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INTRODUCTION
The primary objective of any firm or organization is to make profits. No business can survive without earning profits. A business enterprise works towards these objects. To achieve this objective, every enterprise needs to finance to carry on its operations. In fact, finance is so indispensable today that finance is regarded as the lifeblood of an enterprise. This is because in the modern money oriented economy, finance is one of the basic foundations of all kinds of economic activities. It is the master key, which provides access to all the sources for being employed in manufacturing and merchandising actives. It is rightly said that business needs money to make more money. However, it is also true that money begets more money, only when it is properly managed. Hence an efficient management of every business enterprise is closely linked with efficient management of its finances. Financial statement analysis is important to boards, managers, payers, lenders, and others who make judgments about the financial health of organizations. Financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and statements. It is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm's position and
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performance .Financial statements analysis is an attempt to determine the significance and meaning of the financial statement data so that forecast may be made of the future earnings, ability to pay interest and debt maturities (both current and long term) and profitability of a sound policy.
Hence this study makes an attempt to analyze the financial statements such as Profit and Loss Account and Balance sheet of SARK CABLES PVT LTD, KANJIKODE, PALAKKAD for a period of 5 years (2004-2008) and also to evaluate some of the linkages between the different components of financial statements and their relationship with the variables like sales and profit. And to determine whether the financial position of the concern is satisfactory, in terms of profitability, liquidity and solvency.
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OBJECTIVE OF THE STUDY To analyze the financial statements to find out the firm's financial position To examine the efficiency, and managerial ability of the
concern. To find out the operating strengths and weakness of the firm's To know the earnings capacity of the firm To determine the firms short-term and long-term solvency position and ability to pay off the Concerns loans and credits. To know the trend of the business. To make suggestion for the improvement of the financial efficiency of firm.
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DATA COLLECTION
Data refers to information or facts. It is not only refers numerical figures but also includes descriptive facts. While deciding about the method of data collection to be used for the study, the investigator should keep in mind about two types of data, such as primary data and secondary data.
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PRIMARY DATA COLLECTION METHOD Primary data is the data that is used for the first time by the researcher. The primary data are collected with specific set of objectives to assess the current status of any variable studied. Primary data is useful only for the particular period. The following are the data collection methods Questionnaire Schedule Interview Observation
SECONDARY DATA COLLECTION METHODS Secondary data means data that are already available in the organization. The researcher has to look into sources for the dat from where he can obtain data. The secondary data may either be published or unpublished. Published data will be available in Magazines Journals, books Reports by management, scholars, economist etc... Public records, surveys, etc...
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As the nature of the study, relates to finance performance the main source of data used was secondary one. It includes profit and loss account, balance sheet etc. The study is in analytical nature.
II.
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However, all efforts have been taken to make the study appropriate.
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INDUSTRY PROFILE
ABOUT ELECTRICAL WIRE AND CABLE INDUSTRY:There are more than 185 companies producing electrical components in southern region, such as wire and cables, circuit breaker, coils, motor etc. The major products for electrical component sub-sector are wires and cable products. The cable and wire industry excluding enameled copper wire is basically domestic market oriented and they are mainly for power
distributions. Investment in enameled copper wire is mainly by foreign owned companies and is export oriented. Elektrisola has set up one of the most advanced fine enameled copper wire manufacturing plant in the world in, Ben tong. The wire and cable sub sector remained high primarily due to the favorable internal demand following the economic recovery which the country is experiencing together with many other Asian countries. The sub-sector produces a wide range of power and
telecommunications cables including aluminium cables, primary and secondary telephone cables, optical fibre cables, XLPE cables,
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as well as household cables, flexible cords, electronic wires and cables. The wire and cable industry supplying, supplying mainly the needs of electricity is transmission basically and distribution and
telecommunication,
domestic
market-oriented.
However the trend is towards increasing exports. In 2002-03, this sub-sector exported RM4.2billion (USD1.1 billion) and RM3.8 billion (USD1.0) billion worth of its product respectively. The wire and cable market of Kerala is a booming one. It is an emerging field with a turn over of around 125Crore Rupees Per Annum. Lot of Companies offering electrical products in Kerala market. The manufacturers are V.Guard, Finolex, Haveles, Q-Flex, SARK Cables etc. Finolex Cables are Market Leader of house wiring Cables. The exporting of Wires & Cables are also increasing annually. Also Keralas construction industry is rapidly growing and hence naturally there will be a big scope for the electrical wire manufacture.
COMPANY PROFILE
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SARK CABLES (P) LTD is an ISO 9001-2000 company started in 1996 by a Group of Engineers in Kanjikode, Palakkad Dist of Kerala State and has been over ten years successful in supplying wire and cables to the Southern states of India. A Cornerstone of companys success has always been
understanding the specific requirements of the customer related to application of cables and wires and then appraising them to use best quality cable at a very competitive rate. They have been catering to the needs of public sector undertakings, projects, OEMs in India and also executed import substitute requirements. They achieved this by stringent quality measures, accurate procedures of testing for which we have installed most modern laboratory inside our plant. In recent years, the demand for XLPE insulated power and control cables in LT range has increased. To better serve the existing customers and to increase the penetration into field of LT XLPE cable customers, company has started its new unit in Thodupuzha in the name of COCHIN POWER CABLES PVT. LTD.,
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SARK
Cables
provides
an
enriched
work
environment,
including ongoing training and continuing education opportunities. This enables their employees to be the best that they can be, to the benefit of both their customers and their community. A dedicated staff, combined with a high level of integrity, makes SARK Cables the manufacturer of choice for wire and cable assemblies. The company has achieved its growth and success through customer service, product availability, value-added services and technical expertise and will continue to do so in the future
VISION
To Provide Beneficial and Innovative Product in Time to Customers at Competitive Price that Represent the Highest Value For-money in the Industry.
MISSION
To Provide Our Customers Quality Cables at Competitive Rates with Value Added Service as well as Product Expertise and Offer Innovative ways to Solve Complex Cable Application Requirements Without any Additional Financial Burden. To provide beneficial and innovative product in time to customers at competitive price that represent the highest value for money in the industry.
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OBJECTIVES
The company was incorporated with the intention of
manufacturing and marketing the different types of the Cables & Wires. The main object of the company is to supply the different types of Cables and wires according to requirements of the customers. WORK FORCE OF SARK CABLES The strength of the Company lies on sincere and dedicated workforce. Around 60 employees are working at various
departments. Out of this 44 are working in production department, 4 in quality inspection & 12 in other departments. QUALITY OF SARK CABLES Their cables are checked for quality at every stage of manufacturing right from the raw material to the finished stage. Their extrusion lines are provided with ON-LINE spark testers and experienced engineers are managing each line of production to ensure quality. Their cables are tested outside test houses like M/s. Kerala State Electrical Inspectorate, Trivandrum, M/s Bureau of Indian Standards, Mumbai, M/s QMC, Faridabad, M/s SITRAC, Coimbatore, etc.
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QUALITY POLICY We are committed to manufacture and supply electrical and communication cables and wires conforming to the
requirements of the customer. We shall strive to produce defect free cables which ensure safety and durability. We endeavor to continually improve the quality management system and the product quality. We use only electrolytic grade conductors to ensure maximum saving on energy consumption.
ORGANISATION CHART
MANAGING DIRECTOR
BOARD OF DIRECTORS
V.V.COLLEGE OF SCIENCE AND TECHNOLOGY ,KANJIKODE,PALAKKAD. 13
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Marketing Manager
Manager Work
Personnel Manager
Purchase
Assistant
Engineer Marketing
Maintenance Engineer
Store in charge
Supervisor Production
Supervisor
Shift in charge
Testing in charge
DISTINGUISHED CUSTOMERS OF SARK CABLES Bharat Heavy Electicals Ltd. Kochi Refineries. Cochin ShipYard. Cochin Port Trust. Hindustan News Print Ltd.
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Binani Zinc Ltd. Reliance Infocomm Ltd. Transformers and Electricals Kearala Ltd. Keltrone, Trivandrum. Travancore Titanium Products. Malabar Cements Ltd. Kerala State Electricity Board. Indian Rare Earths Ltd. Kerala Minerals and Metals Ltd. Appolo Tyres Ltd. Indian Telephone Industries Ltd. Vikram Sarabhai Space Centre. Shar Centre, Sriharikota. Andrew Yule & Company Ltd. Chennai. Yokagowa Blue Star Ltd. Tata Tea Ltd.
PRODUCT PROFILE OF SARK CABLES They are manufacturing a wide Range of cables to suit the low voltage requirement of their esteemed customers.
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SINGLE CORE FLEXIBLE FR CABLES. SINGLE CORE HEAVY DUTY CABLE. INSULATED POWER CABLES. INSULATED CONTROL CABLE. SHIELDED & SCREENED CABLES. TELEPHONE AND SWITCH BOARD CABLES. MULTI CORE FLEXIBLE CABLES. 3CORE FLAT CABLES FOR SUBMERSIBLE PUMPMOTORS. WEATHER PROOF SERVICE WIRES.
(Amount in 00000)
Years Sales 2004 -1163.41 2005 -129.31 2006 -336.94 2007 540.23 2008 2099.67
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2500000
2000000
Rs. In 00000
1500000
1000000
500000
REVIEW OF LITERATURE
The basis for Financial Planning, analysis and decision making is the financial information. It is needed to predict, compare and evaluate the firms
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ability. The financial information of an enterprise is contained in the financial statement or on accounting reports. A firm communicates financial information to the users through financial statements and reports. It contains summarized information of the firms affairs, organized systematically. The financial statements are end product of financial accounting. They refer to package of statement such as Income statement, Balance Sheet, Statement of retained earnings, statement of changes in financial position
CONCEPT OF FINANCIAL STATEMENT:Financial statement, also called financial report to such statement as it contains financial information of an enterprise. Thus these statements are collection of data presented strictly according to logical and consistent accounting principles. They report financial information and operating result of an entire business at the end of the accounting period. The financial statement contains summarized periodicals report of the financial and operative data accumulated by the firm, in its book of accounts known as the general ledger.
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Financial analysis is the process of identifying the financial strength and weakness of the firm by properly established relationship between the items of the balance sheet and Profit and loss account.
MEANING OF INTERPRETATION
The term interpretation of means explaining the meaning and significance
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analysis is done depending upon the objectives to be achieved through this analysis. ON THE BASIS OF MODUS OPERANDI According to this financial analysis can also is two types:-
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MANAGEMENT TOOLS
COMPARATIVE FINANCIAL STATEMENTS Comparative financial statements are those which have been designed in a way so as to provide time perspective of various elements of financial position embodied in such statements. In these statements figures for two or more period are placed side by side to facilitate comparison. Comparative income statement will show the absolute figures for two or more period, the absolute change from one period to another and if desired the change in terms of percentages Comparative Balance sheet as on two or more different dates can be used for comparing assets and liabilities and finding out any increase or decrease in those items. COMMON SIZE FINANCIAL STATEMENTS Common size financial statements are another technique financial analysis, in which figures reported are converted into percentages to some common base. Common size balance sheet is statement in which asset is shown as a percentage of total asset and liability and capital as a percentage of total liability. A statement in
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which each expenses items are shown as a percentage of net sales is called a common size income statement. RATIO ANALYSIS Ratio Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results.
Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. MEANING OF RATIO A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many times.
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CLASSIFICATION OF RATIO
BASED ON FUNCTION
BASED ON USER
LIQUIDITY RATIO LEVERAGE RATIO ACTIVITY RATIO PROFITABILITY RATIO COVERAGE RATIO
RATIOS FOR SHORT TERM CREDITORS RATIO FOR SHAREHOLDER RATIOS FOR MANAGEMENT RATIO FOR LONG TERM CREDITORS
I.
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Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1. Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g., ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. 2. Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratios study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3. Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement.
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a) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios II. BASED ON USER:
1. Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2. Ratios for the shareholders: Return on proprietors fund, return on equity capital 3. Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios 4. Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.
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III.
BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.
1. LIQUIDITY RATIOS Liquidity refers to the ability of a concern to meet its current obligations as & when there becomes due. The short term obligations of a firm can be met only when there are sufficient liquid assets. The short term obligations are met by realizing amounts from current, floating (or) circulating assets The current assets should either be calculated liquid (or) near liquidity. They should be convertible into cash for paying obligations of short term nature. The sufficiency (or) insufficiency of current assets should be assessed by comparing them with short-term current liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory.
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2. LEVERAGE RATIOS The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings
3. ACTIVITY RATIOS
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Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affect the volume of sales. Activity ratios measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are also called Turn over ratios because they indicate the speed with which assets are converted or turned over into sales.
4. PROFITABILITY RATIOS The primary objectives of business undertaking are to earn profits. Because profit is the engine, that drives the business enterprise. Profitability ratio measure the ability of the firm to earn an adequate return on sales, total asset and invested capital. Its are mainly two types ,viz related to sales and investment.
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5.COVERAGE RATIOS: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios
As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision.
STATISTICAL TOOLS
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TREND ANALYSIS
Trend analysis is immensely helpful in making a comparative study of the financial statement of several years. Comparing the past data over a period of time with a base year called trend analysis. The method of calculating trend percentage involves the calculation of percentage relationship that each item bears to the same items in the base year. Any year can be taken as base year. The object of calculating the trend percentage is to show the direction of change in upward and down ward. SNEDECORS F TEST This test is used for testing the equality of variances of two normal populations, whether one population variance is grater than the other. In other words deciding whether two independent estimates of populations variances are homogeneous or not.
PAIRED T-TEST
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To test the equality of two population means, using two independent samples taken from the population we make the use of the above test. When two samples are dependent somehow or the other make the use of paired t-test. This test is used to measure the effect of an item on the activity. It is used to decide whether any event is effective on some other or not.
CORRELATION ANALYSIS The term correlation refers to the relationship between two variables .when two variables move together, we say they are correlated. Thus two variables are correlated if the changes in one variables result in a corresponding changes in other variable.
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MANAGEMENT TOOLS
In this chapter, analysis of the financial statements i.e. profit and loss account and balance sheet of the company and their interpretation for the last five years are made. Analysis and interpretation of financial statement is the process of determining the significant operating and financial characteristics from the accounting data found in the financial statements with a view of getting an insight into the operational results and the soundness of the enterprises.
MANAGEMENT TOOLS
Ratio analysis Comparative statement
Comparative income statement
Leverage ratio
Activity ratio
Profitability ratio
RATIO ANALYSIS
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LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. 1. CURRENT RATIOS Current ratio shows the relationship between total Current Assets and total Current Liabilities. It is also called as working capital ratio; it is called so because the working capital is the difference between the total current assets and total current liabilities of the firm. Current assets mean those assets which can be converted in to cash within a year. Current liabilities are those liabilities which are to be repaid within a year. Current Ratio = Current Assets / Current Liabilities
YEAR
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Interpretation The objectives of computing current ratio are to measure the ability of obligations in time, or to measure the margin of safety available for short term creditors. Generally a current ratio of 2:1 is considered satisfactory or ideal. Current assets shall be at least twice the current liability. This Also mean that after paying off the current liabilities, there should be sufficient margin of working capital .The companys Liquidity position is strong, as the company maintains the Standard ratio of 2 during the entire period of study and it shows an increasing trend.
Ratio
1.5 1 0.5 0
Ratio
2005-2006 2004-2005
1
2006-2007
Years
2007-2008
2008-2009
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2. QUICK RATIO Quick ratio is also known as liquid or acid test ratio. It is the real index of liquidity or short term solvency of the concern, as quick assets are taken for analysis. Quick assets refer to those assets which can be converted to cash with in a very short period without much loss. Liquid Ratio = Quick Assets / Current Liabilities. Quick Assets = Current Assets (Stock + Prepaid Expenses) Table 3.2 Liquid ratio
YEAR
QUICK ASSET
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2 1.8 1.6
1.25
1.4
1.06
1.2
1.07
Ratios1
0.8 0.6 0.4 0.2 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
0.64
Years
Interpretation The objectives of computing this ratio is to measure the ability of the firm to meet its short term liabilities as and when due without depending upon the realization of stock. Generally a quick ratio of 1: 1 is considered ideal or standard. The companys short term liquidity position is satisfactory as it attained the standard except in the year 2004-05, and it goes on increasing
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PROJECT REPORT
3. CASH RATIO
Cash ratio or absolute liquid ratio should be calculated together with current ratio and liquid ratio so as to exclude even receivables from the current assets and to find out the absolute liquid assets. It includes cash in hand and at bank and marketable securities or temporary investments. The acceptable norm for this ratio is 1:2 i.e. Re. 1 worth absolute liquid assets are considered adequate to pay Rs.2 worth current liabilities in times as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. Cash Ratio = Absolute Liquid Assets / Current Liabilities Absolute Liquid Assets = Cash & Bank + Short- term Securities
YEAR
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Ratio
Ratio
Year
Interpretation The company has achieved the standard ratio of 1 in the last two years, but it shows the increasing trend. It is because the company may have realized the importance of maintaining a certain % of liquid cash to meet its day to day immediate obligations
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LEVERAGE RATIOS
It shows the relationship between proprietors funds and debts used in financing the assets of the concern 1. DEBT EQUITY RATIO The debt-equity ratio is determined to ascertain the soundness of the long term financial policies of the company. It is also known as External-Internal equity ratio. The relationship
describing the lenders contribution for each rupee of the owners contribution is called debt equity ratio. It is computed by dividing total debt by net worth. The debt equity (debt of financial leverage) ratio indicates the extent to which the business releases on debt financing. Debt Equity Ratio =Outsiders funds/Share holders fund Table 3.4 Debt Equity ratio
YEAR DEBT EQUITY RATIO
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PROJECT REPORT
10000
8000
6000
Rs lacks
4000
Debt Equity
2000
0.7
0.5
Ratio
0.5 0.44
Ratio
0.2
0.1
Years
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Interpretation Objective of Debt Equity ratio is to measure the relative proportion of debt and equity in financing the assets. Upper acceptable limit of the debt equity ratio is usually 1:1 which is no more than 1/3 of debt in long term. A high debt to equity ratio indicates possible difficulty in paying interest and principal while obtaining more funding. A low debt equity ratio show that company is less depended on outside sources and mostly finances from internal source. From the above table and graph we can understand that investment equity is larger when compare to debt. The company has low debt equity ratio, it indicates that company is less depend on out siders. The company highest ratio is 0.72:1 during 2007-2008.
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2. PROPRIETARY RATIO Proprietary ratio establishes the relationship between share holder fund and total asset. This ratio show how much funds have been contributed by the share holder in total assets of the firms. Share holder fund/Total Assets*100 Share holders fund includes equity shares, preference share and all reserves and surplus. Total assets include all current assets and fixed assets.
RATIO (%) 73 67 60 58 69
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0.58
0.5
Ratio
0.4
Ratio
0.3
0.2
0.1
Year
Interpretation
The Proprietary ratio is computed for the purpose of knowing how much funds have been provided by the shareholder towards the total assets. Generally a ratio of 0.5:1 or above 50% or more is considered ideal. The firm maintains high ratio through out the year it indicates that the firm is less dependent on creditors. Financial position of the firm is sound.
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3. SOLVENCY RATIO Solvency ratio expresses the relationship between total asset and total liabilities of a business. It measures the solvency of the business. Long term liability to out siders / total assets*100 The major components of solvency ratio are total assets and a total debts .Total asset includes total fixed assets and total currents. Total debts means total outside liabilities. It includes long term and short term liabilities. Table 3.6 Solvency ratio
YEAR
TOTAL ASSET
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0.45
0.4
0.35
Interpretation The main objective of solvency ratio is to test or measure the solvency of a firm. The term solvency means the ability to pay outside liabilities, out of total assets. From the above table and graph we can understand that investment in total assets is more than the liability, so it indicates that company has to sufficient fund to meet from fixed assets. As a result
0.3
0.27
0.25
Ratio
0.2
0.15
V.V.COLLEGE OF SCIENCE AND TECHNOLOGY ,KANJIKODE,PALAKKAD. 45
PROJECT REPORT
4. FIXED ASSETS TO NET WORTH This ratio expresses the relationship between fixed assets and net worth. Fixed assets in this context means net fixed assets (i.e. fixed assets less depreciation) net worth means owners fund. This ratio indicates the proportion of fixed assets financed by the owners or proprietor .the standard ratio is 2/3or 67% i.e. the fixed assets should not constitute more than tow third of the proprietor funds. If the fixed assets constitute more than 67% of the proprietors funds the indication that proprietor fund are mostly sunk in fixed assets. Such indication means financial weakness of the concern. Fixed assets / Net worth Table 3.7 Fixed assets to net worth
YEAR
The company achieve standard entire period of study. It indicates that the fixed assets net worth ratio is satisfactory. It indicates that more than 67% fixed assets of company from property fund. 5. CURRENT ASSETS TO NET WORTH
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It is the ratio between current assets and net worth this indicates the proportion of current assets financed by the owners. Though there are no standard current assets to net worth ratio one can say that if this ratio is high, the financial strength of the concern is good and if this ratio is low the financial position is low. It is expressed as follows Current assets / Net worth Table 3.8 Current Assets to net worth Interpretation
YEAR
From the above table we can con clued that More than 65% current assets is financed from net worth and it nearly reach 91%during 2007-2008.usually the practice followed by the company is not fair as the current assets are financed from proprietary fund.
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Charts Showing Fixed Assets to Net worth and Current Assets To Net worth
1 0.9 0.8 0.7
Interpretation When compare above graph we can understand current assets net worth show increase in trend, during 2008-2009 it will decline to 79%. We can under stand that majority of proprietary fund is used in investment of current assets it is not good trend as the current assets should be invested from current liability.
Ratios
0.6 0.5 0.4 0.3 0.2 0.1 0
2004-2005
2005-2006
2006-2007
years
2007-2008
2008-2009
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ACTIVITY RATIOS
Activity ratios/efficiency ratios/asset utilization ratios are concerned with measuring the efficiency of a firm in asset management. This ratio indicates the speed with which the resources are turnover or converted into sales. The high turnover ratio means better use of resources. 1. INVENTORY TURNOVER RATIO
This
ratio
indicates
whether
investment
in
inventory
is
efficiently used or not. It, therefore, explains whether investment in inventories is within proper limits or not.The stock position is known as the graveyard of the balance sheet. The ratio is a measure to discover the possible trouble in the form of
overstocking or over valuation. If the sales are quick such a position would not arise unless the stock consists of unsalable items. The ratio is calculated as follows: Cost of Goods Sold / Average Inventory Cost of Goods Sold = Sales Gross Profit Average Stock = (Opening Stock + Closing Stock) / 2
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YEAR
AVERAGE
INVENTORY
1.5
Year
2007-2008 2008-2009
Interpretation The objective of calculating stock turnover ratio is to know how efficiently the stock or inventory is utilized. Generally a ratio of 8 times a year is considered
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satisfactory. A higher turnover ratio indicates that inventory is sold fast. It is indication of good inventory management. Low turnover ratio or longer
inventory period reflect over investment in inventories, accumulation of huge stock or dull business. This ratio is also an index of profitability because a high ratio indicates more profit. The company hasnt attained the standard ratio of 8 during the entire period of study. The inventories are laying in stock for long time. It shows companys inefficiency in management of inventories, and the profitability position of the concern is very poor. It shows an increasing trend.
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sales with relatively small amount of working capital, it is an indication of the operating efficiency of the company. The ratio is calculated as follows. Net Sales / Working Capital Net sales = Total sales Sales return Working capital = Current assets Current liabilities
YEAR
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Ratio
2006-2007 Years
2007-2008
2008-2009
Interpretation The objective of computing this ratio is to determine how efficiently the working capital is utilized in the business. The ideal working capital turnover ratio is 7 or 8 times. The company does not attain the standard during the entire period of the study it indicates under trading i.e. the working capital is not effectively utilized in making sales
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3. DEBTORS TURNOVER RATIO This ratio is used to test the pace with which the debtors are converted into cash. Total debtors are expected to be converted into cash within a short period of time and are included in current asset. Hence the liquidity position of a concern to pay its short term obligations in the time depends on the quality of its trade debtors.
Debtors Turnover Ratio = Net Annual Credit Sales / Average Trade Debtors. Average Collection Period = 365 / Debtors Turnover ratio.
YEAR
45
CREDIT SALES
AVERAGE TRADE
RATIO
43.54
AVERAGE
COLLECTION PERIOD
39.21
40 35 2004-2005 2005-2006 30 2006-2007 25 2007-2008 RATIO 2008-2009 20
24.82
9 12 21 15 8 Ratio
15
10 5
54
PROJECT REPORT
Generally higher the ratio the more efficient is the management of debtors. In the case of average collection period, shorter the ratio, better the quality of debtors and the firm will be ready to give more credits to them. But if the collection period is very high, the performance of the debtors may leads to bad debts. Companys debtor turnover ratio is very good. Company converts the debtors to cash within a short period, which is within 22 days. It takes a maximum of 22 days during the year 2004-05 and a minimum of 8days during 2007-08. It indicates companys strict credit policy and it is good for the company, as there is no chance for bad debts. 4. CREDITORS TURNOVER RATIO It helps in finding out how much time the firm is likely to take in repaying its trade creditors. It is the ratio between net credit purchases and the amount of sundry creditors. It states the ability of the firm to repay its debts to other companies. The higher ratio states the capacity of the firm to meet its liability and vice-versa. If the average collection period is high, it indicates the inefficiency of the firm. Creditors Turnover Ratio = Net Credit Annual purchases / Average Trade Creditors. Average Payment Period = 365 / creditors Turnover Ratio.
55
PROJECT REPORT
Interpretation The objective of this ratio is to determine the period for which credit
YEAR
CREDIT PURCHASES
purchase remains outstanding during the first year the company has low ratio and latter on it tends to increase slowly. During the first year the company takes nine months to pay out its creditors. In the rest of years, the company takes only less
56
PROJECT REPORT
than three months. In the initial period the company takes full advantages of credit allowed by the creditors.
5. ASSETS TURNOVER RATIO It is also known as investment turnover ratio. Investment in the form of different assets helps to produce and sell goods, which generate surplus for the achievement of business goals. Total Assets Turnover Ratio =Net sales / Total assets Fixed assets Turnover Ratio =Net sales / Fixed assets Current assets Turnover Ratio =Net sales / Current assets The assets turnover ratio measures the efficiency of a firm in managing itself.
YEAR NET SALES TOTAL ASSET
Higher the ratio more efficient is the management and utilization of assets where as low ratio are indicative of under utilization of available resources and presence
57
PROJECT REPORT
of ideal capacity a firms ability to produce a large volume of sales for a given amount of assets is the most important aspects of its operating performance. Table 3.13 Total Assets Turnover Ratio Interpretation Total asset turnover ratio indicates that the total asset management is satisfactory. It shows increase in trend .in the year 2007to2009, the company generates sales of Rs.1. 46 for one rupee invested in total assets.
YEAR NET
SALES
Interpretation From the above table we can con clued that the fixed assets turnover ratio is above 1.7 in the year 2008-2009 , the company generate a sales Rs 3.31 for one rupee invested in fixed assets and so on .the ration show increase in trend.
58
PROJECT REPORT
Interpretation The current assets turnover ratio is above 1.5 but less than 3during the
YEAR SALES
Chart showing Total Assets TURNOVER, FIXED Asset TURNOVER, CURRENT Assets Turnover Ratios.
3.5
2.5
Ratios
1.5
0.5
2004-2005
2005-2006
Total Asset Turnover Ratio
2006-2007
Years Fixed Assets Turnover Ratios
2007-2008
2008-2009
6. CURRENT ASSETS TO FIXED ASSETS RATIO This ratio differs from industry to industry. The increase in the ratio means that trading is slack or mechanization has been used. A decline in the ratio
59
PROJECT REPORT
means that debtors and stocks are increased too much or fixed assets are more intensively used. If current assets increase with the corresponding increase in profit, it will show that the business is expanding. Current Assets to Fixed Assets Ratio = Current Assets / Fixed Assets
YEAR
60
PROJECT REPORT
1.2
1.16 1.16
1.24
0.92
Ratio
0.8
1.01
0.6
0.4
0.2
Interpretation Analyzing the above graph we can conclude that More than 100% investment is made in the current assets. During the initial period of the study the ratio is 0.92 then it will show increase in trend up to 1.24 in 2008-2009.
61
PROJECT REPORT
9000 8000 7000 6000 5000 4000 Amount in lacks 3000 2000 1000 0 2004-2005 2005-2006 2006-2007 Years Current Assets Fixed Assets 2007-2008 2008-2009
Interpretation From the above comparative graph between current assets and fixed assets shows that in the initial period company invest more amount in fixed assets .in 2008-2009current assets is more than fixed assets ,it will show increase in trend .
62
PROJECT REPORT
The ratio explains the speed with which cash is turned over. The higher the turn over the less the cash balance required for any given level of sales and other things remain constant, it implies greater efficiency. The ratio can also be used to establish the cash balance to be held. Once the sales forecasts have been made the required cash balance be calculated, using historical cost turnover figures. However, the ratio shows only what is happening to cash balance without indicating the imperfections and irregularities caused in cash flows by the income through sales, which may be partly responsible for decline in liquidity. Cash Turnover Ratio = Sales / Average Cash Balance Table 3.17 Cash turnover ratio YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 NET SALES 1094640 1648741 1675283 2278037 2369671 CASH 16688 48510 56808 110178 331127 RATIO 65.59 33.99 29.49 20.68 7.16
63
PROJECT REPORT
50
Ratio
40
30 20.68 20
10
7.16
0 2004-2005
2005-2006
2006-2007 Year
2007-2008
2008-2009
Interpretation The company has fluctuating cash turnover ratio during the entire period of study; it varies from 7% to 65%. The company failed to maintain the satisfactory ratio only in the last year.
64
PROJECT REPORT
PROFITABILITY RATIOS
These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. 1. GROSS PROFIT RATIO The gross profit ratio also knows as gross margin. Gross profit is defined as the difference between net sales and cost of goods sold. The ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing. To analyze the factors underlying the variation in gross profit
margin, the proportion of various elements of cost [labour, materials, and manufacturing overheads] to sales. Gross Profit / Net Sales X 100 A high gross profit ratio implies that the firm is able to produce at relatively lower cost and it indicates a sign of good
65
PROJECT REPORT
35
Ratio
25 Ratio
20
15
10
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
Years
Interpretation
The main objective of computing this ratio is to determine the efficiency in trading or production activity. The ideal ratio is 20%to 25%. Gross profit ratio of the concern below 40%during the period of the study it indicates more than 60% is production cost, which is higher than the standard.
66
PROJECT REPORT
It shows increase in trend, it is the good sign for the company, company try to reduce the production cost .so the gross profit ratio of the concern is satisfactory.
2. NET PROFIT RATIO Net profit ratio is the ratio of net profit to net sales. Net profit means final balance of operating incomes after meeting all expenses, operating and nonoperating. It is calculated as Net profit ratio = Net profit / Net sales *100 Net profit ratio indicates managements efficiency in manufacturing, administering and selling the products. This is a measure of overall profitability. It indicates what portion of sales is left to the owners after all expenses have been met. This ration also indicates the firms capacity to withstand adverse economic conditions. A high net profit would indicate higher overall efficiency of the business, better utilization of limited resources and reasonable return to owners. A low net profit ration would mean low efficiency and inadequate returns to owners
67
PROJECT REPORT
YEAR
5 2.37
Ratio
-0.78 -2.01 -5
Ratio
-10 -10.63
2004-2005
-15
2005-2006
2006-2007
Years
2007-2008
2008-2009
Interpretation
68
PROJECT REPORT
The objective of this ratio is measure over all profitability. The ideal ratio is 5%-10% however in order to understand the real ability of the management to earn profit; this ratio should be used along with working capital turnover ratio. Net profit ratio of the company is below standard during the entire period of study, as the operating and non operating expense is high .the ratio show increase in trend.
69
PROJECT REPORT
The net profits of firm are affected by the amount of depreciation charged. Depreciation being non-cash expenses it is better to calculate cash profit ratio. It measures the relation between cash generated from operation and net sales. Cash profit ratio = cash profit / Net sales*100 Table 3.20 Cash Profit Ratio
YEAR
NET
PROFIT AFTER TAX
DEPRECIATION
CASH PROFIT
SALES
RATIOS
From the above table we can conclude that the cash profit ratio is very high throughout the year when compared to net profit, it is due to high amount of depreciation.
70
PROJECT REPORT
50 45.63 45 40 35 30 25 Ratio 20 15 10 5 0 2004-2005 2005-2006 2006-2007 Years Ratios 2007-2008 2008-2009 38.5 38.7 34.15 41.78
45.63
40
38.5
38.7 34.15
41.78
30
Ratio
2.37
0 2004-2005
8.86
-0.78
2005-2006
-2.01
2006-2007
2007-2008
2009-2010
-10
-10.63
-20 Years
71
PROJECT REPORT
4. OPERATING RATIO This ratio establishes relation between cost of goods sold and other operating expenses on one hand sales on the other. It measures the cost of operations per rupee of sales. Operating ratio = operating cost/net sales *100 Operating cost= cost of goods sold + operating expenses Operating expenses consist of administrative and office expenses and selling and distribution expenses. A low ratio is favorable because it will leave a large amount of operating income to meet interest, tax and fair return to owners. A high operating ratio is unfavorable because it will leave a small amount of operating income to meet financial expenses like interest, tax, etc. This ratio explains the changes in the N/P ratio Table 3.21 Operating cost Ratio
YEAR
OPERATING
COST
SALES
RATIO
72
PROJECT REPORT
120
100
80
Ratios
60
Ratio
40
20
2004-2005
2005-2006
2006-2007 Years
2007-2008
2008-2009
Interpretation The objective of this ratio is to find the operational efficiency of the business. Even though there are no standards but 75% to 85% may be considered a good ratio for manufacturing undertakings. The company does not achieve the standard during the entire period of the study, but in 2008-2009 it is nearness to standard 86.36. This ratio indicates that every 100 Rs sales, the cost of goods sold and operating expenses are above 85% .It show decrease in trend
73
PROJECT REPORT
5. OPERATING PROFIT RATIO Operating profit ratio explains the relationship between operating profit and net sales. It is calculated by Operating profit ratio = (operating profit/net sales)*100 Operating profit = net sales-cost of goods sold- operating expenses Operating profit means profit from normal business operation. It is the profit before adjusting non operating expenses, which includes donation, charities, loss on sale of fixed assets, discount on issue of shares and debentures, expenses on issue of shares and debentures, preliminary expenses provision for income tax, etc. Table 3.22 Operating Profit Ratio
YEAR
SALES
74
PROJECT REPORT
10
3.94
5.4
Ratio
Ratio
-5
-7.96 -10
Years
Interpretation From the above table and graph we can understand that during the initial period the firm can suffer operating loss because of heavy operating cost. The ratio shows increase in trend, it indicates that the firm can take appropriate step to control their operating cost as a result, operating profit increase.
75
PROJECT REPORT
6. EXPENSES RATIOS
This ratio shows the relationship between each expenses and sales. To determine the degree of which specific expenses are under control or ate tending to move out of control. The different variants of this ratio are Cost of goods sold ratio = cost of goods sold / sales *100 Administrative expenses ratio= Administrative expenses / Net sales *100 Selling and distribution expenses ratio = selling and distribution expenses / Net sales*100 Table 3.23 Cost of goods sold ratio
YEAR COST GOOD SOLD SALES
Interpretation Cost of goods sold ratio is very high during the entire period of the study as a result gross profit ratio will be low. It show decrease in trend. Table 3.24 Administration Expenses ratio
76
PROJECT REPORT
YEAR
SALES
Interpretation The ratio is very high during 2007-2008while very low in 2008-09 the ratio is below 18%. Table 3.25Selling and Other Expenses ratio:
YEAR
SALES
This ratio is respectively low and is high during 2007-08 which helped to increase the sales & net profit.
77
PROJECT REPORT
50
Ratio
40
30
20
16.32
15.45 7.05
10
0 2004-2005 2005-2006 2006-2007 Year Administration Expanses Ratio Selling and Other Expanses Ratio Cost good sold Ratio 2007-2008 2008-2009
Interpretation From the above comparative graph show cost of goods sold ratio during the entire period of study is very high, more than 60% it indicates that major portion of operating expenses include cost of goods sold .Administration expenses ratio show flat rate trend during the study period. Selling expenses ratio maintained by the company is stable from 2004-2008, during 2008-2009 it was decreased by 4.99%.
78
PROJECT REPORT
RETURN ON INVESTMENT (ROI) The rate of earnings on capital employed is refered to as ROI. This is overall profitability ratio. It is used as a basis for various managerial decisions like expansion and diversification of activities. It may be called as efficiency ratio. The ROI may be calculated by any one of the following three methods. ROI = Profit before interest and tax/Gross capital employed*100 Gross capital means total assets ROI= Profit before interest and tax /net capital employed*100 Net capital means fixed assets + current assets-current liabilities. The following table shows the ROI of the company for five years. Table 3.26 Return on investment (ROI)
YEAR
Interpretation
79
PROJECT REPORT
The main objective of computing ROI is to know how much profit is earning on capital employed .in the other words the purpose is to know how efficiently the capital employed in the business is utilized. The ideal return on capital employed ratio is 15%. From the above table we can understand that ROI of the company is varying in all the five years.ROI is very high during 2008-2009.while ROI is very low during 2004-2005 it show increase in trend. ROI is not satisfactory during the period of the study.
80
PROJECT REPORT
In this statement figures of two or more period are placed side by side to facilitate comparison. Comparison provides valuable information regarding progress and decline of the concern.
Particulars Sales (-) Cost of goods sold Gross Profit (+) Operating income (-) Operating Expenses Operating Profit (- )Non operating Expenses Profit Before Tax (-) Provision for Income Tax & Deferred Tax Prior period adjustment Net Profit
2007-2008 22780.37 14829.63 7950.74 37.97 6720.25 1268.46 728.64 539.82 0.71 1.12 540.23
2008-2009 23696.71 14288.86 9407.85 129.76 6175.27 3362.34 657.51 2704.83 197.07 -130.85 2099.67
Amt.of Inc./Dec. 916.34 -540.77 1457.11 91.79 -544.98 2093.88 -71.13 2165.01 196.36 -131.97 1559.44
% of Inc/Dec 4.02 (-3.65) 18.33 241.74 (-8.11) 165.07 (-9.76) 401.06 27656.34 (-11783.04) 288.66
Interpretation
81
PROJECT REPORT
From the above comparative income statement ,we can under stand that sales has been increased by 4 % .while manufacturing expenses reduced 3.7%which helps to increase the gross profit by 18%. Operating income has increased by 242% while operating expenses has reduced by 8%which helps to increase the operating expenses has reduced by 8% which helps to increase the operating profit by 165%.the company tried to reduce the non-operating expenses also. When compared to last year the company has reduced all the expenses. Such as manufacturing, operating & non operating expenses, as a result the net profit of the company is increased by 289%.
82
PROJECT REPORT
Assets
Net fixed assets Investment 7111.04 1 7148.79 1 current assets Cash and bank Sundry debtors Advances Prepaid expenses Stock Others Total current assets Misllanious exp.written off Total Assets 1101.78 741.79 1917.14 14.4 4451.44 1.82 8228.44 273.97 15614.45 3311.27 346.67 1946.2 13.26 3218.82 1.68 8837.9 238.83 16226.52 2209.49 (-395.12) 29.06 (-1.21) (-1232.62) (-0.140 609.46 (-35.14) 612.07 200.54 (-53.27) 1.52 (-8.36) (-27.690 (-7.69) 7.41 (-12.83) 3.92 37.75 0.53
83
PROJECT REPORT
Interpretation From the above comparative statement we can understand that the company maintains the same level of capital. The long-term loans have decreased by 39%.it means that the company has repaid 39% of their loans. And the current liabilities have decreased. While analyzing the assets we can understand that fixed assets has increased very low that is less than 1%. But the current assets other than cash balance is decreased .the company maintains a very high percentage of liquid cash that is 200%.maintaing this much of liquid cash is not a good trend, as it reduce the profitability of the company. Though sales have been increased by 4.02%the amount of sundry debtor has declined by 53.27%.this indicates that company follows an effective credit and collection policies.
84
PROJECT REPORT
Interpretation By analyzing the common size statement we can understand that cost of goods sold is more than 60%out of total sales, but it decreased by 5 % during 2008-2009.it is a good sign for the company. The company tried to reduce all the expenses .the net profit during 2007-2008 is 2.37% while during 20082009 it is 9%. The profit is very low it is due to increased cost of goods sold. COMMON SIZE BALANCE SHEET
85
PROJECT REPORT
Short-term loan Sundry creditor Outstanding expenses Other current liabilities Total current liabilities Total liabilities
4% 6% 7% 17% 100%
Net fixed assets Investment Cash and bank Sundry debtors Advances Prepaid expenses Stock Others Total current assets Misllanious exp.written off Total assets
7111.04 1 1101.78 741.79 1917.14 14.4 4451.44 1.82 8228.44 273.97 15614.45
7148.79 1 3311.27 346.67 1946.2 13.26 3218.82 1.68 8837.9 238.83 16226.52
44%
Interpretation
86
PROJECT REPORT
The percentage of current assets to total assets 53% in 2007-08.it has gone up to 54%in 2008-09similarly the percentage of current liabilities to total
liabilities(including capital) has also come down 20%in 2007-08 to 17%in 200809.thus the proportion of current assets has been increased by a higher percentage as compared to current liabilities. This has been improved the working capital position of the company. Fixed assets represent 44% and current assets represent 56%out of total assets in 2008-09 it indicates that the company gives more importance to current assets than fixed assets. While in case of liability current liability represent 34% and, capital 16% and long term loans 13 %.
87
PROJECT REPORT
USING STATISTICAL TOOLS Multitude of different statistical tools is available, some of them simple, some complicated, and often very specific for certain purposes. In analytical work, the most important common operation is the comparison of data, or sets of data, to quantify accuracy (bias) and precision. Clearly, statistics are a tool, not an aim. Simple inspection of data, without statistical treatment, by an experienced and dedicated analyst may be just as useful as statistical figures on the desk of the disinterested. The value of statistics lies with organizing and simplifying data, to permit some objective estimate showing that an analysis is under control or that a change has occurred. Equally important is that the results of these statistical procedures are recorded and can be retrieved. For analysis, I have used statistical tools such as Correlation, trend analysis, paired t test , f-test
TREND ANALYSIS CORRELATION
STATISTICAL TOOLS
T -TEST
SNEDECORS F-TEST
TREND INCOME STATEMENT OF SARCK CABLES PVT LTD, KANJIKODE PALAKKAD FOR THE LAST FIVE YEARS
88
PROJECT REPORT
SALES (-) COST OF GOODS SOLD GROSS PROFIT (+) OPERATING INCOME
(-) OPERATING EXPENSES OPERATING PROFIT (- )NON OPERATING EXPENSES PROFIT BEFORE TAX (-) PROVISION FOR INCOME TAX & DEFERRED TAX PRIOR PERIOD ADJUSTMENT NET PROFIT
Interpretation
89
PROJECT REPORT
The sales, profit and all other items except operating profit shows an increasing trend. But the net profit shows a decreasing trend .sales shows an extra ordinary increase while profit show decreasing trend it is due to increase trend of expenses.
90
PROJECT REPORT
YEAR
%CHANGES IN SALES
2007-2008 2008-2009
216.48
200
150
100
50
2004-2005
2005-2006
2007-2008
2008-2009
91
PROJECT REPORT
YEAR
%CHANGES GROSS
PROFIT
%CHANGES NET
PROFIT
92
PROJECT REPORT
350
300
250
Percentage
100
50
Years
YEAR
%CHANGES
OPERATING EXPENSES
%CHANGES NON
OPERATING EXPENSES
93
PROJECT REPORT
250
200
Percentage
100
50
Year
TREND BALANCE SHEET OF SARCK CABLES PVT LTD, KANJIKODE PALAKKAD FOR THE LAST FIVE YEARS
100
94
PROJECT REPORT
RESERVES & SURPLUS LONG TERM LOANS CURRENT LIABILITIES 1. SHORT TERM LOANS 2. SUNDRY CREDITORS 3. OUTSTANDING EXPENSES 4.OTHER CURRENT LIABILITIES TOTAL CURRENT LIABILITY TOTAL LIABILITY ASSETS FIXED ASSETS LESS DEPRECIATION INVESTMENT CURRENT ASSETS 1.CASH & BANK 2.SUNDRY DEBTORS 3.ADVANCES 4.PREPAID EXPENSES 5.STOCK 6.OTHERS TOTAL CURRENT ASSETS MISLLANIOUS EXP. WRITTEN OFF TOTAL ASSETS
99.09 100 290.69 298.43 139.36 166.41 98.68 103.07 125.06 134.98 111.81
115.03 100 340.41 391.91 144.89 183.98 88.68 102.45 126.08 164.8 120.87
116.55 100 660.22 265.74 132.03 123.99 120.72 111.66 146.97 186.46 131.79
117.16 100 1984.22 124.19 134.03 113.62 87.29 103.07 157.85 162.55 136.95
Interpretation
The share capital has remained the same over the years. The company has maintained a good amount of reserve & surplus which shows an increase in trend during last two years.
95
PROJECT REPORT
The cash balance of the company has continuously increased. It recorded a trend by more than 290% for the period .this reflects poor cash management. From the analysis we conclude that all the items in the balance sheet shown an increase in trend.
96
PROJECT REPORT
YEAR
%CHANGES CURRENT
ASSETS
%CHANGES
CURRENT
LIABILITY
180
160
140
120
100
80
Perc enta ge
60
40
20
0 2004-2005 2005-2006 2006-2007 Years %changes current assets %changes current liability 2007-2008 2007-2008
97
PROJECT REPORT
YEAR
%CHANGES IN CASH
AND BANK
CHANGE FROM
PREVIOUS YEAR
100 290.69 340.41 660.22 1984.22 318.22 401.20 934.90 3144.39 318.22 82.98 533.70 2209.49
2500
2000
1984.22
Percentage
1500
1000
660.22
500 2008-2009
290.69
0
340.41
100
2004-2005 2005-2006 2006-2007 Years Ratio 2007-2008
SNEDECOR'S 'F'-TEST
98
PROJECT REPORT
This test is used for testing the equality of variances of two normal populations, whether one population variance is greater than the other. In other words deciding whether two independent estimates of population's variance are homogeneous or not. Testing variance between share market price high and low in different months for the period 2008 2009.
Month April May June July August September October November December January February March Total ()
High price(x1) 265.7 278 307.7 309 292.4 285 299.9 295 274 253 238.4 241 3339.1
Low price(x2) 260.2 267.55 275 283 277.65 270.2 285 280.1 250 232.15 228 221.25 3130.1
(x1 ) 2 70596.49 77284 94679.29 95481 85497.76 81225 89940.01 87025 75076 64009 56834.56 58081 935729.1
(x2 )2 67704.04 71583 75625 80089 77089.52 73008.04 81225 78456.01 62500 53893.62 51984 48951.56 822108.8
n1 s12 F= n1 1 n2 s22
99
PROJECT REPORT
n2 1
x1 = x1 / n x2 = x2 / n = = 3339.1 / 12 3130.1 / 12 = = 278.26 260.84
s12
x1
/ n1 - ( x1)2
{(935729.1/12 )
77977.43 548.79
- (278.26)2} - 77428.63
s22
x2
/ n1 - ( x2)2
{(822108.8 /12 )
68509.07 471.56
- (260.84)2} - 68037.51
12*548.79
n1 s12 / n1 1
= =
n2 s22 / n2 1
= =
12 1 514.43
H0: 12 = 22 against H1: 12 >. 22 ( - variance) Let = 0.05 level of significance 5% The best critical region is = F>F . Table F for (n1-1, n2- n1)
100
PROJECT REPORT
n1 s12 / n1 1 n2 s22 / n2 1
=
=
598.68/514.43 1.16
Since calculated value is less than table value H0 (Hypothesis) is accepted. The variances of share market prices are equal. The share market prices change during the months is similar when the market prices are low and high. The changes between them are same since their variances are equal.
PAIRED T-TEST To test the equality of two population means, using two independent samples taken from the population we make the use of the above test. When the
101
PROJECT REPORT
two samples are dependent somehow or the other make the use of paired t-test. This test is used to measure the effect of an item on the activity. It is used to decide whether any event is effective on some other or not. To test the effect of operating and non operating expenses on Net Profit.
Gross Profit( xi ) Net Profit( yi ) 2915.83 5142.23 4898.7 7950.74 9407.85 (-1163.41) (-129.31) (-336.94) 540.23 2099.67
We assume that the operating and non operating expenses not affect the net profit.
That is we are testing H0 = 0 against H1 0 for =0.05 ,significance level 5% degree of freedom is 4.Table value for 4 at 5% level = 2.775
102
PROJECT REPORT
d sd n-1
di
xi - yi
YEAR
di n
29305.11 / 5 =
5861.02
S2 d
di 2
n
=
{ (180166412.53 / 5) (5861.02)2 }
36033282.50 - 34351578.88
S2 d Sd
= = =
103
PROJECT REPORT
There for
5861.02 129.80/ 4
5861.02 64.90
= |t| =
Science Calculated value of tgreater than table value the hypothesis H0 is rejected. That means, operating and non operating expenses have been influencing net profit deeply.
104
PROJECT REPORT
CORRELATION BETWEEN SALES AND GROSS PROFIT year 2004-05 2005-06 2006-07 2007-08 2008-09 Total () Sales(x) 109.46 164.87 167.53 227.80 236.97 906.63 Gross profit(y) 29.16 51.42 48.99 79.51 94.08 303.16 3191.85 8477.62 8207.29 18112.38 22294.14 60283.28 11981.49 27182.12 28066.30 51892.84 56154.78 175277.53 850.31 2644.02 2400.02 6321.84 8851.05 21067.24 XY X2 Y2
26562.45 54409.69
13430.30
26562.45 233.26*115.89
26562.45 27032.50
105
PROJECT REPORT
0.98
Interpretation The coefficient correlation between sales and gross profit show a positive correlation. It indicates that both sales and gross profit in the same direction. That is increasing trend.
CORRELATION BETWEEN SALES AND NET PROFIT SALES(X) 109.46 164.87 167.53 227.80 236.97 906.63 NET
PROFIT(Y)
YEAR
XY
X2
Y2
175270.32 617.95
106
PROJECT REPORT
11615.67 54409.69
2987.54
11615.37 233.26*54.66
11615.37 12849.64
0.9107
Interpretation The coefficient correlation between sales and net profit show a positive correlation. It indicates that both sales and net profit in the same direction. That is increasing trend.
In this chapter an attempt is made to summaries the various findings made in the previous chapters in the course of the study. Suggestion is made where
107
PROJECT REPORT
ever necessary to improve the profitability, liquidity and financial position of the company. The main objective of the study as follows To examine the performance, efficiency, and
managerial ability of the concern. To determine the profitability of and financial prospect
solvency position and ability to pay off the Concerns loans and credits. To make suggestion for the improvement of the financial
efficiency of the firm. In this study more attention is given to the financial performance of the company. Some of the other related points are also studied in order to get a clear picture about the concern. The data used for the study is the financial statement of the company related to a period of five years. Even with many limitation ,all efforts have been made to make the study appropriate.
108
PROJECT REPORT
4. The leverage ratio shows that the company includes less outsiders
fund when compared to equity shares. It shows that they depends less on borrowed funds and has to pay less interest to outsiders fund. 5. Analysis of working capital requirement reveals a rising trend in the initial years but for the last two years it shows a decreasing trend it may be of several factors such as inefficiency of the management or of the poor operating efficiency and other general economic factors which prevails the entire economy.
109
PROJECT REPORT
as good. But the company achieves only 3-4 times a year. This shows that the inventory is locked up as unsold goods and the cash is locked up in the inventory, in turn it effects the working capital rotation.
10.
company attained the required level. Before the previous year it shows a negative level and it is unable to meet out the promised return on investment.
SUGGESTIONS
110
PROJECT REPORT
On the basis of the above findings, the following suggestions are made
4. The analysis shows that the inventory turnover ratio is not satisfactory. It
indicates poor inventory management, so the company can try to improve the inventory turnover ratio so as to reduce the cash blocked in inventory 5. The management should take effective steps to control the operating expenses and non operating expenses.
So in order to stay in the market and to face competition, optimum level of working capital should be maintained and there should be proper management in
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PROJECT REPORT
current assets along with fixed assets, the company should try to utilize the available resources to optimum level and reduce all the expenses to maximum extend to increase the profit level
CONCLUSION
From the study, it reveals that the profitability of the company is low. By the analysis we can understand that the firm has more owners fund than outsiders fund, so the control and management is wholly in the hand of share holders. Short-term solvency position of the Company is satisfactory. The training program will provide a birds eye view regarding the enterprise, from this we can conclude that firm has invest
liquid cash in profitable manner so as to improve profitability position and to make equalize position both in liquidity & profitability. Thus the project report completed satisfactorily by overcoming all the limitations.
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