A

Project Report
On
WORKING CAPITAL ANALYSIS IN HINDUSTAN
ZINC LIMITED, UDAIPUR (RAJ.)

SUBMITTED FOR

Partial fulfillment of the requirement of two year full time

course in Master of Business Administration (MBA)

SUBMITTED BY

DIMPLE MARDIA
(2006-07)

INSTITUTE OF MANAGEMENT STUDIES,

AISHWARYA INSTITUTE OF
MANAGEMENT (OUR AIM….)
 ADARSH NAGAR UDAIPUR (RAJ.) 313001

ACKNOWLEDGEMENT

“FOR ANY SUCCESSFUL WORKS, IT OWNS THANKS TO MANY.”

Every nature individual in professional life is keenly aware of his/her sense of
indebtedness to many people who have stimulated & influenced his/her
intellectual development ordinarily. This feeling is formally expressed in
customary gesture of acknowledgement. Therefore it seems right to
acknowledge my gratitude with sense of veneration to almighty god for the
blessings showered on me and varies people who helped me during the
course of my investigation.

Prima facie I express my profound gratitude & indebtedness to my research

supervisor Mr. Hemendra Sharma (Associate General Manager- finance)
for his worthy, scholarly & unimpeachable efforts, inspiring supervision &
invaluable guidance which helped me to complete my dissertation.

I olso owe my sincere gratitude to the director, Aishwarya collage of

management Mr. N.K. Dashora for providing me this opportunity.

I acknowledge my gratitude with sense of reverence to the management of

HZL who provide me opportunity to undergo research in there esteemed
organization. I owe my sincere thanks to Mr. Naresh Agarwal (Manager CSA),
Mr. K.S.Sardaliya (Material dep’t.), and Mr. S.K.Dahire (Production dep’t.) for
their providing necessary facilities, data, facts & information from time to time.

Finally I wish to express warm gratitude to my family, it is entirely due to their

blessing & constant encouragement that I have been able to complete
credibly my dissertation.

DATE:-
PLACE: - UDAIPUR
 (DIMPLE MARDIA)

Preface

The importance of working Capital in a company that arise in

attempt to manage the current assets, the current liabilities and the
interrelation ship that exists between them.

Many changes occur in the company’s when “Disinvestment”

takes places. Especially in the Finance and HR departments. As far
as the changes in Finance dep’t. are concerned, new policies are
being implemented for the coming year which effects directly or
indirectly the working capital of the company.

So the purpose of the research is to analyze- “Working Capital

Management of the Hindustan Zinc Limited”.

The focus of the study is on Pre and Post-Disinvestment changes

that might have happened in HZL and its effects on the financial
performance of the company. The study has tried to cover all the
aspect determining the financial performance of the company in
term of working capital management.

Finally, all research is cumulative. I have, as a researcher,

needed to cull out priorities, interpret and finally put down my
analysis.
 CONTENTS

• Research methodology
• Company profile
• Introduction
• Mgt.Structure of HZL
• Need of working capital
• Determination of working capital
• Source of working capital
• Ratio analysis
• Conclusion of the study
• Limitation of the study
• Balance sheet, P&L A/C for five year
• working capital for five year
• Bibliography
 Research Methodology

This chapter furnished the methodological details of present

investigation. Procedural specification and through observation of
study and design which are indispensable feature for any research
work.

OBJECTIVES:

• To study the meaning, concept & importance of working

capital.
• To study the concept of collections & payment of debtors,
creditor & bills.
• To study the meaning of Working Capital and describing its
various procedures.
• To study various techniques of working capital used in HZL.
• To study the management of working capital. How to use its
working cash.
• To study its current assets and liabilities.
 TECHNIQUES USED:

 Collections, payment, classification, completion, tabulation,

analysis & interpretation of information, facts and figures
relevant to the company.
 Consultation and personal observation.
 Discussion with officers and employee of the company.
 Drawing conclusions through applications of various statistical
& financial tools and technique.
 Graphical and diagrammatical presentation of data.

SOURCE OF INFORMATION:

 PRIMARY SOURCE.

 Information schedule prepared for collection primary data relevant to the

working capital management of the company.
 Personal observation & interviews with officers.
 With the help of my supervisor and company’s employees.

 SECONDARY SOURCE.

 Annual financial statement of the concerns i.e. Balance Sheet, Profit

& loss account related to the period.
 Annual reports tread Journal, magazines & periodical of the
company.
 References book, journals, statistical bulletins & newspaper.

CHAPTER # 1

Introduction Of

HINDUSTAN

ZINC

LIMITED
 INTRODUCTION

India is a country of large dimension. It spreads over a

geographical area of 3.29 million Square Kilometers, which is about
2.5% of the globe and makes the country the seventh largest in the
world. India is Asia’s third and worlds eleventh largest economy.

India produces as many as 84 minerals compromising 4 fuels, 11

metallic, 49 non-metallic industrial and 20 miner minerals. Their
aggregate production in 2004-2005 as about 600 million tones,
contribution by over 3,100 mines (reporting mines) producing coal,
lignite, limestone, iron ore, bauxite, cooper lead, zinc etc. the
aggregate value of mineral production in 2004-2005 was more than
Rs. 450 billion ( appx. $10 billion ).

The minerals policy opened the gates of Indian minerals industry

to domestics and foreign investment, much of which was earlier
reserved for the public sector. It ails to boost the country’s
exploration and mining efforts and render the mineral industry more
competitive.

There are following player’s deals in mineral and mining sector-

• HINDUSTAN ZINC LIMITED (HZL)

• HINDUSTAN COPPER LIMITED (HCL)
• INDIAN ALUMINUM COMPANY (INDAL)
 • STERLITE INDUSTRIES LIMITED (SIL)
• HINDUSTAN ALUMINUM COMPANY (HINDALCO)

MANAGEMENT STRUCTURE OF HZL

BOD
Mr. Agnivesh Agarwal : Chairman
Mr. Ajita Bajpai Pande : Director
Mr. Sujit Gulati : Director
Mr. A.C. Wadhawan : Director
Mr. N.K. Shukla : Director
Mr. Anil Agarwal : Director
Mr. Navin Agarwal : Director
Mr. K.K Kaura : Director
Mr. Tarun Jain : Director
Mr. M.S. Mehta : CEO & Whole time Director
Mr. S.L. Bajaj : Chief Financial Officer
Mr. Rajendra Pandwal : Company Secretary
Registered Office
Yashad Bhawan
Udaipur (Raj.)
313001

VEDANTA
VEDANTA RESOURCES
(Yashad Bhawan, Udaipur)

• Vedanta is a US $2.2 billion London listed, diversified metals

and mining Group

• Vedanta has copper, aluminum and zinc operations are India.

Two copper mines in Australia and copper mines in Zambia.

• Vedanta also has interests in gold (AGRC) and optical fiber

(SOTL) Through the Sterlite Group.

• FY 2005 group turnover : US $1884.2 million

FY 2005 group EBITDA: US $455 million.

• In India, Vedanta Resources has interests in HZL (through

sterile), BALCO and MALCO.

• Indian Market Shares :-

Zinc – Vedanta (HZL) 75%

Only Integrated Zinc producer

Copper – Vedanta (Sterlite) 42%

 One of two leading copper producers

Aluminum – Vedanta (BALCO and MALCO) 21%

One of three aluminum producers

Corporate Objectives
• Harnessing natural resources in harmony with natural to enhance
economy well – being and quality of life.
• To put India on the world metals and mining map by becoming a
fortune 500 company.
• To be in the top decide in term of cost of production by 2007 across
all businesses.
• To double per capita consumption of copper, aluminum and zinc
through application development and marketing efforts by 2009.
• To explore and develop mineral reserves by 2010, for the subsequent
15 years in copper, aluminum and zinc.
• To have relentless focus on execution using best in class processes.
• To build an organization having world class capabilities and high
performance culture by attracting, developing and retaining talented
people.
• To set up CPP’S / captive sources for entire power requirement.
• To explore and develop additional mining resources.
• To build world class capabilities and high performance culture.
• To develop value added products such as CGG alloys, zinc sheets
etc.

Corporate environmental policy

• Use appropriate environmentally sound technologies in all over

operations wherever feasible.
• Conserve key inputs resources like water, energy and chemical
particularly the hazardous ones.
 • Institutionalize the sense of environmental care among all the
members of HZL family.
• Effect continuous improvements in hose areas that is
environmentally significant.
• Not only comply with the applicable environmental lows, but go
beyond wherever possible.

HZL Milestones at a Glance

Rampura Agucha Mine

Commissioned 1991
Location 225 km north of Udaipur, Rajasthan, India.
Capacity 3.7 mtpa ore
Details An open cast mine with low strip ratio 5:1 and
good mineralogy leading to higher recovery and
overall low cost of production. Onsite
concentrator to produce zinc concentrate.
Concentrate Zinc 54-54.5%, lead 63.7-67%
Certification ISO 9001:2000, ISO 14001:1996, OHSAS
18001:1996

Rajpura Dariba Mine

Commissioned 1983
Location 75 km north-east of Udaipur, Rajasthan, India.
Capacity 1.3 mtpa ore
Details An underground mine with on site concentrator
and two vertical access shafts. Mining is done
through vertical crater retreat and blast hole
 stopping. Ore is crushed before hoisting and
stockpiling for secondary and tertiary crushing.
Concentrate Zinc 51.5%, lead 51.2-52.9%
Certification ISO 9001:2000, ISO 14001:1996, OHSAS
18001:1999

Zawar Mine

Commissioned 1942
Location 40 km East of Udaipur, Rajasthan, India.
Capacity 1.2 mtpa ore
Details An underground mining complex consisting of
four underground mines and one concentrator
for all mines. Mining is done with sublevel
stopping with matching infrastructure. The
complex is equipped with 6 MW of captive
power generation capacity.
Concentrate Zinc 54.3-55.2%, lead 64.7-64.8%
Certification ISO 9001:2000, ISO 14001:1996, OHSAS
18001:1999.

HZL operates smelters based on Pyro-metallurgical (Chanderiya

Lead Zinc Smelter) and Hydro-metallurgical (Debari and Vizag Zinc
Smelter) process routes. The Chanderiya Lead Zinc Smelter is one
of the most cost-effective Pyro metallurgical Zinc Smelter in the
world.

Chanderiya Lead Zinc Smelter :-

Commissioned 1991
Location 120 km east of Udaipur, Rajasthan, India.
Capacity 1, 05,000 TPA of refined zinc, 35,000 TPA of refined
lead
Details A Pyro-metallurgical smelter using ISP Technology.
Main by products is Sulphuric Acid and Silver and one
of the by product is cadmium.
Capacity power coal based 155 MVV captive power plants
commissioned in 2005.
Generation
Certification ISO 9001:2000, ISO 14001:1996, OHSAS 18001:1999

Debari Zinc Smelter :-

Commissioned 1968
Location 12 km east of Udaipur, Rajasthan, India.
Capacity 80,000 TPA of refined zinc.
Details A Hydro-metallurgical smelter using RLE Technology.
Main by products is Sulphuric Acid and Cadmium. The
plant is equipped with 29 MW of captive power
generation capacity.
Certification ISO 9001:2000, ISO 14001:1996, OHSAS 18001:1999

Vizag Zinc Smelter:-

Commissioned 1977
Location 17 km from Vishakhapatnam, Andhra Pradesh, India.
Capacity 56,000 TPA of refined zinc.
Details A Hydro-metallurgical smelter using RME Technology.
Main by products is Sulphuric Acid and Cadmium. The
plant obtains part of its power requirement al low cost
due to Share holding in a gas utility company in
Andhra Pradesh.
Certification ISO 9001:2000, ISO 14001:1996, OHSAS 18001:1999
 HZL has an on going expansion project in these mining as well as
smelting, to raise its capacity of refined zinc to 4, 00,000 TPA.
Leading foreign venders like Lurgi, Outokumpu, ABB, Alstom and BHEL
are associated with these projects. The total capital investment by HZL on
these projects is Rs. 16,475 million.

PROJECT
HZL has undertaken expansion project (phase II) in mining as well as smelting
which has raised the capacity of refined zinc to 4,11,000 tons per annum. The
main expansion projects are:-

 Chanderiya zinc smelter expansion: - The new 1,70,000 TPA Hydro-

metallurgical zinc smelter at chanderiya and associated 154 mvv power

plant were commissioned in may 2005. This was built at a total cost of
$335 million. A second 1,70,000 TPA Hydro-metallurgical smelter will be
built at chanderiya along with a 77 mvv captive power plant. The second
smelter and the accompanying captive power plant are expected to be
commissioned by 2008. This is being built at a cost of $300 million.

 Rampura Agucha mines: - The Rampura Agucha mine expansion was

also completed in may 2005. The mine is now operating its full capacity is
3.75 mtpa.
  Chanderiya Lead smelter: - The new 50,000 TPA AusmeltTM lead

smelter was commissioned in Feb. 2006.

Corporate Social Responsibility

• HZL has donated Rs. 11 million towards the mid day meal scheme of
govt. of Rajasthan for constructions of kitchens at Chittorgarh, Bhilwara,
and Udaipur district for catering to about 100000 rural school children.
• Reducing sulpher dioxide (SO2) emission by ½ by 2006 and achieving
Zero waste water discharge through 100% recycling.
• HZL has prepared action plans and has planned investment of Rs. 380
million over the next 2-3 year.
• HZL is implementing a meaning full need based sustainable
development initiative in a no. of operational village at its six difference
location. Through its CSR initiatives HZL is impacting the lives of more
than 1, 05,000 rural masses belonging to over 22,000 families.
• Supporting education with contributions over Rs.21 million through the
running and equipping of schools for children of employees and other
local children. HZL also offered scholarship of Rs.2.4 million for children
from the words from which the employee are drown.
• Provision of 30% of the fund of around Rs.180 million and supervision of
the construction of a dam, which is supply water from the region the
Mansi Wakal project to be completed.
• Contribution Rs. 63 million for the construction of the Hindustan Zinc
cardiology center in Udaipur inaugurated in April 2003, now operated by
the Government of Rajasthan. Medical aid is also being offered to local
people through the dispensaries and medical facilities located at the
HZL sites and through health initiatives.
• Contribution of Rs. 2 million in support of programmers to strengthen
local self-government in the villages of southern Rajasthan, for example
supporting the empowerment of women.

Human Resource Development

The main strength of any organization is its employees. The management of
HR in HZL is a continuous process to ensure the development of employee’s
confidence, dynamism, effectiveness, motivation and morale in a system at
way, which helps to achieve higher productivity in terms of physical and
financial outputs. The management of HR is always aimed at, to develop and
nurture a culture change in the organization.
The focus is on positive attitude, openness, trust and achieving, excellence in
all spheres of activities.

Social Responsibilities

The concern of man kind at HZL is not limited to its boundaries, but
spills over whole country, providing the backward and tribal
populance in and around its unit in Orissa, Andhra Pradesh, Bihar
and Rajasthan. The concern manifests itself in form on numerous
rural health campaigns, family welfare activities, adult education
programmes, water supply, construction of roads in rural areas;
cattle fodder camps, cyclone relief measures in Orissa and Andhra
Pradesh, earth quake relief measures in Bhuj etc.

Disinvestment
For the competitive success in the fast changing global market,
strategic partnership alliance is inevitable. The focus shall be on the
value creation within alliance. The capacity of both partners to
dynamically and creatively maneuver the alliance through a thicket
of uncertainties, changing priorities, organization fractions and
competitive surprise is of vital importance. In this background, the
Govt. of India has identified a strategic Group and divested its
majority stake.
 CHAPTER # 2

What makes HZL suitable company for the study?

HZL is the major producer of zinc/lead with the vertical integration in
other non-ferrous metal. It has been one of the mini-Navaratna PSU of
government of India.

Following the policy of disinvestment of the government of India, the

company has undergone into disinvestment on 11 April 2002. Since then
the new management has introduces significant policy changes in
various function and taken number of steps to control cost and improve
the performance of the company.
In view of the above, HZL is considered a suitable company for the
financial analysis.

Scope of the study

Objective of the study:-
Judgment of the overall performance of
the company by analysis of financial statements.

Span of the study:-

Analysis of financial statement for the period
of 6 year i.e. from 2001 to 2006.
The study included the following.

1. Study of the financial statements through ratio analysis.

2. Analysis of the possible reason for the change in the
performance of the company.
3. Study of the role of uncontrolled factors like LME prices,
taxation policy etc on the profit.
4. Study of the expansion plans of the company.

DESIGN OF STUDY:

The study comprises of seven chapters in all. The first and second
chapter throws ample light on the growth and development of
industry selected. The third chapter discusses the research
methodology used for study. The fourth chapter deals in detail with
theoretical concept of the working capital management. In fifth
chapter the Ratio Analysis of HZL & sixth chapter is the Limitation of
the Company. and finally main conclusions have been drawn &
suggestion given in the last chapter, the seventh. To facilitate an
easy understanding of the chapter, the timely helps of diagrams &
charts has been taken.

Objective of the study

The analysis of financial statements is very important in the modern
business. The financial analysis is very useful for management as
well as for other interested parties to know the performance of
company. The management can take corrective action on adverse
or undesirable aspect.

The following are the main objective of our study.

1. To access the overall performance, liquidity position,

solvency position, profitability of the company through Ratio
Analysis.
2. To make item wise analysis of the financial statements to
identify items responsible for changes in the liquidity, solvency,
profitability and overall performance.
3. To identify the various factors affecting profit and steps taken
by new management for improving performance and their effect
on the company.
4. To know the effect of uncontrolled factors on the profits.
5. To know the effect of changes in the accounting policy.
6. To make overall judgment of the company.

CHAPTER # 3

Working
Capital
 Management

CONCEPTS & DEFINITION OF WORKING CAPITAL

A manufacturing concern needs finance not only for acquisition of

fixed assets but also for its day-to-day operations. It has to obtain RM for
processing, pay wages, Bills and other manufacturing expenses. A non
manufacturing trading concern may not be require funds for purchase of
RM and their processing but it also needs finance for storing goods and
providing credit to customers similarly, a concern engaged in providing
service may not have to keep inventories, but it may have to provide
credit facilities to its customers. Thus, all enterprises engaged in
manufacturing and trading or providing services require finance for their
day to day operations. The amount required to finance day to day
operation is called Working Capital.

It is that capital which makes the company work. Fixed assets from
the skeleton while WC is the Flash and blood. WC is also known by other
terms. Viz. circulating capital, fluctuating capital, revolving capital etc.
The peculiarity of WC is that keeps on changing continuously in course
of business operations. The assets and liabilities created during the
operating cycle are called current assets and current liabilities.

The term WC can be looked at in two ways.

1) Gross Working Capital (GWC): it refers to the total of all current

assets of the company.
 2) Net Working Capital (NWC): It refers to the difference between CA
& CL.

The goal of Working capital management is to manage the CA and

CL in such a way that an acceptable level of net working capital is
maintained.

While the study of GWC indicate the nature and extant of working
capital requirements, the analysis of NWC indicates the liquidity positions
of an enterprise.

NEED FOR WORKING CAPITAL

The objective of financial decision making is to maximize the

Shareholders wealth. To achieve this, it is necessary to generate
sufficient profit, which will depends upon the magnitude of the sales,
among other things. However, sales do not convert into cash instantly;
there is invariably a time lag between the sales of goods and the receipt
of cash. There is therefore, a need of working capital in the form of
current assets to deal with the problem arising out of lack of immediate
realization of cash against goods sold. Therefore sufficient working
capital is necessary to sustain sales activity. Technically, this is referred
as the operating or cash cycle. The operating cycle can be said to be at
the heart of the need of working capital.

The term operating refers to the length of time necessary to complete the
following cycle of event.

1. Conversion of cash into inventory

2. Conversion of cash into receivable
3. Conversion of receivable into cash.

The operating cycle, which is a continuous process, is as shown in

figure 1
Phase 3
RECEIVABLE
 CASH

Phase 2

INVENTORY
Phase 1

OPERATING CYCLE
Fig.1-- If it were possible to complete the sequences instantaneously,
there would be no need for current assets (working capital).
Since cash inflows and cash outflows do not match, firm have to
necessarily keep cash or invest in short term liquid securities.
So that will be in a position to meet obligations when they become due
similarly, firm must have adequate inventory to guard against the
possibility of not being able to meet a demand for their products.
Adequate inventory, therefore, provides a cushion against being out of
stock. If firm have to be competitive they must sell goods to their
customers on credit which necessities the holding of account receivable.

The concept of operating cycle is a cycle is a more precise tool for

financial management to precisely measure the WC requirements, to
trance its change and to determine the optimum level of WC
requirement. It is emphasized that the various component of the
operating cycle have to be continuously moving and changing from one
status to another.

The following situation prevalent in a business is assessed in an

operating cycle approach to WC management.
 Nature of WC changes with the passage of time & also with day-to-
day business transactions.
  There are businesses which are seasonal in nature of buying of row
materials. A company manufacturing and selling seasonal items like
packed tea, has to buy the raw materials during the seasonal which
means more money is required during that period.
 What is “current” (either assets or liabilities) for a particular period for
particular industries depends on technologies and business
characteristics peculiar to each nature of business.
 Maintaining of two small WC may yield higher return of capital
employed temporarily but in the succeeding periods and also in the
long run the profitability and yield on capital employed may reduce.
 The levels of WC to be maintained as a direct bearing on the
profitability of the business beside the question of maintain
liquidity.

 Production cycle consist of the following in respect of a

manufacturing concern.

I. Buying of row materials.

II. Storage of row materials.
III.Input of row materials to the productions process.
IV. Output as finish goods.
V. Selling of goods.
VI. Collection of money from credit customers.

The sum total of days starting with the input of raw materials and the
selling of finish goods and the collection against sales involved in each
segment will be the “Gross Operating Cycle Period.” When the average
payment of the company to the suppliers is deducted from the gross
operating cycle period it is called the “Net Operating Cycle Period” or
simply cycle period. The shorter the duration of operating cycle period,
the faster will be the transformation of current assets into cash; as a
consequence the lesser will be the necessity of WC fund.
The average inventory of row material and store consumption cost of
production, cost of sales and the purchases are derived by dividing the
respective year-end figures by 365 days.
The total number of days against each formula is found out for (a) to (d)
which is the gross operating cycle and the total number of days against
(e) is deducted to arrive at the net operating cycle.

CURRENT ASSETS AND LIABILITIES

CURRENT ASSETS:-

The term ‘current assets’ includes assets which are acquired with the
intention of converting them into cash during the normal business of the
company.

The board categories of CA, therefore, are –

1. Cash including fixed deposits with bank

2. Accounts receivable, i.e., trade debtors and all bills receivables.

3. Inventories, i.e., stock of row materials, work in progress, finish

goods, Store and spare parts.
 4. Advances recoverable, i.e., the advances given to suppliers of
goods and services or deposits with government and public
authorities, e.g.- customs, port-authorities, advance income tax.

5. Prepaid expenses, i.e., cost of unexpired services, e.g., prepaid

advances, etc.

CURRENT LIABILITIES:-

The liabilities payable within a year and out of current assets. The value
of these liabilities generally changes within one year. Long term liabilities
if matured and are to be paid in the current period and out of CA, will
become CL.

Long term categories of current liability are:-

• Accounts payable, e.g. Bills payable and Trade Creditors.

• Out standing Expenses – Expenses for which service have been

received by the business but from which payment have not been

made.

• Bank Overdraft
• Short term loan i.e. loan from bank etc. which are payable within one

year from the date of Balance Sheet.

• Advance payment received by the business for the services to be

rendered or goods to be supplied in future.

• Current maturities of Long Term Loans.

There is another way of looking at the WC on the basis of time

element; the WC can be classified into two categories.

1. Fixed or Permanent or Hard-core WC – It represents the minimum

amount to ensure effective utilization of FA and supports the normal
operations. It is permanently invested and can be realized only when
the business operations are closed down. Every business has to
maintain a minimum stock of RM, WIP (work in progress), FG
(finished goods), Tools, and Spares etc. Similarly it required certain
amount for disbursement of wages, salaries and other expenses
regularly. In Characteristics it is very similar to fixed assets, since it is
employed almost permanently and it cannot be retrieved at a short
notice.
2. Variable or Temporary or Fluctuating WC – It fluctuated with the
activity level in the firm. Such as fluctuation are subject to season’s
variation or cyclical changes. The temporary EC could be funded by
short term sources of finance.

CHAPTER # 4

RATIO
 ANALYSIS

INTRODUCTION

Ratio analysis is a widely used tool or finance analysis. The term

ratio in it refers to the relationship expressed in mathematical term
between two individual figures and group of figures connected which
each other in some logical manner and are selected from financial
statement of the concern. The ratio analysis is based on the fact that a
single accounting figure by itself may not communicate any meaningful
information but when expressed as a relative to some other figure, it may
definitely provide some significant information. The relationship between
two or more accounting figures/ groups is called a financial ratio. A
financial ratio helps to express the relationship between two accounting
figures in such a way that users can draw conclusions about the
performance, strength and weakness of a firm.

The operations and financial position of a firm can be described by

studying its short terms and long terms liquidity position, profitability and
its operational activities. Therefore, ratios can be classified into following
four board categories.
 1- Liquidity Ratio
2- Capital Structure/ Leverage Ratios
3- Activity Ratios
4- Profitability Ratios

** Liquidity Ratios:-
The terms ‘Liquidity’ and ‘Short term solvency’ are
used synonymously. Liquidity and short term solvency means ability of the
business to pay its short term liabilities. Inability to pay off short term liabilities
affects its credibility as well as its credit rating. Continuously default on a part
of the business leads to commercial bankruptcy. Eventually such commercial
bankruptcy may lead to its sickness and dissolution. Short term lenders and
creditors of the business are very much interested to know its state of liquidity
because of their financial stake.
Traditionally, two ratios are used to highlight the business ‘Liquidity’.
These are Current Ratio and Quick Ratio.

Significance of the Current and Quick Ratio:-

Current Ratio in a business concern indicates the availability of current

assets to meet its current liabilities. Higher the ratio better is the coverage.
Traditionally, it is also called 2:1 ratio, i.e. 2 is the standard for current assets
for each unit of current liabilities.
Quick asset consists of only cash near cash assets. Inventories are
deducted from current assets on the belief that these are not ‘near cash
assets’.
** Capital Structure/ leverage Ratio.
The Capital Structure/ Leverage Ratios may be defined as those
financial ratios which measure the long term stability and structure of the firm.
These ratios indicate the mix of funds provided by owners and lenders and
assure the lenders of the long term funds with regard to:-

1- Periodic payment of interests during the period of the loan and

2- Repayment of principal amount of maturity.

Therefore leverage ratios are two types:-

1- Capital structure Ratio and

2- Coverage ratio

** Activity Ratio:-

The activity ratios are also called the Turnover ratios or Performance
ratio. These Ratios are employed to evaluate the efficiency with which the firm
manages and utilized its assets. These ratios usually indicate the frequency of
sales w.r.t. its assets. These assets may be capital assets or WC or average
inventory. These ratios usually calculated with reference to sales/ costs of
goods sold and are expressed in term of rate or times. Several activity ratios
are follows:-

1- Capital Turnover Ratio

2- Fixed Assets Turnover Ratio
3- Working capital Turnover ratio
4- Inventory turnover Ratio

** Profitability Ratios
 The Profitability ratios measure the profitability or the operational
efficiency of the firm. These ratios reflect the final result of business
operations. The result of firm can be evaluated in term of its earning with
reference to a given level of assets or sales or owners interests etc.
Therefore, the profitability ratios are broadly classified in three categories:-

1. Profitability ratio required for analysis from owners point of view.

2. Profitability ratio based on assets / investments.
3. Profitability ratio based on sales of firm.

Application of ratio for evaluating financial performance

A popular technique of analyzing the performance of a business concern

is that of financial ratio analysis. As a tool of financial management, they are
of crucial significance. The importance of ratio analysis lies in the fact that is
presents fact on a comparative basis and enables drawing of inference
regarding the performance of firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of following aspects:-

** Liquidity position –
With the help of ratio analysis one can draw conclusions regarding
liquid position of a firm. The liquidity position of a firm would be satisfactory if it
is able to meet its current obligations when they become due. A firm can be
said to have ability to meet its short term liabilities if it has sufficient liquid
funds to pay the interest on its short maturity debt usually within a year as well
the principal. This ability is reflected in the liquidity ratio of the firm. The
liquidity ratios are particularly useful in credit analysis by bank and other
supplier of short term loans.

** Long term solvency –

 Ratio analysis is equally useful for assessing the long term financial
viability of a firm. The aspect of the financial position of a borrower is of
concern to the long term creditors, securities analyst and the presents and
potential owner the business. The long term solvency is measured by the
leverage/ capital structure and profitability ratios which focus on earning power
and operating efficiency. Ratio analysis reveals the strength and weakness of
the firm in this respect. The leverage ratios, for instance, will indicate whether
a firm has a reasonable proportion of various sources of finance or weather
heavily loaded with debt in which case its solvency is exposed to serious
strain. Similarly, the various profitability ratios would reveal weather or not the
firm is able to offer adequate return to its owners consistent with risk involved.

** Operating efficiency –
Ratio analysis through light on the degree of efficiency in the
management and utilization of its assets. The various activity ratios measure
this kind of operational efficiency. In fact, the solvency of a firm is, in the
ultimate analysis, department upon the sales revenues generated by the use
of its assets total as well as its component.

** Overall Profitability –
Unlike the out side parties which are interested in one aspects of
the financial position of the firm, the management is constantly concern about
the overall profitability of the enterprises. That is, they are concerned about
the ability of the firm to meet its short term as well as long term obligation to its
creditors, to ensure a reasonable return to its owner and secure optimum
utilization of the assets of the firm. This is possible if an integrated view is
taken and all the ratios are considered together.

** Inter firm comparison –

 Ratio analysis not only throws light on the financial position of a firm
but also serves as a stepping stone to remedial measures. This is made
possible due to inter firm comparison. A single figure of particular ratio is
meaningless unless it is related to some standard or norm.

OBJECTIVE

To do comparative study of financial position of pre and post

disinvestment period.

SAMPLE

TYPE OF DATA : SECONDARY DATA

SOURCE OF DATA : ANNUAL REPORT

PERIOD OF DATA TO BE ANALYSE : 2002 -- 2006

 Analysis
Debt Equity Ratio
Debt equity ratio used to measure long term financial solvency of a
firm. It can be calculated by the following formula:-

Total Debt
Debt Equity Ratio =
Share’s holder’s equity

Table: 1 (Rs. In million)

 YEAR TOTAL DEBT SHAREHOLDER’ DEBT EQUITY
S RATIO
EQUITY
2002 37.63 10710.38 .0035
2003 6.78 11704.15 .00058
2004 6077.96 21146.7 .29
2005 5713.24 26246.18 .22
2006 5580.2 39878 .14

GRAPH: 1

DEBT EQUITY RATIO

 0.3

0.25

0.2

0.15
Debt equity
0.1 ratio

0.05

0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

As shown in data table and graph, after disinvestment debt

equity ratio has increased with rate as compared to before disinvestment. In
2006 the ratio is 0.14; it means higher rate proportion of owner’s fund which
indicates lower degree of risk. The capital structures of the company only
consist of equity share capital. It shows smaller calm of creditors and less
interest burden.

Return on Total Assets:-

Return on total assets is measured in terms of the relationship

between Net Profit and Assets. Formula to calculate it is:-
 Net Profit
Return on Total Assets =
Total Assets

Table: 2 (Rs. In million)

YEAR NET PROFIT TOTAL ROTA
ASSETS
2002 790.76 13850.91 .60
2003 1421.52 12973.51 .11
2004 4045.88 19040.56 .21
2005 6553.30 24616.80 .27
2006 14724.80 30652.50 .48

GRAPH: 2

RETURN ON TOTAL ASSETS

 0.6

0.5
0.4

0.3
ROTA
0.2

0.1
0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

In graph it is that the overall return on total assets is increasing

but the highest increase in year 2002 at the time of investment. Post
disinvestment trend of return on total assets is higher than pre disinvestment
trend. This is due to efficient utilization of assets in generation revenue.

Return on Fixed Assets:-

Return on fixed assets is measured in term of the relationship between
Net Profit and Assets. Formula is given as:-

Net Profit
Return on total assets =
 Fixed Assets

Table: 3 (Rs. In million)

YEAR NET PROFIT FIXED RETURN ON
ASSETS FIXED ASSETS
2002 790.76 6922.11 .11
2003 1421.52 6601.19 .30
2004 4045.88 8918.70 .52
2005 6553.30 18441.41 .41
2006 14724.80 19181 .83

GRAPH: 3

RETURN ON FIXED ASSETS

 0.9
0.8
0.7
0.6
RETURN ON
0.5
FIXED
0.4 ASSETS
0.3
0.2
0.1
0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

Return on fixed assets is highest in 2006. In 2005 it was low due to high
proportion of fixed assets. In 2006 net profit has increased so return on fixed
assets has also increased.

Return on Investment: -
 The profitability ratio can also be relating the profits of a firm to its total
capital employed. Return on investment can be calculated by the following
formula:-

Net Profit
Return on investment =
Capital Employed

Table: 4 (Rs. In million)

YEAR NET PROFIT CAPITAL ROI
EMPLOYED
2002 790.76 10710.38 0.07
2003 1421.52 11704.15 0.17
2004 4045.88 21146.7 0.23
2005 6553.30 26246.18 0.29
2006 14724.80 39878 0.40

GRAPH: 4
 RETURN ON INVESTMENT

0.4
0.35
0.3
0.25
0.2
ROI
0.15
0.1
0.05
0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

After disinvestment return on investment has increased. In 2006 it is

0.40 which is highest. It is due to optimum utilization of the assets of the
company. The company has obtained assets that are providing a satisfactory
return on investment and has disposed of assets that are not providing return.

Current ratio
 This ratio measures the solvency of the company in the short term. This
can be calculated by using the following formula:-

Current assets, Loans & advances

Current Ratio =
Current liabilities & Provisions

Table: 5 (Rs. In million)

YEAR CURRENT CURRENT CURRENT
ASSETS LIABILITIES RATIO
2002 6928.8 2945.44 2.35
2003 7365.74 2994.32 2.46
2004 10949.67 4258.54 2.57
2005 7368.88 5117.28 1.44
2006 13093.8 4158.1 2.17

GRAPH: 5

CURRENT RATIO
 3

2.5

1.5 CURRENT
RATIOo
1

0.5

0
2002 2003 2004 2005 2006

YEAR

Interpretation
There are not many changes in CR but as compared to 2005 CR has
increased with higher rate in 2006. It is due to increase in sundry debtors. The
company’s CR in 2006 is 2.17 which are higher than ideal (2:1) due to pilling
up of inventory.

Liquid Ratio

Liquid ratio (quick ratio) is used as a measure of the company’s ability to

meet its current obligations. The formula to calculate it is as follows:-
 Liquid assets
Liquid Ratio =
Current liabilities

Table: 6 (Rs. In million)

YEAR LIQUID CURRENT LIQUID RATIO
ASSETS
LIABILITIES
2002 6276.29 2945.44 2.13
2003 4303.97 2994.32 1.44
2004 7723.85 4258.54 1.81
2005 4025.82 5117.28 0.78
2006 9262.8 4158.1 0.22

GRAPH: 6

LIQUID RATIO
 2.5

1.5
LIQUID
1
RATIO
0.5

0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

In 2002 it was high that was 2.13. It was due to increase in sundry
debtors and bank balance in short deposits. At the same time current liabilities
also reduced in the form of tax provision.
Again in 2003 at the time disinvestment liquid ratio had to 1.44 due to
increase in current liabilities mainly in provision for dividend.

Working capital turnover ratio:-

This ratio indicates the extent of working capital turnover in achieving

sales of the firm. The ratio can be calculated by the following formula:-
 Sales
Working capital turnover ratio=
Net working capital

Table: 7 (Rs. In million)

YEAR SALES NET WORKING W.C.TURNOVE
CAPITAL R RATIO
2002 12344.89 3983.36 3.10
2003 14112.63 4371.42 3.23
2004 18414.94 6691.13 2.75
2005 21868.01 2251.60 9.71
2006 38769.70 7062 5.49

GRAPH: 7

WORKING CAPITAL TURNOVER RATIO

 10

6
WCTO
4

0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

There is a significance changes in 2005 as working capital turnover ratio

is highest. In 2006 it is due to increase in sundry a debtor which contributes in
increased working capital.

Net Profit Ratio

Net profit ratio reflects net profit margin on the total sales after deducting
all expenses but before deducting interest and taxation. This ratio measured
the efficiency of operational of the company. This can be calculated by the
following formula:-

Net Profit
Net profit ratio = x 100
Sales

Table: 8 (Rs. In million)

YEAR NET PROFIT SALES NET PROFIT
RATIO (%)
2002 790.76 12344.89 6.40
2003 1421.52 14112.63 14.18
2004 4045.88 18414.94 25.33
2005 6553.30 21868.01 34.53
2006 14724.80 38769.70 41.09

GRAPH: 8

NET PROFIT RATIO

 50

40

30
NPO
20

10

0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

The net profit has increase with higher rate after disinvestment as
compared to before it. The net profit ratio was 6.40% which was lowest but in
2006 it is 41% which is highest.

Earning per Share:-

 The earning per share is one of the important measure economic
performance of a corporate entity. It can be calculated by the following
formula:-

Net profit available for Equity Share holder

Earning per share =
Number of equity Share

Table: 9
YEAR EARNING PER
SHARE
2002 1.61
2003 3.36
2004 9.58
2005 15.51
2006 34.85

GRAPH: 9
 EARNING PER SHARE

35
30
25
20
15 EPS

10
5
0
2002 2003 2004 2005 2006

YEAR

Interpretation:-

Earning per share is increasing with high rate. After disinvestment

steady growing in EPS year after year indicates a good track of profitability. In
2006 EPS is 34.85 which are highest.

CHAPTER # 5

Conclusion of the study

The following are the main conclusion of the study.

 The current ratio maintains at a level of 2.17 times and the acid test ratio
has fallen to 0.22 times in 2006, which is less then the normal level.
 The cash and the bank balance have reduced tremendously and the
creditors have increased. At the same time the sundry debtors have also
decrease.
 There has been a tremendous increase in the profitability of the
company. The net profits in 2006 have shown a good increase.
 Sales have increased by 214% in 2006 as compared to 2002 i.e. after
disinvestment.
 PAT available for appropriation has increased to roaring and
tremendous height in 2006 i.e. 1915% as compared to 2002
 Return on capital employed and return on share holder equity has
shown continuous improvement as compared to the previous year. The
EPS was 1.61 in 2002 which has increased to 34.85 in 2006.
 After disinvestment co. has paid off most of its loan.

Thus the overall position and the performance of the company are very
good. From shareholder point of view, their investments are quit safe and they
are likely to get more and more benefits in the future. The short terms as well
as the long term lenders of loan funds are also very safe. The company’s
future is very bright.

CHAPTER # 6
 Limitations of the study

Every project work has its limitations further, a work in social sciences
and commerce can not be like that of any natural science where results are
universally true.
In the absence of universally accepted norms, interpretations of results
often become a matter of judgment uniformity and the present study is not an
exception to do it. Despite my best endeavor to maintain uniformity and
maximum converge.

 Each ratio is indicative of certain aspects of the organization, e.g. CR is

with respects of CA & CL only and as such totally is not possible to be
drowned.
 Ratios have overbearing reflection of post position.
 The study is limited to only five years (1998-2006) performance of the
company.
 The data used in this study have been taken from published annual report
only. As per the requirement and the necessity some data are grouped and
sub grouped. Therefore the data is not comparable over the year.

CHAPTER # 7
 WORKING CAPITAL
AS AT THE END OF FINANCIAL YEAR
(Rs. In million)
2002-03 2003-04 2004-05 2005-06

3061.77 3225.82 3343.08 3831.00

PARTICULAR 622.69 2727.30 2608.49 6898.50
2569.10 4046.13 221.07 740.30
A- CURRENT ASSETS 121.18 2.70 01.70
118.76
Inventories
Sundry Debtors 6372.32 10120.43 6175.34 11471.5
Cash & Bank balance
Other Current Assets

TOTAL(A)
2450.69 3254.41 4274.15 4158.10
B- CURRENT 338.03 1004.13 843.13 1873.70
LIABILITIES & ---- ---- ----
43.31
PROVISION ---- ---- ----
161.49
Sundry Creditors
Provisions-Dividend 2993.52 4258.54 5117.28 6031.80
Corporate Dividend tax
Provision towards
Contingencies 3378.80 5861.89 1058.06 5439.70

TOTAL(B) ------- 2483.09 - 4803.83 4381.64

C- WORKING CAPITAL(A-B)

D-INCREASE / DECREASE
IN WC

BIBLIOGRAPHY
READINGS:-
1. S.N Maheshawari: Cost & Management Accounting: Sultan
Chand & Sons, New Delhi
2. M.Y.Khan & P.K.Jain: Management Accounting; Tata McGraw
Hill Publishing Co. Ltd., New Delhi.
3. I.M.Pandey: Management Accounting Vikas Publishing (P)
LTD., New Delhi.
4. N.K. Agarwal: Cost Accounting; Shuchita Prakashan (p) Ltd.
Allah bad.

REFERENCES:-

5. N.K. Prasad: Principals and Practices of Cost Accounting:

Book Syndicate (P) Ltd., Calcutta.

Published Accounts, Reports & Statistical Bulletins &

Periodicals:

6. Annual Reports of HZL. From 2002 to 2006.

7. Company’s annual data & Financial Statements.
8. Finance & Commerce.
9. Records, Journals & Magazines of HZL.

NEWSPAPERS:

10. The Economic Times.

11. The Financial Express.
12. The Times of India.
13. The Industrial Times.