Chapter 1

Introduction

1.1 Overview- Ratios

1.2 Companies for Analysis
1.3 Objective & Scope of
Research Study
1.4 Limitation of Study
1.5 Research Methodology
C omparative analysis is an important tool of analyzing and evaluating the
performance and prospects of a firm. The analysis and interpretation of
financial statements is used to determine the financial position and results of
operations a well. Financial statements are prepared primarily for decision-
making. They play a dominant role in setting the framework of managerial
decisions. But the information provided in the financial statements is not an
end in itself as no meaningful conclusions can be drawn from these
statements alone.

However, the information provided in the financial statements is of immense

use in making decisions through analysis and interpretation of financial
statements. Financial analysis is ‘the process of identifying the financial
strengths and weaknesses of the firm by properly establishing relationship
between the items of the balance sheet and the profit and loss account.’

1.1 Ratios

The most prevalent method of comparative analysis is through ratio analysis.

The ratio analysis can be for a single year or it may extend to more than one
year. The ratios can also be compared with similar ratios of others concerns
to make a comparative study.

• First, all ratios will be worked out for each year and each set of
comparable items.
• The ratios worked out will be put in the context of a trend over
several years.
• They will be compared with similar companies/ standard ratios.

i. For the year concerned, and

ii. Over a period of time.

2
Types of Ratio

Figure 1 Functional Classification

1. Liquidity Ratio

i). Current Ratio

The ratio is worked out by dividing the current assets of the concern by its
current liabilities. Current ratios indicate the relation between current assets
and current liabilities. Current liabilities represent the immediate financial
obligations of the company. Current assets are the sources of repayment of
current liabilities. Therefore, the ratio measures the capacity of the company
to meet financial obligation as and when they arise. Textbooks claim a ratio
of 1.5 to 2 is ideal; bit in practice this is rarely achieved. This ratio is also
known as working capital ratio.

ii). Acid Test Ratio

Quick assets represent current assets excluding stock and prepaid expenses.
Stock is excluded because it is not immediately realizable in cash. Prepaid

3
expenses are excluded because they cannot be realized in cash. A minimum
of 1: 1 is expected which indicates that the concern can fully meet its
financial obligations. This also called as Liquid ratio or Quick ratio.

2. Activity Ratios

i). Debtors Turnover Ratio

The ratio obtained should be compared with that of other similar units. If the
ratio of the company being studied is greater (say, 10 weeks as against 6
weeks for the industry), it indicates that the company is allowing longer than
the usual credit periods. This may be justified in the case of new companies
or existing companies entering into new ventures

ii). Creditors Turnover Ratio

This ratio shows how frequently company is paying to its creditor. Usually,
higher the ratio- betters the performance of company.

iii). Inventory Turnover Ratio

The ratio is usually expressed as number of times the stock has turned over.
Inventory management forms the crucial part of working capital
management. As a major portion of the bank advance is for the holding of
inventory, a study of the adequacy of abundance of the stocks held by the
company in relation to its production needs requires to be made carefully by
the bank.

iv). Fixed Assets Turnover Ratio

The ratio shows the efficiency of the concern in using its fixed assets. Higher
ratios indicate higher efficiency because every rupee invested in fixed assets
generates higher sales. A lower ratio may indicate inefficiency of assets. It
may also be indicative of under utilizations or non-utilization of certain

4
assets. Thus with the help of this ratio, it is possible to identify such
underlined or unutilized assets and arrange for their disposal.

3. Leverage Ratio

i). Debt-Equity Ratio

Also known as external - Internal equity ratio is calculated to measure the

relative claims of outsiders against the firm’s assets. This ratio indicates the
relationship between the external equities or the equities or the outsider’s
funds and the internal equities or the shareholder’s funds.

ii). Interest Coverage Ratio

Higher the ratio better is the coverage. The firm may not fail on its
commitments to pay interest even if profits fall substantially.

4. Profitability Ratios

i). Gross Profit Ratio

A comparison with the standard ratio for the industry will reveal a picture of
the profitability of the concern. Also the ratio may be worked out for a few
years and compared to verify if a steady ratio is maintained.

ii). Net Profit Ratio

This ratio serves a similar purpose as, and is used in conjunction with, the
gross profit ratio.

iii). Return on Assets

This ratio measures the profits of the concern as a percentage of the total
assets. For the purpose of this ratio, the operating profit is calculated by
adding back to net profit: (1) Interest paid on the long term borrowings and

5
debentures; (2) Abnormal and non-recurring losses; (3) Intangible assets
written off. Similarly, from the net profit abnormal and non-recurring gains
are deducted. The idea is to get profit generated out of total investments
made.

iv). Earning Power

Earning power is a measure of business performance which is not affected by

interest charges and tax burden. It abstracts away the effect of capital
structure and tax factor and focuses on operating performance. Hence it is
eminently suited for inter-firm comparison. Further, it is internally consistent.
The numerator represents a measure of pre-tax earnings belonging to all
sources of finance and the denominator represents total financing.

v). Return on Capital Employed

ROCE is the post-tax version of earning power. It considers the effect of

taxation, but not the capital structure. It is internally consistent. Its merit is
that it is defined in such a way that it can be compared directly with the
post-tax weighted average cost of capital of the firm.

vi). Return on Equity

The return on equity measures the profitability of equity funds invested in

the firm. It is regarded as a very important measure because it reflects the
productivity of the ownership capital employed in the firm.

5. Valuation Ratios

Valuation ratios indicate how the equity stock of the company is assessed in
the capital market. Since the market value of equity reflects the combined
influence of risk and return, valuation ratios are the most comprehensive
measures of a firm’s performance.

6
i). Price Earnings Ratio

The PE Ratio is a summary measure which primarily reflects the following

factors: growth, prospects, risk-characteristics, shareholder orientation,
corporate image, and degree of liquidity.

ii). EV-EBIDTA Ratio

EV is the sum of the market value of equity and the market value of debt.
The market value of equity is simply the number of outstanding equity
shares times the price per share. As far as debt is concerned, if it is in the
form of loans, its market value has to be imputed. Generally, a rupee of loan
is deemed to have a rupee of market value.

EV-EBIDTA is supposed to reflect profitability, growth, risk, liquidity and

corporate image.

1.2 Companies for Comparative Analysis

Being a management trainee of Prism Cement Ltd, it is a comparative

analysis of Prism Cement Ltd with JK Cement Ltd. Before going on deep, here
is company profile in brief.

1.2.i. Prism Cement Ltd

Prism Cement Ltd. Is an ISO 9001:2000 certified professionally managed

company promoted by the Rajan Raheja Group. The company operates one
of the largest single kiln cement plants in the country at Satna, Madhya
Pradesh. The company has also a packing unit at Allahabad, Uttar Pradesh
equipped with machinery and technical support from world leaders, F.L.
Smidth & CO. A/S, Denmark, Prism has created a niche for itself in the
cement industry.

7
The company primarily caters to the demand in the Northern Region mainly
in the state of Uttar Pradesh, Bihar & Madhya Pradesh. The company plan for
a five-fold increase in cement capacity from 2 MTPA to 10.0 MTPA by 2011
through Brownfield and Greenfield expansion is making steady headway.
These expansions will establish the company brand in new markets and a
larger customer base.

A team of experienced engineers and a dedicated workforce combined with

the high level of automation and sophisticated control system have placed
the company product in the premium segment.

Prism has successfully established a high brand preference amongst its

customer through its excellent quality products and transparent policy. Prism
has truly taken cement production to global standards.

Review of operation and future outlook

• Production of clinker and cement registered a growth of 5.45% and

9.20%, respectively.

• Sales of cement and clinker increased from 26.93 Lakh tones during
the year 2006-07 to 30.64 lakh tones during the year 2007-08, an
increase of 13.78%.

• Revenues increased by 15.42% to Rs. 1019.75 Crores during the year

under review from Rs. 883.48 Crores during the previous year.

• PAT for the year ended June 30, 2008 at Rs. 241.63 Crores, was higher
by Rs. 48.86 Crores, registering a increase of 25%

• Power consumption down by 5.75% to 68.08 unit’s ksh per ton cement.

1.2.ii. JK Cement Ltd

8
J.K. Cement is an affiliate of the J.K. Organization, which was founded by Lala
Kamlapat Singhania. The J.K. Organization is an association of industrial and
commercial companies and has operations in a broad number of industries.

JK cement operations commenced commercial production in May 1975 at its

first plant at Nimbahera in the state of Rajasthan. At Nimbahera, it started
with a single kiln with a production capacity of 0.3 million tons. JK Cement
Ltd added a second kiln in 1979 with production capacity of 0.42 million tons,
and a third kiln in 1982 with a production capacity of 0.42 million tons. They
added a precalciner with a capacity of 0.4 million tons in 1988, which
increased their capacity at Nimbahera to 1.54 million tons. During the years
1998 through 2003, it continued to implement modifications to each of their
kilns, which increased their aggregate capacity at Nimbahera to 2.8 million
tons as of September 30, 2005.

JK commissioned a second grey cement plant at Mangrol plant in 2001, with

a production capacity of 0.75 million tons. As of September 30, 2005, it had
an aggregate production capacity of 3.55 million tons per annum of grey
cement. JK white cement plant was completed in 1984 with a capacity of
50,000 tons. Their continuing modifications to the plant have increased its
production capacity to 300,000 tons as of September 30, 2005.

Today, J. K. Cement Ltd. is one of the largest cement manufacturers in

Northern India. They are also the second largest white cement manufacturer
in India by production capacity. While the grey cement is primarily sold in the
northern India market, the white cement enjoys demand in the export
market including countries like South Africa, Nigeria, Singapore, Bahrain,
Bangladesh, Sri Lanka, Kenya, Tanzania, UAE and Nepal.

Their access to high quality limestone reserves that are suitable for
production of white cement provides them with a competitive advantage.
Based on geological surveys conducted by independent agencies on their
mines between 1996 and 2001, their limestone reserves for both grey and

9
white cement are expected to meet their existing and planned limestone
requirements of 4.0 MnTPA of grey cement and 0.4 MnTPA of white cement,
for approximately 40 years.

Backed by state-of-the-art technology and highly skilled manpower against

the backdrop of India’s infrastructural growth in an overdrive, they are
upbeat about the future. They are confident of contributing heavily in India’s
journey of development. They see a world of concrete ideas on the horizon.

1.3. Objective & Scope of Study

The study deals in brief to evaluate and analyze various aspects of

company’s financial position, liquidity position, and long term solvency
position, so as to present a clear picture of performance. This study is only
based on Annual reports of company, by comparing the ratios of last 5 years.
A study like this will help the organization to make decisions based on the
current performance. This study also groomed me as I interacted with more
industry people and also gave me a good industry exposure. The study will
also help Prism Cement Ltd to increase its efficiency by finding out its
Strongest & Weakest points. This study focus on comparative analysis & ratio
analysis of Prism cement Ltd with JK Cement Ltd. Main objective of this
research are as follows-

• To find out the company solvency position in long term that

which company is more solvent and able to pay its long term
liabilities in time.

• To find out debt-equity mix in capital structure of company, its

financial leverage, its external and internal liability, etc. This will
help to find out that which company is opting optimum capital
structure as per nature of its business.

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 • To find out the profitability position of the company, their GP
Margin, NP margin, Earning Power, etc.

• To find out the short term solvency position of company i.e.

Liquidity, current ratio, working capital ratio, etc. This will help to
find out the ability of firm to meet its current liabilities, and
perform day to day operation.

• To find out the benefits provided by company to its shareholders,

Earning per share, Dividend Declared, corporate social
responsibilities, etc.

1.4. Limitation of the Study:

Limitations are difficulty faced or can be face while doing study. These
can be normal limitation like- budget constraints, time constraint which
are common for every project. Because time and money are always
limited and we cannot spend in huge amount. So this is first constraint to
finish study in time and within budget.

Apart from these limitations other are- Technical Limitation. These

limitations are related with constraint of tool or method used for analysis.
As this is project is totally based on secondary data. So the main
limitation which can be faced are:

• Study is only based on annual report of company, which is not

sufficient to compare performance & efficiency of company.

• Information available in annual report is also altered, which is not so

accurate.

1.5. Research Methodology

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Type of Data: - There are two types of data: Primary Data and Secondary
Data. Primary data are those data which are collected first time, to meet the
objective of research only. Secondary data is data which has been already
used for any other purpose and can be used for this research. As this study is
based on financial statements of companies, means Secondary Data.

Method of Data collection: - For collecting secondary data, Annual report

of company will use as well as financial reports available on various stock
market websites.

Data Analysis & Interpretation: - Collected data will we present with the
help of-

o Table- To represent data in tabular form. It is easy to

analyse data and make some conclusion
o Bar graph- Use to present data in chart or graph form. It is
best way to present data.
o Ratios- A tool for analysis. This is normally used by
manager to make interpretation.

12
 Chapter 2

Prism Cement Ltd

&
JK Cement Ltd

2.1.0 Prism Cement Ltd

2.1.1 Company Vision & Mission
2.1.2 Features
2.1.3 Corporate Social
Responsibility
2.1.4 Current Performance
2.2.0 JK Cement Ltd
2.2.1 Plants
2.2.2 Corporate Social
Responsibility

13
P rism Cement Ltd and JK Cement Ltd, both are player of cement industry.
Both the companies are targeting Northern region of our country.
Although JK cement is major player as compare to Prism Cement Ltd because
it is operating from last 34 years, on the other hand Prism Cement Ltd is
operating from only 15 years. But Prism has performed very well and
achieved milestones in very less time. For this research study we are
considering the performance of last four financial years of both the company.
Before analyzing their performance let’s see the company important aspects
in deep.

2.1.0 Prism Cement Ltd

Prism Cement Ltd. Is an ISO 9001:2000 certified professionally managed

company promoted by the Rajan Raheja Group. The company operates one
of the largest single kiln cement plants in the country at Satna, Madhya
Pradesh. The company has also a packing unit at Allahabad, Uttar Pradesh
equipped with machinery and technical support from world leaders, F.L.
Smidth & CO. A/S, Denmark, Prism has created a niche for itself in the
cement industry.

The company primarily caters to the demand in the Northern Region mainly
in the state of Uttar Pradesh, Bihar & Madhya Pradesh. The company plan for
a five-fold increase in cement capacity from 2 MTPA to 10.0 MTPA by 2011
through Brownfield and Greenfield expansion is making steady headway.
These expansions will establish the company brand in new markets and a
larger customer base.

2.1.1 Vision & Mission

Vision

14
“To be acknowledged as a leading player in the industry with the highest
level of integrity.”

Mission:-

• State of the art cement plants

• Transparent dealings with all stakeholders

• Committed to the principles of good corporate governance

2.1.2. Features

 The entire cement manufacturing process at all prism cement plant

represents the latest relevant state-of-the-art technology.

 Our all plant equipment are supplied by M/S F.L. Smidth & Co.,
Denmark and its subsidiaries, Ventomatic; Krupp Industries Ltd., ABB,
Seimens and Crompton Greaves.

 Computerized mining activities using three dimensional imaging for

optimum blending of raw material.

 The vertical roller press mill for efficient grinding of raw meal.

 Six stage low pressure drop pre-heater for lower power consumption.

 Online computerized quality control by x-ray spectrometer to ensure

raw meal control and consistency from raw meal to final product
cement.

 Fuzzy logic control for kiln and cement mill to ensure instantaneous
corrective response through computer based control system.

 A Combination of roller press and ball mill for improved finish grinding
of cement

15
  Quality grinding through closed circuit grinding system

 Pollution control system e.g. ESP and bag filters for all plant building to
meet stringent pollution control requirement.

 All electronic packers each capable of packing accurately 120 MT of

finished cement per hour.

 Automatic truck loader each capable of loading 15 MT of cement in 10

minutes.

 Wagon loaders each capable of loading one full rake in 5 hours.

 Total self reliance in power requirement through DG sets

2.1.3 Corporate Social Responsibility

For prism, corporate social responsibility is not just a program but it is the
way business is done every day. The company has always been conscious of
its social obligation and has initiated welfare programmes for the benefit of
its employees and villagers living near the plant by providing the basic
facilities and a better way of living, right from its inception.

Besides providing emergency and basic medical facilities to its employees

and contractors and their families at the plan, a mobile medical van provides
free medical aid to the villagers and their families.

Operations of a cement plant have inherent potential to emit dust and gases
that may affect air quality negatively. At prism, the installation of pollution
control equipment of international standard are in place to improve air
quality at and around the operations.

Water management and water quality remain the key focus areas of the
management. The quality of both surface and ground ware is monitored

16
regularly to ensure that the mining and plant operations do not pollutes the
water resources of the communities living around the mining and plant area.

In recognition of the above, the company was awarded the energy

conservation award by the government of India, ministry of power for the
year 2006. The company was also awarded the 1st prize for environment
management by the government of Madhya Pradesh, ministry of
environment announced in 2007.

2.1.4 Current Performance

Prism cement posted a profit after tax (PAT) of Rs. 2.42 billion for the year
ended June 30, 2008 as against Rs. 1.93 billion for the previous year ended
June 30, 2007 registering a growth of 25%.

Sales grew 15% from Rs. 8.83 billion to Rs. 10.2 billion in the same period
crossing the Rs. 10 billion mark for the first time. The company is debt-free
and has liquid investment of over Rs. 2.51 billion as on June 30, 2008.

The significant growth in net profits is driven by increase in sales volume.

Improve realizations and reduced finance charges, despite increase in input
costs. Blended cement contributed to 87% of sales, the company said in a
release.

The company caters mainly to markets of eastern UP, North Eastern MP and
western Bihar which are within the radius of 360 km of its plant at Satna, MP.

The company has the highest quality standards due to modern plant with
automated controls.

The strength and other characteristics of its cement are much higher than
the BIS requirement.

2.2.0 JK Cement Ltd

17
JK Cement Limited engages in the manufacture and trade of cement and
related products primarily in India. It produces grey and white cement, as
well as white cement based Wall Putty and JK Water Proof cement. The
company’s grey cement consists of ordinary Portland cement (OPC) and
Portland pozzolana cement (PPC). It markets OPC products under the brand
names J.K. Cement and Sarvashaktiman; PPC products under J.K. Super; and
white cement products under J.K. White and Camel. The company also
involves in the generation of electricity through its waste heat recovery
plant. JK Cement Limited exports white cement to South Africa, Nigeria,
Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, the United Arab
Emirates, and Nepal. The company was founded in 1975 and is based in
Kanpur, India.

2.2.1 Plants

JK Cement manufactures grey cement in two facilities located at Nimbahera

and Mangrol in the state of Rajasthan in Northern India. White cement is
produced at our facility at Gotan in the state of Rajasthan. Our plants have
obtained many accolades and recognition, the most noteworthy being : ISO-
9001:2000 QMS and ISO-14001:2004 EMS for the grey cement facility at
Nimbahera and ISO-9001:2000 QMS, ISO-14001:1998 EMS & OHSAS-
18001:2005 Occupational Health and Safety for the white cement facility at
Gotan. The construction of our first most modern dry cement plant began in
1970 in Nimbahera in Rajasthan.
The following table shows a breakdown of production of the Nimbahera,
Mangrol and Gotan cement facilities for the periods indicated

2.2.2 Corporate Social Responsibility

JK Cements has performed various activities to build its image as well as

fulfill its corporate social responsibility. Some important ones are as follows.

• Concrete Road with proper drainage system at Gotan village

18
• Sponsorship of annual Eye camps at Gotan
• Street Light for Gotan village
• Tree plantation along the road leading to Gotan
• Organizing Social event for residents of Local area
• Funding & Technical support for Infrastructure projects of Local
Community
• Tube Well – to provide drinking water for villagers
• Temple (Renovation of two old temples)
• Dharamshala (Inn) at Gotan Village
• Free education to the wards of Kargil war heroes
• Free bus service for students of nearby villages
• Building for girls school at Gotan village

19
 Chapter 3

Performance
Analysis of Prism
Cement Ltd with JK
Cement Ld

3.1 Balance Sheet of

Companies
3.2 P&L of Companies
3.3 Ratio Analysis &
Interpretation

20
F inancial statements are an important source of information
evaluating the performance and prospects of a firm. If properly analyzed
and interpreted, financial statements can provide valuable insights into a
for

firm’s performance. Financial statement analysis may be done for a variety

of purposes, which may range from a simple analysis of the short-term
liquidity position of the firm to a comprehensive assessment of the strengths
and weaknesses of the firm in various areas.

3.1 Balance Sheet of Companies

The balance sheet shows the financial condition of a business at a given

point of time. As per the Companies Act, the balance sheet of a company
shall be in either the account form or the report form. Table 3.1 shows
balance sheet of Prism Cement Ltd & Table 3.2 shows balance sheet of JK
Cement Ltd.

3.2 P&L of Companies

Profit & Loss account also known as income statement of a company, depicts
all the information regarding Income and expenditure of company. Table 3.3
shows P&L of Prism Cement Ltd and Table 3.4 shows P&L of JK Cement Ltd.

21
 Prism Cement Ltd (Balance Sheet)
Accounting Period (Rs. In Lacs)
2005-06 2006-07 2007-08 2008-09

Sources of Fund
Shareholder’s Fund
Capital 298.25 298.25 298.25 298.25
Reserve & Surplus -44.90 112.97 319.52 363.40
253.35 411.22 617.77 661.65
Loan Fund
Secured Loan 100.27 0.00 0.00 0.00
Unsecured Loan 7.66 0.00 0.00 0.00
107.93 0.00 0.00 0.00

Deferred Tax Liability -2.30 64.57 58.77 52.77

358.9 475.7 676.5 714.4
Total 8 9 4 2

Application Of Fund
Fixed Assets
Gross Block 602.86 647.05 702.95 733.39
Less: Depreciation 254.38 286.11 317.43 340.69
Net Block 348.48 360.94 385.52 392.70
Capital Work in Progress 7.96 2.00 17.96 109.16
 356.4 362.9 403.4 501.8
4 4 8 6
141.8
Investment 0.00 7 258.76 203.81

Current Assets, Loan & Advances

Inventories 61.78 85.22 90.35 76.90
Sundry Debtors 14.55 3.57 3.38 0.00
Cash & Bank Balance 16.91 11.04 12.97 25.87
Other Current Assets 0.00 0.00 0.00 0.00
Loan & Advances 29.43 44.63 55.82 65.89
122.6 144.4 162.5 168.6
7 6 2 6
Less: Current Liabilities & Provision
Liabilities 116.57 132.95 124.67 109.82
Provision 5.43 40.53 23.55 50.09
122.0 173.4 148.2 159.9
0 8 2 1

Net Current Assets 0.67 -29.02 14.30 8.75

Miscellaneous Expenditure
Preliminary Expenses 0.00 0.00 0.00 0.00
Deferred Revenue Expenditure 1.87 1.87 0.00 0.00 0.00 0.00 0.00 0.00

358.9 475.7 676.5 714.4

Total 8 9 4 2

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 Table 3.1 Balance Sheet of Prism Cement Ltd

JK Cement Ltd (Balance Sheet)

Accounting Period (Rs. In Lacs)
2005-06 2006-07 2007-08 2008-09

Sources of Fund
Shareholder’s Fund
Capital 69.93 69.93 69.93 69.93
1,116.1
Reserve & Surplus 604.35 750.18 983.41 3
1,053.3 1,186.
674.27 820.11 4 06
Loan Fund
Secured Loan 443.14 429.94 382.79 436.86
Unsecured Loan 139.02 127.77 127.74 127.54
582.16 557.71 510.53 564.40

Deferred Tax Liability 17.40 43.19 50.99 100.60

1,273.8 1,421.0 1,614.8 1,851.
Total 3 1 6 06

Application Of Fund
Fixed Assets
1,029.4 1,249.7 1,441.1
Gross Block 959.20 2 7 5

24
 Less: Depreciation 61.21 106.98 160.63 225.40
1,089.1 1,215.7
Net Block 897.99 922.44 3 5
Capital Work in Progress 56.90 164.39 133.84 35.06
1,086.8 1,222.9 1,250.
954.89 3 7 81
Investment 0.00 15.91 9.50 10.74

Current Assets, Loan &

Advances
Inventories 83.98 110.01 114.53 136.13
Sundry Debtors 46.13 62.16 57.26 53.04
Cash & Bank Balance 285.42 192.54 145.44 125.20
Other Current Assets 1.20 1.29 1.33 1.32
Loan & Advances 92.67 165.10 352.50 581.49
509.3
9 531.09 671.06 897.17
Less: Current Liabilities &
Provision
Liabilities 179.70 172.85 238.63 266.37
Provision 12.65 41.72 52.01 43.74
192.3
5 214.57 290.64 310.11

587.0
Net Current Assets 317.04 316.52 380.42 7

Miscellaneous Expenditure

25
 Preliminary Expenses 0.13 0.08 0.04 0.00
Deferred Revenue Expenditure 1.78 1.90 1.66 1.74 1.92 1.96 2.44 2.44

1,273.8 1,421.0 1,614.8 1,851.

Total 3 1 6 06

Table 3.2 Balance Sheet of JK Cement Ltd

Prism Cement P&L

2005-06 2006-07 2007-08 2008-09

Income
883.4 1,019.7 721.4
Gross Sales 678.18 8 5 1
116.6 143.3
Less: Excise Duty 106.44 8 0 94.17
766.8 627.2
Net Sales 571.74 0 876.45 4
Other Income -1.87 4.62 15.92 9.93

771.4 637.1
Total 569.87 2 892.37 7

Expenditure
313.9 382.9 327.5
Manufacturing Expenses 301.54 6 5 7
Personal Expense 19.40 23.88 35.43 27.42
Selling, Administration and other expenses 99.90 420.84 98.91 436.7 121.5 539.88 102.3 457.3

26
 5 0 5 4

Profit before finance charge & 334.6 179.8

Depreciation 149.03 7 352.49 3

Interest & Other Charges 18.84 5.80 3.21 3.25

Lease Rental 6.50 25.34 0.81 6.61 0.62 3.83 0.29 3.54

328.0 176.2
Profit Before Depreciation 123.69 6 348.66 9
Depreciation 30.73 31.87 31.93 24.31
Amortization of deferred expenses 2.31 33.04 2.13 34.00 0.00 31.93 0.00 24.31

294.0 151.9
Profit Before Tax 90.65 6 316.73 8
Provision for Tax
Current Tax 9.06 34.13 80.41 61.24
Fringe Benefit Tax 0.33 0.29 0.40 0.51
101.2
Deferred Tax 19.18 28.57 66.87 9 -5.71 75.10 -6.00 55.75

192.7
Profit After Tax 62.08 7 241.63 96.23
- - 319.5
Surplus/Deficit Brought Forward 106.98 44.90 112.97 2
Less: Transitional adjustment for AS-15 0.00 0.00 0.18 0.00
147.8 415.7
Amount Available for appropriation -44.90 7 354.42 5
Appropriations

27
 Proposed Dividend 0.00 29.83 0.00 14.92
General Reserve 0.00 0.00 0.00 5.00
Tax on Proposed Dividend 0.00 5.07 0.00 2.53
Interim Dividend 0.00 0.00 29.83 29.83
Tax on Interim Dividend 0.00 0.00 0.00 34.90 5.07 34.90 5.07 57.35
112.9 358.4
Balance Carried To Balance Sheet -44.90 7 319.52 0

No. Of Equity Share 29.83 29.83 29.83 29.83

Earning Per Share 2.08 6.46 8.10 3.23

Table 3.3 P&L of Prism Cement Ltd

JK Cement P&L

2005-06 2006-07 2007-08 2008-09

Income
1,108.6 1,529.6 1,812.8
Gross Sales 8 7 5 1,876.45
167.5 184.9 218.3 210.9
Less: Excise Duty 1 6 4 5
111.3 136.2 168.6
Sales Tax 67.47 234.98 7 296.33 6 354.59 7 379.62
1,233.3 1,458.2
Net Sales 873.70 3 5 1,496.84

Other Income 9.38 10.69 7.86 7.91

28
 1,244.0 1,466.1
Total 883.08 3 1 1,504.75

Expenditure
Manufacturing Expenses 455.17 535.85 604.16 659.32

Provision for Employee 41.20 48.84 67.64 83.78

Selling, Administration and other
expenses 245.31 319.48 370.80 429.73

Interest 58.17 34.72 35.88 45.53

1,078.4
Total 799.85 938.89 7 1,218.36

Profit Before Depreciation 83.23 305.14 387.64 286.38

Depreciation 43.41 45.95 53.81 65.10

Less: Transfer for Revaluation Reserve 12.39 31.02 12.79 33.16 12.74 41.07 12.68 52.42

Profit Before Tax 52.21 271.98 346.57 233.96

Provision for Tax

Fringe Benefit Tax 1.50 2.00 2.10 1.97

Current Tax 4.34 69.84 71.50 55.68

Deferred Tax 13.80 19.64 21.52 93.37 7.80 81.40 33.97 91.62

29
Profit After Tax 32.57 178.62 265.17 142.34

Balance From Previous year 6.33 6.94 56.92 31.18

Amount Available for appropriation 38.90 185.56 322.09 173.53

Appropriations
100.0 150.0 100.0
General Reserve 20.00 0 0 0

Proposed Dividend 10.49 24.47 34.96 24.47

Corporate Dividend Tax 1.47 31.96 4.16 128.64 5.94 190.91 4.16 128.63

Balance Carried To Balance Sheet 6.94 56.92 131.18 44.89

No. Of Equity Share 5.12 6.99 6.99 6.99

Earning Per Share 6.36 25.54 37.92 20.36

Table 3.4 P&L of JK Cements Ltd

30
3.3 Ratio Analysis & Interpretation

Liquidity Ratio

1. Current Ratio:
Current Assets
Current Ratio=
Current Liabilities

2005-06 2006-07 2007-08 2008-09

JK Cement 2.65 2.48 2.31 2.89
Prism Cement 1.01 0.83 1.10 1.05

Interpretation: Here JK Cement Ltd current ratio is more than 2 in all cases.
As standard for current ratio is 2:1, so JK Cement is performing well by
maintaining proper current assets to meet its current liability. But on the
other hand this also shows that company has lot of blocked fund, which is
not properly utilized, this is not a good sign for company. On contrary Prism
Cement Ltd has its current ratio is similar to 1 in all 4 years. This is also not
good for company health, because, company’s current liabilities are equal to
current assets. So, company should invest more on current assets, for paying
all its current liabilities in time, without fail.
 2. Acid Test Ratio:
Quick Assets .
Acid Test Ratio=
Current Liabilities

2005-06 2006-07 2007-08 2008-09

JK Cement 2.21 1.96 1.91 2.45
Prism Cement 0.50 0.34 0.49 0.57

Interpretation: Here again JK Cement Ltd. is showing more liquidity

because its cash position is very high. This shows more blocked fund of JK
Cement Ltd. On the contrary Prism Cement Liquidity position is not good,
because Prism has maintained very low cash balance and its major part of
current assets is of Inventory.

3. Working Capital to total Assets Ratio

Working Capital
Working Capital to Total Assets Ratio=
Total Assets

2005-06 2006-07 2007-08 2008-09

JK Cement 0.24 0.20 0.21 0.29
Prism Cement 0.00 -0.05 0.02 0.01

2
Interpretation: Working Capital to Total Assets ratio for JK Cement Ltd is
consistent for every year but for Prism Cement Ltd. it is very fluctuating.
Because in 2005-06 it Working Capital was very low that’s why its WCTA
Ratio is 0.002 in 2005-06. In 2006-07 its working capital came to negative
and in 2007-08 and 2008-09 it is near to 0.02 and 0.01 respectively.

4. Retained Earnings to Total Assets Ratio

Retained Earnings
Retained Earnings to Total Assets Ratio
Total=Assets

2005-06 2006-07 2007-08 2008-09

JK Cement 0.46 0.48 0.56 0.55
Prism Cement -0.19 0.20 0.43 0.43

3
Interpretation: Retained Earnings to Total Assets is a measure of
reinvestment of earning. JK Cement Ltd is maintaining ratio of 0.46 to 0.56 in
respective years. But for Prism Cement Ltd. it is in negative in 2005-06 but
become positive in 2006-07, 2007-08 and 2008-09 respectively.

Leverage Ratio

1. Debt-Equity Ratio:
Debt
Debt-Equity Ratio=
Equity

2005-06 2006-07 2007-08 2008-09

JK Cement 0.86 0.68 0.48 0.48
Prism Cement 0.43 0.00 0.00 0.00

Interpretation: Here both companies are in good position because their

debt-equity ratio is less than 1. In 2005-06 JK Cement Ltd ratios was 0.86
which is now decrease to 0.48. it means company has redeemed its debt and
enjoying its reserves & Surplus for further financing. On the contrary Prism
Cement Ltd. has redeemed all its debt in 2006-07 and using its equity &
reserves for further investment.

4
 2. Interest Coverage Ratio
Earnings Before Interest & Tax
Interest Coverage Ratio= Interest

2005-06 2006-07 2007-08 2008-09

JK Cement 1.90 8.83 10.66 6.14
Prism Cement 5.81 51.70 99.67 47.76

Interpretation: Here in 2005-06 interest coverage Ratio of was very low for
JK Cement as well as Prism Cement Ltd because they have to pay more
interest due to more debt in capital structure. From next years, their interest
coverage ratio is increased because of lesser debt fund. For Prism it is almost
100 times in 2007-08 because its debt is totally near to zero so their interest
amount is very less. That is good for company because their fixed liabilities
can easily met by its earning.

3. Market Value of Equity / Total Debt

Market Value of Equity
Market Value of Equity to Total Debt= Total Debt

2005-06 2006-07 2007-08 2008-09

JK Cement 1.53 1.81 2.23 0.49
Prism Cement 7.72 0.00 0.00 0.00

5
Interpretation: Market Value of Equity to Total Debt ratio is measure of
Leverage of company. For JK Cement Ltd it is constant i.e. 1.53 in 2005-06,
1.81 in 2006-07, 2.23 in 2007-08 and 0.49 in 2008-09. For Prism Cement Ltd.
it is very high because Prism finance mainly from equity financing. In 2006-
07 it has redeemed all its debt so debt portion become Zero. That’s why in
2005-06 it is 7.72 but from 2006-07 to 2008-09 it came to infinite because
denominator becomes zero.

Turnover Ratio

1. Inventory Turnover Ratio:

Cost of goods sold
Inventory Turnover Ratios=
Average Inventory

2005-06 2006-07 2007-08 2008-09

JK Cement 14.73 15.77 16.15 14.97
Prism Cement 21.95 12.02 11.62 8.63
Average Inventory
Inventory Turnover Period (In days) X 365
Cost=
of Goods Sold

2005-06 2006-07 2007-08 2008-09

JK Cement 24.78 23.14 22.60 24.38
Prism Cement 16.63 30.37 31.42 31.88

6
Interpretation: Inventory Turnover Ratio is good for both companies. For JK
Cement Ltd. it is consistent and almost same for all 4 financial year. But for
Prism Cement Ltd. it is decreasing in consequent years. Although, higher the
ratio, the more efficient management of inventories and vice versa.
However, this may not always true. A high inventory turnover may be caused
by a low level of inventory which may result in frequent stock outs and loss
of sales and customer goodwill.

2. Debtor Turnover Ratio

Credit sales during Year
Debtor Turnover Ratio=
Average Balance of Debtors

7
 2005-06 2006-07 2007-08 2008-09
JK Cement 25.08 28.25 30.36 34.03
Prism Cement 78.59 84.64 252.22 371.15

Interpretation: Here again both companies are showing good performance

because higher the debtor turnover ratio is good for company. For JK Cement
Ltd it has ranges from 25 to 34 times in all four years. It means JK Cement
ltd. has adopted consistent credit policy for its debtor. On the contrary for
Prism cement Ltd. it is very rigid policy. They do not provide credit facility for
its customers. Their most of sale is cash sale. That’s why its debtor turnover
ratio is continuously raising.

4. Fixed Assets Turnover Ratio

Net Sales
Fixed Assets Turnover Ratio=
Fixed Assets

2005-06 2006-07 2007-08 2008-09

JK Cement 0.97 1.35 1.45 1.30
Prism Cement 3.28 2.16 2.35 1.61

8
Interpretation: Here Fixed Assets Turnover Ratio is Higher for Prism
Cement Ltd. this indicates a high degree of efficiency in asset utilization. On
the other hand it is very low for JK Cement Ltd. in 2005-06, but increases in
successive years.

5. Total Assets Turnover Ratio

Net Sales
Total Assets Turnover Ratio=
Total Assets

2005-06 2006-07 2007-08 2008-09

JK Cement 0.66 0.80 0.82 0.74
Prism Cement 2.38 1.36 1.19 0.74

Interpretation: Total assets Turnover Ratio is same as Fixed Assets

Turnover ratio. Only difference is that it considers the total asset instead of

9
fixed assets. Here again total Assets Turnover Ratio is good for Prism Cement
Ltd. in Initial Year but it is showing a decreasing trend. On the other hand it
is very low for JK Cement Ltd. showing inefficient employment of assets.

Profitability Ratio

1. Gross Profit Margin

Gross Profit X 100

Gross Profit Margin=
Net Sales
2005-06 2006-07 2007-08 2008-09
JK Cement 43% 53% 54% 50%
Prism Cement 44% 56% 52% 43%

Interpretation: Both the companies are maintaining consistent Gross Profit

Margin. JK Cement Ltd and Prism Cement Ltd both are maintaining almost 50
% Gross Profit in its total sales. In nutshell we can say that Prism cement Ltd
is getting more margin of GP as compare to JK Cement Ltd. But from 2007-08
onward JK Cement is more efficient in its manufacturing expenses and start
getting more GP Margin as compare to Prism Cement Ltd.

2. Net Profit Margin

Net Profit X 100

Net Sales 10
Net Profit Margin=

2005-06 2006-07 2007-08 2008-09

JK Cement 4% 14% 18% 10%
Prism Cement 11% 25% 28% 15%

Interpretation: Here both companies are getting lesser Net Profit Margin as
compare to GP Margin. It shows that Cement Industries have lot of
administrative expenses because of which its net profit margin is decreases.
In 2005-06 JK Cement Ltd was getting only 4% of sales as Net Profit. Its net
profit increases to 14%, 18% and 10% in successive financial year. For Prism
cement Ltd. it is 14% in 2005-06 and increases to 25%, 28% and 15%
respectively in successive years. Here again Prism Cement Ltd. is performing
better than JK Cement Ltd.

3. Return on Assets

Return on Assets=Profit after Tax X 100

Average Total Assets
2005-06 2006-07 2007-08 2008-09
JK Cement 2% 12% 15% 7%
Prism Cement 13% 34% 33% 11%

11
Interpretation: Return on assets means return on total investment made in
current assets as well as fixed assets. For JK Cement it is very low in 2005-06
i.e. 2%. It increases to 12%, 15% and then 7% in respective years. For Prism
cement Ltd. it is 13% in 2005-06 and increases to 34%, 33% and 11% in
respective years.

4. Earning Power

Profit before interest & Tax

Earning Power= X 100
Average Total Assets
2005-06 2006-07 2007-08 2008-09
JK Cement 8% 20% 22% 14%
Prism Cement 23% 53% 43% 18%

Interpretation: Again in Earning Power also Prism Cement Ltd is performing

better then JK Cement Ltd. Earning Power Ratio is showing increasing trend
in 2006-07 and 2007-08 but in 2008-09 again it decreases for both company.

5. Return on Capital Employed

Profit before interest after Tax X 100

12
Average Total Assets
Return on Capital Employed=

2005-06 2006-07 2007-08 2008-09

JK Cement 7% 14% 17% 9%
Prism Cement 34% 35% 33% 12%

Interpretation: For JK Cement Ltd. in 2005-06 Return on capital Employed

is 7% and increases to 14%, 17% and 9% respectively. For Prism Cement
Ltd. it is 34%, 35%, 33% and 12% in respective Year.

6. Return on Equity

Return on Equity=
Equity Earnings X 100
Average Equity

2005-06 2006-07 2007-08 2008-09

JK Cement 6% 24% 28% 13%
Prism Cement 25% 58% 47% 15%

13
Interpretation: Again, in Return for equity share holder, Prism Cement Ltd
is giving good return to its shareholder i.e. 25% in 2005-06, 58% in 2006-07,
47% in 2007-08 and 15% in 2008-09. For JK Cement Ltd. it is 6% in 2005-06,
24% in 2006-07, 28% in 2007-08 and 13% in 2008-09 respectively.

Earnings Per Share

EPS=Earning Available for Equity Shareholder

Number of Outstanding Share
2005-06 2006-07 2007-08 2008-09
JK Cement 6.36 25.54 37.92 20.36
Prism Cement 2.08 6.46 8.10 3.23

14
Interpretation: In case of EPS JK Cement is giving good return as compare
to Prism Cement Ltd. In 2005-06, JK Cement’s EPS is 6.36, 25.54 in 2006-07,
37.92 in 2007-08 and 20.36 in 2008-09. For Prism Cement Ltd. it is 2.08 in
2005-07, 6.46 in 2006-07, 8.10 in 2007-08 and 3.23 in 2008-09 respectively.

Valuation Ratio

1. Price Earnings Ratio

Market Price per share

Price Earnings Ratio=
Earnings per Share

2005-06 2006-07 2007-08 2008-09

JK Cement 27.35 5.66 4.30 1.95
Prism Cement 13.43 6.67 4.15 7.05

Interpretation: High Price-Earnings Ratio show good market return for

equity shareholder. In 2005-06 PE Ratio for JK Cement is 27.35 times. It
shows that investor see good growth prospect in future. But from next year

15
onward its PE Ratio is decreased sharply. It is 5.66 in 2006-07, 4.30 in 2007-
08 and 1.95 in 2008-09. For Prism Cement Ltd. it is 13.43 in 2005-06, 6.67 in
2006-07, 4.15 in 2007-08 and 7.05 in 2008-09, respectively.

2. EV-EBIDTA Ratio

Enterprise Value .
EV-EBIDTA Ratio=
Earnings before interest, taxes, depreciation and amortization

2005-06 2006-07 2007-08 2008-09

JK Cement 9.58 4.45 3.78 2.44
Prism Cement 6.71 3.88 2.85 3.78

Interpretation: EV-EBIDTA is also a tool to reflect profitability. In 2005-06 JK

Cement Ltd was showing EV-EBIDTA ratio of 9.58 times, which was good
indicator for company. But for next year’s this ratio decreases to 4.45 in
2006-07, 3.78 in 2007-08 and 2.44 in 2008-09. For Prism Cement Ltd it is
6.71 times in 2005-06, 3.88 in 2006-07, 2.85 in 2007-08 and 3.78 in 2008-
09.

Bankruptcy Forecasting

Altman Z-Score

Z = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5

Where X1 = Working Capital to Total Assets Ratio

16
 X2 = Retained Earnings to Total Assets

X3 = EBIT to Total Assets

X4 = Market Value of Equity to Book Value of Debt

X5 = Sales to Total Assets

2005-06 2006-07 2007-08 2008-09

JK Cement 2.77 3.46 3.91 2.60
Prism Cement 7.50 3.33 3.25 1.95

Interpretation: Here JK Cement Ltd is showing very healthy firm because

its ratio is more than 2.99 in all years. For Prism Cement Ltd it is more than
JK Cement Ltd but in graph it is showing decreasing trend because its debt is
zero, so, its market value of equity to book value of debt become zero.
Otherwise Prism is very sound company and it doesn’t show any bankruptcy

17
 Chapter 4

Finding, Suggestion
and Conclusion

1.1 Finding
1.2 Conclusion
1.3 Suggestion

18
4.1 Finding

Ratio Company 2005- 2006- 2007- 2008

06 07 08 -09
Net Sales JK Cement Ltd 873.70 1233.3 1458.2 1796.
3 5 84
Prism Cement 571.74 766.80 876.45 627.2
Ltd. 4

Predictor Ratio
Altman Z-Score JK Cement Ltd 2.77 3.46 3.91 2.60
Prism Cement 7.50 3.33 3.25 1.95
Ltd.

Profitability Ratio
Gross Profit Margin JK Cement Ltd 43% 53% 54% 50%
Prism Cement 44% 56% 52% 43%
Ltd.

Net Profit Margin JK Cement Ltd 4% 14% 18% 10%

Prism Cement 11% 25% 28% 15%
Ltd.

Return on Assets JK Cement Ltd 2% 12% 15% 7%

Prism Cement 13% 34% 33% 11%
Ltd.

Earning Power JK Cement Ltd 8% 20% 22% 14%

Prism Cement 23% 53% 43% 18%
Ltd.

Return on Capital JK Cement Ltd 7% 14% 17% 9%

Prism Cement 34% 35% 33% 12%
Ltd.

Return on Equity JK Cement Ltd 6% 24% 28% 13%

Prism Cement 25% 58% 47% 15%
Ltd.

19
Asset
Management
Ratio
Inventory Turnover JK Cement Ltd 14.73 15.77 16.15 14.97
Prism Cement 21.95 12.02 11.62 8.63
Ltd.

Debtors Turnover JK Cement Ltd 25.08 28.25 30.36 34.03

Prism Cement 78.59 84.64 252.22 371.1
Ltd. 5

Fixed Assets JK Cement Ltd 0.97 1.35 1.45 1.30

turnover
Prism Cement 3.28 2.16 2.35 1.61
Ltd.

Total Assets JK Cement Ltd 0.66 0.80 0.82 0.74

Turnover
Prism Cement 2.38 1.36 1.19 0.74
Ltd.

WC To Total Assets JK Cement Ltd 0.24 0.20 0.21 0.29

Prism Cement 0.00 -0.05 0.02 0.01
Ltd.

RE to Total Assets JK Cement Ltd 0.46 0.48 0.56 0.55

Prism Cement -0.19 0.20 0.43 0.43
Ltd.

Liquidity Ratio
Current Ratio JK Cement Ltd 2.65 2.48 2.31 2.89
Prism Cement 1.01 0.83 1.10 1.05
Ltd.

Acid Test Ratio JK Cement Ltd 2.21 1.96 1.91 2.45

Prism Cement 0.50 0.34 0.49 0.57
Ltd.

Debt Management

20
Ratio
Debt-Equity Ratio JK Cement Ltd 0.86 0.68 0.48 0.48

Prism Cement 0.43 0.00 0.00 0.00

Ltd.

Interest Coverage JK Cement Ltd 1.90 8.83 10.66 6.14

ratio
Prism Cement 5.81 51.70 99.67 47.76
Ltd.

Valuation Ratio
PE Ratio JK Cement Ltd 27.35 5.66 4.30 1.95

Prism Cement 13.43 6.67 4.15 7.05

Ltd.

EV-EBIDTA Ratio JK Cement Ltd 9.58 4.45 3.78 2.44

Prism Cement 6.71 3.88 2.85 3.78

Ltd.

Earnings Per Share JK Cement Ltd 6.36 25.54 37.92 20.36

Prism Cement 2.08 6.46 8.10 3.23

Ltd.

1. Both the companies use equity as source of finance. JK Cement Ltd is

using approximately 40% debt in its capital structure but Prism
Cement Ltd is not using any debt in last three year. In 2005-06 it was
using some part of debt but after this year they redeemed all debt and
relay on equity financing only.

2. Although Cement Industry is manly based on Land and Machinery. It

means its major application of fund in on long term basis. That’s why
investment on current assets on prism cement ltd is very low because

21
 their policy is to maintain low cash balance. On the other hand JK
Cement ltd is maintaining large cash balance. This is good because
they can meet their current liabilities very easily but this is also leading
to idle fund which in unproductive.

3. In 2005-06 JK Cement ltd interest coverage ratio was very low but after
this management has performed very well and able to maintain good
return. So, that they can easily cover its interest. On the other hand
Prism is performing very well and they are able to cover their interest
more than 50 times. This is because they are not using debt financing,
so their interest liability is very low and they can cover this very easily.

4. Prism Cement Ltd has maintained very rigid debtor or Receivable

Policy. They do not make any sales on credit. That’s why their debtor
turnover ratio is very high. On the other hand JK Cement ltd is using
liberal policy and providing credit period of 12 – 15 days.

5. Both the companies are maintaining good GP Margin but if we see Net
Profit then they are getting very less net profit. This shows that the
cement industry have lot of administrative, selling & Distribution
expenses. This lead to very less net profit for both companies. If we
compare both companies then Prism performance is better than JK
Cement Ltd.

6. PE Ratio of both companies are very fluctuating due to fluctuation in

Market. In 2005-06 MPS of both companies was very high but after that
there is slowdown in cement industry which leads to less MPS for both
companies. This lead to low PE Ratio for both firms.

7. JK Cement is also ahead on working capital management. Because

they are maintaining sufficient amount of current assets to make its
WC positive. But for Prism cement Ltd WC was in negative in 2006-07
this show poor management of working capital.

22
8. If we see bankruptcy prediction then both companies are performing
very well. There is no sign of bankruptcy for both companies. Atman Z-
score shows that both the companies are very healthy in its operation.

23
4.2 Conclusion

Although Production capacity of Prism Cement Ltd. is less then JK Cement

Ltd, but still performance of Prism Cement is very good. Performance of
prism Cement Ltd. is easily analyzed by the ratio mentioned follows.

1. Working capital positions of both the companies are not good. One is
maintaining over current assets and other one is under current assets.
Both the condition are not good for company. So, in current assets
both company fail to manage it.

2. As cement industry require more investment on fixed assets, that’s

why they rely more on equity financing. Although JK Cement Ltd. is
using 40:60 debt equity mix but prism is debt free. There is scope of
using debt as source of finance to increase the leverage of company.

3. Prism is maintaining very rigid debtor policy because of which its

debtor turnover ratio is very high. On the other hand JK cement Ltd. is
opting liberal policy to increase its sales.

4. JK Cement Ltd has issued lower equity as compare to Prism Cement

Ltd. that’s why its Earnings Per Share is very high as compare to Prism
Cement Ltd.

5. PE Ratio of JK Cement Ltd. is high as compare to Prism Cement Ltd.

which shows good future prospects, good return for investors. But from
2006-07 its MPS start falling due to certain news in market about
cement industry. This also affects the market price of Prism Cement
Ltd.

24
6. Prism cement Ltd is also providing good return to equity share holder
as compare to JK Cement Ltd.

25
4.3 Suggestion & Recommendation

1. Prism cement Ltd should manage its working capital properly to

maintain its liquidity position. Since its current assets is very low
against current liability which lead to lower or negative working capital
as well as current ratio. Similarly JK Cement Ltd is maintaining huge
cash balance which is symptom of idle/unproductive fund.

2. For Prism Cement Ltd, there is scope of raising fund from debt
financing. This will increase financial leverage for a company. It will
also reduce tax burden and increase EPS for shareholder.

3. Prism Cement Ltd also liberalized its debtor policy to increase its sales.
If credit period for customer will increase then ultimately sales will
increase.

4. Both company have huge administrative and other expenses, this

reduces its net profit. So, company try to minimize its administrative
expenses to enhance its sales.

26
Bibliography

1. Annual Report of Prism Cement Ltd.& JK Cement Ltd.

2. www.jkcement.com

3. www.money.rediff.com

4. www.5paisa.com

5. www.wikipedia.com

6. Sharma & Gupta, Management Accounting,

27