CHAPTER-1

INTRODUCTION

1.1 Background of the study

In the modern era, industry and commerce play vital role for the
development of the Nepalese industry. Industries are the backbones of the
economic development of the country. Such as Nepal there are many
small scale industries which provide the more opportunities for the
employment in economy. The term industry refers to that part of
business, which concerned with reduction, processing or fabrication of
product.
A business is an organization, which is engaged in the production
and marketing of product to make profit through customer satisfaction.
The primary beneficiaries are its owner. In an economy of developing
country where more than 80% of its total population is engaged in
agriculture for their livelihood small scale industry play great role in
accelerating the process for the country thus leading toward the economic
development of the nation as per industries Act,1997 an industry with
fixed capital investment up to an amount Rs. 30 million is considered as
small country.
1.2 Introduction of Shree Jal Udyog
Shree Jal Udyog is also one of the small scale industries operating
in our economy. It has been taken as a small industry as it fixed property
investment happens to be less than 30 million. Shree Jal Udyog is situated
at Biratnagar-13, Morang and was established in 12th of Bhadra 2064
B.S. It was established by Mr. Ajay Kumar Kushwaha and controlled by
him acting as the proprietor of the organization.

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 The company was established with fixed capital investment of Rs.
0.26 million and current capital investment of Rs.0.5 million. Shree Jal
Udyog has a one accountant and one supervisor, no of labor working in
the Shree Jal Udyog is 9.
Shree Jal Udyog work in two shifts of 15 hours and one shift of 8
hours as required. This industry basic raw material is water, which is
mainly from core surface area of earth.
Shree Jal Udyog is grown as for its best quality product of water
like mineral water & drinking water. The company's major market of
product is local area like as Biratnagar, Inaruwa, Dhuabi, Jhumka, Pakali
and so on. It's product also sales in his eastern region part of Nepal like
as Itahari, Damak, Dhankuta, Hile, Birtamod and so on.
1.3 Literature Survey
Financial statement is an actual historical data about financial
transaction of the firm. It reflects the actual financial position and
performance of the firm. It is prepared at the end of the accounting.
Financial statement contains summarized information of the firm’s
financial affairs. Financial statement provides information to the user
regarding the operation performance, financial strength and weakness of
the firm.
The original reason for the financial statements still appy: bankers
and other investor need accounting information to make intelligent
decisions, managers needs it to operate their business efficiently and
taxing authorities needs it to assets taxes in a reasonable way. Financial
statement includes income statement. P/L account, Balance Sheet,
Statement of cash flow, and statement of retained earnings. P/L account
indicates the result of operation for a particular period and balance sheet
indicates the financial position regarding assets, total payable and capital.

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 In order to make financial statements more meaningful analysis of
financial statements is prepared. Analysis of financial statement is means
a study of relationship among the various financial factors. It is process of
classifying and arranging mass data of financial statements. The objective
of this process is to understand efficiency and growth potential of the
business
“Financial statements contains summarized information of this
firm’s financial affairs organized systematically”
-I.M Pandey, Financial Management
“the analysis of financial statement is a process of evaluating
relationships between important part of financial statement of firms
position and performance”
- Vidya, Shakespeare, Banking and Insurance, Taleju Prakashan

1.3.2 Ratio Analysis as a Tool of Financial Analysis

To analysis the actual financial condition of the business organization various
types of tools and techniques are available for us. Ratio analysis is one of them.
It is most commonly use to know about liquidity condition of the organization.
Ratio is the mathematical relationship between two or more accounting
variable.
A ratio is defined as “The indicated quotient of tow mathematical express” and
as “The relationship between two or more variable.”

Financial ratio analysis is designed to determine the relative strengths and

weakness of business organizations. It also provides a frame work for financial
planning and control. Ratio helps to point out the problems in any sector in any
sector of business operation and provides a basis to recommend corrective
action.
1.3.3 Classification of ratios
Various types of ratios are available to evaluate the firm’s strengths and
weakness. The ratios used for financial analysis of business can be classified
into four categories. They are:
 Liquidity ratios

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  Assets management ratios/ efficient ratios
 Debt management ratios/Solvency ratios
 Probability ratios
1.4 Purpose of the study
The main purpose of the study is to analysis the financial statements of
farm. The followings are the specific purpose of the study:
 To analysis the liquidity position of the business.
 To analysis the solvency position of the business
 To measure the operation efficiency and utilization of the assets of
the business.
 To examine the performance of the business in terms of
profitability.
 To fulfill the partial requirements of the degree of Bachelor of
Business Studies.
1.5 Statement Of Problem:
Every organization, whether big of small face same problems.
Therefore in order to achieve its objectives, every firm has to trace out its
major problems and find solution to these problems. The research, during
the study, has found some problem which affects the operation of the
firm. The major problems of Shree Jal Udyog are as follows:
 It lacks the latest technology in operation due to its small
size.
 High cost of production also cause problem due to which the
company is not able to increases in point.
 Advertising and promotional activities are not carried out
effectively.
 There is lack of co-ordination between the owner and labor
of the firm.

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  Though competitors in the company also cause the problem
for Shree Jal Udyog
1.6 Limitations/ Assumption of the Study
Everyone knows that every study has been conducted within certain
limitations and assumptions. In the same way, this field work report
contains following limitations:
 The study is concentrated only on Shree Jal Udyog
 This study has not paid attention toward the fund flow, cash flow
patter etc.
 This study focuses basically on secondary data, the data available
are assumed to be true.
 The study is based on the published annual report of Sheree Jal
Udyog.
 The data used in this study are modified as per need of the study.
 The study represents the figures of data only to three years i.e. F/Y
20068/069 to F/Y 2070/071.
1.7 Organization of Study
Organization of study is the description of the research setting, method and
procedures used in the study.

1.7.1 Data Collection

The data collected for the study is generally of secondary nature and to some
extent of primary data. The data required for the studies are obtained from the
concerned firm secondary source. The supplementary data and information are
obtained from the unpublished source like book, journals etc, the direct
appointment with the management and meeting with the other staff. The
following methods are used for data collection:-
 Review of profit/loss account and balance sheet
 Informal discussion

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  Library search

 Annual financial statement of Shree Jal Udyog.

 Other published material like newspaper, journal, magazine, textbook, etc
I. Primary data:
Primary data is that data which has not been published anywhere
before. It is collected by direct personal interviews, indirect oral interview and
information form correspondence and so on.
II. Secondary data:
Secondary data are those data which are not originally collected
but obtained from published or unpublished sources, such as magazine, report
etc. it already exist somewhere. The secondary data is the one that have already
been used.

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 CHAPTER-2
PRESENTATION AND ANALYSIS OF DATA
2.1 Presentation of Data:
This part is concerned with representing and analyzing the data with the
help of various analytical tools, past date are very important to evaluate
the actual positions of any organization. Analyzing of data helps to come
close to reality. By analyzing the data one can find out the cure problems
or limitation of the organization. Therefore, this chapter is focused on
presenting and analyzing the data related to the financial performance of
Shree Jal Udyog.
Table No. 1
Shree Jal Udyog
Profit & Loss
(F/Y 2068/069 to 2070/071)
Particular 2068/069 2069/070 2070/071
Sales 9349863.93 10388737.7 11635386.22
Less: Cost of goods sold 8293841.54 9215379.5 10321225.04
Gross profit 1056022.39 1173158.21 1314161.18
Less: Administrative 308638.18 342931.322 384083.08
Expanses
Profit From Operation 747384.2 830426.87 930078.10
Add: Other Income 2329.82 2588.69 2899.33
Less: Interest 112871.26 125412.512 140462.01
Less: Depreciation 367340.09 408155.6 457134.27
Profit Before Tax 269322.66 299447.45 335381.148
Less: Provision for Tax 53864.534 59849.5 67030.88
Profit After Tax 215458.136 239597.8 268350.03
Add: Last Year Profit 536305.65 751763.78 991367.73
Revenue Transfer To B|S 751763.78 991367.73 1259717.99
Source : Appendix-1-2

Shree Jal Udyog

Balance Sheet
(F/Y 2068/069 to 2070/071)
Particular 2068/069 2069/070 2070/071

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Capital & Equity
Capital 3708000 3708000 4120000
Reserve & Surplus 751763.78 991367.73 1259717.9
Secured Loan 4708015.8 3224637.2 3245076.3
Current Liability & 221769.93 486239.33 719922
Provision
Total Capital Liabilities 9589548.81 8410244.26 9344716.2
Fixed Assets 2369488.95 2477670.7 2752967.7
Current Assets
Closing Stock 2876852.67 3202991.85 3558879.8
Debtor 3342662.27 1248708.82 2165232
Bank & Cash in Hand 17393.98 34143.94 37937.7
Loan In Advance 983150.95 746729.12 829699.3
Total Asset 9589548.81 8410244.246 9344716.2
Source: appendix 1-2
2.2 Analysis of data
The analysis of financial data is done to analyze the financial position,
profitability and operation efficiency of Shree Jal Udyog. The data can be
analyzed with the help of collected financial data i.e. P/L Account and
Balance sheet of three financial years 2068/069 2069/070 and 2070/071.
In this chapter, we will try to analyze the financial statement of Shree Jal
Udyog to obtain the objective of the study; we use the widely accepted
tool “Ratio Analysis” to analyze the performance of the concern.
The financial statements are analyzed by following topics:

2.2.1. Analysis of Liquidity:

Liquidity is the ability of a firm to meet its short term obligation. It
reflects the short term financial strength of business. The current assets of
Shree Jal Udyog include inventory, cash, bank, debtors, advance loans
and security and current assets. The current liabilities include only
positions. The following ratios can be calculated to determine the
liquidity position of Shree Jal Udyog.
Current Ratio

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 Current Ratio = Current Assets
Current Liabilities

Table no.1
Current Ratio
fiscal Year Current Assets Current Current Ratio
Liabilities
2068/069 7220059.87 221769.93 32.56:1
2069/070 5232573.73 486239.33 10.76:1
2070/071 6591748.8 719922 9.16:1
Source: Appendix 2
Figure no.1
Current Ratio

Source: Table – 1
The above table shows the current ratio of SJU. The current ratio shows
as 32.56:1 times, 10.76:1 times & 9.16:1times respectively from F/S
2068/069 to F/Y 2070/071, as this ratio is good but it is an decreasing
trend.

Quick Ratio:
Quick Ratio = Quick Assets
Current Liabilities

Table no.2
Quick Ratio
Fiscal Year Quick Assets Current Quick Ratio
Liabilities
2068/069 4343207.2 221769.93 19.58:1
2069/070 5232573.73 486239.33 10.76:1

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2070/071 6591748.8 719922 9.16:1
Source: Appendix 2
Figure no.2
Quick Ratio

Source: Table no. 2

Generally we know that quick ratio shows the ability of a firm to pay its
immediate obligation. So this point of view the firm is in good condition
because its quick ratio is in diminishing trend which represents the secure
situation of firm.

Analysis of Efficiency
Every business should efficiency managed it’s resources. The efficiency of
firm can be measured by the calculation of efficiency or activity or turnover
ratios. The turnover ratios reflect the efficient of the firm to manage its
resources. The relationship between sales and resources is indicated by the
turnover ratios. The following ratios are used to analyze the SJU.
Inventory Turnover Ratio:
Inventory Turnover Ratio = Sales
Inventory

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 Table no. 3
Inventory Turnover Ratio
Inventory
Fiscal Year Sales Inventory Turnover Ratio
2068/069 9349863.93 2876852.67 3.25
2069/070 10388737.7 3202991.85 3.24
2070/071 11635386.2 3558879.8 3.27
Source:- Appendix 1 and 2
Figure no. 3
Inventory Turnover Ratio

Source:- Table no.3

It shows that the efficiency of the stock in F/Y 2070/071 rather than other fiscal year.
So it’s it inventory management implies excessive inventory levels than warranted by
production and sales activities.

Fixed Assets Turnover Ratio:

Fixed Assets turnover Ratio = Net Sales
Net Fied Assets
Table no. 4
Fixed Assets turnover Ratio
Fixed Assets
Fiscal Year Net Sales Fixed Assets Turnover Ratio
2068/069 9349863.93 2369488.95 3.95
2069/070 10388737.7 2477670.7 4.19
2070/071 11635386.2 2752967.7 4.23
Source; Appendix 1 and 2

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 Figure no. 4
Fixed Assets turnover Ratio

Source; Table no.4

It shows that the efficiency of a concerned on utilizing the fixed assets
which is growing per year production is fluctuating.

Total Assets Turnover Ratio

Total Assets Turnover Ratio = Sales

Total Assets
Table no. 5
Total Assets Turnover Ratio

Total Assets
Fiscal Year Sales Total Assets Turnover Ratio
2068/069 9349863.93 9589548.81 0.98
2069/070 10388737.7 8410244.246 1.24

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2070/071 11635386.2 9344716.2 1.25
Source: Appendix 1 and 2
Figure no. 5
Total Assets Turnover Ratio

Source: Table no. 5

The above table shows the relationship between sales and total assets.
The table and graphs shows that the ratio is 0.98, 1.24 and 1.25 tims
respictively in F/Y 2068/069 to 2070/071. The ratio are increasing every
year

Analysis of solvency
The solvency of Shree Jal Udyog can be analyzed by solvency ratio or leverage
ratio. The solvency ratio is calculating to judge the long term financial
positions of the firm. The ratio calculated below shows the ability of SJU to
pay long term obligation
Debt Ratio
Debt Ratio = Total Debt
Total Assets
Table no. 6
Debt Ratio

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Fiscal Year Total Debt Total Assets Debt Ratio
2068/069 334266227 958954881 35%
2069/070 124870882 841024425 15%
2070/071 216523200 934471620 23%
Source: Appendix 1 and 2
Figure no.6
Debt Ratio

Source; Table no. 6

As we know that debt ratio shows the positin of debt in total assets by obseving
the table in the initial year. This ratio is decling in F/Y 2069/070 by 0.15 times
and a little bit increace in F/Y 2070/071 which is lesser than the F/Y 2068/069.

Debt to Equity Ratio

Debt to Equity Ratio = Long Term Debt

Shareholders Equity

Table no. 7
Debt to Equity Ratio
Shareholder
Fiscal Year Long Term Debt EquityDebt to Debt to Equity Ratio
Equity Ratio
2068/069 4708015.8 3708000 126.97%
2069/070 3224637.2 3708000 86.96%
2070/071 3245076.3 4120000 78.76%

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 Source: Appendix 2
Figure no. 7
Debt to Equity Ratio

Source: Table no.7

The above table shows that the debt equity ratio of Shree Jal Udyog of last
thee years. The ratio was 127%, 86.96% and 78.76% respectivey in F/Y
2068/069, 2069/070 and 2070/071.

Debt to Total Capital Ratio:

Debt to Total Capital Ratio = Long Term Debt

Capital Employeed

Table no. 8
Debt to Total Capital Ratio
Fiscal Year Long Term Debt Capital Employeed Debt to Capital Ratio

2068/069 4708015.8 4459763.78 105.57%

2069/070 3224637.2 5459779.58 59.06%
2070/071 3245076.3 4929785.73 65.83%
Source: Appendix 2

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 Figure no 8
Debt to Total Capital Ratio

Source: Table no. 8

The above table and graph shows the debt to total capital employeed ratio of
shree Jal Udyog. The above table shows 105.57% , 59.06% and 65.83% . Debt
capital employeed ratio of fiscal year 2068/069 to 2070/071 respictively. All
these ratio is in decreasing trend in 2069/070 and thereafer it increase in
2070/071 which is not good sign for the firm .

Analysis of Profitability

Maximization of profit of main object of each and every business concern. It is

very necessary to earn maximum profit for the successful running of a business
concern. The earning capacity of business is measured by profitability ratio we
can analyzed the profitability position of the business the following
profitability ratio are used to analyzed the profitability position of Shree Jal
Udyog.
Net Profit Margin
Net Profit Margin = Net Profit

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 Sales

Table no. 9
Net Profit Margin
Fiscal Year Net Profit Sales Net Profit Margin
2068/069 751763.78 9349863.93 8.04%
2069/070 991367.73 10388737.7 9.54%
2070/071 1259717.99 11635386.22 10.83%
Source: Appendix 1
Figure no. 9
Net Profit Margin

Source: Table no.9

The net profit margin of the firm is increasing trend in each which shows that
the firm is in good condition.

Return on Assets

Return on Assets = Net Profit

Total Assets

Table no. 10
Return on Assets

Fiscal Year Net Profit Total Assets Return on Assets

2068/069 751763.78 9589548.81 7.84%
2069/070 991367.73 8410244.246 11.79%
2070/071 1259717.99 9344716.2 13.48%
Source: Appendix 1 and 2

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 Figure no. 10

Source: Table no. 10

The above table and graph present the return on assets on Shree Jal Udyog of
three fiscal years. Return on Assets from fiscal year 2068/069 to 2070/071 are
7.84%, 11 79% and 13.48% respectively. It has increasing trend.

2.3 Study Results:-

The results from the analysis of data are as follows:
Table No. 11
Study Result
Particular 2068/069 2069/070 2070/071
Liquidity Ratio      
Current Ratio 32.56:1 10.76:1 9.16:1
Quick Ratio 19.58:1 10.76:1 9.16:1
Efficiency Ratio      
Inventory Turnover Ratio 3.25 3.24 3.27

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Fixed Assets Turnover Ratio 3.95 4.19 4.23
Total Assets Turnover Ratio 0.98 1.24 1.25
Solvency Ratio      
Debt Ratio 35% 15% 23%
Debt to Equity Ratio 126.97% 86.96% 78.76%
Debt to Capital Ratio 105.57% 59.06% 65.83%
Profitability Ratio      
Net Profit Margin 8.04% 9.54% 10.83%
Return on Assets 7.84% 11.79% 13.48%
Sources: Appendix 1-2

CHAPTER-THREE
SUMMARY, CONCLUSSIONS AND RECOMMENDATIONS
3.1 Summary
Summary signifies the briefing of the matter. The study
focuses on the performance analysis of Shree Jal Udyog financial
performance is analyzed with the help of F/Y 3 year data
(2068/069,2069/070,2070/071) which is provided by Shree Jal Udyog
The study has been divided into three chapter i.e. introduction,

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presentational and analysis of data, summary, conclusions and
recommendations.
In first chapter, the brief history of Shree Jal Udyog has
been discussed, followed by the literature survey and statement of
problems. Mentioning the back ground of the small business firm and
introduction of Shree Jal Udyog and the purpose assumption and
limitation of the study were also discussed. The method of data collection
and the primary and secondary source of data used for the study are also
included in the first chapter.

In the second chapter, the financial data provided by the Shree Jal
Udyog has been tabulated as Income Statement and Balance Sheet,
presented and analyzed by financial tools ratio analysis of the firm with
the help of some significant financial tools such liquidity ratio, efficiency
ratio, solvency ratio and profitability ratio with its key component
analysis .

The third chapter includes the summary, conclusion and

recommendations. In this chapter, the whole research for financial
performance analysis of Shree Jal Udyog is explained in the short form
along with the conclusion and necessary suggestion.
3.2 Conclusions
Shree Jal Udyog has played vital role in the economic development of
Nepal, not only by providing quantitative and qualitative product to the
consumers at the fair prices, but also by generating the employment
opportunities in the nation.
From above study of the financial performance analysis of Shree Jal
Udyog., has been drawn:

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(i) Analysis of the liquidity, current ratio and quick ratio are
calculated. Current ratio shows that the firm has excessive investment in
current assets. Quick ratio also indicates that the firm has excessive
liquidity.
(ii) In the analysis of solvency, the ratio such as debt ratio, debt equity
ratio, and debt to total ratio are calculated. This ratio is calculated to just
the long term financial position of the firm.

(iii) The analysis of efficiency is done through calculation of efficacy

ratios such as inventory turnover ratio, fixed assets turnover ratio and
capital employed turnover ratio.

(iv) The profit ability is analyzed by calculating profitability ratio such

as net profit margin and return on assets

3.3 Recommendations

At the end of the study, the following measures are recommended to

strength the financial performance analysis of Shree Jal Udyog On the
basis of forgone analysis:

(i) Shree Jal Udyog tries to increase its profitability through

proper and effective advertising and promotional campaign.

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(ii) Since, the firm has not invest adequately in advertising, the effect
tools of sales promotion and advertising will help to boost the sales and
thus will in the increasing the profit.

(iii) Effective management and good labor relation is also necessary for
the smooth operation of the industry. Shree Jal Udyog has not proper
relationship between labor and owner. There is lack of training skill
development facility to the labor and employ. So, the firm has to take
necessary steps to provide training facilities and maintain, good labor
relation for the smooth functioning the industry.

(iv) Proper management of the machinery and other tools and equipment
can help to reduce the operating extent. So, Shree Jal Udyog Should
arranges the proper management of equipments .So that, its operating
cost should be reduced.

(v) The firm should effectively adjust the product prices with the
changes in the input cost, so as to reduce the business risk associated
with it.

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