A Project Report

on

“FINANCIAL ANALYSIS AND REVIEW”

for

“TEXMO PIPES AND PRODUCTS LIMITED”

Submitted by
MANISH INDRALAL ROCHLANI

Under the guidance of

Prof. SUBODH JOSHI
SUBMITTED TO
“UNIVERSITY OF PUNE”
In partial fulfillment of the requirement for the award of degree of
MASTERS IN BUSINESS ADMINISTRATION (MBA)
Through
INSTITUTE OF BUSINESS MANAGEMENT AND
RESEARCH
CHINCHWAD (PUNE)

ACKNOWLEGEMENT
 I hereby take the opportunity to express my gratitude towards those
who have made great contribution in completion of this project work. I feel immense
pleasure to thanks to the Chief Financial Officer Mr. Sanjay Dalal, to the Manager
Corporate Finance Mr. Pravin Gujrati, Mr. Rishabh Jain the Company Secretary who
were kind and helped me in providing necessary information and guidance from time to
time. Mr. Sanjay Agrawal the Managing Director who has given me the opportunity to
work with Texmo Pipes And Products Limited as project trainee. I am immensely
thankful to my internal project guide of Prof. Subodh Joshi who has been a constant
source of inspiration, who have keen interest and encouraging guidance, which leads to
completion of this project in time, is hard to express in words.
I offer my sincere thanks to the whole Corporate Finance Staff who spared
their valuable time and was always available for guidance in spite of their busy schedule. I
am thankful to Miss. Yamini Shah Human Resource Manager and the entire human
resource team for reposing faith and support in the endeavor to carry out the project.
In the end, I would like to express my gratitude towards the respondents,
who selflessly adjusted their schedules to accommodate me in the scheme of things. This
project would not have been successful without their valuable help. I also express my
sincere thanks to all those who contributed in bringing this project into its current physical
form.

Executive Summary
Project Title: Financial Statement Analysis and REVIEW

Company Name: TEXMO PIPES AND PRODUCTS LIMITED.

2
 The company started as a partnership firm under the name Shree Mohit
Industries on may 13 1999. It was converted in to public limited company under the
name TEXMO PIPES AND PRODUCTS Limited on July 3, 2008. To consolidate its
operations, the company signed Business Transfer Agreement (BTA) on august 5, 2008
for purchase of specified assets of its three promoter groups entities viz. Shree Balaji
Industries, Shree Venkatesh Industries and Shree Padmavati Irrigation Private Limited.
The company is engaged into manufacturing wide range of products which can be
categorized in to two broad categories viz. PVC pipes and HDPE pipes. PVC are
generally categorized under Unplasticized Polyvinyl Chloride pipes (UPVC) by virtue
of its features like strength, durability, non corrosive and high impact resistance.

Critical Analysis of Financial Statement and Interpretations on basis of Ratio

Analysis is an important tool in the hands of management for analyzing the financial
performance of the company. This involves calculation of various ratios based on the
information Presented in the financial statements of the company. Based on the
requirement of the management financial ratios are calculated.

For this study three year comparisons taken for calculating ratio analysis. Main
objective in undertaking this project is to supplement academic knowledge with
absolute practical exposure to day to day functions of the organization.
During the project followings results were found.

➢ The business environment of the company is reasonably good. The company s track
record is always oriented towards profitable growth and with strong fundamentals.
➢ As major portion of working capital is invested in sundry debtors, company has to
adopt factoring services so that cash realization will be faster.
➢ Company should take corrective actions to write off or sell off the inventory, which
is of no use and occupies unnecessary space.\
➢ Other factory capital deals with the expenditure that is done on assets of less value,
building and other direct assets. Capital consumption on this head is in company s
own hands hence more importance can be given to this head. The capital should be
used effectively with the improvement in manufacturing activity and minimizing
cost.
➢ Acquisition of new assets of heavy costs should be done with proper capital
budgeting supported by payback period.

The training at TEXMO PIPES AND PRODUCTS Limited involved the day to day
working at corporate accounts departments with the senior managers in the company.
This project helped to get the deeper understanding of the process of portfolio
management in TEXMO PIPES AND PRODUCTS Limited and how decisions are taken to
strengthen the financial position.

3
Introduction to Topic

Introduction to Topic

4
 Every financial manager is involved in financial decision making and financial
planning in order to take right decision at right time, he should be equipped with sufficient
past and present information about the firm and its operations and how it is changing
overtime. Much of this information that is used by financial manager to take various
decisions and to plan for the future is derived from the financial statements. The project
Financial Analysis and Review of Texmo Pipes And Products Limited focuses to
analyze the financial statements and to study different ratios over the period of 5 years to
determine the financial position of Texmo Pipes And Products Limited, Burhanpur.

Financial analysis involves the use of various financial statements. These statements
do several things. First, the balance sheet summarizes the assets, liabilities and owners
equity of a business at moment in time, usually the end of a year or a quarter. Next the
income statement summarizes the revenues and expenses of the firm over a period of time
while balance sheet represents a snapshot of the firm s financial position at a moment in
time.

Financial management is planning and controlling of financial resources of a firm

with a specific objective. Since, financial management as a separate discipline is of recent
origin, it is still in a developing stage. It is very crucial for an organization to manage its
funds effectively and efficiently.

Financial management has assumed greater importance today as the financial

strategies required to survive in the competitive environment have become very important.
In the financial markets also new instruments and concepts are coming and one must say
that a finance manager of today is operating in a more complex environment. A study of
theories and concepts of financial management has therefore become a part of paramount
importance for academics as well as for practitioners but there are many concepts and
theories about which controversies exist as no unanimous opinion is reached as yet.

The project, Financial Analysis and Review of Texmo Pipes And Products
Limited further aims at discussing and understanding the concepts of financial
management of; Texmo Pipes And Products Limited, Burhanpur. the functions expect to
be performed by the financial management as well as the objectives of financial
managements.

5
 COMPANY PROFILE
-History
-About Texmo Pipes and Products Ltd.
-Objectives
-Products
-Certifications
-Organizational chart

History
The company started as a partnership firm under the name of Shree Mohit
Industries on May 13, 1999. The constitution of the partnership firm was changed from time to

6
time and in the year 2008 the partners as on date viz. Mr. Sanjay Agrawal, Ms. Rashmidevi
Agrawal, Mr. Vijay Prasad Pappu ,Mr. Rajesh Agrawal, Mr. Mohanlal Shah, Mr. Mahmood Khan
and Mr. Ananda Nago Umale agreed to convert the business into a Public Ltd Company under
the name and style of TEXMO PIPES AND PRODUCT LIMTED under the section 566 of the
companies act 1956 a fresh certificate of incorporation and commencement of business was
issued on July 3, 2008 and July 28, 2008 respectively by the registrar of companies ,M.P. and
Chhattisgarh.

To consolidate the operation the company have signed Business Transfer

Agreement (BTA) on August 5,2008 and August 6, 2008 for purchase of specified assets and
liabilities of 3 promoter group entities viz. Shree Balaji Industries , Shree Venkatesh and Shree
Padmavati irrigation pvt Ltd.

About Texmo Pipes and Products ltd :-

7
Texmo Pipes And Products Limited a public limited
company incorporated on 3rd July 2008 by conversion of
Shree Mohit Industries which was a fast emerging and
spearheading industry an associate of Shree Balaji
Industries established since 1988 at Burhanpur (Madhya
Pradesh). The Company is equipped with professionally
managed team of skilled operators, efficient technocrats and
dynamic marketing personnel’s. The Company image has
been developed in the market due to its high quality
products through process excellence by promoting
efficiencies, productivity and professionalism with the result
our brand TEXMO has spread in the heart of millions of
widespread clientele, Govt., Semi Govt. organizations and
private sectors with in the country and abroad.

In the year 1988 first unit has been setup there after developed four more units by
forming a Group of Industries in the name Shree Balaji Group of Industries. Now all the
units have merged and formed one single entity TEXMO PIPES AND PRODUCTS
LIMITED. The production capacity has been increased to 75MT per day and now is
being known as a market leader in plastic pipes and fitting. Beside this the company
introduced new diversified products like CPVC Pipes, Molded Fittings of PVC and
SWR, DWC Pipes, Drip Inline. This has been possible to meet business goals because
of superior products, quality consciousness supply cycles and customer satisfaction. The
company mission is to provide tangible benefits to all end users at every point of work.

Vision & Mission :-

Vision:-

To become World's Most Comprehensive Manufacturer and Services Provider.

To manufacture highest quality products through process excellence.
To provide most Comprehensive in house Trainings and Consulting in the areas of,
Quality Management , Inspections, Design and Testing Techniques and Defect
Prevention.
To manage projects with matrices.
To provide services not only to meet business and engineering goals, but also to
demonstrate significant improvements in Productivity, Quality, Cycle time and
Customer Satisfaction.
To provide lots of value additions to our clients by virtue of our unique features.

Mission:-

8
 To provide competitive advantage to our customers through superior products,
services and prices.
To meet and exceed customers' expectations of service through timely
communications and quality information.
To achieve tangible benefits by promoting efficiencies, productivity and
professionalism.
To Provide competitive prices and genuine products to our clients.
To Create a climate for voluntary compliance by building mutual trust and
providing guidance to promote international Polymer trade.
To keep maximum concern on our clients' interest as our own success will follow.
To consider our people, capital and reputation as our most important asset and Our
continued success depends upon adherence to these standards.
To attach great pride in the professional quality of our work and have an
uncompromising determination to achieve excellence in everything we undertake.
To stress creativity and imagination in everything we do.
Integrity and honesty are at the heart of our business. We expect our people to
maintain high ethical standards in everything they do, both in their work for the firm
and in their personal lives.
To work closely with our customers needs so that we can strive to provide superb
quality of pipes.

Future Plans:-

To be a world-class organization -- one that becomes a benchmark for other

organizations, its source for new ideas, information, professional development and
quality standards.
One that impresses its customers the first time and Every time.
To attain highest level of business efficiency with integrity and honesty.

Group Companies :-
Shree Balaji Industries
Shree Padmavati Irrigations Pvt. Ltd.
Shree Venkatesh Industries

OBJECTIVES OF THE COMPANY

To establish, own, run, manage and carry on the business as manufactures, producers,
developers, traders, buyers, sellers, exporters, importers, operators, engineers, fabricators,
9
contractors, brokers, assemblers, packers, repackers, jobbers, designers, laminators
merchants, resellers, dealers distributers, converters, recyclers and/or in any other capacity
in which the business may be carried on all kinds of goods used for the purpose of
irrigation, water transportation, sanitary system , drainage system, cable ducting or for
many other purpose wherein it can be used conveniently such pipes, host, tubes,
sprinklers, polyethylene pipes for sprinkler, irrigation system ,drippers, accessories, fittings
HDPE material for moldings an extrusion and all other ancillary and auxiliary materials or
derivatives or articles or things which can be made of using PVC polythene LDPE, HDPE,
PP, LLDPE, plastic granules, polymers monomers, polypropylene, thermoplastic, foam,
adhesive, synthetics resigns, emulsions, fiberglass, PVC compound PVC dry blend, PVC
premix and the like by whatever name called or their derivatives/mixtures and to do all
incidental acts and things necessary for the attainment of the above objects.

ANCILARY OBJECT:
1.To carry on the business as manufactures of iron steel or other metal pipes, sheets roads
and other products of iron or other metals now known or that may hereafter be invented as
also to carry on the business of ironmasters, iron founders, steel converters, metal workers,
steel makers and to purchase or otherwise acquire set up erect maintain reconstruct, an
adopt any or convenience for the purpose of company.

2. To construct build develop, maintain, operate, own and transfer infrastructure facilities
including water supply project, irrigation project inland water ways and ports, water
treatment systems, solid waste management systems, sanitation and sewerage systems, or
any other public facilities of a similar nature; any project for generation and/or distribution
of electricity or any other form of power and any project for providing telecommunication
services.

3. To manufacturing processing, spinning, weaving, selling, buying, importing exporting,

or otherwise to deal in law and high destiny polythene film, sacks, woven sacks, bags
HDPE bags, sheeting, laying of flat tubing and or to convert any of the polythene
polypropylene HM/HDPE product whether rigid or flexible for packing wrapping and for
use as stationery article , publicity and display and for daily domestic or
commercial/industrial use.

Products:-
S.W.R. Pipes Solvent Cement

Elastomeric Pipes PLB HDPE Duct

Rigid PVC Pipes HDPE Pipes

10
Casing Pipes For Tube
HDPE ID Pipes
Well

HDPE Sprinkler
Conduits Pipes
Pipes

L.D. (Krishi) Pipes

Plumbing Pipes

Suction Hose & Gard

Pipes

Submersible Column
Pipes

Certifications:-

11
SSI Registration Certificate
NSIC – Certificate
BIS Licence For Potable Water Supply i.e. IS -
4985/2000
BIS Licence For Tube wells i.e. IS - 12818/1992
BIS Licence for PVC Conduits For Electrical
Installation i.e. IS - 9537 Part 3/1983
BIS Licence For HDPE Pipes i.e. IS - 4984/1988
BIS Licence For SWR Pipes i.e. IS - 13592
BIS Licence For Sprinkler Pipes (Pat I & II) i.e. IS -
14151
BIS Licence For Suction Hose i.e. IS – 15265
BIS Licence For AGRICULTURE SPRINKLER SYSTEMS i.e. IS – 12786
B.S.N.L QA Type Approval Certificate For PLB HDPE Pipes As Per Tele
Communication Specification Registered With M.T.N.L ISO-Certification 9001-
2000
Approval Certificate from M.T.N.L., B.S.N.L., V.S.N.L., B.E.S.T., IDEA,
RELIANCE.

ORGANISATION CHART

12
ASST.
SALES
ASST
BANKBANK
S/W
CHIEF
ACCOU
SENIOUR
CASH
COMPUT
ACCOUNT
ACCOUNT
MANAGERA/C
. TAX
H/WTAX FINANCIAL
INCHARGE
INCHARGE
INCHARGE
MANAGER
MANAGER
NTS
ERS
ASST... OFFICER
MANAGER
ASST
ASST
FINANCE

13
INDUSTRY PROFILE

- OVERVIEW
- SWOT ANALYSIS

14
 Industry Overview

Indian pipe industry with presence across all categories of pipes viz. steel pipes,
cement pipes and polyvinyl chloride (PVC) pipes is among top three manufacturing hubs
after Japan and Europe. India is also becoming a major export hub to the countries like
USA, Europe and Middle East.
Pipes are essential for transporting fluids like oil water etc. across the country
.pipe transportation is economical mode of transport. It helps in saving scare natural energy
resources and time taken for transportation.
The 2008-09 financial crisis had a limited impact on the Indian pipe industry
affecting new oil and gas exploration and production (E&P) projects worldwide due to fall
in global commodity prices including crude oil resulting into reduced orders. With the
worst of the financial crisis behind us, we remain optimistic regarding the potential
demand for the pipe sector. The E&P projects which were earlier stalled or revoked are
being given a new lease of life based on the inevitable rise in crude oil prices. Replacement
demand from developed nations remains ever so strong while domestic demand from the
oil and gas sector is robust. Also, with the pipeline network of India for oil & gas transport
being lower at 17,576 kms as on April 2009, (32% penetration level) it represents a huge
scope for growth for the pipe industry.
As most of the Indian pipe manufacturers are converters, the industry is highly
Raw Material (RM) intensive with the RM cost accounting for more than 70-80% of the
total cost for steel and PVC pipe companies. These companies rely heavily on imports and
hence many steel pipe companies have backward integration facilities to reduce
dependency on imports and price volatility. Freight cost is another key cost component due
to higher imports and exports. With the expected short-term increase in commodity prices
and range-bound Baltic Dry Index (a barometer for shipping freight rates), pipe companies
will be benefited in the coming quarters as customers will try to place advance orders at
attractive rates.
Indian companies produce a wide range of steel, cement and plastic pipes which
are used in various critical and non-critical applications. Indian steel pipe manufacturing
companies have won several certifications and accreditations from major oil & gas
companies across the globe in the recent past. With the low-cost and high-quality products
supplemented by various international certifications, Indian companies have augmented
their export sales over the last three to four years.
CARE Research expects the positive trend in the Indian pipe industry to continue
for the next 3-5 years on the back of higher E&P activities due to resurgence in crude oil
price, increased efforts by the Government of India (GoI) on infrastructure development
for laying pipelines for oil & natural gas transport (e.g. the National Gas Grid project),
replacement demand from North America and European countries, water & sewage
transport and irrigation facilities. The growth will mainly be driven by steel pipes
especially SAW pipes. The order-book position (currently equivalent to total of FY09
sales) of many steel pipe companies is sufficient for the next 9-12 months.
Demand triggers for the growth are:

15
 • Private players like Reliance Industries Limited (RIL), Cairn India etc have shown
interest in setting up pipe infrastructure for oil & gas distribution. National gas grid
will also be set up requiring an investment of Rs.210 bn.
• City gas pipe is currently available in 10 cities and the coverage is expected to
grow to 40 cities in the next five years, entailing an investment of Rs. 250-300 bn.
• In addition to the above, the replacement demand from the US and European
countries, having a vast pipeline infrastructure, will be huge.
• The GoI in its efforts to reduce crude imports has formulated the New Exploration
Licensing Policy (NELP) for exploration and production of oil & gas. The GoI has
awarded 256 blocks till date and the number is set to increase to 330 by 2010.
• For the Eleventh Five Year Plan, the GoI is aiming to add 11 mn hectares of
irrigational facilities, entailing an investment of Rs.1,580 bn.

SWOT analysis of Indian Pipe Industry

Strengths
➢ Cheapest mode of transport for liquid and gases
➢ Globally cost competitive
➢ With proper installation, pipes have very long useful life
➢ Available in various types and sizes to meet specific end user needs.
➢ Indian companies have won accreditation from major oil and gas
companies.
➢ Strong order book position for pipe companies.
Opportunities
➢ Low pipe line penetration in India compared to developed nations
➢ GoI thurst on infrastructure development and water supply
➢ Oil and gas transport projects
➢ City gas pipelines project
➢ Ageing pipelines need replacement
➢ Higher export market due to proximity to middle east which account for 14% of
global planned projects as per Simdex data.
Weaknesses
➢ Working capital intensive industry higher dependency on government
spending and by oil & gas companies
➢ Large number of unorganized players in certain type of pipes

Threats
➢ Foreign exchange risk due to high import an export
➢ Slow down in world economy to reduce demand for oil and gas
➢ Adverse change in GoI regulations.
➢ RM being a key cost component, the industry is sensitive to
fluctuation in RM prices.

OBJECTIVES

16
• To make comparative study of financial statements of different years.
• To study various ratios to determine the relationship of different factors which have
impact on the financial position of the company.
• To identify the financial strengths and weakness of the company
• To find out the reasons for unsatisfactory results.
• Evaluating company’s performance relating to Financial Statement Analysis.
• To analyze the Cash Flow Statement, and know the cash management of the company.
• To analyze the working Capital Management, to know how company manages the cash
for day to day requirement, inventory, debtors, creditors etc.

SCOPE OF THE PROJECT

The project is carried out to evaluate the performance of a firm, compare its current
ratios with the past ratios and to do the trend analysis, so as to get an indication of the
direction of change and reflects whether the firm s financial performance has improved or
deteriorated or remained same over time. The analysis is not only done to determine the
change, but more importantly to understand why ratios have changed. The change may be
affected by changes in the accounting polices without material change in the firm s
performance.

The scope of study is limited to the information made available by Texmo Pipes and
Products Ltd. that is profit & loss account &balance sheet.

The period selected for study for study is 3 years as follows:

1) March 2008
2) March 2009
3) March 2010

17
THEORETICAL BACKGROUND

Financial Statement Analysis

Introduction:

A Financial Statement is a compilation of data, which is logically and consistently

organized according to accounting principles. Its purpose is to convey an understanding of

18
some financial aspects of a business firm. It shows a position at a movement in time, as in
the case of balance sheet, or reveals a series of activities over a given period of time, as in
the case of an income statement. Financial statements are the major means through which
firms present their financial situation to stock holders, creditors and general public .The
majority of firms which include extensive financial statements in their annual reports,
which receive wide distribution.

Nature of financial statement Analysis:

Financial Statement Analysis consist of the application of analytical tools and

techniques to the data in financial statements in order to derive from them measurements
and relationships that are significant and useful for decision making. The process of
financial analysis can be described in various ways, depending on the objectives to be
obtained. Financial analysis can be used as a preliminary screening tool in the selection of
stocks in the secondary market. It can be used as a forecasting tool for future financial
conditions and results. It may be used as a process of evaluation and diagnosis of
managerial, operating or other problem areas. Above all, financial analysis reduces reliance
on intuition, guesses and thus narrows the areas of uncertainty that is present in all decision
making processes. Financial analysis does not lesson the need for judgment but rather
establishes a sound and systematic basis for its rational application.

Sources of Financial Information:

The financial data needed in financial analysis come from many sources. The
primary source is the data provided by the firm itself in its annual report and required
disclosures. The annual report comprises the income statement, the balance sheet, and the
statement of cash flows, as well as footnote to these statements. Besides this information
such as the market price of securities publicly traded corporations can be found in the
financial press and the electronic media daily. The financial press also provides
information to stock price indices for industries and for market as a whole.

History of financial Analysis

Analysis of financial statements has had its greatest growth since 1990 s. A major
impetus came from increasing need from increasing need on the part of grantors of credit
such as bankers, financial institutions etc, to understand the condition of their customer. At
the same time businessman need to understand their own conditions of their own enterprise
in order to assure its survival in stress of competition. Satisfaction of these needs has been
assisted by the continuous development of accounting as a science and passing of income
tax law in1993. This required preparation of balance sheets and income statements, as they
19
are the basic statements required for the income tax purpose. Thus a reasonably reliable
data from which typical financial ratios could be calculated has become increasingly
available. Between 1919 and 1929 four men pioneered in development of financial
ratios.These where James bliss who published a book on this subject in 1923. Alexander
wall, head of Robert Morris associates and Raymond W Dunning, published a work on this
subject in1928 and Roy Foulke, who made some of the first detailed compilations and
studies between 1925 and 1928.

Conceptual Framework of Ratio Analysis

Financial ratios are always fascinating because they convey the impression of precision in
analyzing the financial position of the company. Financial ratios are only tools of analysis.
However their effectiveness depends upon the know how of using them for specific
purpose. The ratio is relationship between two variables. Any number of relationships that
is ratio can construct provided we first identify the variables to be studied. Therefore there
is nothing like standard set of ratios which can be used at any time for any purpose. New
ratio can be developed specifically for the purpose or the mechanics of constructing the
given ratio can be suitably adjusted to suit the purpose. Intact a resourceful financial
analyst can develop novel and fascinating ratios which can serve his purpose better than
the pedestrian stock. Having established the point that ratios should be constructed and
used keeping in view the purpose, we shall examine generally the purpose for which the
ratio analysis could be employed. Ratios are used as tools of ppraising financial
performance of the company. There two distinct viewpoints in such analysis; the
managements viewpoint and the investors viewpoint. The interests of both these groups are
not mutually exclusive; they are complimentary to each other. Both these groups are
interested in key areas that compromise the financial performance of the company.

Users of Accounting Information

The list of categories of readers and users of accounts includes the following people
and groups of people:
• Investors Financial analysts
Lenders Environmental group
• Managers of the organization Research : both academic and professional
• Employees
• Suppliers and other trade creditors
• Customers
• Governments and their agencies
• Public
IMPACT OF OTHER DISCIPLINES ON FINANCE IN DIGRAMATIC FORM:-

RESEARCH METHODOLOGY

20
Research: Introduction
Research is a purposive investigation of hypothetical propositions.
Research as a process involves defining and redefining problems, hypothesis formulation,
organizing and evaluating data, deriving deductions, inferences and conclusion, after
careful testing.

Research: Definition
“Research concerns itself with obtaining information empirical observation that can used to
systematically develop logically related propositions so as to attempt to establish casual
relationship among variables.”
-Black and Champion

The method used in this project is:-

Primary Data:

Data obtained first hand by the researcher in called as primary data. Primary data related to
the project was collected from the discussion and interaction with the senior employees and
executives in the organization from Accounts and Finance department.

Secondary Data:

The secondary data is readily available and compiled data from statistical statement reports
etc. The data can be obtained from either published or non published sources as
Newspapers, News Letters, Web-Sites and Magazines.

Sources of Data Collection in this Project

• Company’s financial statements.

➢ Balance sheet
➢ Profit and loss statement
• Newspapers and Journals.
➢ Company prospectus
• Internet.

METHODOLOGY FOR ANALYSIS

The methodology opted for carrying out project was by way of collection of data
from the company s annual reports for the past three years i.e. from 2007-2008 to 2009-
2010, for the calculation of ratios. The theory related to ratios was gathered from various
financial management books, which served the purpose of calculation and analysis of
ratios. Further based on the above statements ratios related to liquidity, turnover, solvency,
21
profitability and over profitability groups and miscellaneous groups have been calculated
and interpreted in an intra firm comparison method. Similarly the ratios have been
presented in graphical format to have clear understanding of it during three financial years
and changes in it.

22
DATA ANALYSIS AND INTERPRETATION
- RATIO ANALYSIS
- DU-PONT ANALYSIS
- LEVERAGES
- CASH FLOW STATEMENT
- WORKING CAPITAL
- BREAK-EVEN ANALYSIS

Summary of Literature

Ratio Analysis

Introduction:

Ratio analysis is a powerful tool of financial analysis. A ratio analysis is defined as the
indicated quotient of two mathematical expressions and as the relationship between two or
more things. In financial analysis, a ratio is used as an index or yardstick for figures
reported in the financial statements do not provide a meaningful understanding of the

23
performance and financial position of the firm. An accounting figure conveys meaning
when it is a related to some other relevant information. The relationship between two
accounting figures expressed mathematically is known as a financial data and to make a
qualitative judgment about the firm s financial performance.

Standard of Comparison:

The ratio analysis involves comparison for a useful interpretation of the financial
statements. A single ratio in itself does not indicate favorable or unfavorable condition. It
should be compared with some standard. Standard of comparison may consist of:

• Ratios calculated from the past financial statements of the same firm.
• Ratios developed using the projected or pro forma, financial statements of the same
firm.
• Ratios of some selected similar companies, especially the most progressive and
successful at the same point in time.
• Ratios of the industry to which firms belongs.

To evaluate the performance of a firm, compare its current ratios with the past
ratios. When financial ratios over a period of time are compared, it is known as time series
or trend analysis. It gives an indication of the direction of change and reflects whether the
firm s financial performance has improved or deteriorated or remained same over time.
The analyst should not simply determine the change, but more importantly he should
understand why ratios have changed. The change may be affected by changes in the
accounting polices without material change in the firm s performance.
Sometimes future ratios are used as the standard of comparison. Future ratios can
be developed from the projected or Performa financial statements. The comparison of past
ratios with future shows the firms relative strength and weaknesses in the past corrective
actions should be initiated. Another way of comparison is to compare ratios of one firm
with some selected firm in the same industry at the same point in time. This kind of
comparison is known as the cross sectional analysis. In most cases it is more useful to
compare the firm s ratios of carefully selected competitor, which have similar operations.
This kind of comparison indicates the relative financial position and performance of the
firm. A firm can easily resort to such a comparison, as it is not difficult to get the published
financial statements of similar firms.
To determine the financial condition and performance of a firm, its ratios may be
compared with average ratios of industry to which the firm belongs. This sort of analysis,
known as the industry analysis helps to ascertain the financial standing and capability of
the firm in the industry to which it belongs. Industry ratios are important standards in view
of the fact that each industry has its characteristics, which influence the financial and
operating relationships. But there are certain practical difficulties in using the industry
ratios. First it is difficult to get average ratios for the industries. Second, even if industry
ratios are available, they are the averages of the strong and weak firms. Sometimes spread
may be so wide that the average may be little utility. Third, the average may be
meaningless and the comparison futile if the firms with in the same industry widely differ

24
in their accounting policies and practices. If it is possible to standardize the accounting
data for companies in the industry and eliminate extremely strong and extremely weak
firms. The industry ratios will prove to be very useful in evaluating the relative financial
condition and performance of the firm.

Ratios are generally expressed in various forms. They are:

a) Pure ratios which are arrived at by the simple division of one number by other e.g.
Current assets to current Liabilities ratio are 2:1.
b) Rate, which is the ratio between two numerical facts usually over a period of time e.g.
stock turnover, is three times a year.
c) Percentage, which is special type of rate expressing the relation in hundredth e.g.
gross profit, is 25% on sales.
d) Ratio analysis when rightly used offers the following advantages:

i. It facilitates the compression of financial statements and evaluation of several

aspects such as financial health, profitability and operational efficiency of the
undertaking.
ii. It provides inter firm comparison to measure the efficiency and help the
management to take remedial measures.
iii. It is also helpful in forecasting corporate sickness and help the management to
take corrective actions.
iv. Trend analysis with the help of ratios help in planning and forecasting. It helps
in investment decision in the case of investors and lending decisions in the
case of bankers and financial institutions.

Uses of ratio analysis:-

➢ It helps to understand the efficiency and performance of the firm as a whole.
➢ Its main purpose is to gain insights into the operating and financial problems
confronting the firm.
➢ It helps to identify the trouble or potential trouble spots of the firm. This would
impel the management to investigate those areas more thoroughly.
➢ It helps to pinpoint relationship that is not obvious from the financial
statements.
➢ It helps to highlight the factors responsible for the present state of financial
statements.
➢ It helps the shareholders in evaluating the firm’s activities and policies that
affect the profitability, liquidity and ultimately the market price of the shares
➢ It helps to examine the adequacy of funds, the solvency of the firm and its
ability to meet the financial obligations as and when they become due.
➢ It is very useful in inter-firm and intra-firm analysis.
25
 ➢ A trend can be established by calculating ratios for number of years.

Limitations of ratio analysis:-

➢ There may be a difference between the inventory methods followed by various
firms or different method in the same firm.
➢ Firms follow various methods of depreciation.
➢ There may be a difference between the capital structures of the firms.
➢ Window dressing, which means artificially improving the financial statements
is another major drawback
➢ Inflationary factors are not taken into consideration. Thus when the past
performance is analyzed, the figures may have become outdated.

The categories of the ratios used in the analysis are:

1. Profitability: has the business made a good profit compared to its turnover?
2. Return Ratios: compared 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. Asset Usage or Activity: how has the business used its fixed and current assets?
5. Gearing: does the company have a lot of debt or is it financed mainly by shares?

Classification of ratios:-

➢ LIQUIDITY RATIOS:-

The importance of adequate liquidity is the ability of a firm

to meet current or short term obligations when they become due for payment can
hardly be overstressed. Liquidity is the prerequisite for the survival of the firm.
A proper balance between the two contradictory requirements, that is, liquidity
and profitability, is required for efficient financial management. Liquidity ratios
indicate the financial strength or solvency of a firm.

26
 ➢ PROFITABILTY RATIOS:-

The creditors, shareholders and management are eager to

measure its efficiency and financial soundness. The shareholders invest their
funds in the expectation of reasonable returns. The profitability ratios can be
determined on the basis of either sales or investments

➢ ACTIVITY RATIOS:-

Activity ratios are concerned with measuring the efficiency in asset

management. The efficiency with which the assets are used would be reflected in the speed
and rapidity with which the assets are converted into sales. The greater the rate of
conversion, the more efficient is the utilization of assets, other things being equal.

➢ MARKET VALUE RATIOS:-

Market Value ratios are those ratios which are measured by

using market value of the shares. This ratio is calculated to know the returns the
shareholders as compared to the amount invested in market value of the shares.

➢ CAPITAL STRUCUTRE:-

The long term lenders would judge the soundness of a

firm on the basis of the long term financial strength measured in terms of its
ability to pay the interest regularly as well as repay the installment of the
principal on due dates. The long term solvency is examined by the capital
structure ratio.

These ratios are further divided into:-

27
➢ LIQUIDITY RATIOS:-

1> Liquidity ratios

CURRENT RATIO :-
PROFIT
CURRENT ASSETS
RATIOS
• CUR R E NT R ATIO
CURRENT RATIO = -----------------------------
CURRENT LIABILITIES
• GROSS
YEAR
• AC ID 2190.66
CURRENT ASSETS, TEST
2008
RATIO
2009
3015.89
2010
9424.58
LOANS AND ADVANCES • NET PR
• PR OPR
CURRENT LIABILITIES
AND PROVISION IETA RY448.04
508.05
R ATIO 874.04

CURRENT RATIO 4.31 6.73

• OPE R A
10.78

• CUR R E NT ASSE TTS

• OPE R A
Rs. In lakhs

TO FIX E D A SSETS 28

• R E TUR
INFERENCE:-
This ratio indicates the solvency of the company. It shows the proportion
of current assets to current liabilities. Normally, it is expected that current ratio should be
2: 1, which indicates that current assets should be twice as compared to current liabilities.
As the current ratio exceed than the ideal ratio which shows that the company maintain
excess amount of liquidity. Which is due to the idle cash that is not deployed and it is not
favorable for the firm.

2> ACID TEST RATIO :-

QUICK ASSETS
ACID TEST RATIO = ----------------------------
QUICK LIABILITIES

YEAR 2008 2009 2010

QUICK ASSETS 1738.72 1755-33 6821.28

QUICK LIABILITIES 508.05 448.04 874.04

ACID TEST RATIO 3.42 3.91 7.80

Rs. In lakhs

INFERENCE:-
This ratio indicates the proportion of quick assets to quick liabilities. The ideal
Acid Test Ratio should be 1:1 which means that the quick assets should be equal to quick
liabilities. But in the above chart it shows that the ratio is much higher than the ideal ratio
29
which shows that the company is not taking benefit of the credit limit allowed by the
creditors.

3. PROPREITORY RATIOS :-

TOTAL ASSETS
PROPREITORY RATIO= ------------------------------------
PROPREITORY FUNDS

YEAR 2008 2009 2010

TOTAL ASSETS 2425.71 3595.98 10109.07
PROPREITORY FUNDS 941.21 1285.50 5547.02
PROPRITORY RATIO 2.57 2.79 1.82

Rs. In lakhs

INFERENCE:-
This ratio indicates the proportion of proprietors funds used for financing
the total assets. Ideally 2/3rd of assets should be financed through proprietors’ funds while
balance should be financed through borrowed funds. In 2010 the ratio is favorable but
in,2008,2009 the ratio is quite high hence the firm was not using external funds adequately.

2> CURRENT ASSETS TO FIXED ASSETS :-

CURRENT ASSETS
CURRENT ASSETS TO FIXED ASSETS = -----------------------------
FIXED ASSETS
30
 YEAR 2008 2009 2010

CURRENT ASSETS 1812.74 2484.5 5485.71

FIXED ASSETS 233.47 945.41 1551.59

RATIO 7.76 2.62 3.53

Rs. In lakhs

INFERENCE:-
This ratio indicates the proportion of current assets to fixed assets. Current
assets are held for short-term purpose while fixed assets are held for long-term purpose. In
firm current assets are more than fixed assets.

➢ PROFITABILITY RATIOS :-

1> GROSS PROFIT RATIO :-

GROSS PROFIT
GROSS PROFIT RATIO = ------------------------ x 100
NET SALES

Rs. In lakhs

31
 YEAR 2008 2009 20010
GROSS PROFIT 1085.09 1091.09 1196.97
NET SALES 5743.03 6141.42 7619.42
GROSS PROFIT 18.89 17.76 15.71
RATIO[%]

INFERENCE:-
This ratio shows the margin left after meeting the purchase and
manufacturing costs. It measures the efficiency of production as well as pricing. A high
gross profit ratio means a high margin for covering other expenses like administrative,
selling and distribution expenses. Gross profit ratio is showing the downward trend in 2009
and 2010 which should be increased so as to meet other selling, administrative and
distribution expenses

2> NET PROFIT RATIO:-

NET PROFIT
NET PROFIT RATIO = -------------------- x 100
NET SALES

YEAR 2008 2009 2010

NET PROFIT 577.17 641.02 626.03

NET SALES 5743.03 6141.42 7619.42

NET PROFIT 10.05 10.43 8.21

RATIO[%]
Rs. In lakhs

INFERENCE:-

32
 This ratio shows the earnings left for share-holders as percentage of net
sales. It measures the overall efficiency of all the functions of business firm like
production, administrative, selling, financing, pricing, tax management etc. Higher the
ratio the better it is because it gives an idea of overall efficiency of the firm. As we see the
ratio is decreasing in the year 2010 which is not favorable for the company and should be
increased.

3> OPERATING NET PROFIT RATIO :-

OPERATING NET PROFIT

OPERATING NET PROFIT RATIO = ------------------------------------- x 100
SALES

Rs in lakhs
YEAR 2008 2009 2010

OPERATING NET 607.32 709.64 707.87

PROFIT
SALES 5743.03 6141.05 7619.42
OPERATING NET 10.57 11.46 9.29
PROFIT RATIO[%]

INFERENCE:-
This ratio establishes the relationship between the net sales and the
operating net profit. Operating net profit is the profit arising out of business operations
only. Higher the ratio the better it is because it gives an idea of overall efficiency of the
firm. In 2009 the ratio is high but in 2010 it should be increased to increase the
profitability.

4> OPERATING RATIO:-

COST OF GOODS SOLD+OPERATING EXPENSES

OPERATING RATIO = ------------------------------------------------------------------ x 100
NET SALES
33
 Rs. In lakhs
YEAR 2008 2009 2010

COST OF GOODS SOLD 4657.23 5050.33 6422.45

OPERATING EXPENSES 478.48 381.45 489.10

NET SALES 5743.03 6141.05 7619.42

OPERATING RATIO 89.42 88.44 90.70

INFERENCE:-
This ratio indicates the proportion of cost of goods sold and operating
expenses to net sales. The higher the ratio lower margin is left for operating profit hence
the ratio should be low. In the above chart the expenses are more than 60% which reduces
the profitability hence it should be reduced.

5> RETURN ON CAPITAL EMPLOYED:-

EBIT
RETURN ON CAPITAL EMPLOYED = ----------------------------- x 100
CAPITAL EMPLOYED

Rs. In lakhs
YEAR 2008 2009 2010

EBIT 577.17 641.03 626.03

CAPITAL 1917.62 3571.5 10058.12

EMPLOYED
RETURN ON 30.09 17.95 6.22
CAPITAL EMPL.[%]

34
INFERENCE:-
This ratio indicates the percentage of earnings before interest and tax to
total capital employed. This ratio is considered to be very important because it reflects the
overall efficiency with which capital is used. This ratio is highest in 2008 as compared to
other years and it shows a downfall in 2009 as well as 2010 as company has issued shares
in this year and invested fresh capital which might give good return in coming years.

NOTE: EBIT - EARNINGS BEFORE INTEREST & TAXES.

6> RETURN ON EQUITY :-

SHARE-HOLDERS EARNINGS
RETURN ON EQUITY = --------------------------------------------- x 100
EQUITY SHARE-HOLDERS FUNDS

YEAR 2008 2009 2010

OWNERS EARNINGS 483.31 479.48 400.93

EQUITY SHARE HOLDERS 941.21 1285.5 5547.02
FUNDS
RETURN ON EQUITY[%] 51.34 37.29 7.21

Rs. In lakhs

INFERENCE:-
This ratio indicates the productivity of the owned funds employed in the
firm. It shows the percentage of net profit available for share-holders. In the above chart it
shows a downward trend which is not favorable for company and share-holders as it
decreases the earnings of share-holders. Hence it should be increased. This decrease is due

35
 to the reason as the profit of the firm has not increased in the proportion of capital
employed, and might give good return in upcoming years.

7.> RETURN ON TOTAL ASSETS:-

NET PROFIT AFTER TAX

RETURN ON TOTAL ASSETS = -------------------------------------- x 100
TOTAL ASSETS

Rs. In lakhs
YEAR 2008 2009 2010

NPAT 483.31 479.48 400.93

TOTAL ASSETS 2425.71 3595.98 10109.07

RETURN ON 19.92 13.32 3.96
TOTAL
ASSETS[%]

INFERENCE:-
Returns on assets crudely reflect how well the firm uses its assets in total.
The higher the ratio is favorable as it indicates that the firm is utilizing its assets profitably.
In the above chart the ratio high in year 2008 and start decreasing after that which is not
favorable for the company hence it should be increased. In 2010 the assets are not
generating good return as they are not employed completely.

8> RETURN ON NETWORTH:-

NET PROFIT AFTER TAX

RETURN ON NETWORTH = ------------------------------------
NET - WORTH
36
YEAR 2008 2009 2010

NPAT 483.31 479.48 400.93

NET WORTH 941.21 1285.50 5547.02

RETURN ON 51.34 37.29 7.22

CAPITAL
EMPLOYED[%]

Rs. In lakhs.

INFERENCE:-
This ratio indicates the productivity of the owned funds employed in the firm.
It shows the percentage of net profit after tax available for share-holders which also
includes the net worth of the company. In the above chart it shows a downward trend
which is not favorable for company and share-holders as it decreases the earnings of share-
holders. Hence it should be increased.

9> EARNINGS PER SHARE:-

OWNERS EARNINGS
EARNINGS PER SHARE = -----------------------------------
NO. OF EQUITY SHARES

Rs. In lakhs

YEAR 2008 2009 2010

OWNERS EARNINGS 483.31 479.48 400.93

NO. OF EQUITY SHARES 9412190 6270000 11270000

37
 EARNING PER SHARE RS. 5.13 7.64 3.55

INFERENCE:-
This ratio is an important indicator of performance of the company. It
indicates the amount of profit available for distribution amongst the equity shareholders.
This ratio should be higher as return to increases. Market price of the company’s shares is
directly proportional to earnings per share of the company. In the above chart it shows a
downward trend in 2010 hence it should be increased.

➢ ACTIVITY RATIO:-

1> WORKING CAPITAL TURNOVER RATIO:-

NET SALES
WORKING CAPITAL TURNOVER RATIO = ---------------------------------------
NET WORKING CAPITAL

Rs. In lakhs

YEAR 2008 2009 2010

NET SALES 5743.03 6141.42 7619.42

NET WORKING CAPITAL 1684.15 2567.85 8550.54

WORKING CAPITAL TURNOVER 3.41 2.39 0.89

RATIO

INFERENCE:-
This ratio compares the net sales with the net working capital of the business
firm. This ratio indicates number of times working capital is turned around a particular
period. The higher the ratio, the better is utilization of the working capital and also
indication of lower working capital. However a very high ratio is a sign of over trading and
38
a firm may face shortage of working capital. In the above chart it shows a downward trend
hence it is not favorable for the firm.

NOTE: - NET WORKING CAPITAL=CURRENT ASSETS – CURRENT LIABILITIES

2> DEBTORS TURNOVER RATIO:-

CREDIT SALES
DEBTORS TURNOVER RATIO = -----------------------------------------
AVERAGE ACCOUNTS RECEIVABLE

YEAR 2008 2009 2010

CREDIT SALES 5743.02 6141.05 7619.42

AVERAGE DEBTORS 1291.62 1181.92 1192.13

DEBTORS TURNOVER 4.44 5.19 6.39

RATIO

Rs. In lakhs

NOTE: -

AVERAGE ACCOUNTS RECEIVABLE =

OPENING DEBTORS, BILLS RECEIVABLE + CLOSING DEBTORS, BILLS

RECEIVABLE
2

DEBTORS COLLECTION PERIOD:-

365 DAYS
DEBTORS COLLECTION PERIOD = -------------------------------------
DEBTORS TURNOVER RATIO 39
 Rs. In lakhs

YEAR 2008 2009 2010

DAYS 365 365 365

DEBTORS TURNOVER RATIO 4.44 5.19 6.39

DEBTORS COLLECTION 82 70 57
PERIOD(DAYS)

INFERENCE:-
This ratio indicates the efficiency of the firm in collecting its receivables
from its customers to whom the firm has sold on credit. It also indicates how quickly the
debtors are turned into cash. The higher the ratio lower is the collection period, on the
other and lower the ratio higher will be the collection period. In the above charts the debtor
turnover ratio should be increased further so as to reduce the collection period.

3> CREDITORS TURNOVER RATIO: -

CREDIT PURCHASES
CREDITORS TURNOVER RATIO = --------------------------------------------
AVERAGE ACCOUNTS PAYABLE

Rs. In lakhs

40
 YEAR 2008 2009 2010

CREDIT PURCHASES 4467.70 4722.46 6018.63

AVERAGE CREDITORS 286.93 266.35 379.27

CREDITORS TURNOVER 15.57 17.65 15.82

RATIO

NOTE: -

AVERAGE ACCOUNTS PAYABLE =

OPENING CREDITORS, BILLS PAYABLE +CLOSING CREDITORS, BILLS PAYABLE

CREDITORS PAYMENT PERIOD:-

365 DAYS
CREDITORS PAYMENT PERIOD = --------------------------------------------
CREDITORS TURNOVER RATIO

Rs. In lakhs

YEAR 2008 2009 2010

DAYS 365 365 365

CREDITORS TURNOVER RATIO 15.57 17.65 15.82
CREDITORS PAYMENT PERIOD 23 20 23

INFERENCE:-
The Creditors Turnover Ratio indicates the credit period allowed by the
creditors to the firm. A high turnover ratio indicates that the payment to the creditors is
quite prompt but it also implies that the firm is not taking full advantage of the credit
allowed by the creditors. A lower ratio indicates that there is not much promptness in
41
 payment made to creditors and needs to be improved. In the above charts creditors
turnover ratio is very high and creditors payment period is very low which shows that the
firm is not utilizing the credit limit allowed to firm, which is favorable for the firm.

4> INVENTORY TURNOVER RATIO :-

COST OF GOODS SOLD

INVENTORY TURNOVER RATIO = -----------------------------------
AVERAGE INVENTORY

NOTE: -

AVERAGE INVENTORY =

OPENING INVENTORY + CLOSING INVENTORY

---------------------------------------------------------------------
2
Rs. In lakhs

YEAR 2008 2009 2010

COST OF GOODS SOLD 4657.23 5050.33 6422.45

AVERAGE INVENTORY 451.94 856.25 1931.93

INVENTORY TURNOVER RATIO 10.30 5.90 3.32

INVENTORY HOLDING PERIOD:-

365 DAYS
INVENTORY HOLDING PERIOD = ------------------------------------------
INVENTORY TURNOVER RATIO
42
 Rs. In lakhs

YEAR 2008 2009 2010

DAYS 365 365 365

IVENTORY TURNOVER RATIO 10.30 5.90 3.32

INVENTORY HOLDING PERIOD 35 61 109

INFERENCE:-
This ratio establishes the relationship between the cost of goods sold during
a given period and the average amount of inventory held during that period. The higher
ratio is better as it shows the rapid turnover of stock and consequently shorter holding
period, on the other hand if the ratio is lower indicate that the stock is slow moving and
there is longer holding period. In the above chart inventory turnover ratio is showing a
downward trend, hence it should be increased to reduce the holding period.

5.> FIXED ASSETS TURNOVER RATIO:-

NET SALES
FIXED ASSETS TURNOVER RATIO = -----------------------------
NET FIXED ASSETS

Rs. In lakhs

YEAR 2008 2009 2010

NET SALES 5743.03 6141.05 7619.42

NET FIXED ASSETS 233.47 945.41 1551.59

FIXED ASSETS 24.59 6.49 4.91

43
TURNOVER RATIO

NOTE: - NET FIXED ASSETS= COST OF ASSETS – DEPRECIATION

INFERENCE:-
This ratio indicates the amount of sales realized per rupee of investment in
fixed assets. This ratio is more important in manufacturing concerns, as it indicates the
utilization of fixed assets. The higher the ratio higher will be the amount of sales generated
per rupee of investment in fixed assets. In the above chart it is showing the downward
trend so it is advisable to the firm to increase the ratio, which will result in higher amount
of turnover.

5> SALES TO CAPITAL EMPLOYED :-

NET SALES
SALES TO CAPITAL EMPLOYED = -------------------------------
CAPITAL EMPLOYED

Rs. In lakhs

YEAR 2008 2009 2010

NET SALES 5743.03 6141.05 7619.42

CAPITAL EMPLOYED 1917.62 3571.5 10058.12

RATIO 2.99 1.71 0.75

INFERENCE:-
It indicates the frequency with which sales are generated in relation to
capital employed. Higher the ratio, the better it is as it will indicate better utilization of

44
 capital employed, which will result in higher amount of turnover. In the above chart the
ratio is continuously showing downward slope which should be increased.
NOTE: -NET SALES= TOTAL SALES – RETURN INWARD

CAPITAL EMPLOYED = SHARE HOLDERS FUNDS + LONG TERM LIABILITY

6> TOTAL ASSETS TURNOVER RATIO:-

SALES
TOTAL ASSETS TURNOVER RATIO = --------------------
TOTAL ASSETS

Rs. In lakhs

YEAR 2008 2009 2010

SALES 6623.86 6931.79 8213.79

TOTAL ASSETS 2425.71 3595.98 10109.07

RATIO 2.73 1.92 0.81

INFERENCE:-
This ratio indicates the amount of sales realized per rupee of investment in
total assets. This ratio is more important in manufacturing concerns, as it indicates the
utilization of total assets. The higher the ratio higher will be the amount of sales generated
per rupee of investment in assets. In the above chart it is advisable to the firm to increase
the ratio, which will result in higher amount of turnover.

➢ CAPITAL STRUCTURE RATIOS:-

1> CAPITAL GEARING RATIO:-

FIXED CHARGES BEARING SECURITIES

45
CAPITAL GEARING RATIO = -----------------------------------------------------
EQUITY SHAREHOLDERS FUNDS
 Rs. In lakhs

YEAR 2008 2009 2010

LOAN FUNDS 976.41 2286.01 4511.11

EQUITY SHAREHOLDERS FUNDS 941.21 627.00 1127.00

CAPITAL GEARING RATIO 1.03 3.64 4.00

INFERENCE:-
This ratio indicates the proportion between fixed charge bearing securities
and equity capital. A firm raises finance through owned funds and borrowed funds. A firm
will be considered to be highly geared, if the major portion of total capital is raised through
fixed charges bearing securities. In the above chart the ratio is showing the increasing
trend which shows that firm is utilizing external funds in better way.

2> DEBT-EQUITY RATIO:-

LONG-TERM DEBT
DEBT-EQUITY RATIO = ---------------------------------
SHARE-HOLDERS FUNDS

YEAR 2008 2009 2010

LONG-TERM DEBT 976.41 2286.00 4511.1

SHARE-HOLDERS FUNDS 941.21 1285.21 5547.02

DEBT-EQUITY RATIO 1.03 1.77 0.81

Rs. In lakhs

46
 INFERENCE:-
This ratio indicates the proportion of borrowed funds to proprietor’s
funds. Ideally this ratio should be 2:1 which means that the debt should be twice the owned
capital, if it is less than 2:1 will indicate that firm is not taking any risk. As Debt Equity
Ratio is less than the ideal ratio hence it is advisable to increase this ratio to be in a more
favourable position.

3> INTEREST COVERAGE RATIO :-

EARNINGS BEFORE INTEREST & TAXES

INTEREST COVERAGE RATIO = ---------------------------------------------------
INTEREST

YEAR 2008 2009 2010

EBIT 577.17 641.03 626.03

INTEREST 85.32 187.29 296.72
RATIO 6.76 3.42 2.10
Rs. In lakhs

INFERENCE:-
This ratio measures how ably the firm can meet its interest obligations. It
describes how well and how easily the firm can service its debt. The higher the ratio the
better is the ability of the firm to discharge its interest expense. In the above chart it shows
a downward trend, hence should be improved.

47
 DU-PONT ANALYSIS
A method of performance measurement that was started by the DuPont Corporation of
USA in the 1920s, and has been used by them ever since. With this method, assets are
measured at their gross book value rather than at net book value in order to produce a
higher Return on Investment (ROI). It is system of financial analysis, which has received
very good recognition and acceptance world-wide. DuPont analysis helps locate the part of
the business that is underperforming. DuPont analysis tells us that ROE is affected by three
things:-
➢ Operating efficiency, this is measured by profit margin.
➢ Asset use efficiency, which is measured by total asset turnover.
➢ Financial leverage, which is measured by the equity multiplier.
The higher the result the higher will be the return on equity.
Du-Pont analysis divides a particular ratio into components and studies the effect of each
and every component on the ratio. Comparative analysis gives an idea where a firm stands
across the industry and studies the financial trends over a period of time.

FORMULA:-

ETURN ON EQUITY = NET PROFIT RATIO x ASSETS TURNOVER RATIO x EQUITY

ASSETS
EQUITY MULTIPLIER = --------------------------------
EQUITY SHAREHOLDERS

RETURN ON ASSETS = NET PROFIT MARGIN (RATIO) x TOTAL ASSETS TURNOVER RATIO

NET PROFIT
NET PROFIT RATIO = --------------------
NET SALES

SALES
TOTAL ASSETS TURNOVER RATIO = ---------------------
TOTAL ASSETS

COMPARATIVE ANALYSIS OF RETURN ON ASSETS (INVESTEMENT)

48
 Rs. In lakhs

PARTICULARS 2008 2009 2010

NET PROFIT RATIO 10.05% 9.79% 8.21%

TOTAL ASSETS 2.36 1.70 0.75

TURNOVER RATIO

RETURN ON ASSETS 23.71 16.64 6.15

COMPARATIVE ANALYSIS OF RETURN ON EQUITY:-

Rs. In lakhs

PARTICULARS 2008 2009 2010

NET PROFIT RATIO 10.05% 9.79% 8.21%

TOTAL ASSETS 2.36 1.70 0.75

TURNOVER RATIO

EQUITY MULTIPLIER 25.77 57.35 89.63

RETURN ON EQUITY 611.21 954.47 551.36

DU-PONT ANALYSIS TREE DIAGRAM FOR RETURN ON ASSETS

(INVESTEMENT):-

49
 DU-PONT ANALYSIS TREE DIAGRAM FOR RETURN ON
EQUITY:-

INFERERNCE:-
In Du-Pont Analysis the higher the result the higher will be the return on
equity. In the above calculation it shows a downward trend of returns in 2010 in both the
cases in Return on Assets and Return on Equity which is not favorable for the company.
Hence it is advised to firm to increase the sales and the surplus on sale.
LEVERAGES
Leverage represents a power or an influence of one financial variable over the
other related financial variable. Leverages are classified into three categories namely,
Operating Leverage, Financial Leverage and Combined Leverage. Generally, it is said that
one leverage should be low accompanied by the other high leverage. If operating leverage
is on lower side, financial leverage can be kept on higher side by employing more debt in
the capital structure.
There are three types of leverages they are as follows:-

OPERATING LEVERAGE: -
The Operating Leverage measures the change in the earnings
before interest and tax as a result of change in sales. This leverage is because of fixed cost
in the cost structure. A higher operating leverage indicates that the proportion of fixed cost
is higher, but at the same time it cannot be overlooked that if sales decrease, the earnings
before interest and tax will decrease at higher rate. Therefore operating leverage is said to
be a double edged weapon.

50
 FINANCIAL LEVERAGE:-
The Financial Leverage measures the percentage change in earnings
before tax as a result of changes in earnings before interest and tax. Financial Leverage
will be higher if the difference between earnings before interest and tax and earnings
before tax is higher. This difference will be higher if amount of interest is high. Therefore
it indicates the proportion of debt in capital structure is high or low. The financial leverage
helps to identify the financial risk.

COMBINED LEVERAGE:-
The Combined Leverage expresses the relationship between
contribution and the taxable income. It helps in finding out the resulting percentage change
in taxable income on account of percentage change in sales

FORMULA:-

CONTRIBUTION
OPERATING LEVERAGE = --------------------------------------------------
EARNINGS BEFORE INTERST AND TAX

EARNINGS BEFORE INTERST AND TAX

FINANCIAL LEVERAGE = -----------------------------------------------------
EARNINGS BEFORE TAX

CONTRIBUTION EARNINGS BEFORE INTERST AND T

COMBINED LEVERAGE = ------------------------------------------ x ---------------------------------------
EARNINGS BEFORE INTERST AND TAX EARNINGS BEFORE TAX

51
 COMPARATIVE STATEMENT OF LEVERAGES
INCOME STATEMENT
Rs. In lakhs

PARTICULARS 2008 2009 2010

SALES 5743.03 6141.42 7619.02

LESS: VARIABLE COST 4628.55 4850.49 6120.00

CONTRIBUTION 1114.48 1290.93 1499.02

LESS : FIXED COST 684.12 766.35 938.60

EARNINGS BEFORE 430.36 524.58 560.42

INTEREST AND TAX

LESS: INTERST 85.32 187.29 296.72

EARNINGS BEFORE TAX 345.14 337.29 263.7

LEVERAGES
Rs. In lakhs

PARTICULARS 2008 2009 2010

OPERATING LEVERAGE 2.58 2.46 2.67

FINANCIAL LEVERAGE 1.24 1.55 2.12

COMBINED LEVERAGE 3.19 3.81 5.66

52
INFERENCE: -

Operating Leverage:-
In the above calculation operating leverage is very high and shows a
downward trend after 2007 but it is still not favorable as fixed cost is very high. Hence it is
advised to reduce operating leverage to some extent.
Financial Leverage:-
In the above calculation of financial leverage it has shown a downward
trend after 2007 but it is still favorable for the firm.
Combined Leverage:-
In the above calculation combined leverage is very high and shows an
upward trend after 2008 which is not favorable for the firm hence, should be reduced to
some extent.

53
 CASH FLOW ANALYSIS

Cash Flow Statement is a statement which indicates sources of cash inflows and
transactions of cash outflows of a firm during an accounting period. The activities which
generate cash inflows are known as sources of cash and activities which cause cash
outflows are known as uses or application of cash. It is appropriately termed as “Where
Got Where Gone Statement”
The Institute of Chartered Accountants of India (ICAI) issued Accounting
Standard-3 (AS-3) relating to the preparation of cash flow statement for accounting period
commencing on or after April 1, 2000 for enterprise which:-
➢ Have turnover of more than Rs 50 crore.
➢ Is listed in stock exchange (in India or outside India).
➢ Are in the process of listing their equity or debt securities as evidenced by the
board of directors’ resolution in this regard.
Cash happens to be the most liquid of all the current assets. It is this liquid asset
which constitutes the medium of exchange. Every financial transaction has an ultimate
effect on cash at some time or the other. A large cash holding reduces profitability.
Similarly, inadequate cash holdings would have effect on liquidity and therefore on
profitability. Cash flow statement analysis can therefore be helpful in the examining the
cash effect of financial transactions. It reveals the complete story of cash movements. It
helps to know the reasons for low cash balance inspite of high profits and high cash
balance inspite of low profits. It also helps to understand at what point of time during the
period there was idle cash or excessive cash holdings or inadequate cash. Appropriate steps
can therefore be ensured to correct such situations.

Objectives of cash flow statement:-

➢ To identify the causes of increase or decrease in the cash position of the firm
during the specific period.
➢ To understand the cash generated on account of business operations during the
year.
➢ To understand the cash impact on the current assets and current liabilities during
the year.
➢ To understand the investment and financing pattern followed during the year.
➢ To ensure necessary action for maintenance of adequate liquidity.
➢ To help in the projection of future cash flows.

Uses of cash flow statement:-

54
 ➢ Payment of dividend in cash.
➢ Repayment of borrowings.
➢ Redemption of preference shares in cash.
➢ Purchase of fixed assets.
➢ Acquisition of other current assets as securities.
➢ Payment to creditors.
➢ Adapt to changing circumstances and opportunities.
➢ Assessing the ability of the company.
➢ Enhances comparability.
➢ To know how much cash is generated from business.
➢ To know the liquidity position.

There are two methods of cash flow:-

COMPARATIVE CASH FLOW STATEMENT(RESTATED)

Rs. In lakhs

55
PARTICULARS 31:03:08 02:07:08 31:03:09

Profit before tax 584.18 52.83 606.27

DEPRECIATION 30.15 9.18 46.96

LOSS ON ASSETS SOLD, 0.26 0.63

DEMOLISHED,DISCARDED &
SCRAPPED
LOSS ON SALE OF INVESTMENT -
WRITTEN DOWN OF OBSOLETE -
& NON-MOVING COMPONENT
BAD DEBTS & IRRECOVERABLE -
BALANCES WRITTEN OFF
PROVISIONS FOR DOUBTFUL -
DEBTS & ADVANCES
INTEREST AND FINANCIAL 98.05 32.12 177.85
EXPENCES
VRS COMPENSATION PAID -

PROFIT ON SALE OF -
UNDERTAKING
PROFIT ON SALE OF -
INVESTMENT
PROFIT ON SALE OF MUTUAL -
FUNDS
SURPLUS ON SALE OF ASSETS -
INTEREST RECEIVED (14.51) (0.17) (3.72)
DEBITS(EXPENSES)PERTAINING -
TO EARLIER YEARS
SUNDRY CREDIT BALANCES -
APPROPRIATED
PROVISIONS NO LONGER -
REQUIRED WRITTEN BACK
DIVIDEND RECEIVED -
LEASE EQUILASITION -

OPERATING PROFIT BEFORE 698.13 93.96 828.00

WORKING CAPITAL CHANGES
ADJUSTMENTS FOR:- -
DECRESE/(INCREASE)TRADE & (898.37) (84.38) 303.78
OTHER RECEIVABLES
DECRESE/(INCREASE) IN (275.92) 157.08 (965.70)
INVENTORIES
DECRESE/(INCREASE)IN LOANS (275.92) 89.60 (267.78)
AND ADVANCES
56
INFERENCE:-

The profit before tax has shown an upward trend In the above calculation the
operating profit has shown an upward trend but after deducting working capital changes
the profit has declined, hence working capital should be managed efficiently. The
operating profit and non-operating profit has shown a upward trend due to which even if
the there is loss from activities the cash balance has shown a upward trend which is not
favorable for the firm, hence, it is recommended to reduce the losses from activities and
increase the profits.

WORKING CAPITAL MANAGEMENT:-

Working capital management is concerned with the problems
that arise in attempting to manage the current assets, the current liabilities and the
interrelationship that exist between them. The goal of working capital management is to
manage the firm’s current assets and liabilities in such a way that a satisfactory level of
working capital is maintained. This is so because if the firm cannot maintain a satisfactory
level of working capital, it is likely to become insolvent and may even be forced into
bankruptcy. The current assets should be large enough to cover its current liabilities in
order to ensure a reasonable margin of safety. Each of the current assets must be managed
efficiently in order to maintain the liquidity of the firm while not keeping too high level of
any one of them. Each of short term sources of financing must be continuously managed to
ensure that they are obtained and used in the best possible way. The interaction between
the current assets and current liabilities is therefore, the main theme of the theory of
working management.
Working capital is the amount of financing required to sustain
optimal balances of the firm’s working capital assets. Working capital represents that
portion of capital which circulates from one form to another in the ordinary conduct of
business. This idea embraces the recurring transition from cash to inventories to
receivables to cash that forms the conventional chain of business operation. Working assets
are those assets that will turnover or release cash within a relatively short period of time;
they include inventory, accounts receivable, liquid assets etc. Current Assets are those
assets that should be converted into cash within a year. A portion of the current assets is
financed by current liabilities i.e. sundry creditors, bills payable, outstanding liabilities, etc.
Current Liabilities are those obligations which are due within a year.

Marketable securities are considered as a part of working capital

as they are a substitute for cash, similarly, the inclusion of prepaid expenses may be
justified because they represent services owed to the company that are used in carrying out
57
activities, thereby obviating the need for cash outlays. Gross working capital is the total of
current assets. Net working capital is the current assets less current liabilities. In other
words, net working capital is that portion of current assets financed by long-term debt and
equity sources. The concept of working capital is built on three important elements:-

➢ Financing working capital assets i.e. current assets.

➢ The amount of cash tied up in working assets.
➢ The speed with which these assets are converted into cash

The task of the finance manager in managing working capital efficiently is to ensure
sufficient liquidity in the operations of the enterprise. The liquidity of a business firm is
measured by its ability to satisfy short-term obligations as they become due. The three
basic measures of the firm’s overall liquidity are:

WORKING CAPITAL CYCLE:-

EQUITY & LOANS

CASH PAYABLES

RECEIVABLES
OVERHEADS

INVENTORY
58
 SALES

OPERATING CYCLE FOR MANUFACTURING FIRM:-

Work -in-Progress

Raw Materials Stock Finish Goods Stock

Wages & overheads

Trade Creditors Sales

Selling Expenses

CASH Trade Debtors

Taxation Shareholders

Loan Creditors
Fixed Assets

Lease Payments
59
 COMPARATIVE WORKING CAPITAL STATEMENT
. In lakhs

SR.NO PARTICULARS 2008 2009 2010

.

A CURRENT ASSETS LOANS & 2189.68 3015.89 9424.50

ADVANCES

I INVENTORIES 451.94 1260.56 2603.30

A STORES & SPARES 6.49 26.13
B STORES IN TRADE
-RAW MATERIAL 228.81 673.82 1391.95
-REUSABLE MATERIAL 6.29 131.19 241.47
-WIP NIL NIL NIL
-FINISHED GOODS 216.82 649.06 789.57
C TRADED GOODS 154.96
D MATERIAL IN BONDED
WAREHOUSE

II SUNDRY DEBTORS 1291.62 1072.22 1312.04

A O/S FOR A PERIOD OF 1291.62 1072.22 1312.04
6MONTHS
B GOOD
C DOUBTFUL
LESS : -PROVISIONS
D OTHERS
E RECEIVABLES
F DOUBTFUL
LESS:- PROVISION

III CASH & BANK BALANCE 69.18 151.71 1570.36

A CASH IN HAND 18.05 14.20 11.79
B BANK BALANCE :-
UNITED WESTERN BANK NIL NIL NIL
MUMBAI
UNITED WESTERN BANK NIL NIL NIL
INDORE
STATE BANK OF INDORE 0.72 NIL NIL
IDBI BANK 24.86 61.48 17.41
FIXED DEPOSIT 25.55 76.02 1541.42

60
IV OTHER C.A.
A INCOME RECEIVABLE
B LEASE AJUSTMENT
C INCENTIVE RECEIVABLES
D EXPORT INCENTIVE
E LEASE RENTALS

V LOANS & ADVANCES 377.93 531.39 3938.87

A STAFF ADVANCE 14.68
B SECURITY DEPOSITS 14.27 36.43 60.73
C ADVANCES RECOVERABLE
-GOOD 95.11 55.37 50.63
-DOUBTFUL
-LESS:- PROVISIONS
D OTHER LOANS AND 253.87 - 1421.87
ADVANCE
E ADVANCE TO SUPPLIERS 299.43 1323.23
E BALANCE WITH 97.74 975.04
COLLECTORATE OF
CENTRAL EXCISE &
CUSTOMS
F TAX PAID IN ADVAMCE 42.40 106.87
LESS:-PROVISION

B CURRENT LIABILITIES & 1484.55 2246.71 5213.17

PROVISIONS
I LIABILITIES 508.05 448.04 874.04
A SUNDRY CREDITORS 286.93 163.01 394.90

B SUNDRY DEPOSITS 1.80 1.75 3.14

C OTHER CREDITORS 19.00 63.76 136.87
D UNSECURED LOANS - 487.33 171.94
E UNCLAIMED DEBENTURES

INVESTORS EDUCATION
PROTECTION FUND
G DERIVATIVE LIABILITY
H ADVANCE FROM 17.29 13.10 64.57
CUSTOMER
I OTHER LIABILITIES 40.66 88.22

II PROVISION 183.03 147.28 186.31

A PROVISIONS FOR GRATUITY

B PROVISIONS FOR LEAVE

ENCASHMENT

61
 C PROVISIONS FOR LONG
SERVICE
D PROVISIONS FOR
WARRANTY CLAIMS
E PROVISIONS FOR TAXATION 183.03

LESS:- TAX PAID

F PROPOSED DIVIDEND

G PROVISION FOR TAX ON 147.28 186.31

DIVIDEND
508.05 448.04 874.04

WORKING CAPITAL = CURRENT ASSETS LOANS & ADVANCES – CURRENT LIABILITIES & PROVI

62
 WORKING CAPITAL CALCULATION
Rs. In lakhs

SR.NO. PARTICULARS 2008 2009 2010

1. CURRENT ASSETS 2189.68 3015.89 9424.50
LOANS & ADVANCES

2. CURRENT 508.05 448.04 874.04

LIABILITIES &
PROVISIONS
3. WORKING CAPITAL 1684.15 2567.85 8550.52

INFERENCE:-
Working capital represents that portion of capital which circulates from one
form to another in the ordinary conduct of business. Current assets are those assets which
should be converted into cash within a year. Current liabilities are those obligations which
are due within a year. Gross working capital is total of current assets whereas net working
capital is the current assets less current liabilities. In the above table working capital has
shown an upward trend till the year 2009 which is good, but in the year 2010 it shows a
heavy increase which might create a problem while fetching loan from bank for work in
capital.

63
 BREAK-EVEN ANALYSIS

The term Break-Even Analysis is interpreted in two senses namely

narrow sense and broad sense. In its narrow sense, it refers to find out break-even point
that is a “point of no profit no loss”. In broad sense, it is an analysis used to determine the
probable profit or loss at any level of operation. Break-Even Analysis is method of
studying the relationship among sales revenue, variable cost and fixed cost to determine
the level of operation at which all the costs are equal to its sales revenue and it is no profit
no loss situation. This is an important technique used in profit planning and managerial
decision-making. Margin of safety is the difference between the actual sales and the break-
even sales this gap has to be increased to be in a favorable situation. Profit Volume Ratio
is ratio of contribution to sales.

A break-even analysis is concerned with the study of revenues and

costs in relation to sales volume and, particularly, the determination of that volume of sales
at which the firm’s revenue and total will be exactly equal (or net income is equal to zero).
Thus, the break-even point may be defined as a point at which the firm’s total revenues are
exactly equal to total costs, yielding zero income. The “no profit, no loss” point is a break-
even point or a point at which losses cease and profits begin.

The organizations study break-even analysis to know how far

they are from the break-even point which can be calculated by Margin of Safety. The
excess of actual sales revenue over the break-even sales revenue is known as margin of
safety. When the margin of safety is divided by the actual sales, the margin of safety ratio
is obtained. The Margin of Safety Ratio indicates the percentage by which he actual sales
may be reduced before they fall the break-even sales volume. It is important that there
should be a reasonable margin of safety, lest a reduced level of activity should prove
disastrous. The higher the Margin of Safety Ratio, the better it is from the point of view of
the company as it indicates that a “sizeable” sales volume can fall before the break-even
point is reached. This measure acquires special significance in depression or recession.

64
FORMULA:-

CONTRIBUTION = SALES – VARIABLE COST

CONTRIBUTION
PROFIT VOLUME RATIO = ---------------------- x 100
SALES

FIXED COST
BEP (SALES) = -------------------------------
PROFIT VOLUME RATIO

MARGIN OF SAFETY =ACTUAL SALES – BREAKEVEN SALES

BREAK-EVEN ANALYSIS CHART

65
 COMPARATIVE STATEMENT OF BREAK-EVEN ANALYSIS
Rs. In lakhs.

YEAR 2008 2009 2010

SALES 5743.03 6141.42 7619.42

VARIABLE COST 4628.55 4850.49 6120.00

CONTRIBUTION 1114.48 1290.93 1499.02

FIXED COST 684.12 766.35 938.60
PROFIT 430.36 524.58 560.42
P/V RATIO 19.40% 21.00% 19.67%
BEP (SALES) 3526.39 3649.28 4771.73
MARGIN OF SAFETY 2216.64 2492.14 2847.69

INFERENCE:-
In the above table the sales, contribution, profit and margin of safety has
shown an upward trend which is favorable trend, the variable cost, fixed cost should be
reduced to increase contribution and profits. For this, the company has to increase sales
and reduce or control the costs. The profit volume ratio (P/V Ratio) is showing a
downward trend hence, it should be increased as it shows the contribution through sales
volume hence sales show increasing but still contribution is less due to high cost. Hence,
cost should be controlled and sales should be increased.

66
OBSERVATION AND FINDINGS

OBSERVATION TABLE

67
RATIOS 2008 2009 2010

68
CURRENT RATIO 4.31 6.73 10.78
QUICK RATIO 3.42 3.91 7.8
PROPRITORY RATIO 2.57 2.79 1.82
GROSS PROFIT [%] 18.89 17.76 15.71
NET PROFIT [%] 10.05 10.43 8.21
OPERATING PROFIT [%] 10.57 11.46 9.29
RETURN ON CAPITAL 30.09 17.95 6.22
EMPLOYED [%]
RETURN ON SHARE HOLDER 51.34 37.29 7.21
FUNDS [%]
RETURN ON TOTAL ASSETS 19.92 13.32 3.96

RETURN ON NET WORTH 51.34% 37.29% 7.22%

EPS 5.13 7.64 3.55

WORKING CAPITAL TURNOVER 3.41 2.39 0.89

DEBTOR TURNOVER RATIO 4.44 5.19 6.39

DEBTORS COLLECTION 82 70 57
PERIOD(DAYS)
CREDITOR TURNOVER 15.57 17.65 15.82
CREDITORS PAYMENT PERIOD 23 20 23
INVENTORY TURNOVER RATIO 10.3 5.9 3.32

INVENTORY HOLDING PERIOD 35 61 109

FIXED ASSETS TURNOVER 24.59 6.49 4.91

SALES TO CAPITAL EMPLOVED 2.99 1.71 0.75

TOTAL ASSETS TURNOVER 2.73 1.92 0.81

DEBT-EQUITY RATIO 1.03 1.77 0.81

OBSERVATION AND FINDINGS

69
➢ Current ratio is increasing due to idle cash which is not deployed, because of the
idle cash the operating profit margin is reduced and there is drastic fall in return on
capital employed.
➢ Even company is having huge cash and creditor turnover is very high as compared
to debtors turnover, as the company is getting the payment period which is 23 days
where as the receivable period is 57 days.
➢ From the table it is evident that the company needs a strong course of action or plan
to deploy the cash available so that the profitability and EPS can be restored to
2009 levels. The appropriate use of cash will also improve the return on capital
employed and return on net worth.
➢ There is marginal increase in sales but the inventory levels are increased by 66%.
➢ The increase in creditor turnover and increase in inventory level indicates the poor
symptoms of inventory management. so there is need for efficient inventory
management.

70
 LIMITATIONS

LIMITATIONS

The analysis in all the research programmers’ and conclusion are extremely crucial.
Therefore, earnest of efforts were made to extract the true information and present them in
a comprehensive manner, yet the findings are tied up within the following boundaries: -

71
➢ As our project is based on the data recorded by the company, we face the limitation
of extracting that particular data because our access is limited for the sake of
confidential information of the company.

➢ The grouping of different items in the balance sheet also created hindrances, as it is
very difficult to identify which item is clubbed with which head. But thanks to
finance personal who made it easy to understand these clubbing.

➢ Findings of the study are based on the assumptions that the respondents have given
the correct information.

➢ The research is limited to the period of three years, i.e. 2007-2008 and 2008-2009,
2009-2010.

72
 SUGGESTIONS AND
RECOMMENDATION

SUGGESTIONS AND RECOMMENDATION

➢ Idle cash should be invested to generate returns.

➢ Creditor period should be increased.
➢ Specific focus is required on inventory management.

73
74
 CONCLUSION

CONCLUSION

➢ The business environment of the company is reasonably good. The company s track
record is always oriented towards profitable growth and with strong fundamentals.
➢ As major portion of working capital is invested in sundry debtors, company has to
adopt factoring services so that cash realization will be faster.
➢ Company should take corrective actions to write off or sell off the inventory, which
is of no use and occupies unnecessary space.\
➢ Other factory capital deals with the expenditure that is done on assets of less value,
building and other direct assets. Capital consumption on this head is in company s
own hands hence more importance can be given to this head. The capital should be
used effectively with the improvement in manufacturing activity and minimizing
cost.
75
➢ Acquisition of new assets of heavy costs should be done with proper capital
budgeting supported by payback period.
➢ The company has raised sufficient fund which should be invested properly in
operating activities so as to give maximum return.

76
 BIBLIOGRAPHY

BIBLIOGRAPHY

➢ M.Y. KHAN AND P.K. JAIN “FINANCIAL MANAGEMENT” , TATA MC-

GRAW HILL PUBLICATIONS.
➢ I.M. PANDEY “FINANCE MANAGEMENT”, VIKAS PUBLICATIONS.
➢ Dr. S.N. MAHESHWARI”FUNDAMENTALS OF FINANCIAL
MANAGEMENT “,SULTAN CHAND PUBLICATIONS.
➢ WEBSITE OF TEXMO PIPES AND PRODUCT LIMITED AND COMPANY
PROSPECTUS.

77
78
 Annexure

Balance Sheets
Texmo Pipes and Products limited

Figures in rs. Lakhs

Liabilities 31-03- 1/7/200 Assets 31-03- 1/7/20

2008 8 2008 08
Partners 941.21 600 Fixed Assets 233.47 216.96
capital
P/L A/c 3.44 Capital work in 61.66
progress
Loans & Current
Borrowings Assets loans
and Advances
Secured loans 976.41 922.39 Current
assets

Unsecured 294.85 Sundry debtors 1291.62 1376

Loans

79
Current Cash & Bank 69.18 107.64
liabilities and balances
provisions
Current Closing Stock 451.94 294.86
Liabilities
Sundry 286.93 282.38 Loans &
Creditors Advances
Security 1.8 1.75 Staff Advances 14.68 16.64
deposit from
dealers
Other creditors 19 25.52 Advance 95.11 128.32
Recoverable in
cash or kind for
value to be
received
Advance from - - Security 14.26 17.19
dealers deposit
Sundry debtors 17.29 13.1 Other loans & 253.87 126.19
having credit advances
balance
Provisions 183.03 204.15 Deferred tax 1.54 2.12

Total 2425.67 2347.5 Total 2425.67 2347.5

8 8

Balance sheet

Figures in rs. lakhs

Particular 2-7-2008 to 31-3-2009 31-3-2010 (unaudited)

Amt Amt
Sources of funds
Share capital 627 1127
Reserve and surplus 658.5 4420.02
Loan funds
Secured loan 1798.67 4339.16
Unsecured loan 487.33 171.94
2286.01 4511.11
Deffered tax liability 24.46 50.94
3595.98 10109.07

Application of funds
Fixed assets
80
 Gross block 1156.83 1844.85
Depreciation 211.41 293.25
Net block 945.41 1551.59
Current assets loans and
advances
Inventories 1260.56 2603.3
Sundry debtors 1072.22 1313.04
Cash and bank balance 151.71 1570.36
Loans and advances 531.39 3938.87
3015.89 9424.58
Less: current liabilities and
provisions
Current liabilities 300.76 687.73
Provisions 147.28 186.31
Net current assets 2567.84 8550.53
Miscellaneous expenditure 82.73 6.95
3595.98 10109.07

81
82