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INTRODUCTION TO TOPIC
INTRODUCTION
Meaning of Financial Analysis
The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step is to
arrange the information in a way to highlight significant relationship. The final step is
interpretation and drawing of inference and conclusions. Financial statement is the process of
selection, relation and evaluation.
To classify the items contained in the financial statement inconvenient and rational
groups.
To
make
comparison
between
various
conclusions.
Purpose of Analysis of financial statements
groups
to
draw
various
The following procedure is adopted for the analysis and interpretation of financial
statements:-
The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find out
whether these plans are properly executed or not.
The extent of analysis should be determined so that the sphere of work may be decided.
If the aim is find out. Earning capacity of the enterprise then analysis of income statement
will be undertaken. On the other hand, if financial position is to be studied then balance
sheet analysis will be necessary.
The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form. A
relationship is established among financial statements with the help of tools & techniques
of analysis such as ratios, trends, common size, fund flow etc.
The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for help indecision making.
The conclusions drawn from interpretation are presented to the management in the form
of reports.
company comparisons are useful in detecting changes in financial relationships and significant
trends.
2. Industry averages.
This basis compares an item or financial relationship of a company with industry averages (or
norms) published by financial ratings organizations such as Dun & Bradstreet, Moodys and
Standard & Poors. For example, Searss net income can be compared with the average net
income of all companies in the retail chain-store industry. Comparisons with industry averages
provide information as to a companys relative performance within the industry.
3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis of the
published financial statements of the individual companies. For example, Searss total sales for
the year can be compared with the total sales of its major competitors such as Kmart and WalMart. Intercompany comparisons are useful in determining a companys competitive position.
Tools of Financial Statement Analysis
Various tools are used to evaluate the significance of financial statement data. Three commonly
used tools are these:
Ratio Analysis
Ratio Analysis:
Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative)
factors of a company. The other side considers tangible and measurable factors (quantitative).
This means crunching and analyzing numbers from the financial statements. If used in
conjunction with other methods, quantitative analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers from the balance sheet, income statement,
and cash flow statement. It's comparing the number against previous years, other companies, the
industry, or even the economy in general. Ratios look at the relationships between individual
values and relate them to how a company has performed in the past, and might perform in the
future.
Meaning of Ratio:
A ratio is one figure express in terms of another figure. It is a mathematical yardstick that
measures the relationship two figures, which are related to each other and mutually
interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is
an expression relating one number to another. It is simply the quotient of two numbers. It can be
expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many
times. As accounting ratio is an expression relating two figures or accounts or two sets of
account heads or group contain in the financial statements.
Meaning of Ratio Analysis:
Ratio analysis is the method or process by which the relationship of items or group of items in
the financial statement are computed, determined and presented.Ratio analysis is an attempt to
derive quantitative measure or guides concerning the financial health and profitability of
business enterprises. Ratio analysis can be used both in trend and static analysis. There are
several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the
purpose and the objective of analysis.
While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus
on a technique, which is easy to use. It can provide you with a valuable investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares financial
ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, you could use a ratio of a company's debt to its
equity to measure a company's leverage. By comparing the leverage ratios of two companies,
you can determine which company uses greater debt in the conduct of its business. A company
whose leverage ratio is higher than a competitor's has more debt per equity. You can use this
information to make a judgment as to which company is a better investment risk.
However, you must be careful not to place too much importance on one ratio. You obtain a better
indication of the direction in which a company is moving when several ratios are taken as a
group.
Objective of Ratios:
Ratios are worked out to analyze the following aspects of business organizationA) Solvency1) Long term
2) Short term
3) Immediate
B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing
Forms of Ratio:
Since a ratio is a mathematical relationship between two or more variables / accounting figures,
such relationship can be expressed in different ways as follows
A] As a pure ratio:
For example the equity share capital of a company is Rs. 20, 00,000 & the preference share
capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is
20,00,000: 5,00,000 = 4:1.
B] As a rate of times:
In the above case the equity share capital may also be described as 4 times that of preference
share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs.
30,00,000. So the ratio of credit sales to cash sales can be described as
2.5 [30,00,000/12,00,000] = 2.5 times are the credit sales that of cash sales.
C] As a percentage:
In such a case, one item may be expressed as a percentage of some other items. For example, net
sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the
gross profit may be described as
conditions for calculations for meaningful conclusions. The accounting figures are inactive in
them & can be used for any ratio but meaningful & correct interpretation & conclusion can be
arrived at only if the following points are well considered.
1) The dates of different financial statements from where data is taken must be same.
2) If possible, only audited financial statements should be considered, otherwise there must
be sufficient evidence that the data is correct.
3) Accounting policies followed by different firms must be same in case of cross section
analysis otherwise the results of the ratio analysis would be distorted.
4) One ratio may not throw light on any performance of the firm. Therefore, a group of
ratios must be preferred. This will be conductive to counter checks.
5) Last but not least, the analyst must find out that the two figures being used to calculate a
ratio must be related to each other, otherwise there is no purpose of calculating a ratio.
Classification of Ratio:
CLASSIFICATION OF RATIO
BASED ON FINANCIAL
BASED ON FUNCTION
BASED ON USER
STATEMENT
1] BALANCE SHEET
RATIO
1] LIQUIDITY RATIO
2] LEVERAGE RATIO
1] RATIOS FOR
SHORT TERM
2] REVENUE
3] ACTIVITY RATIO
STATEMENT
4] PROFITABILITY
RATIO
RATIO
3] COMPOSITE
5] COVERAGE
RATIO
RATIO
CREDITORS
2] RATIO FOR
SHAREHOLDER
3] RATIOS FOR
MANAGEMENT
4] RATIO FOR
LONG TERM
CREDITORS
are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio,
Stock turnover ratio.
3] Composite ratio:
These ratios indicate the relationship between two items, of which one is found in the balance
sheet & other in revenue statement.
There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the
concern. E.g. return on capital employed, return on proprietors fund, return on equity
capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend
payout ratios, & debt service ratios
Based on Function:
Accounting ratios can also be classified according to their functions in to liquidity ratios,
leverage ratios, activity ratios, profitability ratios & turnover ratios.
1] Liquidity ratios:
It shows the relationship between the current assets & current liabilities of the concern e.g. liquid
ratios & current ratios.
2] Leverage ratios:
It shows the relationship between proprietors funds & debts used in financing the assets of the
concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios.
3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover ratios &
productivity ratios e.g. stock turnover ratios, debtors turnover ratios.
4] Profitability ratios:
a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios,
operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on investment, return on
equity capital.
5] Coverage ratios:
It shows the relationship between the profit on the one hand & the claims of the outsiders to be
paid out of such profit e.g. dividend payout ratios & debt service ratios.
Based on User:
1] Ratios for short-term creditors:
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:
Return on proprietors fund, return on equity capital
3] Ratios for management:
Return on capital employed, turnover ratios, operating ratios, expenses ratios
4] Ratios for long-term creditors:
Debt equity ratios, return on capital employed, proprietor ratios.
Liquidity Ratio: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations.
The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio,
and Cash ratio. These ratios are discussed below
Current Ratio
Meaning:
This ratio compares the current assets with the current liabilities. It is also known as working
capital ratio or solvency ratio. It is expressed in the form of pure ratio.
E.g. 2:1
Formula:
Current assets
Current ratio =
Current liabilities
The current assets of a firm represents those assets which can be, in the ordinary course of
business, converted into cash within a short period time, normally not exceeding one year. The
current liabilities defined as liabilities which are short term maturing obligations to be met, as
originally contemplated, with in a year.
Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current
assets include cash and bank balances; inventory of raw materials, semi-finished and finished
goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills
receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank
credit, and provision for taxation, dividends payable and outstanding expenses. This ratio
measures the liquidity of the current assets and the ability of a company to meet its short-term
debt obligation.
CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the
operating cycle of the firm and provides the funds needed to pay for CL. The higher the current
ratio, the greater the short-term solvency. This compares assets, which will become liquid within
approximately twelve months with liabilities, which will be due for payment in the same period
and is intended to indicate whether there are sufficient short-term assets to meet the short- term
liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face
liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is
under utilizing its current assets.
Liquid Ratio:
Meaning:
Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares the quick assets
with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1.
The term quick assets refer to current assets, which can be converted into, cash immediately or at
a short notice without diminution of value.
Formula:
Quick assets
Liquid ratio =
Quick liabilities
Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those
current assets that can be converted into cash immediately without any value strength. QA
includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory
and prepaid expenses are excluded since these cannot be turned into cash as and when required.
QR indicates the extent to which a company can pay its current liabilities without relying on the
sale of inventory. This is a fairly stringent measure of liquidity because it is based on those
current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio
because they are deemed the least liquid component of current assets. Generally, a quick ratio of
1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts
and payments.
Cash Ratio:
Meaning:
This is also called as super quick ratio. This ratio considers only the absolute liquidity available
with the firm.
Formula:
Cash + Bank + Marketable securities
Cash ratio
=
Total current liabilities
Since cash and bank balances and short term marketable securities are the most liquid assets of a
firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to
the current liabilities then it may affect the profitability of the firm.
Investment/ Shareholder
Earnings per Share are calculated to find out overall profitability of the organization. Earnings
per Share represent earning of the company whether or not dividends are declared. If there is
only one class of shares, the earning per share are determined by dividing net profit by the
number of equity shares.
EPS measures the profits available to the equity shareholders on each share held.
Formula:
Net Profit after Tax
Earnings per share =
Number of equity share
The higher EPS will attract more investors to acquire shares in the company as it indicates that
the business is more profitable enough to pay the dividends in time. But remember not all profit
earned is going to be distributed as dividends the company also retains some profits for the
business
*100
Earning per share
D/P ratio shows the percentage share of net profits after taxes and after preference dividend has
been paid to the preference equity holders.
Gearing
Gearing means the process of increasing the equity shareholders return through the use of debt.
Equity shareholders earn more when the rate of the return on total capital is more than the rate of
interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio
shows the relationship between two types of capital viz: - equity capital & preference capital &
long term borrowings. It is expressed as a pure ratio.
Formula:
Preference capital+ secured loan
Capital gearing ratio =
Equity capital & reserve & surplus
Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a
concern.
Profitability
These ratios help measure the profitability of a firm. A firm, which generates a substantial
amount of profits per rupee of sales, can comfortably meet its operating expenses and provide
more returns to its shareholders. The relationship between profit and sales is measured by
profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit
Margin.
its production, purchase, selling & inventory, how good its control is over the direct cost, how
productive the concern , how much amount is left to meet other expenses & earn net profit.
Gross profit
Gross profit ratio
* 100
Net sales
* 100
Net sales
This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as
a percentage of net sales. It measures the overall efficiency of production, administration, selling,
financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios
provide an understanding of the cost and profit structure of a firm.
Return on Capital Employed:Meaning:
The profitability of the firm can also be analyzed from the point of view of the total funds
employed in the firm. The term fund employed or the capital employed refers to the total
long-term source of funds. It means that the capital employed comprises of shareholder
funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net
working capital.
Capital employed refers to the long-term funds invested by the creditors and the owners of a
firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with
which the long-term funds of a firm are utilized.
Formula:
NPAT
Return on capital employed =
*100
Capital employed
Financial
These ratios determine how quickly certain current assets can be converted into cash. They are
also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in
managing assets. These ratios are based on the relationship between the level of activity
represented by sales or cost of goods sold and levels of investment in various assets. The
important turnover ratios are debtors turnover ratio, average collection period, inventory/stock
turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described
below:
higher
the
DTO,the
better
Formula:
Credit sales
Debtors turnover ratio =
Average debtors
Inventory or Stock Turnover Ratio (ITR)
Meaning:
it
is
for
the
organization.
ITR refers to the number of times the inventory is sold and replaced during the accounting
period.
Formula:
Cost of Goods Sold
Stock Turnover Ratio =
Average stock
ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is
the management of inventories, and vice versa. However, a high inventory turnover may also
result from a low level of inventory, which may lead to frequent stock outs and loss of sales and
customer goodwill. For calculating ITR, the average of inventories at the beginning and the end
of the year is taken. In general, averages may be used when a flow figure (in this case, cost of
goods sold) is related to a stock figure (inventories).
Fixed AssetsTurnover (FAT)
The FAT ratio measures the net sales per rupee of investment in fixed assets.
Formula:
Net sales
Fixed assets turnover =
Net fixed assets
This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a
high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets.
However, this ratio should be used with caution because when the fixed assets of a firm are old
and substantially depreciated, the fixed assets turnover ratio tends to be high (because the
denominator of the ratio is very low).
Proprietors Ratio:
Meaning:
Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders
fund to total assets. This ratio determines the long term or ultimate solvency of the company.
In other words, Proprietary ratio determines as to what extent the owners interest & expectations
are fulfilled from the total investment made in the business operation.
Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the
form of percentage. Total assets also know it as net worth.
Formula:
Proprietary fund
Proprietary ratio
OR
Total fund
Shareholders fund
Proprietary ratio =
Fixed assets + current liabilities
proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure
ratio. E.g. 2:1
Formula:
Total long-term debt
Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing
the equity shareholders return through the use of debt. Leverage is also known as gearing or
trading on equity. Debt equity ratio shows the margin of safety for long-term creditors & the
balance between debt & equity.
Return on Proprietor Fund:
Meaning:
Return on proprietors fund is also known as return on proprietors equity or return on
shareholders investment or investment ratio. This ratio indicates the relationship between net
profits earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which
the relationship between profit & investment by the proprietors in the concern. Its purpose is to
measure the rate of return on the total fund made available by the owners. This ratio helps to
judge how efficient the concern is in managing the owners fund at disposal. This ratio is of
practical importance to prospective investors & shareholders.
Formula:
NPAT
Return on proprietors fund =
* 100
Proprietors fund
Months in a year
Average age of accounts payable =
Credit turnover ratio
Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover
ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It
enhances credit worthiness of the company. A very low ratio indicates that the company is not
taking full benefit of the credit period allowed by the creditors.
3] Operating efficiency
4] Overall profitability
5] Inter firm comparison
6] Trend analysis.
1] Liquidity position: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a
firm. The liquidity position of a firm would be satisfactory if it is able to meet its current
obligation when they become due. A firm can be said to have the ability to meet its short-term
liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually
within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a
firm. The liquidity ratio is particularly useful in credit analysis by bank & other suppliers of short
term loans.
2] Long-term solvency: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This
respect of the financial position of a borrower is of concern to the long-term creditors, security
analyst & the present & potential owners of a business. The long-term solvency is measured by
the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power &
operating efficiency.
Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for
instance, will indicate whether a firm has a reasonable proportion of various sources of finance
or if it is heavily loaded with debt in which case its solvency is exposed to serious strain.
Similarly the various profitability ratios would reveal whether or not the firm is able to offer
adequate return to its owners consistent with the risk involved.
3] Operating efficiency:
Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of
management, is that it throws light on the degree of efficiency in management & utilization of its
assets. The various activity ratios measure this kind of operational efficiency. In fact, the
solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by
the use of its assets- total as well as its components.
4] Overall profitability:
Unlike the outsides parties, which are interested in one aspect of the financial position of a firm,
the management is constantly concerned about overall profitability of the enterprise. That is, they
are concerned about the ability of the firm to meets its short term as well as long term obligations
to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the
assets of the firm. This is possible if an integrated view is taken & all the ratios are considered
together.
comparison with the industry averages. A single figure of a particular ratio is meaningless unless
it is related to some standard or norm. One of the popular techniques is to compare the ratios of a
firm with the industry average. It should be reasonably expected that the performance of a firm
should be in broad conformity with that of the industry to which it belongs. An inter firm
comparison would demonstrate the firms position vice-versa its competitors. If the results are at
variance either with the industry average or with those of the competitors, the firm can seek to
identify the probable reasons & in light, take remedial measures.
6] Trend analysis:
Finally, ratio analysis enables a firm to take the time dimension into account. In other words,
whether the financial position of a firm is improving or deteriorating over the years. This is
made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in
the fact that the analysts can know the direction of movement, that is, whether the movement is
favourable or unfavourable. For example, the ratio may be low as compared to the norm but the
trend may be upward. On the other hand, though the present level may be satisfactory but the
trend may be a declining one.
Advantages of Ratio Analysis
Financial ratios are essentially concerned with the identification of significant accounting data
relationships, which give the decision-maker insights into the financial performance of a
company. The advantages of ratio analysis can be summarized as follows:
Ratios facilitate conducting trend analysis, which is important for decision making
and forecasting.
Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.
The comparison of actual ratios with base year ratios or standard ratios helps the
management analyze the financial performance of the firm.
Ratios require quantitative information for analysis but it is not decisive about analytical
output.
The figures in a set of accounts are likely to be at least several months out of date, and so
might not give a proper indication of the companys current financial position.
Where historical cost convention is used, asset valuations in the balance sheet could be
misleading. Ratios based on this information will not be very useful for decision-making.
When comparing performance over time, there is need to consider the changes in price.
The movement in performance should be in line with the changes in price.
When comparing performance over time, there is need to consider the changes in
technology. The movement in performance should be in line with the changes in
technology.
Changes in accounting policy may affect the comparison of results between different
accounting years as misleading.
3] Inter-firm comparison
Companies may have different capital structures and to make comparison of performance
when one is all equity financed and another is a geared company it may not be a good
analysis.
Inter-firm comparison may not be useful unless the firms compared are of the same size
and age, and employ similar production methods and accounting practices.
Even within a company, comparisons can be distorted by changes in the price level.
Ratios are calculated on the basis of past financial statements. They do not indicate future
trends and they do not consider economic conditions.
Gearing information on the relationship between the exposure of the business to loans
as opposed to share capital
Profitability how effective the firm is at generating profits given sales and or its capital
assets
Financial the rate at which the company sells its stock and the efficiency with which it
uses its assets
ratio calculated on the basis of historical financial statements may be of good assistance to
predict the future. Ratio analysis also helps to locate & point out the various areas, which need
the management attention in order to improve the situation.
As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity,
solvency, activity, profitability & overall performance, it enables the interested persons to know
the financial & operational characteristics of an organisation & take the suitable decision.
Fund Flow Analysis
Fund may be interpreted in various ways as
(a) Cash,
(b) Total current assets,
(c) Net working capital,
(d) Net current assets.
For the purpose of fund flow statement the term means net working capital. The flow of fund
will occur in a business, when a transaction results in a change i.e., increase or decrease in the
amount of fund.
According to Robert Anthony the funds flow statement describes the sources from which
additional funds were derived and the uses to which these funds were put.
In short, it is a technical device designed to highlight the changes in the financial condition of a
business enterprise between two balance sheets.
A Funds Statement
To help to understand the changes in assets and asset sources which are not readily evident in
the income statement or financial statement.
Applications
Fund lost in operations
Non-trading incomes
Non-operating expenses
Issue of shares
Issue of debentures
Redemption of debentures
Borrowing of loans
Repayment of loans
Acceptance of deposits
Repayment of deposits
5. It helps the management in planning the repayment of loans, credit arrangements etc.
Steps in Preparing CFS
1. Opening of accounts for non-current items (to find out the hidden information).
2. Preparation of adjusted P&L account (to find out cash from operation or profit, and cash
lot in operation or loss).
3. Comparison of current items (to find out inflow or outflow of cash).
4. Preparation of Cash Flow Statement.
To preparing Account for all non-current items is easier for preparing Cash Flow Statement.
Cash from operation can be prepared by this formula also.
Net Profit + Decrease in Current Assets
OR
Increase in Current Liabilities
OR
Decrease in Current Liabilities.
If a company does not have adequate cash, employees cannot be paid, debts settled, or
dividends paid. Employees, creditors, and stockholders should be particularly interested
in this statement, because it alone shows the flows of cash in a business.
1. The reasons for the difference between net income and net cash
Net income provides information on the success or failure of a business enterprise. However,
some are critical of accrual basis net income because it requires many estimates. As a result, the
reliability of the number is often challenged. Such is not the case with cash. Many readers of the
statement of cash flows want to know the reasons for the difference between net income and net
cash provided by operating activities. Then they can assess for themselves the reliability of the
income number.
In summary, the information in the statement of cash flows is useful in answering the following
questions.
How did cash increase when there was a net loss for the period?
Amount
Outflow of cash
Amount
***
***
Redemption of debentures
***
Sales of assets
***
Repayment of loans
***
Issue of debentures
***
Payment of dividends
***
Raising of loans
***
Pay of tax
***
***
***
Refund of tax
***
***
CHAPTER-2
LITERATURE REVIEW
LITERATURE REVIEW
1. Pandey, I.M. Financial Management, 3rd edition, New Delhi, Vikas Publication
House Pvt. Ltd. P-73to97(long term financial position or solvency in this I
studied about debt ratio, fund debt to total capitalization ratio, equity ratio
etc.)
5 th ed,ition,Kalyani
Publishers,New Delhi, P.No 23.1-23.9(working capital management and
finance)
7. Jain, ,T.R., and Aggarwal, Dr. S.C., Statistics For M.B.A,VK publication, PP1-3
Part b, , 2nd Edition ,PP 131-134 Part (Correlation is studied to use these
test in study.)
8. Gupta S.P. and Gupta M.P., Business Statistics, Twelth Edition, Sultan Chand
and Sons Publications. PP 237-241,628-629 (test hypotheses testing) .
account)
account)
CHAPTER-4
COMPANY PROFILE
COMPANY PROFILE
BALLARPUR INDUSTRIES LIMITED, popularly known as BILT is 'efficiently managed',
'financially sound', and 'self sufficient' and 'self made ' company is under the flagship of the
coveted THAP AR GROUPS.
Ballarpur Industries Limited (BIL T) is known as the backbone of the Thapar group. The founder
of the Thapar group was Late Lala Karam Chand Thapar (19001962). One of themost illustrious
industrial chains in India, Thapar group consists of many major industries such as paper,
chemicals, glass, pulp, china clay, electronics etc. There are 54 companies and 84 plants under
this group. Some of the main companies under this group are Crompton Greaves, K.C.L, Bros
JCT Limited, BIL T.
BILT, which is originally incorporated in 1945 as Ballarpur Straw Board Mills, has changed its
name in March 1946 to Ballarpur paper and straw board mills and again it was changed to the
present name in October 1975. Since then the company has grown to be a leader in paper
industry by continuous expansion and modernization of its capacity and plant and strategic
acquisitions.
BIL T is the undisputed leader in the Indian paper industry. It is also India's largest manufacturer
and exporter of paper, with a strong presence in all segments of the usage spectrum that includes
Writing & Printing Paper, Industrial Paper and Specialty Paper. Complementing this is a
diversified production infrastructure with six manufacturing units spread across the country.
In recent years, BIL T has evolved as a more dynamic, knowledge driven organization focused
towards creation of stakeholder value. In the process, it has also transformed the paper industry
from its traditional 'commodity market' mindset to a branded one. A concerted program of
innovation and technological excellence helps it pro actively respond to the needs of each
individual segment. Today, BILT not only has the range, but also a well entrenched distribution
network that enables it to reach customers, any time, any place.
As the industry leader, BIL T is committed to developing its business towards ecological, social
and economic sustainability. Community development and upliftment of the marginalized class
have been identified as focus areas. BIL T has joined hands with Pratham, an NOO that runs
primary education programs all over the country. A key initiative in environmental accountability
is the BIL T Farm forestry program that has covered more than 7500 farmers since 2001.
BIL T is the largest and most respected paper company in India and a leader in the segments of
writing and printing paper. It also enjoys a sustainable presence in the key global markets. In
recent years, BIL T has evolved as a knowledge driven and customer centric organization
LOCATIONS
The group is headquartered in Gurgaon. They have factories in the following locations:Unit Ballarpur or Ballarshah (Maharashtra)-factory started in 1956
Unit Shree gopal (Yamunanagar, Haryana)-factory started in 1936
Unit Sewa (Orissa)
Unit Bhigwan (Pune)
Unit Kamalapuram (Andhra Pradesh)
Unit Asthi
Board of Directors
Executive
Independen
t
VISION
Our aspiration is to become a leading creator of Shareholder Value in the Paper Industry.
To achieve this, we will use the ENERGY of our people, develop and implement leading edge
technologies and draw on both to deliver effective world-class solutions to our customers.
MISSION
To achieve this, we will ENERGISE our people, with a positive culture that rewards
INNOVATION, breeds INITIATIVES and encourages INTELLIGENT risk taking.
To consistently outperform expectations and deliver superior value to both our Customers and
Stakeholders
CORE VALVES
Respect for Individual: Giving each person room to contribute and grow.
Respect for Knowledge: To acquire and apply leading edge expertise in all aspects of our
business.
Team Performance: The team comes first; none of us is as good as all of us!
ENVIRONMENTAL POLICY
BIL T believes in synergizing business interests with environmental accountability. We the Shree
Gopal Unit follow stringent environment management systems and are moving towards ISO
14001 certification. Furthering its drive towards protecting the environment and reducing
Install, maintain and operate facilities to comply with all applicable environmental laws
and other regulations.
QUALITY POLICY
We are the manufactures and supplies of various grades of paper and coated paper and board. It
will be our endeavour to continuously improve the quality and service of our products for better
customer satisfaction.
Every individual in the unit shall stand committed and focused to this stage objective by
adopting total quality management (TQM) metrology aimed at continuous improving our system,
practices and preference. Thus constantly reducing cost through minimizing wastage. We shall
be committed to comply with the requirements if international standards on quality management
system and continually improve its effectiveness in its true sprite through involvement of
employees and training.
TQM
Dr. N. Edwards denings 14 points
1) Create constancy of purpose toward improvement
2) Adopt the new philosophy.
3) Cease dependence on inspection to achieve quality.
Promoting the well being and development of employees and their families through an
inspiring corporate culture that engenders good values.
Building active and long term partnership with communities in which we operate to
significantly irt,1_prove condition of the most disadvantaged amongst them
Observe good business -practice with other stakeholders i.e. business partners: customers,
distributors, suppliers and contractors.
STRATEGIC INTENT
BILT, in the recent years has evolved as a more dynamic, knowledge-driven organization with a
singular focus on creating stakeholder value. Aimed at making the organization more marketoriented and customer-centric, the following initiatives are to drive BIL T forward in the rapidly
changing business environment:
Brand Building: Increasing brand involvement for the products amongst customers to
reduce market fragmentation and attain "generic brand" status via strategic building.
Wider Product Range: Adding high value-added products to BIL T's portfolio expanding
it to cover the widest range of basic to high-end usage paper products.
Captive Market Share: Sustaining and strengthening BIL T's leadership position in its
market segments way ahead of competitors.
enables BILT to serve its markets in a customized and localized manner and attain higher
penetration, without losing the economies of scale.
MARKET SCENARIO
The global paper market is dominated by North America, Europe and Asia. Broadly, the
industry is classified into two segments paper and paperboard (writing, printing,
packaging, tissues and newsprint)
The writing and printing paper market is further divided into coated and uncoated
segment, each with their own market characteristics.
BILT operates predominately in the writing and printing paper space and has also made
an initial foray into tissues.
BILT continue to be a leading player in the writing and printing paper industry in India
with a paper sale of~ 1053567 crore in 2008-09.
Its business can broadly be divided into six segments
1) Coated wood free
2) Uncoated wood free
3) Copier
4) Cremwove
5) Business Stationary
6) Tissue
BUSINESS SEGMENTS
BIL T services its customers' needs for quality Paper - both in India as well as overseas. Their
paper touches the customers' lives every day. In more ways than they even know. Stationery,
playing cards, high quality coated paper for brochures and magazines, currency notes, copier
paper ... They service these everyday instances across the length and breadth of the nation with
their wide product portfolio ranging from basic to high-end specialty paper.
Business Stationary
Copy Paper
While these indicate their broad product segments, BIL T also continuously focuses on serving
customers with customized, value-added products to suit specific applications.
PRODUCTS AND BRANDS
Segments
BILT Brands
Sunlit Bond
Art Board
DISTRIBUTION NETWORK
Over the decades, BIL T has transitioned from the 'metro' concept to cross country distribution.
While their five manufacturing facilities for paper and pulp are strategically spread across the
country, we have assiduously brought their products within physical proximity of the customers.
Their network of 126 dealers - the largest within the industry in India - is present across the
principal consuming centres of the country. Strategically implemented Enterprise Resource
Planning (ERP) System, real-time logistics and Just-in-Time (DT) inventory solutions enable
highly effective and efficient distribution of localized BIL T products across urban, semi-urban
and rural consumption centres nation-wide. A direct marketing initiative by the company to
establish a two away interaction with customers is another help forward in this direction.
Business world FICCI award: Bilt received a citation award for its CSR projects and was
one of the six companies selected.
Business for social responsibility award: Bilt's CSR projects were one of the five
companies selected for this award,
SWOT Analysis
Strengths:
Efficient management.
Earn building.
Opportunities:
Weaknesses:
Shortage of funds.
Threats:
Imported paper.
Government policies.
Increase in competition.
Unit Profile
Infrastructure: Integrated operations with captive pulp, power and chemical recovery plants
Certification: Award certification by Ministry of Power, Govt. of India and ISO 9001 :2000
certified for Quality Management System
Unit Shree Gopal is situated at Yamunanagar in Haryana. It contributes about 20% towards total
production of paper manufactured by BIL T. This mill was taken by Thapar in 1937. It took over
years in the process of rebuilding, expansion and diversification. BILT- Unit Shree Gopal,
Yamunanagar is producing paper at 129% of its capacity utilization. BIL T -SGU like any other
paper industry is highly energy intensive.
Today Unit Shree Gopal is one of the largest unit of BIL T. This unit is made for achieving much
in terms of increased output, greater efficiency in input consumption and rendering a better and
prompt services to the customers. The unit produces 721 different brands of paper only in the
form of rolls and reams. The unit employs 3300 people and manufactures quality writing,
printing and coated paper. The unit has six large and high- speed machines that takes in all kinds
of raw materials like grasses, bagasse, cotton waste to turnout special paper with an exquisite
finish.
The unit also has three-pulp machine to convert raw material into pulp for paper, capacity of
seven-paper machine is 70000 tonnes of paper, along with that unit also has got two paper
coating machines with a capacity of production 17000 tonnes of coated paper.
Products Manufactured:
Unit Shree Gopal has improved its product mix and is going up the value chain. The new
products manufactured are:
In the present scenario and trend of knowledge management it is the tacit knowledge, which
brings success stories for the organizations. So like any other the organizations BIL T is also
trying to utilize its manpower as best as possible. So, the HRD (PDC) department is one of the
most important departments of the unit SHREE GOP AL, which is working parallel to all other
departments and coordinating with them. This department looks after all issues regarding -
To maintain attendance, leave, overtime duty, records of all employees, consolidating the
working days at the end of the month and advice accounts department for payment of
salary.
Attendance Rule - 9 min grace period is allowed to both clerical and management staff at the
start of the shift and also during shift breaks. If a person is late by more than 9 min, he has to
submit a short leave.
Vacancies
Shut
Casual
New job
Paid holiday
Leave rules: For clerical staffs - Leave year 1st January to 31st December.
For management staffs -Leave year 1st April to 31'st March.
Canteen: A canteen is being run in the unit as per statutory requirements, where the employees
are being provided facilities of food and snacks at subsidized rates. A 6member committee is
running its operation; with 3 members of each union, which is being chaired by DGM-PDC
.Approximately, it serves 300 lunches and 150 dinners per day. Employees are being charged at a
very nominal rate of RS I.SO/meal. Administration of quality control and rate is under the
welfare sections.
7. Performance Appraisal System:
Performance of the employees is appraised twice in a year. This system has been totally
computerized recently. Company has designed a website in the local area network of the
company and both the appraiser and appraise can access that through login and passwords.
Stores department
Material purchased on behalf on agency they use NQC(New Quest Agency)
3.
Creditor sector
4) Contractor payments all the payment done on the basis of. contract and the payment is
made at the end of 10th every month. Main contractor chirag
5.
Establishment
6. Costing ----product based costing profit is determined on the basis of costing department it
is determined weekly and it is also helpful in controlling wastage
7.
Sales tax sector--direct and indirect tax HDFC bank mainly financing
2.
3.
4.
5.
Main sources of pulp raw material are wood, bamboo and waste from wood products
manufacturing companies.
Around 600-700 tonnes of wood is required by the Pulper daily depending upon the
moisture conditions and the product mix.
This department checks the quality and moisture in wood and informs the raw material
department.
Sorting out of Veneer and chips is done in the stock yard to check any foreign particles
like plastic wires.
Water is first put on material and then on conveyers to make the dust settle.
Almost whole of the process is automatic except only for putting the material on the
conveyers.
Daily around 600-700 tonnes is chipped depending upon the weather conditions.
Silo Department
It's the storage tank for the chipped wood and veneer. Its main function is to store the
unused chipped wood.
It has automatic system at the top which itself selects the tank in which the chipped wood
is to be stored depending upon quantity already present.
Then when the felt from the digester starts the felts on the bottom of this tank also start
and the material starts getting pored on the belt and starts moving towards the digester.
The residual wood which is not cooked by the digester for the first time is added to the
felt at the bottom so as to reuse it.
Such residual wood is first checked for foreign particles before being put on the felt
again.
Pulp Department
The process starts when chipped wood stored in the SILO comes to this department where it's
filled" in the digesters for cooking then screened and washed to remove unwanted particles, such
particles are again refined and reused so there is minimum wastage, after which the pulp is
bleached to improve brightness and in the end its finally centric cleaned to remove minutes
possible foreign particles. Then it's stored in tanks before being taken from there for preparation.
The whole procedure is almost automatic only manual loading is done that to with help of
machines and just few operators are there to keep a check and make small adjustments.
After taking material from the blow tank for cooking it's passed through Junk Trap to remove
waste then it's screened to remove the uncooked material.
As there is formation of foam in the slurry of pulp chemical is added to remove foam. Then the
slurry is washed by passing it through 4 washers that use water for washing it and in the last
washer the color gets changed from black to brown. The hot water is added for washing in the 4 th
washer and it moves in the opposite direction from washer No.4 to No.1 and becomes
completely black in color which is then send to recovery department. Water is recycled and used
again and again. Talcum powder is added to the pulp in the 4 th washer after mixing it with water
so as to improve quality and bulk of the pulp.
SILO
Cooking
Screening
Bleaching
Centric cleaning
Bleach HD Towers
Pulp Department Process
This brown pulp is bleached in bleaching section to make the pulp white and by treatment of
chlorine gas at Chlorine gas tower. Again pulp is washed by Hypo treatment at Hypo plant so
that to remove residual chemical Fibre pulps are used to give strength in paper & these are fed
into stock preparation plant. Here colours are also added to make coloured paper. This ready
stuff is now fed in paper machine. The stuff is feeded at wire through head box so pulp is formed
into sheet and at wire section water in pulp is removed by gravity & by suction boxes.
The formed sheet is then fed into press part and the sheet is pressed in between rolls to remove
water. Then the paper is rotated in dryers section in dryers section. To remover further moisture
in web/paper and then fed into calendar part to get smoothness. Finally sheet is reminded on an
iron sheet roll (Rewinder)
These paper rolls are fed into finishing & converting house where paper sheet is converted into
sheet size (At cutter) & in reels. As per market demand, these bundles and reels are packed in
wrappers & with Hessian cloth. These bundles & reels are properly marked in excise & dispatch
godown.
Paper manufactured is used for mainly printing, copy manufacturing, computer stationary,
photocopy, typing, book printing, cover paper etc.
annual reports to check the performance of the unit and also to find out the reason behind
variances. This department has been further subdivided into nine functional departments that are:
1) Sales Tax: It handles all the sales tax work. As they are some goods which are sold
directly from the unit to the parties and others which are sold through the Head Office so
it's this department's job to see that payment of sales tax has to be made on which
transaction and has to keep proper records regarding such transactions.
2) AP: This department handles all the creditors. As there are lot of queries and
explanations have to be given, so this work is handled by a separate department. After
the goods are received it's their job to make the payments sanctioned and if there is any
problem then they handles the queries of the creditors regarding any deductions made by
the company.
3) Costing: Their job is to collect data from the different departments and to calculate the
costs incurred in the functioning of the unit. They prepare the reports and check the
variations from the budget if any. It helps in keeping a control over the various functions
being performed in the unit.
4) Establishment: It deals with labour payments. Its job is to keep a record of all the people
working in the organization, to get info. About their attendance from time office, keep
other records related to the payments due to the employees and to finally make such
payments through salary accounts.
5) Audit: This department basically handles the internal audit amongst the departments in the
organization and also between the various branches, offices and cutting centers.
6) AR: They handle the receivables. It's their duty to check the amount to be collected from a
debtor and to set credit limits for such debtors and to actually collect money from them.
7) Stores Accounting: Their duty is to help in procurement of the goods required by the
store. They are middlemen between the purchase department and the store. The store will
GP
r
e
s
i
d
e
Mn
t
inform them about the goods required and they will prepare a purchase order to be
submitted to the purchase department. They will tell the purchase department about the
specification of the items to be purchased and also suggest the best supplier.
8) Bill Matching: Their job is to check whether the goods received are that which were
required, to check the quantity and other specifications only after their checking the
goods will be issued to the concerned department.
ORGANIZATIONAL STRUCTURE15
It is a line organization having a full-fledged department to manage the finance budget, costing
and other matter of this department. The BILT works president has to manage two departments
mainly i.e. works and finance.
e
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a
a
n
a
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CHAPTER-5
OBJECTIVES & RESEARCH
METHODOLOGY
To study the trend of the gross revenue and profits of the firm.
The project include both primary & secondary source of data. The data collected through these
sources has organized, analyzed & interpret so as to draw conclusion &to arrive at appropriate
recommendations.
1. A primary source of data includes the personal interview from various accounts officers in the
enterprise.
2. The secondary sources of data include annual report, website of BILT Ltd. Company which
contains the details which is helpful for making my project report.
2. COLLECTION OR DATA
3. ORGANISATION F DATA
3. PRESENTATION OF DATA
4. ANALYSIS OF DATA
5. INTERPRETATION OF DATA
1. COLLECTION OF DATA:Both the primary & secondary data has been collected from the market & company. The
company provided the secondary data & primary data is collected through the medium of faceto-face interaction & interview from various persons in the enterprise.
2. ORGANISATION OF DATA:
Data once collected the further processing is done, the data collected by me are carefully done
through in a useful & relevant manner &properly organized.
3. PRESENTATION OF DATA:The data collection is of no use unless & until it is given in the presentable form. Thus after
proper organization the data is given in presentable form with the complete details, with the help
of bar diagram, pie carts etc.
4. ANALYSIS OF DATA:The data is carefully analyzed keeping in the consideration both the pros & cons for the purpose
of arriving at concrete conclusion.
5. INTERPRETATION OF DATA:After carefully analyzed the data, it has been aptly interpreted in order to give concrete
conclusion & proper recommendation.
ANALYTICAL TOOLS
RATIO ANALYSIS
MEANING OF RATIO:Ratio analysis is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios. It is the help of ratios that the financials statements
can be analyzed more clearly and decisions made from such analysis.
USE OF RATIOS:The use of ratio analysis is not confined to financial manager only. There are different parties
interested in the ratio analysis for knowing the financial position of firm for different purposes.
In view of various users of ratios, there are many types of ratios which can be calculated from
the information given in the financial statements. The particular purpose of user determines the
particular ratios that might be used for financial analysis.
STATISTICAL TOOLS
CORRELATION
REGRESSION
TREND ANALYSIS
1. CURRENT RATO:
CURRENT RATIO
CURRENT ASSETS
2006.24
CURRENT LIABILITIES
1527.01
CURRENT RATIO
1.31:1
Current ration is an indicator of the firms liquidity and it ability to pay its current obligations in
time when they become due. As a convention the minimum of two to one ratio is referred to as a
bankers rule of thumb. Current ratio of BILT Ltd. is 1.31:1, it is matter of concern. As a
manufacturing concern there is m ore investment in the capital goods but current assets also to be
increased accordingly to improve the current ratio. A business with heavy investment in fixed
assets may be successful even ration is low.
= 620.17
CURRENT LIABILITIES
=1527.01
QUICK RATIO
= .406
3. QUICK RATIO:
QUICK RATIO =QUICK ASSETS/CURRENT LIABLITIES
QUICK ASSETS= CURRENT ASSETS-SHORT TERM INVESTMENT-PREPAIED EXP.
QUICK ASSETS
1085.46 CRORE.
CURRENT LIABILITIES
1527.01 CRORE.
QUICK RATIO
0.71:1
= 5746.84 CRORE
AVG. STOCK
= 612.54 CRORE
Ratio
=
365/9.4
=5746.86 CRORE
AVG. DEBTORS
=221.09 CRORE
TURNOVER
=365/25.9
=14.04 DAYS (approx.)
= 111.915 cr
=13.165 times
This ratio calculated to measure the extent to which debt financing has been used in business.
Being a manufacturing concern there is more investment in the capital gods. Lower of ratio gives
the higher margin of safety. There is no standard norm or rule of thumb regarding this ratio. It
depends upon the policy of the company. Their no mach more risk in the companies operation
therefore they were rely on the shareholders funds
=3142.92 Crores
Total Assets
= 4379.62 Crores
STATISTICAL TOOLS
CORRELATION7
According to Croxton and Cowen, when the relationship is of a quantitative nature, the
appropriate statistical tool for discovering and measuring the relationship and expressing it in a
brief formula is known as correlation
CORRELATION BETWEEN PROFIT AND TURNOVER
GROSS
PARTICULARS REVENUE (G.R)
2000
3031.76
2001
333.77
2002
3465.35
2003
4038.83
2004
4640.47
2005
3815.1
2006
6586
PAT (x)
47.84
130.43
103.89
200.24
378.39
544.18
G.R (y)
3031.76
333.77
3465.35
4038.83
4640.47
3815.1
X=x-a
-328.86
-246.27
-272.81
-176.46
1.69
167.48
PROFIT AFTER
TAX (PAT)
47.84
130.43
103.89
200.24
378.39
544.18
1231.84
X^2
Y=y-b
Y^2
X.Y
108148.90 -669.84 448685.62 220283.58
60648.9 -3367.85 11342413.6 829400.41
74425.29
31138.13
2.85
28049.55
-236.27
337.21
938.85
113.48
2
55823.51
113710.58
881439.32
12877.71
64456.81
-59504.07
1586.65
19005.63
1231.84
6586
855.14
731264.42
x/7=
y/7=
X^2=
376.7
3701.62
1033678.0
2884.38
8319647.98 2466548.7
Y^2=
1
X.Y=
21174598.3 3541777.7
X.Y
R=
X^2.Y^2
R = 3541777.72/4678426.386
= +0.7570
IT IS A SITUATION OF HIGH POSITIVE CORRELATION
PEARSON'S
CORRELATION
TEST (PARAMETRIC TEST):
COEFFICIENT
Observed value
Two-tailed p-value
0.757
0.049
Alpha
0.05
Decision:
At the level of significance Alpha=0.050 the decision is to reject the null hypothesis of absence of
correlation.
In other words, the correlation is significant.
R (coefficient of correlation)
R (coefficient of determination)
Radj. (adjusted coefficient of determination)
SSR
0.757
0.573
0.488
9039090.316
The sum of squares of residuals (SSR), also named sum of squares of errors (SSE)
which writes
Where yi is the observed value and i is the predicted value.
Source
DF
Sum of squares
Mean square
Model
12135534.840
12135534.840
Residuals
9039090.316
1807818.063
Total
21174625.156
Fisher's
F
6.713
Pr > F
0.049
This table is also known as the analysis of variance table. It allows evaluating if the selected
variables bring a significant amount of information to explain the variability of the dependent
variable compared with a constant model (the constant being the mean of the dependent
variable). The lower the probability associated with the Fisher's F, the more the explanatory
variables are useful.
THIS CHART SHOWS THE REGRESSION LINE, WITH THE INPUT DATA, AND
THE CONFIDENCE INTERVALS.
This chart shows the standardized residuals (ordinates) given the explanatory variable
(abscissa). This chart is useful to detect regions where the model is more or less well fitted,
or correlations between residuals
A chart with standardized residuals as ordinates, and the input data for the variable
to model (abscissa):
10000
8000
6000
CRORES Rs
4000
2000
GROSS REVENUE
YEARS
PAT (Y)
47.48
130.43
103.81
200.24
378.39
544.18
1231.84
Y = 2636.33
X.Y
-142.44
-260.86
-103.81
0
378.39
1088.36
3695.52
X.Y = 4655.16
X2
9
4
1
0
1
4
9
2
X = 28
OUTCOMES ARE:
YEARS
EXPECTED
PROFIT
2000
-122.13
47.84
2001
44.12
130.43
2002
210.37
103.89
2003
376.62
200.24
2004
542.87
378.39
2005
709.12
544.18
2006
875.37
1231.84
2007
1041.62
-------
2008
2009
1207.87
1374.12
-------------
HYPOTHESIS TESTING8
t-test:
t-test is a small sample test. It was developed by William Gosset in 1908. He published this test
under the pen name of Student. Therefore, it is known as Students t-test.
Applications of t-test:
Test of hypothesis about the difference between the two means in case of
independent samples.
Test of hypothesis about the difference between the two means in case of dependent
samples.
PROFIT (X)
2002
X-a
(X-a)2
-328.91
108181.78
-246.32
60673.54
-272.86
74452.57
-176.51
31155.78
47.84
2003
130.43
2004
103.89
2005
200.24
2006
2.14
4.57
167.43
28032.8
855.09
731178.9
378.39
2007
544.18
2009
1231.84
x/7=376.75(a)
(X-a)2 = 1033679.9
where n = 7
S = (X-a)2/n-I = 172279.98
APPLYING t-test:
t (observed value)
t (critical value)
DF
Two-tailed p-value
Alpha
7.29
1
1.12
5
2.44
8
6
0.30
4
0.05
Decision:
At the level of significance Alpha=0.050 the decision is to not reject the null hypothesis that
the mean is equal to 200.240.
In other words, the difference between the mean and 200.240 is not significant.
Except the supreme power, the Almighty, no one is impeccable and prowess enough to
accomplish anything without any faults and limitations. A research is no exception. No study is
devoid of certain shortcomings. Some problems encountered in this study are under mentioned:
Some officers were too busy to give a sincere response to investigators & hence their
response may not relate to real picture.
Manager some time denied disclosing some important financial matters, which can be
helpful in this study.
The time period given to me for the completion of the project was short in such a short
span of time it is difficult to complete any project in detail.
Some information related to the study, which had been collected from the company was
rounded off because of some influence.
FINDINGS
SHORT TERM FINANCIAL POSITION:
The short term financial position of the company is not good enough. Current Assets of
the company in the year 2009 is 2009.24 crore where as the Current Liabilities is 1527.01
Crores
Current Ratio is 1.31:1. Company needs bit improvement in it so that to make it 2:1.
Short term liquidity position is also good as the acid test ratio is 0.71:1. Company needs
bit improvement to make it 1:1.
Turnover Ratio of the company reflects their good and sound position. Stock turnover
over ratio is 9.4 times. It is good that they clear their stock more than 5 times in the year.
Debtors and creditors turnover ratio also show positive results in their efficiency.
LONG TERM FINANCIAL POSTION
Long term financial policy is not as good as it should be. No doubt company adopted
very nice policy of financing fixed assets from the long term fixed assets and the long
term liabilities. Rest payment is made in cash, thereby leading to reduction of the amount
of cash.
Debt equity ratio also gives the same picture. It should be near to one as possible. But it
is not than one in every year. Not only but also showing the increasing trends. This is not
a good sign.
Proprietary ratio is 71.76%, it is good, and it is 50% or more than it.
Earning per share is the one of most important factor.
Shareholders are the main stakeholders of the company they judge the companies
performance on the basis of earning per share & dividend declared.
In the accounting year 2008 companies earning per share is Rs.66.02. Dividend paid for
the current year is Rs.15 per share.
RECOMMENDATIONS\SUGGESTIONS
POLICY IMPLICATIONS
Some suggestions that I have given to the company and following are the result of those
suggestions are as follows;
I suggest them to increase the promotion of Health and Safety at Work, including the
prevention of occupational risks and it is in the process.
I suggest them to increase the capacity of plant as it a long term process so company
officials said they put that point in the annual board meeting so it is in the process.
Current Ratio of the company is 1.31:1.so I suggest them to increase that to 2:1 and they
are working upon it.
Company is not spending so much on the R& D so I suggest them to increase the same
and the company said that they will think to allocate more finance in the budget of the
company.
BIBLIOGRAPHY
1. Pandey, I.M. Financial Management, 3rd edition, New Delhi, Vikas
Publication House Pvt. Ltd. P-143to145(Approaches of working capital)
2. Maheshwari, S.N, Advanced Accounting, 4th edition Sultan Chand &
Sons Publication, New Delhi, 2004, P.No. (b40-b48)(tools of financial
analysis)
ANNEXURES
ANNEXURE-1
CORRELATION TESTS7
XLSTAT 7.1 - Correlation Tests - 9/24/2007 at 12:32:18
AM
0.757
0.049
0.05
Decision:
At the level of significance Alpha=0.050 the decision is to reject the null hypothesis of
absence of correlation.
In other words, the correlation is significant.
ANNEXURE-2
LINEAR REGRESSION8
XLSTAT 7.1 - Linear Regression - 9/24/2007 at
12:33:37 AM
Dependent variable(s) workbook = Book1 / sheet = Sheet1 / range = $B$3:$B$9 / 7
rows and 1 column
Uniform weighting (default)
Quantitative variables: workbook = Book1 / sheet = Sheet1 / range = $C$3:$C$9 / 7
rows and 1 column
No missing values
Confidence interval (%): 95.00
Modeling variable GROSS REVENUE:
Summary for the dependent variable:
Total no.
No. of
Variable
of values values used
GROSS
REVENUE 7
7
0
Summary for the
quantitative variables:
Standard
deviation
Variable
Mean
PROFIT
AFTER TAX 376.687
415.066
Goodness of
fit coefficients:
R (coefficient
of correlation) 0.757
R (coefficient
of
determination) 0.573
Radj. 0.488
(adjusted
coefficient of
No. of
values
ignored
Sum
of
weigh
ts
7
Standar
d
deviati
Mean
on
3701.6 1878.5
11
91
determination)
9039090.3
SSR 16
Evaluating the information brought by the variables (H0
= Y=Moy(Y)):
Source
Model 1
Residuals 5
Total 6
Sum of
DF
squares
12135534.8
40
9039090.31
6
21174625.1
56
Mean Fisher
square
's F
Pr > F
12135534.8
40
6.713 0.049
1807818.06
3
Model parameters:
Standar
d
deviatio
n
Lower
Upper
Pr >
bound
bound
Parameter
Value
t
95 %
95 %
2410.93
0.02
4240.39
Intercept
4 711.631
3.388
0 581.476
3
PROFIT AFTER
0.04
TAX
3.426
1.322
2.591
9
0.027
6.826
The equation of the model writes: GROSS REVENUE = 2410.93431999628 +
3.42639013050847*PROFIT AFTER TAX
Predictions, residuals, and
confidence intervals:
Student'
st
ANNEXURE-3
FINANCIAL HIGHLIGHTS13
Companys
2006
2005(9m) 2004-05
2003-04
2002-03
2001-02
2000-01
6586
3815.10
4038.83
3465.35
333.77
3031.76
finan. yr
Gross
revenue
4640.47
(Rs.)
Profit after
1231.84
544.18
378.39
200.24
103.89
130.43
47.48
322.04
168.53
142.95
79.96
48.21
51.24
37.62
3142
2130
1577
1318.43
1024.21
945.9
1076.34
4378.70
3607
3382
3010.92
2758.11
2769.02
2794.82
915.98
1176.17
1509
1327.24
1404.75
1510.27
1657.17
0.29
0.55
0.96
1.07
1.46
1.68
1.6
168
115
88
74.45
59.92
55.38
63.04
66.02
30.02
21.23
11.685
6.08
7.64
3.35
15
2.50
9231
9170
8995
9115
9216
9345
9991
110455
97219
105165
120803
142202
147591
148584
tax (Rs.)
Dividend
(Rs.)
Net worth
(Rs.)
Capital
employed
(Rs.)
Borrowings
(Rs.)
Debt-equity
ratio%
Book value
per share
(Rs.)
Earning per
share (Rs.)
Dividend
per share
(Rs.)
Employees
(no.)
Share
holders NO
Earning pr.
16.44
17.74
17.25
21.62
23.60
20.15
40.22
360.73
222.59
259.92
227.93
202.74
195.20
177.63
1.38
1.50
1.91
1.58
1.74
1.95
1.48
1.16
1.25
1.22
1.24
1.44
1.55
1192
569
385
283
170
180
200
501
318
218
127
127
91
83
ratio%
Sales per
share-gross
(Rs.)
Yield%
Market price
of share
(Rs.)
High
a):
Low
b):
ANNEXURE-4
BALANCE SHEET AS AT DECEMBER 31ST, 200611
2006
2005 (9
Months )
Rs.
Rs. Crore
Rs. Crore
Crore
I.
LIABILITIES
1. SHARE HOLDERS FUNDS:
Share Capital
187.76
185.54
2955.16
1951.21
3142.92
2136.75
2. LOAN FUNDS:
Secured Loans
720.96
950.12
Unsecured Loans
50.20
121.30
3. STOCKISTS DEPOSIT
771.16
1071.42
144.82
104.75
320.72
300.38
4379.62
3613.30
(UNSECURED)
4. DEFERRED TAX LIABILITY
(NET)
5. TOTAL FUNDS
II. ASSETS
1. FIXED ASSETS:
Gross Block
4816.25
4628.64
Less : Depreciation
1893.76
1722.29
Net Block
2922.49
2906.35
Capital work-in-progress
473.42
215.68
2. INVESTMENTS:
3395.91
3122.03
503.54
293.75
624.13
600.95
Sundry Debtors
213.96
199.17
620.17
102.79
16.13
31.49
531.85
486.76
2006.24
1421.16
ANNEXURE-5
COMPARISON OF 2006 AND 200510
2006
2005 (9
Months )
Rs.
Rs. Crore
Rs. Crore
Crore
I.
LIABILITIES
1. SHARE HOLDERS FUNDS:
Share Capital
187.76
185.54
2955.16
1951.21
3142.92
2136.75
2. LOAN FUNDS:
Secured Loans
720.96
950.12
Unsecured Loans
50.20
121.30
3. STOCKISTS DEPOSIT
771.16
1071.42
144.82
104.75
320.72
300.38
4379.62
3613.30
(UNSECURED)
4. DEFERRED TAX LIABILITY
(NET)
5. TOTAL FUNDS
II. ASSETS
1. FIXED ASSETS:
Gross Block
4816.25
4628.64
Less : Depreciation
1893.76
1722.29
Net Block
2922.49
2906.35
Capital work-in-progress
473.42
215.68
2. INVESTMENTS:
3395.91
3122.03
503.54
293.75
624.13
600.95
Sundry Debtors
213.96
199.17
620.17
102.79
16.13
31.49
531.85
486.76
2006.24
1421.16
ANNEXURE-6
P&L ACCOUNT OF YEAR 2006-0711
2006
2005(9
Months
)
Rs.
Rs.
Rs .
Rs.
Crore
Crore
Crore
Crore
INCOME:
1. SALE OF PRODUCTS AND SERVICES (Gross)..
6453.07
3717.18
649.59
496.48
5803.4
3220.70
8
2. OTHER INCOME
132.88
97.92
5936.3
3318.62
6
EXPENDITURE:
3. MFG. AND OTHER EXPENSES
4. DEPRECIATION .
4180.26
2685.03
254.6
164.64
1
LESS TRANSFER FROM CAPITAL RESERVE
5. INTEREST
0.36
0.27
254.25
164.37
52.03
63.76
4486.5
2913.16
1449.8
ITEMS
8.27
405.46
110.26
SUBSIDIARY..
7 PROFIT ON SALE UNDERTAKING
16.31
174.05
0.50
7.50
CONTINGENCIES
.
9 PROVISION FOR EMPLOYEE BENEFITS..
13.15
144.60
1619.5
TAX
1619.5
TAXATION
684.12
661.37
12PROVISION FORTAXATION
(I)CURRENT TAX.
368.12
51.95
(II)DEFFERED TAX..
5.17
74.33
18.86
(IV)FRINGE BENIFITTAX.
5.85
6.00
387.66
132.28
1231.8
529.09
OPERTIONS
22.75
TAXATION
14 PROVISION FOR TAXATION
CURRENT TAX.
11.99
DEFFERED TAX.
4.33
7.66
15.09
OPERTIONS
PROFIT/(LOSS)AFTER TAXATION ANDEXCEPSATIONAL
1231.8
ITEMS
462.72
544.18
134.90
PERIOD..
16 CREDIT BALANCE OF PROFIT AND LOSS ACOUNT OF
6.92
165.48
4.25
165.78
462.72
141.82
1694.5
686.00
6
APPROPRIATION:
19 PREVIOUS YEAR DIVIDEND..
1.72
0.32
20GENERAL RESERVE..
123.18
54.42
21 AMORTISATION RESERVE...
0.40
0.23
22 PROPOSED DIVIDEND
280.92
147.61
39.40
20.70
445.62
223.28
1248.9
462.72
4
24 NOTES TO ACCOUNT..
ANNEXURE-7
EARNINGS PER SHARE12
1 (A
)
Previous
Current
Year (Rs.
Year (Rs.
Crore)
Crore)
544.18
1231.84
0.96
0.15
0.2
-0.04
0.76
0.11
Bond
(B
1231.95
18124314
18659284
share
18124314
18659284
A.
5997660
1440810
18724080
18803365
.
(B
Basic
30.02*
66.02
Diluted.
29.10*
65.52
ANNEXURE-8
COMPARISON OF GROSS REVENUE19
Year
Gross Revenue
Rs. million)
1999-2000 27604
2000-01
30318
2001-02
33338
2002-03
34654
2003-04
40388
2004-05
46405
ANNEXURE-9
65860
(in
Year
19992000
Net Worth
Return on
(in Rs.
Net Worth
million)
(%)
10398
-6
2000-01 10759
2001-02 9459
14
2002-03 10242
10
2003-04 13184
15
2004-05 15770
24
2005
(9M)
2006
21300
33
31420
39
ANNEXURE-10
PAT
Year
1999-2000 -589
2000-01
475
2001-02
1304
2002-03
1039
2003-04
2002
2004-05
3784
12318
ANNEXURE-11
COMPARISON OF DIVIDEND PAID BY ACC19
Dividends
Year
Dividends (%)
1999-2000 10
2000-01
20
2001-02
30
2002-03
25
2003-04
40
2004-05
70
2005 (9M) 80
2006
150
ANNEXURE-12
INVESTMENT OF EARNED MONEY20
ANNEXURES-13
OTHER COMPARISON19
ANNEXURE-14
Trend analysis:
ANNEXURE-15
t-test8:
XLSTAT 7.1 - One-Sample t-Test and Z-Test - 9/28/2007 at 8:35:11 PM
Sample: workbook = Book1.xls / sheet = Sheet1 / range = $C$3:$C$9 / 7 rows and
1 column
Significance level: 0.050
No missing values
Confidence interval at
95.00% of the mean:
t (observed
value)
t (critical value)
DF
Two-tailed pvalue
Alpha
7.29
1
1.12
5
2.44
8
6
0.30
4
0.05
Decision:
At the level of significance Alpha=0.050 the decision is to not reject the null
hypothesis that the mean is equal to 200.240.
In other words, the difference between the mean and 200.240 is not
significant.