Summer Training Project Report

SUMMER TRAINING PROJECT REPORT ON

FINANCIAL STATEMENT ANALYSIS OF

LAKSHMI PRECISION SCREWS LTD. SUBMITTED IN PARTIAL FULFILLMENT FOR THE MASTER’S DEGREE IN BUSINESS ADMINISTRATION

SUBMITTED BY:MONIKA GUPTA ROLL NO. 231 MBA 3RD SEM. VAISH INSTITUTE OF MANAGEMENT $ TECHNOLOGY MAHARSHI DAYANAND UNIVERSITY ROHTAK AUGUST 2009

DECLARATION

I Monika gupta, Roll no. 231 student of M.B.A. (2 years) III rd semester vaish Institute of Management $ technology here by Declare that the summer training report titled “Financial Statement Analysis” of “ Lakshmi Precision Screws Ltd. ” is a record of critical & independent work carried out by me under supervision & guidance of Mr. SHRI NIWAS BANSAL. This has not been previously submitted for the award of any other diploma, degree or other similar title.

ACKNOWLEDGEMENT It is my proud privilege to put on record my gratitude to all those who have been the source of guidance, cooperation & help during my summer training at LAKSHMI PRECISION SCREWS LTD. An undertaking of study like this is never the outcome of the efforts of a single person. My project is not an exception to this. It was not possible to accomplish it without the help of others. I would hereby take the opportunity to express my indebtedness to people who have helped me to accomplish this task. I wish to express my deep sense of gratitude to my guide Mr. SHRI NIWAS BANSAL for the keen interest, inspiring guidance, continuous encouragement, valuable suggestions & constructive criticism throughout the pursuance of his report. Further words of thanks are expressed to all other staff members without hose help it would not have been possible to collect information & data. I am beholding to my parents for their blessing & encouragement.

PREFACE Practical training constitutes an integral part of management studies. Training gives an opportunity to the students to expose themselves to the industrial environment, which is quit different from the classroom teachings. One cannot rely on theoretical knowledge. It has to be coupled with practical to be fruitful. Training also enables the management students to see themselves the working condition under which they have to work in the future. It thus enables the students to undergone those experiences, which will help them later when they join any organization. After liberalization the Indian economic sense is changed. Industrial activity in India has become a thing to watch & I really wanted to be a part of it &it is essential for me being a finance student. I underwent eight weeks of training at LAKSHMI PRECISION SCREWS LTD. I consider myself lucky to get my summer training in such a big Company. It really helped me to get a practical insight into actual business environment & provide me an opportunity to make my financial management concepts more clear.

MONIKA GUPTA

Table of Contents Declaration Preface Acknowledgement Chapters 1. Project Formulation

2. Research Methodology 3. Analysis & Findings 4. Conclusion & Recommendations Annexure

CHAPTER -1 Project Formulation • • • • • •

Significance of Problem Review of Existing Literature Conceptualization & Operationalization Objectives of the Study Limitation of the Study Organization of Study

Significance of the Study The significance of this study lies in the thing that it reveals some of the hidden information from the accounts of the LPS Ltd. and also it contains the Recommendations which if taken into considerations by the management could prove useful for the company. Apart from the organization point of view this study is also significant for me as it gives me a chance to under and the corporate environment & increases my analytical abilities to draw references. Review of the Existing Literature To go before the analysis of LPS Ltd. It was necessary to go through the existing literature of finance as well as other analytical studies which could prove useful for me. So lot of books, and reports already prepared were consulted for this purpose and adequate help is taken from them to do this study. Conceptualization and Operationalization Financial statement analysis is the study of a company’s financial statement from various viewpoints. The analysis of financial statements reveals the nature of relationship between income and expenditure, and the sources and application of funds. The investor determines the financial position and the progress of the company through analysis. Following type of analysis can be done for this purpose:• • • • • •

Comparative financial statements Trend analysis Common-size statements Fund flow statements Cash flow statements Ratio analysis

But for the purpose of my study I have taken the meaning of financial analysis by the following :• • • •

Comparative financial statements Common-size statements Cash flow statements Ratio analysis

Objectives

•

• •

• • •

• • • • •

The main objective of the study was to analyze the financial statements prepared by LPS Ltd and also to understand and analyze the cash flow statement. Another objective was to identify the deficiencies or the weak points of the company, if found during the analysis phase. And then finally to draw conclusion and make recommendations for the company so that corrective actions should be taken to improve the position of the company. Limitations Access to some information was denied by the company officials that affected the findings to some extent. The sample size was limited over just four years, which may not be fully representative of the universe. A large sample size could not be taken due to time & cost constraints. Some accounts are manipulated so that the financial statements may disclose a more favorable position than the actual position. Company provides only secondary data so certain type of bias is in study. Lack of experience in this field may have incorporated some shortfalls. The greatest limitation of the study was the time constraint, limited to 8 weeks which hinders the progress of study. Audited accounts for the year ending 2005-2006 were not available. There may be some changes in financial statements after the accounts are audited.

Organization of the Study In order to attain the objectives, study has been organized in four chapters : Chapter 1 is related to the introduction of study. It tells about the significance, review of literature, objectives, conceptualization, limitations & focus of the study. The next chapter i.e. Chapter 2 includes research methodology – universe of the study, survey population, research design,sample size & the detailed profile of LPS ltd. Analysis & findings are included in Chapter 3 which comprises ratio analysis, comparative statements, common size statements & cash flow statement analysis. The last chapter includes (summary) conclusion & recommendations on the basis of study conduced. It is the end part of the study.

Chapter – 2 • •

Research Methodology Organizational Profile

Research Methodology The procedure adopted for conducting the research requires a lot of attention as it has direct bearing on accuracy, reliability and adequacy of results obtained. It is due to this reason that the research methodology, which I used at the time of conducting the research, needs to be elaborated upon. Research methodology is a way to systematically study & solve the research problems. If a researcher wants to claim his study as a goods study, he must clearly state the methodology adopted in conducting the research so that it may be judged by the reader whether the methodology of work done is sound or not. Research problem here was to analyze the financial data of LPS Ltd. to come out with some underlying facts behind the financial statements of the company. Research Design : The research design implemented in this research is descriptive in nature, as it seeks to discover facts, ideas, insight & to bring out new relationship among the data items already existing. Research design is Hexble enough to provide opportunity for

considering different aspects of problems under study. It helps in bringing into focus some inherent study can be conducted by the mgt. Sample Universe: Of the study is LPS Ltd Sample Population: is the financial statement of LPS Ltd. Sample: taken for the purpose of my study is the financial statements of last 4 years. Information Collection: For the purpose of analysis I have gone for the secondary information. As this is the base of the study so the data which is reliable has been taken. And also annual reports of the company & information through internet is taken. The data collected in the aforesaid manner have been tabulated in condensed form to draw the meaningful results, then different techniques are use to analyze the data.

COMPANY PROFILE 2009 BRIEF INTRODUCTION OF COMPANY LPS Limited was promoted by Late Sh. Bimal Prasad Jain. LPS was incorporated as a Pvt. Limited Company on 27th Dec., 1968. It was converted into a Public Limited Company in August 1971. At present it is operating as LPS Limited. LPS Plant-II is another step forward in progress of the company.

The company has started with only one machine 3/8’’ Bolt Maker. Now it has wide range of machine producing a wide range of products. Today the company is the leading manufacturer of High Tensile Fasteners in India. The Quality of the product is well accepted in the market so demand is growing very fast and to meet the demands and expand its production range the company is adding more production facilities. Besides LPS the other leading companies are Sundram Fasteners of TVC group, Un-Brako and Guest Keen Williams. Recently Pandatogon Screws and Fasteners Limited have also been introduced. The installed capacity at present is about 18,996 M.Tons and annual turnover of the company is 207crores approximately. The number of employee are more than 2000 which only 20 at the time of installation. Company has covered 23500 sq. yards. The screws, nuts and bolts range from 3mm to 24mm in diameter. The products are marked under name and style of LPS.

BOARD OF DIRECTORS L.K. Jain Chairman & Managing Director D.K. Jain

Vice Chairman & Managing Director

V.K. Jain

Whole Time Director

R.K. Jain

Director

Sushila Devi Jain Director J.R. Desai

Director

B.S. Aggarwal Director K.N. Rattan Director R. Krishnakumar

Director (ICICI Nominee)

Ajay K. Chakraborty Director

MANAGEMENT TEAM S.K. Jain Gagan Jain Gautam Jain Amit Jain Niklesh Jain B. B. Chhabra

R. K. Aggarwal S. P. Arya Sanjay Narula R. P. Khanna

R.K. Rawat Pardeep Dhawan

Sanjeev Sharma DGM (FINANCE) & COMPANY SECRETARY S.N. Grover AUDITORS V.R. Bansal $ Associates Chartered Accountants Noida.

OUTLINE 1. Name of the Company : Lakshmi Precision Screws Ltd. 2. Founded on

: March 10, 1972

3. Head Office & Factory : 46/1, Mile Stone Rohtak - 124 001 Haryana (India) 4. Chairman & Managing Director : Lalit Kumar Jain 5. Total Assets

7. Annual Sales

:

1860 Mill. INR (March’ 2008)

: 2071 Mill. INR (March’ 2008)

8. Employees Production 372 55%

Office 90 14%

QC 48 8%

R&D 60 10%

Others 54 9%

Total 624 100%

9. Factory (Unit : m x m) SECTION w.e.f.

PLANT I 1972-73

PLANTS PLANT II 1993-94

TOTAL

LAND BUILDING

19,000 16,000

44,000 23,000

63,000 39,000

COMPANY ORGANISATION Board of Directors

Chairman & Managing Director

Quality Management Corporate Strategy

D E V E L O P M

S A L E S

D E V E L O P M

L A B O R A T O

C E N T R A L

P R O D U C T I

G E N T

E R N Y T

Planning

R&D

Marketing

O N

P L A N N I N

P L A N T

P L A N T

P U R C H A I II S E

F H E I R D N D P A N C E

Production

QA

General

CHRONOLOGICAL HISTORY OF LPS 1959. Established Nav Bharat Industries as small parts manufacturer. 1972 Established Lakshmi Precision Screws Pvt Ltd as Socket Head Screws 1973 Technical tie-up with the German firm M/s Richard Bergner. 1977 Acknowledged quality source of fastener. 1978 Technical tie-up with M/s Richard Bergner expires. 1983 Secured self certification status from FORD. 1984 Declared Public Limited Company. 1986 Secured self certification status from M/s Lakshmi Machine Works. 1988 Established as manufacturer-exporter. 1991 Received Regional Export Award from Engineering Export Promotion Council, (EEPC) India.

1992 Received Regional Export Award from EEPC for the second Consecutive year. 1993 Received Regional Export Award from EEPC for the third consecutive year. History (Contd.)

1993 Established Plant - II. 1994 Received Employment Generation Award from Director of Industries, Haryana State. 1995 Accredited in Mechanical & Chemical Testing by A2LA, USA to meet Fastener Quality Act of US. 1995 Accredited in Mechanical Measurement, Mechanical & Chemical Testing by National Accreditation Board for Calibration & Testing Laboratories (NABL). Government of India. 1996 Certified to ISO-9002.

Installed Bolt Maker (AF 2525) to add production capacity to 12200 MT.

1998.

 



Self Certification status from TELCO. Technical Tie-up with Sunil Machinery Corporation, Korea. Joint Venture with Bossard AG-Switzerland.

Licenced Manufacturers of TORX Screw from Camcar Co. –USA.

1999.

QS 9000 Certification.

2000.

2001 ISO/TS-16949 Certification. 

ISO-14001 Certification.

2002 Implemented ERP–SAP R/3. -

Golden Peacock Award.

2003 Approved Volvo Global Suppliers.

MAIN PRODUCTS Division

Products Precision Cold Forming parts for Automobile

Engine Parts

( Con Rod, Cylinder Studs,

Counter Weights, Cylinder Head, Rocker Arm, Engine Mounting, Main Bearing etc.)

Bolts & Nuts Chasis Parts (Wheel Bolts, Wheel Hub Bolts & for Automobiles

Nuts, Axle Bolts/Pin, Flanged Bolts, Collar Bolt, Shock Absorber Mounting Pins etc.)

Washer Assemblies Bolts The other critical & safety parts bolts Construction parts (Friction Grip) Bolts & Nuts for Agriculture Industry FASTENERS Bolts & Nuts for Industrial Machinery Cold formed parts for Automobile (Piston Pins, Switch Body, Ball Joints, Gear Blanks, Rocket Shaft, Ball Pins, Plunger etc.) Pins for Hydraulics & Pumps Bolt for Refrigeration Compressor Friction Grip Bolts & Nuts for Construction Industry Socket Head Cap Screw Low Head Socket Bolt Shoulder Bolt Button Head CSK Set Screws Standard

Fasteners

Hex Wrench Keys Hex Head Bolt Dovel Pin Nuts Friction Grip Bolts Track Shoe Bolts Stainless Steel Hex Head Stainless Steel Socket Head Cap Screws

VISION 2010 “Make LPS a ‘Most Sought After’ Brand”. Achieve Rs.500 Crores in Sales Become a Deming Organization Improve EBIDTA to 25%

Expand Manufacturing to 2 more locations CORE VALUES : Customer Obsession Continuous Improvement Respect for people

MISSION OF LPS •

•

•

•

•

•

•

To be a growth-oriented professional company promoting high standards of business ethics and producing best quality products thereby achieving international standards of excellence. To establish a strong R & D facility to fulfill the demands of the automotive industry as comprehensively as possible. To make each member of the company feel proud and empowered by fostering a culture of participation and innovation. To strive for reduction in defects and achieve 6 sigma and beyond so as to make quality a way of life in LPS. To reduce cycle time in all processes as a step towards over-all improvement. To provide prompt and excellent service to customers anywhere in the world. To maximize shareholder’s wealth.

QUALITY SYSTEMS Lakshmi Precision Screws Ltd is committed to produce Quality High Tensile Precision Fasteners. The most important criterion of Quality is the satisfaction of customer, both National & International. Each lot that moves out of our production facilities undergoes mechanical, Chemical and metallurgical inspection at over 20 inspection nodes, beginning from raw material receipt to packaging. A2LA, USA and NABL, India have accredited LPS test facilities. We are certified ISO-9002, QS-9000, ISO-14001 & TS-16949 company. The ‘Advanced Product Quality (APQP), Production Part Approval Process (PPAP) and Failure Mode Effect Analysis (FMEA) have already been implemented. Strict online visual SPC techniques to monitor product quality on a real time basis have also been incorporated. 'LPS' is equipped with state of the art Laboratory and Standard Room. Some of the major equipments we have are: • Optical Emission Spectroscope : For ascertaining chemical composition of Raw Material. Metallographic examination involving Microstructure, Inclusion rating.

• Image Analyser : Grain size, Decarb, Microstructure, Inclusion, Thread life etc along with statistical analysis. Decarburisation, Gram size, Thread laps etc. along with statistical analysis. • Fisheroscope (X-ray analysis) : For ascertaining coating thickness by x-ray method and material analysis by spectrum needless to mention the other equipment, we have i.e. Metallurgical Microscope, Magna Hardness Tester, Major flux testing, Universal Tensile Testing M/c, Hydrogen Deembrittlement Testing, Torque testing etc. Eddy current testing, Rockwell cum superficial hardness Tester, Stereo Microscope & salt spray testing. • Mahr's Perthometre Concept : For measurement of any type of contour (Including threads and surface toughness). • 'NIKON' measuring microscope : For all complex geometry measurement to a high precision with image transfer provision. To ensure the best quality, we source raw materials, like wires and wire rods, from the best steel plants in South East Asia. With the latest advances in machinery automation, LPS has in-house capability to carry out all the operations for fasteners manufacturing. Cold forging with multi-station boltmakers of National, USA, Sakamura, Japan and Asahi Sunac. LPS is equipped with sixth generation

machines where rolling can be done after heat treatment to ensure perfect lap free threading. Machining is done with CNC machines to form intricate shapes for specific applications. Continuous heat treatment improves product quality and the finish of the product is detemined by applications specifications. All under the eagle eyes of an experienced quality assurance team. ENGINEERING Our dedicated team of engineers identify the most suitable material to enhance the quality of fastening and ensure greater protection against corrosion or loosening of fasteners under stringent applications. A case in point : LPS simultaneous engineering capability has proved a boon to New Holland. After studying product design issues, our engineers customizes a fastening solution to meet their application need. LPS has, indeed achieved benchmark status in time-to market for new specials. RESEARCH & DEVELOPMENT To clearly understand our process capabilities and the customers requirements, our team gives a new product at the rate of one per day.

An integrated engineering team and high technology engineering inputs have been instrumental in producing world-class fasteners. The fasteners you can rely on. Because LPS fasteners has always set itself the highest standards. Standards it keeps to every inch of the way. To name a few our team has successfully developed critical components for customers like John Deere, Ford, Daewoo, Carraro, Volvo, Honda Motorcycle & Scooter, Honda Siel, Matsushita, New Holland Tractors and most of the other automotive multinational joint ventures in India. In the domestic market we have achieved a long standing business relationship with all the major players like Telco, Bajaj Auto, Maruti-Suzuki, Escorts Yamaha, Hero-Honda , ISRO, BHEL, LML, Micro-Bosch, TVS Suzuki etc. We are also equipped with latest in-house designing capabilities like : Tie-up with a company from Germany and developed a special software "SIMULATION", in order to improve tool life. JOINT VENTURES LPS-Bossard Pvt. Ltd. is a joint venture company of LPS and Bossard. AG of Switzerland. This venture gives state of the

art fastening solution/ technology to customer in India. The latest inventory management technique through logistic support is also provided by this company. Recoil Business Division of 'LPS' This division of LPS is sole master distributor of fastening solutions from Alcoa Fastening Systems, USA. Alcoa This company ensures global consistency of quality design standards in manufacturing wire thread, Inserts, STI Taps, Thread Repair Kits etc. Textron Inc. U.S.A. 'LPS' has entered into a licensing agreement with Textron Inc, USA for manufacturing and marketing 'Torx®' brand of proprietary products. Textron is 10 billion USD multispecialty company, with 1.8 billion USD as revenue from fastening division. Torx® drive systems improve assembly line productivity thereby reducing cost MAJOR CLIENTS Heavy Commercial Vehicles Light Commercial Vehicles

Tractors

Cars

Two Wheelers

Earthmoving Equipment

Textile Machinery

Machine Tools

Hydraulic Equipment

Heavy Electrical Equipment

Refrigeration / Air Cond.

Others

Chapter – 3 Analysis And Findings

Meaning of financial statements Analysis of financial Data of LPS Ltd. Comparative Statements Common size Statement Cash Flow Statement Ratio Analysis

FINANCIAL ANALYSIS Finance is defined as the provision of money at the time when it is required. The role of finance in business enterprises needs no emphasis. Every Enterprises whether big or small needs to carry on and expand its operations. Finance holds the key to all the business activities and a company services, Infect, its survival is depend on how efficiently it is able to acquire and Utilize there funds. MEANING OF FINANCIAL STATEMENT Financial statement refers to such statements, which contain financial Information about enterprises. These statements are a collection of data Presented on the basis of logical and consistent accounting principles. They report the profitability and financial position of the business at end of accounting period. The term financial statement includes at least two statements, which the accountant prepares at the end of an accounting period. The two statements are:-

• •

The statement of financial position or balance sheet Income statement and profit & loss account CHARACTERSTICS OF FINANCIAL STATEMENT

• • • • • • •

Reliability Comparability Easily understandable Relevant to purpose Consistency Promptness Compliance with legal requirements

PURPOSE OF ANALYSIS OF FINANCIAL STATEMENT • • • • • • • •

To know the earning capacity or profitability. To know the solvency position. To make comparative study with other firms. To know the trend of business. To provide useful information to the management. To know the efficiency of management. To know the financial strength of organization. To know the capability of payment of interest & dividend.

LIMITATIONS OF FINANCIAL ANALYSIS • • • • • • • •

Limitations of financial statements. Affected by window- dressing. Do not reflect changes in price level. Different accounting policies. Effect of personal ability & bias of the analyst Difficulty in forecasting. Lack of qualitative analysis. Limited use of single year’s analysis of financial statements.

SIGNIFICANCE OF ANALYSIS OF FINANCIAL STATEMENTS Various parties are interested in the financial statements of the business due to various reasons. By analyzing the financial statements each party can

ascertain whether his interest is safe or not. The significance of the financial statement analysis for different parties is as follows:•

Significance for management Management is always interested to know the solvency, profitability & the capital structure of the enterprises. They want to make short that the business must be insolvent position to pay the debts as and when they fall due.

•

Significance for investors With the help of financial analysis investors and shareholders of the business. With the help of financial analysis they make comparisons between the dividend paid by the company and the market value of shares.

•

Significance for creditor With the help of financial analysis to know whether the company will have sufficient current assets & cash to pay their debts or not. Whether the company will be able to pay the interest consistently.

•

Significance for government On the basis of analysis of financial statements government can judge, which industry is processing on the desired lines and which industry needs the financial help.

•

Significance for employees Analysis of financial statements helps the employees in determining the true profits of the business enterprises. On the basis they can

ascertain as to how much bonus & increase in their wages is possible from the profit of the company. •

Significance for financial institutions All the financial institutions which provide finance to the industries want to know the profit earning capacity of the business & its long term solvency. They want to access not only the present position of the business enterprise but also its likely position in the future. Analysis of financial statements helps them in ascertaining this.

•

Significance for researcher Analysis of financial statement of a company is of much importance to a researcher who is conducting research in respect of the profitability, efficiency, financial soundness & future growth potential of that company.

ANALYSIS OF FINANCIAL STATEMENT Financial statements present a mass of complex data in absolute terms and reveal about the liquidity, profitability and solvency of the business. Financial analysis is the process of identifying the financial strength and weakness of the business by establishing the relationship between the profit and loss account & balance sheet. Actually the figure given in financial

statements do not speak anything themselves. The process of giving tongue to these mute heaps of figures is known as financial analysis. The term “financial statement analysis” includes both analysis and interpretation of financial statements. The term analysis means to select the data given in the financial statements in order to present in a simplified manner. On the other hand interpretation explaining the meaning and drawing of data so simplified. However both analysis and interpretation are inter linked and complementary to each other because analysis is useless without interpretation while interpretation is impossible without analysis. Thus, the

term analysis is used to cover both analysis and interpretation.

COMPARATIVE FINANCIAL STATEMENTS When financial statements figure for two or more years are placed side-byside to facilitate comparisons, these are called comparative financial statements. Such statements not only show the absolute figures of various years but also provide for columns to indicate the increase or decrease in these figures from one year to another. In addition, these statements may also show the change from one year to another in percentage form. Such comparative statements are of great value in forming the opinion the progress of enterprise.

IMPORTANCE OF COMPARATIVE STATEMENT • • • • •

To make the data simpler and more understandable. To indicate the strong points and weak points of the firm. To indicate the trend. To compare the firm’s performance with the average performance of the industry. To help the management in forecasting the profitability and financial Soundness of the business.

LIMITATIONS OF COMPARATIVE STATEMENT •

These statements do not present the change in various items in relation to various assets, total liabilities or net sales.

•

These statements are not useful in comparing the financial statements Of to or more business because there is no common base for Comparison. Various types of financial statements are prepared in comparative form For the purpose of analysis. Out of these the most important financial Statements are: 1. COMPERATIVE BALANCE SHEET

2. COMPARATIVE PROFIT & LOSS ACCOUNT

COMPARATIVE BALANCE SHEET The comparative balance sheet as on two or more dates can be prepared to Show the increase or decrease in various assets, liabilities & capital. Such a

Comparative balance sheet is useful in studying the trends in business Enterprises. Particulars

as on 31st march as on 31st march Increase/ 2009(Rs) 2008(Rs) Decrease over 2008(Rs)

% Increase/ Decrease over 2008

SOURCES OF FUNDS: A. Shareholders' fund Share Capital

109416670

109416670

0

0

Reserves & Surplus

702763197

640930298

61832899

8.79

TOTAL (A)

812179867

750346968

61832899

7.61

1013165757

646382561

366783193

36.2

80788070

40807011

39981059

49.4

1093953827

687189572

406764255

37.2

C. Deferred Tax Liabilities (Net)

24861745

19756519

5105226

20.53

TOTAL (A+B+C)

1930995439

1457293059

473702380

24.50

1232340039

1076319572

156020467

12.6

less: Depreciation

718647794

634387452

84260342

11.7

Net Block

513692245

441932120

71760125

13.9

26090174

826717

25263457

96.8

539782419

442758837

97023582

17.9

42236580

41361580

875000

2.07

1160949153

992640743

168308410

14.5

577401593

399605167

177796426

B. Loan funds Secured Loans Unsecured Loans TOTAL (B)

APPLICATIONS OF FUNDS A. Fixed Assets Gross Block

Add: Capital Work in Progress TOTAL (A) B. Investments

C. Current Assets Loans &Advances Inventories Sundry Debtors

30.8

Cash & Bank Balances Other Current Assets Loans & Advances

104460761

49663819

3707885

413807

162008036 2008527428

54796247

52.5

3294078

88.9

117716337

44291699

27.3

1560039873

448487555

22.3

606448827

519511707

86937120

56046844

72062166

(16015322)

662495671

591573873

70921798

10.7

1346031757

968466000

377565757

28.1

2944683

4706642

(1761959)

(59.8)

1930995439

1457293059

473702380

24.5

Less: Current liabilities & Provisions Current Liabilities Provisions

TOTAL ( C ) D.MisceIIaneous Expenditure TOTAL (A+B+C+D)

14.3 (28.6)

Comments Comparative B & S o

o

o

o

Current assets have increased by 22.3% whereas current liabilities by 10.7%. Which reflects the policy of the co. is to purchase current assets from short term sources of finance. Reserve & surplus has increased by 8.79% due to increase in current year profits by 31.58% which shows increase in profitability. This year investment are increase by 2.07% Overall liquidity position is not much satisfactory as al liquid assets are increasing while cash is increasing by 52.5% over the previous year. An increase in inventory by 14.5% may increase working capital but it will not be good for the business as become more money is in inventory.

COMPARATIVE PROFIT & LOSS ACCOUNT Profit & loss A/c shows the net and loss of a particular year whereas comparative profit & loss a/c for a number of a number of years provides the following information:-

•

Rate of increase or decrease in sales.

•

Rate of increase or decrease in cost of good sold.

•

Rate of increase or decrease in operating profit.

•

Rate of increase or decrease in gross profit.

•

Rate of increase or decrease in net profit.

PARTICULARS

A. INCOME

As on 31st March As on 31st March Net Increase / Decrease % Increase / 2009(Rs) 2008(Rs) over 2008(Rs) Decrease over 2008

Sales

2070161481

1934209608

135951873

896690

1433953

(537263)

35722340

17239550

18482790

5716029

5716029

2106780511

1958599140

148181371

7.03

Materials & Finished Goods

782790261

703008396

79781865

10.19

Manufacturing

453189913

508370762

55180849

(12.18)

Personnel

305977039

252345754

53631285

17.53

Office &Administration 128662294

114713258

13949036

10.84

94127990

84136507

9991483

10.61

117325714

83924902

33400812

28.47

Managerial Remuneration

15837200

11836800

4000400

25.26

Depreciation

85334527

80415367

4919160

5.76

1983244938

1838751746

144493192

123535573

119847394

3688179

95000

90400

Job Work Receipts Other Income Deferred Tax Liability Written Back

0

6.57 (59.9) 51.7

B. EXPENDITURE

Selling & Distribution Interest & Financial Charges

Total Profits Before Tax

7.28 2.98

Provision For Tax Expenses: Wealth tax

185400

48.76

Income Tax

46155830

50570581

(4414751)

(9.56)

Profit for the After Tax

77194343

69181813

8012530

10.37

Transfer To General Reserve

2000000

5200000

(3200000)

(160)

Proposed Dividend

13130000

19695001

(6565001)

(50)

Corporate Dividend Tax

2231444

3347165

(1115721)

(49.9)

Total

17361444

28242166

(10880722)

(62.6)

Net Profits for the Year

59832899

40939647

18893252

31.58

Comments

Comparative P& L A/c

Appropriations:

o o

Sale has been increased by 6.57% Manufacturing expenses has decreased by 12.18 % large than proportion of sales.

o o

Selling expenses has been increased by 10.61% Net Profit Margins are improving by 10.37%

CASH FLOW STATEMENT A Cash Flow Statement is a statement showing inflows & outflows cash during a particular period. A Cash Flow Statement summarizes the causes of changes in cash position between dates of two Balance Sheets. It indicates the sources and uses of cash. This Statement analyses changes in non current accounts to determine the flow of cash.

Description

Year ending 31.03.09

Year ending 31.03.08

A . Cash flow from operating activities Net Profit after tax Adjustment for

93549390

89435514

Tax

56644900

55117554

150194290

144553068

Depreciation Deferred payment interest and Technical know how fee written off

91952829 2062459

85732920 3491904

Rent and Interest received (Gross) Income Tax Refund Dividend Income Interest and Financial charges Miscellaneous expenses written off Provision for Bad and Doubtful Debts Profit/Loss on sale of assets Operating Profit before working capital changes Adjustments for :

(4612333) 0 0 119839237 6327 104380 527328 360074517

Trade payables Trade and other receivables Inventories Cash generated from operations

39304065 (218760517) (171438055) 9180010

Net Profit before tax and extraordinary items Adjustment for

(3513996) (98112) (4704038) 85631625 6329 8977582 668581 320745863 21375904 (88757108) (161938534) 91426125

Interest and financial charges Direct Taxes Net Cash from operating activities

(119029452) (16395308) (126244750)

(85635650) 3508737 9299212

(193813546) 1008777 (1777928) 3287910 0 0 (300500)

(169888941) 434127 (1265877) 2888285 4704038 98112 (856596)

B. Cash flow from investing activities Purchase of Fixed Assets Proceeds from sale of fixed assets Purchase of investment Rent and interest received (Net of TDS) Dividend income Income Tax Refund Deferred payment interest and technical know how fee provided during the year Net cash used in investing activities

(191595287) (163886852)

C. Cash flow from financing activities Proceeds from issue of Share Capital (Inc. Share Premium) Right issue expenses Proceeds from short term borrowings Repayment of short term borrowing Proceeds from long term borrowings Repayment of long term borrowings Proceeds from Directors and others Repayment to Directors and others Dividend paid Total D. Net increase in cash and cash equivalents (A+B+C) Cash & Cash equivalents (Opening Balance) Cash & Cash equivalents (Closing Balance)

o o o

0

93078000

0

(175057) 278728558 20665775 (21220029) (1369281) 229867728 136046633 (80248391) (127196626) 0 188634 (22548114) (22317970) .(100.32) .(80.63) 384579752 98920108 66739715 (55667532) 49302020 116041735

(104969552) 49302020

Cash flow from operating activities have been increased due to depreciation net profit and trade payables Cash flow from investing activities has been decreasing do to purchase of fixed assets and investment. Cash flow from financing activities is improving because the company issues right share and raises long term loan.

RATIO ANALYSIS Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statement so that the strength & the weakness of a firm as well as historical performance & current financial condition can be determined. The term ratio refers to the numerical Or quantitative relationship between two variables. USES OF RATIO ANALYSIS o

Helpful in analysis of financial statement.

o

Simplification of accounting data.

o

Helpful in comparative study.

o

Helpful in locating the weak spots of the business.

o

Helpful in forecasting.

o

Estimate about the trends of the business.

o

Fixation of ideal standards.

o

Effective control.

o

Study of financial soundness.

CLASSIFICATION OF RATIOS •

Liquidity Ratios

 

•

Current ratio Quick ratio

Leverage or Capital Structure Ratio



Debt- Equity ratio



Debt to total fund ratio



Proprietary ratio



Fixed asset to proprietor fund ratio



Interest Coverage Ratio

•

•

Profitability ratio



Gross profit ratio



Net profit ratio

Activity ratio



Stock turnover ratio



Debtor turnover ratio



Fixed asset turnover ratio



Working capital turnover ratio



Creditor turnover ratio

LIQUIDITY RATIOS The liquidity ratios are the ability of the firm to meet its current obligation and reflect short – term financial strength of a firm.

The liquidity ratios are:

•

Current ratio

•

Quick ratio

Current Ratio This ratio explains the relationship between the current assets and current Liabilities. The higher ratio, the better it is, because the firm will be able to Pay its current liabilities more easily. But much higher ratio, even it is Beneficial to creditors, is not necessarily good for company. It may indicate

the poor management policy. PARTICULARS

2005-2006

2006-2007

2007-2008

2008-2009

CURRENT ASSETS

1163300174

1343485583

1560039873

2008527428

409821776

512620198

591573873

662495671

CURRENT LIABILITIES CURRENT RATIO

2.84

2.62

2.64

3.03

Quick ratio Quick ratio indicates whether the company is in position to pay its current liabilities with in a month or immediately. The quick ratio is a more rigorous and penetrating test of the liquidity position of the firm. LIQUIDITY RATIO = LIQUID ASSETS/ CURRENT LIABILITIES

LIQUID ASSETS = CURRENT ASSETS – INVENTORIES PARTICULARS

2005-2006

QUICK ASSETS CURRNT LIABILITIES QUICK RATIO

475393260 409821776 1.16

2006-2007 507493996 512620198 .99

2007-2008 544247963 591573873 .94

2008-2009 649245757 662495671 .98

LEVERAGE OR CAPITAL STRUCTURE RATIO This ratio indicates the ability of a company to pay the interest regularly as well as repay the principal when due. The leverage or capital structure ratios are: •

Debt equity ratio

•

Debt to total fund ratio

•

Proprietary ratio

•

Fixed assets to Proprietor’s fund ratio

Debt equity ratio These ratios express the relationship between the long - term tax and shareholders funds. It indicates the proportion of funds, which are acquired

by long – term borrowing in comparison to shareholder funds. DEBT – EQUITY RATIO = LONG TERM LOANS SHARE HOLDER’S FUNDS PARTICULARS

2005-2006

2006-2007

2007-2008

2008-2009

DEBT

707315611

619335155

687189572

1093953827

EQUITY

377502093

611304379

750346968

812179867

DEBT EQUITY RATIO

1.87

1.01

.91

1.35

Debt to total fund ratio This ratio indicates the ability of a firm to pay its long – term debts. In this ratio, debt is expressed in relation to total funds. DEBT TO TOTAL FUND RATIO = LONG TERM LOANS SHARE HOLDERS FUNDS + LONG TERM LOANS PARTICULARS

2005-2006

DEBT TOTAL FUND

2006-2007

2007-2008

2008-2009

707315611

619335155

687189572

1093953827

1084817704

1230639534

1437536540

1906133694

DEBT TO TOTAL FUND RATIO

0.65

0.5

0.47

0.57

Equity 3. Proprietary Ratio = Total Assets 2006

2007

2008

2009

Equity Total Assets Proprietary Ratio

377502093 1515089009 0.25

611304379 1761390329 0.347

750346968 2044160290 0.37

812179867 2590546427 0.31

Net Profits before Interest & Income tax 4. Interest Coverage Ratio = Fixed Interest Charges

EBIT F.I. Charges ICR

2006 133982653 67419751 1.99

2007 161913827 71809019 2.25

2008 203772296 83924902 2.43

2009 240861287 117325714 2.13

Fixed Assets 5. Fixed Assets to Proprietors’ = Proprietary funds

Fixed Assets Prop. Funds Fixed Asset to Prop. Funds

2006 313427255 377502093 0.83

2007 376543167 611304379 0.62

2008 442758837 750346968 0.59

2009 539782419 812179867 0.66

Activity Ratios Net Sales 1. Inventory Turnover Ratios = Inventory

Net Sales Inventory ITR (times)

2006 1380687644 686863367 2.01

2007 1667513770 832858713 2.00

2008 1934209608 992640743 1.95

2009 2070161481 1160949153 1.78

Turnover 2. Debtors Turnover Ratio

=

Debtors

Turnover Debtors DTR (Times)

2006 1380687644 336848256 4.19

2007 1667513770 369048925 4.52

2008 1934209608 399605167 4.84

2009 2070161481 577401593 3.58

No. of working Days 3. Average Collection Period = Debtors Turnover Ratio 2006 365

No. of working Days Debtors Turnover Ratio ACP (Days)

4.19 87

2007 365 4.52 81.5

2008 365 4.84 75

2009 365 3.58 102

Purchases 4. Creditors Turnover Ratio = Creditors

Purchases Creditors CTR (Times)

2006 448995669 55188419 8.14

2007 621300911 42940352 9.81

No. of working Days 5. Average Payment Period = Creditors Turnover Ratio

2008 657502521 58021254 11.3

2009 672408511 44768335 15.01

2006 365 8.14 44.84

No. of working days Creditors Turnover Ratio Average Payment Period

2007 365 9.81 37.21

2008 365 11.3 32.30

2009 365 15.01 24.32

Turnover 6. Fixed Asset Turnover Ratio = Fixed Assets 2006 Turnover 1380687644 Fixed Assets 313427255 Fixed AssetsTurnover Ratio 4.41

2007 1667513770 376543167 4.43

2008 1934209608 442758837 4.37

2009 2070161481 539782419 3.84

Net Sales 7. Working Capital Turnover Ratio = Working Capital 2006 2007 2008 2009 1380687644 1667513770 1934209608 2070161481 753478398 830865384 968466000 1346031757 1.83 2.01 1.99 1.54

Net Sales Working Capital Working Capital Turnover Ratio

Turnover 8. Capital Turnover Ratio = Capital Employed

Turnover Capital Employed Capital Employed Invest

2006 1380687644 1112692489 1.24

2007 1667513770 1256112082 1.33

2008 1934209608 1457293059 1.33

2009 2070161481 1930995439 1.12

Profitability Ratios Net Profits 1. Net Profit Ratio =

× 100 Net Sales

Net Profit Net Sales Net Profit Ratios

2006 40309975 1380687644 2.92

2007 52317541 1667513770 3.14

2008 69181813 1934209608 3.58

2009 77194343 2070161481 3.73

Interpretation 1. Current Ratio : Generally a current ratio of 2 : 1 is

considered satisfactory. In earlier years ratio was much higher i.e. 3.64 : 1 but now there is improvement in current ratio as it is decreasing over the years & shows good policy. 2. Quick Ratio : 1 : 1 satisfactory. 1. Debt Equity Ratio : Ideal ratio is 2:1 in earlier years it

shows a risky financial position as ratio is more than 2 : 1. it shows a decreasing trend now situation is satisfactory as it is less than 2 : 1 thus co. has enough funds to pay its long term loans 2. Debt to Total funds Ratio: Long term loans are .67 : 1 satisfactory. It means debt capital should not be more than 67% of total capital. It indicates that long term financial position of the co. is sound, as the long term loans of co. according to acceptable standard should not be more than 67% of total fund of the co. 3. Proprietary Ratio: Ratio is not satisfactory for the co. it

needs to be improved as it is not good from shareholders of view. 4. Interest coverage Ratio : Indicates how many times the interest charges are covered by the profits available to pay interest charges. It is satisfactory ratio is continuously improving.

5. Fixed Assets to Proprietor’s Ratio : (for industrial

undertakings 60-65% satisfactory ) Indicates the extent to which shareholder’s funds are sunk into the fixed assets. Here the ratio is less than 100% implies that owner’s funds are more than total fixed assets & a part of WC is provided by shareholders. In 2009, it is satisfactory. Activity Ratio : 1. Inventory Turnover Ratio: Measures the velocity of

2.

3.

4.

5.

conversion of stock in to sales. ITR is decreasing over the years (due to increase in inventory is more than increase in sale) But in 2009 ITR has increased as increase in sales is nearly twice the inc. in inventory. Debtors Turnover Ratio : Ratio is continuously improving. It shows debtor are managed by company in efficient manner this is why debt collection period has been reduced from 99 days to 81 days. Creditors Turnover Ratio : It is satisfactory & average payment period has been decreased from 159 to141 days. It is improving over the years. Fixed Assets Turnover : This ratio reveals how efficiently the fixed assets are being utilized. Increase in ratio over the years indicate the better utilization of fixed assets. Working Capital Turnover Ratio: Reveals how efficiently working capital turnover ratio has been utilized in making sales. Increase in ratio over the years indicate the better utilization of working capital.

Profitability Ratios : 2. Net Profit Ratio : Measures the rate of net profit earned on

sales. An increase in the ratio over the previous years shows improvement. But margins needs to be improved further. 3. Operating Profit Ratio : Operating Ratio is improving & operating margins are goods. 4. Return on Capital Employed : Company is utilizing its capital in better way because profit as percentage of capital employ is increasing over the years. 5. Return on Equity Capital : Return of shareholder’s fund have no clear cut trend, all in all it is ok.

Chapter – 4 • •

Conclusion Suggestions

Conclusion •

• • • •

Liquidity position of the company is good as its current ratio and quick ratio for the year 2009 are 3.03:1 and .98:1 respectively which meets the standard. Solvency position of the company is also satisfactory. Debtors are converted very quickly. Average collection period of the company is very good as it is decreasing over the years. Fixed assets are utilized efficiently as fixed asset turnover ratio is increasing. Overall cash flow position of the company is not satisfactory as both opening and closing cash balances are in negative. And reasons for the same have been explained in the preceding chapter.

•

• •

Net sales and profits of the company have increased by 6.37% and 31.58% respectively mainly due to increase in job work receipts. Overall financial position of the company is good. There is need to improve the working capital management only. As company is diluting its share capital by issuing right shares so if company is not being able to increase the earning in that case EPS will be decreased.

Suggestions •

• • •

Since the competition is increasing the company must come up with new cost saving techniques to reduce the cost and further increase the profit margin. The old machinery which need constant repair should be replaced with the new one as it would decrease the cost further. In future company should not dilute the share capital further. Company should increase its operating margins so that debt can be paid easily.