund set
up by the Central Government or the State Governments for Socio-economic
development and relief and funds for the welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women; and
j) such other matters as may be prescribed.

Considering the requirements, the following projects may be undertaken by the

Company as part of CSR initiatives:
a) Promotion of education.
b) Providing drinking water, toilets and to help improving other essential
infrastructure as part of rural development.
c) Providing medical support.
 d) Skill development and Self-employment programs for youth and women.

The CSR Committee shall recommend the CSR budget and activities for every
financial year effective 2014 - 15 on this provision and submit to the Board for
their review and approval.
2.2.7 Achievement and awards

1. India’s Most Trusted Brand by International Brand Consulting Corporation, USA

2. Best Performance award by Chennai Port Trust
3. World’s Most Trusted Brand- Asia 2016 by United Research Services
4. Brand of the Year 2016-17 – Emerging No.1 by WCRC
5. Global Marketing Excellence Award for Cement Industry by World Marketing
Congress
6. International Leadership innovation excellence award by IES
7. Brand of the Year 2016-17 – Emerging No.1 by WCRC
8. India’s Most Trusted Brand by International Brand Consulting Corporation, USA
 CHAPTER- IV

DATA ANALYSIS &

INTERPRETATION

CHAPTER IV
Data analysis and interpretation
 
The calculations using in Data analysis are –
 DTR ( Debtor’s turnover ratio )
 ACP ( Average collection period )

2.3 Calculation of DTR :-

This measures a relationship between debtor’s and sales.

 DTR(Crs) = credit sales (or) sales
 Debtors
 Calculation for: 2020:- 
DTR = 22936.18=19.06 
 1203.19

 Calculation for: 2019:- 

DTR = 20279.80 =16.83 
1281.02

 Calculation for: 2018:-

DTR = 20204.94 =  19.83
1018.24

 Calculation for: 2017:- 

DTR = 18270.69 =23.85
765.96

  Calculation for: 2016:- 

DTR = 14205.64=  21.92 
602.29     
 
      
DTR from 2016 to 2020 are :-
Table 4.5 DTR OF ZUARI CEMENT

 
                      
 Graph 4.1 DTR of Zuari Cement

Interpretation
The Debtors turnover ratio of ZUARI CEMENT LTD is in the fluctuation stage
because the increase and decreased in debtors to the total sales. In the current year
i.e. 2020 the ratio is 19.06. 

2.4 Calculation of ACP

The ACP calculation is compared with the firm’s stated credit period to judgeThe
collection efficiency. The ACP measures the quantity of receivables.Since, it
indicates the speed of their collect ability. 

 ACP(Crs) =Debtors x 360 (or) 360 Credit sales                          

DTR 

 Calculation for: 2020:-  

ACP   =  360     = 18.88                            
19.06

  Calculation for: 2019:-  

ACP   = 360 = 22.74 
16.83

 Calculation for: 2018:-  

ACP   =    360      = 18.16  
 19.83

 Calculation for: 2017:-

ACP   =    360   = 16.09  
23.85

  Calculation for: 2016:- 

ACP   =360 = 17.41    
21.92
 ACP from 2016 to 2020 are :-
Table 4.2
Table 4.6 ACP for ZUARI CEMENT

   Year ACP
 
2016 17.41

  2017 16.09
                                       
2018 18.16

2019 22.74

2020 18.88
 Graph 4.2 ACP of Zuari Cement

Interpretation:
 
The Average collection period of ZUARI CEMENT LTD in the year 2016 was
very high as compared with all the years. As compared with the credit sales to the
ratio in the year 2020 was 18.88.

2.5 A SCENARIO ANALYSIS: -  

Suppose credit period is extended to 100 days.Then sales may increase by 16.If
credit period is decreased to 80 days.Then sales decreases by 10%.The cost of
financing is 11%.
 CALCULATION OF INCREASE IN  CREDIT PERIOD: -
 

           Calculation for 2016: -

Table 4.7 Calculation of credit periods -2016

 
 WORKING NOTES: - 
 
1. Annual sales:-  

a) 100days  
=    427,752,546.23+ (427,752,546.23x   16%) 
 = 641,628,810.935    
  
b) 80 days  
= 427,752,546.23-  (427,752,546.23x 10%)
 =   427,752,540.623 

2. Level of receivables (at sales value)  (Ax) / 360

a) 90 days
= 90 x 427,752,546.23
 360
= 106,938,146.557      
b) 100 days
= 100 x641,628,810.935
360
= 188,230,225.272                                               

c) 80 days
=  80 x 427,752,540.623
360 
=  99,056,120.148

3. Incremental investment in receivables :(C -   143,741,255.862) 

a) 90 days=    0

b) 100 days
= 188,230,225.272-   106,938,146.557 
=   71,292,088.716   

c) 80 days
=   99,056,120.148 -106,938,146.557 -=   (78,820,170.419)  
 
4. Assumed incremental profit @ 20% (0.2 x D)   : -
a) 90 days   =   0

b) 100 days
=   71,292,088.716x 20%
 = 15,258,418.743

c) 80 days
=   (78,820,170.419) x 20
= (16,764,032.083) 
 

Calculation for 2017:

Table 4.8 Calculation of credit periods -2017

 Working Notes
1. Annual sales:-  

a) 100days  
= 18270.69+ (18270.69x   16 %)
 = 21011.29 cr

b) 80 days  
= 18270.69-  (18270.69 x 10%)
 =   17443.62 

2. Level of receivables (at sales value)  (Ax) / 360

a) 90 days
= 90 x 18270.69
 360
 = 4567.67     

b) 100 days
= 100 x 21011.29
360
=5836.47

c) 80 days
=    80 x 17443.62 
360 
= 3654.14

3. Incremental investment in receivables :(C -   143,741,255.862)

a) 90 days=    0

b) 100 days
= 5836.47- 4567.67
=   1268.80

c) 80 days
=   3654.14 -4567.67
= (914.53)
 
4. Assumed incremental profit @ 20% (0.2 x D)   : -
a) 90 days   =   0

b) 100 days
= 1268.80x 20%
=253.76

c) 80 days
=   (914.53) x 20%
= (182.70)
Calculation for 2018: -
Statement of increase in credit period
Table 4.9 Calculation of credit periods -2018
 Working Notes

1. Annual sales:-

a) 100days  
= 20204.94+ (20204.94x 16 %)
 = 23201.18 cr

b) 80 days  
= 20204.94-  (20204.94x 10%)
 =   181167.45

2. Level of receivables (at sales value)  (Ax) / 360

a) 90 days
= 90 x 20204.94
 360
= 5043.73

b) 100 days
= 100 x 20204.94
360
=6444.77

c) 80 days
=    80 x 20204.94
360 
= 4034.98

3. Incremental investment in receivables :(c-5043.73) 

a) 90 days=    0
b) 100 days
= 6444.77- 5043.73
=   1501.04

c) 80 days
=   4034.98-5043.73
= (1008.75)

4. Assumed incremental profit @ 20% (0.2 x D)  

1. 90 days   =   0

2. 100 days
= 1501.04x 20%
=280.20

3. 80days
=   (1008.75) x 20%
= (201.75)

Table 4.6 Calculation of increase in credit period 2019

Calculation for 2019: -

 Table 4.10 Calculation of credit periods -2019

Working Notes

1. Annual sales:-

a) 100days  
= 20279.80+(20279.80 x 16 %)
 = 23321.77 cr
b) 80 days  
= 20279.80-  (20279.80x 10%)
=18521.
2. Level of receivables (at sales value)  (Ax) / 360
a) 90 days
= 90 x 20279.80
 360
= 5069.96
b) 100 days
= 100 x 20279.80
360
=5633.27

c) 80 days
=    80 x 20279.80
360 
= 4506.62

3. Incremental investment in receivables :(c-5069.95) 

a) 90 days=    0

b) 100 days
= 5633.27- 5043.73
=  563.32

c) 80 days
=   4506.32-5043.73
= (563.33)
 
4. Assumed incremental profit @ 20% (0.2 x D)   : -

a) 90 days   =   0

b) 100 days
= 563.33x 20%
=112.66

c) 80 days
=  (563.32) x 20%
= (112.68)
Table 4.7 Calculation of increase in credit period 2020

Calculation for 2020: -

Statement of increase in credit period

Table 4.11 Calculation of credit periods -2020

WORKING NOTES: -
1. Annual sales (Cr):-

a) 100 days = 22936.18+ (22936.18x 16 %)

= 26376.59 cr

b) 80 days = 22936.18- (22936.1810 %)

= 20642.55 Cr

2. Level of receivables (at sales value) (Ax) / 360

a) 90 days = 90 x 22936.18= 5734.04

360

b) 100 days = 100 x 22936.18= 6371.16

360

c) 80 days = 80 x 22936.18= 5096.92

360

3. Incremental investment in receivables :(C - 5734.04)

a) 90 days = 0

b) 100 days = 6371.16- 5734.04

= 636.75

c) 80 days = 5096.92 -5734.04

= (637.12)
4. Assumed incremental profit @ 20% (0.2 x D) : -

a) 90 days = 0

b) 100 days = 636.75x 20%

= 127.35

c) 80 days = (637.12) x 20%

= (127.42)

Graph 4.3Changes in Annual Sales ACP (2017-2020)

Graph 4.4 Changes in the levels of Receivables ACP (2017-2020)

Graph 4.5 Changes in Profit Earned ACP (2017-2020)

CHAPTER- V
FINDINGS ,
SUGGESTIONS &
CONCLUSION

3 Chapter-5
  

3.1  Findings
 
 
 Debtor’s turnover ratio increasing every year from 2016 to 2020.

 Average collection period decreasing every year from 2016 to 2020.

 The scenario analysis was conducted assuming credit period to be 80 days and
100 days. The result should that while credit period is 100 days the company is
getting profits. When the credit period is 80 days the company is getting losses.         

 Based on the report it is concluded that credit policies are decided by zonal
manager so, powers are centralized.

 Credit standards are determined based on economic conditions

 Credit is 90 days and if credit is paid before that period the company will give
cash discount.   

3.2 Conclusion
Although credit risk management is a somewhat young discipline, because of its
high level utility for the company and effectiveness it has matured rapidly. The
company is sufficiently managing its credit risk but it can still take further steps to
improve risk measurement and reporting techniques which can be followed with
the formulating of suitable credit risk policies will provide effective protection
against future credit risk losses. The company's Debt turnover has been
decreasing overtime which is the best evidence of how it has well managed it's
credit over the past five years. The decreasing debt turnover shows us the
receivables collection are efficient and the company has quality customers that
pay their debts quickly. This means the company has over all improved it's
creditworthiness in the period of the study The best risk management techniques
 of the company are operational and legal, with collateral providing the best
financial risk mitigation. Average collection period can be improved by extending
the period I believe that the company must make an effort to determine the extent
to which a firm's earnings are vulnerable to stress losses of any type it is a
measure of regulatory equity at risk - and should then determine the amount of
capital requirement which is sufficient to provide a reliable assurance that the firm
will survive a intense stress event.. There needs to be a more regulated,
systematized and transparent procedure of liquidity management arrangements

3.3 Suggestion  

• Management of the company can offer more incentives for receive prompt
payment of credit.

• Management of the company can make its credit policies so that higher
profits can be achieved.

• Policies to relax credit standards will enable to achieve a greater reach to

more customers.
 The management can increase it credit period to 100 days to gain more profits
 
 
 
 

3.4  Limitations
 
●  The study is based on only secondary data.
●       The period of study was 2016-2020 financial years only.
●  Another limitation is that of standard ratio with which the actual ratios
may be compared generally there is no such ratio
●  The accuracy and correctness of ratios are totally dependent upon the
reliability of the data contained in financial statements on the basis of which ratios
are calculated.
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
4 BIBILOGRAPHY
 
 
 
 
 
1. Financial management    -    by    I.M.PANDEY
 
2. Financial management    -    by MY KHAN PK JAIN
 
3. Company’s annual report (2016-2020)
  
 Websites

o https://www.jisc.ac.uk
o https://www.moneycontrol.com
o  www.pennacement.com
o https://www.business-standard.com
o www.yahoofinance.com