A Project Report On

FINANCIAL ANALYSIS OF HMT MTL AJMER

Submitted in Partial Fulfillment for the Degree of MASTER OF BUSINESS ADMINISTRATION (M.B.A.)

acme
institute of technology of management

Under the Supervision of: Bharat Bhooshan General Training Manager

Submitted by: KHEM KARAN M.B.A. 2nd Semester

HMT Machine Tools Ltd. AJMER AjMER

FINANCIAL ANALYSIS OF HMT- MTL

Certificate

I here by that the training repot which is submitted by khemkaran student of MBA semester III has been supervised by me as per my best knowledge the report fulfill all the norms and guidelines prescribed by the RTU

Date

signature

PERFACE

The industrial revolution in the 18-century brought about the enlistment of science & technology. The revival of learning showed a new way of life he world in various spheres. Since then the industries have made a lot of progress. The industries have made a history in the world and since then they are progressing with leaps and bounds. in India, industries during that time were small ones. The British were afraid that in case the India come to know decline of the British Empire in India. After independence India has made such a remarkable progress in industries that it becomes necessary to mention that the India intelligence has proved its worth and the labors has also contributed a lot towards the progress. The Indian Industries can now compete in the world. The industries have helped India to have good trade with the other countries and have earned a good amount of foreign exchange there by raising the economic standards and making way of India to become self sufficient and self reliant. The Know How of various industries then the British economy, would have lessened there by bringing about the

ACKNOWLEDGENT

I express my sincere thanks to my project guide, Mr.P.C VERMA (G.M., H.M.T.,MTL Aimer) Designation _ Mr. R.C. Maheshwari (A.G.M.Finance) for guiding me right form the inception till the successful completion of the project. I sincerely acknowledge him/her/them for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he/she/they had provided to me with all stages of this project. I would also like to thank the supporting staff _ Mr. Vijay Kumar Inani & Department, for their help and cooperation throughout our project.

(Signature of Student) KHEM KARAN

Table of Content
1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) Company Profile Introduction Corporate vision & Mission Objective & goals Human resource development Strength of HMT Different business of HMT Business groups Aimer unit profile Product basket Background history of aimer unit Awards Won Organization structure and personnel classification Different department of HMT Aimer Quality concept

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Project Profile

HMT Machine Tools Limited

CHAIRMAN MANAGING DIRECTOR BIRTH OF HMT

Shri A. V. Kamat Shri V. Hemachandra Babu Pt. Jawahar Lal Nehru Inaugurated HMTs First manufacturing unit (MT, Bangalore on June 10, 1955) .

ABOUT THE ORGANISATION

INTRODUCTION OF HMT LIMITED When India achieved independence in 1947, there was hardly any industrial base in the country. Right form the prior H.M.T. has played an important role in providing the much needed industrial base as well as a launching pad for the growth & development of the country. HMT was conceived by the Government of India in 1949, and was incorporated in 1953, with the objective of producing a limited range of machine tools, required for building an industrial edifice for the country. HMT Limited was established in 1953 in technical collaboration with M/s Orleikon of Switzerland. Over the years, new products have been added to its manufacturing range. It has technical collaboration with over 30 leading International Engineering Companies for manufacture of various products HMTs diversified product range includes Machine Tools, Watches, Tractors, Printing Machine Press, Di-Casting and Plastic Injection, Today, HMT is a Multi-Product, Multi Technology Engineering Complex with strengths comprising of:

16 Manufacturing Units / 22 Product Division Assets Worth over US$ 250 Million ISO-9000 accreditation The widest range of machine tools, ranging from General- purpose lathes to CNC turning machine centers. 9

 Source of qualified and experienced Manpower.

HMT Corporate Vision

HMT Corporate Mission: To establish ourselves as one of the Worlds companies in the engineering field having strong international competitiveness. To achieve market leadership in India through ensuring customer satisfaction by supplying internationally competitive products and services. To achieve sustained growth in the earnings of the group on behalf of shareholders. HMT CORPORATE OBJECTIVES AND GOALS: To achieve market leadership by ensuring customer satisfaction through products and services of world class excellence. To achieve sustainable competitive advantage through value edge and technological leadership in product and services of the company. To achieve sustained business growth through generation of adequate internal resources.

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To globalize the companies operations developing a mix of International markets and businesses to enable the company to be a net. foreign exchange earner.

To develop and retain human skills and talents necessary for corporate growth and performance excellence in all functions. To improve the quality of work life of the employees of the company.

GROWTH: To maintain a minimum annual growth of 155 in sales turnover To achieve an average growth of 5% in market share To maintain an annual growth in earnings before interest and tax subject to an average return of 20% on capital employed over plan To achieve 30% of increment return of incremental investments within the three years after achieving commercial production in case of verification of expansion of the existing unit. To generate sufficient cash surpluses to pay a dividend of at least 65 to the shareholders and also to enable capital expenditure financing OUR CORNERSTONES QUALITY

CUSTOMER SERVICES

TECHNOLOGY and R & D

INFRASTRUCTURE 11

R&D TECHNOLOGY : HMT has imbibed a wide range of technologies as a result of its diversification strategies, to be a truly multi-technology company. The list includes, though not limited to, the following technologies: High Speed Machining Precision Machining Computer Numeric Controls Computer Integrated Manufacture Flexible Manufacturing Systems/ Modules/ Cells Metal Forming including Die casting & Plastic processing Horology Farm Mechanization ( Tractors & Implements) R&D efforts: in the above technology areas are a continuous and ongoing process at the Design & Development Centers of all HMTs manufacturing units. In each area of HMTs business domain, well-established research & testing facilities with experienced engineers to man them are in position. Extensive use is made of inhouse CAD facilities for designing products. The R & D efforts include the design and development of Over a 100 new types / variants of machine tools Over a 1000 new watch models Several variants of tractors to suit farmers needs HMTs R&D is committed to provide the best to the customer in terms of contemporary technology and contemporary designs at competitive prices.

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 To promote technology development and R&D both in product and processes by setting aside 3% of sales turnover To achieve a growth of 5% per annum in the Novelty Ratio To achieve a growth of 10% per annum in CNC/Quartz Ratio To achieve a growth of 10% per annum in the development Ratio

INFRASTRUCTURE: In the Manufacture of Machine Tools

CNC Machines for Metal Cutting & Metal Forming CNC Coordinate Measuring Machines Heat Treatment Facilities Precision Measuring & Inspection Facilities Facilities for calibration of Measuring & Testing equipments MODERNIZATION : To invest the extent of minimum 5% of turnover per annum on replacement and modernization of production facilities To achieve a 10% increase per annum in lant health ratio. To achieve production of 10% in terms of costs to turnover during the plan period. To achieve growth in performance index per capital output by 5% per annum EXPORTS: To achieve exports of 10% of turnover on an average during the plan period.

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 To set apart a minimum 0.5% of annual export turnover towards development of export markets of HMTs product

HUMAN RESOURCE DEVELOPMENT : To ensure a minimum of two potential executives as replacement for each osition at levels PS VII and above. To achieve a manning level 120% of the need in key areas like R&D time available per year is spent in training & development exposing each person at least for two years in such programmess. To ensure an average of 2% of supervisory and managerial executives CNC, Quartz and exports in frontier technologies giving due consideration to the lead time needed for training and development such personnel. To train, retrain and develop other category of employees continually tune with the changing environment and organizational requirement. The expenditure for the training, retaining and development programmes and modernization of training centers is to be around 0.5% of the turnover.

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STRENGTH OF HMT

WELL ESTABLISHED ANUFATURIN G BASE

STRONG BRAND EQUITY

TECHNOLOGI CAL BASE

HIGHLY SKILLD WORK FORCE

UNITS ACCREDITED WITH ISO 9000

EXTENSIVE MARKETINGN ETWORK

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DIFFERENT BUSINESS OF H MT

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HMT AJMER UNIT PROFILE MTA AT A GLANCE:

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 Date of Registration Commencement Merger with HMT Capital Employed (as on 1.4.2007) Land Area Total Plant Foundry Township Covered Area (Plant) No. of Quarters Power Required No. of Employees (as on 31.7.2008) No. of Machines ISO-9001 Certified 1994 429 of Production

11-01-1967 1970-71 1-04-1975 201 Lacks. 178 Acres 62 Acres 116 Acres 31848 Sq. M. 136 4.00 Lacs Units/Month

250

NOTE: These Data Provided by Sales Department of HMT Ajmer.

PRODUCT BASKET:

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 CNC Train Master Machinery Centre Roll Camber Grinder Knife Edge Grinding Machine CNC Crank Shafts Journal Grinder CNC Centreless Grinder CNC Turning Centre CNC Train Master Lathe CNC Precision Surface Grinder CNC Universal Cylindrical Grinder CNC Double Disk Grinder Machine (ISO Certified) Vertical Surface Grinders Pin Grinding Machine

Key Stone Grinders Tools & Cutters CNC Internal Grinder CNC External Cylindrical Grinder Super Finishing Machine Special Purpose Machine Lens Grinding Polishing Machine CNC Single Axis Centreless Grinder CNC Trainee LatheT 70 PC CNC Crank Shaft grinding machine (ISO Certified) CNC Grinding Cente (ISO Certified) unique complete Grinding in one

BACKGROUND HISTORY OF HMT AJMER 19

This Unit was established as Machine Tool Corporation of India limited in January 1964 keeping in view the Government Policy of differing new industries in under developed areas of the country and achieving self reliance in production of Grinding Machine Tools which were imported. This Unit was started 1970-71 with a production of Rs. 8.64 Lack faces with difficulty in procurement of quality Machine Tool Casings a captive Foundry Plant was installed in 193 with a capital of about Rs. 2 Crore. This Unit was subsequently merged with HMT Ltd. On 1st April 1975 as sixth Machine Tool Plant with this merger; the Unit got backup support of HMT. The basic plant was established with the collaboration of the Czechoslovakian firms, M/s Skoda Export, Praha and German firm WMW, then in East Germany. FACTORY LAY-OUT Unit has two workshop Buildings-Building 1-1 Houses assembly, Painting, heavy Parts, High technology centre and test floor. Building1-2 houses small parts, medium parts, tool room and special accessories, tool crib, tractor hydraulics, heat treatment shop and plant maintenance departments. Annexi houses civil maintenance, vendor development and sub- contracts, electrical generation or distribution and conservation. Stores building houses central stores, material planning and training centre. Pattern shop Building houses pattern shop and machine shop of training centre. Foundry shed houses moulding, machining, sand-plant, core making, knock out, short lasting areas. Store foundry block houses personnel, engineering, designing, IT centre, industrial engineering, servicing and G.M.s office. Administrative building houses purchase, sales and finance department

AWARDS WON 20

YEAR 1960-61 1970-71

AWARD Outstanding Performance Excellence Performance in Exports National Award for Outstanding Export Performance Best Product at IMTEX 79 Best Export Performance Meritorious Performance in the field of Export Export Excellence Best Productivity Best Product at IMTEX 86 Excellence in Productivity Export Excellence Best Product at IMTEX 89 Best Productivity National Safety Best Products at IMTEX 95 Best Product at IMTEX 98 Best Products at IMTEX 98 Best Product at IMTEX 2001 Best Products at IMTEX 2001

INSTITUTED BY President of India Govt. of Mysore

1975-76 1978-79 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1991-92 1992 1995 1998 1998 2001 2001

Ministry of Commerce PMT & FIE EEPC Ministry of Commerce EEPC National Productivity Council FIE Foundation CEI EEPC CMTI - PMT Trust National Productivity Council National Safety Council CMTI - PMT Trust Award FIE Foundation CMTI - PMT Trust Award FIE Foundation CMTI - PMT Trust Award

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ORGANISATION STRUCTURE AND PERSONNEL CLASSIFICATION Organization

HMT Limited (Subsidiaries)

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1.

The Organization Structure:

The organization structure of HMT Machine

Tools Ltd., Aimer is based on functions performed by various employees. General Technical Manager is on the top of the organization structure, assisted by Joint General Manager. Department of prime importance is a department of production. DGM production activities control not only the production but also planning, maintenance and inspection department. 23

The organizational structure consists of following management leaves in all (in descending order)

GENERAL TECHNICAL MANAGER CHIEF CONSULTANT TECHNOLOGY JOINT GENERAL MANAGER DEPUTTY GENERAL MANAGER ASST. GENERAL MANAGER MANAGER DY. MANAGER FOREMAN

2. (i) (ii)

Personnel Classification: HMT Machine Tools Ltd., Ajmer has 457 Employees including personnel These have been broadly classified into two categories- Officers & Workmen,

employed at Foundry, these includes Officers as well as Workers. further Officers include Supervisory Staff and Managerial Staff. Workmen include Indirect Workmen, Technicians, Administration Staff & Direct Workmen. 24

DIFFERENT DEPARTMENTS OF HMT, AJMER A. 1. Brief resume of different departments: Human Resource Department: Headed by Joint General Manager (HRM)

this department is setup with an aim of conservation and proper utilization of human resources and is also responsible for maintaining the cordial relations between employees and management. The other important functions of this department are performance appraisal and different welfare activities for the employee. 2. Manufacturing and Assembly Department: Headed by JGM

(manufacturing). HMT Ajmers manufacturing environment is highly advanced; this department also looks after utilizing only the latest production techniques in all phases of manufacturing maintenance. This assembly of machine is done stages, much as sub assembly. Group assembly and final assembly of individual components. There subassemblies after inspection pass on group assembly, which consists of head stock assembly, saddle, gearbox, tail stock assemblies etc. this group then reaches to the final assembly to be fitted on the bed. Electrical are also inter faced and the machine is ready for final testing and printing of plant and equipment. 3. Service & Inspection Department: Headed by DGM. This department is

responsible for inspection & Servicing of the M/Cs. This department is concerned with the inspection of various components and machines being manufactured. The inspection is carried out in various stages, beginning from the inspection of individual components at different stages of manufacturing followed by the inspection of the whole machine while included final runs etc. Inspection of incoming material is also handled. 4. Materials Department: Headed by JGM. It is responsible for all kinds of

purchases made by unit. This department also maintains a Central store and looks after appropriate levels. 5. Planning Department: Headed by Chief Engineer Planning. The main 25

functions of the planning department are as under: -

 6. 7.

Technology or process sheet of each component, group assembly and assembly. Time calculations for each operation. Job card booking of workers in shifts. To prepare monthly progress reports for the production activities carried out in shop. To calculate manpower and machines available, accordingly new machines are ordered and component. Counting of products and components. Prepare machines and sectional layouts Design Department: Headed by JGM. Its functions are: Design & development of products. Vendor development for new items. Drawing of component, group assembly, special assembly etc. along with master part list (BOM) for machines. Deciding the type of material required for each component grade such as casting alloy etc. Testing & trials of machines. Marketing of special purpose machine. Foundry Department: Headed by JGM Foundry. This department is

administratively under HMT Aimer, but functionally under executive director. 8. Finance Department: Headed by AGM Finance. The functions of this

department include maintenance of all accounts of the Company. The balance sheet is finally prepared which is sent to the head office for the preparation of combined balance sheet. The costing section of this dept. is responsible for the computing of each product of that the selling price may be determined accordingly. 9. Sales Department: is headed by DGM. This dept. is divided into 3 sections viz. Sales, Spares and Reconditioning. These functions of sales sections are the execution of sales order and to bid for contracts through tenders. The function of 26

service section is to provide after sales & also looks after customers complaints and supply of spares. 10. Security Department: This is headed by Asst. Security office. Main function of this dept. is preventions of theft, sabotage and maintenance of industrial security within the HMT compound including Township. 11. Quality Assurance Department: Dy. General Manager heads this department. This department also looks after the feedback received from marketing division so as to make improvement accordingly. Concept of Quality: To maintain quality leadership in all our products and services. Total Customer satisfaction through quality goods and services. Commitment of management to quality To create a culture amongst all employees towards total quality concept. Total quality through performance leadership

HMT has adopted 5 S for Good House Keeping, which are : Seiri Seition Seiso Seiketsu Shitsuke

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FINANCIAL ANALYSIS OF HMT AJMER

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Like lines in the plams or horoschope financial statement can be studied, puzzles overand scrutinieds. The analysis of such statement can provided valuables information for managerial decision .analysis of fincial statement is the other to measure the profitibility, opreation effciency and the growth potenionof the business. Thus the analysis of finciaal statement is basically a study of the relationship among varios financial facts and figures as given in a set of these statements. The basic fincialcial statement i.e. Balance sheet and income statement, contain a whole lot of historical data . The complex figure , as given in these financial statement , areb broken into simple and valuble element and significant relationship are estibished between the elements of the same statement or different fincial statements. In the words of metcaff and titard:- analyzing financial statement is a process of evaluating the relationship between component parts of financial statement to obtain a better understanding of a firms position and performance. During the process of analysis, the following steps are reqired by a financial analyst; 1.selection or information : The first is to select the information relevant to the decision under

consideration from the total information contained in the financial statements.IT is because a specific aspect of financial position or operation may be more significant for one group than other. for example , short term creditors are interested in the liquidity of current assets while perspective investors are interested in the future income of the firm.

2.Establishment or Relationship:

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The second step involved is the classification or grouping of the information in such a way that significant between relationship is establish , for example , to know the relationship between current assets and current liabilities, both should be arranged in such a way that firm capacity to pay its short term obligation is known. 3.Evaluation : The Third and final step is interpretation and drawing of inferences and conclusion by study in these relationships. Thus in brief , financial analysis is the process of selection , relation and evaluation.

OBJECTIVES OF ANALYSIS AND INTERPRETATION A NUMBER OF GROUP (SHAREHOLDERS,CREDITERS, Debenture holders, management , government etc.) have interest in the financial statement of a business firm . This interest differs with the objective among various groups . For instance, the shareholders are interested in the earnings per share and divided payout ratio that have an important bearing on the market price of the shares. The short term creditors are mainly interested in the firms ability to repay current liabilities, which involve the analysis of composition of current assets and current liabilities . The debenture holders on the other hand , are mainly concerned with the composition of capital structure and the firms projected earnings. The management of the firm requires the financial statement for the purpose of evaluation and decision making . But there are certain common objectives as Dr. Suryakant Das have said; lithe main objective of the analysis of financial statement is to ascertain the solvency of a business concern through its balance sheet , determination of profitability or operational efficiency from income statement and evaluation of financial statement in comparision to the firm of the same status A few most specific common objective s of financial statement analysis are discussed below: 1.MEASURING FINANCIAL SOUNDNESS: 30

The business must known its financial soundness ,which can be measured by calculating different ratio s like proprietary and fixed assets ratios. If it is found adverse, then corrective steps can be taken. 2.judging solvency: creditors are always interested in knowing the solwency i.e. capacity of the business top repay their loans . This can be ascertained by looking into facts such as: whether current assets sre sufficient to meet current liabilities; proportion of current asssets to liquid assets; future prospectus of the business ; whether debenture or other loans are sercured or not;and managerial efficiency of the firm.

3.Measuring profitability : Financial statement show the gross profit, net profit and other expenses . The relationships of theses items can be established with sales. To ascertain portability ,gross profit ,net profit expenses and operating ratio may be calcite. In case of performance can be evaluated.

4.Judging Operation efficiency : It is vary significant to know the operation efficiency of the management . the operational efficiency of the , business can be assessed by matching the amount of manufacturing , selling, distribution and financial expenses of the current year with the corresponding profitability ratios. 5.Indicating trends of achievements: Financial statement of the previeous years can be compared and the trends regarding various expenses .purchase ,sales, gross profit and net profit can be ascertained .the values of asseta and liabilities can be compared and the future prospectes of the business can also be indicated. 6.Assending the growth portential : 31

The trend or dynamic analysis of the business provides sufficient informatioinn indicating the growth potential of the business . If the treand predicat gloomy picture , effective measures can be taken to correct it . If the cost of product ion is rising without selling prtices increase. 7. Inter firm and intra firm comparison: Analysis of the financial statement can be made with previous years performance of the same firm and with the predominance of the other firms in the industry 8. Deciding future line of action: Analysis of financial statement indicates growth potencial of the business. Comparison of actual performance with the standard shows. 9. SYSTEMENT PRESENTATION OF DATA: Analysis of financial statement is aneffective tool for simplification systematizing and summarizing the monotonous data .an average person , As Helfert Erich has observed the main purpose of financial analysis s to provide reasonable clues and answers to specific questions According to spicer and pengler , the opbjective of analysis is to know and draw inferances about 1. .PRotibility 2. Solvency 3. Ownership 4. 4.Financial strength 5. 5.Trend 6. 6.gearing and cover

TYPES OF FINANCIAL ANALYSIS 32

Financial Analysis can be classified into different categories on the basis of modus operandi as follows: 1. HORIZONTAL OR DYNAMIC ANALYSIS 2.VERTICLE OR STATIC ANALYSIS

1.HORIZONTAL OR DYNAMIC ANALYSIS:When financial statement for a certain number of years or different firms are examined analytically , the analysis is called horizontal or dynamic analysis. In such analysis, fluctuations in the various items of the balance sheet and profit loss account of different years or firms are studied. It is called dynamic analysis as it measures the challenge in various items of one years as compared to previous years or years .This method is useful in measuring the progress of the business from year to year. In such types of analysis the changes are expressed in the following ways. EXPRESSIING INCREASE OR DECRESACE IN ABSOULUTE AMOUNTS: The amount of change in items of the statement of two years is expressed by the sign of plus (+1or -1) . Plus amount indicates increase while minus amount indicates increase while minus amount indicates decrease. EXPRESSING INCREASE OR DECREASE IN PERCANTAGE: In this method percentage increase or decrease is calculated in comparison to the previous years by dividing the amount of increase or decrease obtained in (1above , by the absolute figures of the previous year and multiplied by 100) EXPRESSIMG THE CHANGES BY INDEX NUMBERS: When the financial; statement are available for more than two years, the changes are expressed in the form of index numbers. In this method a normal years , generally the earliest past year is chosen as the base year and this base year is taken

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as 100. Then, index number for the current years amount and multiplied by 10. When index numbers of different years are presented simultaneously, these are called trend %. EXPESSING THE CHANGES BY RATIOS: In this method , ratios are calculated to compare the items of current year With the items of the previous years . Example :- 4,000 then 16,000 ratio 1:4 Comparative balance sheet and profit and loss account or income statement . Trend analysis.

2. VERTCAL OR STATIC ANALYSIS

Vertical or stick analysis is the study of mutual relationship between different components or their total of the financial statements for a definite period of time. For instance, to know the share of each asset in the total assets of the business at a specific date , the total assets would be assumed equal to 100 and for each asset % shall be calculated . This types of analysis expresses relationship at a specific date and not the fluctuations. Knows as static analysis . Common size balance sheet and profit and loss account or income statement Stuctural rastio established realaonships betwwen variuos iteams of balance sheet and profit and loss account. Both these techniques, horizontal& vertical , of financial analysis are complemental=ry to each other as john n. Myer has said. On the basis of material ussed finaqncial analysis may be two types , as follows : 1. EXTERNAL ANALYSIS 2. INTERNAL ANALYSIS

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1. EXTERNAL ANALYSIS An analysis made by person not internally Related to the enterprise and meant for external users of the financial statement is called external analysis . The analysis has no to all the documents of the concern . So, he has to depend on the printed and published statement only . Such types of analysiss made by blanks, investing agencies, creditors , research scholar and the Government. 2. INTERNAL ANASLYSIS When analysis of financial statement is made by somebody internally, related to the enterprise such as executives, employees etc. it is said to be Internal analysis . such persons have access to all the documrent and record of the concern . hence, it is done on the basis of information n ,obtained from the internal and unpublished record and books.

SIGNIFICANNCE OF FINANCIAL STATEMENT ANALYSIS

Every person who has interest in the business entity liked to take decision based on analysis and interpreted financial statements. 1.DISCLOSURE OF FACTS : With the help of analysis , all fact reating to liquidity position , financing of fixed assets , credit policy , quantum of working capital , solvency , valuation of assets are made available . Thusas s result of analysis , all undisclosed facts come to light for the benefit of all concerned parties. 2. Effective decision making ; Decision based on intuition are of personal natures and carry either no meaning or of negligible value to other persons , such decision are not effective and impartial , nut are defective and baseless. On the other hand , analysis and 35

interpretation is based , some logical and scientific of the decision taken on the basis of intuition , analysis and interpretation is essential. 3. EFFECTIVE PLANNING ANDF CONTROL: The analysis and interpretation of fincisal statement provides adequate information for planning and controlling the of the business. Future forecasting casn easily be made by ananlyzing the pat data help of this information .The management can take corractinve action by drawing inference about routine activities. 4. MEASUERE OPRATIONAL EFFICIENCY : The management and the owner are interested inknowing about the opretion efffiency different activity of the concern the=is can bvbe judged by calculating different activity of the concern . this can be judged by calculating different activitity and profitability ratios. 5. comparative study : With the help of financial analysis , business information and fact can de presented caopraratively. Such presentation is made either In the form of last few years position of the business or comparision of operating activities with other business units engaged in the same industry . Thus, financial analysis is helpful in the comparative study of business efficiency. 6. SERVING the need of interested arties: As explained in the previeus chapter, different parties (management, Creditors ,investors etc.) have varied interest in the performance of the business . They search for information relating to their interest in the financial statements.

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LIMITATION OF FINANCIAL STATEMENTS ANALYSIS

Despite the significance of analysis and interpretation of financial statement as discussed above. It has certain limitations, which an analyst and the user should keep in view. These limitations are indentified as follows: 1. 1.suffer from limitation of financial statements: 2. Absence of universally accepted standard terminology : 3. Ignores qualitative aspect: 4. Ingnore price level changes : 5. It steps the symptoms but not diagnose:

Techniques of financial statement analysis COMPARATIVE FINANCIAL STATEMENTS COMMON SIZE FINANCIAL STATEMENT TREND ANALYSIS RATIO ANALYSIS FUNDS FLOW ANALYSIS CASHFLOW ANALYSIS BREAK-EVEN ANALYSIS

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COMPARATIVE FINANCIAL STATEMEENT ANALYSIS Comparative fincial statement are those statement which summaries and present realed accounting data for a number of years incorrasting therein the changes (Absolute or relative or doth) In Individual iteams. In these statement , The Finanacial Data for two or more years are placed and presented inorder to facilitate periodic comparison. The preparation of comparative financial statement is based on this logic that a statement covering a period of a number of years is more meaningful and significant than for a single year only , because financial data for one year represent only one phase of the long and continuos history of the firm . The comparative financial statement are designed to disclose the following: Absolute figures ( In rupees amount) Increase or decrease i.e. changes in absolute fingers . Absolute data in terms of percentages. Increase or dec. in terms of % The objective of comparative financial statement is to ascertain the changes occurring years by years in yeas in each items of assets , liabilities and net worth shown in the financial statement of a business firm and whether such changes are favorable or adverse .

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ADVANTAGES:
1.EASY EVALUTION: Comparative fincial statement disclose trends in sales , production casts and profits through which the financial position , efficiency and performance of a firm can be eveluted . 2.COMNPARATIVE EVALUTION: In these statement , Figures of two or more period are placed side by side ; Hence inter period comparison of various items becomes easy. With these statement ,Financial position of the firm can be compared with average of the specific industry or other firm comparison is possible 3.IDENTIFIES WEAKNESSES: WITh the help of comparative statement , weakness in the oprating cycle financial health etc.can easily be indentified and suitale remedial steps may be taken.

COMPARATIVE BALANCE SHEET

Normally any increase or decrease in thevalue of vsrious assets , liabilities as weel a in owners equity or capital resulting from the operational activities of the business can be easily Advantages of comparative balance sheet : 1. EMPHASIS ON CHANGES : Comparative balance sheet nopt onl;y disclose balance of account at different dates but also discloses changes in such balance between the two different dates.

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1. EFFECT OF ACTIVITIES: Balance sheet serves as a links between the balance sheet and profit and loss account . profit and loss account discloses the oprating result of the firm. 2. Future forecasts : The comparative balancea sheet not only reflects the changes in the book value the assets and liabilities ,but indicates treands visibale in them over a period of time.

INTRODUCTIONTO THE BALANCESHEET

The balance sheet is one of the fincial statement that limited companies and PLCs produce every year for their shareholders. It is like a financial snapshot of the companys financial situation at the moment in time. ANALYSIS OF BALANMCE SHEET SHAREHOLDER FUND This is the initial soures to the business i.e. share capital provided by shareholders. The capital has been provided by head office, BANGLORE. The share capital may be made up of both ordinary and preference shares , Though preference shares are much less popular thes days for tax reasons . RESERVE &SURPULS Another term for erned equity ; repensents the profits of a company which have been reinvested within the business. The reservewill incude retained profit from the past . This situation can occur particularly with property companies such as hotel operators where the value of the properties rises with a booming property market.

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HMT MTL DONT HAVE ANY RESERVE AND SURPLUDE THEY CAPITALIZED THEIR PROFIT &LOSS TO HEAD OFFICE , BENGLORE. MACHIONE TOOLS DIRECTORATE HMT MTB, BANGALORE DIE CASTIINGS, BANGALORE HMT MTP, PINJORE HMT MTK, KALAMASSERY HMT MTH,HYDERABAD HMT PRESS,HYDERABAD HMT M/C TOOLS MKTG. HMT CNC DIV, BANGALORE HMT CRB DIV, BANGALORE HMT PRECISION M/C DIVISION HMT MACHINE TOOLS DIRECTORATE PROFIT OR LOSS FOR THE YEAR

LOAN FUND SECURE LOANS A LIABILITY IS SOMETHINF which a firm owes t a person or another firm. It may be in the form of creditors people or firms who have sold you goods which you have not yet paid for, or it may be money borrowed form a financial institution loans. As the title of the variable suggests, we are looking in this case for liabilities that are owed in the long term. This is generally taken line accounting terms to be more than a year. This therefore tends to mean that most trade creditors ( except in exceptional circumstances ) are not long term but current liabilities. Long term liabilities thus tend to be bank loans. They are usually shown on the top half of the balance sheet , and are subtracted from the fixed assets and the net current assets to show net assets, Cash is an assest to the business and is usually considered to be one of the current assets. Under the heading cash on the balance sheet may be included a number of items of varying liquidity. 41

HMT MTL AJMER HAS CREDIT FROMUCO BANK, PURANI MANDI BRANCH, AJMER by hypothecathion inventories, sundry debtors and other receivables. PNB RAMGANJ, AJMER UNSECURED LOANS Other long term loans may, unlike the mortgages, be unsecured loans. This mean that the bank or financial institution that lent the money does not have any title over any of the firms assets, janddd they would have to go through the courts to get any money back. This can prove to be a lengthy and expensive process. An unsecured loan will therefore ten to attract a higher rate of interest then a secured one where the lender is more certain of recovering their money in the event of a problem. They have unsecured loan from HMT-MTL, HOLDING COMPANY, In this quarter they paid of f unsecured loan worth ,60,40,10 ,378.00.This is the good sings for the company . DEFERRED CREDIT Amount due to supplied who have provided inventory to the company they cant have any deferred credit. FIXED ASSETS 1. used singly or in combination with other assets in the production of goods or ser vices to be sold by the enterprise. 2. Exchange other assets 3. used to settle a liability 4. Owner of the enterprise These represent fixed assets 1,79,25,605.48 of

42

DEPRECIATION In accounting process of allocating in a systematic and rational manner the cost of a capital asset the period of its useful life The company act 1956 pro data with reference to the data of addition or deletion except assets coasting less than Rs 5,00 per asset which is written off to rs 1\- in the year of purchases NET BLOCK =GROSS BLOCK DEPRECIATION CAPITAL WORK IN PROGRESS MACHINARY &EQUIPMENT UNDER ERECTION Till last year there was no w.i.p in this year they have Rs 3,20,108 head. INVESTMENT Investment is the portfolio investment, product ,direct investment investment have been considered by head office BANGLORE. INVENTORIES Stock are oftan known as inventories. They are anything which a firm has which is not currently.Bening used for one of the firms functions. Most department in the company will have stock of something The factory may have stock of raw mareials ready to produce, the office may have stock of stationery and the warehouse may have stock of finished goods. Stock are vital toa company to help function smoothly . IF production had be stopped every time ran out ofraw materials, the time wasted would soon derests them . the same is treu of most areas the firm opretes in I am sure you can appreciate the importance of planning ahead and having suitable of stocks. The other current are assets debtors and cash. HMT-MTL has 1. Raw material and component s 2. Stores an spare parts 3. Tools and instruments 43 in this particular

4. Work-in-progress 5. Finished stock 6. Stock of scrap , in inventory category In the year 2007-08 they reduced their inventory cost by Rs2,86,700 it is better indication towards profit making policy. SUNDRY DEBTORS Debtors are people or other firms who owe money to the firm .This will uasally happen where the firm has sold allows the purchaser a period of credit the firm sells the good or service but allows the purchaser a period of credit to pay usually a month . During this month the purchaser ows the firm the money and is therefore a debtor In HMT MTL sundry debtors include both secured and unsecured debtors . They are considered as good& doubtful Debtors .In the year 2007-08 They reduced debtors by 3,67,61,140.16 CASH & BANK IN much the same way it is important to a business . However , in a business the term cash may have a broader meaning than it does to ypou as an individual. Cash is an asset to the business and is usually considered to be one of the current assets. As with the debtors , the amount of cash required will vary accourding to the line of business the firm is in . Retail firms may have higher levels of liquid cash thamn business that business that oprate mostly on a credit basis and therefore rarely handle notes and coins Current assets The current assets asre therefore ones that can be quickly realized and change frequently . The main current assets are stock , debtors and cash. CERRENT ASSETS =STOCK + DEBTORS +CASH LOAN & ADVANCES Secured considered good Unsecured considered good

44

CURRENT LIABILITIES A liability is something which a firm owes to a person or another firm.It may be in the form of creditors people or firms who have sold you goods which you have not yet paid for, or it may be money borrowed form a financial institution-loans or overdrafts. NET CURRENT ASSTES NET ASSETS = TOTAL ASSETS TOTAL LIABILITIES HMT-MTL RS 18,50,197,36.00 DEFERRED REVENUE EXPENDITURE Technical assistance fees including fees technical documentation And exchange fluctuation difference. GRATUITY Expenses inclured in respect ofbond issued for raising to meet payament Under the VRS. Profit and loss account or income statement The balance sheet,as discussed above, indicates firms financial position at a specific date. Hence, it is considered as a very significant statement by bankers and lenders. But, it fails to indicate whether a firm is making or losing money. Therefore, creditors and financial analysts have recently started paying more attention to the earning capacity of the firm as a measure of financial strength. According to guthman H.G.,the statement of profit and loss is the considered and classified record of the gains and losses causing change in the owners interest for a period of time.

45

FUNCTIONS OF INCOME STATEMENT Profit and loss account or income statement reveals the flow revenues and expenses during a period of time. It also reveals the changes occurred in the balance sheet form the end of one period of time. It also reveals the changes occurred in the balance sheet form the end of one period to the end of another period.the important functions of the profit and loss account are as follows; MEASUREMENT OF NET INCOME COMMUNICATION Form and contents of profit and loss account The profit and loss account is prepared in defferent forms due to diversity in the nature of industry and business interests. In case of porprientary and partnership firms, there is no prescribed form of profit and loss account. Even for companies, the Indian companies act, 1956 has not prescribed any legal proforma for profit and loss account as it has prescribed for balance sheet. Generally, profit and loss account is prepared in account lform, which is divided into two parts 1 profit and loss account, and profit and losss appropriation account Such a profit and loss account is not useful from analysis point of view. Therefore, the profit and loss account should be prepared in such proforma where the items of revenues and expenses of the firm could be shown classified under appropriate heads. This will prove 100% useful to the management in analyzing the results. Such profit and losss account should incorporate the following items sources of income from business oerationsl Sales after deducting sales returns and trade discount. Cost of goods sold. Operation expenses of the business, administration ( sellin and distribution expenses,) depreciation etc. All other incomes and expenses ( optating and non-operation ) such as interest, income form investments, profit or loss on sale of fixed assets etx. Recorded facts The term recorded facts means that data used for preparing financial statemen6s are taken out form the accounting records. For example, figures relating to cash in hand, cash at bank, debtors, bills receivables, xost of fixed assets, bills payable, creditor sales , purchases, wages, salaries, rent etc. are recorded facts. The financial statements do not disclose such facts which are not recorded in the accounting books whether such facts are significance or not . 46

Accounting conventions and postulates The financial statements are affected to a very grant extent by accounting principles, concepts and conventions. On the going concern concept assets are shown at cost after deducting depreciation instead of their market value, on the assumption that these assets will not be sold. On money measurement concept, non- monetary factors such as managerial efficiency and interity that affect firms profit to a great extent are not shown in the financial statements. Personal judgments Although accounting concepts an conventions provide good guidelines to the accountant, yet the application of these concepts and conventions depends upon the personal judgments of the accountant. For example, depreciation on fixed assets is charged on cost, but which method (fixed installment, written down value or unit of service ) and rate of depreciation arte to be used, depend upon the personal judgments of the accountant.

ESSSENTIAL QUALITIES OF FINANCIAL STATEMENTS As stated earlier, the basic objective of financial statements is to provide information useful to the users of these satatements. Different users like shareholders, investors, financial institutions, workers etc,are interested in financial statements with varying objectives. Relevance Only that information should be disclosed in financial statements which are relevant to the objectives of the firm. The information is said to be relevant only when it influences decisions of the users while evaluating any levent jor correcting past evaluation. The conclusions drawn on the basis of irrrelevnt information would be misleading and of no use. Understandability

47

The main objective of financial statements is to provide necessary information about the firms resources and performance. to fulfill this objective, the information contained in these statement should be clear, simple so that a person who is not well versed with the accounting terminology shall be able to understand without much sifficulty. Therefore, as far as possible, the form of financial statements should not be complex and the terms used in these statements should should be simple, in common language and non technical.

Reliability and accuracy The information incorporated in financial statements shou,lld be reliable. Information has the quality of reliability when it is free from material error and bias and can be depended upon by users. Reliability changes with the nature of information contained in lthe subject matter. FINANCIAL STAATEMENTS AND Utility MANAGEMENT First of all financial statement are used by those persons who direct and control the business. These persons are known as management desires such information from these statement by which the efficiency and earning power of the firm can be measured and rational decision for its efficient operation can be taken. Other macro level decisions Employees and their representative biddies are interested in the financial statement to ascertain the ability of the enterprises to maintain the existing staff and serve them through appropriate rumination and retirement benefits . On the basis of these statements, employees come to known about the profit earning capacity and productivity of the company

48

INTERPRETATION OF INCOME STATEMENT . The income statement of Hmt Mtl is not complicates , it is very simple o understand. 1 ERNINGS: SALES Machine tools Accessories Sundry jobs and miscellaneous sales Packing /forwarding charges Include excise duty

2 .OTHER INCOME 1. Servicing income recoveries from staff/other Royalties Profit on sale of assets Credit relating to previous provisions withdrawn Settlement allowance Earned leave encashment Warranty Doubtful debts /advances Obsolescence Interest liability-other miscellaneous income

OUT GOINGS MATERIALS Raw materials and components Purchases Consumption of raw materials and componants Consumptionof stors, spares tools &pkg. materials Repairs to buildings 49

 PERSONNEL

Repairs to machinery

Salaries, wages and bonus HOUSE RENT ALLOWANCE GRETUITY CONTRIBUTION TO P E & FPS DEPOSIT LINKED INSURANCE CONTRIBUTION TO ESI WELFARE EXPENCSES WAGWS FORREPIARS TO BUILDINGS WAGES FOR REPAIS TO MACHINERY MANAGEMENT REMUNERATION REMUNERSATION TO MANAGING DIRECTOR SALARIES

ALLOWANCES PERQUISIOTES MADICAL REIMBURSEMENT CONTIBUUTION TO PROVIDENT FUNDTOTALREMUNATION Other expenses Power and fuel Rent Rates and taxes Excise duty Insurance Water and electricity Repairs t building Repairs to machinery Printing and stationery Travelling expenses Rebate on sales Advertisement and publicity 50

Training Auditors remuneration Other agents commission Loss/obsolescence of linventory and materials Bad debts/loans &advances written off Provision for doubtful debts, loans and advances Warranty claims

Special tools VRS bonds issue expenses share of holding company expenses Loss on exchange variation

Miscellaneous expenses In respect of taxation matters In any ljother manner Reimbursement of expenses Service tax Directors Directors sitting fees

Jobs done for internal use Capital works Shop manufactured special tools

Interest Government loans Loan from holding company VRS bonds Term loans form banks /financial institutions Cash credits from banks Bonds others 51

prior period adjustments material personnel other expenses other income

extra ordinary items income from sale of land &building

cash flow
fund is a broad term that means transfer of economic values whether such values relate to cash or not cash as well as other transactions such as purchase of fixed assets on credit, payment of creditors by issue of debentures or preference shares etc. which do not affect cash are included. Thus , it do not reveal the sources from which cash was obtained or in flowed in the business and the specific uses to which cash was utilized or out flowed. In any jbusiness, it is important to know about the sources and uses of cash.

Cash flow statement

While discussing funds flow statement, we hve observed that in a narrow sense. Funds means only cash .it is shown in the balance sheet as cash in hand , cash at bank etc. data given date, but it does not disclose how the cash was obtained and how the same was used in the given accounting period. The profit and loss account or income statement is also of no help in this regard. For this purpose, a new statement, called cash flow statement is required. A statement of cash flow reveals the movements of cash of a business enterprise for 52

the given accounting period indication specifically how the cash was generated i.e. when the cash has come from and how the cash was used i.e. what has been done with cash during the given accounting period. Thus, cash flow statement is a statement of inflows (sources) and outflows (uses0 of cash and equivalents in an enterprise during a specified period of time. Such a statements disclose the net effect of operating, investing and financing activities of an enterprise during a period on cash and its equivalents and taken into account receipts and disbursements of cash. Cash means not only cash in hand but it also comprises demand deposits with banks . Cash equivalents are short term highly liquid investments that are all readily convertible into known amounts of cash. Cash flows are inflows and out flows of cash and cash equivalents. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of and enterprise rather than part its operating, investing an financing activities. Cash management includes the investment of excess cash in cash equivalents.

Classification of cash flows

As explained earlier, cash flow statement indicates the cash inflows (sources) and cash outflows (uses or application ) of cash during an accounting period. Hence, it is essential to know about the various items of source of cash or inflows of cash and uses of cash or outflows of cash. As per accounting standard-3 (revised) the changes resulting in cash inflows and cash outflows arise on account of three types of activities i.e. operating , investing and financing as discussed below 1. Cash flows from operating activities 2. Cash flows from investing activities 3. cash flows from financing activities

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Ratio analysis
Has emerged as the principal of technique of analysis of financial statements. It is an attempt to present the information of the financial statements in simplified, systematized and summarized form by establishing the quantitative relationship of the items or group of items of financial statements. Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses .ratio analysis can also help us to check whether a businesses is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. WHAT ARE WE TRYING TO FIND OUT? 1. Is Profitable. 2. Has enough money to pay its bills. 3. Could be paying its employees hire wages. 4. Is paying its share of taxes. 5. Is using its assets efficiently. 6. Has a gearing problem. 7. Is a candidate for being bought by another company or investor. And more, once we have decided what we want to know then we can decide which ratios we need to use to answer the question or solve the problem facing us. Lets look at the ratios we can use to answer these questions.

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THE RATIOS:We can simply make a list of a ratios .we can use here but its much better to put them into different categories. If we look at the question in the previous section, we can see that we talked about profits, having enough cash, efficiently using asset-we can put over ratio into categories that are design exactly to help us to answer this questions. The categories we want to use, section by section are: 1. Profitability: has the business made a good profit compare to its turnover? 2. Return ratio: compare to its assets and capital employed, has the business made a good profit?

3. Liquidity: does the business have enough money to pay its bills? 4. Assets usage or activity: how is the business used its fixed and current assets. 5. Gearing: does the company have a lot of depth or is it financed mainly by shares? 6. Investor or share holder: not every one needs to use all of the ratios we can put in this categories so the table that we present at the start of each section is in two column: basic and additional. The basic ratio are those every one should use in this categories whenever we are asked a question about them .we can use the additional ratio when we have to analyzed a business in more detail or when we want to show someone that we have really though carefully about a problem . Ratio Analysis is the process of determining and presenting the relationship f items or group of items in the financial statements. the relationship may be of two types: 55

1. Associate Relationship and 2. Cause/Effect relationship For example there is an associate relationship between costs of goods sold and cost of raw material, whereas there is cause/effect relationship between sales and profits .Both the relationships are expressed in terms of ratios. Ratios may be expressed in following waysExpression of Ratios:1. Ratio as Proportion: in this form, the relationship between two figures is expressed in common denominator. It is obtained by the simple division of one number by another so that the proportionate relationships become clear. For example, if current assets are Rs.16000 and current liabilities are Rs.4000,the ratio between current assets and current liabilities i.e. current ratio will be 4:1 (16000/4000). 2. Ratio as Turnover: in this form a ratio is calculated between two numerical facts for which one item is divided by another and the quotient so obtained is taken as unit of expression. When ratio is expressed in this form, it is called as turnover and is written in times. For example, sale for the year are Rs.80000 and fixed assets are Rs.20000; it indicates that sales are 4(80000/20000) times of fixed assets. 3. Ratio as percentage: in this form, the relationship between two items is expressed in percentage for which one item is divided by another and the quotient is multiplied by 100.for example, if sales i.e. gross profit ratio will be 25% (20,000/80,000 x 100). in financial analysis ,these ratios highlights the financial position of the business, and hence known as Financial ratios .these are also called accounting ratios, because they are based on the data taken from financial accounts. similarly they 56

measure the relative importance of the items expressed in financial statements, hence called structural ratios.

OBJECTIVES OR SIGNIFICANCE OF RATIO ANALYSIS: Ratios are guides or short-cuts that are useful in evaluating the financial position and operations of a company and in comparing them to previous years or to other companies. In accounting and financial management, ratios are regarded as the real test of earning capacity, financial soundness and operating efficiency of a business concern. Ratio can also assist management in its basic functions of forecasting, planning, co-ordination, control and communication.. IMPORTANCE OF RATIO ANALYSIS: 1. Simplifies Accounting Figures: Accounting figures in many cases fail to provide information in a desired way. Ratio simplify, summaries and systematic accounting figures which can easily be understood by those who do not know the language of accounting. 2. Measure s liquidity position: liquidity position of a firm is set to be satisfactory if it is able to meet its current obligation as and when they mature .a firm is set to be capable of meeting its current obligations only. If it has sufficient liquid funds to pay its short-term obligation with interest within a period. Hence this ratio is used for the purpose of credit analysis by banks and other short-term lenders.

3. Measure Long term solvency:

ratio analysis is equally important in

evaluating the long-term solvency of the firm. it is measured by capital structure of leverage ratio. This ratio are helpful to long term creditors ,security analyzed and present and prospective investor because the reveal the financial soundness and weakness of the firm.

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4. Operational Efficiency: ratios are useful tools in the hands of management to evaluate the firms performance over a periods of a time by comparing the present ratios with the past ratios. various activity or turnover ratios measure the operational efficiency of the firm. this ratio are used, in general, by banker, investor and other supplier of credit.

5. Facilities inter firm and intra firm comparison: ratio analysis is the basis for comparing the efficiency of various firms in the industry and various division of a business firm. absolute figures are not suitable for this purpose, but accounting ratios are the best tools to compare the firms and divisions of a firm. 6. Trend Analysis: ratio analysis enables a firm to take the time dimension into account. trend analysis of ratios reveals whether financial of a firm is improving or deteriorating over years .with the help of such analysis one can ascertain whether the trend is favorable or adverse.

7. Managerial Usage: ratio analysis is an in valuable aid to management in this charging its basic functions such as planning, communication, control and decision making as discussed below: Aid in Planning and Forecasting: ratios ,derived after analyzing the past result, help the management to prepare budgets and formulate future policy and plan of action, what is to be done in immediate future is decided on the basis of trend analysis. Aid in Control: trend ratio are compared with standard ratios to measure the degree of variance with the actual if comparison shows and adverse variance, it is reported to the management to take corrective action and exercise effective control. Aid in Communication: ratio are effective means of communication. they plan an important role in informing about the progress made by the firm to the owners and other parties interested there in.

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 Aid in Decision Making: ratio analysis highlights on the degree of efficiency of the management and utilization of assets. this helps management in decision making.

USERS OF ACCOUNTING INFORMATION:

Now we know the kinds of questions we need to ask and ewe know the ratios available to us, we need to know who might ask all of these questions. This is an important issue because the person asking the question will normally need to know something particular. Of course, anyone can read and ask questions about the accounts of a business; but in the same way that we can put the ratios into groups, we should put readers and users of accounts into convenient groups, too. Lets look at that now. The List of Categories of Readers and Users of Accounts include the following people and groups of people: Investors Lenders Managers of the organization Employees Suppliers & other Trade Creditors Customer and Governments and there agencies. Public. Financial Analyst Environmental Groups Researchers: both academic and professional LIMITATION OF RATIO ANALYSIS:

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1. Need for comparative analysis: a single ratio would not be able to convey anything, is the single ratio in itself is meaningless; it can not furnished a complete picture. 2. False Results: ratios are based upon the financial statements. in case financial ratio is incorrect or the data upon which ratio are based in is incorrect ratio calculated will also be false and defective.

3. Ignore Qualitative Factors: ratio analysis is the quantitative measurement of the performance of the business. it ignores the qualitative aspects of the firm. It shows that ratios Is only one sided to measure the efficiency of the business. 4. Ignoring Price level changes: the comparability of ratios suffers if the prices of the commodities in two different years are not the same change in price affects the cost of production, sales and also the value of assets it means that will not be meaning full for comparison if the price of the commodities is different.

5. Personal Bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to be interpreted in different people May interpreter the same ratio in different ways.

WHICH RATIOS WILL EACH OF THESE GROUPS BE INTERESTED IN? In the left hand column there is a list of interested one by one. your job is to be completed the right hand column by giving two or three example of ratios they might be interested in .

INTEREST GROUPS

RATIOS TO WHICH 60

 INVESTORS LENDERS MANAGERS EMPLOYEES

RETURN ON CAPITAL EMPLOYED GEARING RATIOS PROFITABILITY RATIOS RETURN ON CAPITAL EMPLOYED

SUPPLIER AND OTHER TRADE CREDITORS CUSTOMERS GOVERNMENT AND THERE AGENCIES FINANCIAL ANALYSTS RESEARCHERS

LIQIDITY

PROFITABILITY PROFITABILITY

POSSIBLE ALL RATIOS DEPENDS ON THE NATURE OF THERE STUDY

LOCAL COMMUNITY

HIS COULD BE A LONG AND INTERSTING LISTS

ENVIORMENTAL GROUPS

EXPENDITURE OR ANTI-POLLUTION MEASURES

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RATIO ANALYSIS IN THE CONTEXT OF HMT, MACHINE TOOLS AJMER As discussed earlier ratios are very useful for very person who has been related to the organization. HMT-MTL IS AN UNIT OF HOLDING COMPANY WHICH IS SITUTED AT BANGLORE. In HMT-MTL AJMER, they calculate ratio in order to find out the efficiency turnover etc CURRENT RATIO:MEANING:Current ratio may be defined as the relationship between current assets and current liabilities. It is also known as working capital ratio or 2:1 ratio. It is calculated by dividing the current assets by current liabilities. : FORMULA:CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES COMPONENTS:Current assets of a firm represent those assets, which can be, in the ordinary course of business, converted into cash within a period not exceeding one year. Assets are anything, which the firm owns or has title to (other words ownership of). Firms may have fixed assets which are long-term assets-plant, machinery and 62

equipment, but they will also have assets which cab be realized (cashed-in) in the short-term. This is generally taken in accounting terms to be less than a year. The current assets are therefore ones that can be quickly realized and change frequently. The main current assets are stock, debtors, cash. And etc. CURRENT ASSETS= STOCK +DEBTORS+CASH+B/R+PREPAID +OTHER CURRENT ASSETS They are usually shown on the top half of the balance sheet, and the current liabilities are subtracted from them to show net current assets. Current liabilities mean those obligations which are to be paid within a period of one year out of current or by creation of current liabilities. A liability is something, which a firm owns to a person or another firm. It may be in the form of creditors people or firms who have sold you goods which you have not yet paid for, or it may be money borrowed from financial institution-loans or overdrafts. As the title of the variable suggests, we are looking in this case for liabilities that are owed in the short-term. This is generally taken in accounting terms to be a less than a year. Any money that is owed in more than a years time is considered to be a long- term liability. Short-term liabilities thus tend to be trade creditors and short-term borrowing such as overdrafts. CURRENT LIABILITIES=CREADITOR+B/P+BANK OVERDRAFT+OUT EXP.

STANDING EXP. values related to current ratio for five years are as follows 2005-06 1.09 2006-07 1.53 2007-08 1.69 2008-09 1.65

2004-05 1.03

This graph depicted these values, given below:-

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CURRENT RATIO

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09 CURRENT RATIO

INTERPRETATION OF CURRENT RATIO: The above graph shows the values of current ratio of past 5 years. 2003-04 was very difficult for HMT-MACHINE TOOL due to more liabilities over their current assets. But in the next two years they perform their duty over the management of current assets and current liabilities very well. If the current ratio is high, the larger amount of rupees available per rupee of current liabilities, the more firms ability to meet current obligation and the greater safety of funds to short- term creditors

LIQUIDITY OR QUICK RATIO:-

MEANING:Liquidity ratio is the measure of the instant debt paying ability of the business enterprise,. Hence it is, also called QUICK RATIO OR ACID TEST RATIO. This ratio establishes the relationship between quick/liquid current assets and current liabilities. The formula used is:64

FORMULA:LIQUIDITY/QUICK RATIO = LIQUID OR QUICK ASSETS/CURRENT LIABILITIES OR = CURRENT ASSETS-(STOCK + PREPAID EXP.)/CURRENT LIABILITIES

COMPONENTS:-

Liquid or quick assets refers to all the current assets except inventory and prepaid exp. the exclusion of inventory is based on the fact that it cannot be easily and readily converted into cash. Prepaid exp. by their very nature do not provide cash, they merely reduce the demand for cash required in one period because of payment in a prior period. According to them, Bank overdraft is not included in liquid liabilities i.e. deducted from the amount of total current liabilities on the plea that firm avails this facility more or less on a regular basis. But, if the bank overdraft is to be withdrawn on demand, it should be a part of liquid liabilities. In this book, it has been included in liquid/current liabilities. Liquid ratio is considered to be superior to current ratio in evaluating the liquidity position of the firm. IN OTHER WORDSQUICK ASSETS ARE HIGHLY LIQUID AND ARE

IMMEDIATELY CONVERTIABLE TO CASH A liquid ratio of 1:1 is considered satisfactory. values related to quick ratio for five years as follows:65

2004-05 .33

2005-06 .45

2006-07 .28

2007-08 .53

2008-09 .50

This graph depicted these values given below:-

LIQUID RATIO

0.6 0.5 0.4 0.3 0.2 0.1 0 2004-05 2005-06 2006-07 2007-08 2008-09 LIQUID RATIO

INTERPRETATION OF QUICK RATIO:-

A quick ratio of 1:1 is considered as an ideal ratio. If the liquid ratio is more than 1:1, the financial position of the firm seems to be sound and good. On the other hand, if the ratio is less than 1:1, the financial position of the firm is unsound. A high quick ratio compared to current ratio may indicate under-stocking while a low liquid ratio indicates over stocking. 66

STOCK/INVENTORY TURNOVER RATIO:MEANING:Generally, a firm must have reasonable stock in comparison to sales. The quantity of stock should be sufficient to meet the demand of the business, but it should not be too large to indicate unnecessary locking-up of capital in stock, danger of stock-items becoming obsolete and resulting in waste by passing of time. The stock turnover ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in inventory. Inventory turnover ratio normally establishes the relationship between cost of sales and average inventory. The stock turnover ratio can be calculated by applying the following formula:FORMULA:INVENTORY TURNOVER RATIO= COST OF GOODS SOLD OR SALES/AVERAGE INVENTORY AVERAGE INVENTORY=OPENING STOCK+CLOSING STOCK/ 2 COST OF GOODS SOLD= SALES GROSS PROFIT OR =OPENING STOCK +PURCHASE-CLOSING STOCK 67

Values related to inventory turnover ratio for five years as follows2005-06 1.75 2006-07 1.52 2007-08 2 2008-09 1.88

2004-05 1.36

This graph depicted these values, given below:-

INVENTORY TURNOVER RATIO 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 200405 200506 200607 200708 200809

INVENTORY TURNOVER RATIO

INTERPRETATION OF INVENTORY TURNOVER RATIO: This ratio reveals the number of times finish stock is tuned over during a given accounting period in relation to sales. it also indicates whether investment in inventory is within proper limit or not. A high inventory turnover ratio is better than a low ratio. a high ratio reflects efficient business activities and is an indication of under investment in inventory.

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 A low ratio reflects:1(dull business ) 2.(over investment in inventory) 3.(wrong valuation of stock) 4.(stock of unassailable and obsolete goods.) The inventory turnover ratio is also an index of profitability as a high ratio indicates more profits

DEBTOR TURNOVER RATIO:MEANING:Receivable normally include debtor and bills receivable and represent the uncollected portion of credit sale. This ratio establishes the relationship between net credit sales and average receivable of the years. The Formula used for its calculation is as follows: FORMULA:DEBTOR TURNOVER RATIO=NET CREDIT SALES /AVERAGE RECEIVABLES AVERAGE RECEIVABLE=OPENING DEBTOR & B/R+CLOSING DEBTOR & B/R/2

COMPONENTS: CREDIT SALES=TOTAL SALES CASH SALES SALES RETURN If information about credit sales is not available, the figure of total sale may be assumed to be the credit sale.

69

Debtors and B/R which arise out of credit sale should only be considered .while calculating this ratio, the full amount of bills discounted, which creates liabilities, should be included of provision for bad and doubtful debts should not be detected because it may give an impression that some amount of receivable has been collected.

if the data relating to opening and closing balances of debtors and receivable are not available, the receivable at the end of the year may be considered for computing this ratio.

Values related to debtors ratio for five years are as follows

2004-05 55

2005-06 38

2006-07 32

2007-08 4.67

2008-09 4.82

This graph depicted these values given below:

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DEBTORS TURNOVER RATIO

60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 DEBTORS TURNOVER RATIO

INTERPRETATION OF DEBTORS TURNOVER RATIO:

This ratio indicates the number of times the receivables are turned over in a year in relation to sales. It shows how quickly debtors are converted into cash. A higher debtors turnover ratio shows the efficiency in collection from debtors i.e. debtors are being collected more promptly. A lower ratio indicates efficiency of management in collection of payment against credit sales in time or payments by debtors are delayed.

FIXED ASSETS TURNOVER RATIO:MEANING:-

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This ratio expresses the relationship between fixed assets (less depreciation) and net sales or cost of goods sold. It is calculated by using the following formula:FORMULA:FIXED TURNOVER RATIO = SALES OR COST OF GOODS SOLD/FIXED ASSETS(less depreciation)

values related to fixed assets turnover ratio for five years are as follows:-

2004-05 14.35

2005-06 21.26

2006-07 15.68

2007-08 22.43

2008-09 5.56

This graph depicted these values, given below:-

FIXED ASSETS TURNOVER RATIO

25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 FIXED ASSETS TURNOVER RATIO

INTERPRETATIO FIXED TURNOVER RATIO:72

 This ratio measures the efficiency and profit earning capacity of the firm. The higher the ratio, the greater is the intensive utilization of fixed assets. Lower ratio means under utilization of fixed assets and excessive investment in these assets. As volume of sales depends on a variety of factors such as price, quality of good, salesmanship, marketing etc. it is argued that no direct relationship can be established between sales and fixed assets. WORKING CAPITAL TURNOVER RATIO: MEANING:This ratio establishes the relationship between net working capital and net sales or cost of goods sold. It is calculates by dividing the net sales or cost of goods sold by net working capital Expressed as a FORMULA:WORKING CAPITALTURNOVER RATIO = COST OF GOOGS SOLD OR SALES/NET WORKING CAPITAL NET WORKING CAPITAL=CURRENT ASSETS CURRENT LIABILITIES

Table showing data related to NET WORKINGCAPITAL 2005-06 6.98 2006-07 8.56 2007-08 3.35 2008-09 3.54

2004-05 29.37

This graph depicted these values, given below: 73

WORKING CAPITAL TURNOVER RATIO

30 25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 WORKING CAPITAL TURNOVER RATIO

INTERPRETION OF WORKING CAPITAL TURNOVER RATIO: This ratio is used to assess the efficiency with which the working capital is being used in making sales. A high working ratio indicates efficient management of working capital or over trading i.e. low investment in working capital and more profits. A low working capital turnover ratio implies under-trading i.e. funds are not being utilized efficiently. A higher sale in comparison to working capital means over-trading and lower sales in comparison to working capital means under-trading.

NET PROFOT RATIO:-

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MEANING:This ratio measures the relationship between net profit and sales of a firm. Net profit is the excess of revenue over expenses during a particular accounting period. the net profit ratio is determined by dividing the net profit by sales and expressed as percentage. The formula used is as follows: FORMULA:-

NET PROFIT RATIO = NET PROFIT (after tax) /NETSALES *100

Table showing data related to NET PROFIT RATIO:-

2004-05 -.55

2005-06 -.45

2006-07 -.35

2007-08 -.048

2008-09 -0.0273

This graph depicted these values, given below:-

NET PROFIT RATIO

0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 2004-05 2005-06 2006-07 2007-08 2008-09 NET PROFIT RATIO

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INTERPRETATION OF NET PROFIT RATIO:-

This ratio is the indication of overall profitability and efficiency of the business. A high net profit ratio would only mean adequate returns to the owners. It also enables a firm to withstand in cut-throat competition when the selling price is falling or cost of production is rising. A low net profit on the other hand, would only indicate in adequate returns to the owners. It not only reveals the recovery of cost and expenses from the revenue of the period, but also to leave a margin of reasonable compensation to the owners for providing capital at their risk. If we see the graph of net profit of H.M.T. machine tools limited we conclude that company bear loss from many years so the net profit ratio is also negative.

OPERATING PROFIT RATIO:MEANINTG:This ratio is also called operating profit margin. it establishes the relationship between operating profit and net sales. It is also defined as the ratio of profit before depreciation, interest and tax to total turnover.

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Operating Profit means the net profit arising form the normal operations and activities of the business without taking account of extraneous transaction and expenses of purely financial nature. in other word, Operating Profit is calculated by subtracting old direct and indirect expenses relating to main business from net sales this ratio is calculated by using the following formula: FORMULA:OPERATING PROFIT RATIO=OPERATING PROFIT/NET SALE*100 OPERATING PROFIT = GROSS PROFIT-OPERATING EXPENSES OR =NET PROFIT+NON OPERATING EXPENSESNON OPERATING INCOME

TABLE Showing data related to operating profit ratio.

2004-05 -.11

2005-06 -.12

2006-07 -.01

2007-08 .97

2008-09 .99

This graph depicted this values ,given below-

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OPERATING PROFIT RATIO

1 0.8 0.6 0.4 0.2 0 -0.2 2004-05 2005-06 2006-07 2007-08 2008-09 OPERATING PROFIT RATIO

INTERPRETATION OF OPERATING PROFIT RATIO: This ratio indicates the net profit ability of the main business i.e. operating efficiency of a firm. In some firm, the profit from main business is very low, while the profit from secondary function such as interest on bank deposit and dividend on shares etc. is so much that the net profit of the firm at the end is enhanced. In such a case, the operating profit ratio explains that the efficiency of the firm is very low. Therefore , The hire the operating ratio, the better would be the operational efficiency of the firm. AS higher operating profit ratio means that a firm has been able not only two increase its sales but also win able to cut down its operating expenses.

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CONCLUSION

After analyzing the past performance of H.M.T. Machine Tools Ltd , Ajmer it can be state that the companys financial condition is not good and there is continuous decline because of some reason which are i.e. heavy cost of products, late delivery of 79

the products. Competition in market because of new technology comes in market poor network of marketing because H.M.T. M.T.L., Ajmer only produces heavy machines. poor coordination with market because heavy machines are purchase by company. Thus it is should increase its sales by improving marketing strategies.

SUGGESTIONS

The ratio analysis shows the all over performance of financial management, you must see this analysis and evaluate your financial position. 80

You must simplify the accounting procedure. Prevent production delays. Spread your marketing network. Control over expenses in inefficient areas. Delivery time should be minimizing.

Bibliography

Books Management Accounting by M.R. Agawam

Websites 81

www.hmtindia.com www.google.com www.en.wikipedia.org

Brochures/Journals Annual Report Facts Sheets

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