Vkc Project

Analysis of financial statements at VKC Pvt Limited

EXECUTIVE SUMMARY

The project report titled “financial statement Analysis” was carried out at VKC Rubber industry Pvt Ltd. This study was conducted to evaluate the financial performance of VKC Rubber industry Pvt Ltd. in order to give a better scope to the investors, shareholders, creditors and the management themselves about the rating of VKC Rubber industry Pvt Ltd and its performance in the market and thus suggest improvements. Finance is the life blood of any organization. These statements serve as an important tools for evaluating and comparing the present earning capacity of the unit and also for forecasting its future performance and prospects. These statements also provide the basic information for the purpose of analyzing, planning and taking vital and strategic financial decisions by the executives of the company. The project work involved two parts, that is Part A in plant training which involves in detail study of the organization, Part B the final project involving study of analysis of financial statement of VKC Rubber industry Pvt Ltd during the past three years from 2007-2010 on the basis of in order to know the company performance, its financial and cash position. The data used in this analysis has been obtained from the annual reports i.e., Balance Sheets and Primary data was collected through Direct interview and personal observations. From the analysis it was found that the liquidity position, long term solvency and cash position of the firm is satisfactory. To improve the financial position, a few measures were suggested which includes decreasing the liabilities and increasing the income generating assets. The firm should employ considerable portion of debt in its capital structure. The company has to concentrate much on its credit policy for faster collections of accounts receivables. The company has to concentrate much on efficient cash management in financing and investing activities. With the help of the tools of financial analysis, it can be concluded that VKC Rubber industry Pvt Ltd is in a good position from the point of view of performance, profitability and liquidity.

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Analysis of financial statements at VKC Pvt Limited INDUSTRY PROFILE:

HISTORY OF FOOTWEAR: Spanish cave drawings from more than 15000 years ago show humans with animal skins or furs wrapped around their feet. The body of a well preserved “ice-man” nearly 5000 years old wears leather foot stuffed with straw. Shoes, in some form or another, have been around for a very long time. The evolution of foot coverings, from the sandal to present-day athletic shoes that are marvels of engineering, continues even today as we find new materials with which to cover our feet. We are, in fact still wearing sandals- the oldest crafted foot covering known to us. Moccasins are still readily available in the form of the loafer. In fact, many of the shoes we wear today can be traced back to another era. The Cuban heel may have been named for the dance craze of the 1920s, but the shape can be seen long before that time. Soles, which are one of the most recognizable features of footwear in the 1970s and 1990s, were handed down to us from 16th century choppiness. Then, high soles were a necessity to keep the feet off of the dirty streets. Today they are worn strictly for fashion’s sake. If one can deduce that basic shoe shapes have evolved only so much, it is necessary to discover why this has happened. It is surely not due to a lack of imagination- the colors and materials of shoes today demonstrate that. Looking at shoes from different parts of the world, one can see undeniable similarities. While the venetians were wearing the choppiness, the Japanese balanced on high-soled wooden shoes called get. Though the shape is slightly different, the idea remains the same. The venetians had no contacts with the Japanese, so it is not a case of imitation. Even the mystical Chinese practice of foot binding has been copied in our culture. Some European women and men of the past bound their feet with tape and squashed them into too-tight shoes. In fact, a survey from the early 1990s reported that 88% of American wear shoes that are too small! As one examines footwear history, both in the west and in other parts of the world, the similarities are apparent. Though the shoemakers of the past never would have thought to

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Analysis of financial statements at VKC Pvt Limited pair a sandal with a platform sole, our shoe fashions of today are, for the most part, modernized adaptations of past styles.

PERFORMANCE OF INDIAN FOOTWEAR INDUSTRY The foot wear industry is a significant segment of the leather industry in India. India ranks second among the footwear producing countries next to the China. In 1999, the global import of footwear in terms of value was around US$43278 million accounting a share of 63.42% in the total global import of leather and leather products out of this import of leather footwear alone accounted for us$26379 million and non leather foot wear US$16899million. India’s exports of leather footwear touched US$331 million in 1999-2000, recording an increase of 3.29% over the preceding year. India thus holds a share of 1.25% in the global import of leather footwear. The major markets were the UK, USA, France, Italy, Russia, etc. In 1999-2000, export of leather footwear from India contributes 21% share of its total export of leather and its products. Nearly 33 million pairs of various types of leather footwear were exported during the year. It includes dress shoes, casuals, sport shoes, etc.

INDIAN FOOTWEAR COMPONENTS INDUSTRY

The footwear component industry is a segment of leather industry in India. The footwear components which are exported from India are leather shoe upper and leather unit soles. The estimated annual production capacity of leather shoe upper’s is 112 million pairs. The major production centers are Chennai, Ranipet, Agra, Tamilnadu, etc. The component industry has enormous opportunities for growth to cater to increasing production of footwear of various type, both for export and domestic market. Nearly 75% of total export of footwear component is from the southern region followed by northern region with a share of 13%. Nearly 83% of the India’s export of footwear component is from the UK, Germany, Italy, USA, France and Portugal.

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Analysis of financial statements at VKC Pvt Limited

Company profile. a. Background and inception of the company: Name of the company

: VKC GROUP OF COMPANY

Constitution

: small scale industry

Date of establishment

: 1984

Sales head quarters

: Calicut

Incorporation

: 1984

Contacts phone no

: 0495-2442225

Authorized capital

: Rs.40 lakh

Land and building

: 4.5 acres and 1.75 acres

Financial year turnover

: Rs.700 million

“VKC group of companies are the leading footwear manufacture especially in southern region of India. The group established on (August17) 1984 with a nominal capital and few employees. In 1984 the founder of the group Mr. V.K.C. Mammed Koya started a Hawai Sheet manufacturing unit with his two brothers. Later on Hawai straps were also inducted to the production line and in 1986 VKC group launched the first product with its own brand name in the market viz. VKC Hawai with an initial production of 600 pairs per day. By 1989 the production increased to 5000 pairs a day and by 1996 it jumped to 17000 pairs.

In between the founder initiated the floating of the first RPVC footwear manufacturing unit in the Malabar Area of Kerala state with few of his friends. This product also got very good acceptance in the market. The success of the first unit and the RPVC unit gave a signal to the business community and the vast potential was seen by the various industrialists. This resulted in a rapid change in the footwear industry itself. Within a few years the number of Rubber and RPVC unit grew to more than 80 in this area.

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Analysis of financial statements at VKC Pvt Limited In 1994 the group ventured the first unit in Kerala to manufacture footwear from virgin PVC. This resulted in a big change and the multinational brands felt competitions from the local brands. In 1998 the group started the first Micro Cellular PVC footwear in Kerala with imported plant and machinery. “Quality at low price” made the VKC groups products popular in the market day by day. It also expanded its market to other southern states.

In 2001 the group started the first Air Injected PVC DIP footwear manufacturing unit in the South India. In 2003 the group ventured the first Injected EVA manufacturing unit in South –Central India. In 2006 the group started backward integration to produce EVA compound for Injection and started the first EVA compounding plant in the South –Central India. The unit went in 2007 the group started manufacturing of PU DIP footwear.

During this period new bloods with technical, commercial and practical knowledge were inducted and now the group consists of 20 working Directors and 60 share holders spread over 19 various units. And have annual group turnover of Rs.700 million. More than 1000 employees are working in these units. The company had achieved a prominent position in the footwear market of India. The main markets, which are concentrated by the company, are Kerala, Tamilnadu and Karnataka.The good quality and variety in models of VKC products help the companies to face the market competition. The company has been able to maintain the quality of the products by adopting foreign technologies. The group is now looking for further avenues in the field of footwear to stretch their hands. The Head Quarter of VKC group is in CALICUT .And the main plants of VKC group of companies are situated in Kerala and Tamilnadu. The following are the associate companies of VKC group. 1. M/s. VEEKESY RUBBER INDUSTRIES PVT.LTD. 2. M/s. VEEKESY ELASTOMERS PVT.LTD. 3. M/s. VEEKESY POLYMERS PVT.LTD. 4. M/s. SANDLON TECHNOLOGIES PVT.LTD.

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Analysis of financial statements at VKC Pvt Limited 5. M/s. FORTUNE ELASTOMERS PVT.LTD. 6.

M/s. CALTECH POLYMERS PVT.LTD.

7. M/s. EMERALD PLASTOMERS PVT.LTD 8. M/s. SLIPONS INDIA PVT.LTD 9. M/s. DIADORA SHOES PVTLTD. 10. M/s. DIMESCO FOOTCARE INDIA PVT LTD. 11. M/s. VEEKESY PLASTOMERS (INDIA) PVT.LTD. 12. M/s. KOVAI FOOTWEARS PVT.LTD. 13. M/s. FERRARI SHOES (INDIA) PVT.LTD 14. M/s. VEEKESY FOOTCARE (INDIA) PVT. LTD 15. M/s. FERRERO VINYL TECHNOLOGIES PVT.LTD 16. M/s. MORBIDO VINYL PVT.LTD. 17. M/s. SMARTAK FOOTCARE PVT. LTD. 18. M/s. VEEKESY SANDALS (INDIA) PVT. LTD.

VEEKESY RUBBER INDUSTRY PVT.LTD

Veekesy rubber industry pvt ltd is the registered private limited company situated at Kolathara in Kozhikode district. The objective of the company is to manufacture the high quality footwear. It got its certificate of registration on 1-1-. 1984 The installed production capacity at the initial period is 21, 60, 000 pairs. All affairs and day-to-day business administration of the firm is vested in the hands of Boards of Director. They are in charge of various activities like Production, Finance & Marketing. The board is assisted by qualified administrative staffs. Veekesy rubber industry private limited is a leading rubber manufacturer in south India. The company’s mission is to maintain and achieve customer satisfaction through providing quality products at reasonable price. In

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Analysis of financial statements at VKC Pvt Limited order to satisfy customer needs first the company is providing footwear which offers better style, comfort, elegance, finish, colors and durability. The product “VKC” has a high brand value in the minds of the peoples of Kerala because of the quality and the affordable price of the product. The management gives high priority to the quality of the product. The company assures the quality of the product through the continuous quality checking in each and every stages of the production process.

Veekesy rubber industry private limited synonymous with quality footwear is today busy stepping from a splendid present into a glorious future, it is energetically in the move to scale never heights in footwear designing and manufacturing.

b.Nature of business The business carried by VKC is production of footwear. VKC mainly manufacturing high quality footwear as per the requirement of customers. The company faces many competitors for the kind of manufacturing. “Consistent quality at affordable price” made the VKC group products popular in the market day by day. The success in Kerala market gave morale boost to the group to market their product in the other southern states.

c.Vision, mission and quality policy Vission: Mission: 

To achieve international levels of excellence in technology and quality.



To maintain and achive customer satisfaction through providing quality products at reasonable price.



To continuously grow in our business and became a significant player in the world market.

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Analysis of financial statements at VKC Pvt Limited

Quality policy:

In order to satisfy customer needs first the company is providing footwear which offer better style, comfort, elegance, finish, colors and durability. Quality performance demonstrated is the result of optimization of design, effective process control in manufacturing together with testing and approval process in the environment of Quality management system.

d.Product profile:

VKC Rubber industry pvt.ltd producing high quality plastic footwear from 100% virgin rubbers. The company’s VKC Rubber industry pvt.ltd is producing high quality plastic footwear from quality plastic footwear from 100% virgin micro cellular rubbers. The company’s manufacturing facilities includes modern equipment and machineries imported from Taiwan, first of its kind in south including rotary injection modeling machines for improved product quality. The company has to face stiff competition as there is lots of plastic footwear manufacturing in Kerala. e.Area of operation:

Veekesy Rubber industry pvt ltd has operating the business in south India and it has a long tradition of maintaining the highest quality standards, right from the selection of raw materials to processing and packaging of the end product

f.Ownership pattern: Veekesy Rubber industry pvt ltd is a private limited company.

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Analysis of financial statements at VKC Pvt Limited g.Competitors’ information: 

Paragon Rubber Industries BANGALORE, India



Haritha Hawai Kerala, India



Odessey rubber industries, kerala



Hawalker rubber industries, kerala



Witco India ltd karalla,

h.Infrastructural facilities a. Security checks: Any material official/otherwise that is being brought in taken must have appropriate documentation. Regular security checks are conducted to prevent unauthorized material leaving entering the organization. Employees required to leave the factory on official/personal work during working hours are to be submit an authorized gate pass to the security. b. Medical facilities: The medical centre is staffed by a resident Doctor and trained attendants and supported by efficient Ambulance service. C.Canteen Facilities Vkc has got a good canteen facility for the employees at project area also.

i.Achievement/ award

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Analysis of financial statements at VKC Pvt Limited j.Work flow mode: Process flow diagram for manufacturing of Hawai sheets, chappals and straps. Raw Materials

Mixing with Chemicals in mixing mill

Keep for Maturation

Mixing in mixing mill with blowing agent & Vulcanizing Agent

Vulcanization in Hydraulic Press

Hawai sheets & straps

Cutting & Drilling

Assembling & Packing

Hawai Sheets

Hawai Chappals

Hawai Straps

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Analysis of financial statements at VKC Pvt Limited k.Future growth and prospects: 

To attain market leadership.



Introduction of new trade schemes to increase sales.



Aggressive advertisement and publicity as part of sales promotion.



Reduction in distribution expenses.



Cost-reduction in all areas.



Instant decision making in certain procurement activities.



Timely introduction and implementation of market driven decisions.



Ensuring effective internal control

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Analysis of financial statements at VKC Pvt Limited

3.McKinsey’s 7S Framework with special reference to the organization under study According to Waterman, organization change is not simply a matter of structure, although structure is significant variable in the management of change. Again it is also not a simple relationship between strategy and structure, although strategy is also a critical aspect. In their view effective organizational change may be understood to be a complex relationship between strategy, structure, system, style, skills & shared values. The first three elementsstrategy, structure &system are considered the “hardware” of success. The next four – style skills, staff, and shared values are called the “software”. The complex relationship is diagrammatically presented below;

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Analysis of financial statements at VKC Pvt Limited

Origin of 7s framework The 7s framework was first mentioned in “The art of Japanese management” by Richard Pascale and Antony Athos in 1981. They had been investigating how Japanese industry had been so successful. At around the same time that Tom-Peters and Robert Waterman were exploring what made a company excellent. The 7s model was born at a meeting of these four authors in 1978. It appeared also in “In search of excellence” by Peters and Waterman and was taken up as a basic tool by the global management consultancy company Mckinsey. Since then it is known as their Mckinsey’s 7-s model.

Benefits of 7-s Model 

Diagnostic tool for understanding organization those are ineffective.



Guides organizational change.



Combines rational and hard elements with emotional and soft elements.



Managers must act on all S’s in parallel and all S’s are interrelated.

Description: The 7s framework of is a value based management (VBS) model that describes how one can holistically and effectively organize a company. Together these factors determine the way in which a corporation operates. Mckinsey 7-s model is one of the approaches of management analysis. Mckinsey model consists of 7-s. They are:  Structure-(virtual organization).  Skill-(competencies)  Style-(culture and leadership)  Strategy-(corporate, business, product or market)  System-(process)  Staff-(empowerment)  Shared values-(mission and goals)

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Analysis of financial statements at VKC Pvt Limited According to this model, there are seven basic dimensions, which represent the core of managerial activities. These are the levels which executives use to influence complex and large organizations; obviously there was a concerted effort on the part of the originators of the model to coin the managerial variables with works beginning with the letters so as to increase the communication power of the model.

"Hard" elements are easier to define or identify and management can directly influence them: Theses are strategy statements; organization charts and reporting lines; and formal processes and IT systems. "Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful. The way the model is presented in Figured 1 below depicts the interdependent of the elements and indicates how a change in one affects all the others.

Structure: the way the organization is structured and who reports to whom. Skill: the actual skills and competencies of the employees working for the company. Style: the style of leadership adopted Strategy: the plan devised to maintain and build competitive advantage over the competition. Systems: the daily activities and procedures that staff members engage in to get the job done. Staff: the employees and their general capabilities. Shared values: called "super ordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic.

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Analysis of financial statements at VKC Pvt Limited STRUCTURE It refers to the more durable organization arrangements and relationships, & forms the skeleton of the edifice of the organization. It prescribes the formal relationships, communication channels, roles to perform and rules and procedures. Structure has 3 important functions 

It reduces the external uncertainty by forecasting, research & planning process.



It reduces the internal uncertainty due to variable, unpredictable, random human behavior by mechanisms.

It helps in coordination of the activities of the organization to enables it to have a focus by departmentation, specialization, division of labour & delegation of authority ORGANISATIONAL STRUCTURE

CHAIRMAN BOARD OF DIRECTORS MANAGING DIRECTORS EXICUTIVE DIRECTOR

PURCHASE DEPARTMENT

PRODUCTION DEPARTMENT

SUPERVISOR

Channel of Distribution

Sales Promotion

FINANCE DEPARTMENT

ACCOUNTANT

HUMAN RESOURCE DEPARTMENT

OFFICE ASSISTANT

Advertisement

RAJIV GANDHISemi INSTITUTE Skilled Skilled OF TECHNOLOGY Un Skilled Labours Labours Labours

MARKETING DEPARTMENT

Market Research

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Analysis of financial statements at VKC Pvt Limited

FINANCE DEPARTMENT VKC maintains a separate finance department under the super vision of finance manager who is assisted by the assistant manager and his subordinates .The section handles all the financial aspect of the firm. All transactions are handled through computerized transactions. All the transactions are done by tally. Finance department involves preparing all the statements like, trading accounts, profits and loss accounts, balance sheet, bills, notes, letters, other tender call letters, suppliers list, creditor's information, shareholders' documents, dividend policy.

Functions of finance department 

Planning, controlling, rising and administration of funds used in the business



Maintaining liquidity and profitability



Maintain integrity and ensure its' future prospects



Working capital management



To meet day to day expenses



To provide credit facility to customer



To maintain the inventories

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Analysis of financial statements at VKC Pvt Limited MARKETING DEPARTMENT: “Marketing is the management process responsible for the identifying, anticipating and satisfying consumers’ requirements profitably”.

Marketing Manager

Channel of distribution manager

Assistant manager

Sales promotion manager

Assistant manager

Advertiseme nt manager

Assistant manager

Market research manager

Assistant manager

Sales executives

To be the best product in the market company is giving importance to the following. 

BRAND NAME

: The brand name used for the product is “VKC HAWAI”.



QUALITY

: Quality of the products is the main marketing technique that the ` company used.



ADVERTISING

: The Company treats the advertising as the main mode of marketing

to improve the sales of their products. But in the case of VKC Hawai, the advertisement is comparatively less. The brand image helps to sell the product in the market.

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Analysis of financial statements at VKC Pvt Limited

SCHEMES :

One of the main marketing techniques of the company is the different Schemes for their customers and dealers. WHOLSALERS MEET: The Company conducts the Wholesalers Meet at least once in a year. By this the company provides an opportunity to the wholesalers to interact with the company and between the dealers. This helps to identify problems, sort out differences, and to formulate plans for future improvement in the market. ORDER TAKING & COLLECTION: The Company executives are directly taking the orders from the wholesalers. DELIVERY SYSTEM: The Company has very good system for the supply of the products to the wholesalers. The company had provided door delivery system and they are fixed a weekly chart for the supply.

THE MARKETING TECHNIQUES USED ARE:

A) CHANNELS OF DISTRIBUTION B) SALES PROMOTION C) ADVERTISING D) MARKET RESEARCH

A) CHANNELS OF DISTRIBUTION:

Channel of distribution is the set of marketing intermediaries through which the goods flow from the producer to consumer. The company had provided the door delivery system to the wholesalers for the distribution of products through their owned vehicles and through the different transporters. The Channel of Distribution followed by the Company is: The company adopts a two level distribution system consisting of Wholesale dealer and Retail dealer. The company is satisfied with the existing arrangements.

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Analysis of financial statements at VKC Pvt Limited B) SALES PROMOTION:

Manufacture Wholesaler Retailers Consumers Sales promotion plays a major role for the success of the VKC products. Sales promotion influences the customers for buying the products and also helps to meet competition. It popularizes the product so as to stimulate demand. Sales promotion tools used are: CONSUMERS PROMOTION

C) ADVERTISING & SCHEMES:

The VKC’s Advertising covers all activities connected with giving of publicity regarding goods and services offered for sale. The main Medias for advertising are: Indoor Media & Outdoor Media

INDOOR MEDIA

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Analysis of financial statements at VKC Pvt Limited

OUTDOOR MEDIA

TV CHANNELS:

Advertisements of the products of the company are given in all the major TV channels in Malayalam. The Brand Ambassadors for the product is Cine Artist and Models “Lakshmi Rathan, Raji, Aaru Nayar, Baby Sooraj and Silpa”. SCHEMES:

The company is providing different schemes for customers, retailers and wholesalers during seasons. This helps the company to gets the good results in sales and publicity. The company had already undertaken various schemes and contests like: – VKC perdition contest (Football World Cup 2010) D) MARKET RESEARCH

Market research helps in analyzing the buyer’s habits, popularity of a product, and effectiveness of advertising media. It also helps to collect information about marketing problems and opportunities. The continuous marketing research has been conducted by the company which helps them in planning and executing marketing strategies for the future course of action.

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Analysis of financial statements at VKC Pvt Limited THE PILLARS IN THE PATH OF SUCCESS OF THE FIRM is 1. FOREIGN TECHNOLOGIES:

The main advantage of the company is the implementation of Italian technology used by them for the injection moulding process. Moulding process is the main activity and the key process of manufacturing of quality footwear. The Company purchases Footwear Mould from Ital, Taiwan and China. This will help the company to ensure high quality with accurate size and good finish to the product. 2. EMPLOYEES OF THE FIRM:

The Company always maintains good employer-employee relationship. The employees are well satisfied with the attitude of the management towards them and in the facilities provided to them. So there were no labour strikes, labour absenteeism and labour resignation. The company provides excellent training programs for the employees to improve the skills and productivity with in a lesser time. The employees are getting the statutory benefits like Bonus, ES scheme, Employees Provident Fund, Festival Holiday Allowances from the company. 3. QUALITY OF THE PRODUCT:

Quality can be viewed as a weapon for competitive advantage, as a means of profitability and a source of value for customers, investment in quality achieves desired business results. Quality derives the productivity machine and leads the firm to prosperity. Quality of Hawai product is the combined effort and cooperation of the entire organization. Quality Management of VKC involves quality planning, quality control and quality improvement which are cross functional in nature. The company has to face keen competition in the market since there are numbers of footwear’s manufactures in the country. The main factor, which determines sales, is the quality of the products. The company produces good quality products and hence they are capable of competing with others. VKC Rubber Industries

PVT. Ltd. Has succeeded in

withstanding stiff competition from the parallel manufactures because of the superior quality of their products at reasonable price.

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Analysis of financial statements at VKC Pvt Limited

4. ADVERTISING & MARKETING:

The advertisement of VKC’s product is of news of information concerning an ideas, services or products to induce action which is suitable with the intent of the advertiser. The advertisement given is based on the new trends in the market and which are highly attractive by the customer. “Marketing is the process of providing the right product of the right quality in the right quantity in the right place at the right time”. SKILLS The term “skills” includes those characteristics, which people use to describe a company. Organization have strengths in a number of area but their key strengths are dominant skills are few. These are developed over a period of time of the result of the interaction of a number of factors performing certain tasks successfully over a period of time, the kind of people in the organization, the top management style, structure, the management systems, the external environmental influence etc. Hence when organization makes a strategic shift it becomes necessary to consciously build new skills. Classification of skill at VKC is as follows: 1. Top Management Skills: Top management includes board of directors, secretaries and unit chief. Top management skills includes balancing, integrating, setting, priorities, developing standards, conceptualizing, leading, persuasive, and planning process. 2. Supervisory Management Skills: It includes additional general manager, deputy general manager, senior manager and manager. Every superior in the unit should have sound technical knowledge of his field to

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Analysis of financial statements at VKC Pvt Limited provide proper instructions and guidance to operatives, accuracy in work, and communication skill for interaction with the higher management. 3. Technical and Clerical Skills: Technical skills are required from an individual as per the project requirements. For technical skills employee should be engineer/diploma holder. For clerical work candidates should be BCom/ BBM. Candidates who have passed industrial training institute are engaged scheme under trade apprentices’ for a year. Besides fulfilling the training requirements under the apprentices act. STYLE The company employees share a common way of thinking and behaving. Leaders establish unity of purpose and direction of the organization. They create and maintain the internal environment in which people became fully involved in achieving the organization policy. Top down style In VKC management follows the top down decision making at the time of taking any decision relating to management. Board of directors and chief executive of the company give decisions about the management relating problems of the company. The decision taken is flow from top to down, (to Middle Level and Lower Level Management) in VKC they follow the participative leadership in case of recruitment. Participative leadership: The head of the department takes some decisions there may by consulting the other employees. In this type of leadership all the level of management participate in taking

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Analysis of financial statements at VKC Pvt Limited decisions. In case recruitment A.M personnel department consult the entire department head to take decision regarding recruitment of new employees.

STAFF: It refers to the people working in an organization the company’s people resources and how they are developed, trained and motivated. The process of staffing includes various processes like recruitment and selection procedures, training etc. It refers to how the people are developed, trained, socialized, integrated, motivated and how the employees’ career is shaped in an organization.

Technical Staff: These are the staffs they are responsible for the work related to technical aspect. In this company they are appointing well –qualified and experienced persons as technical staff. So these staff will have good knowledge about the working environment. Supervisory Staff: These are the persons who are in charge with supervising the other employees in the organization. In this company they are employing experienced staff as supervisor. so they can observe the fellow workers and guide them as per the companies need. The experienced supervisors are one of the key assets of this company. Clerical staff: Clerical staff required for clerical work, clerical work need for all organization for clerical staff required B.com/BBM.

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Analysis of financial statements at VKC Pvt Limited

STRATEGY Strategy is a choice of direction and action; the company adopts to achieve its objectives in a competitive situation. Strategies formulated need to be implemented. Implementation of strategies is often more difficult than their formulation. Strategic planning is about asking questions, more than attempting to answer them. Strategy formulation entails a search for a different frame of reference. It is the quest for a new business paradigm. There are two types of paradigms that apply to management, namely the business and the organizational or managerial paradigms. The business paradigms define a company’s position in the market place with respect to customers, technology and products. Pricing of VKC: The name “VKC” itself is the mark of quality for the customer. The company has across different price terminologies/price strategies. They are as follows: 1.

List price

2.

Discount

3.

Payment periods

4.

Credit terms

5.

Seasonal pricing

6.

Area wise pricing

7.

Pricing on demand

SYSTEM: Identifying, understanding and managing process as a system contribution to the organization effectiveness and efficiency in achieving its objectives. A. Inventory Control System: An effort to achieve and maintain an ecological balance between the cost incurred and cost solved by holding material in stock is called inventory. ABC analysis for stock control. FIFO method for issuing materials

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Analysis of financial statements at VKC Pvt Limited

B. Accounting System: Financial statements are prepared under the historical cost convention on an accrual basis and comply with the accounting standards refer to sec 211 (3c) of the companies Act 1956. C. Remuneration System: 1. Piece rate system is followed to employees. SHARED VALUES:

Values refer to the institutional standards of behavior that strengthen commitment to the vision, and guide strategy formulation and purposive action. The core values are shaped around the belief that enterprises exist to serve society. In terms of this belief, profit is a means rather than an end in itself a compensation to owners of capital linked to the effectiveness of contribution to society and the essential ingredient to sustain such enlarged societal contribution. 1. Integrity among various department Various departments in organization are working successfully. Coordination of all the functional departmental area works together to achieve the stated object of the company. 2. Team work among the employees Every person or worker in the organization knows the objectives of the company. With the proper communication network and corporation among the employees, synergy is existing in the organization. 3. Customer satisfaction The status of customer satisfaction is measured through two principles interventions. a. Customer satisfactory survey The customer satisfaction is measured by sending structured questionnaires to major customers and exacts their opinion about the product being offered reported for internal reviews and also for reviews at higher level in the organization. The results of these are used to update the quality management system and procedures.

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Analysis of financial statements at VKC Pvt Limited b. Customer complaint handling system The calls and complaints from the customers are systematically processed for timely response and solution right from the branch, maintenance centre or the site itself. The complaints are continuously monitored and regularly reviewed by the unit chief to ensure speedy redressal.

4. SWOT ANALYSIS SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies

Strengths: 

Easy availability of low cost of labour.



Comfortable availability of raw materials and other inputs.



Massive institutional support for technical services, designing, manpower development and marketing.



Management is very stable, that forms strong foundation of the company.



Employees are being provided with all necessary welfare facilities.



There are highly skilled and committed employees.



Well equipped quality control department for inspecting the quality of incoming of raw materials and final products



Competitive advantage in cost of production



Wide distribution network

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Analysis of financial statements at VKC Pvt Limited Weakness 

Due to lack of direct sales, debts with many dealers turning bad.



Lack of human resource.



Cost of production of is high.



Low turnover resulting in low profits.



Defective marketing strategy lacks effective advertising and publicity.



No proper utilization of R&D centre and less importance to R&D.

Opportunities: 

The company has the opportunity to expand its production units due to more demand for its products.



The company has got better tool for better planning and decision-making.



The company can establish more branches across the India.



At present it has good raw material sources to enhance production.



Good export market should tap foreign market vigorously.



At present it has Good raw material sources to enhance production

Threats 

Competition from other leaders.



Government interference may reduce growth potential.



Competition from other global leaders like HUL.



Technology advancement at a faster rate.



To protect the financial interest of the company.

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Analysis of financial statements at VKC Pvt Limited

Financial statement analysis RATIO ANALYSIS:

The ratio is the most powerful tool of financial analysis. It is the process of establishing and interpreting various quantitative relationships between the figures and group of figures. It is with the help of ratio analysis that the financial statement Can be analyzed more clearly and decision can be made.

SL.NO

RATIOS

2009-2010

1

Current ratio

1.52

2

Acid test ratio

0.34

3

Net profit

3.00

4

Net worth ratio

28.76

5

Debt/Equity

1.63

Current ratio; It expresses the relationship between current assets and current liabilities. The company’s current ratio is 1.52 in the year 2009-10. The Indian Standard Current ratio is 3:1, though the ideal ratio is 2:1. Therefore, the company does not meet the standard ratio and does not enjoy sufficient liquidity and there is shortage of working capital in the year 2009-10

Acid test ratio; The Acid Test Ratio is the rigorous measures of a firm’s ability to service short term liabilities. The Acid Test Ratio is superior to the current ratio. Generally an Acid Test Ratio

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Analysis of financial statements at VKC Pvt Limited of 1:1 is considered satisfactory. In the year 2009-10 the Acid Test Ratio is 0.34 which is not satisfactory.

Net Profit Ratio:

Net Profit Ratio measures the relationship between net profit and sale of the firm. The Net Profit shows the profit position of the company against sale during the year. The Net Profit ratio in the year 2009-10 is 3.00. While calculating Net Profit Ratio, the investment or capital of the firm is only in relation to sales.

Net worth ratio;

Debt/Equity ratio;

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Analysis of financial statements at VKC Pvt Limited LEARNING EXPERIENCE The learning experience gained by me during the in-plant training was very much practical oriented. Mostly all the concepts and theories, which I studied in the class, are applicable practically. I had a great time working on the project, as it gives insights into the working environment of an organization. The training has exposed me to many facts of an organization and also helped me to gain practical knowledge, which will go a long way in the horizon of our career. I became more aware of the soap industry and the role played by VKC RUBBER INDUSTRY PVT LTD. It is fallowing very good accounting system by wish helps in meeting all its obligations in time  Structure: I got to know how decisions are communicated, the flow of decision process. The way in which departments are classifieds on the basis of their functioning. The functions of each departments and its relevance.  Skills: Through skills, how the training needs are satisfied to the employees of different grades. The different on-job and off-job training given to the employees.  Style: Through style, I got to know how decisions flow from top to bottom in VKC RUBBER INDUSTRY PVT LTD. How the production process is planned and worked out. How self managed teams perform to achieve the targets set by the management.  Strategy: Through strategy, I found how strategies were formulated to overcome the rigorous competition. Strategy is very much essential for the company to survive in the market. Supply Chain Management is one of the strategies adopted by VKC RUBBER INDUSTRY PVT LTD. through which they are able to reduce the cost of production and increase profitability.  System: System plays an important role of supporting and facilitating various activities that are carried out within the organization VKC RUBBER INDUSTRY PVT LTD adopts latest system. Overall the learning experience was quite satisfactory which enabled me to experience a slice of the real and ruthless industry.

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Analysis of financial statements at VKC Pvt Limited

THEORETICAL CONCEPT OF THE STUDY INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS Financial statement is a collection of data in a defined format containing the monetary figures with regard to business, industry and others generally for a given period or at given date. Its purpose is to convey an understanding of some financial aspects of a business firm.

Users of Financial Statements: 

Investors



Creditors



Labour Unions



Financial Institutions



Management



Regulatory bodies

Types of Financial Statements : Financial statements

Position Statement (or) Balance Sheet

Income Statement (or) Profit and Loss Account

Statement of changes In Owner’s Equity or Retained Earnings

Fund Flow statement

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Statement of Changes in Financial Position

Cash flow statement

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Analysis of financial statements at VKC Pvt Limited The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firm’s position and performance.

In brief financial analysis is the process of selection, relation and

evaluation.

Objectives of financial analysis : 

Ascertain present & Future earning Capacity



Ascertain Operational efficiency as a whole or division wise



Short term and Long term Solvency



Short term and Long term liquidity



Comparative study of one company with other or among divisions



Studying present for future plans of the company



Ascertain financial stability



Compliance with Statutory requirements

Types of Financial Analysis: Types of Financial Analysis

On the Basis of Material used

External Analysis

Internal Analysis

On the basis of modus operandi

Horizontal Analysis

Vertical Analysis

Significance and purpose of Financial Statement Analysis:

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Analysis of financial statements at VKC Pvt Limited 

Judging Profitability



Judging Liquidity



Judging Solvency



Judging the efficiency of Management



Inter – firm comparison



Forecasting and Budgeting

Tools, Techniques and methods of financial analysis : The financial analyst can adopt one or more of the following technique or tools of financial analysis:  Comparative financial statement analysis  Common size financial statement analysis  Comparative trend percentage  Ratio analysis  Fund flow analysis.  Cash flow analysis

Comparative Financial Statement Analysis: Comparative Financial Statement refer to those statements of the financial affairs of business, which are prepared in such a way as to provide time perspective to the various elements contained in such statements.

Common-Size Financial Statements Analysis: Common-size Financial Statements are those statements in which the data or figures reported in the financial statement are converted into percentages, taking some common base. Common-size financial statements are also known as component percentages statements or 100 percent statements, because each statement is reduced to 100% and each individual item is expressed as a percentage of the total of 100. Funds flow Statement : Funds flow statement is an attempt to report the flow of funds between various assets and liabilities and owner’s capital during an accounting period. In other words, “

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Analysis of financial statements at VKC Pvt Limited Funds flow statement is prepared to indicate in summary form, changes occurring in items of financial position between two different balance sheet dates”. Here, the emphasis is on Ratios and Trend analysis to analyse the financial position of the company.

INTRODUCTION TO RATIO ANALYSIS A Ratio is an expression by accounting relationship between two numbers. It may also be defined as relationship of one amount to another. It is one number from another. Accounting Ratio are relationships expressed in mathematical terms between figures which are related with each other. They indicate the quotient of two mathematical expressions. Ratios may be expressed in percentages or in terms of “Times”. They facilitate better comparison when compared to absolute figures. Therefore they are used as one of the techniques of Financial Analysis. They help to understand the financial position and performance of enterprise in a better manner. TYPES OF RATIOS

TRADITIONAL

FUNCTIONAL

 Profit and Loss Ratio  Balance Sheet Ratio  Composite Ratio

LIQUIDITY RATIO

ACTIVITY RATIO

PROFITABILITY

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LEVERAGE & SOLVENCY

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Analysis of financial statements at VKC Pvt Limited  Current Ratio  Liquid Ratio  Absolute Ratio

 Stock Turnover Ratio  Debtors Turnover Ratio  Creditor Turnover Ratio  Fixed Assets Turnover Ratio  Capital Turnover Ratio

 Gross Profit Ratio  Net Profit Ratio  Operating Profit Ratio  Return on Equity Capital  Earning Per Share

 Capital Gearing Ratio  Financial Leverage  Debt Equity Ratio  Proprietary Ratio

I. LIQUIDITY RATIOS [SHORT TERM SOLVENCY RATIOS]: Liquidity refers to the ability of a concern to meet its current obligations as and when they become due.

The following are the important liquidity Ratios: 1. Current Ratio It is the ratio of current Assets to current Liabilities. It is also known as Working Capital Ratio. It helps to understand relationship between total current assets and total current liabilities. A ratio equal or near to the rule of thumb of 2:1 is considered as a standard for this ratio. 2. Liquid Ratio or Acid Test Ratio: It is the ratio of liquid assets to liquid liabilities. Liquid Assets usually include all the current assets except inventories and pre – paid expenses. Liquid liabilities usually refer to current liabilities less bank overdraft. The standard for this ratio is 1:1 3. Absolute Liquidity Ratio: This ratio establishes the relationship between the sum of cash It represents cash in hand, cash at bank and other marketable securities and their relationship with the liquid assets. This ratio is used as supplement to current ratio to assess short term financial position of an enterprise. The standard for this ratio is 0.5:1.

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Analysis of financial statements at VKC Pvt Limited II. ACIVITY AND TURNOVER RATIOS: 1. Receivables or Debtors Turnover Ratio: This ratio explains the relationship between the net credit sales and the average accounts receivables.

A high ratio indicates efficiency in the collection function and a lower ratio

signifies inefficiency or liberal credit policy. 2. Creditors Turnover Ratio: This ratio is similar to debtor’s turnover ratio. It signifies credit period enjoyed by the firm in paying the creditors. 3. Inventory Turnover Ratio: It indicates the relationship between cost of sales and average inventory at cost. It also helps to understand whether the investments are within limits or otherwise. It explains the rate at which inventories are converted into sales and then into cash. A Stock turnover ratio of 8 times in a year is considered to be ideal.

4. Fixed Assets Turnover Ratio This ratio explains the relationship between the costs of goods sold and fixed assets. It explains the efficiency with which fixed assets have been used in generating sales and better profits. The Standard or ideal fixed assets turnover ratio is 5 times

III. PROFITABILITY RATIO: 1. Net Profit Ratio: It is the ratio of Net Income or Net Profit after taxes to Net Sales. This ratio is expressed as a percentage. It helps to measure overall profitability of the concern and useful to owners. It indicates the efficiency as well as profitability. 2. Return on Shareholders investments or Net worth or Proprietors Funds This ratio explains the relationship between the Net Profit after interest and tax to share holder’s funds. Share holders funds include equity capital, preference capital, reserves and surplus, and profit and loss account minus the accumulated losses. The standard or ideal ratio is about 13%.

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Analysis of financial statements at VKC Pvt Limited 3. Return on Equity Capital: This ratio explains the relationship between Net Profit after interest, tax & Preference dividend and the Equity share capital.

It helps the owners measure the returns on their

investments. This ratio indicates the profits finally available to equity share holders.

The

standard or ideal return on capital employed ratio is about 15%. 4. Earning Per Share [EPS] It is calculated by dividing net profit after tax, interest and preference dividend by the number of equity shares. It indicates the earning power of company and facilitates comparison between earning capacity of one company with another company belonging to the same industry.

IV. LEVERAGE RATIOS OR LONG TERM SOLVENCY RATIOS : Leverage ratios indicate the relative interests of the owners and the creditors in an enterprise. They measure the state of the creditors as against the owners and they portray the long - term solvency of the concern. 1. Debt – Equity Ratio : This ratio is calculated to measure the relative claims of outsiders and the owners against the firm’s assets. The standard or ideal debt-equity ratio is 2:1 2. Proprietary Ratio or Equity Ratio : This ratio expresses the relationship between net worth or equity and total assets. Generally, a ratio of 5:1 is considered to be ideal. 3. Fixed Assets to Net worth Ratio : The ratio establishes the relationship between fixed assets and shareholder’s funds. The Standard or ideal fixed assets to net worth ratio for an industrial undertaking is 67%, it should not constitute more than 67%. 4. Capital gearing Ratio : Capital gearing ratio is the ratio which expresses the relationship between fixed interest-bearing securities and fixed dividend-bearing shares and equity capital. 5. Interest Coverage Ratio :

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Analysis of financial statements at VKC Pvt Limited It is the ratio between net profits and fixed charges. Net profit means net profit before deducting fixed charges and income- tax. Fixed charges mean interests on long-term loans and deposits and debentures. The standard or ideal fixed charges cover is 6 times..

INTRODUCTION TO TREND ANALYSIS OR TREND PERCENTAGES : Trend percentages if a technique of studying financial statements of a company over a number of years. It compares the past data over a period of time with a base year, under this method the percentages relationship that each financial statement item of each year bears to the same item in the base year is calculated. Advantages of trend percentages : 

Trend percentages analysis is of immense use in making a comparative analysis over a series of years.



It is easy to identify changes and interpret the same because percentage figures disclose more than the absolute figures.



Trend analysis is extremely helpful in budgeting, forecasting etc.

STATEMENT OF THE PROBLEM: Title of the study: “Analysis of financial Statement at VKC rubber industries pvt ltd”

The justification of existence of any company is determined by performing as per expectations. Analysis of overall performance is one of the major requirements for planning. Performance evaluation is necessary from the point of view of creditors, public, government, other organizations and the company itself. It is also necessary to bridge the gap between the current and expected position by taking corrective measures. It acts as a yardstick of measuring how the company has been able to move forward as per the plan.

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Analysis of financial statements at VKC Pvt Limited The information provided through the analysis and interpretation of financial statements is of immense help in making decisions. They play a dominant role in setting the framework of managerial decisions. The main aim of this study is to evaluate the performance and market standing of VKC rubber industries pvt ltd in order to give a better scope to the investors, shareholders, creditors and the management themselves about the rating of VKC rubber industries pvt ltd and its performance in the market. This Financial Statement analysis at VKC Pvt Ltd. is on the basis of ratio analysis and Trend Percentages.

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Analysis of financial statements at VKC Pvt Limited

OBJECTIVES OF THE STUDY: The main objectives of this study are as follows: 

To analyze the management efficiency of the concern.



To evaluate the liquidity position and profitability of the company.



To gain insight into long term solvency and leverage position.



To make an overall performance analysis and know the progress of the concern.



To emphasize on changes in the financial and operational data from year to year with the help of trend percentages.



To know the trends of the business.



To find out the solution to the unfavourable financial condition and financial performance



To help the company to make future projections by analysing its past performance.



To suggest the ways and means to improve the overall financial position.

SCOPE OF THE STUDY:

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Analysis of financial statements at VKC Pvt Limited



The study is exclusively conducted for for past 4 financial years.



The trends indicated may differ from year to year based on the pattern of investments, borrowings etc. The study becomes more meaningful only if it covers a longer period of 10 or more years which is beyond the scope of this project.



The study was aimed at analyzing the financial statements of VKC rubber industries pvt ltd on the basis of Ratiosis and Trend Percentages in order to know the company’s financial & cash position and its performance during past four years from 2007 to 2010.



The data used in this analysis has been obtained from the annual reports i.e., Balance Sheets and Profit & Loss Account.

LIMITATIONS OF THE STUDY :  Even though there are so many tools of financial analysis, this study uses only Ratio analysis and trend analysis.  Limitations of time i.e, the study is carried out for academic purpose for a limited span of 10 weeks. The time constraint did not allow for the in-depth study regarding the performance of the company.  The findings and analysis of this report is prepared from the information available in the annual reports and books of accounts.  The information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone.  The financial analyses based on the past financial statements are not the indicators of future.  Since some facts and business secrets maintained strictly confidential, it is not possible to collect all information.  As it is an external study, conclusion and suggestions are not ultimate and are based on personal judgment and the ability of the researcher to understand the concept.  The study is limited to VKC rubber industries pvt ltd, the findings need not apply to whole VKC Group and similar firms in the same industry.

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Analysis of financial statements at VKC Pvt Limited

RESEARCH DESIGN A poorly defined problem will not yield useful results. It is rightly said that “a problem well defined is half solved”, poorly defined problems cause confusion and do not allow to develop a good research design. The question is how we can identify a research problem. Three categories of symptomatic situation namely, overt difficulties, latent difficulties and unnoticed opportunities should be studied. The problem should be briefly described and its salient features brought out.

Research can be defined as “ The systematic and objective identification, collection, analysis, dissemination and use of information for the purpose of assisting management in decision making related to the identification and solution of problems ( and opportunities ). It is a 1) Methodical, unbiased and compete investigation of subject matter to establish principles 2) Investigation of a problem to discuss pertinent information to help solve it.

Research design: “A framework or blueprint for conducting a research project. It specifies the details of the procedures necessary for obtaining the information needed to structure and or solve research projects”. There are three types of research design : a. Exploratory research design b. Conclusive research design -

Descriptive research

-

Causal Research

a. Exploratory Research : One type of research design, which has its primary objective the provision of insights into and comprehension of the problem situation confronting the researcher. b. Conclusive Research :

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Analysis of financial statements at VKC Pvt Limited Research designed to assist the decision maker in determining, evaluating and selecting the best course of action to take in a given situation.

- Descriptive Research : A type of conclusive research that has as its major objective

the

description of something. The descriptive study is typically concerned with determining the frequency with which something occurs or how two variables vary together. This study is typically guided by an initial hypothesis. Descriptive research is conducted in the following cases: a. To describe the characteristics of relevant groups b. To estimate the percentage of units in a specified population exhibiting a certain behaviour. c. To determine the degree to which marketing variables are associated d. To make specific predictions.

- Causal Research : A type of conclusive research where the major objective is to obtain evidence regarding cause – and – effect ( causal ) relationships. The study on “Analysis of financial statements” at VKC is based on Descriptive Research Research design used in the specific study includes the following: 

Identifying the statement of the problem



Collection of the company’s specific literature i.e, annual reports for the study period and the profile of the company



Scanning through standard books to understand the theory behind the financial performance evaluation



Collection of information from various journals to understand the industrial background of the study



Decision regarding the study period in this case it was decided to be 4 years i.e, from 2007-2010.

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Analysis of financial statements at VKC Pvt Limited 

Identification of financial tools likely to reflect capital adequacy, resources deployed, assets quality, management quality, earning quality, liquidity, cash position and trends. In this case, it was decided to use - Ratio analysis - Trend Percentages 

Calculation of the above financial tools over the study period and analysing it



Forwarding certain recommendation and conclusion to the company.

The term “methodology” refers to carefully planned procedures (should consistently follow the same procedure ). That will facilitate the comparison of results of similar investigations over a period of time as that are arrived at by other researchers investigating similar problems in various parts of the same country or in any corner of the world .

Methodology assumptions :  Definitions used are universal  Selected study period is sufficient  Selected financial ratios, trend percentages and cash flow analysis reflects the financial performance of the company.  Ultimate financial evaluation of the company is shown in its financial statements.

Sources of Data collection : After going through and weighing pros and cons of different methods of data collection, it was decided that both primary data and secondary data are suitable for the study but more emphasis was given on Secondary data. A project of this nature is by and large a desk job and primary data is of little relevance.

Sources of data: a. Primary data :

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Analysis of financial statements at VKC Pvt Limited It is the first hand information on any happening or event. They are the original sources from which the researcher directly collects data that have not been previously collected. It was collected with the administration assistant and other staff members of finance department and through Direct interview and personal observations. b. Secondary data : Particularly it is very difficult to collect the entire information through primary sources. So the researcher has to depend on the secondary data. These are sources containing data which have been collected and compiled for another purpose. It was collected through Annual reports of the company for the past 5 years from 2003 – 2007. And from the prospectus, website of the company (VKC.com), textbooks, journals and magazines.

Tools used for data collection : a) Schedule b) Interview In this study, data is collected through schedules – i.e, data collected from the records, annual reports and financial statements of VKC rubber industries pvt ltd and Interview of finance controller and finance officers. Sampling plan : As such no sampling plan has been adopted in the above financial analysis. Field work: As such no fieldwork was involved for the study since this was an In – house desk research job. Plan for analysis : The data collected have been analysed by the use of statistical tools and techniques such as percentages, averages. Wherever necessary, the data have been presented diagrammatically using charts and tables etc.

Review of Literature :

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Analysis of financial statements at VKC Pvt Limited The project report presupposes a good knowledge of the subject and the title, which has been chosen for a detailed analysis.

Attempts have been made to acquire the detailed

information on the subject through a detailed literature survey. This requires an extensive survey of literature available in the form of published articles in business magazines, publication of institutions, newspapers and Journals. After deciding about the topic of the project, it was decided to do a detailed literature survey, to know what type of work was already done in the similar topic. The purpose of doing a literature survey is to avoid repetition of the same study of the topic and also to understand the scope of the subject and difficulties which arise during the course of the study. It helps to study the tools and technique appropriate to suit the requirement of the company & apply them in the appropriate context and come to meaningful conclusions and find solutions to the problems faced by the company. The literature survey helped in deciding about the methodology which is adopted for the collection, analysis and presentation of data.

I. RATIO ANALYSIS

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Analysis of financial statements at VKC Pvt Limited A] Liquidity ratios

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

Current Assets =

Inventories + Sundry Debtors + Cash and bank balances + Loans and Advances Current Liabilities = Current Liabilities and Provisions

Table No. A1: Showing current ratio ( Rs. in thousands) Year

Current Assets

Current Liabilities

Current Ratio

2007

5441138.20

1563082.2

3.48

2008

9891746.33

3082074.38

3.20

2009

10674918.61

6492715.04

1.64

2010

10422655.64

6852013.77

1.52

Analysis:From the above table we can observe that in the year 2007 current ratio is 3.48 & it decreased by 3.20%, 1.64%&1.52 in the year 2008, 2009, & 2010, respectively. It can be analysed from the above table that current ratio is slightly fluctuating from the year 2007 to 2010.

Graph No.A1: Showing Current Ratio

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Analysis of financial statements at VKC Pvt Limited

3.5 3 2.5 2 Current ratios

1.5 1 0.5 0 2007

2008

2009

2010

Interpretation:A Ratio equal or near to the rule of thumb of 2:1 i.e., Current assets double the current liabilities is considered to be satisfactory. This Rule of Thumb implies that for every one rupee of Current Liabilities, two rupees of Current Assets are available. But a Current Ratio of greater than 1.50 is normally considered to be satisfactory. However, it can be inferred from the above table and graph that in all the 4 years the current ratio its decrease from the first year. Even though it is satisfactory because its more than the standard. Since the actual ratios are less than the ideal ratios the company may find it difficult to meet its short term obligations.

2. Liquid Ratio:

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Analysis of financial statements at VKC Pvt Limited Quick Assets Liquid ratio = ------------------------Current Liabilities Quick Assets = Sundry Debtors + Cash and bank balances + Loans and Advances Current Liabilities = Current Liabilities and Provisions

Table No. A2 : Showing Liquid / Quick ratio (Rs. in thousands) Year

Quick Assets

Current Liabilities

Liquid Ratio

2007

1848322.49

1563082.2

1.18

2008

3310455.55

3082074.38

1.07

2009

4093367.44

6492715.04

0.63

2010

2302407.73

6852013.77

0.33

Analysis :It is clear form the above table, in the year 2007 the liquid ratio is 1.18 & it gradually decreased to 1.07, 0.63&,0.33 during the years 2008, 2009,& 2010. Liquid ratio of VKC was quite fluctuating but it was consistent throughout 4 years.

Graph No.A2: Showing Liquid Ratio

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Analysis of financial statements at VKC Pvt Limited

1.2 1 0.8 -Ratios-0.6 Liquid ratio

0.4 0.2 0 2007 2008 2009 2010

-Years-

Interpretation:An ideal quick ratio of 1:1 is considered not to be Satisfactory. Since, the quick ratio at VKC is above the ideal quick ratio of 1:1 during the study period in 2007&2008, and it is less than the ideal quick ratio of 1:1 during the study period 2009&2010. This high quick ratio at VKC indicates that the firm is having slow – paying debtors & all debtors cannot be realised so quickly by the firm to meet its short term obligations

B] Long term solvency ratios:

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Analysis of financial statements at VKC Pvt Limited

1. Debt-equity ratio Long term debt Debt-equity ratio = ---------------------------Shareholders funds

External Equities ( or ) ------------------------Internal Equities

Long term debt = Loan funds (Finance lease Obligations + Unsecured loans) Shareholder funds = Equity share capital + Reserves & Surplus

Table No. B1: Showing Debt-equity ratio (Rs. in thousands)

Year

Long term debt

Shareholders funds

Debt-equity ratio

2007

3813712.21

6877975.15

0.55

2008

8628658.88

6221963.59

1.39

2009

5556566.49

5950411.60

0.93

2010

6528483.46

6256863.92

1.04

Analysis:The above table represents that in the year 2007 the Debt – equity ratio is 0.55% and it increased to 1.39% in 2008. Again the ratio decreased by 0.93% during 2009 & it increased by 1.04% during 2010.

Graph No. B1: Showing Debt-equity ratio

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Analysis of financial statements at VKC Pvt Limited

1.4 1.2 1 0.8

- Ratios -

0.6

DEBT-EQUITY RATIO

0.4 0.2 0 2007 2008 2009 2010 - Years -

Interpretation:As a general rule, there should be an appropriate mix of owner’s funds and outsider’s funds in financing the firm’s assets. A ratio of 1:1 may usually be considered to be satisfactory. At VKC the Debt – equity proportion is low & it is satisfactory from the point of view of long term creditors, because a high proportion of owner’s funds provide a larger margin of safety and substantial protection against shrinkage in assets for the outsiders, during the study period on 2008&2010. But In the same way it is not satisfactory from the firm’s point of view of long term creditors, in t during the the study period on 2007&2009. On the other hand, a low Debt – equity ratio at VKC is indicating that the shareholders of the firm are deprived of the benefits of trading on equity to magnify their earnings.

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Analysis of financial statements at VKC Pvt Limited

2. Proprietary or equity ratio: Shareholders funds (Net worth) Proprietary or equity ratio = -------------------------------------------------Total Assets

Shareholder funds = Equity share capital + Reserves & Surplus Total Assets = Fixed Assets + Investments + Current Assets

Table No. B2: Showing proprietary ratio (Rs. in thousands)

Year

Shareholder funds

Total Assets

Proprietary ratio

2007

6877975.15

10696839.39

0.64

2008

6221963.59

14850622.47

0.42

2009

5950411.60

11506978.09

0.52

2010

6256863.92

12785347.38

0.49

Analysis: It can be analysed from the above table, in the year 2007 proprietary ratio is 0.64 & it decreased by 0.42% in the year 2008. In the year 2009 it increased 0.52 & again it decreased by 0.49 in the year2010.

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Analysis of financial statements at VKC Pvt Limited

Graph No. B2: Showing Proprietary Ratio

0.7 0.6 0.5 0.4 Proprietary Ratio

0.3 0.2 0.1 0 2007

2008

2009

2010

Interpretation: The proprietary ratio at VKC is satisfactory in the four year, as shareholders fund constitute 64%, 42%, 52%&49%in the total assets of the company, to this extent the assets of the company can be lost without affecting the interest of the creditors of the company. Proprietary ratio at VKC is satisfactory and it indicates Long term solvency and financial position of the company is considerably good.

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Analysis of financial statements at VKC Pvt Limited

C] TURNOVER RATIOS: -

1. Working Capital Turnover Ratio : Cost of goods sold ( Sales ) Working Capital Turnover Ratio = ---------------------------------------Net Working Capital Cost of goods sold = (Opening stock + Purchases + Direct Expenses – closing stock) Direct Expenses = Tools & stores, Royalty, Freight & Forwarding, power, fuel & Water Net Working Capital = Current Assets – Current Liabilities

Table No. C2: Showing Working Capital turnover ratio

Year

SALES

Net Working Capital

WCT Ratio

2007

29054725.76

3878056

7.49 times

2008

31276972.52

6809671.95

4.59 times

2009

35897227.45

4182203.57

8.58 times

2010

38277892.28

3570641.81

10.72 times

(WCT* = Working Capital Turnover)

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Analysis of financial statements at VKC Pvt Limited

Analysis: The above table represents the working capital turnover ratio is 7.49 times in the year 2007.

During 2008 it decreased to 4.59 times. During 2009&2010 the ratio increased to

8.58&10.72 times.

Graph C2: Showing Working Capital Turnover Ratio

12 10 8 6

Working Capital Turnover Ratio

4

2 0 2007

2008

2009

2010

Interpretation: The Working Capital Turnover ratio of VKC is satisfactory, once in every 5 to 10 months working capital is turned over in generating sales.

It indicates efficient working capital

management.

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Analysis of financial statements at VKC Pvt Limited

3. Debtors Turnover Ratio: Credit Sales Total Sales Debtors Turnover Ratio = -------------------------- (or) -----------------Average Debtors Debtors Trade Debtors = Gross value of sundry debtors + Bills receivable & accounts Receivables Total Sales = Sales & Services

Table No.C3: Showing Debtors Turnover ratio (Rs. in thousands) Year

Sales

Debtors

DT Ratio

2007

29054725.76

828030

35.08 times

2008

31276972.52

586440

53.33 times

2009

35897227.45

2010

38277892.28

1552097

1618792

23.13 times

23.64 times

(DT* = Debtors Turnover)

Analysis: The above table represents in the year 2007, 35.08 times receivables are converted into cash. This turnover rate increased by 53.33 times during 2008 this is due to quick payment by the customers, then this ratio fell down by 23.13 during 2009 due to delay in collection from customers & liberal credit policy. Again this ratio increased during 2010 23.64 times.

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Analysis of financial statements at VKC Pvt Limited

Graph C3: Showing Debtors Turnover Ratio

60 50 40 - No. of times -30

Debtors Turnover Ratio

20 10 0 2007 2008 2009 2010 - Years -

Interpretation: Considering its nature of business the Debtors turnover ratio at VKC is satisfactory. It is showing there is greater efficiency of credit management during the year 2007 & 2008 compared to all other years. Again it’s decreasing in last two years. Its shows efficiency in the collection period is slow in last two years. Even though its satisfactory.

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Analysis of financial statements at VKC Pvt Limited

5. Fixed Assets Turnover Ratio : Cost of Sales ( Sales) Fixed Assets Turnover Ratio = -------------------------------Net Fixed Assets Cost of goods sold =(Opening stock + Purchases + Direct Expenses – closing stock) Direct Expenses = Tools & stores, Royalty, Freight & Forwarding, power, fuel & Water Net Fixed Assets = Fixed Assets - Depreciation

Table No. C5: Showing Fixed Assets Turnover Ratio (Rs. in thousands) Year

SALES

Net Fixed Assets

FAT Ratio

2007

29054725.76

6818783.38

4.26 times

2008

31276972.52

8040950.52

3.89 times

2009

35897227.45

7324774.52

4.90 times

2010

38277892.28

7844126.99

4.90 times

(FAT* = Fixed Assets Turnover)

Analysis: It is clear from the above table the fixed assets turnover ratio was 4.26 times in the year 2007; it decreased by 3.89 times during the year 2008. The ratio was significantly consistent during 2009 & 2010 as it was 4.90 times.

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Analysis of financial statements at VKC Pvt Limited

Graph No. C5: Showing Fixed Assets Turnover Ratio

5 4 - No. of 3 times 2

Fixed Assets Turnover Ratio

1 0 2007 2008 2009 2010 - Years Interpretation: The standard or ideal Fixed Assets Turnover Ratio is 5 times. Fixed Assets Turnover ratio at VKC during the year 2007&2008 was not satisfactory when compared to and2009&2010.As it is indicating excessive investment in fixed assets during the year2007 &2008. During 2009&2010 the ratio was satisfactory and it is indicating efficient utilisation of fixed assets in generating sales. Overall fixed assets turnover ratio at VKC is satisfactory.

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Analysis of financial statements at VKC Pvt Limited D] PROFITABILITY RATIOS: -

1. Return on Shareholders Investment or Net worth :Net Profit ( after interest & taxes ) Formula of ROSI or Net worth ratio = --------------------------------------------------- x 100 Shareholders funds

Table No. D2 : Showing ROSI or Net worth ratio ( Rs. in thousands )

Year

NPAT*

Net Worth

Return on Shareholders Investment

2007

2877975.15

6877975.17

42%

2008

1205363.59

6221963.59

33%

2009

1341111.60

5950411.60

23%

2010

1150463.92

6256863.92

12%

( NPAT* = Net Profit After Tax)

Analysis: It is clear from the above table the ROSI is 42% in the year 2007, it increased to 33% during 2008, the during year 2009&2010 it decreased by 23% & 12%.

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Analysis of financial statements at VKC Pvt Limited GrapNo.D2: Showing Return on Shareholders:

45 40

35 30 25

NET WORTH RATIO

20 15 10 5 0 2007

2008

2009

2010

Interpretation: The Standard or ideal Net worth ratio is about 13%. Return on Net worth at VKC is satisfactory as on during the study period 2007 to 2009.But it is not satisfactory in the year 2010.But this reveals that the funds of owners are profitably utilised by the firm & its overall efficiency is good.

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Analysis of financial statements at VKC Pvt Limited

2. Earnings Per Share ( EPS ) : Net Profit after Tax – Preference dividend Formula of Earnings per Share = ---------------------------------------------------------Number of Equity Shares

Table No. D3: Showing Earnings Per Share (Amount in Rupees)

Year

PAT* ( Rs. in thousands)

Number of Equity Shares

EPS*

2007

197311.02

400000

Rs. 0.49

2008

1683888.42

400000

Rs. 4.21

2009

4408248.01

400000

Rs 11.02

2010 4970802.32 (PAT* = Profit after Tax

400000

Rs. 12.43

EPS* = Earnings per Share)

Analysis: The above table represents that the EPS is Rs. 0.49/- in the year 2007, it increased by Rs. 4.21/- during 2008 and Rs11.02/- during 2009 and Rs 12.43/- during 2010.

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Analysis of financial statements at VKC Pvt Limited

Graph No. D3: Showing Earnings per Share

14 12 10 8 EPS

6 4 2 0 2007

2008

2009

2010

Interpretation: VKC’s EPS is much satisfactory as it is showing a trend of above 50% increase from year to year (2008%2010), it is signifying the profitability of the firm is good and has significantly improved over the years.

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Analysis of financial statements at VKC Pvt Limited

3. Net Profit Ratio: Net Profit (after interest & tax) Formula of Net Profit Ratio = ---------------------------------------------- x 100 Net Sales

Table No. D5: Showing Net Profit Ratio (Rs. in thousands)

Year

Net Profit ( after interest & Taxes )

Sales

N/P Ratio*

2007

2877975.15

29054725.76

9.90%

2008

1205363.59

31276972.52

6.56%

2009

1341111.60

35897227.45

3.37%

2010

1150463.92

38277892.28

3.00%

(N/P* = Net Profit)

Analysis: The above table represents that the N/P ratio is 9.90% in the year 2007; it decreased to 6.56%, 3.37%&3.00 during the 2008, 2009&2010 respectively.

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Analysis of financial statements at VKC Pvt Limited

Graph No. D5: Showing Net Profit Ratio

10 8 6 - Percentages 4

Net Profit Ratio

2 0 2007

2008

2009

2010

- Years Interpretation: N/P ratio of VKC is in

decreasing trend for the past 3 years except in the year

2007.During the year 2007 it showed a decline trend of 51%. This ratio also reflects that the company is ensuring not adequate return to the owners.

N/P ratio at VKC is not fully

satisfactory.

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Analysis of financial statements at VKC Pvt Limited

III . TREND ANALYSIS OR TREND PERCENTAGES 1. Trend Analysis of Sales Table No. F1: Showing Trend percentages of sales (Base Year 2007 = 100) ( Rs. in thousands ) Trend Percentages Year

SALES

2007

29054725.76

100

2008

31276972.52

108

2009

35897227.45

124

2010

38277892.28

132

Analysis: The trend percentages of sales for the year 2008 is 108, it is 124 and 132 during 2009 and 2010.

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Analysis of financial statements at VKC Pvt Limited

Graph No. F1: Showing Trend Percentages of Sales

140 120 100

Percentage s

Trend Percentages of Sales

80 60 40 20 0

- Years Interpretation: The above table and graph represents that trend values of sales are at an increasing trend considering the base year 2007. The growth of sales is a good sign reflecting the growth of the company is at an upward trend. The company’s key strategic initiatives i.e, exports, higher operational efficiencies, standard products, range expansion, market penetration, services and value added projects have resulted in growth of sales from the year 2007 to 2010.

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Analysis of financial statements at VKC Pvt Limited

2. Trend Analysis of Net Profit Table No. F2: Showing Trend percentages of Net Profit (Base Year 2007 = 100) ( Rs. in thousands ) Year

Net Profit

Trend Percentages

2007

2877975.15

100

2008

1205363.59

71

2009

1341111.60

41

2010

1150463.92

40

Analysis: The trend percentages of Net Profit decreased by 71,41,&40 in the during year respectively .

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Analysis of financial statements at VKC Pvt Limited

Graph No. F2 : Showing trend percentages of Net Profit

120 100 80

Trend Percentages of Net Profit

Percentages 60 40 20 0 2007 2008 2009 2010 - Years -

Interpretation: The above table and graph represents the N/P of VKC is at a decreasing trend, it is not satisfactory in three years such as 2008, 2009 & 2010 except in the year 2007. During the last year the rate of decrease in net profit is low compared to remaining 3 years. This decreasing trend of net profit shows that the firm cannot with stand adverse economic conditions when selling price is declining, cost of production is rising and demand for the product is falling, this trend also reflects that the company is ensuring not adequate return to the owners.

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Analysis of financial statements at VKC Pvt Limited

3. Trend Analysis of Fixed Assets Table No. F3: Showing Trend percentages of Fixed Assets (Base Year 2007 = 100) (Rs. in thousands) Year

Fixed Assets

Trend Percentages

2007

6818783.38

100

2008

8040950.52

118

2009

7324774.52

107

2010

7844126.99

115

Analysis: The trend percentages of Fixed Assets during the year 2008 was 118, it is at an

down

ward trend showing 107 in the year 2009, and it is upward trend showing 115 during the year 2010.

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Analysis of financial statements at VKC Pvt Limited

Graph No.F3: Showing trend percentages of Fixed Assets

120 115 110

Trend Percentages of Fixed Assets

Percentages 105 100 95 90 2007 2008 2009 2010 - Years Interpretation:

The above table and graph represents utilisation of Fixed Assets at VKC is satisfactory during the year 2007 to 2010. The fluctuating trend of fixed assets is indicating there is an investment in fixed assets from the year 2007 to 2010 is not consistent; it is also indicating there is an efficient utilisation of fixed assets in generating sales and also satisfactory.

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Analysis of financial statements at VKC Pvt Limited

4. Trend Analysis of Current Assets Table No. F4 : Showing Trend percentages of Current Assets (Base Year 2007 = 100) ( Rs. in thousands ) Year

Current Assets

Trend Percentages

2007

5441138.20

100

2008

9891746.33

182

2009

10674918.61

196

2010

10422655.64

192

Analysis : The trend percentages of Current Assets during the year 2008 was 182, it is at an upward trend showing 196 in the year 2009, and it is at an down ward trend showing 192 during the year 2010.

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Analysis of financial statements at VKC Pvt Limited

Graph No.F4 : Showing trend percentages of Current Assets

250 200 Percentages

150

Trend Percentages of Current Assets

100 50 0 2007 2008 2009 2010 - Years -

Interpretation : The above table and graph represents the trend of current assets at VKC is satisfactory in the past 4 years, since it is showing an upward trend from the year 2007 to 2010. The upward trend of current assets shows that the firm is capable of meeting short term obligations in time. It also signifies the liquidity position at VKC is good.

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Analysis of financial statements at VKC Pvt Limited

4. Trend Analysis of Current Liabilities Table No. F6: Showing Trend percentages of Current Liabilities (Base Year 2007 = 100) (Rs. in thousands) Year

Current Liabilities

Trend Percentages

2007

1563082.2

100

2008

3082074.38

197

2009

6492715.04

415

2010

6852013.77

438

Analysis: The trend percentages of Current Liabilities during the year 2004 is 123, it is at an upward trend showing 180 in the year 2005, 252 and 380 during the year 2006 and 2007.

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Analysis of financial statements at VKC Pvt Limited

Graph No.F6: Showing trend percentages of current liabilities

500 450 400 350 300 Percentages 250 200 150 100 50 0

Trend percentages of Current Liabilities

- Years -

Interpretation: The above table and graph represents the trend percentages of current liabilities shows an upward trend from the year 2007 to 2010. We can observe from this the current assets and liabilities are increasing at an equal proportion. This indicates the firm is capable of meeting short term obligations in time.

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Analysis of financial statements at VKC Pvt Limited

FINDINGS The study is made to find out the consistency of financial position of VKC Pvt limited. Through the use of ratios and trend percentages the following are the summary of findings : 

Considering the convention rule of thumb the overall current ratio of VKC is good, but it is decreasing trend in all the three years.



The liquidity position of the firm is good in first two years; than its decreasing quick ratio is fluctuating, its shows that VKC is not having capacity to pay off its immediate obligations on time in the last two years.



A firm having considerable position in debt and equity , the first two years is low after that shareholder fund is increasing , its should be maintained in future also..



There is an optimum and efficient utilization of fixed assets at VKC.



The working capital is also efficiently utilized at VKC.



During the year 2007, the firm made excessive investment on fixed assets.



Debtors Turnover Ratio at VKC is good during 2008, considering its nature of business. Due to delay in collection from the customers & liberal credit policy, this ratio declined and stabilized between 2009 to 2010. The collection and recovery policy of the company must be strengthened.



Funds of owners are profitably utilized by the firm since ROSI is an decreasing trend in each year from 2007 to 2010.



The profitability of VKC is good, since it can be justified with the increase in EPS of the firm each year. The firm has many future plans, to meet its future prospects the firm has retained more earnings.

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Analysis of financial statements at VKC Pvt Limited 

The firm is achieving lower rate of Net profit. Due to operational efficiencies, increase in sales volume growth, lower overheads and higher operating incomes the firm, but it cannot able to achieve higher profit.



Sales of VKC is at an upward trend, it is a good sign reflecting the growth of the company from the year 2007to 2010.



Net profit of VKC is at an down ward trend. This decreasing trend of net profit shows that the firm cannot withstand adverse economic conditions when selling price is declining, cost of production is rising and demand for the product is falling, this trend also reflects that the company is ensuring not adequate return to the owners.



There is an efficient utilization of fixed assets in generating sales at VKC.



The current assets and liabilities of VKC are showing an increasing trend

SUGGESIONS 

The current ratio of the concern is meeting its standard ideal ratio in first two years, but next two years its not meeting standard ideal ratio, so the organization needs to improve its current assets over its current liabilities to meet the standard of 2:1. It is advised to go for working capital loan so that without affecting the routine operations, the company can go ahead with its activities.



To improve the Short term solvency position, liabilities must be decreased and the income generating assets must be increased.



The company has to concentrate much on its credit policy for faster collections of accounts receivables.



The fixed assets, working capital and Inventory turnover ratio of VKC is satisfactory and the company should try to maintain the same in future.

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Analysis of financial statements at VKC Pvt Limited 

The trend percentages of sales, fixed assets, current assets and current liabilities are at an increasing trend each year, this is a good sign and it is recommended to maintain the same.



The trend percentage of net profit decreasing trend each year.

CONCLUSION

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