2

REVIEW OF LITERATURE

2.1 INTRODUCTION

It is mandatory to review the literature available with respect to the area of the
research study. Measuring the performance of the corporate sector has always been
an area of controversies from the point of view of the government, shareholders,
prospective investors, creditors, employees and any other stakeholder. Several
studies have been undertaken to evaluate the financial performance in the corporate
sector through financial statement analysis (FSA). This chapter presents some of
the examples of various studies conducted by financial analysts.

2.2 REVIEW OF LITERATURE

Altman (1968), in his study on ‘‘Financial Ratios, Discriminate analysis and

prediction of corporate Bankruptcy’’, took 66 firm in general and applied multiple
discriminate analysis to discriminate the failed firms from the non-failed firms, on
the basis to the weighted combination of five financial ratios, the weighted
combination of working capital to total liabilities, cumulative retained earnings to
total assets, earnings before interest and tax to total assets, market value of equity to
book value of total debt and sales to total assets, he was able to predict the
bankruptcy with 45 per cent degree of accuracy. He also revealed that the
predictive ability of the model declined very sharp when the number of years prior
to the failure increased.

Mohammad Rafiqul Isslam (2000), in his study on “Profitability of Fertilizer

Industry in Bangladesh”, for a period from 1985-86 to 1994-95, five out of seven
fertilizer enterprises in Bangladesh under the control of Bangladesh Chemical
Industries Corporation have been taken for the study and he has examined the
earning capacity of the selected enterprises. He has also identified the responsible
factors which affect the earning capacity of such units. Ratio analysis has been used
and he has found out that none of the selected unit’s returns were consistent and all
the units were plagued with declining profits. Higher cost of production, poor
investment policy, defective capital structure industrial unrest and frequent
disruption of Production process due to power cuts were found to be some of the
reasons attributable for the uneven situation.

Desal (2000), has assessed that capital structure of Gujarat Steel Tubes Ltd., for 10
years from 1980-81 to 1990-91 and found out that the real value of the equity
shares has been far below their book value and also inconsistent during the entire
period of study. He has found out that the company’s capital structure was
imbalanced and over capitalized financial plans has continued for a long period of
time, preventing the company from earning profits. In his study, though he has
discussed on various models of prediction of sickness, he has applied Altman’s Z
score model and has identified that from the year 1980-81, till the latest year 1990-
91, Gujarat Steel Tubes Ltd., has been scoring less than the minimum cut off value
of 2.675 as suggested by Altman. He has also applied Argent’s score system for a
subjective evaluation of defects in management and accounting mistakes and
symptoms. He has concluded by analyzing the reasons for the sickness of the
company.

Georege Gallinger (2000), has examined the frame work of financial statement
analysis in terms of five parts. The first part of his study has focused on “Return-
on-assets performance”. It has examined the profitability of Salton company. He
has examined the components related to return on sales and asset management in
depth. According to him, inefficient asset management will result in destroyed
market value of the company and will probably cause financial distress problems
which may even result in bankruptcy. He has also revealed that if the weighted
average cost of capital on a before - tax basis exceeds the return-on-asset, the
company would need to improve the performance through higher return on sales,
increased asset turnover or both.

George W. Gallminger (2000), has made a study on ‘Prediction of Financial

Distress’ as the fifth part of the frame work for financial statement analysis. He has
used z-score model developed by Edward I Altman to test the solvency of the
company in his study. Altman’s z-score bankruptcy prediction model has been
based on Earnings Before Interest and Depreciation (EBID)/Total assets, net
working capital to total assets, market value of equity to book value of debt,
retained earnings to total assets and sales to total assets. Applying this model, he
has identified whether the firm chosen for the study was under ‘grey’ area or ‘no
threat’ area.

Rajeswari N. (2000), in her study on Liquidity Management of Tamil Nadu

Cements Corporation Ltd. Alangulam - A Case Study identified that the liquidity
position of the Tamil Nadu Cements Corporation Ltd. (TANCEM) was not stable.
Regarding liquidity ratios, there were too much of liquidity in the year 1993-94 and
1994-95. A very high degree of liquidity was also made as idle assets earn nothing
and affected profitability. During 1995-96 and 1996-97, liquidity ratios were below
the standard ratio and TANCEM suffered from lack of liquidity. In the year 1997-
98, liquidity ratio was just above the standard ratio. It was found that there was an
unstable position in maintaining liquidity.

Ashish Arora, V.S.Arunachalam (2000), This paper reports on the results of

research on the Indian software industry, carried out at Carnegie Melton University.
We use a variety of sources including a questionnaire survey of Indian software
firms, and field visits and interviews with industry participants, observers, and US
based clients. The Indian software industry is remarkable in a number of respects. It
is service rather than product oriented, heavily export oriented and is largely
managed by professional and entrepreneurial managements. Also, domestic market
experience and expertise appears to have very little benefits for successful
importers. Although the industry has grown in spectacular fashion sustaining this
performance will pose a number of challenges. In order to counteract the widely
reported shortages of skilled software professionals and the possible competition
from other low wage, human capital rich countries, Indian firms are trying to move
up the value chain by acquiring deeper knowledge of business domains and
management capability and to reduce costs by developing superior methodologies
and tools. Whether firms will succeed will depend critically on their management
skills and willingness to invest along a number of dimensions. From a social
perspective the disconnect between domestic and export markets is a major
challenge, but one that the growing diffusion of computers and the improvement of
the communication infrastructure should make easier to confront. In the end, the
greatest impact the software industry is likely to have on the Indian economy is
indirect, in its role as an exemplar of the new business organizational form and as
an inspiration to other entrepreneurs.

Ganesan (2001), has selected state bank group (8 units) and 19 private sector banks
as sample to identify the determinants of profits and profitability. The empirical
examination of profit function shows that interest cost, interest income, other
income, deposits per branch and credit to total assets proposition of priority sector
advances and interest income loss are the significant determinants of profits and
profitability of Indian public sector banks. The study has also identified the fact that
banking sector reforms and individual bank’s policies towards directed investments
and direct credit Programmes have played a significant role in improving the profits
and profitability of banking sector.

Ralph Udegbunam (2001), in his analysis on bank performance, has conducted an

empirical analysis of the determinants of performance differences among
commercial banks in Nigeria in the early 1990s. Two dependent variables Return
on Assets (ROA) and Return on Equity (ROE) that are the common measures of
bank performance have been taken. Using a simple model of bank performance and
a pooled time-series cross section data and also OLS estimation method, two sets of
regression have been run to estimate ROA and ROE. The results of two sets of
regression have suggested that management quality, credit risk and capital
adequacy are the key determinants of bank performance, irrespective of the
performance indicator used. The evidence has also suggested notable differences,
while a strong negative effect of credit policy on ROE is evidenced; the same factor
has exerted a week effect on ROA. He has also found that when asset, growth,
liquidity and financial distress are found to exert strong effect on ROA, they have
played a less significant role in bank ROE.

Sathis Chandra (2001) has made a case study on “Trade Credit and Company
Liquidity” with special reference to steel authority of India Ltd., and Tata Iron and
Steel Ltd., to find out if more liquid companies give relatively more net trade credit
in squeeze years. Ratio analysis and multiple regression analysis have been
employed. Liquidity has been taken as the independent variable and inventory
turnover ratio, inventory holding period, debtors’ turnover ratio and average
collection period have been taken as independent variable and the relationship has
been measured.

Debasis Sur (2001), in his study on “Liquidity Management an overview of four

companies in Indian Power Sector”, has made a comparative analysis of liquidity
management of 4 major companies in Indian Power Sector covering a period from
1987-88 to 1996-97. The liquidity ratios like current ratio, quick ratio, current
assets to total assets ratio, inventory turnover ratio and debtor’s turnover ratio have
been used for comparison and suitable interpretations have been made. To measure
the closeness of association between liquidity and profitability of the companies,
Spearman’s rank correlation coefficient have been used. The study has identified
that the liquid ratio, working capital turnover ratio and working capital to total
assets have negatively influenced the profitability whereas the inventory turnover
ratio has a positive impact on profitability.

Dyal Bhatnagar and Chandra Shekhar (2001), in their study have made an
attempt to measure the financial performance through MVA analysis. For the
purpose of research, a total sample of 56 companies listed on Bombay Stock
Exchange (BSE) were drawn and classified into five industrial categories. The data
pertains to ten years viz. 1988-89 to 1997-98. The multiple regression modal was
used to explore as to which of the Independent variables viz., Economic Value
Added (EVA), Earning Per share (EPS), Return on Capital Employed (ROCE), Net
present Value (NPV) Capital Productivity (CP) and Labour Productivity (LP) was
more capable of explaining movements in share prices in each industry. The
analysis revealed that EVA was the most significantly related variable with MVA.
In case of infrastructure Industry Capital Productivity (CP) was most significantly
related to MVA. The analysis with regard to miscellaneous industry revealed that
both EPS and EVA were significant variables which explained movements in
MVA.

Padmaja Manoharan (2002), through her study on “Profitability of Cement

Industry in India” has revealed that the profitability of firms depend on age, size
and region. She has identified that quality of earnings depend on cost management,
asset management and leverage management. Further, she has also proved that the
liquidity influences the profitability and quality of earning.
Shanmuganandam and Ratnam (2002), in their study on “Measures for
Sustaining Profitability of Spinning Mills”, analyzed the financial performance of
140 spinning mills in TamilNadu during 1994-2000. The mills were classified as
high and low profit mills. The financial performance of the spinning mills during
the six years was found to be poor.

Amita S.Kantawala (2002), in his study on financial performance of Non-Banking

Financial Corporations (NBFCs) in India concluded that there exists a significant
difference in the profitability ratios, leverage ratios and liquidity ratios of various
categories of NBFCs. The more number do not statistically differed from one
another in majority of the cases except the trading in shares and investment holding
were compared with leasing. The analysis is of variance along with the details of
the average ratios may become a useful guide to companies to decide the
dissatisfaction or continuation in the same line of business considering overall
profitability within the regulatory frame work.

Nand Kishore Sharma (2002), in his study on “Financial Appraisal of Cement

Industry in India” found that the current and quick ratio showed a decreasing trend
and also it varied from time to time. On comparing the current and quick ratio of
cement industry, six companies were higher than the average and four recorded
lower than the average of industries. The average debt equity ratio was 51:34 per
cent. This ratio showed a decreasing trend in the first 4 years of study but after that
it registered an increasing trend. The ratio of fixed assets to total debt always
showed more than 100 percent, which indicated that the claims of outsiders were
covered by the fixed assets of that organization. The return on capital employed
recorded an average of 15:46 per cent. This ratio varied from 2.76 per cent to 21.80
per cent during the period of study.

Sankaran (2002), has made a study on “Performance Evaluation of Pharmaceutical

Companies in India”. A set of 10 companies which of 5 Indian companies and 5
Multi-National Corporations (MNC) have been selected for analysis. The financial
performance has been analyzed with the help of liquidity, profitability and
solvency. He applied ET - HBSAI model for assessing corporate excellence,
Altman model to predict bankruptcy and average return on net worth have been
used to assess the performance.
Mansur Mulla (2002), in use of ‘Z’ score analysis for Evaluation of Financial
Health of Textile Mills - A Case Study; has made an insight into the financial
health of Shri. Venkatesh Co-operative Textile Mills Ltd., Arunageri of Dharwad
District. The study attempts to evaluate the financial stability and operational health
by applying ‘Z’ score analysis. From the study it was concluded that the textile
mills under study were just on the verge of financial collapse. On the other hand,
current assets declined because of the negative profitability performance, whereas
on the other hand, the current liabilities were on the increase because of poor
liquidity performance of the miles.

K.Sankaran (2002), The Total Market capitalization of the Indian pharmaceutical

industry averaged around Rs.250 billion in the financial year 2000 – 2001 making it
one of the five largest sectors in Indian Industry. Run by about 20,000 players it
contributed a total investment of around Rs.25 billion in this period. It made a
turnover of Rs.197.4 billion – an increase of 15.85% over the previous year. The
Industry’s turnover also increased at a compound annual growth rate (CAGR) of
around 16.44% in the last decade. The aim of this thesis was to compare the
performance of selected Indian companies with that of the selected MNCs. A set of
ten companies (five Indian Five MNCs) were selected for the study. The period
covered five years ending 2000. The financial data was taken from their annual
reports and websites. The market share data was obtained from the Indian Credit
Rating Agency (ICRA) whereas the Indian companies were the biggest spenders on
research and development; MNCs have a strong R & D activity outside India. The
financial performances were analyzed with the help of liquidity, profitability, and
solvency. The financial figures of the 10 companies were used to rank them by
applying ET – HBSAI model for assessing corporate excellence, ALTMAN model
to predict bankruptcy and average return on net worth also being used to assess the
performance. However, the MNCs financial performance was better than Indian
companies. The four MNCs namely Prizer, Glaxo, SmithkLine and Novartis ranked
among the first six.

G. Sundarsana Reddy (2003), In his study an attempt has been made to access an
evaluation of financial performance of paper industries in Andhra Pradesh to
Evaluate the Financing Method to analyse the Investment pattern and utilization of
fixed assets to ascertain the working capital conditions, to review the profitability
performance and to suggest measures to improve profitability.

Sushanta Mohapatra (2003), Contributions from and Challenges to India’s

Software Industry”, explores this dichotomy in industry perception and government
policy response in greater detail. Based on data from interviews of senior
executives of Indian software companies in Bangalore and the US, and also by
drawing upon secondary data sources, they develop a typology of India’s
competitive advantages and threats thereto in the information technology sector. An
examination of the demand and supply constraints beyond quantitative estimates
reveals a set of serious challenges to the expansion of India’s information
workforce.

G.Sudarsana Reddy (2003), Finance is the nerve centre and lifeline of any
economic activity and is, therefore, omnipresent in every sphere of economic and
business life. It plays an extremely crucial role in the continuity and growth of a
business. Financial Management has been viewed as an integral part of overall
management. An enterprise, which commits itself to an activity, requires finance.
No business firm can be promoted, established and expanded without adequate
financial resources. Success and survival of a business firm depends on how well
its finance function is managed. The firm may have abundant resources – human
and physical, but if the available funds are not properly utilized for the benefit of
the firm. It will come to an early end. So, the finance manager has to utilize the
available funds for the benefit of the business firm. Every effort should be made to
render the finance function as effective as possible. Successful financial
management of a business firm is manifested by certain benefits, like increased
profitability, raising share prices, regular dividends to shareholders, attractive
remuneration to employees and in short, the all-round progress of the company.
Financial performance analysis constitutes the approach to judge the effectiveness
of the finance function of the firm.

Narware (2004), in his study on “Working Capital and Profitability - an Empirical

Analysis”, has examined the inter-relationship between profitability and working
capital with the assistance of ratio analysis. He has also employed correlation
analysis between selected ratios relating to working capital management and Return
on Investment (ROI). Multiple regression analysis has been employed to ascertain
the impact of working ratio and profitability. His analysis revealed that working
capital management and profitability disclosed both negative and positive
association.

Reddy and Patkar (2004), have attempted to make a comparative study on SBI
and CAN bank factors of working capital and liquidity management factoring,
based on the following objectives. 1) To study the size the composition of working
capital 2) to evaluate the liquidity management through ratio analysis and 3) to
examine the relationship between liquidity and profitability. It is concluded that the
higher liquidity is maintained in CAN Bank correlations which is inversely related
with other. It implies that as the liquidity increases the profitability decreases.

Narware, P.C. and Vivek Sharma (2004), conducted a study based on the
objectives to assess the efficiency of the liquidity management of the company of
HPCL and to examine the liquidity position of the company by training measure of
cash and bank. It was observed from the analysis that the liquidity position of the
company is very poor and the liquid assets were not sufficient in meeting short term
liabilities. In sum, the liquidity management of HPCL in very poor and is not
satisfactory.

Guo,Q.Z.Wang,Y.Y.Shou (2004), Analysed the rate of profit to sales (ROS) and

the logarithm of average sales income per capita(PERS) to measure the firm
performance, and labour productivity respectively. The analysis used the logarithm
of firm employment to measure firm size. There are two indicators to be selected to
measure the R&D inputs. One is R&D intensity (RDI), and the other is the rate of
R&D personnel to firm employment (RDPR).

Rafiq Dossani - Stanford University (2004), The paper explains the evolution of
India’s software industry - Domestic entrepreneur emerges as the key factor for
origination, survival and innovation, in a hostile industrial policy environment. The
maturing of the industry required a shift to a supportive government policy.
Maturation was also critically enabled by the modularization of the programming
function through new technologies. These changes favoured domestic firms that
provided programming services. Later policy and technological changes induced
transnational entry and led to higher value - added output. The paper shows that
technologically sophisticated industries can develop even when many conditions
typically present elsewhere are missing. We provide conditions under which this
may happen and show their effect on subsequent developments.

Royal Danish Embassy (2004), The economic outlook for India is positive. A
growth rate of above 8% was achieved by the Indian economy during the year 2003
-04 and it reached 6.9% in 2004 - 05. Growth in the Indian economy has steadily
increased since 1979. In fact, the Indian economy has posted an excellent average.
GDP growth of 6.8% since 1994 -Many factors are behind this robust performance
of the Indian economy in 2004 - 05. High growth rates in industry & service sector
and world economic environment provided a back drop conducive to growth of the
Indian economy. Another positive feature is that prices have been relatively stable.

Hamasalakshmi and manickam (2005), in their study on “Financial Performance

Analysis of Selected Software Companies”, examined liquidity, profitability and
leverage position of thirty four software companies during the period 1999-1998 to
2001-2002 by using ratios, correlation and multiple regression analysis. The study
revealed favourable liquidity and working capital position. They concluded that the
companies rely on the internal financing and overall profitability position of the
software companies showed a moderately increasing trend.

Chalam G.V and Prasad A. (2006), in his study, an attempt has been made to
measure the overall financial performance of sample of nine selected primary
agricultural co-operative societies in west Godavari District in Andhra Pradesh
have been taken. To measure the financial performance of Jeelugumilli,
Reddygangapovaram, Krishnaropeta, Jangareddygudem, Nallajerla, Pothavaram,
Pulla, Lakshmaneswaram and Mogalturu societies for the period 1993-94 to 2003-
2004 statistical tools such as mean, correlation and standard normal distribution
were used. In his study, sixteen variable been selected, in the first instance for the
purpose of construing the scale. The performance of those societies, which get a
scale value of 1, are poor, whereas those that get a scale value of 3 are good; a scale
value of 2 indicates satisfactory performance. Based on the above criteria,
Nallojeria, Pulla and Mogaltur societies are good. Jellugumilli and
Lakshmaneswaram societies are satisfactory. Reddyganapovaram, Krishnaraopeta,
Potavaram and Jangareddygudem societies are poor.
Sushma Vishnani and Bhupesk Kr Shah (2006) 81, have made an empirical study
of 23 Indian Consumer Electronics Industry for assessing the impact of working
capital on profitability during the period 1994-95 to 2004-05. The impact of
working capital on profitability has been examined by computing co-efficient of
correlation and regression analysis between profitability ratio and working capital
ratio. The correlation analysis of industry - wide pooled data revealed a very weak
positive correlation and that too not at all statistically significant. Thus, it may be
concluded that there is no uniform correlations (positive or negative) between
liquidity and profitability in industry as a whole; rather it varies from company to
company in the respective industry. The regression analysis of industry wide
pooled data revealed a positive association between liquidity and probability. It
indicated that if current ratio varies by 1 time, return on capital employed shall
increase by 1.58 per cent. However, statistical significance as well as magnitude of
the regression equation was very poor which makes it less reliable. Thus, it may be
concluded that there is no uniformed relationship (positive or negative) between
liquidity and profitability in industry as a whole; rather it varies from company to
company in the industry.

N.R. Parasuram (2006), has made an attempt identify and study the movement of
key financial parameters and their relationship with profitability of automobile
industry he also made an attempt to and the study whether the key identified
parameters move in a synchronous way going up and coming down with basic
profitability parameters. The Two wheeler and three wheeler industries chosen and
all comparably profit making companies have been taken as the sample, for study
for the period of 2002 to 2004. The data have been taken from the figures supplied
by prowess database. On the basis of this data a trend parameter is calculated for
the year 2005. The actual figures in respect of the year 2005 are compared with the
trend parameter by way of T-test. So, on the base of the analysis, the broad
conclusion is that the parameters are consistent within a wide horizon and with the
growth that companies have achieved, the parameters have also responded in a
synchronous manner.

Sanjay J.Bhayani (2006), in his study an attempt has been made to study the cost
component of cement units under the study. For the purpose of analysis of cost
component, all component cost has been calculated as percentage of sales. A study
has been made by using data form financial statements of top five cement
companies of India, viz., Gujarat Cement, Ambuja Cements Ltd. (GALL), Dalmia
Cement Ltd. (DCL), Madras cement Ltd., (MCL), Indian Cements Ltd., (ICL) and
Shree Cements Ltd., (SCL). The data of total cost in various cement companies
under study have been rearranged and classified under the following heads, Raw
materials and stores consumed salaries and wages, indirect taxes, power and fuel,
depreciation, administrative selling and distribution and other expenses and
financial charges. He found out from his study that the most influencing factor in
cost structure of cement industry is power and fuel cost. The portion of this cost in
total cost was 21 per cent, where the portion of raw materials and cost and selling
and distribution and other cost in total cost structure were 19.27 per cent 16.60 per
cent respectively. So it can be concluded that to improve the profitabi1ity of units
there is a need to give proper attention towards this cost by Corporates. The closest
view of analysis showed that the average cost in almost all element of GACL was
closer to the average of industry.

Jyoti Gupta (2006), “The Indian economy is dominated by family owned groups”.
These include the recently created companies in the software industry and also
industrial groups with a long history. These groups are characterized by their
diversity of activities and their ability to maintain their control over all the
companies they manage. The objective of this research is to analyze the
performance of the different companies managed by the family and compare them
with other companies in the same sector group. The idea is to test whether they
create incremental value for their shareholders. The research is intended to be both
cases based and empirical in nature.

Subash Chander and Priyanka Aggarwal (2007), in their study, an attempt was
made to identify the determinants of growth of select companies in drugs and
pharmaceutical industry in India. It is based on a sample of 50 firms drawn from
the list of companies in drugs and pharmaceutical industry given in the prowess
database developed by Centre for Monitoring Indian Economy (CMIE). It covers a
period of ten years from 1995-96 to 2004-05. The growth of firms is measured in
terms of growth in average total assets and average in total sales. Interest to study
the determinants of growth, ten explanatory variables was chosen for empirical
investigation. Multiple regression analysis is used to develop a model to identify
the determinants of growth of firms in this industry. The results revel that size,
advertising expenditure, age, efficiency ratio, profitability and research and
development are statistically significant in determining the growth of firms in drugs
and pharmaceutical industry.

Siddharth Mahajan and Mainak Sarkar (2007), in his study, an attempt has been
made to compare the financial performance of three Indian companies, Tata motors,
Maruti and Mahindra & Mahindra with two MNCs, Honda and Hyundai. Ten ratios
have been used. There are four profitability ratios, four liquidity ratios and two
solvency ratios. The profitability ratios used are profit margin, asset turnover,
return on assets and return on equity. The liquidity ratios, used are current ratio,
quick ratio, debtor turnover and inventory turnover ratio. The solvency ratios used
are debt to equity ratio and interest coverage ratio. In profitability ratio, the profit
margin is roughly the same for the Indian companies and for the MNCs.

The asset turnover and return on assets of the MNCs are roughly double that of
Indian Companies. This indicates that the MNCs are more efficient at utilizing their
assets to generate profits. However, the return on equity of the Indian Companies is
about ten times that of the MNCs. In liquidity ratios, the current ratio, the quick
ratio and the inventory turnover ratio are roughly the same for the Indian
Companies and for the MNCs. This indicates that the Indian companies and the
MNCs both follow similar practices and have similar performance in working
capital management of inventories. In solvency ratios, the debt to equity ratio of the
Indian companies is about one-and-half times that of the MNCs. This is because the
Indian Companies use much less equity capital that the MNCs. Also the interest
coverage ratio of the MNCs is about four times that of the Indian Companies. This
is because the MNCs use more equity financing and less debt financing.

Rathore and Pinki Rai (2007), have made an effort to analyse the financial
performance of Air India limited from the year 2002-03 to 2004-05. To analyze the
financial performance of Air India Limited the following parameters have been
taken for the study: (a) capital structure (b) working capital (c) profitability position
and (d) operating performance. They found from their study that working capital
was showing negative trend and profitability position of the company was showing
tremendous fluctuating trend during the study period. The operating performance of
the company during the study period was not satisfactory because of percentage of
change in operating cost was more than the percentage of change in operating
profit. To improve the financial performance of Air India Limited they suggested
that the best way to manage and run the airlines is partial or full privatization and
give them full autonomy in their functioning.

Amalendu Bhunia (2007), in his study on “Liquidity management of sponge Iron

India: A case study” an attempt was made to examine and evaluate the liquidity
management of the public enterprise as a factor responsible for poor performance in
the iron and Steel industry in India, covering a period from 1991-92 to 2002-03. In
the course of analysis in this study, accounting tool and statistical technique have
been used. Accounting technique includes ratio analysis, while statistical technique
includes arithmetic mean, standard deviation and co-efficient of variation. To
examine the pros and cons of the management of short-term liquidity of the
company, he compared the various liquidity ratios with that of the industry average
being considered as standard one. The study has identified current ratio, liquid ratio
and cash position ratio is more than grand industry average during 12 years under
the period of study. Hence, it can be concluded that the liquidity management of
sample companies is good and satisfactory.

RBI study (2007), an attempt was made to study the financial performs of 1064
large non-government public limited companies (each with paid-up capital of Rs.1
crore and above) during 2005-06 based on their audited annual account closed
during April 2005 to March 2006. The consolidated result of the study revealed
continuous improvement in the performance of the companies viewed from the
growth in sales, value of production, gross profits, profits after tax, profits retained
and net worth in 2005-06 when compared to 2004-05. The profitability and profit
allocation ratios like profit margin and profit after tax to net worth also increased
during the year under review. External sources of funds played an important role in
financing the asset formation during the year 2005-06.

Dr. B.Ramachandra Reddy and Dr.B.Yuvaraja Reddy (2007), in their study, an

attempt has been made to examine the effect of selected variables on MVA of
selected Cement Companies in India from 01.04.2003 to 31.03.2004. For the
purpose of the study 3 Major Cement Units and 7 mini plants were selected. The
MVA has been taken as a dependent variable and Return on Net Worth, Capital
Productivity, Labour Productivity, Earning per Share, Economic Value Added,
Return on Sales (or) Turnover, Return on Total Assets and Cash Profit have been
selected as independent variables. It can be inferred from regression analysis that
none of the factors was found to have significant impact on MVA. But EPS was
found to have a negative and significant effect on MVA. This implies that the MVA
of cement companies is not only affected by selected independent variables but also
influenced by other factors.

Pramod Mantravadi, A Vidyadhar Reddy (2007), in their study an attempt has

been made to analyze the impact of mergers on the operating performance of
acquiring corporate by examining some pre-and post-merger financial ratios with
96 sample of firms chosen from all mergers involving public limited and traded
companies in India between 1991 and 2003. The sample for the study primarily
included mergers by public limited companies listed on the BSE and NSE, during
the period of study. The study has adopted the methodology of comparing pre-and
post-merger performance of acquiring companies, using the following financial
ratios, operating profit margin, gross profit margin, net profit margin, return on net
worth, return on capital employed and debt-equity ratio. It can be concluded from
their study that the operating performance of post-merger period was high when
compared to pre-merger period.

Ali Ghanbari and More (2007), in their study an attempt has been made to
empirically tests the strength of the relationship between EVA and MVA in Indian
Automobile Companies for the period between 2001 to 2005. Five independent
variables [EVA, ROA, ROCE, EPS and NOPAT] have been chosen to analyze their
impact on one dependent variable (MVA). Through correlation analysis, it has been
observed that MVA is positively correlated with EVA and all other financial
indicators, but only the correlation between MUA, and EVA and NOPAT are
significant at 1 per cent level. The co-efficient of correlation of MVA with EVA
and NOPAT were 0.7408 and 0.7271 respectively. It indicates that EVA was the
most explanatory measure and more closely associated with MVA than the other
performance measures such as EPS, NOPAT, ROA and ROCE.

De Wet, J.H.V.H., Du Toit, E. (2007), in their article “Return on Equity: A

popular, but flawed measure of corporate financial performance” aimed at
analyzing the impact of popular financial performance measures on shareholders’
wealth. It tests the strength of the linear relationships between these performance
measures and shareholders’ returns, which consist of dividends and changes in the
share price. The Return on Equity (ROE) is weighed up against the present
favourite. Economic Value Added (EVA) and the merits and flaws of each
approach were discussed. Other approaches, such as a combination of performance
measures and the expectations theory were also discussed briefly. The statistical
tests performed found Spreads (a standardized EVA) to be slightly superior to ROE
in explaining changes in shareholders’ returns. However, the use of same year data
resulted in very weak linear relationships between all the performance measures
tested, relative to shareholders’ returns. When 5 year’s medians were used in the
analysis, significant correlations were obtained between current shareholders’
returns and the future results for the internal performance measures. This engenders
some support for the expectations theory with its contention that the most effective
positive impact on shareholders’ returns can be accomplished by managing
expectations about future financial results, rather than maximizing these results
now. It is clear that the debate about the effectiveness of traditional accounting
performance measures, as well as the search for the real drivers of shareholder
value, will continue and increase in intensity.

Laurie Cohen and Amal El-Sawad (2007), “An examination of UK and Indian
financial service employees’ accounts of themselves and one another”, this article
is about employees’ lived experiences of off shoring. Focusing on the accounts of
individuals in a financial services company operating in the UK and in Mumbai,
India, it examines the ways in which respondents constructed and positioned
themselves in relation to one another in the stories they told. They argue that in
their accounts of their respondents mobilized discourses of culture and cultural
difference to describe and justify this positioning, with particular reference to ‘the
language barrier’, work ethics and notions of competence.

Mathur, Somesh Kumar (2007), Indian IT industry - India’s software and services
exports have been raising rapidly. The annual growth rate ranges between 20 - 22%
in IT services and nearly 55% in IT - enabled services (ITES), such as call centers,
Business Process Outsourcing (BPO) and other administrative support operations.
Together they are predicted to grow at 25% pa till 2010. The IT industry is highly
export oriented and the exporters are predominantly Indian. The Indian BPO’s
(ITES) are moving up the value chain, handling high end data for airline
information, insurance, banking sector and mortgage companies, enterprise
resource planning among others. Some of the companies have already moved into
significantly higher value added segments such as mission critical applications,
development and support, product design, HR Management, knowledge process
outsourcing for pharmaceutical companies and large complex project.

Dr. S. Kasturi Rangan (2008, in his study an attempt has been made to identify
the factors determining the profitability of the banks through partial correlation co
efficient for the period from march 2000 to 2007. The banks were categorized into
5 different groups for the purposes of analysis. The group in which banks were
divided are: Nationalized bank group (NB), State Bank group (SB), Old Private
sector banks (OP), New generation Private Sector banks (NP) and Foreign banks
group (FB). The financial position of a total of 74 banks have been considered for
the study the profit was taken as the net profit reported by the banks in their
published accounts submitted to the RBI and the major determinants of profitability
of a bank are: Internet Spread, other income and Operating expenses. It can be
concluded from the study that the negative correlation between operating expenses
and profits and the high degree of association between interest spread, other income
and profits in the case of foreign banks, state bank group, and nationalized banks
indicate that these banks should concentrate on improving the interest spread and
other income rather than on cost cutting measures. In the case of old generation
private sector banks, the high degree of correlation between profit and other income
suggests that these banks should concentrate on generating non-operational income
in order to boost their profitability. Cost plays a significant role in the profits in the
case of new generation private sector banks. Hence these banks should concentrate
on cutting cost to improve profitability.

Adolphusj. Toby (2008), in his study on ‘Liquidity performance Relationship in

Nigerian Manufacturing Companies (1990-2002)’ has analyzed the empirical
relationship between liquidity and other performance measures in Nigerian
manufacturing companies between 1990 and 2002. Using data from 87 quoted
manufacturing companies, ten multiple regression models were estimated with four
liquidity measures as independent variables, and ten others covering profitability,
efficiency and leverage measures as dependent variables. The results show
statistically significant relationships between liquidity and profitability, efficiency
and leverage measures as the computed F values exceed the table E - ratio at the 5
per cent level of significance. The multiple regression results show that 1 per cent
increase in liquidity could bring about 21.9 per cent increase in profitability, 16.1
per cent increase in efficiency and 16.6 per cent increase in leverage.

Natesan and Allimuthu, (2008), evaluated the performance of Tube Investments

of India Limited in terms of comparative and common size income statements. The
trend is also projected for next four years. The study reveals that there was a
significant increase in the reported net profit during the year 2005-2006. The study
concluded that company has to more attention in the maintenance of reduced power
and fuel as to have increased wealth to the shareholders.

Indronil Roy Chowdhury, Indranil Chakraborty (2008), IT majors like Infosys

Technologies Ltd and Tata Consultancy Services (TCS) are opposing the open
source community’s demand that the government drop a clause in the draft patent
examination manual as it gives scope for software patenting under the Indian patent
Act of 2003. The IT majors made their opposition clear at a meeting in Delhi,
called by the government’s department of Industrial policy & promotion on
Thursday. The dispute has been sparked by the draft manual that will guide patent
examiners in their interpretation of the Indian Patent (Amendment) Act for software
Section 3 (K) of the Act clearly says: “A mathematical or business method or a
computer programmer purpose or algorithms are not patentable”.

S. Dharma Lingam (2009), In his study an attempt has been made to access an
evaluation of financial performance of large scale cement industry in India
examining in terms of profitability liquidity financial health and value creation to
its share holds. The Scope of Financial Performance is very wide and the study is
based on accounting Information.

Nasscom Survey (2009), Nasscom announced the findings of its annual survey on
the performance of the Indian IT - BPO services sector for FY - 2008 - 09 and
outlook for FY - 2009 -10. According to the finding, the IT sector reached US$58.8
billion in FY 2008 09 in revenue, up from US$52 billion in FY 2007 - 08.

Amitava Hazra (2009)2, The high - visibility success of Indian Information

Technology (IT) industry has impressed the industry observers and researchers
alike. Policy makers have started believing that the spectacular growth of software
segment is an unexpected opportunity for Indian economy to grow along with the
IT revolution. The success in the glamorous software segment and the dynamics of
growth in the nascent domestic computer hardware industry are now giving way to
more realistic assessment of strengths and weaknesses and its prospects for the
future. The boom of the present computer industry is essentially driven by the
impressive software export performance. However, the hardware segment remains
inward looking. The Orientation of the domestic hardware market has emerged as
predominantly kit – assembling industry, which is heavily dependent upon the
import of high- tech products and components. The historical performance of the
hardware sector, however, had not been less commendable before. Brunner (1991)
had shown how successive policy regime helped the Indian computer hardware
industry achieve maturity in terms of technological competence. The domestic IT
industry which was earlier dominated by the hardware sector has been rapidly
shifting towards software. The share of hardware, which was about 60 per cent in
1994 - 95 has dipped to 46% in 1998 - 99. This has been accompanied by a sudden
spurt in growth of software industry.

Shreerupa Mitra (2009), Present President spoke on the side-lines of Nasscom

diversity and inclusively Summit 2009, Mittal told reporters “we are not going back
to the old days. He explained that Indian Software exports, though recovering were
unlikely to return to the 30% growth seen before the economic slowdown and also
because of the higher revenue base. Last fiscal, the Indian IT / Tes industry grow at
about 16%.

S.Kalaiselvi (2009) The Indian IT industry has not only been among the fastest
growing industries globally, it has played a key role in transforming India from a
largely inward looking economy to an emerging knowledge power that is today
perceived as being one of the most dynamic and entrepreneurial in the world. In
1991, the IT industry was oldest sized, employing 12000 persons and contributing
an insignificant incremental contributor to GDP, with 6 % coming from the sector.
Around 95 present of the absolute growth in foreign exchange inflows in the
service sector during this period is estimated to have come from the IT and BPO
industries alone.

K.Srinivasa Rao (2009), “Indian capital market spread of equity culture”, The
term ‘Capital Market’ refers to all the facilities and the institutional arrangements
for borrowing and lending long-term capital. In other words “it is the centre or
arrangement that provides facilities for buying and selling of long-term financial
instruments such as shares and debentures”. Capital market may be defined as the
mechanism which co-ordinates the demand and supply forces of long-term capital.
It deals in shares, debentures and bonds of corporations and securities of the
government. The term “Equity Culture” refers to the practice of buying equity
shares either in primary market or in secondary market.

D.N.M.Raju (2009), Evaluation of performance of the state bank of India, in the

liberalised economy, financial and banking sector reforms assume high priority.
Economic reforms have given a new thrust to the banking sector, as a whole, and
private sector in particular. Nearly 85 percent of commercial banking operations in
the country are in the hands of public sector at present. Among the public sector
banks, State Bank of India assumes a special place in view of the statue as the
largest commercial bank in the country. The mission of the State Bank of India is to
retain the Bank’s position as the premier Indian Financial Services Group, with
world class standards, and significant global business, committed to excellence in
customer, shareholder and employee satisfaction; and play a leading role in
expanding and diversifying financial services sector while continuing to emphasize
its developmental banking role.

Karampal, Puja Goyal (2009), Corporate Dividend Policy in Indian IT industry

economic growth and development of any country depends upon a well-knit service
and manufacturing sector. Among all the major service sector industries,
information technology industry is undoubtedly a visit sector for Indian Economy.
Information Technology (IT) industry in India is among the fastest growing
segment of Indian Industry compound with annual growth rate exceeding 50%.
India has built up valuable brand equity in the global markets. The potential of high
capacity to generate wealth, foreign exchange and employment has already caught
the consideration of India’s businessmen, citizens, economists, bureaucracy and
politicians. Software driven IT industry is today at the top of India’s national
agenda as an instrument and a model for the modernization of India’s Economy.
There are a number of decisions that have to be taken for efficient performance and
attainment of objectives. Financial management decisions are one of those
fundamental areas that require proper consideration. The present paper takes
dividend, one major aspect of financial management, as the area of research.

N. Murugan (2010)108, in his study an attempt has been made to ascertain a study
on financial performance of the select Sarvodaya sanghams in Tamil Nadu to the
Productivity status of the sanghams in terms of Inventory, Current assets turnover,
Working Capital turnover, Debtors turn over, Creditors turnover, Capital fund turn
over, fixed assert turnover and total asserts turnover ratio.

Abhijit Damle (2010), Territory sector has experienced an exponential growth

since late nineties with the software industry being a leader in the growth story. The
Indian IT/ITES industry has shown resilience in the face of severe economic
downturn in key markets. According to the annual NASSCOM survey, on the
performance of the Indian IT - BPO services sector for F.Y.2008 -09, this sector
achieved gross revenues of USD-58.8 billion in F.Y.2008 -09 as against USD – 52
billion in growth of 16.3% and clocked revenues of USD - 46.3 billion in F.Y.2008
-09 from USD - 40.4 billion in F.Y. 2007 - 2008.

Jayesh Kariya and Karishma Nagar (2010), Over the last two decades,
Information Technology and enabled Services (‘ITS’) sector has been quite
instrumental in driving India’s economy and growth. This is primarily due to the
liberalization of Foreign Direct investment policy, granting of Income - tax benefits
to foreign exchange earning to entities in this sector, availability of skilled work -
force and the cost advantage of such operations in India. Dependent upon the
import of high- tech products and component, the historical performance of the
hardware sector, however, had not been less commendable before. Brunner (1991)
had shown how successive policy regime helped the Indian computer hardware
industry achieve maturity in terms of technological competence. The domestic IT
industry which was earlier dominated by the hardware sector has been rapidly
shifting towards software. The share of hardware, which was about 60 per cent in
1994 - 95, has dipped to 46% in 1998 - 99. This has been accompanied by a sudden
spurt in growth of software industry.

Yamini Agarwal (2010), Capital structure decisions under multiple objectives,

Stakeholders’ potential interests that are conflicting and multiple. Capital structure
decisions as a strategic choice is governed by the experiences of a decision maker
about the expectations of the stakeholder and the firm’s operational environment.
The present study is an attempt to integrate possible goals and constraints faced by
a decision maker while undertaking capital structure decisions, which previous
theories and models have overlooked by using a goal programming technique
which provides for satisfying solutions.

Viqar Ali Baig (2010), Working capital management of selected agribusiness

firms, Stakeholders’ potential interests that are conflicting and multiple. Capital
structure decisions as a strategic choice is governed by the experiences of a
decision maker about the expectations of the stakeholder and the firm’s operational
environment. The present study is an attempt to integrate possible goals and
constraints faced by a decision maker while undertaking capital structure decisions,
which previous theories and models have overlooked by using a goal programming
technique which provides for satisfying solutions.

Keyur B Thaker (2010), Business performance measures, ever business

organization is established with a set of Goal(s). Strategies are plans to keep
business competitive & achieve organizational goals. Performance measures plan a
key role in implementing strategy and attaining organizational goal. Business
performance management (BPM) is the ability to guide the near term and long term
performance through insightful and adaptive management process including close
integration from strategy execution. BPM is a field with vast richness.

Miglani (2010), “Performance appraisal of mutual funds in India”, in recent years,

there has been a phenomenal growth of Indian capital market, which is reflected, in
an unprecedented rise in share prices, a large number of capital issues and growing
size of investor population. There has been also quantitative change in the structure
of the capital market. The corporate sector that used to prefer loan funds from
financial institutions are now depending on stock market for resources. Even the
public sector has started tapping the stock market to raise funds. So, the Indian
financial market today is one of the fastest growing & emerging markets of the
world and one of the important players in the emerging financial market, is the
Mutual fund industry. The Mutual funds have helped the investors who don’t
possess expert knowledge of investment in stock market. Mutual funds have
attained commanding heights in the financial scenario of India.
2.3 CONCLUSION

A review of literature has been made to establish the validity of the research topic
‘Financial Statement Analysis of National Aluminium Company Limited. Various
theories pertaining to profits, profitability, liquidity, bankruptcy and value added
measures, propounded by various financial analysts have been reviewed for the span of
more than one decade in this chapter to find out the research gap.
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