1.1 INTRODUCTION Financial management has vital and an
integrated part of business management. Financial management is
concerned with the planning and controlling of the firms financial
resource. It is often said that the financial management has
received less emphasis as compared to topics like production and
marketing. However, the task of financial planning and controlling
will assume relative more important role than in the past due to
certain changes that have taken place or will take place in
economy. Factors such as increasing pace of industrialization,
technological innovations land inventions, raising price levels,
increasing influence of government in financial matters
etc...DEFINATION OF FINANCIAL MANAGEMENT: Financial management is
that managerial activity which is concerned with the planning and
controlling of the firms financial resources.OBJECTIVES OF
FINANCIAL MANAGEMENT: The financial objective of a company is to
maximize owners economic welfare. However, there is disagreement as
to how the economic welfare of owners can be maximized. They are
mainly two points discussed.1. Profit maximization2. Wealth
maximization
OBJECTIVES OF PROFIT MAXIMIZATION:1. An individual or firm
performing any economic activity rationally aims at utility
maximization. Utility can be measure in terms of profit.2. Profit
maximization assumes perfect competition.3. Enhancement of personal
power and individual wealth.4. The modern business environment is
characterized by limited liability and a divorce between management
and ownership.5. Profit maximization is regarded as unrealistic,
difficult, inappropriate and immoral.6. A market economy,
characterized by a high degree of competition, would certainly
ensure efficient production of goods and services desired by
society.Profit maximization suffers from the following
limitations1. It is vague 2. It ignores the timing of returns3. It
ignores risk.
WEALTH MAXIMIZATION: Wealth maximization means maximizing the
net present value of a course of action to shareholders. Wealth of
a course of action is the difference between that present value of
its benefits and the present value of its costs.1. Questions of the
timing and risk of the expected benefits.2. Wealth maximization
objective is an appropriate and operationally feasible criterion to
choose among the alternative financial actions.3. Maximize in
making investment and financing decisions on behalf of
shareholders.
1.2 RATIO ANALYSISFinancial Analysis is the process of
identifying the financial strengths and weaknesses of the firm by
the properly establishing relationship between the items of the
Balance Sheet and the Profit and Loss Account. Financial Statement
Analysis is managerial interpretation of financial statements for
parties demanding financial information. Ratio Analysis is a widely
used tool financial analysis. The term ratio in it refers to the
relationship expressed in mathematical terms between two individual
figures or group of figures connected with each other in some
logical manner and are selected from Financial Statements of the
concern. 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 weaknesses of a
firm. A ratio reflecting a quantitative relationship helps to from
a qualitative judgment.A single ratio does not convey much meaning
and has to be compared with some standard. Standard of comparison
may consist of:1. Past Ratios2. Projected Ratio3. Competitors
Ratios4. Industry ratios
Time Series Analysis:When financial ratios over a period are
compared, it is known as the time series analysis. The performance
of a firm is evaluated by comparing its present ratios with past
ratios.
Cross-Sectional Analysis:Comparing the ratios of one firm with
some selected firms in the same industry at the same pint in time
is known as the cross-sectional analysis. Pro Forma Analysis: The
comparison of current (or) past ratios with future ratios is
projected analysis or pro forma analysis. It shows the firms
relative strengths and weaknesses in the past and future. Future
ratios can be developed from the projected or pro forma, financial
statements. Utility of Ratio Analysis:The Ratio analysis is the
most powerful tool of financial analysis with the help of ratios
one can determine: The ability of the firm to meet its current
obligations; The extent to which the firm has used its long-term
solvency by borrowing funds; The efficiency with which of the firm
is utilizing its assets in generating sales revenue. The overall
operating efficiency and performance of the firm.
Performance Analysis: A short-term creditor will be interested
in the current financial position of the firm, while a long-term
creditor will pay more attention to the solvency of the firm. He
will also be interested in the profitability of the firm. The
equity shareholders are generally concerned with their return and
also about the financial conditions only when their earnings are
depress. Credit Analysis: In credit analysis, the analyst will
usually select a few important ratios. He may use the current ratio
or quick-ratio to judge the firms liquidity or debt-paying ability
debt-equity ratio to determine the stake of the owners in the
business and the firms capacity to survive in the long run and any
one of the profitability ratios. Security Analysis: The ratio
analysis is also useful in security analysis. The major focus in
Security Analysis is on the long-term profitability. The detailed
analysis of The earning power is important for security analysis.
Comparative Analysis:The ratio of a firm by themselves does not
reveal anything. For meaningful Interpretation, the ratios of a
firm should be compared with the ratios of similar firms and
industry. This comparison will reveal whether the firm is
significantly out of line with its competitors. If it is
significantly out of line, the firm should undertake a detailed
analysis to spot out the trouble areas. Trend Analysis: Trend
analysis of the ratios adds considerable significance to the
financial analysis because it studies ratios of several years and
isolates the exceptional instances occurring In one or two periods.
Although the trend analysis of the companys ratios itself is
Informative, but it is more informative to compare the trends in
the companys ratios with the trends in industry ratios. Management
has to protect the interest of all the conditional parties,
creditors, Owners and others. They have to ensure some minimum
operating efficiency and keep the risk of the firm at a minimum
level. Their survival depends upon their operating
Performance.RATIO ANALYSISThe term Ratio refers to the numerical
and quantitative relationship between two items or variables. This
relationship can be exposed as Percentages Fractions Proportion of
numbersRatio analysis is defined as the systematic use of the ratio
to interpret the financial statements. So that the strengths and
weaknesses of a firm, as well as its historical performance and
current financial condition can be determined. Ratio reflects a
quantitative relationship helps to form a quantitative
judgment.STEPS IN RATIO ANALYSIS The first task of the financial
analysis is to select the information relevant to the decision
under consideration from the statements and calculates appropriate
ratios. To compare the calculated ratios with the ratios of the
same firm relating to the pas6t or with the industry ratios. It
facilitates in assessing success or failure of the firm. Third step
is to interpretation, drawing of inferences and report writing
conclusions are drawn after comparison in the shape of report or
recommended courses of action
BASIS OR STANDARDS OF COMPARISONRatios are relative figures
reflecting the relation between variables. They enable analyst to
draw conclusions regarding financial operations. They use of ratios
as a tool of financial analysis involves the comparison with
related facts. This is the basis of ratio analysis. The basis of
ratio analysis is of four types. Past ratios, calculated from past
financial statements of the firm. Competitors ratio, of the some
most progressive and successful competitor firm at the same point
of time. Industry ratio, the industry ratios to which the firm
belongs to Projected ratios, ratios of the future developed from
the projected or pro forma financial statements.NATURE OF RATIO
ANALYSISRatio analysis is a technique of analysis and
interpretation of financial statements. It is the process of
establishing and interpreting various ratios for helping in making
certain decisions. It is only a means of understanding of financial
strengths and weaknesses of a firm. There are a number of ratios
which can be calculated from the information given in the financial
statements, but the analyst has to select the appropriate data and
calculate only a few appropriate ratios. The following are the four
steps involved in the ratio analysis. Selection of relevant data
from the financial statements depending upon the objective of the
analysis. Calculation of appropriate ratios from the above data.
Comparison of the calculated ratios with the ratios of the same
firm in the past, or the ratios developed from projected financial
statements or the ratios of some other firms or the comparison with
ratios of the industry to which the firm belongs.
INTERPRETATION OF THE RATIOSThe interpretation of ratios is an
important factor. The inherent limitations of ratio analysis should
be kept in mind while interpreting them. The impact of factors such
as price level changes, change in accounting policies, window
dressing etc., should also be kept in mind when attempting to
interpret ratios. The interpretation of ratios can be made in the
following ways. Single absolute ratio Group of ratios Historical
comparison Projected ratios Inter-firm comparisonGUIDELINES OR
PRECAUTIONS FOR USE OF RATIOSThe calculation of ratios may not be a
difficult task but their use is not easy. Following guidelines or
factors may be kept in mind while interpreting various ratios are
Accuracy of financial statements Objective or purpose of analysis
Selection of ratios Use of standards Caliber of the analysis
OBJECTIVES (OR) PURPOSE OF RATIO ANALYSIS: The nature of
analysis will differ depending on the purpose of the analyst. It
can be undertaken by management of the firm, or by parties outside
the firm namely owners, creditors, investors and others Trade
Creditors: They are interested in firms ability to meet their
claims over a very short period of time. Hence their analysis is
confined to evaluation of the firms liquidity position. Suppliers
of long-term debt: They are concerned with firms long-term solvency
and survival. They analyze the firms profitability over time, its
ability to generate cash to be able to pay interest and repay
principal and the relationship between various sources of funds.
Investors: They are most concerned about the firms earnings. They
are also interested in every aspect of the firms financial
structure to the extent it influences the firms earnings ability
and risk. Management: They would be interested in every aspect of
Financial Analysis. It is their overall Responsibility to see that
the resources of the firm are used most effectively and
efficiently, and that the firms financial condition is sound.
USERS OF RATIO ANALYSIS:a) Financial analysis is the process of
identifying the financial strength and weakness of firm by properly
establishing relationship between the items of balance sheet and
the profit and loss account.b) Trade creditors are interested in
firms ability to meet their claims over a very short period of
time. Their analysis will therefore, confine to the evaluation of
the firms liquidity position.c) Suppliers of long-term debt are
concerned with firms long-term solvency and survival. They analysis
the firms profitability overtime. Its ability to generate cash to
be able to pay interest and repay principal and relationship
between various sources of funds.d) Investors, who have interested
their money in the firms. Shares are almost concerned about the
firm earnings. They restore more confidence in thos3e firms that
shows steady growth in earnings.e) As such, they concentrate on the
analysis of the firms financial structure to the extent it
influence the firms earnings ability and risk.f) Management of the
firm would be interested in every aspect of the financial analysis.
It is their overall responsibilities to see that the resources of
the firm are used most effectively and efficiently, and that the
firms financial condition is sound.
MANAGERIAL USES OF RATIO ANALYSIS:1. Help in decision making:
Financial statements are prepared preliminarily for decision
making. But the information provided in financial statements is not
an end in itself and no meaningful conclusion can be drawn from
these statements alone. Ratio analysis helps in decision making
decisions from the information provided in these financial
statements.1. Helps in financial forecasting and planning:Ratio
analysis is of much help in financial forecasting and planning.
Planning is looking ahead and the ratios calculated for a number of
years work as a guide for future. Meaningful conclusions can be
drawn for future from these ratios. Thus ratio analysis helps in
forecasting and planning.
2. Helps in communication: The financial strength and weakness
of a firm are communicated in a more easy and understandable manner
by the use of ratios. The information contained in the financial
statements is conveyed in a meaningful manner to the one for even
if it meant. thus, ratios help in communication and enhance the
value of the financial statements.3. Helps in co-ordination :
Ratios even in co-ordination which is of at most importance in
effective business management. Better communication of the
efficiency and weakness of an enterprise results in better
co-ordination in the enterprise.4. Helps in control:Ratio analysis
is also helps in making effective control of the business.
Slandered ratios can be based upon Performa of financial statements
and variances or deviations, if any, can be found by comparing the
actual with the standard so as to take a corrective action at the
right time.
IMPORTANCE OF RATIO ANALYSIS In the preceding discussions, we
have illustrated the computation and the implication of the
important ratio that can be calculated from the balance sheet and
profit and loss accounts of the firm. As a tool of financial
management, they are of crucial significance. The importance of
ratios analysis lies in his fact that it presents facts on a
comparative basis and enables the drawing of inferences regarding
the performance of a firm. Ratio analysis is relevant in assessing
the performance of a firm in respect of the following aspects. Aid
to measure general efficiency Aid to measure financial solvency Aid
in forecasting and planning Facilitate decision making Aid in
corrective action Aid in intra-firm comparison Act as a good
communication Evaluation of efficiency Effective tool
LIQUIDITY POSITION: With the help of ratio analysis conditions
can be drawn regarding the liquidity 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 the ability to meet its short-term liabilities if it
has sufficient liquid funds to pay the interest on its
short-maturing debt usually within a year as well the principal.
The liquidity ratios are particularly useful in credit analysis by
bank and other suppliers of short-term loans.LONG-TERM SOLVENCY:
Ratio analysis is equally useful for assessing the long-term
financial liability of a firm. The long-term solvency is measured
by the leverage and capital. Structure and profitability ratios
which focus on earning power and operating efficiency. Ratio
analysis reveals and weakness of a firm in this respect.OPERATING
EFFICIENCY: Yet another dimension of his usefulness of the ratio
analysis, relevant from the viewpoint of management, hates it brows
light on the degree of efficiency in the management and utilization
of its assets. It would be recalled that the various activity
ratios measure this kind of operational efficiency. 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 would
demonstrate the relative position vis--vis its competitors.TREND
ANALYSIS: Ratio analysis enables a firm to take the time dimension
into account in other words, whether the financial position of a
firm is improving or deteriorating over the years. The significance
of the trend analysis of ratios lies in the fact that the analysis
cans now direction of improvement i.e. whether the movement is
favorable or unfavorable.
LIMITATIONS OF RATIO ANALYSIS Ratio analysis is a widely used
tool of financial analysis. But it suffers from various
limitations. The operational implication of his is that while using
ratios, the conclusions should not be taken their fact values. Some
of the limitations which characterized analysis are;DIFFICULTY IN
COMPARISION: Once serious limitation of ratio analysis arises out
of the difficulty associated with their comparison to draw
inferences. One technique that is employed is inter-firm
comparison. But such comparisons are vitiated by different
procedure adopted by various firms. The differences may relate to
estimation of assets and amortization of intangible assets
etc..IMPACT OF INFLATION: The second major limitation of the ratio
analysis as a tool of financial analysis is associated with price
level changes. This, in fact, is a weakness of the traditional
financial statements which are based on historical costs. The one
implication of this future of the financial statements as regards
ratio analysis in the price level. As a result, ratio analysis will
not adjust for changes in the price level. As a result, ratio
analysis will not yield strictly comparable and, therefore,
dependable results.CONCEPTUAL DIVERSITY: Yet another factory which
affects the usefulness of ratios is that there are differences of
opinion regarding the various concepts used to compute the ratios.
In brief, ratio analysis suffers from serious limitations. The
reliability and significance attached to ratios will largely depend
on the quality of data on which they are based.LIMITED SCOPE: Ratio
analysis is not suitable for sound judgment rather is useful tool
to aid in applying judgment to complex situation. But its scope is
limited.
1.3 NEED FOR THE STUDY The analysis helps company to assets its
position which is to be introduced and standardized for this
organization. Which is looking ahead and the ratios calculated for
a number of years work as a guide for the future. The financial
strengths and weakness of firm are communicated in a more easy and
understandable manner by the user of ratios. Ratio analysis also
helps in effective control of the business.
2.1 INDUSTRY PROFILEINTRODUCTION Brass is a metal composed
primarily of copper and zinc. Copper is the main component, and
brass is usually classified as a copper alloy. The color of brass
varies from dark reddish brown to a light silvery yellow depending
on the amount of zinc present; the more zinc, the lighter the
color. The zinc content can vary between 10% to about 45 %.HISTORY
OF THE BRASS INDUSTRY The discovery of metal changed the lives of
the people in the ancient world. Metal and its alloy made
agriculture easier, providing farmers with more efficient tools to
work their land. Armies that possessed metal kanives, swords, and
shields were no match for those that did not. The first two metal
and its alloy widely used by humans, copper (and its alloy brass)
and gold are still important in peoples lives today. Romans were
the first to use brass, as alloy of copper and zinc, on any
significant scale, although Greeks were already well acquainted
with the metal in Aristotles time (330 B.C.) Greeks knew it as
Oreichalcos a brilliant white copper, which was made by mixing tin
and copper with a special earth called Calmia or calamine. Calamine
was an impure zinc carbonate, which was rich in silica and found on
the shores of the black sea. To make brass, ground calamine ore and
copper were to the metallic state but not high enough to melt
copper. However, zinc vapor permeated the copper and formed the
copper and formed brass, which then melted.
In antiquity the words bronze and brass did not exist. Brass is
an English word derived from braes (Old English) and bras or bras
(Middle English) about 1200 AD26 In the language of Tudor England,
brass stood for any copper alloy, and the King James Bible uses the
word in that context. Joseph Smith, favoring the King James Bible,
translated the Book of Mormon using brass in the same manner.The
Industrial Revolution The industrial revolution brought about a
tremendous change in the production of copper and its alloy,
beginning with a demand for more and better raw material. Mine
production rose as steam driven pumps were applied to remove water
from diggings. Smaller throughput increased as well, largely due to
faster remove of impurities from ore. Brass has long been the first
material of choice in the construction of measuring instrument for
use of sea or in any moist, salt-laden atmosphere. This is due not
only to the corrosion resistance of brass but also to its good
machinability.The Modern Era The enormous growth in world copper
demand between 1850 and 2000, this growth was initiated by a series
of advances in copper using technologies, Whereas total demand at
the end of the 19th century was about 500,000 mT. 1992 forecasts of
world copper consumption were 14,630,000 mT. For the year 2000 and
17, 900,000mT. For 2005.World Reserves The largest and commercially
most important deposits are those in the mountainous spine of south
America and western north America, principally in the United State
and Chile but also include Canada, Mexico and Peru, large and
important deposits are located in south central Africa, principally
in Zaire and Zambia. Together, north and South America and Africa
contain more than one half of the known copper deposits in the
world. However, Europe (primarily Russia and the confederation of
Independent states of CIS) and the Pacific Rim (Chiefly Australia
and Papua New Guinea) also contain copper mineralization. South
America holds the largest shares of both reserves (31.1% if the
world total) and reserve base (18.5%). North and Central America
follow, with 22.7% and 24.9% of world reserves and reserve base,
respectively. Among individual countries, Chile has the largest
fraction of the total reserve base at 19%, the United States ranks
2nd with 18%; the C.I.S and Zambia each have 7%; while Canada Peru,
and Zaire each account for 6%.Brief History of brass industries in
India The story of Indian Brass as is generally known began during
the age of the Indus Valley civilization i.e. around 2400BC to
1700BC.38 the extraction of this spread to other sites such as
Kalibangan in Rajasthan, Lothal in Gujarat and Laimabad in
Maharashtra. The two most well known sites are of course
Mohanjodaro and Harappa. The Harappan figure of a dancer, with her
carfree stance, is one of the first metal sculpture pieces
discovered in India.39 The large Buddha figure at Sultanganj is
possibly the largest surviving metal work of ancient time and is a
monument to the skill of Indian craftsmen in melting and casting
metal. The important clusters of the brass in the Southern and
Western regions are Pembertha and Hyderabad in Andhra Pradesh;
Bidar, Negamangala, Mysore and Gadag in Karnataka (Bidriwar);
Swamimalai, Nachiarkoil, Madurai, umbakonam, Tirupur and Tanjore in
Tamil Nadu; Ambarnath, Thana, Kalyan and Nasik in Maharashtra;
Trichur in Kerala; Jamnagar in Gujarat and Pondicherry, etc.
Moradabad in Uttar Pradesh is world famous for its range of brass
items. A wide range of household items like pots, trays, bowls and
decorative pieces are made here and are decorated with intricate
etching. Electroplated brass and copper items and items made of
white metal are also created in Moradabad. Banaras is known for
cast sculptures of deities and household utensils made of brass and
copper. Varanasi, in Uttar Pradesh is the first city in India for
the multitude of its cast and sculptured mythological images and
emblematic in brass and copper as well as household utensils.
Mirzapore is now one of the most important centers of the brass
utensils industry in Uttar Pradesh. It supplies the needs of a
large part of the State and even exports articles of household use
to other Countries.
Raw Materials The main component of brass is copper. The amount
of copper varies between 55% and 95% by weight depending on the
type of brass and its intended use. Brasses containing a high
percentage of copper are made from electrically refined copper that
is at least 99.3% pure to minimize the amount of other materials.
Brasses containing a lower percentage of copper can also be made
from electrically refined copper, but are more commonly made from
less expensive recycled copper alloy scrap. When recycled scrap is
used, the percentages of copper and other materials in the scrap
must be known so that the manufacturer can adjust the amounts of
materials to be added in order to achieve the desired brass
composition. The second component of brass is zinc. The amount of
zinc varies between 5% and 40% by weight depending on the type of
brass. Brasses with higher percentages of zinc are stronger and
harder, but they are also more difficult to form and have less
corrosion resistance. The zinc used to make brass is a commercial
grade sometimes known as spelter. Some brasses also contain small
percentages of other materials to improve certain characteristics.
Up to 3.8% by weight of lead may be added.Further Alloying
Additions Alloying additions are made to the basic copper-zinc
alloys for a variety of reasons:-1. To improve mach inability1. To
improve strength1. To improve corrosion resistance1. For other
special reasons
The Manufacturing Process The manufacturing process used to
produce brass involves combining the appropriate raw materials into
a molten metal, which is allowed to solidify. The shape and
properties of the solidified metal are then altered through a
series of carefully controlled operations to produce the desired
brass stock. Brass stock is available in a variety of forms
including plate, sheet, strip, foil, rod, bar, wire, and billet
depending on the final application. For example, brass screws are
cut from lengths of rod. The zigzag fins used in some vehicle
radiators are bent from strip. Pipes and tubes are formed by
extruding, or squeezing rectangular billets of hot brass through a
shaped opening, called a die, to form long, hollow cylinders.1.
Melting1. Hot rolling1. Annealing and cold rolling1. Finish
rolling1. Quality ControlFEATURES OF BRASS Brass has a combination
of strength, corrosion resistance, and formability that will
continue to make it a useful material for many applications in the
foreseeable future.68 Brass also has an advantage over other
materials in that most products made from brass are recycled or
reused, rather than being discarded in a landfill, which will help
ensure a continued supply for many years.1. Excellent
Machinability1. Good Strength1. Ductility1. Conductivity1. Easily
Joining1. Non-sparking1. Good Corrosion Resistance1. Wear
Resistant1. Plating1. Attractive Colour1. Hygiene1. Magnetic
permeability1. Cast ability
2.2 COMPANY PROFILE M/S Jyothi Brass metal works is a renowned
company located in Anantapur city of ANDHRA PRADESH. It is
proprietorship based company. It was started or established in the
year 2000. The main bankers of the company are State Bank of India,
Main Branch, Sainagar, and Anantapur with the work force numbering
up to 45. Brass metal works has made tremendous inroads in to the
Builders Hardware in India. They manufacture various hardware
products of Builders Hardware from extruded brass such as Tower
bolts, hinges, Door handles, Window Rings, Doorstoppers, Baby
latches etc under the brand name called JYOTIBRASS the quality and
perfect brass. Jyoti brass brand enjoys 25% of the market share in
the brass industry. The company is manufacturing the products
catering to the needs of particular and specific customers. The
target market changes from place to place like special extruded
brass and gold coated products catering to the needs of the
customers in coastal place, South-Eastern parts of India where the
chances of corrosion of the hardware material is very high.Due to
superior quality the Jyoti brass Brand has made an everlasting
impact in the minds of the customers. Though the products are
highly prices Jyotibrass Brand is increasing its market share, this
is possible due to its superior quality and the excellent after
sales service. The product got ISI marked licenses granted by M/S.
Bureau of Indian standards is the first company to get ISI mark in
brass.1) Tower Bolts : CM/L 63729762) BUTT HINGES : CM/L 6387787An
ISO 9001:2000 certified company The company has a wide network of
dealers of up to 60 and a strong sales force. These sales persons
shall target the dealers and produce the orders from them. The
turnover of the company is over 1 crore during 2006 -07. The basic
raw material of the company is the Brass extruded sections. The raw
material is bought from various companies like Jindal, Balco,
Hindalco etc after succeeding in the hardware industry the company
lying with the ideas of manufacturing the basic raw material of the
hardware industry Brass extrusions. Extruded brass outstands in
quality and strength than conventional cast and machine draw
hardware. Extruded hardware will have more molecular strength and
better surface finish. Extrusions are made from a uniform
combination of alloys giving high tensile strength with micro sized
molecules giving no chance for blowholes. When the alloy is in
uniform combination there will not be impurities and the extrusion
becomes harder in comparison with cast materials. "JYOTIBRASS"
hinges are recommended for heavy doors and shutters. JYOTIBRASS
offers a better protective finish by giving ELECTRO-PHORETIC
coating which is ever coat and the latest technology in surface
finish rendering the product weather resistant, durability of the
finish depends on the coating and at "JYOTIBRASS" gives a polished
brass finish with ever coat. This is a "state-of-the-art" process
depositing hardwearing material on the brass surface. This
microscopic layer protects the product from discoloration, even at
the harshest of environments such as sunlight, pollution and
humidity etc, Hence "JYOTIBRASS" products are introduced with added
strength better surface finish and weather resistant requiring no
maintenance at all.
LIST OF MAJOR PROJECTS SUPPLIED1) Seabird Township of Indian
Navy Project, Karwar (Larsen & Toubro Ltd.,)2) Larsen &
Toubro Ltd., A1, B1, C1 & C2, C3, C4, D1 & D2 Towers of
Serene County Project, Hyderabad.3) L & T Ltd., South City PDD,
Renka, Bannerghatta Road, Bangalore.4) Surya city, Bangalore and
other different projects of Karnataka Housing Board, Bangalore.5)
Leo Meridian, Hyderabad.6) India Heritage Foundation, ISKON,
Bangalore.7) Ramky Infrastructure Ltd., Cuddapah.8) D.S.R.
Constructions, Bangalore.9) Subham Developers, Hyderabad.10) Aparna
Constructions, Hyderabad.11) NCL (Jampana Constructions),
Bangalore.12) M/s. B.G. Shirke Const. Technology Ltd., Bangalore,
Mysore and Pune.13) Karnataka State Housing Board Projects through
Contractors.14) Medical Colleges, Belgaum and Hassan, Shimoga and
Mandya under PWD.15) Ambience Properties, Secunderabad.16) APR
Constructions, Hyderabad.17) Omega Constructions, Hyderabad.18)
P.L. Raju Constructions, Hyderabad.19) Venser Constructions,
Hyderabad20) Ramky Constructions, Hyderabad.21) Sreenivasa
Constructions, Hyderabad.22) DLF Constructions, Hyderabad.23)
Alience Construction Ltd., Hyderabad.24) IVRCL Infrastructure
Medical College, Bidar.25) IVRCL Navel Project, Payyanur, Kerala
State.26) Navayuga Construction Navel Project, Payyanur, Kerala
State.27) Nagarjuna Constructions, Ernakulam.28) RDS Constructions,
Ernakulam.
3.1 RESEARCH METHODOLOGYFor the preparation of a project the
collection of data is very essential.(1) PRIMARY DATA In view of
the objectives of the study, data collected mainly interactions and
discussions with the companys executives, an expletory research is
one, which largely interprets the already available information,
and it lays particulars emphasis on analysis and interpretation of
the existing and available information. It makes use of secondary
data. (2) SECONDARY DATA Secondary data is collected from the
annual reports of jyothi brass metal works during for the last five
years and various other reports like companys magazines journals
published books and journals and web sites.
LITERATUREBooks: The information, which are required for the net
working capital and ratio analysis from I.M.Pandey, Prasanna
Chandra & M.Y.Khan & P.K. Jain books.Journals:Journals are
used for finding out new ideas and information required for the
research work.Internet:Internet has been used to get more
information for the research from various web sites like,
www.Moneycontrol.com & www.google.com to explore new ideas to
be implemented in the statistical tools Company records: Made a
thorough investigation about the companys existing ventures, new
additions to capture the attention towards Ratio Analysis.
3.2 OBJECTIVES OF THE STUDY To study the financial performance
of the jyothi brass metal works. To analyze he liquidity position
of the company. To study the financial leverage of the company over
a period of five years. To analyze the profitability of the
company. To conduct an in depth study in the working of the
organization. The comparison of past and present performance helps
to understand the companys efficiency level.
3.3 SOURCE OF DATAResearch Design: To analyze the working
capital, trends and for the purpose of ratio analysis, Financial
Analysis has to be carried out. Financial analysis is the analysis
and interpretation of financial statements and a proper financial
analysis can give the users better insight about financial
strengths and weakness of the firm. Financial analysis is the
starting point for making plans, before using any sophisticated
forecasting and planning procedure. For the purpose first the
required information has to be collected like for ratio analysis
and owing capital management analysis, income statements, trading
and profit and loss accounts, balance sheet, funds flow statement,
etc. are to be collected the, the data in the statements is to be
properly organized and arranged and then relationship is
established between financial statements and finally conclusions
are drawn from the interpreted information and presented in the
form of reports.
Research Methodology: Research involves getting tools, ideas
from texts, journals, books, records, Websites. The collection of
data is an important aspect of Research.The sources of information
fall under two categories.Internal Sources: - Every company keeps
certain records such as accounts, records, reports, etc. These
records provide sample information for research.External Sources: -
When internal records are insufficient and required information is
not available the organization the organization depends on eternal
sources. The external sources of data are:I. Primary DataII.
Secondary Data(I) Primary Data: - The data collected for a purpose
in original and for the first time is known as primary data. The
data collected by the researcher himself to study a particular
problem.The primary data of the study is collected through
interaction and discussion with the officials and the staff an M/S
JYOTHI BRASS METAL WORKS ANANTAPUR.(II) Secondary Data: - The data
which is collected from the published sources that is for the first
time is called secondary data. The secondary data for the study is
collected from the annual reports of M/S JYOTHI BRASS METAL WORKS
ANANTAPUR from 2008 to 2012
Data Analysis: - Data analysis is done by implementing various
tools like ratio analysis, trend analysis, etc.3.4 CLASSIFICATIONS
OF RATIOSThe use of ratio analysis is not confined to financial
manager only. There are different parties interested in the ratio
analysis for knowing the financial position of a firm for different
purposes. Various accounting ratios can be classified as follows:1.
Traditional Classification2. Functional Classification3.
Significance ratios1. Traditional ClassificationIt includes the
following. Balance sheet (or) position statement ratio: They deal
with the relationship between two balance sheet items, e.g. the
ratio of current assets to current liabilities etc., both the items
must, however, pertain to the same balance sheet. Profit & loss
account (or) revenue statement ratios: These ratios deal with the
relationship between two profit & loss account items, e.g. the
ratio of gross profit to sales etc., Composite (or) inter statement
ratios: These ratios exhibit the relation between a profit &
loss account or income statement item and a balance sheet items,
e.g. stock turnover ratio, or the ratio of total assets to
sales.
2. Functional ClassificationThese include liquidity ratios, long
term solvency and leverage ratios, activity ratios and
profitability ratios.3. Significance ratiosSome ratios are
important than others and the firm may classify them as primary and
secondary ratios. The primary ratio is one, which is of the prime
importance to a concern. The other ratios that support the primary
ratio are called secondary ratios.TYPES OF RATIOS Several ratios,
calculated from the accounting data, can be grouped into various
classes according to financial activity of function to be
evaluated. The management is interested in evaluating every aspect
of the firms performance. They have to protect the interest is in
the liquidity position or the short-term solvency of the firm;
Long-term creditors are more interested in the long-term
profitability and financial condition. IN the view of the
requirements of the various users of ratios, we may classify them
into the following categories. Ratio analysis enables the analyst
to compare items on a single financial statement or to examine the
relationship between items on two financial statements. After
calculating ratios for each years financial data, the analyst can
then examine trends for the company across years. Since ratios
adjust for size, using this analytical tool facilities intercompany
as well intercompany comparisons. Ratios are often classified using
the following terms: Liquidity Ratios Leverage Ratios Activity
Ratios ProfitabilityProfitability ratios are gauges of the companys
operating success for a given period of time.
Liquidity ratios are measures of the short term ability of the
company to pay its debts when they come due and to meet unexpected
needs for cash. Solvency ratios indicate the ability of the company
to meet its long term obligations on a continuing basis and thus to
survive over a long period of time. In judging how well on a
company is doing, analysts typically compare a companys ratios to
industry statistics as well as to its own past performance.
Goals A. Managerial uses of ratio analysis: Helps in decision
making. Helps in financial forecasting and planning. Helps in
communicating Helps in co-ordination. Helps in Control. Utility to
share holders.B. Utility to creditors.C. Utility to employees.D.
Utility to government.
CLASSIFICATION OF RATIOSLIQUIDITY RATIO1. Current ratio
2. Liquidity ratio
3. Absolute ratio
LEVERAGE RATIO1. Debt equity ratio2. Debt to total capital
ratio3. Interest coverage ratio.4. Capital gearing ratio5. Equity
ratio6. Fixed assets to net worth ratio7. Fixed assets ratio8.
Current assets to proprietors ratio.9. Solvency ratio
ACTIVITY RATIO1. Inventory turnover ratio2. Debtors turnover
ratio3. Fixed assets turnover ratio4. Total assets turnover ratio5.
Working capital ratio6. Payable turnover ratio
7. Capital employed ratio
PROFITABILITY RATIOS1. Gross profit ratio
2. Operating ratio
3. Operating profit ratio4. Net profit ratio
5. Return on investment ratio6. Return on equity capital
7. Return on total resources8. Earnings per share9. Price
earnings ratio
A.LIQUIDITY RATIOS Liquidity Ratios measure the ability of the
firm to meet its current obligations. In fact, analysis of
liquidity needs the preparation of cash budgets and cash and fund
flow statements; but liquidity ratios, by establishing a
relationship between cash and other current assets to current
obligations, provide a quick measure of liquidity. The failure of a
company to meet its obligations due to lack of sufficient
liquidity, will result in a poor creditworthiness, loss of credit
worthiness, loss of creditors confidence, or even in legal tangles
resulting in the closure of the company. A very high degree of
liquidity is also bad; idle assets earn nothing. The most common
ratio which indicates the extent of liquidity or lack of it is;1.
Current ratio2. Quick ratio (or) acid-test ratio3. Absolute liquid
ratio (or)cash ratio 1. CURRENT RATIO:The current ratio is a
measure of the firms short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of
current liability. A ratio of greater than one means that the firm
has more current assets than current claims against them.Current
ratio is calculated by dividing current assets by current
liabilities. Current AssetsCurrent Ratio=
------------------------------ Current Liabilities
Components of current ratioCURRENT ASSETSCURRENT LIABILITIES
Cash in handOutstanding or accrued expenses
Cash at bankBank over draft
Bills receivableBills payable
InventoriesShort-term advances
Work-in-progressSundry creditors
Marketable securitiesDividend payable
Short-term investmentsIncome-tax payable
Sundry debtors
Prepaid expenses
. The two basic components of this ratio are current assets and
current liabilities. Current assets include Cash and these assets
which can be easily converted into cash within a short period of
time generally one year. Current assets are those obligation which
are payable within a short period of generally one year. An ideal
current ratio in 2:1. As a convention the minimum of two to one
ratio is referred to as a bankers rule of thumb or arbitrary
standard of liquidity for a firm. A ratio equal or near to the rule
of thumb of 2:1 be current assets double the current liabilities is
considered satisfactory. A relatively high current ratio is an
indication that the firm is liquid and has the ability to pay its
current obligation in time as when they become due. On the other
hand relatively low current ratio represents that the liquidity
position of the firm is not good and the a ratio equal or near to
the rule of thumb of 2:1 be current assets double the current
liabilities is considered satisfactory. A relatively high current
ratio is an indication that the firm is liquid and has the ability
to pay its current obligation in time as and when they become due.
On the other hand a relatively low current ratio represents that
the liquidity position of the firm is not good and the firm shall
not be able to pay its current liabilities in time without facing
difficulties.
2. QUICK RATIO: Quick ratio is also called acid test ratio,
establishes a relationship between quick or liquid assets and
current liabilities. An asset is liquid if it can be converted into
cash immediately or reasonable soon without a loss of value cash is
the most liquid asset. Quick assets are debtors and bills
receivables and marketable securities. Quick ratio is found out by
dividing quick assets by current liabilities. Quick AssetsQuick
Ratio = --------------------------------- Current Liabilities
Components of Quick (or) Liquid RatioQUICK ASSETSCURRENT
LIABILITIES
Cash in handOutstanding or accrued expenses
Cash at bankBank over draft
Bills receivableBills payable
Sundry debtorsShort-term advances
Marketable securitiesSundry creditors
Temporary investmentsDividend payable
Income tax payable
The quick ratio is very useful in measuring the liquidity
position of firm. It measures the firms capacity to pay off current
obligations immediately and is a more rigorous test of liquidity
than ratio. It is used as a complementary ratio to the current
ratio. A quick ratio may be defined as the relationship between
quick assets and current liabilities. Quick asset is found by
subtracting inventories and prepaid expenses from current ratio. As
a rule of thumb or as convention quick ratio of 1:1 is considered
satisfactory. It is generally thought that if quick assets are
equal to current liabilities than the concern may be able to meet
its short-term obligations. Usually, a light acid test ratio is an
indication that the firm is liquid and has the ability to meet it
current or liquid liabilities in time and on the other hand a low
quick ratio represent that the firm liquidity position is not
good.3. CASH RATIO (OR) ABSOLUTE LIQUID RATIO: Cash is the most
liquid asset a financial analyst may examine cash ratio and its
equivalent to current liabilities. Trade investment or marketable
securities are equivalent of cash. Cash + Marketable SecuritiesCash
Ratio = -----------------------------------------------------------
Current Liabilities
Components of Absolut Liquid RatioABSOLUTE LIQUID ASSETSCURRENT
LIABILITIES
Cash in handOut standing or accrued expenses
Cash at bankBank over draft
Interest on Fixed DepositBills payable
Short-term advances
Sundry creditors
Dividend payable
Income tax payable
Although receivable, debtors and bills receivable are generally
more liquid than inventories, yet there may be doubts regarding
their realization into cash immediately or in time. Hence, some
authorities are of the opinion that absolute liquid ratio should
also be calculated together with current ratio and acid test ratio
so as to exclude even receivables from the current assets and find
at the absolute liquid assets. Absolute liquid assets include cash
in hand and at bank and marketable securities or temporary
investments. The acceptable norm for this ratio is 50% or 5:1 or
1:2 i.e. Re.1 worth absolute liquid assets are considered adequate
to pay Rs.2 worth Current liabilities in time as all creditors are
not expected to demand cash at the same time and then cash may also
be realized from debtors and inventories.B. LEVERAGE RATIOS: The
short-term creditors, like bankers and suppliers of raw material,
are more concerned with the firms current debt-paying ability.
Long-term creditors like debenture holders, financial institutions
etc. are more concerned with the firms long-term financial
strength. To know the long-term financial position of the firm,
financial leverage, or capital structure ratios are calculated.
These ratios indicate mix of funds provided by owners and lenders.
It has number of implications those area) Between debt and equity,
debt is more risky from the firms point of view.b) Use of debt is
advantageous for shareholders in two ways.1. They can retain
control of the firm with a limited stake.2. Their earning will be
magnified.3. A highly debt burdened firm will find difficulty in
raising funds from Creditors and owners in future. Leverage Ratios
are calculated to measure the financial risk and firms ability of
using debt to shareholders advantage. Leverage ratio may be
calculated from the balance sheet items to determine the
proportions of debt in total financing.1. Debt ratio2. Debt equity
ratio3. Capital employed to net worth ratio4. Interest coverage
ratio5. Fixed charge coverage ratio
1. DEBT RATIO: Several debt ratios may be used to analyze the
long-term solvency of a firm. The firm may be interested in knowing
the proportion of the interest-bearing debt in the capital
structure. Total debt includes short and long-term borrowings from
financial institutions, debentures, deferred payment arrangements
for buying capital equipments, bank borrowings, public deposits and
any other interest-bearing loan. Capital employed will include
total debt and net worth (NW).Debt ratio is calculated as dividing
total debt (TD) by capital employed (CE) or net assets (NA). Total
DebtDebt Ratio = -----------------------------------------Total
Debt +Net Worth
2. DEBT-EQUITY RATIO The relationship between borrowed funds and
owners capital is a popular measure of the long-term financial
solvency of a firm. This relationship is shown b the debt-equity
ratios. This ratio reflects the relative claims of creditors and
shareholders against the assets of the firm. The debt considered
here is exclusive of current liabilities. The debt equity ratio is
an important tool of financial analysis to appraise the financial
structure of firm. The ratio reflects the relative contribution of
creditors and owners of business in is financing. A high ratio
shows a large share of financing by the creditors relatively to the
owners and therefore a larger claim of creditors. The ratio is 1:2;
it implies that for every rupee of outside liability, the firm has
two rupees of owners. There is therefore a safety margin of 50%
available to the creditors of the firm. Total DebtDebt Ratio =
----------------------------------------------- Share Holders
equity
A high debt-equity ratio has equally serious implications from
the firms point of view. The high proportion of debt in the capital
structure would lead to inflexibility in the operations of the
firm. A low debt-equity ratio has just the opposite implications.3.
CAPITAL EMPLOYED TO NET WORTH RATIO There is yet another
alternative way of expressing the basic relationship between debt
and equity. It describes how much funds are being contributed
together by calculating the ratio of capital employed or net assets
to net worth. Capital EmployedCapital Employed To Net Worth Ratio =
------------------------------- Net Worth
4. INTREST COVERAGE RATIO:Interest coverage ratio is also called
as debt service ratio or fixed charges cover. This ratio is
valuable in providing information as regards the no. of times
interest charges are covered by funds available for interest
payment. It is calculated by dividing the net profit before
interest and taxes (operating profit or earnings before interest
and taxes or EBIT) by fixed interest charges. EBITDAInterest
Coverage Ratio = -----------------------------------------------
Fixed Interest Charges
5. FIXED CHANGE COVERAGE RATIO: This ratio measure debt
servicing ability comprehensive because it considers both the
interest and principal repayment obligations .it shows how many
times the pretax operating .income covers all fixed financing
charges. EBIT+ Depreciation Interest Coverage Ratio =
---------------------------------------------------------- Interest
+ Repayment of loan Tax rate
C. ACTIVITY RATIOSActivity ratio are employed to evaluate the
efficiency with which the firm manages and utilities its assets.
These ratios are also called turnover ratios or efficiency ratios.
The efficiency with which the assets are used would be reflected in
the speed and rapidity with which assets are converted into sales.
Such ratios are also designated as turnover ratios. An activity
ratio may, therefore, be defined as a test of the relationship
between sales and the various assets of the firm. We illustrate
below the important activity ratios.1. Stock turnover ratio2.
Inventory turnover ratio3. Debtors turnover ratio4. Average
collection period5. Fixed Assets turnover ratio6. Creditors
turnover ratio7. Current assets ratio1. STOCK TURN OVER RATIO: This
ratio indicates the no. of times the stock sold out during the
year. The cost of goods sold is compared with the stock in the
trade. This ratio indicates the efficiency in inventory management.
If the turnover is higher, than it means lesser amount of capital
is blocked up in the form of working capital.
Cost Of Goods SoldStock Turnover Ratio =
------------------------------------------- Average Stock
2. INVENTORY TURN OVER RATIO This ratio plays the vital role in
the firm and it indicates the efficiency of the firm in producing
and selling its products. It measures the relationship between the
costs of goods sold by the inventory level. It is calculated by
dividing the cost of goods sold by the average inventory. Cost Of
Goods Sold Inventory Turnover Ratio =
---------------------------------------------- Average
Inventory
The inventory turnover shows how rapidly is turning into
receivable though sales. A high inventory turnover is indicative of
goods inventory management. A low inventory turnover implies
excessive inventory levels then warranted by production and sales
activities. A high level of sluggish inventory amounts to
unnecessary tie-up of funds reduced profit and increased costs.3.
DEBTORS TURN OVER RATIO: This ratio indicates the average time lag
in number of days between sales and cash collection form debtors.
It explains the number of days of credit enjoyed by the debtors. IT
is also called as receivable turnover. Higher ratio considers
management is efficient and vice versa. Net Credit Sales Debtors
Turnover Ratio =
-----------------------------------------------Average Debtors
4. AVERAGE COLLECTION PERIOD: It indicates the time taken to
collect money from the debtors. If this average collection period
is more than credit period. Granted to the debtors, it indicates
liberal policy and the firm is in efficient in collecting the dues
and vice versa. No. Of Working DaysAverage Collection Period =
-------------------------------------------------------- Debtors
Turnover Ratio
5. FIXED ASSETS TURN OVER RATIO This ratio will reflect the
relationship between fixed assets and proprietors funds. This ratio
is also called as fixed assets to net worth ratio. It is calculated
as follows: Net SalesFixed Assets Turnover Ratio =
---------------------------------- Net Fixed Assets
Component of Current Assets to Fixed Assets RatioCURRENT
ASSETSFIXED ASSETS
Cash in handMachinery
Cash at bankBuildings
Bills receivablePlant
InventoriesVehicles
Work-in-progress
Marketable securities
Short-term investments
Sundry debtors
Prepaid expenses
6. CREDITORS TURNOVER RATIO: This ratio indicates the average
time lag in no. of days between the purchases and cash payment to
creditors. It indicates the no of days credit enjoy b the firm from
its creditors. It is also called as payable ratio. This ratio is
also called as fixed assets to net worth ratio. It is calculated as
follows. Net Credit PurchasesCreditors Turnover Ratio =
------------------------------------ Average Accounts Payable
7. CURRENT ASSETS TURN OVER RATIO: This ratio is calculated to
indicate the relation between sales and current assets. It is
calculated to know the current assets are used in generating the
turnover. It is calculated by dividing sales with current assets.
This ratio is also called as fixed assets to net worth ratio. It is
calculated as follows: Net SalesCurrent Assets Turn Over Ratio =
---------------------------- Total Current Assets
8. TOTAL ASSETS TURN OVER RATIO:This ratio indicative of the
efficiency in utilizing total assets in generating sales. . This
ratio is also called as fixed assets to net worth ratio. It is
calculated as follows: Net SalesTotal Assets Turn Over Ratio =
------------------------ Total Assets
D. PROFITABILITY RATIOS:Profit is the difference between
revenues and expenses over a period of time. The profitability
ratios are calculated to measure the operating efficiency of the
company. Generally two major types of profitability ratios are
calculated i.e. profitability in relate to sales and profitability
relate to investment. Profitability ratios related on each rupee of
sales. Profitability ratios related to sales are classified below:
Gross profit ratio Net profit ratio Operating expense ratio Return
on investments ratio
1. GROSS PROFIT RATIO The profit margin measures the
relationship between profit and sales. It is the result of the
relationship between prices, sales volume and cost. The gross
profit or gross margin represents the limit beyond which fall in
sales Price is outside the tolerance limit. A high ratio of gross
profits to sales is a sign of good management and a low gross
margin may reflect higher cost of goods due to the firms inability
to purchase raw materials at favorable terms, inefficient
utilization of plant machinery or over investment in plant and
machinery resulting in higher cost of production. Gross ProfitGross
Profit Ratio = ---------------------- X 100 Sales
Gross profit margin is calculated by dividing the gross profit
by sales. This ratio indicates the average the averaged spread
between the cost of goods sold and the sales revenue.
2. NET PROFIT RATIO Net profit margin ratio establishes a
relationship between net profit and sales and indicates managements
efficiency in manufacturing, administering and selling the product.
This ratio is the overall measure of the firms ability to turn each
rupee sales into net profit. This also indicates the firms capacity
to withstand adverse economic conditions. Net Profit After TaxNet
Profit Ratio = --------------------------------------- 100 Net
Sales
Taxes are not controllable by the firm, and also, one may not
now the marginal corporate tax rate while analyzing the published
data. Therefore, the ratio may calculate on before tax basis.
3. OPERATING EXPENSE RATIO The operational expense ratio
explains the changes in the profit margin ratio. This ratio is
computed by dividing operating expenses by sales. The operating
expense ratio is a yardstick of operating efficiency and this ratio
indicates the average aggregative variations in expenses. A low
operating ratio is large a test of operational efficiency.
4. RETURN ON INVESTMENTS RATIOReturn on share holders
investment, popularly known as Return on investments (or) return on
share holders or proprietors funds is the relationship between net
profit (after interest and tax) and the proprietors funds. Net
profit (after interest and tax)Return on investment =
-------------------------------------------------------
Shareholders funds
The ratio is generally calculated as percentages by multiplying
the above with 100.SHRI SAI INISTITUTE OF ENGINEERING AND
TECHNOLOGY ATPPage 22